(the "Offering Memorandum"), dated - Irish Stock Exchange

4 downloads 247 Views 1MB Size Report
Attached please find an electronic copy of the Offering Memorandum (the ..... or relating in any way to the sale of the Notes be drawn up in the English ...... rated " A-1+" by Standard & Poor's and "P1" by Moody's. ...... same servicer or backed by underlying collateral located in a specific geographic region, may subject the.
IMPORTANT NOTICE

Attached please find an electronic copy of the Offering Memorandum (the "Offering Memorandum"), dated November 8, 2006, relating to the offering by Cairn Mezz ABS CDO II Limited (the "Issuer") and Cairn Mezz ABS CDO II Inc. (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers") of their Class A1-VF Senior Secured Floating Rate Notes due 2047, Class A2A Senior Secured Floating Rate Notes due 2047, Class A2B Senior Secured Floating Rate Notes due 2047, Class B1 Senior Secured Floating Rate Notes due 2047, Class B2 Senior Secured Floating Rate Notes due 2047, Class C Mezzanine Secured Deferrable Interest Floating Rate Notes due 2047, Class D Mezzanine Secured Deferrable Interest Floating Rate Notes due 2047 and Class E Mezzanine Secured Deferrable Interest Floating Rate Notes due 2047, and by the Issuer of its Subordinated Notes due 2047 and Combination Notes due 2047. This Offering Memorandum shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, qualification or exemption under the securities laws of any such jurisdiction. Distribution of this electronic transmission of this Offering Memorandum to any person other than (a) the person receiving this electronic transmission from the Initial Purchaser on behalf of the Co-Issuers, and (b) any person retained to advise the person receiving this electronic transmission with respect to the offering contemplated by this Offering Memorandum (each, an "Authorized Recipient") is unauthorized. Any photocopying, disclosure or alteration of the contents of this Offering Memorandum, and any forwarding of a copy of this Offering Memorandum or any portion thereof by electronic mail or any other means to any person other than an Authorized Recipient, except as expressly authorized herein, is prohibited. By accepting delivery of this Offering Memorandum, each recipient hereof agrees to the foregoing. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EFFECTIVE FROM THE DATE OF COMMENCEMENT OF DISCUSSIONS, RECIPIENTS, AND EACH EMPLOYEE, REPRESENTATIVE OR OTHER AGENT OF THE RECIPIENTS, MAY DISCLOSE TO ANY AND ALL PERSONS, WITHOUT LIMITATION OF ANY KIND, THE TAX TREATMENT AND TAX STRUCTURE OF THE OFFERING AND ALL MATERIALS OF ANY KIND, INCLUDING OPINIONS OR OTHER TAX ANALYSES, THAT ARE PROVIDED TO THE RECIPIENTS RELATING TO SUCH TAX TREATMENT AND TAX STRUCTURE. THIS AUTHORIZATION TO DISCLOSE THE TAX TREATMENT AND TAX STRUCTURE DOES NOT PERMIT DISCLOSURE OF INFORMATION IDENTIFYING A CO-ISSUER, THE INITIAL PURCHASER, THE PORTFOLIO MANAGER OR ANY OTHER PARTY TO THE TRANSACTION, THIS OFFERING OR THE PRICING (EXCEPT TO THE EXTENT SUCH INFORMATION IS RELEVANT TO TAX STRUCTURE OR TAX TREATMENT) OF THIS OFFERING.

Cairn Mezz ABS CDO II Limited Cairn Mezz ABS CDO II Inc. U.S.$450,000,0001 Class A1-VF Senior Secured Floating Rate Notes Due 2047 U.S.$30,000,000 Class A2A Senior Secured Floating Rate Notes Due 2047 U.S.$120,000,000 Class A2B Senior Secured Floating Rate Notes Due 2047 U.S.$37,500,000 Class B1 Senior Secured Floating Rate Notes Due 2047 U.S.$11,250,000 Class B2 Senior Secured Floating Rate Notes Due 2047 U.S.$33,750,000 Class C Mezzanine Secured Deferrable Interest Floating Rate Notes Due 2047 U.S.$30,000,000 Class D Mezzanine Secured Deferrable Interest Floating Rate Notes Due 2047 U.S.$16,875,000 Class E Mezzanine Secured Deferrable Interest Floating Rate Notes Due 2047 U.S.$34,000,000 Subordinated Notes Due 2047 U.S.$10,000,000 Combination Notes Due 2047* 1 Represents the Maximum VFN Facility Funding Commitment. *The Combination Notes consist of two "Components", one consisting of Class D Notes (the "Class D Note Component") and the other consisting of Subordinated Notes (the "Subordinated Note Component"). The initial principal amount of the Combination Notes shown above is allocated between the Components in the manner described herein.

Backed by a Portfolio of RMBS Securities, CMBS Securities, CDO Securities and Other Asset-Backed Securities and Synthetic Securities of which the Reference Obligations are RMBS Securities, CMBS Securities, CDO Securities or Other Asset-Backed Securities. The Secured Notes, the Subordinated Notes and the Combination Notes (collectively, the "Notes") are being issued by Cairn Mezz ABS CDO II Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (the "Issuer") and the Secured Notes will be co-issued by Cairn Mezz ABS CDO II Inc., a Delaware corporation (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers"). The Secured Notes will be limited recourse debt obligations of the Co-Issuers and the Subordinated Notes will be limited recourse obligations of the Issuer. The Collateral (as defined herein) securing the Secured Notes will be managed by Cairn Financial Products Limited, a limited liability company incorporated under the laws of England and Wales ("Cairn" or the "Portfolio Manager").

Investing in the Notes involves risks. See "Risk Factors" beginning on page 25. The Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), under applicable state securities laws or under the laws of any other jurisdiction. None of the Issuer, the Co-Issuer and the pool of Collateral has been registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), in reliance on the exemption provided by Section 3(c)(7) thereof. The Notes are being offered only (a) in the United States in reliance upon an exemption from the registration requirements of the Securities Act to "Qualified Institutional Buyers" (as defined in Rule 144A under the Securities Act) who are also Qualified Purchasers (as defined herein) and (b) outside the United States in offshore transactions in compliance with Regulation S under the Securities Act to persons who are not U.S. Persons (as defined in Regulation S). Each Original Purchaser of a Secured Note (other than a Class E Note) will be deemed, and each Original Purchaser of a Class E Note, Subordinated Note or Combination Note will be required in an Investor Application Form, to make certain acknowledgments, representations and agreements. See "Transfer Restrictions."

*



Notes

Interest Rate

Standard & Poor's/Moody's

Class A1-VF Notes* Class A2A Notes Class A2B Notes Class B1 Notes Class B2 Notes Class C Notes Class D Notes Class E Notes Subordinated Notes Combination Notes

LIBOR + 0.32% LIBOR + 0.40% LIBOR + 0.44% LIBOR + 0.53% LIBOR + 0.60% LIBOR + 1.35% LIBOR + 3.25% LIBOR + 6.25% N/A LIBOR†

"AAA"/"Aaa" "AAA"/"Aaa" "AAA"/"Aaa" "AA"/"Aa2" "AA-"/"Aa3" "A"/"A2" "BBB"/"Baa2" "BB+"/"Ba1" N/A "BBB"/Baa2"

Interest is payable only on drawn amounts of Class A1-VF Notes, which does not include amounts standing to the credit of any Class A1-VF Prepayment Account, subject to adjustment as set forth herein. Commitment Fees will also be payable on the undrawn amount of the Class A1-VF Notes including amounts standing to the credit of any Class A1-VF Prepayment Account as set forth herein. See "Description of the Secured Notes." The Combination Notes will be entitled to a contingent coupon if and to the extent funds are available for such purposes. Payments will be made on the Combination Notes only to the extent payments are made on their underlying Components.

The Notes are being offered by Greenwich Capital Markets, Inc. (the "Initial Purchaser") from time to time at varying prices in individually negotiated transactions to be determined at time of sale. It is expected that the Global Securities will be ready for delivery in book entry form only, through the facilities of The Depository Trust Company ("DTC"), and that the Restricted Subordinated Notes, Restricted Class E Notes and Restricted Combination Notes will be ready for delivery in certificated form, in each case, in New York, New York on or about November 9, 2006 (the "Closing Date"), against payment therefor in immediately available funds. This Offering Memorandum relating to the listing of the Notes, which is in compliance with the requirements of Directive 2003/71/EC (the "Prospectus Directive"), constitutes a "prospectus" for the purposes thereof. Application has been made to the Irish Financial Services Regulatory Authority, as competent authority under the Prospectus Directive, for the Offering Memorandum to be approved. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulated market. There can be no assurance that such admission will be granted.

November 20, 2006

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE CO-ISSUERS, THE INITIAL PURCHASER, THE PORTFOLIO MANAGER, ANY HEDGE COUNTERPARTIES, THE CREDIT DEFAULT SWAP COUNTERPARTY, THE GIC PROVIDER OR THEIR RESPECTIVE AFFILIATES. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE NOTES OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY HEREOF NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT NO CHANGE IN THE AFFAIRS OF THE ISSUER OR THE CO-ISSUER HAS OCCURRED OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THE CO-ISSUERS AND THE INITIAL PURCHASER RESERVE THE RIGHT TO REJECT ANY OFFER TO PURCHASE IN WHOLE OR IN PART, FOR ANY REASON, OR TO SELL LESS THAN THE MINIMUM DENOMINATION OF ANY CLASS OF NOTES. ________________ Neither of the Co-Issuers nor the pool of Collateral has been registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Each purchaser of the Notes represented by an interest in a Global Security will be deemed to have represented and agreed that the purchaser is acquiring the Notes for its own account or for one or more accounts as to each of which the purchaser exercises sole investment discretion and in a principal amount of not less than (i) U.S.$250,000 in the case of the Secured Notes, (ii) U.S.$250,000 in the case of the Restricted Subordinated Notes, (iii) U.S.$100,000 in the case of the Regulation S Global Subordinated Notes and (iv) U.S.$1,000,000 in the case of the Combination Notes, in each case for the purchaser and each such account. Each purchaser of the Notes represented by an interest in a Restricted Global Investment Grade Funded Secured Note, a Restricted Class E Note, a Restricted Subordinated Note or a Restricted Combination Note, and each such account, will also be deemed to have represented and agreed that it is a qualified purchaser as defined in, and for purposes of the Investment Company Act. See "Transfer Restrictions." ________________ This Offering Memorandum has been prepared by the Co-Issuers solely for use in connection with the offering (the "Offering") and the listing of the Notes described herein. Except in respect of the information in the sections titled "The Portfolio Manager", "Risk Factors—Certain Potential Conflicts of Interest—Conflicts of Interest Involving the Portfolio Manager", "Risk Factors—Dependence on the Portfolio Manager and Key Personnel and Prior Investment Results" and "The Royal Bank of Scotland plc", the Co-Issuers accept responsibility for the information contained in this document. The Co-Issuers have taken all reasonable care to confirm that the information contained in this Offering Memorandum is true and accurate in all material respects and is not misleading in any material respect and that there are no other facts relating to the Co-Issuers or the Notes, the omission of which makes this Offering Memorandum as a whole or any such information contained herein, in light of the circumstances under which it was made, misleading in any material respect. The Co-Issuers accept responsibility for the information contained in this document accordingly. To the best of the knowledge and belief of the Co-Issuers, the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. The Co-Issuers disclaim any obligation to update such information and do not intend to do so. ________________

-i-

No representation or warranty, express or implied, is made by the Initial Purchaser, any Hedge Counterparty or any Affiliate of a Hedge Counterparty, the Credit Default Swap Counterparty, the GIC Provider or the Portfolio Manager (except (i) in the case of the Portfolio Manager, with respect to the information set forth in the sections titled "The Portfolio Manager", "Risk Factors—Certain Potential Conflicts of Interest—Conflicts of Interest Involving the Portfolio Manager" and "Risk Factors— Dependence on the Portfolio Manager and Key Personnel and Prior Investment Results" and (ii) in the case of the Credit Default Swap Counterparty and the GIC Provider, with respect to the information set forth in the section titled "The Royal Bank of Scotland plc") as to the accuracy or completeness of the information set forth herein, and nothing contained herein is, or shall be relied upon as, a promise or representation as to the past or the future. None of the Initial Purchaser, the Credit Default Swap Counterparty, the GIC Provider, any Hedge Counterparty or any Affiliate of a Hedge Counterparty, or the Portfolio Manager (except (i) in the case of the Portfolio Manager, with respect to the information set forth in the sections titled "The Portfolio Manager", "Risk Factors—Certain Potential Conflicts of Interest—Conflicts of Interest Involving the Portfolio Manager" and "Risk Factors—Dependence on the Portfolio Manager and Key Personnel and Prior Investment Results" and (ii) in the case of the Credit Default Swap Counterparty and the GIC Provider, with respect to the information set forth in the section titled "The Royal Bank of Scotland plc") have independently verified any such information or assume responsibility for its accuracy or completeness. ________________ In this Offering Memorandum, references to "U.S. Dollar," "Dollars," "$" and "U.S.$" are to United States dollars. ________________ This Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy the Notes in any jurisdiction in which such offer or solicitation is unlawful. ________________ IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE CO-ISSUERS AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE NOTES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ________________ INFORMATION AS TO PLACEMENT WITHIN THE UNITED STATES This Offering Memorandum is highly confidential and has been prepared by the Co-Issuers solely for use in connection with the Offering. This Offering Memorandum is personal to each offeree to whom it has been delivered by the Co-Issuers, the Initial Purchaser or any Affiliate thereof and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes. Distribution of this Offering Memorandum to any persons other than the offeree and those persons, if any, retained to advise such offeree with respect thereto is unauthorized and any disclosure of any of its contents, without the prior written consent of the Co-Issuers, is prohibited. Each prospective purchaser in the United States, by accepting delivery of this Offering Memorandum, agrees to the foregoing and to make no photocopies of this Offering Memorandum or any documents related hereto and, if the offeree does not purchase the Notes or the Offering is terminated, to return this Offering

- ii -

Memorandum and all documents attached hereto to the Initial Purchaser at the address set forth under "Plan of Distribution." Notwithstanding anything herein to the contrary, effective from the date of commencement of discussions, recipients, and each employee, representative or other agent of the recipients, may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the Offering and all materials of any kind, including opinions or other tax analyses, that are provided to the recipients relating to such tax treatment and tax structure. This authorization to disclose the tax treatment and tax structure does not permit disclosure of information identifying a Co-Issuer, the Initial Purchaser, the Portfolio Manager, the Hedge Counterparties or any other party to the transaction, this Offering or the pricing (except to the extent such information is relevant to tax structure or tax treatment) of this Offering. INFORMATION AS TO PLACEMENT IN NEW HAMPSHIRE NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO CONNECTICUT RESIDENTS THE NOTES HAVE NOT BEEN REGISTERED UNDER THE CONNECTICUT SECURITIES LAW. THE NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND SALE. NOTICE TO FLORIDA RESIDENTS THE NOTES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER SECTION 517.061 OF THE FLORIDA SECURITIES ACT (THE "FLORIDA ACT") AND HAVE NOT BEEN REGISTERED UNDER THE FLORIDA ACT IN THE STATE OF FLORIDA. FLORIDA RESIDENTS WHO ARE NOT INSTITUTIONAL INVESTORS DESCRIBED IN SECTION 517.061(7) OF THE FLORIDA ACT HAVE THE RIGHT TO VOID THEIR PURCHASES OF THE NOTES WITHOUT PENALTY WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION. NOTICE TO GEORGIA RESIDENTS THE NOTES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13) OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.

- iii -

AVAILABLE INFORMATION To permit compliance with Rule 144A under the Securities Act ("Rule 144A") in connection with the sale of the Notes, the Co-Issuers (or, in the case of the Combination Notes or the Subordinated Notes, the Issuer) under the Indenture referred to under "Description of the Secured Notes" will be required to furnish, upon request of a holder of a Note, to such holder and a prospective purchaser designated by such holder the information required to be delivered under Rule 144A(d)(4) under the Securities Act if at the time of the request the Co-Issuers are not reporting companies under Section 13 or Section 15(d) of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), or are exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act. Neither the Issuer nor the Co-Issuer is expected to become a reporting company or to be exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act. INFORMATION AS TO PLACEMENT WITHIN CANADA For Ontario and Quebec Residents Only This Offering Memorandum (the "Offering Memorandum") constitutes an offering of the Notes described herein within Canada only in those jurisdictions and to those persons where and to whom they may be lawfully offered for sale, and therein only by persons permitted to sell such securities. This Offering Memorandum is not, and under no circumstances is to be construed as, an advertisement or a public offering of the Notes referred to herein. No securities commission or similar authority in Canada has reviewed or in any way passed upon this document or the merits of the Notes described herein and any representation to the contrary is an offence. The offering of the Notes in Canada will be made solely by this Offering Memorandum provided to potential investors. No person has been authorized to give any information or to make any representations other than those contained herein or therein. The delivery of this Offering Memorandum does not imply that any information contained herein is correct as of any date subsequent to the date set forth on the cover hereof. This Offering Memorandum will constitute an offering of the Notes described herein in the above-mentioned provinces only. Prior to consummating any transaction in the Notes described herein, an investor will receive a copy of this Offering Memorandum regarding the Notes. Resale Restrictions The distribution of the Notes in Canada is being made only on a private placement basis and is exempt from the requirement that the Co-Issuers prepare and file a prospectus with the relevant Canadian securities regulatory authorities. Accordingly, any resale of Notes must be made in accordance with applicable securities laws which may require resales to be made in accordance with exemptions from registration and prospectus requirements. Purchasers are advised to seek legal advice prior to any resale of Notes. Representations of Purchasers Each Canadian investor who purchases Notes will be deemed to have represented to the CoIssuers or the Issuer, as applicable, that: (i) such purchaser has reviewed the terms referred to above under "Resale Restrictions"; (ii) where required by law, such purchaser is purchasing as principal and not as agent; (iii) to the knowledge of such purchaser, the sale of any Notes was not accompanied by any advertisement in printed media of general and regular paid circulation, radio or television; and (iv) such

- iv -

purchaser is a "sophisticated purchaser" within the meaning of Section 43 of the Securities Act (Quebec) or is otherwise permitted under applicable securities laws to purchase Notes without the benefit of a prospectus qualified under, or registration under, such securities laws. Taxation and Eligibility for Investment Purchasers of Notes should consult their own legal and tax advisers with respect to the tax consequences of an investment in the Notes in their particular circumstances and with respect to the eligibility of the Notes for investment by the purchaser under relevant Canadian legislation. Additional Risks The Issuer's investments will be denominated in currencies other than Canadian dollars. Therefore, the value of Notes to Canadian investors may be affected by fluctuations in the rate of exchange between the Canadian dollar and other currencies. Enforcement of Legal Rights The Issuer will be organized under the laws of the Cayman Islands, and the Co-Issuer will be organized in the United States under the laws of the State of Delaware. The Issuer, the Co-Issuer and their respective directors and officers as well as certain of the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the Co-Issuers or such persons. All or a substantial portion of the assets of the Issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the Issuer, the Co-Issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against the Issuer, the Co-Issuer or persons outside of Canada. Purchasers' Contractual Rights of Action Securities legislation in Ontario requires certain purchasers to be provided with rights of action for rescission or damages where an offering memorandum and any amendment to it contain a Misrepresentation. Where used herein, "Misrepresentation" means an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make any statement not misleading in the light of the circumstances in which it was made. These remedies, or notice with respect thereto, must be exercised or delivered, as the case may be, by the purchaser within the time limits prescribed by applicable securities legislation. Each purchaser should refer to provisions of applicable securities legislation for the particulars of these rights or consult with a legal adviser. The applicable contractual rights are summarized below: (a) In the event that this Offering Memorandum, together with any amendments thereto, is delivered to a purchaser of Notes in Ontario, and contains a Misrepresentation, the purchaser will be deemed to have relied upon the Misrepresentation and will, as provided below, have a contractual right of action, against the Co-Issuers for damages or, alternatively, while still the owner of any of the Notes purchased by that purchaser, for rescission, provided that the right of action for rescission or damages will be exercisable by a purchaser resident in Ontario only if the purchaser gives notice to the Co-Issuers, not less than 180 days after the date on which initial payment is made for the Notes that the purchaser is exercising this right; (b) The Co-Issuers will not be liable if they prove that the purchaser purchased the Notes with knowledge of the Misrepresentation;

-v-

(c) In the case of an action for damages, the Co-Issuers will not be liable for all or any portion of the damages that they prove do not represent the depreciation in value of the Notes as a result of the Misrepresentation relied upon; and (d) In no case will the amount recoverable in any action for damages exceed the price at which the Notes were sold to the purchaser. The foregoing summary is subject to the express provisions of the Securities Act (Ontario), and the regulations, rules and policy statements thereunder and reference should be made thereto for the complete text of such provisions. The rights of action described herein are in addition to and without derogation from any other right or remedy that the purchaser may have at law. LANGUAGE OF DOCUMENTS/LANGAGE DES DOCUMENTS By accepting this Offering Memorandum, the purchaser acknowledges that it is its express wish that all documents evidencing or relating in any way to the sale of the Notes be drawn up in the English language only. Par son acceptation de ce document, l'acheteur reconnait par les présentes que c'est sa volonté expresse que tous les documents faisant foi ou se rapportant de quelque manière à la vente des valeurs mobilières soient rédigés en anglais seulement. INFORMATION AS TO PLACEMENT WITHIN THE CAYMAN ISLANDS The Notes may not be offered to members of the public in the Cayman Islands. INFORMATION AS TO PLACEMENT WITHIN THE EUROPEAN ECONOMIC AREA In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive or where the Prospectus Directive is applied by the regulator (each, a "Relevant Member State"), with effect from and including the date on which the Prospectus Directive is implemented or applied in that Relevant Member State (the "Relevant Implementation Date"), no offer of Notes has been made or will be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Notes 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 as implemented or applied in the Relevant Member State, except that, with effect from and including the Relevant Implementation Date, an offer of Notes may be made to the public in that Relevant Member State at any time: (a)

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b)

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 Euro 43,000,000 and (3) an annual net turnover of more than Euro 50,000,000, as shown in its last annual or consolidated accounts; or

(c)

in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to article 3 of the Prospectus Directive.

- vi -

For the purposes of this provision, the expression an "offer of Notes to the public" in relation to any Notes 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 Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes, 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. INFORMATION AS TO PLACEMENT WITHIN BELGIUM This offering does not constitute a public offering in Belgium. The offering has not been and will not be notified to, and this document or any other offering material relating to the Notes has not been and will not be approved by, the Belgian Banking, Finance and Insurance Commission ("Commission bancaire, financière et des assurances/Commissie voor het Bank-, Financie- en Assurantiewezen"). Any representation to the contrary is unlawful. Each of the Co-Issuers and the Initial Purchaser will undertake not to offer sell, resell, transfer or deliver, or to take any steps thereto, directly or indirectly, any Notes, and not to distribute or publish this Offering Memorandum or any other material relating to the Notes or to the offering in a manner which would be construed as (i) a public offering under the Belgian Royal Decree of 7 July 1999 on the public character of financial transactions or (ii) an offering of Notes to the public under Directive 2003/71/EC which triggers an obligation to publish a prospectus in Belgium. Any action contrary to these restrictions will cause the recipient and the Issuer to be in violation of the Belgian securities laws. INFORMATION AS TO PLACEMENT WITHIN DENMARK The Offering will be made pursuant to Section 11 subsection 1 number 1 and 3 of the Danish Executive Order no. 306 of 28 April 2005 (the "Executive Order") and will not be registered with and have not been approved by or otherwise published by the Danish Financial Supervisory Authority, the Danish Securities Council or the Danish Commerce and Companies Agency under the relevant Danish acts and regulations. The Offering will only be directed to persons in Denmark who are regarded qualified investors as set forth in section 2 of the Executive Order and/or to investors who acquire securities for a total consideration of at least Euro 50,000 per investor, for each separate offer. This Offering Memorandum may not be made available to any other person in Denmark nor may the Notes otherwise be marketed or offered for sale in Denmark. INFORMATION AS TO PLACEMENT WITHIN FINLAND The Notes may not be offered or sold, or this Offering Memorandum be distributed, directly or indirectly, to any resident of the Republic of Finland or in the Republic of Finland, except pursuant to applicable Finnish laws and regulations. Specifically, the Notes may only be acquired for denominations of not less than Euro 50,000, and the Notes may not be offered or sold, or this Offering Memorandum be distributed, directly or indirectly, to the public in the Republic of Finland as defined under the Finnish Securities Market Act of 1989. NOTICE TO RESIDENTS OF EUROPEAN ECONOMIC AREA IN RELATION TO EACH MEMBER STATE OF THE EUROPEAN ECONOMIC AREA WHICH HAS IMPLEMENTED THE PROSPECTUS DIRECTIVE (EACH, A "RELEVANT MEMBER STATE"), THE INITIAL PURCHASER AS DEALER HAS REPRESENTED AND AGREED, AND EACH FURTHER DEALER APPOINTED UNDER THE PROGRAMME WILL BE REQUIRED TO REPRESENT AND AGREE, THAT WITH EFFECT FROM AND INCLUDING THE DATE ON WHICH THE

- vii -

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 AUTHORIZED OR REGULATED TO OPERATE IN THE FINANCIAL MARKETS OR, IF NOT SO AUTHORIZED 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.

INFORMATION AS TO PLACEMENT WITHIN FRANCE EACH OF THE CO-ISSUERS AND THE INITIAL PURCHASER HAS REPRESENTED AND AGREED THAT IT HAS NOT OFFERED, SOLD OR OTHERWISE TRANSFERRED AND WILL NOT OFFER, SELL OR OTHERWISE TRANSFER, DIRECTLY, OR INDIRECTLY, THE NOTES TO THE PUBLIC IN THE REPUBLIC OF FRANCE AND THAT ANY OFFERS, SALES OR OTHER TRANSFERS OF THE NOTES IN THE REPUBLIC OF FRANCE WILL BE MADE IN ACCORDANCE WITH ARTICLES L. 411-2 OF THE FRENCH CODE MONÉTAIRE ET FINANCIER ONLY TO: (I)

QUALIFIED INVESTORS (INVESTISSEURS QUALIFIES, AS DEFINED IN ARTICLE D. 411-1 OF THE FRENCH CODE MONÉTAIRE ET FINANCIER) ACTING FOR THEIR OWN ACCOUNT;

- viii -

(II)

A RESTRICTED CIRCLE OF INVESTORS (CERCLE RESTREINT D’INVESTISSEURS, AS DEFINED IN ARTICLE D. 411-2 OF THE FRENCH CODE MONÉTAIRE ET FINANCIER) ACTING FOR THEIR OWN ACCOUNT;

(III)

PERSONS PROVIDING PORTFOLIO MANAGEMENT FINANCIAL SERVICES (PERSONNES FOURNISSANT LE SERVICE D’INVESTISSEMENT DE GESTION DE PORTEFEUILLE POUR COMPTE DE TIERS); AND/OR

(IV)

INVESTORS INVESTING EACH AT LEAST EURO 50,000 PER TRANSACTION, PROVIDED THAT THE ISSUER IS A FRENCH SOCIÉTÉ ANONYME OR SOCIÉTÉ EN COMMANDITE PAR ACTIONS OR A FOREIGN LIMITED COMPANY WITH A SIMILAR STATUS.

THIS OFFERING MEMORANDUM HAS NOT BEEN AND WILL NOT BE SUBJECT TO ANY APPROVAL BY OR REGISTRATION (VISA) WITH THE FRENCH AUTORITÉ DES MARCHÉS FINANCIERS. IN ADDITION, EACH OF THE CO-ISSUERS AND THE INITIAL PURCHASER HAS REPRESENTED AND AGREED THAT IT HAS NOT DISTRIBUTED OR CAUSED TO BE DISTRIBUTED AND WILL NOT DISTRIBUTE OR CAUSE TO BE DISTRIBUTED IN THE REPUBLIC OF FRANCE THIS OFFERING MEMORANDUM OR ANY OTHER OFFERING MATERIAL RELATING TO THE NOTES OTHER THAN TO INVESTORS TO WHOM OFFERS, SALES OR OTHER TRANSFERS OF THE NOTES IN THE REPUBLIC OF FRANCE MAY BE MADE AS DESCRIBED ABOVE. THIS OFFERING MEMORANDUM AND ANY OTHER OFFERING MATERIAL RELATING TO THE NOTES ARE NOT TO BE FURTHER DISTRIBUTED OR REPRODUCED (IN WHOLE OR IN PART) BY THE ADDRESSEE AND HAVE BEEN DISTRIBUTED ON THE BASIS THAT THE ADDRESSEE INVESTS FOR ITS OWN ACCOUNT, AS NECESSARY, AND DOES NOT RESELL OR OTHERWISE TRANSFER, DIRECTLY OR INDIRECTLY, THE NOTES TO THE PUBLIC IN THE REPUBLIC OF FRANCE OTHER THAN IN COMPLIANCE WITH ARTICLES L. 411-1, L. 411-2, L. 412-1 AND L. 621-8 TO L. 621-8-3 OF THE FRENCH CODE MONÉTAIRE ET FINANCIER. NOTICE TO RESIDENTS OF GERMANY THE NOTES WILL NOT BE OFFERED OR SOLD IN THE FEDERAL REPUBLIC OF GERMANY OTHER THAN IN ACCORDANCE WITH THE RULES SET FORTH UNDER "NOTICE TO RESIDENTS OF EUROPEAN ECONOMIC AREA", THE GERMAN INVESTMENT ACT OF DECEMBER 15, 2003 OF THE FEDERAL REPUBLIC OF GERMANY, AS AMENDED (INVESTMENTGESETZ) AND ANY OTHER LEGAL OR REGULATORY REQUIREMENTS APPLICABLE IN THE FEDERAL REPUBLIC OF GERMANY GOVERNING THE ISSUE, OFFER AND SALE OF SECURITIES. NOTWITHSTANDING ANY REQUEST OF A GERMAN INVESTOR THEREFOR, THE ISSUER WILL NOT BE IN A POSITION TO, AND WILL NOT, COMPLY WITH ANY CALCULATION AND INFORMATION REQUIREMENTS SET FORTH IN § 5 THE INVESTMENTSTEUERGESETZ (THE "GERMAN INVESTMENT TAX ACT") FOR GERMAN TAX PURPOSES. IN THIS REGARD, PROSPECTIVE INVESTORS MUST REVIEW "RISK FACTORS— GERMAN INVESTMENT TAX ACT". ALL PROSPECTIVE GERMAN INVESTORS ARE URGED TO SEEK INDEPENDENT TAX ADVICE. THE INITIAL PURCHASER DOES NOT GIVE TAX ADVICE.

- ix -

INFORMATION AS TO PLACEMENT WITHIN HUNGARY Pursuant to section 14 (3) of Act CXX of 2001 on the Capital Markets (the Hungarian CMA), any amount and sum shall be calculated on the basis of the official EUR/HUF exchange rate of the National Bank of Hungary effective on the day of the passing of the decision by the Issuer on the public offering. Furthermore, pursuant to section 17 (1) of the Hungarian CMA, the Issuer shall inform the Hungarian Financial Supervisory Authority within 15 days of the private placement; whereas among other cases, the Hungarian CMA has implemented Article 3 para 2 and Article 4 para 2 of the Prospectus Directive as cases of private placement. INFORMATION AS TO PLACEMENT WITHIN HONG KONG No person may offer or sell in Hong Kong, by means of any document, any Notes other than (a) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that ordinance; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the securities which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder. INFORMATION AS TO PLACEMENT WITHIN IRELAND Each of the Co-Issuers and the Initial Purchaser will represent, warrant and undertake that: (a)

it will not underwrite or place Notes otherwise than in conformity with the provisions of the Investment Intermediaries Act, 1995 of Ireland, as amended, including, without limitation, Sections 9 and 23 (including advertising restrictions made thereunder) thereof and the codes of conduct made under Section 37 thereof or, in the case of a credit institution exercising its rights under the Banking Consolidation Directive (2000/12/EC of 20th March, 2000) in conformity with the codes of conduct or practice made under Section 117(1) of the Central Bank Act, 1989, of Ireland, as amended;

(b)

in connection with offers or sales of Notes, it has only issued or passed on, and will only issue or pass on, in Ireland, any document received by it in connection with the issue of such Notes to persons who are persons to whom the documents may otherwise lawfully be issued or passed on; and

(c)

in respect of a local offer (within the meaning of Section 38(1) of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 of Ireland (the "2005 Act")) of Notes in Ireland, it has complied and will comply with Section 49 of the 2005 Act.

-x-

INFORMATION AS TO PLACEMENT WITHIN ITALY Each of the Co-Issuers and the Initial Purchaser will represent and agree that it will not offer, sell or deliver the Notes or distribute any document relating to the Notes in Italy unless such offer, sale or delivery of Notes or distribution of documents is: (a)

made by an investment firm, bank or any other authorized intermediary pursuant to Article 25(1)d of CONSOB Regulation 11522;

(b)

in compliance with Article 129 of the Banking Consolidated Act and the implementing Regulations of the Bank of Italy, pursuant to which the issue or the offer of securities in Italy may need to be preceded and followed by an appropriate notice to be filed with the Bank of Italy unless an exemption, depending, inter alia, on the aggregate value of the securities issued or offered in the Italy and their characteristics applies; and

(c)

in compliance with any and all other applicable laws and regulations, including any notification requirement or limitation which may be imposed by CONSOB or the Bank of Italy, and, in any event, provided that any initial purchaser purchasing the Notes undertakes not to further distribute or transfer the Notes, except in accordance with any applicable laws and regulations, including any requirements or limitations imposed by CONSOB or the Bank of Italy. INFORMATION AS TO PLACEMENT WITHIN NORWAY

Each of the Co-Issuers and the Initial Purchaser will acknowledge that the Notes may not be offered, sold or distributed in the Kingdom of Norway, except in accordance with the Norwegian Securities Trading Act of 19 June, 1997, as amended, and all applicable regulations. The Notes may not be offered, sold or distributed in Norway except in circumstances which do not constitute a public offer of securities in Norway within the meaning of Norwegian securities laws and regulations. Neither the Notes nor this Offering Memorandum has been approved and registered by the Norwegian Stock Exchange or registered with the Norwegian Register of Business Enterprises. INFORMATION AS TO PLACEMENT WITHIN SPAIN THE NOTES MAY NOT BE OFFERED, SOLD OR DISTRIBUTED IN THE KINGDOM OF SPAIN SAVE IN ACCORDANCE WITH THE REQUIREMENTS OF LAW 24/1988, OF 28 JULY, ON THE SECURITIES MARKET (LEY 24/1988, DE 28 DE JULIO, DEL MERCADO DE VALORES) AS AMENDED AND RESTATED, AND ROYAL DECREE 1310/2005, OF 4 NOVEMBER 2005, PARTIALLY DEVELOPING LAW 24/1988, OF 28 JULY, ON THE SECURITIES MARKET IN CONNECTION WITH LISTING OF SECURITIES IN SECONDARY OFFICIAL MARKETS, INITIAL PURCHASE OFFERS, RIGHTS ISSUES AND THE PROSPECTUS REQUIRED IN THESE CASES (REAL DECRETO 1310/2005, DE 4 DE NOVIEMBRE, POR EL QUE SE DEARROLLA PARCIALMENTE LA LEY 24/1988, DE 28 DE JULIO, DEL MERCADO DE VALORES, EN MATERIAL DE ADMISION A NEGOCIACIÓN DE VALORES EN MERCADOS SECUNDARIOS OFICIALES, DE OFERTAS PÚBLICAS DE VENTA O SUSCRIPCIÓN Y DEL FOLLETO EXIGIBLE A TALES EFECTOS) AS AMENDED AND RESTATED OR AS FURTHER AMENDED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME. NEITHER THE NOTES NOR THIS OFFERING MEMORANDUM HAVE BEEN VERIFIED OR REGISTERED IN THE ADMINISTRATIVE REGISTRIES OF THE NATIONAL STOCK EXCHANGE COMMISSION (COMISIÓN NACIONAL DE MERCADO DE VALORES).

- xi -

INFORMATION AS TO PLACEMENT WITHIN THE UNITED KINGDOM THE NOTES MAY NOT BE OFFERED OR SOLD AND, PRIOR TO THE EXPIRY OF THE PERIOD OF SIX MONTHS FROM THE CLOSING DATE, WILL NOT BE OFFERED OR SOLD TO PERSONS IN THE UNITED KINGDOM EXCEPT TO PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING OR DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSE OF THEIR BUSINESS OR OTHERWISE IN CIRCUMSTANCES THAT HAVE NOT RESULTED AND WILL NOT RESULT IN AN OFFER TO THE PUBLIC IN THE UNITED KINGDOM WITHIN THE MEANING OF THE PROSPECTUS REGULATIONS 2005. THIS OFFERING MEMORANDUM AND ANY OTHER DOCUMENT IN CONNECTION WITH THE OFFERING AND ISSUANCE OF THE NOTES MAY ONLY BE ISSUED OR PASSED ON TO A PERSON OF A KIND DESCRIBED IN ARTICLE 49(2) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005 OR IS A PERSON TO WHOM THIS OFFERING MEMORANDUM OR ANY OTHER SUCH DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS"). ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS DOCUMENT RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS.

- xii -

CONTENTS SUMMARY OF TERMS .......................................................................................................................... 1 RISK FACTORS ..................................................................................................................................... 25 DESCRIPTION OF THE SECURED NOTES........................................................................................ 79 Status and Security ........................................................................................................................... 79 Interest .............................................................................................................................................. 79 Class A1-VF Commitment Fee ........................................................................................................ 83 Drawdowns and Repayment of the Class A1-VF Notes .................................................................. 84 Reduction of the Remaining Unfunded Facility Commitment......................................................... 87 Application of the Class A1-VF Senior Excess................................................................................ 87 Principal ........................................................................................................................................... 88 Mandatory Redemption .................................................................................................................... 89 Auction Call Redemption ................................................................................................................. 90 Optional Redemption and Tax Redemption ..................................................................................... 94 Redemption Price ............................................................................................................................. 97 Cancellation...................................................................................................................................... 97 Payments .......................................................................................................................................... 97 Priority of Payments......................................................................................................................... 98 Distributions Upon Liquidation...................................................................................................... 105 Minimum Denomination ................................................................................................................ 105 The Overcollateralization Tests; The Class E Interest Diversion Test; The Pro Rata Payment Test; The Class A Overcollateralization Ratio........................................................................................ 105 No Gross-Up................................................................................................................................... 107 The Indenture ................................................................................................................................. 108 Benefit Plan Investors and Certain Controlling Persons ................................................................ 119 DESCRIPTION OF THE SUBORDINATED NOTES......................................................................... 121 Status .............................................................................................................................................. 121 Distributions ................................................................................................................................... 121 Optional Redemption ..................................................................................................................... 122 Notices............................................................................................................................................ 123 Voting Rights ................................................................................................................................. 123 Dissolution...................................................................................................................................... 124 Petitions for Bankruptcy................................................................................................................. 124 Governing Law............................................................................................................................... 125 No Gross-Up................................................................................................................................... 125 Benefit Plan Investors and Controlling Persons ............................................................................. 125 DESCRIPTION OF THE COMBINATION NOTES............................................................................ 127 General ........................................................................................................................................... 127 Status and Security ......................................................................................................................... 127 Interest ............................................................................................................................................ 127 Early Redemption........................................................................................................................... 128

- xiii -

Redemption .................................................................................................................................... 128 Acts of Holders of Combination Notes .......................................................................................... 128 Payments ........................................................................................................................................ 129 Cancellation.................................................................................................................................... 129 Exchange of Combination Notes for Underlying Components...................................................... 130 Benefit Plan Investors and Controlling Persons ............................................................................. 130 FORM, REGISTRATION AND TRANSFER OF NOTES .................................................................. 132 Transfer and Exchange of Secured Notes ...................................................................................... 133 Transfer and Exchange of Subordinated Notes .............................................................................. 136 Transfer and Exchange of Combination Notes............................................................................... 138 USE OF PROCEEDS ............................................................................................................................ 140 RATINGS OF THE SECURED NOTES AND COMBINATION NOTES ....................................................................................................................... 141 Rating of the Secured Notes ........................................................................................................... 141 Rating of the Combination Notes ................................................................................................... 141 MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS.................................................... 142 THE CO-ISSUERS................................................................................................................................ 144 General ........................................................................................................................................... 144 Capitalization.................................................................................................................................. 145 Business.......................................................................................................................................... 146 SECURITY FOR THE SECURED NOTES ......................................................................................... 147 General ........................................................................................................................................... 147 Collateral Debt Securities............................................................................................................... 148 Eligibility Criteria........................................................................................................................... 148 Asset Acquisition Guidelines ......................................................................................................... 155 Asset-Backed Securities ................................................................................................................. 155 Synthetic Securities ........................................................................................................................ 162 The Collateral Quality Tests........................................................................................................... 163 Disposition and Substitution of Collateral Debt Securities ............................................................ 168 The Hedge Agreements .................................................................................................................. 171 The Accounts.................................................................................................................................. 174 THE CREDIT DEFAULT SWAP AGREEMENT................................................................................ 186 General ........................................................................................................................................... 186 Terms of CDS Transactions ........................................................................................................... 187 Settlement....................................................................................................................................... 191 Ratings Provisions.......................................................................................................................... 192 Conditions to Settlement ................................................................................................................ 194

- xiv -

Hedging Short CDS Transactions .................................................................................................. 195 Amendment of the Credit Default Swap Agreement...................................................................... 195 Termination of the Credit Default Swap Agreement...................................................................... 195 Liquidation Procedures................................................................................................................... 197 DESCRIPTION OF THE GIC............................................................................................................... 202 Interest ............................................................................................................................................ 202 Deposits .......................................................................................................................................... 202 Withdrawals from the GIC ............................................................................................................. 202 GIC Breakage Costs ....................................................................................................................... 203 Termination .................................................................................................................................... 203 Downgrade Event ........................................................................................................................... 203 GIC Events of Default .................................................................................................................... 203 Assignment of the GIC................................................................................................................... 204 THE ROYAL BANK OF SCOTLAND PLC ........................................................................................ 205 THE PORTFOLIO MANAGER............................................................................................................ 209 Biographies..................................................................................................................................... 209 THE MANAGEMENT AGREEMENT ................................................................................................ 211 Compensation, Indemnification and Expenses............................................................................... 212 Termination of the Management Agreement ................................................................................. 213 Portfolio Manager Obligations ....................................................................................................... 216 INCOME TAX CONSIDERATIONS ................................................................................................... 219 Taxation of the Issuer ..................................................................................................................... 219 Taxation of the Holders .................................................................................................................. 220 CERTAIN ERISA AND RELATED CONSIDERATIONS ................................................................. 225 PLAN OF DISTRIBUTION .................................................................................................................. 234 United States................................................................................................................................... 234 United Kingdom ............................................................................................................................. 235 European Economic Area............................................................................................................... 235 Cayman Islands .............................................................................................................................. 236 Hong Kong ..................................................................................................................................... 236 Global Securities ............................................................................................................................ 238 Payments or Distributions on a Global Security ............................................................................ 238 Transfers and Exchanges for Definitive Securities ........................................................................ 239 Cross-Border Transfers and Exchanges ......................................................................................... 239 DTC, Euroclear and Clearstream ................................................................................................... 240 TRANSFER RESTRICTIONS .............................................................................................................. 241

- xv -

LEGAL MATTERS............................................................................................................................... 269 EXHIBIT A - GLOSSARY OF CERTAIN DEFINED TERMS........................................................... 270 SCHEDULE A RECOVERY RATES.................................................................................................. 322 SCHEDULE B STANDARD & POOR'S ASSET CLASSES ............................................................. 327 SCHEDULE C STANDARD & POOR'S TYPES OF ASSET-BACKED SECURITIES INELIGIBLE FOR NOTCHING........................................................ 329 SCHEDULE D NOTCHING OF ABS SECURITIES.......................................................................... 330 SCHEDULE E RATINGS DEFINITIONS .......................................................................................... 334 INDEX OF DEFINED TERMS............................................................................................................. 340

- xvi -

SUMMARY OF TERMS The following summary does not purport to be complete and is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this Offering Memorandum (this "Offering Memorandum"). Exhibit A contains a glossary of certain defined terms. An index of defined terms appears at the back of this Offering Memorandum. Securities Offered:

1

U.S.$450,000,000 aggregate principal amount Class A1-VF Senior Secured Floating Rate Notes due 2047 (the "Class A1-VF Notes"), U.S.$30,000,000 aggregate principal amount Class A2A Senior Secured Floating Rate Notes due 2047 (the "Class A2A Notes"), U.S.$120,000,000 aggregate principal amount Class A2B Senior Secured Floating Rate Notes due 2047 (the "Class A2B Notes" and, together with the Class A1-VF Notes and the Class A2A Notes, the "Class A Notes"), U.S.$37,500,000 aggregate principal amount Class B1 Senior Secured Floating Rate Notes due 2047 (the "Class B1 Notes"), U.S.$11,250,000 aggregate principal amount Class B2 Senior Secured Floating Rate Notes due 2047 (the "Class B2 Notes" and, together with the Class B1 Notes, the "Class B Notes"), U.S.$33,750,000 aggregate principal amount Class C Mezzanine Secured Deferrable Interest Floating Rate Notes due 2047 (the "Class C Notes"), U.S.$30,000,000 aggregate principal amount Class D Mezzanine Secured Deferrable Interest Floating Rate Notes due 2047 (the "Class D Notes"), U.S.$16,875,000 aggregate principal amount Class E Mezzanine Secured Deferrable Interest Floating Rate Notes due 2047 (the "Class E Notes") and U.S.$34,000,000 aggregate principal amount Subordinated Notes due 2047 (the "Subordinated Notes"). The Subordinated Notes will be issued by the Issuer only. U.S.$10,000,000 Combination Notes due 2047 (the "Combination Notes"). The Combination Notes will be issued by the Issuer only. All information relating to the Combination Notes is contained in the section of this Offering Memorandum entitled "Description of the Combination Notes". Each of the Class A1-VF Notes, the Class A2A Notes, the Class A2B Notes, the Class B1 Notes, the Class B2 Notes, the Class C Notes, the Class D Notes and the Class E Notes is herein referred to as a "Class" of Notes. The Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the Class E Notes are together referred to as the "Secured Notes." The registered holders of Secured Notes are collectively referred to herein as the "Secured Noteholders." The Class A2A Notes, the Class A2B Notes, the Class B1 Notes, the Class B2 Notes, the Class C Notes, the Class D Notes and the Class E Notes are together referred to as the "Funded Secured Notes" and the registered holders of the Funded Secured Notes are collectively referred to herein as the "Funded Secured Noteholders." The Class

1

Represents the Maximum VFN Facility Funding Commitment.

1

A2A Notes, the Class A2B Notes, the Class B Notes, the Class C Notes and the Class D Notes are together referred to as the "Investment Grade Funded Secured Notes" and the registered holders of the Investment Grade Funded Secured Notes are collectively referred to herein as the "Investment Grade Funded Secured Noteholders." The Secured Notes, Subordinated Notes and Combination Notes are together referred to herein as the "Notes". The registered holders of Subordinated Notes are collectively referred to herein as "Subordinated Noteholders." The registered holders of Combination Notes are collectively referred to herein as "Combination Noteholders." The Secured Noteholders, Subordinated Noteholders and Combination Noteholders are collectively referred to herein as "Noteholders". Greenwich Capital Markets, Inc. (the "Initial Purchaser") expects to deliver the Notes to the original purchasers thereof (each, an "Original Purchaser") on November 9, 2006 (the "Closing Date"). The Secured Notes will be issued and secured pursuant to an Indenture, dated as of November 9, 2006 (the "Indenture"), between the Issuer, the Co-Issuer and LaSalle Bank National Association as trustee (in such capacity, together with its successors in such capacity, the "Trustee"). Each of the Hedge Counterparties, the Portfolio Manager and the Credit Default Swap Counterparty will be an express third party beneficiary of the Indenture. See "Description of the Secured Notes—Status and Security" and "—The Indenture." The Secured Notes will be limited-recourse debt obligations of the Co-Issuers secured solely by a pledge of the Collateral by the Issuer to the Trustee pursuant to the Indenture for the benefit of the holders from time to time of the Secured Notes, the Portfolio Manager, the Collateral Administrator, the Credit Default Swap Counterparty, the Subordinated Note Issuing and Paying Agent and each Hedge Counterparty (collectively, the "Secured Parties"). See "Description of the Secured Notes—Status and Security." The Subordinated Notes will be unsecured, limited-recourse obligations of the Issuer, and will be issued pursuant to a Subordinated Note Issuing and Paying Agency Agreement dated as of November 9, 2006 (the "Subordinated Note Issuing and Paying Agency Agreement") between the Issuer and LaSalle Bank National Association as Subordinated Note issuing and paying agent (in such capacity, the "Subordinated Note Issuing and Paying Agent"). The Subordinated Notes will not be secured under the Indenture, the Subordinated Note Issuing and Paying Agency Agreement or any other agreement. All of the Class A1-VF Notes are entitled to receive payments pari passu among themselves, all of the Class A2A Notes are entitled to

2

receive payments pari passu among themselves, all of the Class A2B Notes are entitled to receive payments pari passu among themselves, all of the Class B1 Notes are entitled to receive payments pari passu among themselves, all of the Class B2 Notes are entitled to receive payments pari passu among themselves, all of the Class C Notes are entitled to receive payments pari passu among themselves, all of the Class D Notes are entitled to receive payments pari passu among themselves, all of the Class E Notes are entitled to receive payments pari passu among themselves and all of the Subordinated Notes are entitled to receive payments pari passu among themselves. The relative order of Seniority of payment of each Class of Secured Notes with respect to Interest Proceeds is as follows: first, Class A1VF Notes (including payments of Commitment Fees), second, Class A2A Notes, third, Class A2B Notes, fourth, Class B1 Notes, fifth, Class B2 Notes, sixth, Class C Notes, seventh, Class D Notes and eighth, Class E Notes, with (a) each Class of Secured Notes (other than the Class E Notes) in such list being "Senior" or in "Seniority" to each other Class of Secured Notes that follows such Class of Secured Notes in such list and (b) each Class of Secured Notes (other than the Class A1-VF Notes) in such list being "Subordinate" to each other Class of Secured Notes that precedes such Class of Secured Notes in such list. No payment of interest on any Class of Secured Notes will be made until all accrued and unpaid interest and, in the case of the Class A1-VF Notes, Commitment Fees, on the Secured Notes of each Class that is Senior to such Class and that remain outstanding has been paid in full. The Subordinated Notes are subordinated to the Secured Notes and are entitled to periodic payments from Interest Proceeds released from the lien of the Indenture only to the extent that funds are available for such purpose pursuant to the Priority of Payments. With respect to Principal Proceeds, the relative order of Seniority of payment of each Class of Secured Notes is as follows: first, Class A1-VF Notes (including deposits to the Reserve Account which will reduce the Remaining Unfunded Facility Commitments), second, Class A2A Notes, third, Class A2B Notes, fourth, Class B1 Notes, fifth, Class B2 Notes, sixth, Class C Notes, seventh, Class D Notes and eighth, Class E Notes, provided that on any Distribution Date that occurs prior to the Note Acceleration Date and that is a Pro Rata Distribution Date, Principal Proceeds will be applied to redeem, in part, each Class of Secured Notes, as described under "Description of the Secured Notes—Priority of Payments." Payments of interest and principal shall be made with respect to the Subordinated Notes only to the extent that proceeds are released from the lien of the Indenture in accordance with the Priority of Payments. Until the Secured Notes and certain other amounts have been paid in full, Principal Proceeds are not permitted to be released

3

from the lien of the Indenture and will not be available to make distributions in respect of the Subordinated Notes other than in accordance with the Priority of Payments. The obligations of the Issuer to pay termination payments to the Credit Default Swap Counterparty will be Senior to the obligations of the Issuer to pay interest and, in the case of the Class A1-VF Notes, Commitment Fee, on the Secured Notes, and the obligations of the Issuer to the Credit Default Swap Counterparty under the Credit Default Swap Agreement will be Senior to the obligations of the Issuer to pay the principal amount of the Secured Notes; provided, however, that amounts payable to the Credit Default Swap Counterparty in respect of Defaulted Synthetic Termination Payments will be subordinated to the payment of interest (and, in the case of the Class A1-VF Notes, Commitment Fee) due and payable on the Secured Notes. Certain fees and expenses of the Issuers and payments due to Hedge Counterparties under any Hedge Agreements, including any termination payments due to such Hedge Counterparties (other than by reason of an event of default or termination event (other than an "Illegality" or "Tax Event" termination event) as to which such Hedge Counterparty is the sole "defaulting party" or the sole "affected party"), will be senior in right of payment on each Distribution Date to the payment of interest, and, in the case of the Class A1-VF Notes, Commitment Fee, and principal on the Secured Notes. All fees and expenses of the Issuer and all amounts due to the Hedge Counterparties will be senior (subject to certain limits specified in the Priority of Payments) in right of payment to the payment of Excess Interest and Excess Principal Proceeds (together, "Excess Amounts") in respect of the Subordinated Notes. See "Description of the Secured Notes—Priority of Payments." The Co-Issuers:

Cairn Mezz ABS CDO II Limited (the "Issuer") is an exempted company with limited liability that was incorporated on May 10, 2006 under the Companies Law (2004 Revision) of the Cayman Islands. The Issuer was established as a special purpose vehicle for the purpose of issuing asset-backed securities. The entire issued share capital of the Issuer consists of 250 ordinary shares, par value U.S.$1.00 per share, each of which is and will be held in trust for charitable purposes in the Cayman Islands by Walkers SPV Limited (the "Share Trustee") under the terms of a declaration of trust. The Indenture will provide that the activities of the Issuer are limited to (1) acquiring and disposing of, and investing and reinvesting in, Collateral Debt Securities (including Synthetic Securities), Reserve Account Investments, U.S. Agency Securities and Eligible Investments for its own account, (2) entering into and performing its obligations under the Indenture, any Interest Rate Hedge Agreement, the Credit Default Swap Agreement, the Variable Funding Note Purchase Agreement, the Management Agreement, the GIC, the

4

Collateral Administration Agreement, the Note Purchase Agreement and the Subordinated Note Issuing and Paying Agency Agreement, (3) issuing and selling the Notes, (4) pledging the Collateral as security for its obligations in respect of the Secured Notes and otherwise for the benefit of the Secured Parties, (5) owning the capital stock of the Co-Issuer and (6) other activities incidental to the foregoing. Cairn Mezz ABS CDO II Inc., a Delaware corporation (the "Co-Issuer" and, together with the Issuer, the "Co-Issuers"), was incorporated for the sole purpose of co-issuing the Secured Notes. The Issuer owns 100% of the capital stock of the Co-Issuer. The Issuer will not have any material assets other than the Collateral Debt Securities (including its rights under any Synthetic Security, including any CDS Transaction), Equity Securities, U.S. Agency Securities, Eligible Investments and rights under the Credit Default Swap Agreement, the GIC, the Variable Funding Note Purchase Agreement and any Interest Rate Hedge Agreement and under certain other agreements entered into as described herein, and its equity interest in the Co-Issuer. The Co-Issuer will not have any assets (other than the proceeds of the sale of its capital stock to the Issuer, being U.S.$250) and will not pledge any assets to secure the Secured Notes. The Co-Issuer will not have any interest in the Collateral Debt Securities held by the Issuer. Portfolio Manager:

Cairn Financial Products Limited, a limited liability company incorporated in England under the laws of England and Wales ("Cairn" or the "Portfolio Manager"), will select and manage the Collateral under a portfolio management agreement to be entered into between the Issuer and the Portfolio Manager (the "Management Agreement"). The Portfolio Manager is a wholly-owned subsidiary of Cairn Capital Limited. For a summary of the provisions of the Management Agreement and certain other information concerning the Portfolio Manager, see "The Portfolio Manager" and "The Management Agreement."

Use of Proceeds:

The gross proceeds received from the issuance and sale of the Notes and the upfront payments received by the Issuer under the Asset Hedge Agreement entered into on the Closing Date will be approximately U.S.$310,531,000 (which does not include U.S.$450,000,000 which may be borrowed under the Variable Funding Note Purchase Agreement after the Closing Date). The net proceeds from the issuance and sale of the Notes and the upfront payments received by the Issuer under the Asset Hedge Agreement entered into on the Closing Date are expected to be approximately U.S.$300,655,000 (which does not include U.S.$450,000,000 which

5

may be borrowed under the Variable Funding Note Purchase Agreement after the Closing Date). Such net proceeds will be used by the Issuer to (1) Acquire a diversified portfolio of interests in certain (i) Asset-Backed Securities and (ii) Synthetic Securities (including CDS Transactions entered into under the Credit Default Swap Agreement) the Reference Obligations of which will be Asset-Backed Securities (including RMBS Securities, CMBS Securities and CDO Securities) or other Asset-Backed Securities that, in each case, satisfy the investment criteria described herein, (2) pay upfront management fees of the Portfolio Manager and (3) fund the initial deposits into the Expense Account and Reserve Account (for investment in the GIC on the Closing Date in the case of the initial deposit into the Reserve Account). See "Use of Proceeds." Class A1-VF Notes:

Pursuant to a Variable Funding Note Purchase Agreement, dated as of November 9, 2006 (the "Variable Funding Note Purchase Agreement"), among the Issuer, the Co-Issuer, LaSalle Bank National Association, as note agent acting on behalf of the Issuer (in such capacity, together with its successors in such capacity, the "Variable Funding Note Agent"), the Trustee and the holders from time to time of the Class A1-VF Notes, the holders of the Class A1VF Notes will make advances to the Issuer until the Commitment Termination Date, subject to compliance with certain terms and conditions set forth in the Indenture and the Variable Funding Note Purchase Agreement. The aggregate outstanding principal amount of the Borrowings and Deemed Borrowings under the Class A1-VF Notes will not at any time exceed the Maximum VFN Facility Funding Commitment, which will be U.S.$450,000,000. To the extent that such conditions are satisfied and after giving effect to any application of prior withdrawals made from funds standing to the credit of the applicable Accounts that are available for the relevant Permitted Use pursuant to and in accordance with the Account Withdrawal Payment Priority, the holders of the Class A1-VF Notes will be required to advance funds to the Issuer (i) to pay CDS Termination Payments, (ii) to pay Credit Protection Payments (other than Credit Protection Payments in respect of Interest Shortfalls) and Physical Settlement Amounts in respect of CDS Transactions, (iii) so long as no Event of Default has occurred and is continuing, on any Distribution Date on which a Senior Interest Shortfall exists, to pay any accrued and unpaid interest on the Class A2A Notes, the Class A2B Notes, the Class B1 Notes or the Class B2 Notes, as applicable, in order of seniority in an amount equal to such Senior Interest Shortfall pursuant to the Priority of Payments; provided that any such amount may not exceed the lowest of (x) the amount of such Senior Interest Shortfall and (y) the Class A1-VF Senior Excess as of the date of the related Borrowing request and (iv) to pay Credit Protection Payments (after the application of any payment netting provisions in the Credit Default Swap Agreement) in respect of Interest Shortfalls (the uses described in clauses (i), (ii), (iii) and (iv) above, each, a "Permitted Use"). See "Description of the Secured

6

Notes—Drawdowns and Repayment of Class A1-VF Notes." Each request of the Issuer for a Borrowing shall be delivered to the Variable Funding Note Agent no less than two Business Days in advance of the requested funding date. Notwithstanding anything to the contrary in the foregoing, unless all of the Commitment Amounts of the Class A1-VF Noteholders have been deposited in one or more Class A1-VF Prepayment Accounts, no request for a Borrowing will be made for an amount less than U.S.$250,000 (or such lesser amount as may be agreed to by the relevant Class A1-VF Noteholder(s)). Any excess of such minimum amount over the amount (or portion thereof) of the applicable Permitted Use that must be funded from Borrowings or Deemed Borrowings pursuant to the Account Withdrawal Payment Priority shall be deposited into the Reserve Account (other than any such excess which results from a Borrowing used to fund all or part of a Credit Protection Payment in respect of an Interest Shortfall pursuant to clause (c)(vi) of the definition of "Account Withdrawal Payment Priority"). Subject to compliance with the Variable Funding Note Purchase Agreement and the Indenture, amounts may be borrowed, repaid and reborrowed until the Commitment Termination Date. The holders of the Class A1-VF Notes are required to satisfy certain rating criteria or be subject to certain prepayment or replacement requirements. Failure to satisfy such rating criteria may result in a holder of the Class A1-VF Notes (other than a Specified Class A1VF Noteholder) having to deposit the entire amount of its Remaining Unfunded Facility Commitment in a Class A1-VF Prepayment Account. See "Description of the Secured Notes—Drawdown and Repayment of Class A1-VF Notes." Commitment Fee on the Class A1-VF Notes:

The Issuer will pay to each Class A1-VF Noteholder on each Distribution Date a commitment fee (the "Commitment Fee") quarterly in arrears which shall accrue on that portion of the Remaining Unfunded Facility Commitment represented by the Class A1-VF Notes of such Class A1-VF Noteholder at a rate equal to 0.18% per annum (the "Commitment Fee Rate") for each day on which the relevant holder is a Compliant Class A1-VF Noteholder from and including the Closing Date to but excluding the Commitment Termination Date, together with Defaulted Interest on such fee to the extent not paid when due. The Commitment Fee shall (i) continue accruing with respect to any amounts in a Class A1-VF Prepayment Account until they are applied to the funding of a Permitted Use and (ii) be reduced to the extent that the Remaining Unfunded Facility Commitment is reduced by any portion of the Class A1-VF Senior Excess which the Issuer is required or the Portfolio Manager elects, in each case in accordance with the Senior Excess Application Priority, to apply to reduce permanently the

7

Remaining Unfunded Facility Commitment. The Commitment Fee will rank pari passu with the payment of interest on the Class A1-VF Notes. The Commitment Fee will be computed on the basis of a 360 day year and the actual number of days elapsed. No Class of Notes other than the Class A1-VF Notes will be entitled to a commitment fee. See "Description of the Secured Notes—Class A1-VF Commitment Fee." Interest Payments on the Secured Notes:

The outstanding principal amount of the Borrowings and Deemed Borrowings under the Class A1-VF Notes (the "Outstanding Class A1-VF Funded Amount") will bear interest at a rate per annum equal to LIBOR (determined as set forth herein and which may be set at different levels with respect to intraperiod Borrowings or Deemed Borrowings) plus 0.32% (the "Class A1-VF Note Interest Rate"); provided that amounts deposited in a Class A1-VF Prepayment Account as a result of any holder of Class A1-VF Notes (other than a Specified Class A1-VF Noteholder) failing to satisfy the Variable Funding Note Rating Threshold shall not be deemed to be a Borrowing and shall not accrue interest at the Class A1-VF Note Interest Rate until the application thereof to a Permitted Use (a "Deemed Borrowing"). The holder of Class A1-VF Notes depositing such amounts shall be entitled to receive (i) any income from the investment of such amounts in Eligible Investments and (ii) for each day that such holder is a Compliant Class A1-VF Noteholder, Commitment Fee with respect to such amounts at the Commitment Fee Rate until such amounts are applied to any Permitted Use (upon the occurrence of which interest will commence accruing on the resulting increase in the Outstanding Class A1-VF Funded Amount at the Class A1-VF Note Interest Rate to the extent of such application). The Class A2A Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.40%. The Class A2B Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.44%. The Class B1 Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.53%. The Class B2 Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.60%. The Class C Notes will bear interest at a floating rate per annum equal to LIBOR plus 1.35%. The Class D Notes will bear interest at a floating rate per annum equal to LIBOR plus 3.25%. The Class E Notes will bear interest at a floating rate per annum equal to LIBOR plus 6.25%. Interest on the Secured Notes and interest on Defaulted Interest in respect thereof will be computed on the basis of a 360-day year and the actual number of days elapsed. Interest on the Outstanding Class A1-VF Funded Amount will accrue from the applicable date of the relevant Borrowing or Deemed Borrowing. Interest on the Funded Secured Notes will accrue from

8

the Closing Date. Accrued and unpaid interest on the Secured Notes will be payable quarterly in arrears on each Distribution Date, if and to the extent that funds are available on such Distribution Date in accordance with the Priority of Payments set forth herein. See "Description of the Secured Notes—Interest." So long as any Class A Notes or Class B Notes are outstanding or the Commitment Termination Date has not occurred, the failure on any Distribution Date to make payment in respect of interest on the Class C Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class C Notes that is not paid when due by operation of the Priority of Payments will be deferred (such interest being referred to herein as "Class C Deferred Interest"). Any Class C Deferred Interest will not be added to the aggregate outstanding principal amount of the Class C Notes but interest will accrue on Class C Deferred Interest at the rate applicable to the Class C Notes until such Class C Deferred Interest is paid in full. So long as any Class A Notes, Class B Notes or Class C Notes are outstanding or the Commitment Termination Date has not occurred, the failure on any Distribution Date to make payment in respect of interest on the Class D Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class D Notes that is not paid when due by operation of the Priority of Payments will be deferred (such interest being referred to herein as "Class D Deferred Interest"). Any Class D Deferred Interest will not be added to the aggregate outstanding principal amount of the Class D Notes but interest will accrue on Class D Deferred Interest at the rate applicable to the Class D Notes until such Class D Deferred Interest is paid in full. So long as any Class A Notes, Class B Notes, Class C Notes or Class D Notes are outstanding or the Commitment Termination Date has not occurred, the failure on any Distribution Date to make payment in respect of interest on the Class E Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class E Notes that is not paid when due by operation of the Priority of Payments will be deferred (such interest being referred to herein as "Class E Deferred Interest" and, collectively with the Class C Deferred Interest and Class D Deferred Interest, the "Deferred Interest"). Any Class E Deferred Interest will not be added to the aggregate outstanding principal amount of the Class E Notes but interest will accrue on Class E Deferred Interest at the rate applicable to the Class E Notes until such Class E Deferred Interest is paid in full.

9

Maturity; Average Life; Duration:

Principal Repayment of the Secured Notes:

The stated maturity of the Notes is the Distribution Date in February 2047 (with respect to each Class of Notes, the "Stated Maturity"). Each Class of Notes will mature at the Stated Maturity unless redeemed or repaid prior thereto. The average life of each Class of Secured Notes and the duration of the Subordinated Notes may be less than the number of years until the Stated Maturity of the Notes. See "Maturity, Prepayment and Yield Considerations" and "Risk Factors—Projections, Forecasts and Estimates." On any Distribution Date that occurs prior to the Note Acceleration Date and that is a Pro Rata Distribution Date, Principal Proceeds will be applied in accordance with the Priority of Payments (A) first, to the payment of principal of the Funded Secured Notes (pro rata in accordance with the respective outstanding aggregate principal amounts of the Funded Secured Notes) in an amount equal to the Deferred Funded Secured Notes Principal, (B) second, to the payment of principal of the Funded Secured Notes (pro rata in accordance with the respective outstanding aggregate principal amounts of the Funded Secured Notes) in an amount equal to the Funded Secured Note Reduction Amount and (C) third, on a pro rata basis, (i) to pay the Outstanding Class A1-VF Funded Amount, (ii) to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and (iii) to pay principal of the Class A2A Notes, Class A2B Notes, Class B1 Notes, Class B2 Notes, Class C Notes, Class D Notes and Class E Notes (with such pro rata allocation for purposes of clauses (i), (ii) and (iii) to be based upon the Outstanding Class A1-VF Funded Amount, the Remaining Unfunded Facility Commitment and the respective outstanding aggregate principal amounts of the Funded Secured Notes after giving effect to distributions made on such Distribution Date prior to such pro rata payment). On any Distribution Date that occurs after the Reinvestment Period and that is not a Pro Rata Distribution Date and on any Distribution Date after the Note Acceleration Date, Principal Proceeds will be applied, first, to pay the Outstanding Class A1-VF Funded Amount, second, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and, third, to repay principal of the Funded Secured Notes sequentially in direct order of Seniority. The amount and frequency of principal payments of a Class of Secured Notes will depend upon, among other things, the amount and frequency of payments of principal and interest received with respect to the Collateral Debt Securities (including the Reference Obligations under the Credit Default Swap Agreement). So long as any Class of Investment Grade Funded Secured Notes is outstanding, if any Overcollateralization Test applicable to such

10

Class is not satisfied on any Determination Date related to any Distribution Date, then, first, Uninvested Proceeds, second, Interest Proceeds and third, Principal Proceeds will be used instead, to the extent that funds are available in accordance with the Priority of Payments, first, to pay the Outstanding Class A1-VF Funded Amount, second, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account, third, to redeem each Class (if any) of Investment Grade Funded Secured Notes Senior to such Class (sequentially in direct order of Seniority) and, fourth, to redeem such Class of Investment Grade Funded Secured Notes, until each applicable Overcollateralization Test is satisfied. So long as any Class E Notes are outstanding, if the Class E Interest Diversion Test is not satisfied on any Determination Date related to any Distribution Date, then Interest Proceeds will be used instead to redeem the Class E Notes. Payments of principal may be made on the Funded Secured Notes during the Reinvestment Period only in the following circumstances (subject to the Priority of Payments): (a) upon the failure of the Issuer to satisfy any Overcollateralization Test applicable to any Class of Secured Notes as of the related Determination Date (to the extent necessary to satisfy such tests), (b) in connection with a Tax Redemption, (c) upon the failure of the Issuer to satisfy the Class E Interest Diversion Test as of the related Determination Date (to the extent necessary to satisfy such test) and (d) in the event that the Portfolio Manager, in its sole discretion, does not transfer Principal Proceeds to the Reinvestment Account under paragraph (8) under "Description of the Secured Notes—Priority of Payments—Principal Proceeds". Payments of the Outstanding Class A1-VF Funded Amount may also be made during the Reinvestment Period in connection with the failure of the Issuer to satisfy an Overcollateralization Test. Any such payments of the Outstanding Class A1-VF Funded Amount during the Reinvestment Period shall permanently reduce the Remaining Unfunded Facility Commitment by the amount of such payments. In addition, the Issuer may redeem the Secured Notes, in whole but not in part, at the applicable Redemption Price therefor on any Distribution Date occurring after the last day of the Reinvestment Period under the circumstances described in "Description of the Secured Notes—Optional Redemption and Tax Redemption," "— Mandatory Redemption," "—Auction Call Redemption" and "— Priority of Payments—Interest Proceeds." Distributions on the Subordinated Notes:

On each Distribution Date, to the extent that funds are available for such purposes, Interest Proceeds will be released from the lien of the Indenture for payment to the Subordinated Note Issuing and Paying Agent only after the payment of interest and, in the case of the Class A1-VF Notes, Commitment Fee, on the Secured Notes and certain

11

other amounts in accordance with the Priority of Payments. Until the Outstanding Class A1-VF Funded Amount and the Remaining Unfunded Facility Commitment have been reduced to zero and the Funded Secured Notes have been paid in full, Principal Proceeds are not permitted to be released from the lien of the Indenture and will not be available to make distributions in respect of the Subordinated Notes. After the Outstanding Class A1-VF Funded Amount and the Remaining Unfunded Facility Commitment have been reduced to zero and the Funded Secured Notes have been paid in full, Principal Proceeds remaining after all other applications under the Priority of Payments will be released from the lien of the Indenture in accordance with the Priority of Payments and paid to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders on each Distribution Date. Distributions will be made in cash. See "Description of the Subordinated Notes— Distributions." If any of the Overcollateralization Tests is not satisfied on the Determination Date related to any Distribution Date, funds that would otherwise be distributed to Subordinated Noteholders on the related Distribution Date (subject to the payment of certain other amounts prior thereto) may be used instead, first, to pay the Outstanding Class A1-VF Funded Amount, second, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and, third, to repay principal of the Investment Grade Funded Secured Notes sequentially in direct order of Seniority until each applicable Overcollateralization Test is satisfied. If the Class E Interest Diversion Test is not satisfied on the Determination Date related to any Distribution Date, Interest Proceeds that would otherwise be distributed to Subordinated Noteholders on the related Distribution Date (subject to the payment of certain other amounts prior thereto) may be used instead to repay principal of the Class E Notes until the Class E Interest Diversion Test is satisfied. See "Description of the Subordinated Notes— Distributions." In addition, on the Distribution Date occurring in November 2014 (the "Note Acceleration Date") and on each Distribution Date thereafter, if the Secured Notes are not redeemed in full prior to such date, Interest Proceeds that would otherwise be released from the lien of the Indenture and paid to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders will be applied, (i) first, to the payment of principal of the Funded Secured Notes in the following order: first, the Class E Notes (until the Class E Notes have been paid in full), second, the Class D Notes (until the Class D Notes have been paid in full), third, the Class C Notes (until the Class C Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class B1 Notes (until the Class B1 Notes have been paid in full), sixth, the Class A2B Notes (until the Class A2B Notes have

12

been paid in full) and seventh, the Class A2A Notes (until the Class A2A Notes have been paid in full), and (ii) thereafter, first, to the payment of the Outstanding Class A1-VF Funded Amount (until the Outstanding Class A1-VF Funded Amount is reduced to zero) and second, to the reduction of the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account. See "Description of the Secured Notes—Mandatory Redemption" and "—Priority of Payments—Interest Proceeds." Mandatory Redemption:

Each Class of Investment Grade Funded Secured Notes shall, on any Distribution Date, be subject to mandatory redemption to the extent that funds are available in accordance with the Priority of Payments in the event that any Overcollateralization Test is not satisfied on the related Determination Date. Any such redemption will be effected, first, from Uninvested Proceeds, second, from Interest Proceeds and, third (to the extent that the application of Interest Proceeds pursuant to the Priority of Payments would be insufficient to cause such tests to be satisfied), from Principal Proceeds, in each case, to the extent necessary to cause each applicable Overcollateralization Test to be satisfied. Any such redemption will be applied, first, to the payment of the Outstanding Class A1-VF Funded Amount, second, to the reduction of the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and, third, to the repayment of the Investment Grade Funded Secured Notes (sequentially in direct order of Seniority) in accordance with the Priority of Payments. On the Note Acceleration Date and on each Distribution Date thereafter, if the Secured Notes are not redeemed in full prior to such date, Interest Proceeds that would otherwise be released from the lien of the Indenture and paid to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders will be applied (i) first, to the payment of principal of the Funded Secured Notes in the following order: first, the Class E Notes (until the Class E Notes have been paid in full), second, the Class D Notes (until the Class D Notes have been paid in full), third, the Class C Notes (until the Class C Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class B1 Notes (until the Class B1 Notes have been paid in full), sixth, the Class A2B Notes (until the Class A2B Notes have been paid in full) and seventh, the Class A2A Notes (until the Class A2A Notes have been paid in full); and (ii) thereafter, first, to the payment of the Outstanding Class A1-VF Funded Amount (until the Outstanding Class A1-VF Funded Amount is reduced to zero) and second, to the reduction of the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account. See "Description of the Secured Notes—Mandatory Redemption" and "—Priority of Payments—Interest Proceeds."

13

In addition, if on any Distribution Date, if the Class E Interest Diversion Ratio on the related Determination Date is lower than 100.68%, any Interest Proceeds remaining for distribution under paragraph (15) under the heading "Description of the Secured Notes—Priority of Payments—Interest Proceeds" will be applied to pay principal of the Class E Notes in accordance with the Priority of Payments with respect to Interest Proceeds. See "Description of the Secured Notes—Principal," "—Mandatory Redemption" and "— Priority of Payments—Interest Proceeds." Optional Redemption and Tax Redemption of the Secured Notes:

Subject to certain conditions described herein, on any Distribution Date occurring on or after the Distribution Date occurring in February 2011, a Majority of Subordinated Noteholders may direct the Issuer to redeem the Secured Notes in whole but not in part, in each case at the applicable Redemption Price therefor. See "Description of the Secured Notes—Optional Redemption and Tax Redemption." In addition, upon the occurrence of a Tax Event, the Issuer may redeem the Secured Notes (such redemption, a "Tax Redemption"), in whole but not in part on the relevant Distribution Date, at the applicable Redemption Price, (i) at the written direction of a Majority of any Class of Secured Notes that, as a result of the occurrence of such Tax Event, has not received or will not receive 100% of the aggregate amount of principal and interest (and, in the case of the Class A1-VF Notes, Commitment Fee) payable to such Class on any Distribution Date (each such Class, an "Affected Class") or (ii) at the direction of a Majority of the Subordinated Noteholders. No Tax Redemption may be completed unless the Tax Materiality Condition is satisfied. Any such redemption may only be effected on a Distribution Date and only from (a) the Disposition Proceeds of the Collateral and (b) all other funds in the Accounts (other than in any Hedge Counterparty Collateral Account, any Asset Hedge Account, any Synthetic Security Counterparty Account, the Class A1-VF Noteholder Account, each Class A1-VF Prepayment Account and any Synthetic Security Issuer Account to the extent the Issuer is not entitled to the amounts in such Accounts). No redemption may be effected, however, unless funds under clauses (a) and (b) are sufficient to redeem all of the Funded Secured Notes, to pay the Outstanding Class A1-VF Funded Amount and to reduce the Remaining Unfunded Facility Commitment to zero and to pay any other amounts accrued and unpaid or otherwise owed to the holders of the Class A1-VF Notes, the Hedge Counterparties, the Portfolio Manager and the Credit Default Swap Counterparty, and to pay certain other amounts in accordance with the procedures set forth in

14

the Indenture. See "Description of the Secured Notes—Optional Redemption and Tax Redemption." Auction Call Redemption:

Optional Redemption of the Subordinated Notes:

Security for the Secured Notes:

If the Secured Notes have not been redeemed in full prior to the Note Acceleration Date, then (i) an auction of the Cash Collateral Debt Securities will be conducted by the Trustee on behalf of the Issuer in accordance with the Auction Procedures, (ii) the Trustee will request that the calculation agent under the Credit Default Swap Agreement determine the Liquidation Proceeds payable by or to the Issuer under the CDS Transactions in accordance with the Liquidation Procedures and (iii) the Trustee will request that the calculation agent under each Synthetic Security determine the net termination or assignment payment payable by or to the Issuer assuming a termination or assignment date for the relevant Synthetic Security six Business Days prior to the relevant Distribution Date. Provided that certain conditions set forth in the Indenture are satisfied, the Collateral Debt Securities will be Disposed of and the Secured Notes will be redeemed on the Note Acceleration Date. If such conditions are not satisfied and the auction is not successfully conducted on the Note Acceleration Date, the Trustee, in conjunction with the Portfolio Manager, will conduct auctions on a quarterly basis until the Secured Notes are redeemed in full. See "Description of the Secured Notes— Auction Call Redemption." Subject to certain conditions described herein, if the Subordinated Notes are not otherwise redeemed in connection with a redemption of the Secured Notes, on any Distribution Date on or after the Distribution Date on which the Secured Notes have been paid in full and the Commitment Termination Date has occurred, a Majority of Subordinated Noteholders may direct the Issuer to liquidate any remaining assets and redeem the Subordinated Notes (in whole but not in part), at the redemption price therefor. See "Description of the Subordinated Notes—Optional Redemption." Pursuant to the Indenture, the Secured Notes, together with the Issuer's obligations to the Portfolio Manager, the Trustee, the Credit Default Swap Counterparty under the Credit Default Swap Agreement and the Hedge Counterparties under the Hedge Agreements (or, where particular Secured Parties are specified as the beneficiaries of the security interest with respect to items of personal property identified in any of the clauses below, the Issuer’s obligations to such Secured Parties only), will be secured by: (i) the Collateral Debt Securities and Equity Securities; (ii) the Accounts (excluding any Class A1-VF Prepayment Account and the Class A1VF Noteholder Account (other than income from the investment of funds in the Class A1-VF Noteholder Account) and subject, (1) in the case of any Synthetic Security Counterparty Account, to the prior lien of the relevant Synthetic Security Counterparty and (2) in the case of each Asset Hedge Account, to the prior lien of the relevant Asset Hedge Counterparty) and the Reserve Account Investments,

15

Eligible Investments and U.S. Agency Securities Acquired with funds on deposit in said Accounts and all income from the investment of funds therein; (iii) for the benefit of first, the Credit Default Swap Counterparty (to the extent necessary to secure the Issuer's obligations under the Credit Default Swap Agreement) and second, the other Secured Parties, the Issuer's rights as beneficiary of the Trustee's security interest in each Class A1-VF Prepayment Account and the funds on deposit therein; (iv) the Issuer's right to any investment income in any Synthetic Security Counterparty Account, Asset Hedge Account or the Class A1-VF Noteholder Account; (v) the rights of the Issuer under the Hedge Agreements, the GIC and the Credit Default Swap Agreement; (vi) for the benefit of the Credit Default Swap Counterparty and the holders of the Class A2A Notes, the Class A2B Notes, the Class B1 Notes and the Class B2 Notes only, the rights of the Issuer under the Variable Funding Note Purchase Agreement to make Borrowings and Deemed Borrowings in respect of (a) amounts owing by the Issuer to the Credit Default Swap Counterparty under the Credit Default Swap Agreement and (b) any Senior Interest Shortfall; (vii) the rights of the Issuer under the Management Agreement, the Collateral Administration Agreement, the Purchase Agreement, the Subordinated Note Issuing and Paying Agency Agreement and the Investor Application Forms; (viii) for the benefit of the Class A1-VF Noteholders and, to the extent that amounts in the Class A1-VF Noteholder Account are used to make Credit Protection Payments in respect of Interest Shortfalls, the Credit Default Swap Counterparty, the Class A1-VF Noteholder Account and Eligible Investments Acquired with funds on deposit in such Account (excluding any income received by the Issuer from the investment of such funds in Eligible Investments); (ix) all cash delivered to the Trustee in such capacity; and (x) all proceeds of the foregoing (collectively, the "Collateral"). In the event of any realization on the Collateral, proceeds will be allocated to the payment of each Class of Secured Notes and to certain other expenses in accordance with the respective priorities established by the Priority of Payments. The Collateral does not include the Excepted Property or the Excluded Assets. The "Excluded Assets" consist of (a) the account designated the "Subordinated Note Distribution Account" established pursuant to the Subordinated Note Issuing and Paying Agency Agreement (the "Subordinated Note Distribution Account") or any amounts on deposit therein, (b) any assets of the Co-Issuer or (c) except as set forth in clauses (iii), (iv) and (viii) above, any Class A1-VF Prepayment Account, the Class A1-VF Noteholder Account, any Synthetic Security Counterparty Account and each Asset Hedge Account. The Subordinated Notes are not secured obligations of the Issuer. Acquisitions and Dispositions of Collateral:

On the Closing Date, the Issuer will have Acquired Collateral Debt Securities (assuming settlement in accordance with customary

16

settlement procedures in the relevant markets on such day of all agreements entered into by the Issuer to Acquire Collateral Debt Securities and enter into CDS Transactions and other Synthetic Securities scheduled to settle on or following such day) having an Aggregate Principal Balance of not less than U.S.$750,000,000. Approximately 81% of the portfolio (by Aggregate Principal Balance) is expected to consist of CDS Transactions on the Closing Date. The Collateral Debt Securities Acquired by the Issuer, will, on the date of Acquisition, have the characteristics and satisfy the criteria set forth herein under "Security for the Secured Notes—Collateral Debt Securities" and "—Eligibility Criteria". Although the Issuer expects that the Collateral Debt Securities Acquired by it on the Closing Date will satisfy the Collateral Quality Tests, the Overcollateralization Tests, the Pro Rata Payment Test and the Class E Interest Diversion Test described herein, there is no assurance that such tests will be satisfied on such date. Failure to satisfy such tests following the Closing Date may result in the repayment or redemption of a portion of the Secured Notes (according to the priority specified in the Priority of Payments). See "Description of the Secured Notes—Mandatory Redemption." During the Reinvestment Period, Principal Proceeds (including those resulting from Dispositions, maturities or redemptions of Collateral Debt Securities) may be reinvested in Collateral Debt Securities (including Synthetic Securities) if the reinvestment criteria set forth below under "—Eligibility Criteria" are satisfied or, if applicable, the extent of compliance is maintained or improved. See "—Eligibility Criteria." Unless terminated earlier as described herein under "Risk Factors—Early Termination of the Reinvestment Period," the Reinvestment Period will terminate on the Distribution Date occurring in February 2011. Liquidation of Collateral Debt Securities:

On the Stated Maturity of the Notes, or in connection with any Optional Redemption, Tax Redemption or Auction Call Redemption, the Collateral Debt Securities will be Disposed of and the Reserve Account Investments, Eligible Investments and other Collateral will be liquidated. All net proceeds from such liquidation and all available cash will be applied to the payment (in the order of priorities set forth under "Description of the Secured Notes—Priority of Payments") of all (i) fees, (ii) expenses (including amounts due to the Hedge Counterparty, the GIC Provider, the Credit Default Swap Counterparty or the Portfolio Manager) and (iii) principal of and interest (including any Defaulted Interest, interest on Defaulted Interest and any Class C Deferred Interest, Class D Deferred Interest or Class E Deferred Interest and any interest thereon) on the Secured Notes. Net proceeds from such liquidation and available cash remaining after all payments required pursuant to the Indenture and

17

the payment of the costs and expenses of such liquidation, the establishment of adequate reserves to meet all contingent, unliquidated liabilities or obligations of the Issuer, the payment to the Subordinated Noteholders of the aggregate outstanding amount of the Subordinated Notes, the return of U.S.$250 of capital to the owner of the Issuer's ordinary shares and the payment of a U.S.$250 profit fee to the owner of the Issuer's ordinary shares and interest thereon will be distributed to the Subordinated Noteholders in accordance with the Subordinated Note Issuing and Paying Agency Agreement. The Credit Default Swap Agreement:

On or prior to the Closing Date, the Issuer will enter into a 1992 ISDA Master Agreement (Multicurrency-Cross Border) (together with the schedule and any confirmations thereto, the "Credit Default Swap Agreement") with The Royal Bank of Scotland plc (in such capacity, the "Credit Default Swap Counterparty"), for the purpose of entering into Synthetic Securities in the form of credit default swap transactions (each, a "CDS Transaction") under which the Issuer will acquire or sell synthetic exposure to the related Reference Obligations. The Credit Default Swap Counterparty shall have no responsibility to oversee compliance by the Issuer or the Portfolio Manager with their respective representations, warranties and covenants under the Indenture and Management Agreement (including, without limitation, with respect to the Eligibility Criteria) insofar as they relate to Acquisitions or Dispositions of CDS Transactions. The short-term unsecured and unguaranteed debt obligations of the Credit Default Swap Counterparty are currently rated "A-1+" by Standard & Poor's and "P1" by Moody's. The longterm, unsecured, unsubordinated and unguaranteed debt obligations of the Credit Default Swap Counterparty are currently rated "AA" by Standard & Poor's and "Aa1" by Moody's. Each CDS Transaction will be entered into under a separate letter of execution in the form attached to a master confirmation and constitute a separate transaction under the Credit Default Swap Agreement. It is currently expected that the aggregate Notional Amount of CDS Transactions will be approximately equal to U.S.$605,014,000 as of the Closing Date. All of the CDS Transactions will be subject to the Collateral Quality Tests and the Eligibility Criteria to the extent described herein. All CDS Transactions will be documented by a Form-Approved Synthetic Security that is substantially in the form of the "Credit Derivative Transaction on Mortgage-Backed Security With Pay-AsYou-Go or Physical Settlement (Form I) (Dealer Form)" template confirmation published by ISDA in April 2006, designed for use primarily with RMBS Securities and CMBS Securities or the "Credit Derivative Transaction on Collateralized Debt Obligation With Pay-

18

As-You-Go or Physical Settlement (Dealer Form)" template confirmation published by ISDA in June 2006, as amended in August 2006 (relating to CDO Securities). The Credit Events applicable to each CDS Transaction are: (i) Failure to Pay Principal, (ii) Writedown, (iii) Distressed Ratings Downgrade and (iv) if the related Reference Obligation is a CDO Security, Failure to Pay Interest. Upon the occurrence of any such Credit Event, the buyer of protection may elect, at its option, to deliver the Reference Obligation to the seller of protection, in which event the seller of protection must pay the Physical Settlement Amount to the buyer of protection, provided that with respect to a Failure to Pay Interest in connection with a PIKable Reference Obligation, physical settlement may only occur if 360 days have elapsed since the occurrence of the Failure to Pay Interest without the relevant interest shortfall having been reimbursed in full. In addition to the Credit Events that trigger physical settlement, at the option of the buyer of protection, the Form Approved Synthetic Security requires the protection seller to pay floating amounts to the protection buyer in amounts equal to any principal shortfalls, writedowns and interest shortfalls upon the occurrence thereof (any such payment, a "Credit Protection Payment"). The protection buyer will be required to reimburse all or part of such Credit Protection Payments to the protection seller if they are paid by the Reference Obligor to holders of the Reference Obligation, within one year (or, in the case of a CDS Transaction with respect to which the related Reference Obligation is a CDO Security, within three years) after termination of the applicable CDS Transaction. A Writedown, a Failure to Pay Principal or, under certain circumstances as described above, a Failure to Pay Interest in respect of a Reference Obligation will entitle the protection buyer to elect whether to deliver a Credit Event Notice or require a Credit Protection Payment under the related CDS Transaction. Under each CDS Transaction, the parties to the CDS Transaction will elect to cap the interest shortfall risk being transferred to the protection seller by limiting amounts to be paid by the protection seller to the protection buyer to a fixed or (in the case of a CDO CDS Transaction only) variable capped amount. If the fixed cap applies (as will always be the case with MBS CDS Transactions), the capped amount will be equal to the amount of Premium payable by the protection buyer under the CDS Transaction on the first Premium payment date immediately following the Reference Obligation payment date on which the relevant Interest Shortfall occurred. If the variable cap applies (as is currently expected to be the case with CDO CDS Transactions), the capped amount will be adjusted to take into account interest rate fluctuations and may result in an Interest Shortfall that exceeds the amount of Premium payable by the protection buyer to the protection seller on such date. A CDS Transaction pursuant to which the Issuer is acting as a seller of protection with respect to the related Reference Obligation is

19

referred to herein as a "Long CDS Transaction". The Portfolio Manager may, instead of terminating or assigning a Long CDS Transaction, cause the Issuer to enter into a Short CDS Transaction under which the Issuer buys protection from the Credit Default Swap Counterparty with respect to the Reference Obligation of such Long CDS Transaction (a "Hedging Short CDS Transaction") but only if the Premium (inclusive of any intermediation fee payable to the Credit Default Swap Counterparty) payable by the Issuer under such Hedging Short CDS Transaction is equal to or less than the Counterparty Premium (as the same may be reduced by any intermediation fee payable to the Credit Default Swap Counterparty) payable by the Counterparty under the related Hedged Long CDS Transaction. If the Issuer has entered into a Hedging Short CDS Transaction, the related Long CDS Transaction or portion of the Notional Amount thereof that is subject to the Hedging Short CDS Transaction is referred to herein as a "Hedged Long CDS Transaction". A Long CDS Transaction or portion of the Notional Amount thereof that is not subject to a related Hedging Short CDS Transaction is referred to herein as an "Unhedged Long CDS Transaction". A CDS Transaction pursuant to which the Issuer is acting as a buyer of protection with respect to the related Reference Obligation is referred to herein as a "Short CDS Transaction". The Credit Default Swap Counterparty is expected to seek to eliminate its credit exposure to the Reference Obligations by entering into back-to-back hedging transactions with Eligible Dealers which shall be identified by the Portfolio Manager when it obtains bids with respect to the Acquisition of any CDS Transaction (subject to the right of the Credit Default Swap Counterparty to match the highest bid obtained by the Portfolio Manager from an Eligible Dealer). Under such CDS Transactions in which the Credit Default Swap Counterparty enters into related back-to-back hedging transactions with Eligible Dealers, an intermediation fee equal to 0.02% will be payable by the Issuer to the Credit Default Swap Counterparty in respect of such CDS Transactions. The Offering:

The Notes are being offered only (a) in the United States in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") to (i) "Qualified Institutional Buyers" (as defined in Rule 144A under the Securities Act ("Rule 144A")) and (ii) Qualified Purchasers and (b) outside the United States in compliance with Regulation S ("Regulation S") under the Securities Act in offshore transactions to persons who are not U.S. Persons (as defined in Regulation S). A "Qualified Purchaser" means (i) a "qualified purchaser" as defined in Section 2(a)(51)(a) of the Investment Company Act of 1940, as amended (the "Investment Company Act") or (ii) a company each of whose beneficial owners is a qualified purchaser. Each Original

20

Purchaser of a Secured Note (other than a Class E Note) will be deemed, and each Original Purchaser of a Class E Note, Combination Note or Subordinated Note will be required in an investor application form (an "Investor Application Form"), to make certain acknowledgments, representations and agreements. See "Transfer Restrictions." Ratings:

Minimum Denomination of the Notes:

It is a condition to the issuance of the Notes that the Class A1-VF Notes be rated "AAA" by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"), "Aaa" by Moody's Investors Service, Inc. ("Moody's" and, together with Standard & Poor's, the "Rating Agencies"), that the Class A2A Notes be rated "AAA" by Standard & Poor's and "Aaa" by Moody's, that the Class A2B Notes be rated "AAA" by Standard & Poor's and "Aaa" by Moody's, that the Class B1 Notes be rated at least "AA" by Standard & Poor's and at least "Aa2" by Moody's, that the Class B2 Notes be rated at least "AA-" by Standard & Poor's and at least "Aa3" by Moody's, that the Class C Notes be rated at least "A" by Standard & Poor's and at least "A2" by Moody's, that the Class D Notes be rated at least "BBB" by Standard & Poor's and at least "Baa2" by Moody's, that the Class E Notes be rated at least "BB+" by Standard & Poor's and at least "Ba1" by Moody's and that the Combination Notes be rated at least "BBB" by Standard & Poor's and at least "Baa2" by Moody's. The rating of the Combination Notes will relate to the ultimate receipt of the initial Combination Note Rated Balance and the Combination Note Contingent Coupon. The Subordinated Notes will not be rated by any Rating Agency. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time. The Secured Notes, with the exception of the Class A1-VF Notes, will be issuable in a minimum denomination of U.S.$250,000 and will be offered only in such minimum denomination or an integral multiple of U.S.$1,000 in excess thereof. The Class A1-VF Notes will be issuable in a minimum denomination of U.S.$25,000,000 and will be offered only in such minimum denomination or an integral multiple of U.S.$5,000,000 in excess thereof. The Regulation S Global Subordinated Notes will be issuable in a minimum denomination of U.S.$100,000 and the Restricted Subordinated Notes will be issuable in a minimum denomination of U.S.$250,000 and, in each case, will be offered only in such minimum denomination or an integral multiple of U.S.$1,000 in excess thereof. The Combination Notes will be issuable in a minimum denomination of U.S.$1,000,000 and will be offered only in such minimum denomination or an integral multiple of U.S.$1,000 in excess thereof. After issuance, a Secured Note or Subordinated Note may fail to be in compliance with the minimum denomination requirement stated above as a result of the repayment of principal thereof in accordance with the Priority of Payments.

21

Form of the Notes:

Class A1-VF Notes initially sold or transferred to a U.S. Person or in the United States in reliance upon an exemption under Section 4(2) from the registration requirements of the Securities Act (the "Restricted Class A1-VF Notes") will be issued in the form of definitive, physical certificates without interest coupons attached, registered in the name of the legal and beneficial owner thereof. Class A1-VF Notes that are sold or transferred outside the United States to persons that are not U.S. Persons (the "Regulation S Class A1-VF Notes") will be issued in the form of definitive, physical certificates without interest coupons attached, registered in the name of the beneficial owner thereof. The Class A2A Notes, Class A2B Notes, Class B1 Notes, Class B2 Notes, Class C Notes and the Class D Notes (collectively, the "Investment Grade Funded Secured Notes") that are sold or transferred outside the United States to persons that are not U.S. Persons will be represented by one or more permanent global notes (each a "Regulation S Global Investment Grade Funded Secured Note") and the Class E Notes, Combination Notes and Subordinated Notes that are sold or transferred outside the United States to persons that are not U.S. Persons will be represented by one or more permanent global notes (each a "Regulation S Global Class E Note", a "Regulation S Global Combination Note" or a "Regulation S Global Subordinated Note", respectively; the Regulation S Class A1-VF Notes, the Regulation S Global Investment Grade Funded Secured Notes and Regulation S Global Class E Notes are referred to collectively as the "Regulation S Secured Notes"; the Regulation S Global Investment Grade Funded Secured Notes, Regulation S Global Class E Notes, Regulation S Global Subordinated Notes and Regulation S Global Combination Notes are referred to collectively as the "Regulation S Global Securities"), in each case, in definitive, fully registered form, without interest coupons, and deposited with the Trustee as custodian for, and registered in the name of, The Depository Trust Company ("DTC") or its nominee. Investment Grade Funded Secured Notes that are sold or transferred to a U.S. Person or in the United States in reliance upon an exemption from the registration requirements of the Securities Act will be represented by one or more permanent global notes ("Restricted Global Investment Grade Funded Secured Notes"; the Restricted Global Investment Grade Funded Secured Notes and the Regulation S Global Securities are collectively referred to as the "Global Securities") and will be represented by one or more permanent global notes in definitive, fully registered form, without interest coupons, and deposited with the Trustee as custodian for, and registered in the name of DTC or its nominee. Class E Notes and Subordinated Notes that are sold or transferred to a U.S. Person or in the United States in reliance upon an exemption from the registration requirements of the Securities Act will be represented by certificates ("Restricted Class E Notes" or "Restricted Subordinated Notes",

22

respectively, and, collectively with the Restricted Class A1-VF Notes and the Restricted Global Investment Grade Funded Secured Notes, "Restricted Securities") in definitive, fully registered form, registered in the name of the legal and beneficial owner thereof. No Class E Note (or any interest therein) may be directly or indirectly acquired by or transferred to a Benefit Plan Investor (as defined herein) except on the Closing Date, and then only to the extent that after giving effect to such transfer, less than 25% of the aggregate value of the Class E Notes would be held by Benefit Plan Investors. No Class E Note may be acquired by or transferred to a Controlling Person (as defined herein) at any time. No Subordinated Note (or any interest therein) may be directly or indirectly acquired by or transferred to a Benefit Plan Investor or a Controlling Person except on the Closing Date, and then only to the extent that after giving effect to such transfer, less than 25% of the aggregate value of the Subordinated Notes would be held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons. See "Certain ERISA and Related Considerations" and "Transfer Restrictions." Each Original Purchaser of a Class E Note will be required to certify whether or not it is a Benefit Plan Investor and that it is not a Controlling Person. Each Original Purchaser of a Subordinated Note will be required to certify whether it is a Benefit Plan Investor or a Controlling Person. No Combination Note may be directly or indirectly acquired by a Benefit Plan Investor or a Controlling Person. Each Original Purchaser and each subsequent transferee of a Combination Note will be required to certify (or in certain circumstances will be deemed to represent and warrant) that it is not and for so long as it holds such Combination Note will not be, and is not acting on behalf of, and for so long as it holds such Combination Note will not be acting on behalf of a Benefit Plan Investor or Controlling Person. Each subsequent transferee of a Class E Note or Subordinated Note after the Closing Date will be required to certify (or in certain circumstances will be deemed to represent and warrant) that it is not a Benefit Plan Investor or Controlling Person. Each Original Purchaser and each subsequent transferee of a Class E Note, Subordinated Note or Combination Note will be required to represent and warrant that it will not transfer such Class E Note or Subordinated Note to a Benefit Plan Investor or Controlling Person. "Benefit Plan Investor" means a Benefit Plan Investor as defined in Section 3(42) of ERISA and includes (1) any employee benefit plan subject to Part 4 of Title I of ERISA, (2) any plan that is subject to Section 4975 of the Code, and (3) any entity whose underlying assets include plan assets for purposes of ERISA or section 4975 of the Code by reason of a plan’s investment in such entity, including the general account of an insurance company, any of whose assets constitute plan assets under section 401(c) of ERISA and a wholly-owned subsidiary thereof. "Controlling Persons" include persons, other than Benefit Plan Investors, having discretionary authority or control over the assets of

23

the Issuer or providing investment advice with respect to the assets of the Issuer for a fee, direct or indirect, or any affiliates of such persons. For this purpose, an "affiliate" of a person includes any person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the person. "Control", with respect to a person other than an individual, means the power to exercise a controlling influence over the management or policies of such person. No Combination Note may be acquired by or transferred to a Benefit Plan Investor at any time. Each Original Purchaser and each subsequent transferee of a Combination Note will be required to certify (or in certain circumstances will be deemed to represent and warrant) that it is not a Benefit Plan Investor and that it will not sell, pledge or otherwise transfer such Combination Note to a Benefit Plan Investor. Listing:

Application has been made to the Irish Financial Services Regulatory Authority, as competent authority under Directive 2003/71/EC, for a prospectus (the "Prospectus") to be approved. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulated market. No application has been made to list the Notes on any other stock exchange.

Listing Agent:

NCB Stockbrokers Limited, in its capacity as Irish listing agent with respect to the Notes, together with its successors and assigns in such capacity (the "Listing Agent").

Irish Paying Agent:

NCB Stockbrokers Limited, in its capacity as Irish paying agent with respect to the Notes, together with its successors and assigns in such capacity (the "Irish Paying Agent").

Governing Law:

The Secured Notes, the Indenture, the Investor Application Forms, each Hedge Agreement, the Collateral Administration Agreement, the GIC, the Subordinated Note Issuing and Paying Agency Agreement, the Credit Default Swap Agreement, the Variable Funding Note Purchase Agreement and the Note Purchase Agreement will be governed by, and construed in accordance with, the law of the State of New York. The Management Agreement will be governed by, and construed in accordance with, the laws of England and Wales. The Administration Agreement will be governed by, and construed in accordance with, the law of the Cayman Islands.

Tax Matters:

See "Income Tax Considerations."

Benefit Plan Investors:

See " ERISA and Certain Related Considerations."

24

RISK FACTORS An investment in the Notes involves certain risks. Prospective investors should carefully consider the following factors, in addition to the matters set forth elsewhere in this Offering Memorandum, prior to investing in the Notes. Investors in Combination Notes have the risks associated with Secured Notes and Subordinated Notes that comprise their Components. See "-Combination Notes" below. Investor Sophistication; No Advice Given. An investment in the Notes is not suitable for all investors and is appropriate only for an investor capable of (a) analyzing and assessing the risks associated with defaults, losses and recoveries on, reinvestment of proceeds of and other characteristics of assets such as those included in the Collateral and (b) bearing such risks and the financial consequences thereof as they relate to an investment in the Notes. Investors should be aware that they may be required to bear the financial risks of an investment in the Notes for an indefinite period of time. The contents of this Offering Memorandum are not to be construed as legal, business or tax advice. Each prospective investor should consult its own attorney, business advisor and tax advisor as to legal, business and tax advice. It is expected that prospective investors interested in participating in this offering are willing and able to conduct an independent investigation of the risks posed by an investment in the Notes. Limited Liquidity and Restrictions on Transfer. There is currently no market for the Notes. Although the Initial Purchaser may from time to time make a market in any Class of Secured Notes or Subordinated Notes, as the case may be, the Initial Purchaser is not under any obligation to do so. In the event that the Initial Purchaser commences any market-making, it may discontinue the same at any time without notice. There can be no assurance that a secondary market for any of the Notes will develop, or if a secondary market does develop, that it will provide the holders of such Notes with liquidity of investment or that it will continue for the life of the Notes. In addition, no sale, assignment, participation, pledge or transfer of the Notes may be effected if, among other things, it would require any of the Issuer, the Co-Issuer or any of their officers or directors to register under, or otherwise be subject to the provisions of, the Investment Company Act or any other similar legislation or regulatory action. Furthermore, the Notes will not be registered under the Securities Act or any state securities laws or the laws of any other jurisdiction, and the Issuer has no plans, and is under no obligation, to register the Notes under the Securities Act or under the laws of any other jurisdictions. The Notes are subject to certain transfer restrictions and can only be transferred to certain transferees as described under "Transfer Restrictions." Such restrictions on the transfer of the Notes may further limit their liquidity. Application has been made to the Irish Financial Services Regulatory Authority, as competent authority under Directive 2003/71/EC, for this Offering Memorandum to be approved. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulated market but there can be no assurance that such application will be approved. See "Listing and General Information." Limited-Recourse Obligations; Limited Source of Funds. The Secured Notes are joint and several limited-recourse obligations of the Co-Issuers, payable in accordance with the Priority of Payments solely from the Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities, Eligible Investments and other Collateral pledged by the Issuer as security for the obligations of the Co-Issuers in respect of the Secured Notes, and the Subordinated Notes are unsecured limited-recourse obligations of the Issuer. The Secured Notes are payable solely from the Collateral Debt Securities and other Collateral pledged by the Issuer to secure the Secured Notes. The Subordinated Notes are payable solely from proceeds of the Collateral released from the lien of the Indenture in accordance with the Priority of Payments. Amounts available to the Trustee for the making of scheduled payments on the Secured Notes and the amounts available for distributions on the Subordinated Notes are payable solely from the Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities, Eligible Investments and other Collateral pledged by the Issuer to secure the Secured Notes in accordance with the Priority of 25

Payments. None of the holders of Notes, members, officers, directors, managers or incorporators of the Issuer, the Co-Issuer, the Trustee, the Administrator, any Rating Agency, the Share Trustee, the Portfolio Manager, the Hedge Counterparties, the GIC Provider, the Credit Default Swap Counterparty, the Initial Purchaser, any of their respective Affiliates and any other person or entity will be obligated to make payments on the Secured Notes or distributions on the Subordinated Notes. Consequently, the Noteholders must rely solely on amounts received in respect of the Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities, Eligible Investments and other Collateral pledged to secure the Secured Notes for the payment of principal thereof and interest thereon. There can be no assurance that the distributions on the Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities, Eligible Investments and other Collateral pledged by the Issuer to secure the Secured Notes will be sufficient to make payments on any Class of Secured Notes, in particular after making payments on more Senior Classes of Notes and certain other required amounts ranking Senior to such Class (including certain termination payments under the Credit Default Swap Agreement). The Issuer's ability to make payments in respect of any Class of Secured Notes will be constrained by the terms of the Notes of Classes more Senior to such Class and the Indenture. If distributions on the Collateral are insufficient to make payments on the Notes, no other assets will be available for payment of the deficiency and, following disposition of all the Collateral, the obligations of the Co-Issuers to pay such deficiencies will be extinguished and shall not thereafter revive. Other than amounts the Co-Issuers may be entitled to receive pursuant to certain limited indemnities, amounts received in respect of the Collateral Debt Securities and other Collateral pledged to secure the Secured Notes are the only source for payments of the expenses of the Co-Issuers, including any expenses incurred by the Co-Issuers in connection with any litigation. Subordination of Secured Notes. Payments of principal of and interest (and, in the case of the Class A1-VF Notes only, Commitment Fee) on the Secured Notes are subordinated to the payment of certain termination payments under the Credit Default Swap Agreement and certain other expenses of the Issuer. No payment of interest (and, in the case of the Class A1-VF Notes only, Commitment Fee) on and, except for certain applications of Interest Proceeds pursuant to the Priority of Payments, no payments of principal of any Class of Secured Notes will be made until all accrued and unpaid interest (and, in the case of the Class A1-VF Notes only, Commitment Fee) on the Secured Notes of each Class that is Senior to such Class and that remain outstanding has been paid in full, except that (a) on any Distribution Date that occurs prior to the Note Acceleration Date and that is a Pro Rata Distribution Date, Principal Proceeds will be applied, on a pro rata basis, to (i) pay the Outstanding Class A1-VF Funded Amount, (ii) reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and (iii) pay principal of the Class A2A Notes, Class A2B Notes, Class B1 Notes, Class B2 Notes, Class C Notes, Class D Notes and Class E Notes (with such pro rata allocation for purposes of clauses (i), (ii) and (iii) to be based upon the Outstanding Class A1-VF Funded Amount, the Remaining Unfunded Facility Commitment and the respective outstanding aggregate principal amounts of the Funded Secured Notes after giving effect to distributions made on such Distribution Date prior to such pro rata payment), except that the portion, if any, of the Principal Proceeds which consists of Deferred Funded Secured Notes Principal and the Funded Secured Note Reduction Amount will be applied to pay the principal of the Funded Secured Notes pro rata in accordance with the respective outstanding aggregate principal amounts of the Funded Secured Notes prior to and without regard to the Outstanding Class A1-VF Funded Amount or Remaining Unfunded Facility Commitment (see "Description of the Secured Notes—Priority of Payments") and (b) if, on any Distribution Date, the Class E Interest Diversion Ratio on the related Determination Date is lower than 100.68%, any Interest Proceeds remaining for distribution under paragraph (15) under the heading "Description of the Secured Notes— Priority of Payments—Interest Proceeds" will be applied to pay principal of the Class E Notes in accordance with the Priority of Payments with respect to Interest Proceeds (see "Description of the 26

Secured Notes—Principal," "—Mandatory Redemption" and "—Priority of Payments—Interest Proceeds"). If an Event of Default occurs, a Majority of the Controlling Class will be entitled to determine the remedies to be exercised under the Indenture. So long as any Class A Notes or Class B Notes are outstanding (or the Commitment Termination Date has not yet occurred), the failure on any Distribution Date to make payment in respect of interest on the Class C Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class C Notes that is not paid when due by operation of the Priority of Payments will be deferred. So long as any Class A Notes, Class B Notes or Class C Notes are outstanding (or the Commitment Termination Date has not yet occurred), the failure on any Distribution Date to make payment in respect of interest on the Class D Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class D Notes that is not paid when due by operation of the Priority of Payments will be deferred. So long as any Class A Notes, Class B Notes, Class C Notes or Class D Notes are outstanding (or the Commitment Termination Date has not yet occurred), the failure on any Distribution Date to make payment in respect of interest on the Class E Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class E Notes that is not paid when due by operation of the Priority of Payments will be deferred. In the event of any realization on the Collateral, proceeds will be allocated to the Secured Notes and to payment of certain other amounts in accordance with the Priority of Payments prior to any distributions to the Subordinated Noteholders. See "Description of the Secured Notes—The Indenture" and "—Priority of Payments." Remedies pursued by the holders of the Class or Classes of Secured Notes entitled to determine the exercise of such remedies could be adverse to the interests of the holders of the other Classes of Secured Notes and to the holders of the Subordinated Notes. To the extent that any losses are suffered by any of the holders of any Notes, such losses will be borne, first, by the holders of the Subordinated Notes, second, by the holders of the Class E Notes, third, by the holders of the Class D Notes, fourth, by the holders of the Class C Notes, fifth, by the holders of the Class B2 Notes, sixth, by the holders of the Class B1 Notes, seventh, by the holders of the Class B1 Notes, eighth, by the holders of the Class A2B Notes, ninth, by the holders of the Class A2A Notes and tenth, by the holders of the Class A1-VF Notes. On any Distribution Date following the occurrence of an Event of Default and the acceleration of the maturity of the Notes (the "Post-Acceleration Distribution Date"), the Trustee will continue to make payments of interest and principal on the Notes in accordance with the same Priority of Payments as was applicable prior to such acceleration, and as a result a Class of Secured Notes that is subordinate to such Class of Notes may continue to receive payments of interest (and in limited circumstances payments of principal from Interest Proceeds) prior to the date on which the entire principal amount of the Classes of Notes that are senior to such Class of Notes has been paid in full. The Collateral will not be liquidated unless one of the two conditions described under "Description of the Secured Notes—The Indenture— Events of Default" is satisfied. If any such condition is satisfied and the Collateral is liquidated, the proceeds of the Collateral will be applied to pay interest and principal on the Notes in accordance with the Priority of Payments. However, there can be no assurance that the conditions to liquidation of the Collateral will be satisfied, and in any event the Trustee may not direct the liquidation of the Collateral (i) in the case where the Trustee has determined that the proceeds of such liquidation would be sufficient to pay the Outstanding Class A1-VF Funded Amount, reduce the Remaining Exposure under the CDS Transactions to zero, pay all amounts owed to the holders of the Funded Secured Notes, the Hedge Counterparties and the Credit Default Swap Counterparty and pay any amounts owed to the Portfolio Manager in respect of the Senior Portfolio Management Fee, the Subordinated Portfolio Management Fee and certain administrative expenses, unless a Majority of the Controlling Class approves of such determination by the Trustee, which approval may or may not be given or (ii) unless it receives a direction to Dispose of the Collateral from holders of 662/3% of the aggregate outstanding amount of each 27

Class of Secured Notes, voting as a separate Class, the Credit Default Swap Counterparty and each Hedge Counterparty, any of which may determine not to direct such liquidation. The Secured Notes will Continue to be Paid in Accordance With the Priority of Payments Following an Event of Default. Following an Event of Default and acceleration of the maturity of the Secured Notes, payments of interest on the Secured Notes shall continue to be made in accordance with the Priority of Payments. As a result, interest on Subordinate Classes of Secured Notes (as well as other amounts set forth in the Priority of Payments) may continue to be paid prior to the payment in full of the principal amount of Senior Classes of Notes, except as provided in the Priority of Payments in the case of a breach of an Overcollateralization Test. Status of Subordinated Notes; Payments in Respect of the Subordinated Notes. The Subordinated Notes are not secured by the Collateral Debt Securities or any of the other Collateral securing the Secured Notes. There can be no assurance that, after payment of principal of, and interest and Commitment Fee on, the Secured Notes and other fees and expenses of the Co-Issuers in accordance with the Priority of Payments, the Issuer will have funds remaining to make distributions in respect of the Subordinated Notes. There can be no assurance that the Issuer will have sufficient funds to make distributions in respect of the Subordinated Notes in an amount equal to the principal amount of the Subordinated Notes. The failure to make distributions in respect of the Subordinated Notes in an amount equal to the principal amount of the Subordinated Notes on or prior to their Stated Maturity shall not be an Event of Default. The rights of the Subordinated Noteholders to receive payments will rank behind the rights of the Credit Default Swap Counterparty, the Secured Noteholders, the Portfolio Manager and any Hedge Counterparties. The Issuer, pursuant to the Indenture, has pledged substantially all of its assets to secure the Secured Notes and certain other obligations of the Issuer. The proceeds of such assets will only be available to make payments in respect of the Subordinated Notes as and when such proceeds are released in accordance with the Priority of Payments. See "Description of the Secured Notes—Priority of Payments." If an Event of Default occurs, as long as any Secured Notes are outstanding, the holders of the Secured Notes, as the case may be, will be entitled to determine the remedies to be exercised under the Indenture, including in certain circumstances, the right to declare an acceleration of the Secured Notes and to initiate the liquidation and sale of all of the Collateral without obtaining the consent of the holders of the Subordinated Notes. Subsequent to an acceleration of the maturity of the Secured Notes after an Event of Default, distributions will not be made on the Subordinated Notes until the entire principal amount of and interest and Commitment Fee on the Secured Notes has been paid in full. To the extent that any losses are suffered by any of the holders of any Notes, such losses will be borne in the first instance by the holders of the Subordinated Notes. A significant amount of the initial proceeds from the sale of the Subordinated Notes will be applied to pay expenses incurred by the Issuer in arranging the offering of the Secured Notes and the Subordinated Notes and to make payments, if any, to the Hedge Counterparties and the Credit Default Swap Counterparty on the Closing Date, rather than to make investments in Collateral Debt Securities. As a result, on the Closing Date the market value of the Collateral will be significantly less than the aggregate principal amount of the Secured Notes and the aggregate principal amount of the Subordinated Notes. In addition, Excess Interest will generally be paid to the Subordinated Note Issuing and Paying Agent for distribution to the holders of the Subordinated Notes, rather than reinvested in additional Collateral Debt Securities. Consequently, after payments on the Secured Notes and the other expenses of the Issuer payable prior to payments to the Subordinated Note Issuing and Paying Agent for distributions in respect of the Subordinated Notes, it is possible that there will be no Principal Proceeds available to pay to the Subordinated Note Issuing and Paying Agent for distribution to the holders of the Subordinated Notes, and, even if there are Principal Proceeds available for payment on the Subordinated Notes, it is 28

highly likely that such proceeds will be insufficient to pay the aggregate principal amount of the Subordinated Notes. Therefore, holders of Subordinated Notes will rely on the distribution of Excess Interest for their ultimate return. Consequently, purchasers of the Subordinated Notes bear a high risk of losing all or part of their original investment. Any amounts that are released from the lien of the Indenture for distribution to the Subordinated Noteholders in accordance with the Priority of Payments on any Distribution Date will not be available to make payments in respect of the Secured Notes on any subsequent Distribution Date. Volatility of the Subordinated Notes. The Subordinated Notes represent a leveraged investment in the underlying Collateral. Therefore, it is expected that changes in the value of the Subordinated Notes will be greater than the change in the value of the underlying Collateral Debt Securities, which themselves are subject to credit, liquidity, interest rate and other risks. Utilization of leverage is a speculative investment technique and involves certain risks to investors. The indebtedness of the Issuer under the Secured Notes will result in interest expense and other costs incurred in connection with such indebtedness that may not be covered by proceeds received from the Collateral. The use of leverage generally magnifies the Issuer's opportunities for gain and risk of loss. Subordinated Note Voting Rights. The holders of the Subordinated Notes have a variety of voting rights under the Indenture, the Subordinated Note Issuing and Paying Agency Agreement and the other transaction documents, including the right to direct an Optional Redemption or Tax Redemption, the exercise of which may materially and adversely affect the rights of the Secured Noteholders. See "Description of the Subordinated Notes—Voting Rights." Interest Rate Risk. The Secured Notes bear interest at floating rates based on LIBOR. Many of the Collateral Debt Securities will bear interest at fixed rates. Accordingly, the Secured Notes are subject to interest rate risk to the extent that there is an interest rate mismatch between the floating rate at which interest accrues on the Secured Notes and the rates at which interest accrues on many of the Collateral Debt Securities. In addition, any payments of principal of or interest on Collateral Debt Securities received during a Due Period will be reinvested in Eligible Investments maturing not later than the Business Day immediately preceding the next Distribution Date. In addition, certain Reference Obligations that are RMBS Securities have coupons that may fluctuate due to changes in the weighted average interest rate of the respective underlying mortgage loan portfolio. The timing and magnitude of these changes are subject to various parameters including the interest rate reset features of the underlying mortgages, the interest rate index or basis used to calculate the mortgage rate and the prepayment rate of the mortgage pool. There is no requirement that Reserve Account Investments or Eligible Investments bear interest at LIBOR, and the interest rates available for Reserve Account Investments and Eligible Investments are inherently uncertain. As a result of these mismatches, an increase in three-month LIBOR could adversely impact the ability of the Issuer to make payments on the Secured Notes (including by reason of a decline in the value of previously issued fixed rate Collateral Debt Securities as LIBOR increases). To mitigate a portion of such interest rate mismatch, the Issuer will on the Closing Date enter into the Interest Rate Hedge Agreements. However, there can be no assurance that the Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities and Eligible Investments, together with any Interest Rate Hedge Agreement, will in all circumstances generate sufficient Interest Proceeds to make timely payments of interest on the Secured Notes. Moreover, the benefits of any Interest Rate Hedge Agreement may not be achieved in the event of the early termination of such Interest Rate Hedge Agreement, including termination upon the failure of the related Hedge Counterparty to perform its obligations thereunder. See "Security for the Secured Notes—The Hedge Agreements." The notional amount of any interest rate swap or cap outstanding under any Interest Rate Hedge Agreement may, subject to satisfaction of the Rating Condition, be reduced in connection with the 29

payment of the Outstanding Class A1-VF Funded Amount, the reduction of the Remaining Unfunded Facility Commitment and the redemption of Secured Notes on any Distribution Date. In the event of any such reduction, the Interest Rate Hedge Counterparty or the Issuer may be required to make a termination payment in respect of such reduction to the other party. See "Security for the Secured Notes—The Hedge Agreements." Remedies Following an Event of Default. If an Event of Default occurs and is continuing, a Majority of the Controlling Class may direct the Trustee in the conduct of any proceedings for any remedies to be exercised under the Indenture, except that holders of at least 662/3% in aggregate outstanding principal amount (which, for such purposes, in the case of the Class A1-VF Notes shall be deemed to include the Remaining Unfunded Facility Commitment under the Class A1-VF Notes) of each Class of Secured Notes voting as a separate Class, the Credit Default Swap Counterparty and each Hedge Counterparty (unless no early termination or liquidation payment, including any accrued and unpaid amounts, would be owing by the Issuer to such Hedge Counterparty upon the termination thereof by reason of the occurrence of an event of default under any Hedge Agreement with respect to the Issuer), subject to the provisions of the Indenture, may direct the Disposition of the Collateral. Alternatively, the Trustee will Dispose of the Collateral following acceleration of the maturity of the Secured Notes if the Trustee determines that the anticipated net proceeds of a Disposition of such Collateral would be sufficient to pay the Outstanding Class A1-VF Funded Amount until it has been paid in full, reduce the Remaining Exposure under the CDS Transactions to zero, and pay all amounts owed to the holders of the Funded Secured Notes, certain administrative expenses (including any termination payments or other amounts that are or will become due to the Hedge Counterparties or the Credit Default Swap Counterparty) and other amounts owing to the Portfolio Manager in accordance with the Priority of Payments and a Majority of the Controlling Class agrees with such determination. If the sole Event of Default is an Event of Default described in clauses (i) or (ii) under "Description of the Secured Notes— The Indenture—Events of Default," then holders of Secured Notes which are not the Controlling Class at such time will not be authorized to direct the Trustee with respect to remedies proceedings or to direct the Disposition of the Collateral (as such rights will be retained by the Controlling Class). In the event that the Trustee has not Disposed of the Collateral subsequent to an Event of Default, the Trustee shall retain the Collateral intact and continue to apply all payments in respect of the Collateral in accordance with the Priority of Payments on each Distribution Date. It is anticipated that the Class A1VF Notes will be the Controlling Class for most, if not all, of the time that the Funded Secured Notes are outstanding. Accordingly, it is likely that the Class A1-VF Notes will have the right to direct the Trustee in the conduct of any proceeding for any remedies to be exercised under the Indenture after the occurrence of an Event of Default described in clauses (i) or (ii) under "Description of the Secured Notes—The Indenture—Events of Default." Subordination of Collateral Debt Securities. It is expected that a significant portion of the Collateral Debt Securities will generally be subordinated to one or more other classes of securities of the same series for purposes of, among other things, offsetting losses and other shortfalls with respect to the related underlying assets. In addition, in the case of certain ABS Type Residential Securities, no distributions of principal will generally be made with respect to any class until the aggregate principal balances of the more senior classes of securities have been reduced to zero. As a result, the subordinate classes are more sensitive to risk of loss and write-downs than senior classes. Payments to Specified Secured Parties not subject to the Priority of Payments. Each Synthetic Security Counterparty Account will be held in the name of the Trustee in trust solely for the benefit of the related Synthetic Security Counterparty (or the Credit Default Swap Counterparty, as applicable), and all deposits into, and payments made out of, a Synthetic Security Counterparty Account shall be made without regard to the Priority of Payments or the occurrence of any Event of Default. Payments will be 30

made to the Credit Default Swap Counterparty under the CDS Transactions from the Uninvested Proceeds Account, the Principal Collection Account, the Reserve Account and from Borrowings or Deemed Borrowings, without, in each case, regard to the Priority of Payments. See "Security for the Secured Notes—The Accounts—Synthetic Security Counterparty Accounts." Closing Date Purchases; Reinvestments. The amount of Collateral Debt Securities Acquired by the Issuer on the Closing Date, and the subsequent reinvestment of Principal Proceeds and Principal Amortization (subject to certain criteria as set forth herein), will affect the return to holders of, and cash flows available to make payments on, the Notes. Reduced liquidity and lower volumes of trading in certain Collateral Debt Securities, in addition to restrictions on investment contained in the Eligibility Criteria, could result in periods of time during which the Issuer is unable to be fully invested in Collateral Debt Securities. During any such period, excess cash is expected to be invested in Reserve Account Investments and Eligible Investments. Because of the short term nature and credit quality of Reserve Account Investments and Eligible Investments, the interest rates payable on Reserve Account Investments and Eligible Investments tend to be significantly lower than the rates the Issuer would expect to earn on Collateral Debt Securities. The longer the period before investment or reinvestment in Collateral Debt Securities, the greater the adverse impact may be on aggregate Interest Proceeds collected and distributed by the Issuer, resulting in a lower yield than could have been obtained if the net proceeds associated with the offering of the Notes (the "Offering") and all Principal Proceeds were immediately invested and remained invested at all times. If during the Reinvestment Period the Issuer does not Acquire additional CDS Transactions promptly after the Notional Amount of the existing CDS Transactions is reduced by Principal Amortization, the Interest Proceeds received by the Issuer will be reduced but the Commitment Fee payable by the Issuer to the holders of the Class A1-VF Notes will not be reduced during the Reinvestment Period (unless the Portfolio Manager elects to make a permanent reduction of the Remaining Unfunded Facility Commitment). The associated reinvestment risk on the Collateral Debt Securities will first be borne by holders of the Subordinated Notes and then by the holders of the Secured Notes in the reverse order of Seniority. In addition, the timing of the Acquisition of Collateral Debt Securities, the amount of any purchased accrued interest, the scheduled interest payment dates of the Collateral Debt Securities and the amount of the net proceeds associated with the offering of the Notes invested in the lower-yielding Reserve Account Investments and Eligible Investments (until reinvested in Collateral Debt Securities), may have a material effect on the amount of Interest Proceeds collected, which could adversely affect interest payments on Secured Notes and distributions on Subordinated Notes. Early Termination of the Reinvestment Period. Although the Reinvestment Period is expected to terminate on the Distribution Date occurring in February 2011, the Reinvestment Period may terminate prior to such date if (i) the Secured Notes are redeemed as described below under "Description of the Secured Notes—Optional Redemption and Tax Redemption" or (ii) an Event of Default occurs. In addition, on each Distribution Date prior to the last day of the Reinvestment Period, the Portfolio Manager may apply Principal Proceeds that would otherwise be retained in the Principal Collection Account to be invested in additional Collateral Debt Securities during the next succeeding Due Period to the redemption of the Secured Notes (i) if the Distribution Date is a Pro Rata Distribution Date, on a pro rata basis or (ii) otherwise, in order of Seniority. If the Reinvestment Period terminates prior to the Distribution Date occurring in February 2011, such early termination or occurrences may affect the expected average lives of the Secured Notes and the duration of the Subordinated Notes described under "Maturity, Prepayment and Yield Considerations." In addition, under certain circumstances described herein under "Security for the Secured Notes—Dispositions of Collateral Debt Securities," the Issuer will be prohibited from reinvesting Disposition Proceeds in additional Collateral Debt Securities, in which case such Disposition Proceeds 31

would be required to be invested in Reserve Account Investments and Eligible Investments, which may have a lower yield than the Collateral Debt Securities that were Disposed of. This may have a material adverse effect on the amount of Interest Proceeds collected, which could adversely affect interest payments on Secured Notes and distributions on Subordinated Notes. Mandatory Repayment of the Secured Notes. If any Overcollateralization Test applicable to a Class of Investment Grade Funded Secured Notes is not satisfied, first, Uninvested Proceeds, then, Interest Proceeds and, after application of Interest Proceeds, Principal Proceeds will be used, to the extent that funds are available in accordance with the Priority of Payments and to the extent necessary to restore the relevant Overcollateralization Test(s) to certain minimum required levels, first, to pay the Outstanding Class A1-VF Funded Amount, second, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and, third, to repay principal of one or more Classes of Investment Grade Funded Secured Notes sequentially in direct order of Seniority (after the payment of certain other amounts prior thereto). In addition, if on any Distribution Date, if the Class E Interest Diversion Ratio on the related Determination Date is lower than 100.68%, any Interest Proceeds remaining for distribution under paragraph (15) under the heading "Description of the Secured Notes— Priority of Payments—Interest Proceeds" will be applied to pay principal of the Class E Notes in accordance with the Priority of Payments with respect to Interest Proceeds. See "Description of the Secured Notes—Principal," "—Mandatory Redemption" and "—Priority of Payments—Interest Proceeds." On the Note Acceleration Date and on each Distribution Date thereafter, if the Secured Notes are not redeemed in full prior to such date, Interest Proceeds that would otherwise be released from the lien of the Indenture and paid to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders will be applied (i) first to the payment of principal of the Funded Secured Notes in the following order: first, the Class E Notes (until the Class E Notes have been paid in full), second, the Class D Notes (until the Class D Notes have been paid in full), third, the Class C Notes (until the Class C Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class B1 Notes (until the Class B1 Notes have been paid in full), sixth, the Class A2B Notes (until the Class A2B Notes have been paid in full) and seventh, the Class A2A Notes (until the Class A2A Notes have been paid in full), and (ii) thereafter, first, to the payment of the Outstanding Class A1-VF Funded Amount (until the Class A1-VF Funded Amount is reduced to zero) and, second, to the reduction of the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account. See "Description of the Secured Notes—Mandatory Redemption" and "—Priority of Payments—Interest Proceeds." Any of the foregoing could result in an elimination, deferral or reduction in the payments in respect of interest on the Subordinated Notes and/or interest or the principal repayments made to the holders of one or more Classes of Secured Notes that are Subordinate to any other outstanding Class of Secured Notes, which could adversely impact the returns of such holders, and Noteholders receiving payments of principal pursuant to any of the foregoing may not be able to reinvest such amounts in investments with a return greater than or equal to the Notes being redeemed. See "Description of the Secured Notes—Principal," "—Mandatory Redemption," "—Priority of Payments—Interest Proceeds" and "—Principal Proceeds." Auction Call Redemption. If the Secured Notes have not been (or will not be) redeemed in full prior to (or on) the Note Acceleration Date, then (i) an auction of the Cash Collateral Debt Securities will be conducted by the Trustee on behalf of the Issuer in accordance with the Auction Procedures, (ii) the Trustee will request that the calculation agent under the Credit Default Swap Agreement determine the Liquidation Proceeds payable by or to the Issuer under the CDS Transactions in accordance with the Liquidation Procedures and (iii) the Trustee will request that the calculation agent under each Synthetic 32

Security determine the net termination or assignment payment payable by or to the Issuer assuming a termination or assignment date for the relevant Synthetic Security six Business Days prior to the relevant Distribution Date. Provided that certain conditions are satisfied, the Collateral Debt Securities will be Disposed of and the Secured Notes will be redeemed on the Note Acceleration Date. If such conditions are not satisfied and the auction is not successfully conducted prior to the Note Acceleration Date, the Trustee, in conjunction with the Portfolio Manager, will conduct auctions on a quarterly basis until the Secured Notes are redeemed in full. See "Description of the Secured Notes—Redemption Price" and "— Auction Call Redemption." Each Hedge Agreement and the Credit Default Swap Agreement will terminate upon any Auction Call Redemption and the Issuer may be required to make termination payments to the counterparties. Optional Redemption. Subject to certain conditions described under "Description of the Secured Notes—Optional Redemption and Tax Redemption," on any Distribution Date occurring on or after the Distribution Date occurring in February 2011, a Majority of Subordinated Noteholders may direct the Issuer to redeem the Secured Notes in whole but not in part, in each case at the applicable Redemption Price therefor. On the Note Acceleration Date and on each Distribution Date occurring thereafter, Interest Proceeds that would otherwise be released from the lien of the Indenture and distributed to the Subordinated Noteholders will be applied (i), first, to the payment of principal of the Funded Secured Notes in the following order: first, the Class E Notes (until the Class E Notes have been paid in full), second, the Class D Notes (until the Class D Notes have been paid in full), third, the Class C Notes (until the Class C Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class B1 Notes (until the Class B1 Notes have been paid in full), sixth, the Class A2B Notes (until the Class A2B Notes have been paid in full) and seventh, the Class A2A Notes (until the Class A2A Notes have been paid in full), and (ii) thereafter, first, to the payment of the Outstanding Class A1-VF Funded Amount (until the Class A1-VF Funded Amount is reduced to zero) and, second, to the reduction of the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account. Because such redemption of the Secured Notes will eliminate distributions to Subordinated Noteholders after the Distribution Date occurring in February 2011 until the Notes are paid in full, the Subordinated Noteholders (which may include the Portfolio Manager and its Affiliates) will have an incentive to require that the Notes be redeemed on or prior to such Distribution Date if the conditions in the Indenture can be satisfied. See "Description of the Secured Notes—Optional Redemption and Tax Redemption." Each Hedge Agreement and the Credit Default Swap Agreement will terminate upon any Optional Redemption and the Issuer may be required to make termination payments to the counterparties. Tax Redemption. Subject to satisfaction of certain conditions, upon the occurrence of a Tax Event, the Issuer may redeem the Secured Notes, in whole but not in part, on a Distribution Date, at the written direction of (i) a Majority of any Affected Class of Secured Notes or (ii) a Majority of the Subordinated Noteholders, at the applicable Redemption Price. No Tax Redemption may be effected, however, unless the funds available to the Issuer are sufficient to redeem the Secured Notes simultaneously and to pay certain other amounts in accordance with the procedures set forth in the Indenture and the Tax Materiality Condition is satisfied. See "Description of the Secured Notes— Optional Redemption and Tax Redemption." Each Hedge Agreement and the Credit Default Swap Agreement will terminate upon any Tax Redemption and the Issuer may be required to make termination payments to the counterparties. Modification of the Indenture. Pursuant to the terms of the Indenture, the Trustee and the CoIssuers may, from time to time, execute one or more supplemental indentures that add to, change, modify or eliminate provisions of the Indenture or modify the terms of the Secured Notes. The Trustee may not enter into any supplemental indenture without the written consent of the Portfolio Manager if such supplemental indenture alters the rights or obligations of the Portfolio Manager in any respect, and the Portfolio Manager will not be bound by any such supplemental indenture unless the Portfolio Manager 33

has consented thereto. Approval for entering into such supplemental indentures does not in all cases require the consent of all of the holders of the outstanding Secured Notes. Accordingly, supplemental indentures that result in material and adverse changes to the interests of Secured Noteholders and, in some cases, Subordinated Noteholders may be approved without the consent of all of the Secured Noteholders and Subordinated Noteholders adversely affected. See "Description of the Secured Notes—The Indenture—Modification of the Indenture." Nature of Collateral. The Collateral is subject to credit, liquidity, interest rate, market, operations, fraud and structural risks. The amount and nature of the collateral securing the Secured Notes have been established to withstand certain assumed deficiencies in payment occasioned by defaults in respect of the Collateral Debt Securities and a certain assumed number and frequency of Credit Events and Floating Amount Events under the CDS Transactions. If any deficiencies, Credit Events and Floating Amount Events exceed such assumed levels, however, payment of the Secured Notes and the distributions on the Subordinated Notes could be adversely affected. To the extent that a default occurs with respect to any Collateral Debt Security securing the Secured Notes and the Issuer (upon the advice of the Portfolio Manager) sells or otherwise disposes of such Collateral Debt Security, it is not likely that the proceeds of such sale or disposition will be equal to the amount of principal and interest owing to the Issuer in respect of such Collateral Debt Security. To the extent that a Credit Event occurs with respect to any Unhedged Long CDS Transaction securing the Secured Notes, it is likely that the Physical Settlement Amount due from the Issuer to the Credit Default Swap Counterparty will exceed the Disposition Proceeds realized upon the sale of the Deliverable Obligation delivered by the Credit Default Swap Counterparty to the Issuer, thereby decreasing amounts available to pay principal on the Secured Notes or make distributions on the Subordinated Notes. Principal Proceeds available to pay the principal amount of the Secured Notes (and make distributions on the Subordinated Notes) on any Redemption Date, at Stated Maturity or on the Accelerated Maturity Date also will be reduced by each Credit Protection Payment (other than in respect of an Interest Shortfall) and each Physical Settlement Amount paid by the Issuer. Up to 100% of the Net Outstanding Portfolio Collateral Balance may consist of Collateral Debt Securities (or in the case of CDS Transactions, Reference Obligations) rated below investment grade. Such Collateral Debt Securities will have greater credit, insolvency and liquidity risk than investment grade obligations and, therefore, a greater risk of loss. In addition to credit and liquidity risk, obligations rated below investment grade have greater volatility than investment grade obligations. Future periods of uncertainty in the United States economy and the possibility of increased volatility and default rates in the below investment grade sector may further adversely affect the price and liquidity of below investment grade obligations in this market. Consequently, purchasers of the Subordinated Notes, the Class E Notes and the Class D Notes will bear a higher risk of losing all or part of their principal investment than they would if the Issuer was permitted to purchase only investment grade obligations. Reliable sources of statistical information do not exist with respect to the rates at which shortfall events or credit events have occurred for many of the types of Reference Obligations subject to the CDS Transactions. In addition, historical economic performance of a particular type of Reference Obligation is not necessarily indicative of its future performance. Prospective purchasers of the Notes should consider and determine for themselves the likelihood of Credit Events and Floating Amount Events, the potential volatility in market value of the Reference Obligations and the resulting consequences for their investment in the Notes. The market value of the Collateral Debt Securities generally will fluctuate with, among other things, the financial condition of the obligors on or issuers of the Collateral Debt Securities or, with respect to Synthetic Securities, of the obligors on or issuers of the Reference Obligations, general economic conditions, the condition of certain financial markets, political events, developments or trends in any particular industry and changes in prevailing interest rates. In the event that such interest rate 34

spreads widen after the Closing Date, the market value of the Collateral Debt Securities is likely to decline and, in the case of a substantial spread widening, could decline by a substantial amount. Although the Issuer is permitted to invest in Asset-Backed Securities and related Synthetic Securities, the Issuer may find that, as a practical matter, these investment opportunities are not available to it for a variety of reasons such as the limitations imposed by the Eligibility Criteria and the requirement with respect to Synthetic Securities not Acquired pursuant to a Form-Approved Synthetic Security that the Issuer receive confirmation of the Secured Notes' ratings from both Rating Agencies. At any time there may be a limited universe of investments that would satisfy the Eligibility Criteria given the other investments in the Issuer's portfolio. As a result, the Issuer may at times find it difficult to purchase suitable investments. Under the Indenture the Portfolio Manager may only direct the Acquisition and Disposition of Collateral Debt Securities under certain limited circumstances. Notwithstanding such restrictions and satisfaction of the conditions set forth in the Indenture, sales and acquisitions of Collateral Debt Securities could result in losses by the Issuer, which losses could affect the timing and amount of payments in respect of the Secured Notes and Subordinated Notes or result in the reduction in or withdrawal of the rating of any or all of the Secured Notes by one or more of the Rating Agencies. On the other hand, circumstances may exist under which the Portfolio Manager may believe that it is in the best interests of the Issuer to dispose of Collateral, but will not be permitted to do so due to the restrictions and conditions of the Indenture. Asset-Backed Securities. Most of the Collateral Debt Securities will consist of Asset-Backed Securities or Synthetic Securities (including CDS Transactions) with respect to which the Reference Obligations are Asset-Backed Securities. Asset-Backed Securities are debt obligations or debt securities that entitle the holders thereof to receive payments that depend primarily on the cash flow from a specified pool of (a) financial assets, either static or revolving, that by their terms convert into cash within a finite time period, together with rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities or (b) real estate mortgages, either static or revolving, together with rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities; provided that, in the case of clause (b), such Asset-Backed Securities do not entitle the holders to a right to share in the appreciation in value of or the profits generated by the related real estate assets. See "Security for the Secured Notes—Asset-Backed Securities." Asset-Backed Securities include but are not limited to securities for which the underlying collateral consists of assets such as home equity loans, leases, residential mortgage loans, commercial mortgage loans, auto finance receivables, credit card receivables and other debt obligations. Sponsors of issuers of Asset-Backed Securities are primarily banks and finance companies, captive finance subsidiaries of non-financial corporations or specialized originators such as credit card lenders. Asset-Backed Securities carry coupons that can be fixed or floating. The spread will vary depending on the credit quality of the underlying collateral, the degree and nature of credit enhancement and the degree of variability in the cash flows emanating from the securitized assets. Holders of Asset-Backed Securities bear various risks, including credit risk, liquidity risk, interest rate risk, market risk, operations risk, structural risk and legal risk. The structure of an Asset-Backed Security and the terms of the investors' interest in the collateral can vary widely depending on the type of collateral, the desires of investors and the use of credit enhancements. Although the basic elements of all Asset-Backed Securities are similar, individual transactions can differ markedly in both structure and execution. Important determinants of the risk associated with issuing or holding the securities include the 35

process by which principal and interest payments are allocated and distributed to investors, how credit losses affect the issuing vehicle and the return to investors in such Asset-Backed Securities, whether collateral represents a fixed set of specific assets or accounts, whether the underlying collateral assets are revolving or closed-end, under what terms (including maturity of the asset-backed instrument) any remaining balance in the accounts may revert to the issuing entity and the extent to which the entity that is the actual source of the collateral assets is obligated to provide support to the issuing vehicle or to the investors in such Asset-Backed Securities. Holders of Asset-Backed Securities bear various risks, including credit risks, liquidity risks, interest rate risks, market risks, operations risks, structural risks and legal risks. Credit risk is an important issue in Asset-Backed Securities because of the significant credit risks inherent in the underlying collateral and because issuers are primarily private entities. Credit risk arises from losses due to defaults by the borrowers or obligors in the underlying collateral or the issuer's or servicer's failure to perform. These two elements can overlap as, for example, in the case of a servicer who does not provide adequate credit-review scrutiny to the serviced portfolio, leading to a higher incidence of defaults. Market risk arises from the cash-flow characteristics of the security, which for many Asset-Backed Securities tend to be reasonably predictable. The greatest variability in cash flows comes from credit performance, including the presence of wind-down or acceleration features designed to protect the investor if credit losses in the portfolio rise well above expected levels. Interest-rate risk arises for the issuer from the relationship between the pricing terms on the underlying collateral and the terms of the rate paid to security holders. Liquidity risk can arise from increased perceived credit risk, such as that which occurred in 1996 and 1997 with the rise in reported delinquencies and losses on securitized pools of credit cards. Liquidity can also become a significant problem if concerns about credit quality, for example, lead investors to avoid the securities issued by the relevant special-purpose entity. Some securitization transactions may include a "liquidity facility," which requires the facility provider to advance funds to the relevant special-purpose entity should liquidity problems arise. However, where the originator is also the provider of the liquidity facility, the originator may experience similar market concerns if the assets it originates deteriorate and the ultimate practical value of the liquidity facility to the transaction may be questionable. Operations risk arises through the potential for misrepresentation of asset quality or terms by the originating institution, misrepresentation of the nature and current value of the assets by the servicer and inadequate controls over disbursements and receipts by the servicer. In addition, concentrations of Asset-Backed Securities of a particular type, as well as concentrations of Asset-Backed Securities issued or guaranteed by affiliated obligors, serviced by the same servicer or backed by underlying collateral located in a specific geographic region, may subject the Notes to additional risk. See "Security for the Secured Notes—Asset-Backed Securities." Further issues may arise based on discretionary behavior of the issuer within the terms of the securitization agreements, such as voluntary buybacks from, or contributions to, the underlying pool of loans when credit losses rise. A bank or other issuer may play more than one role in the securitization process. An issuer can simultaneously serve as two or more of originator of underlying collateral, servicer, administrator of the trust, underwriter, provider of liquidity and credit enhancer. Such issuers typically receive a fee for each role that they undertake in a transaction. Institutions acquiring Asset-Backed Securities should recognize that the multiplicity of roles that may be played by a single firm—within a single securitization or across a number of them—means that credit and operational risk can accumulate into significant concentrations with respect to one or a small number of firms. Prepayment risk on Asset-Backed Securities, including the Collateral Debt Securities, arises from the uncertainty of the timing of payments of principal on the underlying securitized assets. The assets underlying a particular Collateral Debt Security may be paid more quickly than anticipated, resulting in payments of principal on the related Collateral Debt Security sooner than expected. Alternatively, 36

amortization may take place more slowly than anticipated, resulting in payments of principal on the related Collateral Debt Security later than expected. In addition, a particular Collateral Debt Security may, by its terms, be subject to redemption prior to its maturity, resulting in a full or partial payment of principal in respect of such Collateral Debt Security. Similarly, defaults on the underlying securitized assets may lead to sales or liquidations and result in a prepayment of such Collateral Debt Security. If the Issuer purchases a Collateral Debt Security at a premium, a prepayment rate that is faster than expected may result in a lower than expected yield to maturity on such security. Alternatively, if the Issuer purchases a Collateral Debt Security at a discount, slower than expected prepayments may result in a lower than expected yield to maturity on such security. Often Asset-Backed Securities are structured to reallocate the risks entailed in the underlying collateral (particularly credit risk) into security tranches that match the desires of investors. For example, senior subordinated security structures give holders of senior tranches greater credit risk protection (albeit at lower yields) than holders of subordinated tranches. Under this structure, at least two classes of Asset-Backed Securities are issued, with the senior class having a priority claim on the cash flows from the underlying pool of assets. The subordinated class must absorb credit losses on the collateral before losses can be allocated to the senior portion. Because the senior class has this priority claim, cash flows from the underlying pool of assets must first satisfy the requirements of the senior class. Only after these requirements have been satisfied will the cash flows be directed to service the subordinated class. A significant portion of the Collateral will consist of Asset-Backed Securities that are (or Synthetic Securities (including CDS Transactions) with respect to which the Reference Obligations are AssetBacked Securities that are) subordinate in right of payment and rank junior to other securities that are secured by or represent an ownership interest in the same pool of assets. In addition, many of the AssetBacked Securities included in the Collateral may have been issued in transactions that have structural features that divert payments of interest and/or principal to more senior classes when the delinquency or loss experience of the pool exceeds certain levels. As a result, such securities have a higher risk of loss as a result of delinquencies or losses on the underlying assets. In certain circumstances, payments of interest may be reduced or eliminated for one or more payment dates. Additionally, as a result of cash flow being diverted to payments of principal on more senior classes, the Average Life of such securities may lengthen. For example, in the case of certain ABS Type Residential Securities, no distributions of principal will generally be made with respect to any class until the aggregate principal balances of the more senior classes of securities have been reduced to zero. Subordinate Asset-Backed Securities generally do not have the right to call a default or vote on remedies following a default unless more senior securities have been paid in full. As a result, a shortfall in payments to subordinate investors in AssetBacked Securities will generally not result in a default being declared on the transaction and the transaction will not be restructured or unwound. Furthermore, because subordinate Asset-Backed Securities may represent a relatively small percentage of the size of the asset pool being securitized, the impact of a relatively small loss on the overall pool may disproportionately affect the holders of such subordinate security. The Synthetic Security Collateral also may be Asset-Backed Securities. However, when the Issuer Acquires a Synthetic Security, the Eligibility Criteria will be applicable to the Asset-Backed Security that is the Reference Obligation of the Synthetic Security, rather than to any Asset-Backed Securities purchased as Synthetic Security Collateral. Limited Source of Funds to pay Expenses of the Issuer. The funds available to the Issuer to pay certain of its operating costs and expenses (including administrative expenses) on any Distribution Date prior to payment of other amounts in accordance with the relevant Priority of Payments are limited. In the event that such funds are not sufficient to pay the costs and expenses incurred by the Issuer, the ability

37

of the Issuer to operate effectively may be impaired and it may not be able to defend or prosecute legal proceedings brought against it or which it might otherwise bring to protect the interests of the Issuer. CDO Securities. A portion of the Collateral Debt Securities Acquired by the Issuer will consist of CDO Securities. In addition, a portion of the Reference Obligations under the Synthetic Securities, including CDS Transactions, may consist of CDO Securities. CDO Securities generally have underlying risks similar to many of the risks set forth in these Risk Factors for the Notes, such as interest rate mismatches, trading and reinvestment risk and tax considerations. Each CDO Security, however, will involve risks specific to the particular CDO Security and its Underlying Portfolio. The value of the CDO Securities generally will fluctuate with, among other things, the financial condition of the obligors on or issuers of the Underlying Portfolio, general economic conditions, the condition of certain financial markets, political events, developments or trends in any particular industry and changes in prevailing interest rates. CDO Securities are usually limited-recourse obligations of the issuer thereof payable solely from the Underlying Portfolios of such issuer or proceeds thereof. Consequently, holders of CDO Securities must rely solely on distributions on the Underlying Portfolio or proceeds thereof for payment in respect thereof. If distributions on the Underlying Portfolio are insufficient to make payments on the CDO Security, no other assets will be available for payment of the deficiency and following realization of the underlying assets, the obligation of such issuer to pay such deficiency shall be extinguished. As a result, the amount and timing of interest and principal payments will depend on the performance and characteristics of the related Underlying Portfolios. Some of the CDO Securities included in the Collateral may have Underlying Portfolios that hold or invest in some of the same assets as the Collateral pledged to secure the Secured Notes or held in the Underlying Portfolios of other CDO Securities pledged as Collateral. The concentration in any particular asset may adversely affect the Issuer's ability to make payments on the Notes. In addition, the Underlying Portfolios of the CDO Securities may be actively traded. As a result, investors in the Notes are exposed to the risk of loss on such Collateral Debt Securities both directly and indirectly through the CDO Securities acquired by the Issuer. If an investor in the Notes is also an investor in any CDO Security which the Issuer acquires (or in other tranches of securities sold by the same CDO), the exposure of such investor to the risk of loss on such CDO Security will increase as a result of its investment in the Notes. The Initial Purchaser also may have acted as the placement agent or underwriter for some of the CDO Securities acquired by the Issuer, and earned fees from each such issuer of such CDO Securities as a result of the Issuer's acquisition of such CDO Securities. Although none of the Collateral Debt Securities securing the Secured Notes will consist of Corporate Debt Securities, a portion of the obligations in the Underlying Portfolios of the CDO Securities will consist of commercial or industrial loans or obligations, corporate debt securities or trust preferred securities (or any combination of the foregoing). As a result, these CDO Securities will be exposed to the credit risks relating to the obligors of these loans or securities. The Underlying Portfolios may consist of high yield debt securities, structured finance securities, synthetic securities and other debt instruments, rated below investment grade (or of equivalent credit quality). Such investments may be speculative. To the extent that the Underlying Portfolios consist of RMBS Securities (including Prime Residential Mortgage Securities and Mid-Prime Residential Mortgage Securities) and CMBS Securities, the CDO Securities will be subject to the risks described under "AssetBacked Securities," "RMBS Securities" and "Commercial Mortgage Backed Securities."

38

CDO Securities are subject to interest rate risk. The Underlying Portfolio of an issue of CDO Securities will include assets that bear interest at a fixed or floating rate of interest, and while the CDO Securities issued by such issuer also may bear interest at a floating or fixed rate, the proportions of a CDO Security issuer's assets bearing interest at fixed and floating rates will typically not match the proportions to which such CDO Security issuer's liabilities bear interest at fixed and floating rates. As a result, there could be a floating/fixed rate or basis mismatch between such CDO Securities and Underlying Portfolios which bear interest at a fixed rate, and there may be a timing or basis mismatch between the CDO Securities and Underlying Portfolios that bear interest at a floating rate as the interest rate on such floating rate Underlying Portfolios may adjust more frequently or less frequently, on different dates and based on different indices, than the interest rates on the CDO Securities. As a result of such mismatches, an increase or decrease in the level of the floating rate indices could adversely impact the ability to make payments on the CDO Securities. The CDO Securities which the Issuer will purchase may be subordinated to other classes of securities issued by each respective issuer thereof. CDO Securities that are not part of the most senior tranche(s) of the securities issued by the issuer thereof may allow for the deferral of the payment of interest on such CDO Securities. The deferral of interest by the issuer of CDO Securities forming part of the Collateral could result in a reduction in the amounts available to make payments to the holders of the Notes or in the deferral of interest on the Class C Notes, the Class D Notes and the Class E Notes. The CDO Securities that the Portfolio Manager anticipates will form part of the Collateral may include both senior and mezzanine debt issued by the related CDO Security issuers. The CDO Securities that are mezzanine debt will have payments of interest and principal that are subordinated to one or more classes of notes that are more senior in the related issuer's capital structure, and generally will allow for the deferral of interest subject to the related issuer's priority of payments. To the extent that any losses are incurred by the issuer thereof in respect of its CDO Securities, such losses will be borne by holders of the mezzanine tranches before any losses are borne by the holders of senior tranches. In addition, if an event of default occurs under the applicable indenture, as long as any senior tranche of CDO Securities is outstanding, the holders of the senior tranche thereof generally will be entitled to determine the remedies to be exercised under the indenture, which could be adverse to the interests of the holders of the mezzanine tranches (including the Issuer). In order to acquire and hold CDO Securities, the Issuer must satisfy at all times the investor qualifications in the applicable Underlying Instruments and applicable securities laws. Such Underlying Instruments generally require that the Issuer either be a Qualified Institutional Buyer that is also a Qualified Purchaser or a non-U.S. Person, and may require that other criteria be satisfied. In the event that the Issuer does not satisfy the requirements applicable to investors in a CDO Security, it will not be able to purchase such CDO Security. In addition, if it does not satisfy such requirements at any time after it purchases such CDO Security, the applicable Underlying Instruments may permit the issuer of such CDO Security to force the Issuer to sell such CDO Security, which sale by the Issuer could be made at a loss. The deferral of interest by the issuer of CDO Securities forming part of the Collateral could result in a reduction in the amounts available to make payments to the holders of the Secured Notes and/or in the deferral of interest on the Class C Notes, the Class D Notes and the Class E Notes. The risks associated with investing in CDO Securities may in addition depend on the skill and experience of the collateral manager managing the Underlying Portfolio, in particular, if the Underlying Instruments provide for active trading in securities comprising the Underlying Portfolio. This risk is greater if the Underlying Portfolio itself consists of collateralized debt obligations that rely on the skill and experience of the collateral managers.

39

The Synthetic Security Collateral which the Issuer may acquire may consist of CDO Securities (but may include Eligible Investments). However, when the Issuer Acquires a Synthetic Security, the Eligibility Criteria will be applicable to the Reference Obligation, rather than to any CDO Security purchased as Synthetic Security Collateral. Commercial Mortgage-Backed Securities. A portion of the Asset-Backed Securities Acquired by the Issuer may consist of commercial mortgage-backed securities meeting the eligibility criteria described herein. In addition, a portion of the Reference Obligations under the Synthetic Securities (including CDS Transactions) may consist of commercial mortgage-backed securities. Commercial mortgage loans underlying commercial mortgage-backed securities are generally secured by income producing property, such as multi-family housing or commercial property, and may entail risks of delinquency and foreclosure, and risks of loss in the event thereof, that are greater than similar risks associated with loans secured by one- to four-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced (for example, if rental or occupancy rates decline or real estate tax rates or other operating expenses increase), the borrower's ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things, tenant mix, success of tenant businesses, property management decisions (including responding to changing market conditions, planning and implementing rental or pricing structures and causing maintenance and capital improvements to be carried out in a timely fashion), property location and condition, competition from comparable types of properties, changes in laws that increase operating expense or limit rents that may be charged, any need to address environmental contamination at the property and the occurrence of any uninsured casualty at the property. In general, incremental risks of delinquency, foreclosure and loss with respect to an underlying commercial mortgage loan pool may be greater than those associated with residential mortgage loan pools. In part, this is caused by lack of diversity. RMBS Securities are typically backed by mortgage loan pools consisting of hundreds of mortgage loans and related mortgaged properties. Each residential mortgage loan represents a small percentage of the entire underlying collateral pool, the borrowers and mortgaged properties of which are geographically dispersed. Risk of delinquency, foreclosure and loss with respect to a residential mortgage loan pool can be analyzed statistically. By contrast, CMBS Securities may be backed by an underlying mortgage pool of only a few mortgage loans. As a result, each commercial mortgage loan in the underlying mortgage pool represents a large percentage of the principal amount of CMBS Securities backed by such underlying mortgage pool. A failure in performance of any one commercial mortgage loan in the underlying mortgage pool will have a much greater impact on the performance of the related CMBS Securities. Credit risk relating to commercial mortgage-backed transactions is, as a result, property-specific. In this respect, commercial mortgage-backed transactions resemble traditional nonrecourse secured loans. The collateral must be analyzed and transaction structured to address issues specific to an individual commercial property and its business. Commercial mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. Distributions on the CMBS Securities will depend solely upon the amount and timing of payments and other collections on the related underlying mortgage loans. The value of an income-producing property is directly related to the net operating income derived from such property. Furthermore, rates of defaults and losses on commercial mortgage loans, and the value of any commercial property, may be adversely affected by risks generally incident to interests in real property, including various events which the related borrower and/or manager of the commercial property, the issuer, the depositor, the indenture trustee, the master servicer or the special 40

servicer may be unable to predict or control, such as: changes in general or local economic conditions and/or specific industry segments; declines in real estate values; declines in rental or occupancy rates; increases in interest rates, real estate tax rates and other operating expenses; changes in governmental rules, regulations and fiscal policies, including environmental legislation; acts of God; environmental hazards; and social unrest and civil disturbances. If a commercial mortgage loan is in default, foreclosure of such commercial mortgage loan may be a lengthy and difficult process, and may involve significant expenses. Furthermore, the market for defaulted commercial mortgage loans or foreclosed properties may be very limited. At any one time, a portfolio of CMBS Securities may be backed by mortgage loans with disproportionately large aggregate principal amounts secured by properties in only a few states or regions. As a result, the mortgage loans may be more susceptible to geographic risks relating to such areas, such as adverse economic conditions, adverse events affecting industries located in such areas and natural hazards affecting such areas, than would be the case for a pool of mortgage loans having more diverse property locations. Each underlying commercial mortgage loan in an issue of CMBS Securities may have a balloon payment due on its maturity date. Balloon mortgage loans involve a greater risk to a lender than fullyamortizing loans, because the ability of a borrower to pay such amount will normally depend on its ability to obtain refinancing of the related mortgage loan or sell the related mortgaged property at a price sufficient to permit the borrower to make the balloon payment, which will depend on a number of factors prevailing at the time such refinancing or sale is required, including, without limitation, the strength of the commercial real estate markets, tax laws, the financial situation and operating history of the underlying property, interest rates and general economic conditions. If the borrower is unable to make such balloon payment, the related issue of CMBS Securities may experience losses. Prepayments on the underlying commercial mortgage loans in an issue of CMBS Securities will be influenced by the prepayment provisions of the related mortgage notes and may also be affected by a variety of economic, geographic and other factors, including the difference between the interest rates on the underlying mortgage loans (giving consideration to the cost of refinancing) and prevailing mortgage rates and the availability of refinancing. In general, if prevailing interest rates fall significantly below the interest rates on the related mortgage loans, the rate of prepayment on the underlying mortgage loans would be expected to increase. Conversely, if prevailing interest rates rise to a level significantly above the interest rates on the related mortgages, the rate of prepayment would be expected to decrease. Prepayments could reduce the yield received on the related issue of CMBS Securities. Additional risks may be presented by the type and use of a particular commercial property. For instance, commercial properties that operate as hospitals and nursing homes may present special risks to lenders due to the significant governmental regulation of the ownership, operation, maintenance and financing of health care institutions. Hotel and motel properties are often operated pursuant to franchise, management or operating agreements which may be terminable by the franchisor or operator; and the transferability of a hotel's operating, liquor and other licenses upon a transfer of the hotel, whether through purchase or foreclosure, is subject to local law requirements. Furthermore, a commercial property may not readily be converted to an alternative use in the event that the operation of such commercial property for its original purpose becomes unprofitable for any reason. In such cases, the conversion of the commercial property to an alternative use would generally require substantial capital expenditures. Thus, if the borrower becomes unable to meet its obligations under the related commercial mortgage loan, the liquidation value of any such commercial property may be substantially less, relative to the amount outstanding on the related commercial mortgage loan, than would be the case if such commercial property were readily adaptable to other uses. 41

In addition, structural and legal risks of CMBS Securities include the possibility that, in a bankruptcy or similar proceeding involving the originator or the servicer (often the same entity or affiliates), the assets of the issuer could be treated as never having been truly sold by the originator to the issuer and could be substantively consolidated with those of the originator, or the transfer of such assets to the issuer could be voided as a fraudulent transfer. Challenges based on such doctrines could result in cash flow delays and losses on the related issue of CMBS Securities. It is expected that some of the CMBS Securities owned by the Issuer will be subordinated to one or more other senior classes of securities of the same series for purposes of, among other things, offsetting losses and other shortfalls with respect to the related underlying mortgage loans. In addition, in the case of certain CMBS Securities, no distributions of principal will generally be made with respect to any class until the aggregate principal balances of the corresponding senior classes of securities have been reduced to zero. As a result, the subordinate classes are more sensitive to risk of loss and writedowns than senior classes of such securities. Successful management and operation of the related business (including property management decisions such as pricing, maintenance and capital improvements) will have a significant impact on performance of commercial mortgage loans. Issues such as tenant mix, success of tenant business, property location and condition, competition, taxes and other operational expenses, general economic conditions, governmental rules, regulations and fiscal policies, environmental issues and insurance coverage are among the factors that may impact both performance and market value. CMBS Securities may have structural characteristics that distinguish them from other AssetBacked Securities. The rate of interest payable on CMBS Securities may be set or effectively capped at the weighted average net coupon of the underlying mortgage loans themselves, often referred to as an "available funds cap." As a result of this cap, the return to investors is dependent on the relative timing and rate of delinquencies and prepayments of mortgage loans bearing a higher rate of interest. In general, early prepayments will have a greater impact on the yield to investors. Federal and state law may also affect the return to investors by capping the interest rates payable by certain mortgagors. Many of the CMBS Securities which the Issuer may purchase are subject to available funds caps or other caps on the interest rate payable to holders of such securities. The effect of such caps is to reduce the rate at which interest is paid to the holders of such securities (including the Issuer), which would have an adverse effect on the Issuer's ability to pay interest on the Notes and to make distributions on the Subordinated Notes. RMBS Securities. A substantial portion of the Issuer's portfolio will consist of RMBS Securities (or Synthetic Securities, including CDS Transactions, with respect to which the Reference Obligations are RMBS Securities), including Sub-Prime Residential Mortgage Securities, Prime Residential Mortgage Securities and Mid-Prime Residential Mortgage Securities. Holders of RMBS Securities bear various risks, including credit, market, interest rate, structural and legal risks. RMBS Securities are, generally, ownership or participation interests in pools of residential mortgage loans secured by one- to four- family residential properties. Such loans may be prepaid at any time. RMBS Securities are subject to various risks. Credit risk arises from losses due to defaults by the borrowers in the underlying collateral and the servicer's failure to perform. Residential mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. Distributions on the RMBS Securities will depend solely upon the amount and timing of payments and other collections on the related underlying mortgage loans. The rate of defaults and losses on residential mortgage loans will be affected by a number of factors, including general economic conditions, particularly those in the area where the related mortgaged property is located, the borrower's equity in the mortgaged property and the financial circumstances of the borrower. If a residential mortgage loan is in default, foreclosure of such residential mortgage loan may be a lengthy and difficult process, and may involve significant expenses. Furthermore, the market for defaulted residential mortgage loans or foreclosed properties may be very 42

limited. At any one time, a portfolio of RMBS Securities may be backed by residential mortgage loans with disproportionately large aggregate principal amounts secured by properties in only a few states or regions. As a result, the residential mortgage loans may be more susceptible to geographic risks relating to such areas, such as adverse economic conditions, adverse events affecting industries located in such areas and natural hazards affecting such areas, than would be the case for a pool of mortgage loans having more diverse property locations. In addition, the residential mortgage loans may include so-called "jumbo" mortgage loans, having original principal balances that are higher than the Fannie Mae and Freddie Mac loan balance limitations. As a result, such portfolio of RMBS Securities may experience increased losses. Each underlying residential mortgage loan in an issue of RMBS Securities may have a balloon payment due on its maturity date. Balloon residential mortgage loans involve a greater risk to a lender than fully-amortizing loans, because the ability of a borrower to pay such amount will normally depend on its ability to obtain refinancing of the related mortgage loan or sell the related mortgaged property at a price sufficient to permit the borrower to make the balloon payment, which will depend on a number of factors prevailing at the time such refinancing or sale is required, including, without limitation, the strength of the residential real estate markets, tax laws, the financial situation and operating history of the underlying property, interest rates and general economic conditions. If the borrower is unable to make such balloon payment, the related issue of RMBS Securities may experience losses. RMBS Securities are susceptible to prepayment risks as they generally do not contain prepayment penalties and a reduction in interest rates will increase the prepayments on the RMBS Securities resulting in a reduction in yield to maturity for holders of such securities. Prepayments on the underlying residential mortgage loans in an issue of RMBS Securities will be influenced by the prepayment provisions of the related mortgage notes and may also be affected by a variety of economic, geographic and other factors, including the difference between the interest rates on the underlying residential mortgage loans (giving consideration to the cost of refinancing) and prevailing mortgage rates and the availability of refinancing. In general, if prevailing interest rates fall significantly below the interest rates on the related residential mortgage loans, the rate of prepayment on the underlying residential mortgage loans would be expected to increase. Conversely, if prevailing interest rates rise to a level significantly above the interest rates on the related mortgages, the rate of prepayment would be expected to decrease. Prepayments could reduce the yield received on the related issue of RMBS Securities. In addition, structural and legal risks of RMBS Securities include the possibility that, in a bankruptcy or similar proceeding involving the originator or the servicer (often the same entity or affiliates), the assets of the issuer could be treated as never having been truly sold by the originator to the issuer and could be substantively consolidated with those of the originator, or the transfer of such assets to the issuer could be voided as a fraudulent transfer. Challenges based on such doctrines could result in cash flow delays and losses on the related issue of RMBS Securities. It is not expected that the RMBS Securities to be Acquired by the Issuer will be guaranteed or insured by any governmental agency or instrumentality or by any other person. Distributions on the RMBS Securities will depend solely upon the amount and timing of payments and other collections on the related underlying mortgage loans. RMBS Securities may have structural characteristics that distinguish them from other AssetBacked Securities. The rate of interest payable on RMBS Securities directly or synthetically held by the Issuer may be set or effectively capped at the weighted average net coupon of the underlying mortgage loans themselves, often referred to as an "available funds cap." As a result of this cap, the return to the Issuer on such RMBS Securities is dependent on the relative timing and rate of delinquencies and prepayments of mortgage loans bearing a higher rate of interest. In general, early prepayments will have 43

a greater negative impact on the yield to the Issuer on such RMBS Securities. Federal and state law may also affect the return to investors by capping the interest rates payable by certain mortgagors (including hard caps and lifetime caps). Many of the RMBS Securities which the Issuer may purchase are subject to such available funds caps or other caps on the interest rate payable to holders of such securities. The effect of such caps is to reduce the rate at which interest is paid to the holders of such securities (including the Issuer), which would have an adverse effect on the Issuer's ability to pay interest on the Notes and to make distributions on the Subordinated Notes. Furthermore, RMBS Securities often are in the form of certificates of beneficial ownership of the underlying mortgage loan pool. These securities are entitled to payments provided for in the underlying agreement only when and if funds are generated by the underlying mortgage loan pool. The likelihood of the return of interest and principal may be assessed as a credit matter. However, securityholders do not have the legal status of secured creditors, and cannot accelerate a claim for payment on their securities, or force a sale of the mortgage loan pool in the event that insufficient funds exist to pay such amounts on any date designated for such payment. The sole remedy available to such securityholders would be removal of the servicer of the mortgage loans. It is expected that the RMBS Securities directly or synthetically owned by the Issuer will be subordinated to one or more other senior classes of securities of the same series for purposes of, among other things, offsetting losses and other shortfalls with respect to the related underlying mortgage loans. In addition, in the case of certain RMBS Securities, no distributions of principal will generally be made with respect to any class until the aggregate principal balances of the corresponding senior classes of securities have been reduced to zero. As a result, the subordinate classes are more sensitive to risk of loss and writedowns than senior classes of such securities. A large percentage of the RMBS Securities Acquired by the Issuer are expected to be Mid-Prime Residential Mortgage Securities, which are secured primarily by subprime mortgages. Mid-Prime Residential Mortgage Securities are subject to a greater risk of loss in the event of foreclosures on the underlying mortgages and a greater likelihood of default on the underlying mortgage loans than Prime Residential Mortgage Securities. Residential mortgage loans in an issue of RMBS Securities may be subject to various United States’ federal and state laws, public policies and principles of equity that protect consumers, which among other things may regulate interest rates and other charges, require certain disclosures, require licensing of originators, prohibit discriminatory lending practices, regulate the use of consumer credit information and regulate debt collection practices. Violation of certain provisions of these laws, public policies and principles may limit the servicer's ability to collect all or part of the principal of or interest on a mortgage loan, entitle the borrower to a refund of amounts previously paid by it, or subject the servicer to damages and sanctions. Any such violation could result also in cash flow delays and losses on the related issue of RMBS Securities. Federal and state law may also affect the return to investors by capping the interest rates payable by certain mortgagors. The Servicemembers Civil Relief Act of 2003, as amended (the "Relief Act"), provides relief to mortgagors who enter into active military service and who were on reserve status but are called to active duty after the origination of their mortgage loans. Under the Relief Act, during the period of a mortgagor's active duty, the rate of interest that may be charged on such mortgagor's loan will be capped at a rate of 6% per annum, which may be below the interest rate that would otherwise have been applicable to such mortgage loan. In light of current United States involvement in Iraq, a number of mortgage loans in the mortgage pools underlying RMBS Securities may become subject to the Relief Act. As a result, the weighted average interest rate on RMBS Securities may be reduced. If such RMBS are subject to weighted average net coupon caps, investors' return on their investment in such RMBS Securities will be similarly affected.

44

Legal risks can arise as a result of the procedures followed in connection with the origination of the mortgage loans or the servicing thereof which may be subject to various United States’ Federal and state laws, public policies and principles of equity that protect consumers, which among other things may regulate interest rates and other charges, require certain disclosures, require licensing of originators, prohibit discriminatory lending practices, regulate the use of consumer credit information and debt collection practices and may limit the servicer's ability to collect all or part of the principal of or interest on a residential mortgage loan, entitle the borrower to a refund of amounts previously paid by it or subject the servicer to damages and sanctions. Any such violation could also result in cash flow delays and losses on the related issue of RMBS Securities. In addition, structural and legal risks of RMBS Securities include the possibility that, in a bankruptcy or similar proceeding involving the originator or the servicer (often the same entity or affiliates), the assets of the issuer could be treated as never having been truly sold by the originator to the issuer and could be substantively consolidated with those of the originator, or the transfer of such assets to the issuer could be voided as a fraudulent transfer. Challenges based on such doctrines could result also in cash flow delays and losses on the related issue of RMBS Securities. In some cases, liability of a lender under a mortgage loan may affect subsequent assignees of such obligations, including the issuer of an RMBS Security. In particular, a lender's failure to comply with the Truth in Lending Act could subject such lender and its assignees to monetary penalties and could result in rescission. Numerous class action lawsuits have been filed in multiple states alleging violations of these statutes and seeking damages, rescission and other remedies. These suits have named the originators and current and former holders, including the issuers of related RMBS Securities. If an issuer of RMBS Securities included in the Collateral were to be named as a defendant in a class action lawsuit, the costs of defending or settling such lawsuit or a judgment could reduce the amount available for distribution on the related RMBS Security. In such event, the Issuer, as holder of such RMBS Security, could suffer a loss. A significant portion of the RMBS Securities will be backed by non-conforming mortgage loans, mortgage loans that do not qualify for purchase by government-sponsored agencies such as Fannie Mae and Freddie Mac due to credit characteristics that do not satisfy Fannie Mae and Freddie Mac guidelines, including loans to mortgagors whose creditworthiness and repayment ability do not satisfy Fannie Mae and Freddie Mac underwriting guidelines and loans to mortgagors who may have a record of credit writeoffs, outstanding judgments, prior bankruptcies and other negative credit events. Accordingly, nonconforming mortgage loans are likely to experience rates of delinquency, foreclosure and loss that are higher, and that may be substantially higher, than mortgage loans originated in accordance with Fannie Mae or Freddie Mac underwriting guidelines. The majority of mortgage loans made in the United States qualify for purchase by government-sponsored agencies. The principal differences between conforming mortgage loans and non-conforming mortgage loans include the applicable loan-to-value ratios, the credit and income histories of the related mortgagors, the documentation required for approval of the related mortgage loans, the types of properties securing the mortgage loans, the loan sizes and the mortgagors' occupancy status with respect to the mortgaged properties. As a result of these and other factors, the interest rates charged on non-conforming mortgage loans are often higher than those charged for conforming mortgage loans. The combination of different underwriting criteria and higher rates of interest may also lead to higher delinquency, foreclosure and losses on non-conforming mortgage loans as compared to conforming mortgage loans. Violations of Consumer Protection Laws May Result in Losses on Consumer Protected Securities. Applicable United States' state laws and other laws in other jurisdictions generally regulate interest rates and other charges require licensing of originators and require specific disclosures. In addition, other United States' state laws and other laws in other jurisdictions, public policy and general principles of equity relating to the protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and collection of the loans backing Sub-Prime Residential 45

Mortgage Securities, Prime Residential Mortgage Securities, Mid-Prime Residential Mortgage Securities and Manufactured Housing Securities (collectively, "Consumer Protected Securities"). Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these laws, policies and principles may limit the ability of the issuer of a Consumer Protected Security to collect all or part of the principal of or interest on the underlying loans, may entitle a borrower to a refund of amounts previously paid and, in addition, could subject the owner of a mortgage loan to damages and administrative enforcement. The mortgage loans are also subject to United States federal laws, including: (1) the Federal Truth in Lending Act and Regulation Z promulgated under the Truth in Lending Act, which require particular disclosures to the borrowers regarding the terms of the loans; (2) the Equal Credit Opportunity Act and Regulation B promulgated under the Equal Credit Opportunity Act, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act, in the extension of credit; (3) the Americans with Disabilities Act, which, among other things, prohibits discrimination on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation; (4) the Fair Credit Reporting Act, which regulates the use and reporting of information related to the borrower's credit experience; (5) the Home Ownership and Equity Protection Act of 1994, which regulates the origination of high cost loans; (6) the Depository Institutions Deregulation and Monetary Control Act of 1980, which preempts certain state usury laws; and (7) the Alternative Mortgage Transaction Parity Act of 1982, which preempts certain state lending laws which regulate alternative mortgage transactions. Violations of particular provisions of these United States federal laws may limit the ability of the issuer of a Consumer Protected Security to collect all or part of the principal of or interest on the loans and in addition could subject such issuer to damages and administrative enforcement. In this event, the Issuer, as a holder of the Consumer Protected Security, may suffer a loss. In some cases, liability of a lender under a mortgage loan may affect subsequent assignees of such obligations, including the issuer of a Consumer Protected Security. In particular, a lender's failure to comply with the Federal Truth in Lending Act could subject such lender and its assignees to monetary penalties and could result in rescission. Numerous class action lawsuits have been filed in multiple states alleging violations of these statutes and seeking damages, rescission and other remedies. These suits have named the originators and current and former holders, including the issuers of related Consumer Protected Securities. If an issuer of a Consumer Protected Security included in the Collateral were to be named as a defendant in a class action lawsuit, the costs of defending or settling such lawsuit or a judgment could reduce the amount available for distribution on the related Consumer Protected Security. In such event, the Issuer, as holder of such Consumer Protected Security, could suffer a loss.

46

Some of the mortgages loans backing a Consumer Protected Security may have been underwritten with, and finance the cost of, credit insurance. From time to time, originators of mortgage loans that finance the cost of credit insurance have been named in legal actions brought by United States federal and state regulatory authorities alleging that certain practices employed relating to the sale of credit insurance constitute violations of law. If such an action were brought against such issuer with respect to mortgage loans backing such Consumer Protected Security and were successful, it is possible that the borrower could be entitled to refunds of amounts previously paid or that such issuer could be subject to damages and administrative enforcement. In addition, numerous federal and state statutory provisions, including the United States federal bankruptcy laws, the Relief Act and state debtor relief laws, may also adversely affect the ability of an issuer of a Consumer Protected Security to collect the principal of or interest on the loans, and holders of the affected Consumer Protected Securities may suffer a loss if the applicable laws result in these loans becoming uncollectible. Acquisition and Disposition of, and Credit Risk under, Synthetic Securities. On the Closing Date, the aggregate Notional Amount of CDS Transactions will be approximately U.S.$605,014,000. After the Closing Date, the Issuer may Acquire additional Synthetic Securities, including additional CDS Transactions. The Portfolio Manager may only cause the Issuer to Acquire or Dispose of Synthetic Securities in accordance with the requirements of the Management Agreement and will only have the authority to Acquire or Dispose of CDS Transactions with the consent of the Credit Default Swap Counterparty. The Credit Default Swap Counterparty shall have no responsibility to oversee compliance by the Issuer or the Portfolio Manager with their respective representations, warranties and covenants under the Indenture and Management Agreement (including, without limitation, with respect to the Eligibility Criteria) insofar as they relate to Acquisitions or Dispositions of CDS Transactions. Such acquisitions or dispositions may have an adverse effect on the value of the Collateral and the ability of the Issuer to make payments on the Notes. Any termination payments paid by the Issuer in respect of any CDS Transaction may have an adverse effect on the (i) amounts payable in connection with any Auction Call Redemption, Optional Redemption or Tax Redemption of any Note and (ii) proceeds received from the sale or liquidation of Collateral following an Event of Default, which may result in a loss for investors or prevent the Issuer from satisfying the conditions in the Indenture which must be satisfied before the Issuer can complete an Optional Redemption, Tax Redemption, Auction Call Redemption or liquidation of the Collateral following an Event of Default. The customary terms in the credit default swap market are likely to change in the future, in which event the Rating Condition will need to be satisfied with respect to the entry by the Issuer into credit default swaps on such changed terms. Accordingly, there can be no assurance that the Issuer will be able to acquire Synthetic Securities to the extent or in the manner anticipated on the Closing Date. If the Rating Condition is satisfied with respect to such changed terms, then the terms of such credit default swap transactions (including the Credit Events thereunder) may be materially different from the terms of the transactions entered into under the Credit Default Swap Agreement as in effect on the Closing Date. If the Rating Condition is not satisfied with respect to such changed terms, the Issuer may not be able to acquire Synthetic Securities on the terms prevailing in the market and may as a result face increased difficulty and/or costs in remaining invested in Synthetic Securities to the full extent anticipated on the Closing Date. Furthermore, any change in customary terms available in the credit default swap market may result in the Issuer facing additional difficulty and/or cost in effecting the disposition of Synthetic Securities which utilize terms which have ceased to reflect the market standard. If the Issuer is not invested at all times in Synthetic Securities to the full extent anticipated on the Closing Date, or if it cannot Acquire or Dispose of Synthetic Securities, the Collateral may be less diversified than would otherwise be the case, Interest Proceeds or Principal Proceeds (as applicable) may be reduced and payments of interest and Commitment Fee on (including Deferred Interest), or principal of, the Notes may not be made in full, with the result that investors in the Notes may suffer a loss. 47

The obligation of the Issuer to make payments to the Credit Default Swap Counterparty in respect of CDS Transactions and to other Synthetic Security Counterparties under other Synthetic Securities creates exposure to the credit default risk of the related Reference Obligations (other than in the case of Synthetic Securities structured as credit default swaps under which the Issuer is acting as buyer of protection) and the default risk of the Credit Default Swap Counterparty and other Synthetic Security Counterparties. See "—Reliance on Creditworthiness of the Credit Default Swap Counterparty and other Synthetic Security Counterparties" below. The amount of funds available to make payments in respect of principal of and interest on the Notes is dependent upon, among other things, whether and to what extent (i) net amounts in respect of losses incurred under the Reference Obligations are due and payable by the Issuer to the Credit Default Swap Counterparty in respect of CDS Transactions or to other Synthetic Security Counterparties under other Synthetic Securities and (ii) net amounts due and payable to the Issuer by the Credit Default Swap Counterparty or related Synthetic Security Counterparty under Synthetic Securities structured as credit default swaps under which the Issuer is acting as buyer of protection are not received as a result of a payment default of the Credit Default Swap Counterparty or related Synthetic Security Counterparty. Any net amount due and owing to the Credit Default Swap Counterparty or other Synthetic Security Counterparties will reduce the amount available to pay the obligations of the Issuer to the Noteholders in inverse order of Seniority. Accordingly, the holders of the Subordinated Notes in the first instance and thereafter the holders of the Secured Notes in reverse order of priority may lose all or a portion of their investment. Following the occurrence of a "credit event" with respect to a Reference Obligation under and as defined in the Credit Default Swap Agreement or any other Underlying Instruments relating to a CDS Transaction or Synthetic Security structured as a credit default swap (a "Credit Event") (and subject to the satisfaction of applicable conditions to settlement), the seller of protection will be required to pay to the buyer of protection an amount equal to the relevant Physical Settlement Amount or otherwise satisfy its settlement obligations in respect thereof. All or some of the Reference Obligations may currently be or may fall below investment grade (or the equivalent credit quality) in which case it will be more likely that the seller of protection will be required to make payment of a Physical Settlement Amount. The payment of any amounts (including any Physical Settlement Amount) payable by the Issuer under a Defeased Synthetic Security will be funded out of amounts standing to the credit of the related Synthetic Security Counterparty Account without regard to the Priority of Payments. Payments to the Credit Default Swap Counterparty in respect of any CDS Transactions (including CDS Termination Payments payable upon the termination, novation or assignment of an individual CDS Transaction but excluding any termination payments payable upon the termination in full of the Credit Default Swap Agreement which shall only be payable on a Distribution Date subject to and in accordance with the Priority of Payments) will be funded by the Issuer applying funds standing to the credit of the applicable Accounts and Borrowings or Deemed Borrowings under the Class A1-VF Notes in accordance with the Account Withdrawal Payment Priority. As a result of the application of funds standing to the credit of the Accounts in accordance with the foregoing, the Issuer may have insufficient funds available to make payments of interest and/or principal, as the case may be, on the Notes when due and payable. Termination payments payable by the Issuer to the Credit Default Swap Counterparty or other Synthetic Security Counterparty in respect of any CDS Transactions or other Synthetic Securities will include the market value of such terminated Synthetic Security, which may expose the Issuer to deterioration in the credit or value of the Reference Obligations and result in losses to the Issuer, even where no Credit Event has occurred. Any such payments of Physical Settlement Amounts and termination payments by the Issuer will reduce the amount that is available to make payments on the Notes and consequently the Notes could be adversely affected thereby. In addition, each CDS Transaction will require (and other Synthetic Securities structured as a credit default swap may require) the protection seller to pay floating amounts to the protection buyer in amounts equal to any principal shortfalls, writedowns and interest shortfalls under the Reference 48

Obligation upon the occurrence thereof (any such payment, a "Credit Protection Payment"). Credit Protection Payments by the protection seller in respect of CDS Transactions are (and, in the case of other Synthetic Securities, may be) contingent. However, in the case of an Unhedged Long CDS Transaction or Synthetic Security structured as a credit default swap where the Issuer is acting as seller of protection, even if the Credit Default Swap Counterparty (or other Synthetic Security Counterparty) reimburses all or part of such Credit Protection Payments to the Issuer if the related shortfalls are paid to holders of the Reference Obligations or if the related Reference Obligations are written up, the ability of the Issuer to make payments in respect of the Notes may be adversely affected during the period from and including the date of payment by the Issuer of the relevant Credit Protection Payment to the Credit Default Swap Counterparty (or other Synthetic Security Counterparty) to the date on which the Issuer receives such reimbursement from the Credit Default Swap Counterparty (or other Synthetic Security Counterparty). The obligation of the buyer of protection to reimburse the seller of protection for such Credit Protection Payments will continue only for a limited period of time. Under the Credit Default Swap Agreement, a Writedown, Failure to Pay Principal or, under certain circumstances, a Failure to Pay Interest in respect of a Reference Obligation will entitle the protection buyer to elect whether to deliver a Credit Event Notice or require a contingent Credit Protection Payment under the related Synthetic Security. Similar provisions may apply under other Synthetic Securities entered into by the Issuer. Leveraged Credit Exposure to Reference Obligations; Volatility of Deliverable Obligations. The obligation of the Issuer to make payments to the Credit Default Swap Counterparty under the Unhedged Long CDS Transactions creates significantly leveraged exposure to the credit risk of a number of Reference Obligations. If a Floating Amount Event or a Credit Event with respect to a Reference Obligation occurs on or after the Closing Date, the Issuer will be obligated under the related Unhedged Long CDS Transactions to pay a Credit Protection Payment or a Physical Settlement Amount to the Credit Default Swap Counterparty. Each Credit Protection Payment and Physical Settlement Amount paid under any Unhedged Long CDS Transactions will reduce the aggregate amounts payable by the Credit Default Swap Counterparty to the Issuer under the Unhedged Long CDS Transactions and the funds available to pay principal and interest (and in the case of the Class A1-VF Notes, Commitment Fee) due and payable on the Secured Notes and to make distributions on the Subordinated Notes. Although the Deliverable Obligation must be the same as the Reference Obligation referenced by the applicable CDS Transactions, the Reference Obligation may at the time be a defaulted or credit-impaired security. As a result, the Physical Settlement Amount payable by the Issuer under an Unhedged Long CDS Transaction may exceed the market value of the Deliverable Obligation, the Disposition Proceeds from the sale of such Deliverable Obligation may be less than such Physical Settlement Amount, and it may be difficult for the Issuer to sell the Deliverable Obligation within a short period of time. This will impair the Issuer's ability to pay interest on the Secured Notes and ultimately to pay in full or redeem the Secured Notes, as well as make distributions on the Subordinated Notes. The CDS Transactions present risks in addition to those resulting from direct purchases of Deliverable Obligations. The Issuer will have a contractual relationship only with the Credit Default Swap Counterparty, except in the case of a Long CDS Transaction upon delivery of a Deliverable Obligation following the occurrence of a Credit Event. In addition, in the event of the insolvency of the Credit Default Swap Counterparty, the Issuer will be treated as a general creditor of the Credit Default Swap Counterparty and will not have any claim with respect to the Reference Obligations. Illiquidity of Reference Obligations. Under any Synthetic Securities, the Issuer will have credit exposure to one or more Reference Obligations. Ratings on the Reference Obligations may be downgraded or withdrawn after the Issuer enters into any Synthetic Security. Many of the Reference Obligations will have no, or only a limited, trading market. Trading in fixed income securities in general, 49

including Asset-Backed Securities and derivatives thereof, takes place primarily in over-the-counter markets consisting of groups of dealer firms that are typically major securities firms. Because the market for certain Asset-Backed Securities and derivatives thereof is a dealer market, rather than an auction market, no single obtainable price for a given instrument prevails at any given time. Not all dealers maintain markets in all Asset-Backed Securities at all times. The illiquidity of Reference Obligations will restrict the Portfolio Manager's ability to take advantage of market opportunities. Illiquid Reference Obligations may trade at a discount from comparable, more liquid investments. In addition, Reference Obligations may include privately placed securities that may or may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions on resale, and even if such privately placed securities are transferable, the value of such Reference Obligations could be less than what may be considered the fair value of such securities. Limited Information with Respect to Reference Obligations. Although a list of the Reference Obligations relating to the Synthetic Securities acquired by the Issuer will be included in the monthly reports delivered by the Trustee on behalf of the Issuer to the holders of the Notes, such holders will not otherwise have the right to obtain from the Issuer, the Trustee, the Subordinated Note Issuing and Paying Agent, the Credit Default Swap Counterparty, any other Synthetic Security Counterparty, the Initial Purchaser, the Administrator or the Portfolio Manager any other information regarding the Reference Obligations, the obligors relating thereto or information regarding any other obligations of such obligors. Neither the Credit Default Swap Counterparty nor any other Synthetic Security Counterparty will have any obligation to keep the Issuer, the Trustee, the Subordinated Note Issuing and Paying Agent, the Portfolio Manager or the holders of the Notes informed as to matters arising in relation to any Reference Obligation or Reference Obligor thereon, including whether or not circumstances exist under which there is a possibility of the occurrence of a Credit Event. Accordingly, the Portfolio Manager may or may not have access to material information concerning the Reference Obligors under the Reference Obligations, including information that may be available to a direct holder of a Reference Obligation. None of the Issuer, the Trustee, the Subordinated Note Issuing and Paying Agent, the Portfolio Manager or the holders of the Notes will have the right to inspect any records of the Credit Default Swap Counterparty or any other Synthetic Security Counterparty, and the Credit Default Swap Counterparty and other Synthetic Security Counterparties will be under no obligation to disclose any further information or evidence regarding the existence or terms of any obligation of any Reference Obligor or any matters arising in relation thereto or otherwise regarding any Reference Obligation, Reference Obligor or related guarantor or any other person, unless and until, in the case of a Long CDS Transaction, a Credit Event has occurred and the Credit Default Swap Counterparty or other Synthetic Security Counterparty in its capacity as buyer of protection provides a Notice of Publicly Available Information to the Issuer evidencing the occurrence of such Credit Event as required under the terms of the related CDS Transaction or other Synthetic Security. Under each Long CDS Transaction, the Issuer will be required (and, under other Synthetic Securities, the Issuer may be required) to (a) pay Credit Protection Payments to the Credit Default Swap Counterparty (or other Synthetic Security Counterparty), and (b) in the event that a Credit Event occurs in respect of the related Reference Obligation, pay the Physical Settlement Amount in respect of such Reference Obligation to the Credit Default Swap Counterparty (or other Synthetic Security Counterparty). Under each Hedging Short CDS Transaction, the Issuer will be required (and, under other Synthetic Securities, the Issuer may be required) to pay (a) Premiums to the Credit Default Swap Counterparty (or other Synthetic Security Counterparty), (b) Interest Reimbursements, (c) Writedown Reimbursements and (d) Principal Reimbursements. Payments in respect of amounts payable by the Issuer under CDS Transactions shall be made in accordance with the Account Withdrawal Payment Priority. 50

No Legal or Beneficial Interest in Reference Obligations. Under Synthetic Securities entered into by the Issuer, the Issuer will have a contractual relationship only with the Synthetic Security Counterparty. Consequently, a Synthetic Security does not constitute an acquisition or disposition of any interest in any Reference Obligation. The Issuer will not directly benefit from the collateral supporting any Reference Obligation and will not have the benefit of the remedies that would normally be available to a holder of any such Reference Obligation. In the event of the insolvency of the Synthetic Security Counterparty, the Issuer will be treated as a general creditor of such counterparty, and will not have any claim with respect to any Reference Obligation. The Issuer and the Trustee, therefore, will have rights solely against the Synthetic Security Counterparty in accordance with the Synthetic Security and will have no right directly to enforce compliance by any Reference Obligor with the terms of any Reference Obligation nor any rights of set-off against any Reference Obligor. Given that all or a large portion of the Synthetic Securities entered into by the Issuer will consist of CDS Transactions, the Issuer will have significant exposure to the Credit Default Swap Counterparty in the event that the Credit Default Swap Counterparty becomes insolvent. In addition, neither any Synthetic Security Counterparty nor its Affiliates (including the Credit Default Swap Counterparty and its Affiliates) will be (or be deemed to be acting as) the agent or trustee of the Issuer or the Noteholders in connection with the exercise of, or the failure to exercise, any of the rights or powers (including, without limitation, voting rights) of the Synthetic Security Counterparty and/or its Affiliates arising under or in connection with their respective holding of any Reference Obligation. A Synthetic Security Counterparty (including the Credit Default Swap Counterparty) will have only the duties and responsibilities expressly agreed to by it under the applicable Synthetic Security and will not, by reason of its or any of its Affiliates acting in any other capacity, be deemed to have other duties or responsibilities or be deemed to be held to any higher standard of care than that set forth in the applicable Synthetic Security or imposed by law. In no event shall a Synthetic Security Counterparty be deemed to have any fiduciary obligations to the Noteholders or any other person or entity by reason of acting in such capacity. A Synthetic Security Counterparty's actions may be inconsistent with or adverse to the interests of the Noteholders. In taking any action with respect to a Synthetic Security (including declaring or exercising its remedies in respect of a Credit Event or any other default under or termination of the Synthetic Security), the Synthetic Security Counterparty may take such actions as it determines to be in its own commercial interests and not as agent, fiduciary or in any other capacity on behalf of the Issuer or the holders of the Notes. A Synthetic Security Counterparty (including the Credit Default Swap Counterparty or one of its Affiliates may act as a dealer for purposes of obtaining quotations with respect to a Reference Obligation. A Synthetic Security Counterparty (or any of its Affiliates) will not be required to own or have any exposure to a Reference Obligation. If a Synthetic Security Counterparty (or one of its Affiliates) does own a Reference Obligation, it is likely to seek to eliminate any credit exposure to the Reference Obligation by entering into back-to-back hedging transactions. As a result, the settlement amount owed by the Issuer in respect of the settlement of any Synthetic Security minus the market value of any Deliverable Obligations received by the Issuer upon such settlement may be less than the actual loss, if any, incurred by the Synthetic Security Counterparty upon such settlement and the settlement of any related back-to-back hedging transactions. A Synthetic Security Counterparty and its Affiliates (including the Credit Default Swap Counterparty and its Affiliates may (but are not required to) hold other obligations or securities of any issuer of a Reference Obligation, may deal in any such obligations or securities, may enter into other credit derivatives involving reference entities or reference obligations that may include the Reference 51

Obligations (including credit derivatives relating to Reference Obligations), may accept deposits from, make loans or otherwise extend credit to, and generally engage in any kind of commercial or investment banking or other business with, any issuer of a Reference Obligation, any Affiliate of any issuer of a Reference Obligation or any other person or other entity having obligations relating to any issuer of a Reference Obligation, and may act with respect to such business in the same manner as if the Synthetic Security did not exist, regardless of whether any such relationship or action might have an adverse effect on any Reference Obligation (including, without limitation, any action which might constitute or give rise to a Credit Event) or on the position of the Issuer, the Noteholders or any other party to the transactions described herein or otherwise. In addition, a Synthetic Security Counterparty and/or its Affiliates may from time to time possess interests in the Reference Obligors and/or Reference Obligations allowing the Synthetic Security Counterparty or its Affiliates, as applicable (or any investment manager or adviser acting on its or their behalf), to exercise voting or consent rights with respect thereto, and such rights may be exercised in a manner that may be adverse to the interests of the holders of the Notes or that may affect the market value of Reference Obligations and/or the amounts payable thereunder. A Synthetic Security Counterparty and its Affiliates may, whether by reason of the types of relationships described herein or otherwise, at the date hereof or any time hereafter, be in possession of information in relation to any issuer of a Reference Obligation or Reference Obligation that is or may be material and that may or may not be publicly available or known to the Issuer, the Trustee or the holders of the Notes and which information the Synthetic Security Counterparty, the Portfolio Manager or such Affiliates will not disclose to the Issuer, the Portfolio Manager, the Trustee or the holders of the Notes. A Synthetic Security Counterparty and its Affiliates (including the Credit Default Swap Counterparty and its Affiliates) may act as underwriter, initial purchaser or placement agent for entities having investment objectives similar to those of the Issuer and other similar entities in the future. A Synthetic Security Counterparty (or an Affiliate thereof) may be advising or distributing securities on behalf of an issuer or providing banking or other services to an issuer at the same time at which the Portfolio Manager is determining whether to Acquire or Dispose of a Synthetic Security relating to a particular Reference Obligation under the Credit Default Swap Agreement. Reliance on Creditworthiness of the Credit Default Swap Counterparty, the GIC Provider and other Synthetic Security Counterparties. The ability of the Co-Issuers to meet their obligations under the Secured Notes and the ability of the Issuer to meet its obligations under the Subordinated Notes and Combination Notes in each case, will be partially dependent on their receipt of payments from the Credit Default Swap Counterparty under the Credit Default Swap Agreement, payments from the GIC Provider under the GIC, payments from other Synthetic Security Counterparties under other Synthetic Securities and payments from the GIC Provider under the GIC. With respect to such proceeds, holders of the Notes are subject to the risk of nonperformance by the GIC Provider under the GIC. The Issuer is relying not only on the performance of the Reference Obligations, but also on the creditworthiness of the Credit Default Swap Counterparty, the GIC Provider and other Synthetic Security Counterparties with respect to such payments. Because it is anticipated that the Issuer will enter into most, by Notional Amount, of its Synthetic Securities with the Credit Default Swap Counterparty, there will be a degree of concentration risk with respect to the credit risk in relation to the Credit Default Swap Counterparty. Similar concentration risk would apply to any other Synthetic Security Counterparty which is the obligor under multiple Synthetic Securities comprising a large portion of the Collateral. The insolvency of the Credit Default Swap Counterparty or GIC Provider or a default by the Credit Default Swap Counterparty or GIC Provider under the Credit Default Swap Agreement or GIC may materially and adversely affect the ability of the Co-Issuers to repay principal and interest when due under the Notes and could result in a withdrawal or downgrade of the ratings assigned to the Notes. Neither the Issuer nor the Portfolio Manager on its behalf will perform an independent credit analysis of the Credit Default Swap Counterparty, any other Synthetic Security Counterparty or the GIC 52

Provider. However, the GIC Provider will agree to specific rating downgrade provisions acceptable to the Rating Agencies as a condition to entering into the GIC with the Issuer, and a failure by the GIC Provider to comply with these requirements may result in the termination of the GIC. Furthermore, the Credit Default Swap Counterparty will agree to specific rating downgrade provisions acceptable to the Rating Agencies as a condition to entering into the Credit Default Swap Agreement with the Issuer (and other Synthetic Security Counterparties may agree to similar provisions under the related Synthetic Securities). A failure by the Credit Default Swap Counterparty to comply with these requirements may result in the termination in full of the Credit Default Swap Agreement (or, in the case of another Synthetic Security Counterparty, the Synthetic Securities Acquired with such Synthetic Security Counterparty). In the event of any such termination, the Issuer may be required to make a termination payment to the Credit Default Swap Counterparty (or other Synthetic Security Counterparty) and the amounts payable by the Credit Default Swap Counterparty (or other Synthetic Security Counterparty) will cease to be payable to the Issuer. As a result, unless such Synthetic Securities are replaced, there will be less funds available to the Issuer to discharge its obligation to make payments in respect of the Notes and the Hedge Agreements. The Issuer is therefore relying in part on the creditworthiness of the Credit Default Swap Counterparty (or other Synthetic Security Counterparty) with respect to the Credit Default Swap Counterparty's performance of its obligations to make payments to the Issuer. There can be no assurance that the Issuer would be able to replace the Credit Default Swap Counterparty (or any Synthetic Security Counterparty following the termination of other Synthetic Securities) or GIC Provider following termination of the Credit Default Swap Agreement or GIC, particularly since the Issuer is a special purpose vehicle. In the event of any such termination, the Issuer may be required to make a termination payment to the Credit Default Swap Counterparty or GIC Provider. See "The Royal Bank of Scotland plc", "The Credit Default Swap Agreement—Termination of the Credit Default Swap Agreement" and "Description of the GIC". Similar provisions may apply in respect of other Synthetic Securities. Intermediation Fee. The Credit Default Swap Counterparty is expected to seek to eliminate its credit exposure to the Reference Obligations by entering into back-to-back hedging transactions with Eligible Dealers which shall be identified by the Portfolio Manager when it obtains bids with respect to the Acquisition of any CDS Transaction (subject to the right of the Credit Default Swap Counterparty to match the highest bid obtained by the Portfolio Manager from an Eligible Dealer). Under such CDS Transactions in which the Credit Default Swap Counterparty enters into related back-to-back hedging transactions with Eligible Dealers, an intermediation fee equal to 0.02% will be payable by the Issuer to the Credit Default Swap Counterparty in respect of such CDS Transactions. Calculation Agency Function of Credit Default Swap Counterparty. The calculation agent under the Credit Default Swap Agreement will determine the amount of any Credit Protection Payments and Physical Settlement Amount(s) for each Credit Event payable by the Issuer in respect of CDS Transactions. The Credit Default Swap Counterparty will act as the calculation agent under the Credit Default Swap Agreement by the Issuer. See "The Credit Default Swap Agreement." Other Synthetic Securities may provide that the Synthetic Security Counterparty is appointed by the Issuer as the calculation agent with respect to such transactions. The performance by the Credit Default Swap Counterparty or any other Synthetic Security Counterparty of its duties as calculation agent may result in potential and actual conflicts of interest between its role as calculation agent of the Issuer and its own economic interests as a party to the relevant transaction. Reinvestment Period; Entering into Additional Credit Default Swap Transactions. The Portfolio Manager (on behalf of the Issuer) may apply Uninvested Proceeds, Principal Proceeds and Disposition Proceeds during the Reinvestment Period to cause the Issuer to Acquire additional Synthetic Securities (including CDS Transactions) and may, upon the occurrence of a Principal Amortization or a CDS 53

Transaction Termination during the Reinvestment Period, Acquire replacement CDS Transactions. Although additional CDS Transactions will be subject to the Collateral Quality Tests and certain Eligibility Criteria, the composition of the portfolio of Collateral could change as a result of such reinvestment by the Portfolio Manager. It is possible that the Reference Obligations relating to additional credit default swap transactions will not perform as well as the portfolio of Collateral on the Closing Date. In addition, because the Issuer will not be able to terminate Synthetic Securities (including the CDS Transactions) as easily as it would be able to buy and sell the related Reference Obligations, and in many instances will not be able to terminate such Synthetic Securities without the consent of the related Synthetic Security Counterparty, the Issuer may not be able to manage its exposure to the related Reference Obligations as easily as it would if it purchased such Reference Obligations directly. Hedged Long CDS Transactions. With respect to Hedged Long CDS Transactions, the risks to the Issuer with respect to Floating Amount Events (other than Interest Shortfalls) and Credit Events will have been eliminated (subject to the risk of non-payment by the Credit Default Swap Counterparty of its obligations under the related Hedging Short CDS Transactions). In the event that the Issuer enters into a Hedging Short CDS Transaction with respect to a Long CDS Transaction that is a Credit Risk Security, a Defaulted Security or a Written Down Security, the Issuer will most likely be obligated to pay a premium under the Hedging Short CDS Transaction in excess of the premium which it receives under the Hedged Long CDS Transaction which may adversely affect amounts available to make payments in respect of the Notes. Credit Default Swap Counterparty Acts In Its Own Interest. In taking any action with respect to the CDS Transactions, the Credit Default Swap Counterparty will be acting solely in its own interests, and not as agent, fiduciary or in any other capacity on behalf of the Co-Issuers, the Initial Purchaser, the Portfolio Manager or the holders of the Notes. The Credit Default Swap Counterparty will have no duty whatsoever to consider the effects of its actions or failure to take action on the holders of the Notes. The Credit Default Swap Counterparty is likely to seek to eliminate any credit exposure to the Reference Obligations by entering into back-to-back hedging transactions. As a result, (i) the settlement amount owed by the Issuer in respect of the settlement of any Long CDS Transaction minus the market value of any Deliverable Obligations received by the Issuer upon such settlement may be less than the actual loss, if any, incurred by the Credit Default Swap Counterparty upon such settlement and the settlement of any related back-to-back hedging transactions and (ii) the settlement amount owed to the Issuer in respect of the settlement of any Hedging Short CDS Transactions minus the market value of any Deliverable Obligations delivered by the Issuer upon such settlement may be less than the actual loss, if any, incurred by the Credit Default Swap Counterparty upon such settlement and the settlement of any related back-toback hedging transactions. The Credit Default Swap Counterparty, in its capacity as counterparty to the CDS Transactions, will have certain voting and other rights under the Indenture and the Management Agreement. The interests of the Credit Default Swap Counterparty may not be aligned with those of the holders of the Secured Notes and the Subordinated Notes. Physical Settlement CDS Transactions. In the event that the Credit Default Swap Counterparty elects to settle physically a CDS Transaction following the occurrence of a Credit Event (and the conditions to settlement have been satisfied), the Issuer will be obligated to pay the Physical Settlement Amount with respect to the Reference Obligation, which will be based on the principal amount or certificate balance of the Reference Obligation. As a result, the Issuer will realize a loss equal to the excess of the Physical Settlement Amount over the Disposition Proceeds of the related Deliverable Obligations. Payment of such Physical Settlement Amount may result in a loss for investors or prevent the Issuer from satisfying the conditions necessary to effect an Optional Redemption, Tax Redemption, Auction Call Redemption or liquidation of the Collateral following an Event of Default. 54

Settlement Risk. To the extent the Issuer Acquires Synthetic Securities (so long as, and to the extent that, such Synthetic Securities do not become Hedged Long CDS Transactions), the Issuer may bear the risk of settlement default, particularly since the terms of such Synthetic Securities may (and, in the case of Unhedged Long CDS Transactions, will) require physical settlement by the relevant Synthetic Security Counterparty (including the Credit Default Swap Counterparty). Settlement risk will arise if the Issuer meets its payment obligation under a Synthetic Security before the Synthetic Security Counterparty meets its corresponding delivery obligations thereunder. A failure to perform by a Synthetic Security Counterparty (including the Credit Default Swap Counterparty) may be due to Synthetic Security Counterparty default, operational or administrative error or legal impediments. In particular, the Credit Default Swap Counterparty is expected to seek to eliminate its credit exposure to the Reference Obligations by entering into back-to-back hedging transactions, and its ability to physically settle Long CDS Transactions may be dependent on whether or not the counterparties to such back-to-back hedging transactions perform their delivery obligations. Such risks may differ materially from those entailed in exchange-traded transactions, which generally are backed by clearing organization guarantees, daily mark-to-market and settlement of positions, and segregation and minimum capital requirements applicable to intermediaries. Transactions entered into directly between two counterparties generally do not benefit from such protections, and expose the parties to the risk of counterparty default. Furthermore, there may be practical or timing problems associated with enforcing the Issuer's rights to its assets in the case of an insolvency of any such Synthetic Security Counterparty (including the Credit Default Swap Counterparty). Physical Settlement. Under Long CDS Transactions, in the event that the applicable conditions to settlement have been satisfied after the occurrence of a Credit Event, the Issuer will be obligated to pay the Physical Settlement Amount with respect to the related Reference Obligation, which will be based on the principal amount or certificate balance of the Reference Obligation and the Credit Default Swap Counterparty will be obligated to deliver one or more Deliverable Obligations. Pursuant to the definition thereof, Deliverable Obligations under CDS Transactions are required to (a) satisfy the criteria set forth in paragraphs (1) through (4) and (6) through (34) of the Eligibility Criteria at the time such debt obligation is delivered or (b) satisfy the criteria set forth in paragraphs (7), (8) and (9) of the Eligibility Criteria and the Rating Condition. The Portfolio Manager is entitled to Dispose of any Deliverable Obligations in accordance with the procedures described in "Security for the Secured Notes—Dispositions of Collateral Debt Securities." There is, however, no guarantee that the Portfolio Manager will succeed in Disposing of any Deliverable Obligation, and the time required to sell a Deliverable Obligation cannot be predicted. If a Deliverable Obligation is Disposed of, there is no guarantee that the Disposition Proceeds of the Deliverable Obligation will result in Disposition Proceeds to the Issuer in respect of the related Credit Event equivalent to the Physical Settlement Amount. The market value of the Deliverable Obligation delivered by the Credit Default Swap Counterparty in connection with a physical settlement will likely be less than the Physical Settlement Amount payable by the Issuer, and there is no guarantee that the Issuer will be able to Dispose of a Deliverable Obligation which it has received under a Long CDS Transaction at a price which the Portfolio Manager believes accurately reflects its recovery value. The market value of a Deliverable Obligation will generally fluctuate with, among other things, changes in prevailing interest rates, general economic conditions, the condition of certain financial markets, international political events, developments or trends in any particular industry, the performance of the assets backing the Deliverable Obligation, the financial condition of the portfolio of the related Reference Obligor, and the terms of the Deliverable Obligation. A Deliverable Obligation may be in default at the time it is delivered to the Issuer, and the related Reference Obligor may be insolvent. These factors may adversely impact the price and liquidity of the Deliverable Obligations. This may adversely affect payments on the Secured Notes and distributions in respect of the Subordinated Notes.

55

Payments to Credit Default Swap Counterparty Outside of the Priority of Payments. Payments of Credit Protection Amounts, Physical Settlement Amounts, Issuer Premiums, Writedown Reimbursements, Principal Reimbursements, Interest Reimbursements and CDS Termination Payments owed by the Issuer will be paid directly to the Credit Default Swap Counterparty in accordance with the Account Withdrawal Payment Priority and will not be subject to the Priority of Payments. Termination of the Credit Default Swap Agreement. In the circumstances specified in the Credit Default Swap Agreement, the Issuer or the Credit Default Swap Counterparty may terminate the Credit Default Swap Agreement (and all of the CDS Transactions). The Credit Default Swap Agreement is subject to early termination by the Issuer in the event of an "Event of Default" by the Credit Default Swap Counterparty or a "Termination Event" (as such terms are defined in the Credit Default Swap Agreement) affecting the Credit Default Swap Counterparty under the Credit Default Swap Agreement. The Credit Default Swap Agreement is subject to early termination by the Credit Default Swap Counterparty in the event of an "Event of Default" by the Issuer or a "Termination Event" affecting the Issuer under the Credit Default Swap Agreement. See "The Credit Default Swap Agreement—Termination of the Credit Default Swap Agreement." In addition, the Credit Default Swap Agreement is subject to early termination (as more fully described in "The Credit Default Swap Agreement") if (i) a Credit Default Swap Ratings Event occurs and is continuing; (ii) an Event of Default occurs under the Indenture and is continuing and the Collateral has been liquidated in full; (iii) an Optional Redemption, Tax Redemption or an Auction Call Redemption occurs; or (iv) any supplemental Indenture is entered into, or the Indenture is otherwise amended, that would have a material adverse effect on the Credit Default Swap Counterparty, without the prior consent of the Credit Default Swap Counterparty. Under the Credit Default Swap Agreement, with respect to an "Event of Default" or a "Termination Event," the "Non-defaulting Party" or the party that is not the "Affected Party" will designate the "Early Termination Date" (as such terms are defined in the Credit Default Swap Agreement) and will determine the termination payment with respect to all the CDS Transactions that is payable to or by the Issuer, or as applicable, to or by the Credit Default Swap Counterparty and the calculation agent under the Credit Default Swap Agreement will determine the Liquidation Proceeds with respect to the CDS Transactions payable to or by the Issuer in accordance with the Liquidation Procedures. See "The Credit Default Swap Agreement—Liquidation Procedures". Any termination payment payable by the Issuer to the Credit Default Swap Counterparty in connection with the termination in full of the Credit Default Swap Agreement will (i) be payable on a Distribution Date subject to and in accordance with the Priority of Payments, (ii) other than in the case of any Defaulted Synthetic Termination Payment, rank senior in the Priority of Payments to all payments in respect of the Secured Notes and (iii) reduce the Interest Proceeds and Principal Proceeds available to make payments on the Secured Notes and Subordinated Notes, and may result in an Event of Default under the Indenture and a loss to the holders of the Secured Notes and holders of the Subordinated Notes, which loss could be substantial. Such an early termination of the Credit Default Swap Agreement following an "Event of Default" or "Termination Event" will not by itself, however, constitute an Event of Default under the Indenture. Following the effective designation of an early termination date, no further payments, other than the termination payment and Unpaid Amounts will be required to be made by either the Issuer or the Credit Default Swap Counterparty under the Credit Default Swap Agreement. With respect to Unhedged Long CDS Transactions, the Issuer will retain the Deliverable Obligations but will no longer receive payments of Premiums from the Credit Default Swap Counterparty, which will reduce the Interest Proceeds available to make payments on the Secured Notes and Subordinated Notes. The termination payment due from the Issuer to the Credit Default Swap Counterparty in connection with the termination of the Credit Default Swap Agreement (or from the Credit Default Swap 56

Counterparty to the Issuer) will be determined by the Credit Default Swap Counterparty and be payable on the next succeeding Distribution Date in accordance with the Priority of Payments. If a termination payment would be due from the Issuer to the Credit Default Swap Counterparty the Issuer may not be able to consummate an Optional Redemption, Tax Redemption or Auction Call Redemption and may not be able to meet one or more of the required conditions to liquidate the Collateral following an Event of Default. Borrowings, Deemed Borrowings and Prepayments under the Class A1-VF Notes; Reliance on Creditworthiness of Class A1-VF Noteholders. Holders of the Class A1-VF Notes will, upon request by the Issuer, advance funds to the Issuer up to the Remaining Unfunded Facility Commitment, and funds standing to the credit of any Class A1-VF Prepayment Account will be applied to Deemed Borrowings, if at the time of and immediately after giving effect to such Borrowing or Deemed Borrowing certain conditions are satisfied, as described herein. There can be no assurance that the Remaining Unfunded Facility Commitment will be funded or that funds will be deposited in a Class A1-VF Prepayment Account by a Class A1-VF Noteholder when so required under the Variable Funding Note Purchase Agreement. The Issuer is under no obligation to draw on any of the Remaining Unfunded Facility Commitment or funds standing to the credit of any Class A1-VF Prepayment Account and may (in the sole discretion of the Portfolio Manager) draw as much or as little of the Remaining Unfunded Facility Commitment (subject to the Maximum VFN Facility Funding Commitment) and such credited amounts as it deems appropriate; provided that each requested Borrowing or Deemed Borrowing must be to fund a Permitted Use. The Class A1-VF Noteholders shall have no obligation to advance funds for Borrowings or Deemed Borrowings in respect of any Borrowing request after the occurrence and during the continuation of a Specified Event of Default, but the occurrence and continuation of an Event of Default (other than a Specified Event of Default) shall not relieve the Class A1-VF Noteholders from their obligation to make advances for Borrowings or Deemed Borrowings in respect of Borrowing requests delivered prior to the Commitment Termination Date if the other conditions precedent to such Borrowing or Deemed Borrowing set forth in the Variable Funding Note Purchase Agreement and described herein are satisfied. Given that all or most of the Synthetic Securities Acquired by the Issuer will consist of CDS Transactions and the Issuer will be relying (to the extent that amounts that are available pursuant to the operation of the Account Withdrawal Payment Priority are insufficient therefor) on Borrowings and Deemed Borrowings under the Class A1-VF Notes in order to satisfy its payment obligations under the CDS Transactions, the Issuer will have significant credit exposure to the holders of the Class A1-VF Notes. There can be no assurance that the applicable conditions to a Borrowing or Deemed Borrowing under the Class A1-VF Notes will be satisfied or that, if they are and the relevant holder has not already deposited its Remaining Unfunded Facility Commitment in a Class A1-VF Prepayment Account, a holder will fund such a Borrowing. If the Issuer is unable to obtain a Borrowing or Deemed Borrowing because the applicable conditions to a Borrowing under the Class A1-VF Notes are not satisfied or a holder fails to fund such a Borrowing or has failed to satisfy any obligation to deposit its Remaining Unfunded Facility Commitment in a Class A1-VF Prepayment Account, (i) the Issuer's ability to purchase and reinvest in Collateral Debt Securities will be limited and (ii) the Issuer may not be able to honor its payment obligations under Synthetic Securities (including CDS Transactions), in which case the Credit Default Swap Counterparty will have the right to terminate all of the CDS Transactions and the Issuer may be required to pay a termination payment to the Credit Default Swap Counterparty. In each case, such event could have a material and adverse effect on the Issuer's ability to make payments in respect of the Notes. Illiquidity of Credit Default Swaps; Effect of Credit Spreads on Termination Payment. The market for credit default swaps on Asset-Backed Securities has only existed for a few years and is not liquid (compared to the market for credit default swaps on investment grade corporate reference entities). 57

Credit default swaps with "pay as you go" credit events have only recently been introduced into the market, and the terms may change significantly after the Closing Date (which will make it more difficult for the Issuer to liquidate or value a credit default swap upon a termination). The amount of Liquidation Proceeds that will result from the Liquidation Procedures or the calculation of CDS Termination Payments pursuant to the Credit Default Swap Agreement is very difficult to predict. The current premiums which a "buyer" of protection will pay under credit default swaps for reference obligations which are Asset-Backed Securities are at very low levels (compared to the levels during the past five years). This results in part from the fact that the current interest rate spreads over LIBOR (or, in the case of fixed rate Asset-Backed Securities, over the applicable U.S. Treasury Benchmark) on Asset-Backed Securities are at very low levels (compared to the levels during the past ten years). In the event that such interest rate spreads widen or the prevailing credit premiums on credit default swaps on Asset-Backed Securities increase after the Closing Date, the amount of a termination payment upon a termination of a Synthetic Security due from the Issuer to the related Synthetic Security Counterparty could increase by a substantial amount. Amendments to Credit Derivatives Definitions. The Credit Default Swap Agreement provides (and other Synthetic Securities may provide) that no material amendment, modification or waiver in respect thereof may be entered into by the Issuer at the direction of the Portfolio Manager and the Credit Default Swap Counterparty (or Synthetic Security Counterparty) unless (i) a copy of such proposed amendment, modification or waiver has been delivered to each Rating Agency, the Trustee and the Portfolio Manager no less than 10 days prior to the proposed effective date thereof, (ii) a Majority of the Controlling Class has consented to such amendment, modification or waiver and (iii) such material amendment, modification or waiver satisfies the Rating Condition. However, the foregoing does not apply to amendments to the Credit Derivatives Definitions effected by ISDA after the Closing Date. Each of the CDS Transactions will (and other Synthetic Securities may) incorporate the Credit Derivatives Definitions to the extent agreed upon by the Portfolio Manager on behalf of the Issuer and the Credit Default Swap Counterparty and may include any amendment, modification or supplement thereto effected after the effective date of the relevant Synthetic Security if the parties so agree. The credit default swap market is expected to change and the Credit Derivatives Definitions and terms applied to credit derivatives are subject to interpretation and further evolution. Such amendments, modifications or supplements may therefore materially affect in a manner that is adverse to the interests of the Issuer and the Noteholders the material terms of a Synthetic Security negotiated by the Portfolio Manager on behalf of the Issuer prior to the entry by the Issuer into such Synthetic Security. Uncertainty Regarding the Terms of the Synthetic Securities. The Issuer, the Portfolio Manager and the Credit Default Swap Counterparty may adopt different forms of confirmations for Synthetic Securities than those used for CDS Transactions (as described herein), if the Rating Condition is satisfied. In such event, the terms of the Synthetic Securities may be materially different from the terms of the CDS Transactions, and such terms may be adverse to the interests of the Issuer and the holders of the Notes. "Pay As You Go or Physical Settlement" credit default swaps are a new type of credit default swap developed to incorporate the unique structures of Asset-Backed Securities, in particular those of RMBS Securities. ISDA is currently preparing forms for other types of Asset-Backed Securities. While ISDA has published its form of confirmation for documenting "Pay As You Go or Physical Settlement" credit default swaps and has published and supplemented the ISDA Credit Derivatives Definitions in order to facilitate transactions and promote uniformity in the credit default swap market, the credit default swap market is expected to change and the confirmation used to document "Pay As You Go or Physical Settlement" credit default swaps and the ISDA Credit Derivatives Definitions and terms applied to credit derivatives are subject to interpretation and further evolution. 58

Past events have shown that the views of market participants may differ as to how the Credit Derivatives Definitions operate or should operate. There can be no assurances that changes to the Credit Derivatives Definitions and other terms applicable to credit derivatives generally will be predictable or favorable to the Issuer. Markets in different jurisdictions have also already adopted and may continue to adopt different practices with respect to the Credit Derivatives Definitions. The Credit Derivatives Definitions may contain ambiguous provisions that are subject to interpretation and may result in consequences that are adverse to the Issuer. Therefore, in addition to the credit risk of the Reference Obligations and the credit risk of the Synthetic Security Counterparties, the Issuer is also subject to the risk that the Credit Derivatives Definitions could be interpreted in a manner that would be adverse to the Issuer or that the credit derivatives market generally may evolve in a manner that would be adverse to the Issuer. Declaration of Credit Events and Floating Amount Events. Whether and when to declare a Credit Event and to deliver any notice that a Credit Event or a Floating Amount Event has occurred under a Long CDS Transaction will be in the sole discretion of the Credit Default Swap Counterparty, and none of the Credit Default Swap Counterparty or any of its Affiliates will have any liability to any Secured Noteholder, any Subordinated Noteholder or any other person as a result of giving (or not giving) any such notice under any Long CDS Transaction. If a Writedown, Failure to Pay Principal or, under certain circumstances, Failure to Pay Interest occurs, the buyer of protection (in the case of a Long CDS Transaction, the Credit Default Swap Counterparty) may elect to require the Issuer to pay the Credit Protection Payment or to treat it as a Credit Event and physically settle under such Long CDS Transaction. Effect of Credit Events and Floating Amount Events under CDS Transactions on Performance of the Secured Notes and Subordinated Notes. Payments on the Secured Notes and distributions on the Subordinated Notes will be adversely affected by Credit Events and Floating Amount Events under Unhedged Long CDS Transactions. There is no guarantee as to the ability of the Issuer to sell and timing of sale of Deliverable Obligations under Unhedged Long CDS Transactions, or whether the amount of Disposition Proceeds on the sale of such Deliverable Obligations will equal the Physical Settlement Amounts paid by the Issuer following the occurrence of the related Credit Events. If a Floating Amount Event occurs under an Unhedged Long CDS Transaction, and subsequently the Credit Default Swap Counterparty reimburses the Issuer for the amount previously paid by it, the Credit Default Swap Counterparty will not pay interest on the amount of such reimbursement to the Issuer. This will reduce the Interest Proceeds available to pay expenses of the Issuer, interest on the Secured Notes and distributions on the Subordinated Notes on each Distribution Date. Principal Proceeds available to pay the principal amount of the Secured Notes and the Subordinated Notes on any Redemption Date, at Stated Maturity or on the Accelerated Maturity Date also will be reduced by each Credit Protection Payment (other than in respect of an Interest Shortfall) and each Physical Settlement Amount paid by the Issuer under Unhedged Long CDS Transactions. Prospective purchasers of the Secured Notes or Subordinated Notes should consider and determine for themselves the likely levels of Credit Events and Floating Amount Events during the term of the Secured Notes and the Subordinated Notes and the impact of such Credit Events and Floating Amount Events on their investment. The concentration of Reference Obligations in any one industry or geographic region, in any one originator or servicer or in any one Specified Type of Asset-Backed Security will subject the Notes to a greater degree of risk of loss resulting from defaults within such industry or geographic region, defaults by such originator or servicer or defaults among that Specified Type of Asset-Backed Security.

59

Principal Proceeds available to pay the principal amount of the Secured Notes and the Subordinated Notes on any Redemption Date, at Stated Maturity or the Accelerated Maturity Date will be reduced by each Physical Settlement Amount, Writedown Amount or Principal Shortfall Amount paid by the Issuer under Unhedged Long CDS Transactions. Effect of Interest Shortfalls on Performance of the Secured Notes and Subordinated Notes. An Interest Shortfall will occur whenever a Reference Obligor fails to pay scheduled interest on a Reference Obligation payment date. This could result from a default by the Reference Obligor or from other events or circumstances which are not events of default under the applicable Underlying Instrument, such as an available funds cap, a "priority of payments" provision or a "payment in kind" provision in the Underlying Instruments, the capitalization or deferral of interest or the extinguishing or reduction of such payments or distributions (unless such reduction results from a writedown of principal under the applicable Underlying Instruments) or the insufficiency of the funds available to the Reference Obligor to pay interest. Each CDS Transaction (other than CDO CDS Transactions) will provide for an election as to whether the "WAC Cap Interest Provision" is applicable. In the event that it is applicable, in determining whether an Interest Shortfall has occurred, the expected interest under such CDS Transaction would be reduced by any weighted average coupon or weighted average rate cap provision in the Underlying Instruments that limits or decreases the interest rate or amount payable pursuant to the applicable Reference Obligation. Many RMBS Securities are structured with such a cap provision. If the WAC Cap Interest Provision is applicable, credit default swaps having Reference Obligations that are RMBS Securities are less likely to experience Interest Shortfalls. Each CDS Transaction with respect to a Reference Obligation that is an RMBS Security is expected to provide for an election by the Credit Default Swap Counterparty that the "WAC Cap Interest Provision" is not applicable. Each CDS Transaction with respect to a Reference Obligation that is a CMBS Security is expected to provide for an election by the Credit Default Swap Counterparty that the "WAC Cap Interest Provision" is applicable. For any CDS Transaction which references a CDO Security, the Confirmation with respect thereto will specify that implied writedown is not applicable and that Interest Shortfall Compounding is applicable. The CDS Transactions are expected to provide that the "step-up" provisions in the applicable ISDA template form of confirmation identified herein will be applicable. Under the step-up provisions, the buyer of protection under the CDS Transaction may elect to either terminate the CDS Transaction or increase the fixed rate related to the Fixed Rate Payment that it pays periodically to the seller of protection if the Reference Obligor or a third party fails to exercise, in accordance with the Underlying Instruments, a "clean up call" or other right to acquire, redeem, cancel or dispose of (however described in the Underlying Instruments) the Reference Obligation which failure results in an increase in the Reference Obligation coupon. If the protection buyer does not deliver a notice that it is terminating the CDS Transactions by the fifth Business Day after it receives notice of a step-up of the Reference Obligation coupon, it will be deemed to have elected to continue the CDS Transaction at the increased fixed rate. Under each CDS Transaction, the parties to the CDS Transaction will elect to cap the interest shortfall risk being transferred to the protection seller by limiting amounts to be paid by the protection seller to the protection buyer to a fixed or (in the case of a CDO CDS Transaction only) variable capped amount. If the fixed cap applies (as will always be the case MBS CDS Transactions), the capped amount will be equal to the amount of Premium payable by the protection buyer under the CDS Transaction on the first Premium payment date immediately following the Reference Obligation payment date on which the relevant Interest Shortfall occurred. If the variable cap applies (as is currently expected to be the case with CDO CDS Transactions), the capped amount will be adjusted to take into account interest rate

60

fluctuations and may result in an Interest Shortfall that exceeds the amount of Premium payable by the protection buyer to the protection seller on such date. Whenever an Interest Shortfall occurs on a Reference Obligation payment date, the related Credit Protection Payment will reduce dollar-for-dollar the amount payable by the buyer of protection to the seller of protection (in the case of a Long CDS Transaction, the Issuer) or, in the case of a CDS Transaction with respect to which the related Reference Obligation is a CDO Security, may result in a Failure to Pay Interest Credit Event. In the case of an Unhedged Long CDS Transaction, any Credit Protection Payment in respect of an Interest Shortfall will reduce the Interest Proceeds available to the Issuer in that Due Period to pay its expenses, interest on the Secured Notes and distributions on the Subordinated Notes. If a sufficient amount of Interest Shortfalls occur in the same Due Period, Interest Proceeds could be reduced to an amount that would not be sufficient to pay the interest due on the Class A1-VF Notes (or the Commitment Fee thereon), the Class A2A Notes, the Class A2B Notes, the Class B1 Notes or the Class B2 Notes, resulting in an Event of Default. Prospective purchasers of the Secured Notes or Subordinated Notes should consider and determine for themselves the likely amount of Interest Shortfalls during the term of the Secured Notes and the Subordinated Notes and the impact of such Interest Shortfalls on their investment. Defeased Synthetic Securities. If the terms of any Defeased Synthetic Security require the Issuer to secure its obligations with respect to such Synthetic Security, funds will be deposited into a Synthetic Security Counterparty Account. In accordance with the terms of the applicable Defeased Synthetic Security, funds deposited in the related Synthetic Security Counterparty Account will be invested in Eligible Investments or other Synthetic Security Collateral for the purpose of securing the Issuer's obligations under such Defeased Synthetic Security. Under the Indenture, the Issuer may not enter into any Defeased Synthetic Security unless the recourse of the relevant Synthetic Security Counterparty to the Issuer thereunder is limited to the Synthetic Security Collateral and as a consequence, the relevant Synthetic Security Counterparty bears the market risk of such Synthetic Security Collateral. After payment of all amounts owing by the Issuer to the relevant Synthetic Security Counterparty or a default which entitles the Issuer to terminate its obligations under such Defeased Synthetic Security, all funds and other property standing to the credit of the Synthetic Security Counterparty Account related to such Defeased Synthetic Security will be credited to the Principal Collection Account (in the case of cash and Eligible Investments) and the Custodial Account (in the case of Collateral Debt Securities and other financial assets). Such items of Synthetic Security Collateral that are credited to the Custodial Account may not satisfy certain Eligibility Criteria when they are credited to the Custodial Account. If the Synthetic Security Collateral consists of Eligible Investments, the return received by the Issuer on the Synthetic Securities will be lower than if the Synthetic Security Collateral consists of Asset-Backed Securities, and as a result the Interest Proceeds in each Due Period will be reduced and may not be sufficient to pay interest on all Classes of Notes. A prospective investor evaluating an investment in the Notes should assume that the interest income to the Issuer on the Synthetic Security Collateral will be no higher than the interest rate which the Issuer earns on Eligible Investments. Redemption of Secured Notes and the Subordinated Notes; Potential Illiquidity and Volatility of Collateral Market Value. An Optional Redemption, Tax Redemption or Auction Call Redemption is a potential source of liquidity for the Secured Notes and the Subordinated Notes. There can be no assurance, however, that the Issuer's rights to an Optional Redemption, Tax Redemption or Auction Call Redemption will be exercised or that the conditions for any such redemption will be satisfied. A Majority of Subordinated Noteholders have the right to direct an Optional Redemption, which may materially and adversely affect the rights of one or more Classes of Noteholders, however there is no assurance that such Majority will exercise this right or that, if exercised, the conditions for such redemption will be satisfied. See "Description of the Secured Notes—Optional Redemption and Tax Redemption."

61

An Optional Redemption, Tax Redemption or Auction Call Redemption would result in a Disposition of the Collateral Debt Securities into then-existing markets. The market value of the Collateral Debt Securities will generally fluctuate with, among other things, changes in prevailing interest rates, general economic conditions, the condition of certain financial markets, international political events, developments or trends in any particular industry and the financial condition of the underlying obligors on or issuers of the Collateral Debt Securities (or, in the case of Synthetic Securities, including Synthetic Securities entered into under the Credit Default Swap Agreement, the financial condition of the Reference Obligors). Lower ratings of Collateral Debt Securities reflect a greater possibility that adverse changes in the financial condition of an issuer or obligor or in general economic conditions or both may impair the ability of such underlying issuers or obligors to make payments of principal, interest and premium. Any termination payments paid by the Issuer under any CDS Transaction or other Synthetic Security terminated in connection with such redemption may have an adverse effect on the (i) amounts payable in connection with any Auction Call Redemption, Optional Redemption or Tax Redemption and (ii) proceeds received from the sale or liquidation of Collateral following an Event of Default. In addition, future periods of uncertainty in the United States economy and the economies of other countries in which issuers or obligors of Collateral Debt Securities are domiciled and the possibility of increased volatility and default rates in certain financial markets may also adversely affect the price and liquidity of the Collateral Debt Securities. The below investment grade ratings of a portion (up to 100% of the Net Outstanding Portfolio Collateral Balance at the time of Acquisition by the Issuer) of the Collateral Debt Securities reflect a greater possibility that adverse changes in the financial condition of an issuer or obligor or in general economic conditions or both may impair the ability of such underlying issuers or obligors to make payments of principal, interest and premium. In addition, future periods of uncertainty in the United States economy and the economies of other countries in which issuers or obligors of Collateral Debt Securities are domiciled and the possibility of increased volatility and default rates in certain financial markets may also adversely affect the price and liquidity of the Collateral Debt Securities. A decrease in the market value of the Collateral Debt Securities would adversely affect the Disposition Proceeds that could be obtained upon the sale or other Disposition of the Collateral Debt Securities and ultimately the ability of the Co-Issuers to pay in full or redeem the Notes. The risk of a decline in the market value of the Collateral Debt Securities is increased in the case of the Issuer (as compared to other collateralized debt obligation transaction issuers that invest primarily in investment grade securities) because up to 100% of the Net Outstanding Portfolio Collateral Balance may consist of Collateral Debt Securities rated below investment grade at the time of Acquisition by the Issuer. A decrease in the market value of the Collateral Debt Securities would adversely affect the Disposition Proceeds which could be obtained upon the Disposition of Collateral Debt Securities and be available for distributions on the Subordinated Notes. Each Hedge Agreement and the Credit Default Swap Agreement will terminate upon an Optional Redemption, Tax Redemption, Auction Call Redemption or on the Accelerated Maturity Date, which may require the Issuer to make a termination payment to the applicable Hedge Counterparty and Credit Default Swap Counterparty. Any such termination payment would reduce the proceeds available to be distributed on the Notes and, as a result, the proposed redemption or Disposition of the Collateral after an Event of Default may not occur if it does not satisfy the requirements in the Indenture. In addition, an Optional Redemption, a Tax Redemption, an Auction Call Redemption or Disposition of the Collateral after an Event of Default may require the Portfolio Manager to liquidate positions more rapidly than would otherwise be desirable, which could adversely affect the realized value of the Collateral Debt Securities sold and lower the returns on the Subordinated Notes. Moreover, the Portfolio Manager may be required, in order to Dispose of all the 62

Collateral Debt Securities, to aggregate Collateral Debt Securities in a block transaction, thereby possibly resulting in a lower realized value for the Collateral Debt Securities Disposed of. There can be no assurance (other than in the case of a successful Auction Call Redemption) that the market value of the Collateral will be sufficient to pay the Redemption Price of the Secured Notes and the aggregate outstanding principal amount of the Subordinated Notes (assuming for these purposes that all distributions made in respect of the Subordinated Notes prior to such date of determination are applied to reduce the principal amount of the Subordinated Notes). If the market value of the Collateral is insufficient, the holders of the Subordinated Notes may receive no distribution and, on an Accelerated Maturity Date, holders of the Secured Notes may suffer a loss. Illiquidity of Collateral Debt Securities. Some of the Collateral Debt Securities acquired by the Issuer will have no, or only a limited, trading market. The Issuer's investment in illiquid Collateral Debt Securities may restrict its ability to dispose of investments in a timely fashion and for a fair price as well as its ability to take advantage of market opportunities, although the Issuer is generally prohibited by the Indenture from selling Collateral Debt Securities except under certain limited circumstances described under "Security for the Secured Notes—Dispositions of Collateral Debt Securities." Illiquid Collateral Debt Securities may trade at a discount from comparable, more liquid investments. In addition, the Issuer may invest in privately placed Collateral Debt Securities that may or may not be freely transferable under the laws of the applicable jurisdiction or due to contractual restrictions on resale, and even if such privately placed Collateral Debt Securities are transferable, the prices realized from their sale could be less than those originally paid by the Issuer or less than what may be considered the fair value of such securities. Reliance on Creditworthiness of GIC Provider. The ability of the Co-Issuers to meet their obligations under the Secured Notes and the ability of the Issuer to meet its obligations under the Subordinated Notes, in each case, will be dependent, to a significant extent, on their receipt of payments from the GIC Provider under the GIC. Consequently, the Co-Issuers will be exposed to the credit risk of the GIC Provider and there will be a degree of concentration risk with respect to such credit risk. The insolvency of the GIC Provider or a default by the GIC Provider under the GIC may materially and adversely affect the ability of the Co-Issuers to repay principal and interest when due under the Notes and could result in a withdrawal or downgrade of the ratings assigned to the Notes. The Portfolio Manager will not perform an independent credit analysis of the GIC Provider. However, the GIC Provider will agree to specific rating downgrade provisions acceptable to the Rating Agencies as a condition to entering into the GIC with the Issuer. A failure by the GIC Provider to comply with these requirements may result in the termination of the GIC. There can be no assurance that the Issuer would be able to locate a replacement GIC Provider following such termination. See "The GIC Provider." 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 interest payments and do not evaluate the risks of fluctuations in market value, therefore, they may not fully reflect the true risks of an investment. Also, rating agencies may fail to make timely changes in credit ratings in response to subsequent events, so that an issuer's current financial condition may be better or worse than a rating indicates. Consequently, credit ratings of the Collateral Debt Securities will be used by the Portfolio Manager only as a preliminary indicator of investment quality. Up to 100% of the Net Outstanding Portfolio Collateral Balance may consist of Collateral Debt Securities rated below investment grade. Investments in non-investment grade and comparable unrated obligations will be more dependent on the Portfolio Manager's credit analysis than would be the case with investments in investment-grade debt obligations. Insolvency Considerations with Respect to Issuers of Collateral Debt Securities. Various laws enacted for the protection of creditors may apply to the Collateral Debt Securities (or Reference 63

Obligations under any Synthetic Securities) issued by U.S. issuers (each, a "U.S. Collateral Debt Security"). The Collateral Debt Securities (or Reference Obligations under any Synthetic Securities) consisting of obligations of non-U.S. issuers may be subject to various laws enacted in the home countries of their issuance for the protection of creditors. These insolvency considerations will differ depending on the country in which each issuer is located and may differ depending on whether the issuer is a nonsovereign or a sovereign entity. If a court in which a lawsuit is brought by an unpaid creditor or representative of creditors of an issuer of a U.S. Collateral Debt Security, such as a trustee in bankruptcy, were to find the issuer did not receive fair consideration or reasonably equivalent value for incurring the indebtedness constituting the Collateral Debt Security (or Reference Obligation, as the case may be) and, after giving effect to such indebtedness, the issuer (i) was insolvent, (ii) was engaged in a business for which the remaining assets of such issuer constituted unreasonably small capital or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, such court could determine to invalidate, in whole or in part, such indebtedness as a fraudulent conveyance, to subordinate such indebtedness to existing or future creditors of the issuer or to recover amounts previously paid by the issuer in satisfaction of such indebtedness. The measure of insolvency for purposes of the foregoing will vary. Generally, an issuer would be considered insolvent at a particular time if the sum of its debts were greater than all of its property at a fair valuation or if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liabilities on its existing debts as they became absolute and matured. There can be no assurance as to what standard a court would apply in order to determine whether the issuer was "insolvent" after giving effect to the incurrence of the indebtedness constituting the U.S. Collateral Debt Security or that, regardless of the method of valuation, a court would not determine that the issuer was "insolvent" upon giving effect to such incurrence. In addition, in the event of the insolvency of an issuer of a U.S. Collateral Debt Security, payments made on such U.S. Collateral Debt Security could be subject to avoidance as a "preference" if made within a certain period of time (which may be as long as one year before insolvency). In general, if payments on a U.S. Collateral Debt Security are avoidable, whether as fraudulent conveyances or preferences, such payments can be recaptured either from the initial recipient (such as the Issuer) or from subsequent transferees of such payments (such as the holders of Secured Notes). To the extent that any such payments are recaptured from the Issuer, the resulting loss will be borne in the first instance by the holders of the Subordinated Notes, then by the holders of the Secured Notes in the reverse order of priority. However, a court in a bankruptcy or insolvency proceeding would be able to direct the recapture of any such payment from a Noteholder only to the extent that such court has jurisdiction over such holder or its assets. Lender Liability Considerations; Equitable Subordination. In recent years, a number of judicial decisions in the United States have upheld the right of borrowers to sue lenders or bondholders on the basis of various evolving legal theories (collectively, termed "lender liability"). Generally, lender liability is founded upon the premise that an institutional lender or bondholder has violated a duty (whether implied or contractual) of good faith and fair dealing owed to the borrower or issuer or has assumed a degree of control over the borrower or issuer resulting in the creation of a fiduciary duty owed to the borrower or issuer or its other creditors or shareholders. Although it would be a novel application of the lender liability theories, the Issuer may be subject to allegations of lender liability. However, the Issuer does not intend to engage in conduct that would form the basis for a successful cause of action based upon lender liability. In addition, under common law principles that in some cases form the basis for lender liability claims, if a lender or bondholder (a) intentionally takes an action that results in the undercapitalization of a borrower to the detriment of other creditors of such borrower, (b) engages in other inequitable conduct 64

to the detriment of such other creditors, (c) engages in fraud with respect to, or makes misrepresentations to, such other creditors or (d) uses its influence as a stockholder to dominate or control a borrower to the detriment of other creditors of such borrower, a court may elect to subordinate the claim of the offending lender or bondholder to the claims of the disadvantaged creditor or creditors, a remedy called "equitable subordination." Because of the nature of the Collateral Debt Securities, the Issuer may be subject to claims from creditors of an obligor that Collateral Debt Securities issued by such obligor that are held by the Issuer should be equitably subordinated. However, the Issuer does not intend to engage in conduct that would form the basis for a successful cause of action based upon the equitable subordination doctrine. The preceding discussion is based upon principles of United States Federal and state laws. Insofar as Collateral Debt Securities that are obligations of non-United States obligors are concerned, the laws of certain foreign jurisdictions may impose liability upon lenders or bondholders under factual circumstances similar to those described above, with consequences that may or may not be analogous to those described above under United States Federal and state laws. Jurisdiction of Obligors on Collateral Debt Securities and Reference Obligations. A limited portion of the Collateral Debt Securities and Reference Obligations may consist of obligations of an issuer or obligor located in a Special Purpose Vehicle Jurisdiction or obligations of a Qualifying Foreign Obligor. Moreover, subject to compliance with certain of the Eligibility Criteria described herein, collateral securing Asset-Backed Securities may consist of obligations of issuers or borrowers organized under the laws of various jurisdictions. Investing in a particular jurisdiction may involve risks specific to that jurisdiction including: (i) less publicly available information; (ii) varying levels of governmental regulation and supervision; and (iii) the difficulty of enforcing legal rights in such jurisdiction and uncertainties as to the status, interpretation and application of laws therein. Moreover, accounting, auditing and financial reporting standards, practices and requirements vary between jurisdictions. In addition, there could be a relatively low level of governmental supervision and regulation of exchanges, brokers and issuers in a particular jurisdiction. For example, there may be no provisions with respect to insider trading and similar investor protection securities laws that apply with respect to securities transactions consummated, for example, in the United States. Different markets have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Furthermore, particular financial markets may, relatively speaking, have substantially less volume than other markets, and securities traded in a particular financial market may be relatively less liquid and their prices more volatile than securities of comparable companies in other financial markets. Certain Potential Conflicts of Interest. The activities of the Portfolio Manager, the Initial Purchaser and their respective Affiliates may result in certain conflicts of interest. Conflicts of Interest Involving the Portfolio Manager. Various potential and actual conflicts of interest may arise from the overall investment activities of the Portfolio Manager and its Affiliates for their own accounts and the accounts of others. The following briefly summarizes some of these conflicts, but is not intended to be an exhaustive list of all such conflicts. The Issuer is not the Portfolio Manager's exclusive client. The Portfolio Manager and its Affiliates and associates are not prohibited in any way from spending, and intend to spend, substantial business time in connection with other businesses and activities, including, but not limited to, managing investments, advising or managing entities whose investment objectives are the same and/or overlap with 65

those of the Issuer. The Portfolio Manager and its Affiliates may, and expect to, receive fees or other compensation from third parties for any of these activities, which fees will be for the benefit of their own account and not the Issuer. The Portfolio Manager and/or its Affiliates may have ongoing relationships with, render service to and engage in transactions with, and may own debt or equity securities issued by issuers of certain of the Collateral Debt Securities. The Royal Bank of Scotland plc and/or its Affiliates currently hold directly or indirectly (but are not obligated to continue so holding) a significant minority of the equity interests in the Portfolio Manager and have made certain equity investments in a fund managed by the Portfolio Manager. The Portfolio Manager, its Affiliates and its personnel each will be free, in its sole discretion, to make recommendations to others, or effect transactions on behalf of itself or for others, which may be the same as or different from those made with respect to the Collateral at prices or rates that may be more or less favorable than the prices or rates applying to transactions effected for the Issuer, and shall have no duty in making such recommendations or effecting such transactions to act in a way favorable to the holders of the Notes. The interests of such parties may be different than or adverse to the interest of the holders of the Secured Notes, the holders of the Subordinated Notes, or the holders of the Combination Notes. In addition, such persons may possess information relating to the Collateral Debt Securities which is not known to the individuals at the Portfolio Manager responsible for monitoring the Collateral Debt Securities and performing the other obligations under the Management Agreement. Such persons will not be required (and may not be permitted) to share such information or pass it along to the Issuer, the Portfolio Manager or any holder of any Notes. Neither the Portfolio Manager nor any of such persons will have liability to the Issuer or any holder of any Note for failure to disclose such information or for taking, or failing to take, any action based upon such information. The Portfolio Manager and its Affiliates and their key personnel will devote as much of their time to the business of the Issuer as in their judgment is reasonably required. However, they are currently committed to and expect to be committed in the future to providing investment advisory services and securities research and brokerage services for other clients (including other pooled accounts) and engage in other business ventures in which the Issuer has no interest. As a result of these separate business activities, the Portfolio Manager may have conflicts of interest in allocating management time, services and functions among the Issuer and other business ventures or clients. In the course of monitoring the Collateral Debt Securities held by the Issuer, the Portfolio Manager may consider its relationships with other clients (including entities whose securities (or those of its Affiliates) are pledged to secure the Notes) and its Affiliates. In providing services to other clients, the Portfolio Manager and its Affiliates may recommend activities that would compete with or otherwise adversely affect the Issuer. In addition, the Portfolio Manager will be free, in its sole discretion, to make recommendations to others, or effect transactions on behalf of itself or for others, that may be the same as or different from those effected on behalf of the Issuer, and the Portfolio Manager may furnish advisory services to others who may have investment policies similar to those followed by the Issuer and who may own securities of the same class, or which are the same type as, the Collateral Debt Securities. If a determination is made that the Issuer and another client of the Portfolio Manager and its Affiliates should trade in the same securities on the same day, such securities will be allocated between the Issuer and other accounts in a manner that the Portfolio Manager and its Affiliates determine in their discretion. Circumstances may occur in which an allocation could have adverse effects on the Issuer or the other client with respect to the price or size of securities positions obtainable or saleable.

66

The Portfolio Manager may direct the Issuer to sell Collateral Debt Securities subject to satisfaction of the conditions described herein. Such sales of Collateral Debt Securities may result in losses by the Issuer, which losses may result in the reduction or withdrawal of the rating of any or all of the Notes by any of the Rating Agencies. Such sales (including in the context of an Auction of all of the Collateral Debt Securities owned by the Issuer), and any Acquisitions of additional Collateral Debt Securities, may be made to or from the Portfolio Manager, its Affiliates or clients so long as such sales or Acquisitions are made on arm's length terms for fair value and are otherwise consistent with Cairn's obligations under the Investment Advisers Act and the Management Agreement; provided that the Portfolio Manager, although it may not have been the highest bidder in the Auction process, will have the option to acquire the Collateral Debt Securities (or any subpool), on its own behalf or on behalf of an Affiliate or an account or fund advised by the Portfolio Manager or its Affiliates, for a purchase price equal to the highest bid therefor. The Portfolio Manager and its Affiliates may trade in the securities and derivatives markets for the accounts of their clients for which they have discretionary authority, and in doing so may take positions opposite to, or ahead of, those held by the Issuer or may be competing with the Issuer for positions in the marketplace. Such trading may result in competition for investment opportunities or create other conflicts of interest on behalf of one or more such persons in respect of their obligations to the Issuer. Records of this trading will not be available for inspection by the holders of any of the Notes. No provision in the Management Agreement prevents the Portfolio Manager or any of its Affiliates from rendering services of any kind to the issuers of any Collateral Debt Securities or their Affiliates, the Trustee, the holders of the Notes, any Hedge Counterparties, the Credit Default Swap Counterparty, the GIC Provider or any other entity. The Portfolio Manager and its Affiliates, directors, officers, employees and agents may, among other things: (a) serve as directors, partners, officers, employees, agents, nominees or signatories for an issuer of any Collateral Debt Securities or any Reference Obligations; (b) receive fees for services rendered to the issuer of any Collateral Debt Securities, any Reference Obligations or any Affiliate thereof; (c) be a secured or unsecured creditor of, or hold an equity interest in, any issuer of any Collateral Debt Securities or any Reference Obligations; (d) serve as a member of any "creditors' board" or "creditors' committee" with respect to any Collateral Debt Securities or any Reference Obligations which have become or may become a defaulted security or with respect to any loan securing any Collateral Debt Securities, any Reference Obligations or the respective borrower for any such loan; and (e) own or make loans to any borrower or Affiliate of any borrower on any of the loans securing the Collateral Debt Securities or Reference Obligations. With respect to the foregoing and under the terms of the Management Agreement, the Portfolio Manager will be permitted to so act regardless of the impact on the Collateral Debt Securities or the Co-Issuers. The Portfolio Manager, its Affiliates or clients may own classes of the same issuances that are senior or junior in priority to the classes constituting part of the Collateral Debt Securities and, in such capacity, may have interests which are different from or adverse to those of the Co-Issuers and/or the holders of the Notes. In their capacities as owners of certain securities junior to certain of the Collateral Debt Securities, Affiliates or clients of the Portfolio Manager may be empowered as the controlling class representative or other equivalent function for such a transaction to approve, consent to or require certain actions be taken by the trustees and/or servicers for such transactions. The actions of such Affiliates or clients of the Portfolio Manager in such instances may conflict with the interest of the classes of Collateral Debt Securities that are senior to the classes of securities held by such Affiliates or clients. The Portfolio Manager will be reimbursed by the Issuer for certain of its expenses incurred in connection with the preparation of the Management Agreement (including legal fees and expenses) on the Closing Date and will be paid the Portfolio Management Fee and reimbursed by the Issuer for certain of its expenses in its capacity as Portfolio Manager on an ongoing basis in accordance with the Priority of 67

Payments. In addition, on the Closing Date, the Portfolio Manager will receive an upfront management fee out of the proceeds of the issuance of the Notes that is additional to the Portfolio Management Fee payable under the Management Agreement. The Portfolio Manager and its Affiliates and employees will not generally be entitled to vote the Notes held by them, if any, in any vote to remove the Portfolio Manager under the Management Agreement, for so long as Cairn or any of its Affiliates is the Portfolio Manager. However, Cairn and its Affiliates and employees will be entitled to vote the Notes held by them with respect to all other matters. The interests of Cairn and/or such Affiliates or employees in exercising such vote may be adverse to the interests of the other holders of the Notes. Conflicts of Interest Involving the Initial Purchaser, the GIC Provider and Their Affiliates. Certain of the Collateral Debt Securities acquired by the Issuer will consist of obligations of issuers or obligors, or obligations sponsored or serviced by companies, for which The Royal Bank of Scotland plc or an Affiliate of The Royal Bank of Scotland plc has acted as underwriter, agent, placement agent, initial purchaser or dealer or for which The Royal Bank of Scotland plc or an Affiliate of The Royal Bank of Scotland plc has acted as lender or provided other commercial or investment banking services. The Royal Bank of Scotland plc, an Affiliate of the Initial Purchaser, is acting in a number of capacities (including as GIC Provider, Credit Default Swap Counterparty and calculation agent under the Credit Default Swap Agreement) in connection with the transactions described herein. The Credit Default Swap Counterparty is expected to seek to eliminate its credit exposure to the Reference Obligations by entering into back-toback hedging transactions with Eligible Dealers which shall be identified by the Portfolio Manager when it obtains bids with respect to the Acquisition of any CDS Transaction (subject to the right of the Credit Default Swap Counterparty to match the highest bid obtained by the Portfolio Manager from an Eligible Dealer). Under such CDS Transactions in which the Credit Default Swap Counterparty enters into related back-to-back hedging transactions with Eligible Dealers, an intermediation fee equal to 0.02% will be payable by the Issuer to the Credit Default Swap Counterparty in respect of such CDS Transactions. In addition, the Initial Purchaser will receive a structuring fee payable on each Distribution Date up to and including the Distribution Date occurring in February 2011 (the "Initial Purchaser Structuring Fee") in accordance with a schedule attached to the Indenture. The Royal Bank of Scotland plc (which is an Affiliate of the Initial Purchaser) or an Affiliate of The Royal Bank of Scotland plc in its role as the Credit Default Swap Counterparty will have the right to make determinations and to take actions or to decline to take actions which may have an adverse effect on the Issuer, Secured Noteholders, Subordinated Noteholders or Combination Noteholders. Whether and when to declare a Credit Event and to deliver any notice that a Credit Event or a Floating Amount Event has occurred under a Long CDS Transaction will be in the sole discretion of the Credit Default Swap Counterparty, and none of the Credit Default Swap Counterparty, the calculation agent or any of their Affiliates will have any liability to any Secured Noteholder, any Subordinated Noteholder, any Combination Noteholder or any other person as a result of giving (or not giving) any such notice. If a Writedown, Failure to Pay Principal or, under certain circumstances, Failure to Pay Interest occurs under a Long CDS Transaction, the Credit Default Swap Counterparty may elect to require the Issuer to pay the Credit Protection Payment or to treat it as a Credit Event and physically settle under the CDS Transaction. In addition, the Credit Default Swap Counterparty will have a right to determine in its sole discretion the termination payment to be made by the Issuer to it or by it to the Issuer in connection with the termination at the request of the Issuer of one or all of the CDS Transactions and it has no liability to any Secured Noteholder, any Subordinated Noteholder or any other person as a result of making such determination. As a Synthetic Security Counterparty, The Royal Bank of Scotland plc or an Affiliate of The Royal Bank of Scotland plc will have the right to approve or designate the Synthetic Security Collateral 68

for funded Synthetic Securities entered into by the Issuer with The Royal Bank of Scotland plc or such Affiliate, which right it will exercise in its own commercial interests (and not as an advisor to the Issuer). Furthermore, The Royal Bank of Scotland plc or such Affiliates of The Royal Bank of Scotland plc in their role as counterparty to all or a portion of the Synthetic Securities will make determinations regarding the Reference Obligations (including the decision whether to give notice under a Long CDS Transaction that a Credit Event or Floating Amount Event has occurred and to require the Issuer to make payments to it), which may have an adverse effect on the ability of the Issuer to make payments on the Secured Notes and the Subordinated Notes. There can be no assurance that the terms of the Credit Default Swap Agreement are the most favorable terms that the Issuer could obtain in the market if it entered into an identical agreement with another potential counterparty that was not an Affiliate of the Initial Purchaser. Certain of the Reference Obligations under the Credit Default Swap Agreement may be obligations of Reference Obligors that are, or may be Reference Obligations that are sponsored or serviced by companies for which one or more of the Initial Purchaser, the Credit Default Swap Counterparty and their respective Affiliates have acted as underwriter, agent, placement agent or dealer or for which one or more of the Initial Purchaser, the Credit Default Swap Counterparty and their respective Affiliates has acted as lender or provided other commercial or investment banking services. Any of the Initial Purchaser, the Credit Default Swap Counterparty and their respective Affiliates may (i) be an investor in, a lender to or other secured or unsecured creditor of any Reference Obligor or a holder of a Reference Obligation and, in such capacity, may make decisions in such capacity in its own commercial interests, regardless of whether any such action might have an adverse effect on the holders of the Secured Notes, the Subordinated Notes, the Combination Notes, or on any Reference Obligation (including, without limitation, any action which might constitute or give rise to a Credit Event or might diminish the value of a Reference Obligation), (ii) engage in derivative transactions (including credit derivative transactions) with any Reference Obligor and may provide investment banking and other financial services to any Reference Obligor, (iii) hold long or short financial positions with respect to the Reference Obligations or other securities or obligations of any Reference Obligor or the Issuer, (iv) act with respect to such financial positions and may exercise or enforce, or refrain from exercising or enforcing, any or all of their rights and powers in connection with such financial positions as if the Initial Purchaser or Credit Default Swap Counterparty (as applicable) had not entered into the Note Purchase Agreement, Credit Default Swap Agreement or any other agreement with the Issuer, and without regard to whether any such action might have an adverse effect on the Issuer, any holder of Secured Notes, Subordinated Notes or Combination Notes, any Reference Obligor or any obligation of the Issuer or any Reference Obligor and/or (v) have received or may in the future receive significant fees for such services. Each of the Initial Purchaser and the Credit Default Swap Counterparty will have only the duties and responsibilities expressly agreed to in the relevant capacity in which it is performing and will not, by virtue of it or any of its Affiliates acting in any other capacity, be deemed to have other duties or responsibilities or be deemed to be held to a standard of care other than as expressly provided with respect to each such capacity. The Royal Bank of Scotland plc will sell all or most of the initial portfolio of Collateral Debt Securities to the Issuer on the Closing Date. Moreover, the Initial Purchaser, or their respective Affiliates may from time to time enter into derivative transactions with third parties with respect to the Notes, and the Initial Purchaser, or their respective Affiliates may, in connection therewith, acquire (or establish long, short or derivative financial positions with respect to) Notes, Collateral Debt Securities or one or more portfolios of financial assets similar to the portfolio of Collateral Debt Securities acquired by (or intended to be acquired by) the Issuer. These activities may create certain conflicts of interest, and there can be no assurance that the terms on which the Issuer entered into (or enters into) any of the foregoing

69

transactions with the Initial Purchaser (or an Affiliate thereof) were or are the most favorable terms available in the market at the time from potential counterparties. The Initial Purchaser or its Affiliates may each act in its own commercial interest, in any of the other capacities listed above, and need not consider whether its actions will have an adverse effect on the Issuer, Secured Noteholders, Subordinated Noteholders or Combination Noteholders. The Initial Purchaser and certain Affiliates thereof also are the placement agents for certain investment funds that may invest, directly or indirectly, in the Subordinated Notes of the Issuer (and possibly also may invest in Secured Notes of the Issuer). The Initial Purchaser will receive compensation from such investment funds for the placement of securities issued by the investment funds. The purchase price at which such funds purchase Subordinated Notes or other Notes from the Initial Purchaser may be less than the issue price thereof or the prices at which other investors purchase any such security from the Initial Purchaser. The Initial Purchaser or its Affiliates may Acquire Class A1-VF Notes after the Closing Date. In addition to its voting and consent rights in its capacity as the Credit Default Swap Counterparty under the Indenture, it is expected that on the Closing Date The Royal Bank of Scotland plc will indirectly acquire the right to exercise the voting rights in respect of all or part of the Class A1-VF Notes and, as a consequence, will (depending on the aggregate principal amount of the Class A1-VF Notes that are the subject of such arrangements, which may be zero) effectively constitute a Majority of the Controlling Class. As a result, The Royal Bank of Scotland plc will have numerous additional voting and consent rights under the Indenture for so long as such voting arrangements (if any) continue. These will include voting and consent rights with respect to the declaration of (and exercise of remedies in connection with) an Event of Default, the appointment or removal of any Trustee and the consolidation or merger of either of the Co-Issuers. None of The Royal Bank of Scotland plc or its Affiliates will have any obligation to maintain such voting arrangements and may discontinue such arrangements at any time. The Initial Purchaser may not have completed its resale of the Notes by the Closing Date, which may affect the liquidity of the Notes, as well as the ability, if any, of the Initial Purchaser to make a market in the Notes. Acquisitions of Collateral Debt Securities from Greenwich Capital Financial Products, Inc. The Issuer may Acquire Collateral Debt Securities from Greenwich Capital Financial Products, Inc., an Affiliate of the Initial Purchaser ("GCFP"), only to the extent the Portfolio Manager determines that such Acquisitions are consistent with the investment guidelines and objectives of the Issuer, the restrictions contained in the Indenture and applicable law. In any event, all Acquisitions of Collateral Debt Securities from GCFP will be at fair market value and otherwise on an arm's-length basis. The price paid by the Issuer for the initial portfolio of Collateral Debt Securities acquired from GCFP on the Closing Date will not be based on the fair market value of such securities on the Closing Date. The initial portfolio of CDS Transactions which the Issuer will enter into with the Credit Default Swap Counterparty on the Closing Date will not be made on the terms (including the fixed rate which the Credit Default Swap Counterparty will pay to the Issuer) prevailing in the credit default swap market on the Closing Date. If GCFP were to become the subject of a case or proceeding under the United States Bankruptcy Code, another applicable insolvency law or a stockbroker liquidation under the Securities Investor Protection Act of 1970, the trustee in bankruptcy, other liquidator or the Securities Investor Portfolio Corporation could assert that Collateral Debt Securities acquired from GCFP are property of the insolvency estate of GCFP. Property that GCFP has pledged or assigned, or in which GCFP has granted a security interest, as collateral security for the payment or performance of an obligation, would be property of the estate of GCFP. Property that GCFP has sold or absolutely assigned and transferred to another 70

party, however, is not property of the estate of GCFP. The Issuer does not expect that the acquisition by the Issuer of Collateral Debt Securities, under the circumstances contemplated by this Offering Memorandum, will be deemed to be a pledge or collateral assignment (as opposed to the sale or other absolute transfer of such Collateral Debt Securities to the Issuer), but there is no guarantee that a bankruptcy court would not deem such acquisition of Collateral Debt Securities to be a pledge or collateral assignment. Potential Conflicts of Interest with the Trustee. In certain circumstances, the Trustee or its Affiliates may receive compensation in connection with the Trustee's (or such Affiliate's) investment in certain Eligible Investments from the managers of such Eligible Investments. Credit Default Swap Counterparty Acts in Its Own Interest. In taking any action with respect to the CDS Transactions, the Credit Default Swap Counterparty will be acting solely in its own commercial interests and not as agent, fiduciary or in any other capacity on behalf of the Co-Issuers, the Initial Purchaser, the Portfolio Manager or the holders of the Notes. The Credit Default Swap Counterparty will have no duty whatsoever to consider the effects of its actions or failure to take action on the holders of the Secured Notes, the Subordinated Notes or the Combination Notes. The Credit Default Swap Counterparty, in its capacity as counterparty to the CDS Transactions, will have certain voting and other rights under the Indenture and the Management Agreement. The interests of the Credit Default Swap Counterparty may not be aligned with those of the holders of the Secured Notes and the Subordinated Notes. The Credit Default Swap Counterparty is likely to seek to eliminate any credit exposure to the Reference Obligations by entering into back-to-back hedging transactions. As a result, (i) the settlement amount owed by the Issuer in respect of the settlement of any Long Credit Default Swap minus the market value of any Deliverable Obligations received by the Issuer upon such settlement may be less than the actual loss, if any, incurred by the Credit Default Swap Counterparty upon such settlement and the settlement of any related back-to-back hedging transactions and (ii) the settlement amount owed to the Issuer in respect of the settlement of any Short Credit Default Swap minus the market value of any Deliverable Obligations delivered by the Issuer upon such settlement may be less than the actual loss, if any, incurred by the Credit Default Swap Counterparty upon such settlement and the settlement of any related back-to-back hedging transactions. Removal of the Portfolio Manager. The Portfolio Manager may be removed at any time and replaced with a replacement Portfolio Manager under the circumstances described under "The Management Agreement—Termination of the Management Agreement." Such termination may become effective without the approval of holders of all of the Secured Notes and Subordinated Notes. Dependence on the Portfolio Manager and Key Personnel and Prior Investment Results. Because the Portfolio Manager may Acquire or Dispose of Collateral Debt Securities, the value of the Collateral depends heavily on the skills of the Portfolio Manager in analyzing, selecting and managing the Collateral Debt Securities. As a result, the Issuer will be highly dependent on the financial and managerial experience of individuals associated with the Portfolio Manager. The loss of individuals employed by the Portfolio Manager to offer advice on the Issuer's investment program could have a significant adverse effect on the performance of the Issuer. Employment arrangements between those individuals and the Portfolio Manager may exist, but the Issuer is not a direct beneficiary of such arrangements, which arrangements are in any event subject to change without the consent of the Issuer. Moreover, the Management Agreement may be terminated or the Portfolio Manager may resign or be removed under certain circumstances described herein. The prior investment results of the Portfolio Manager or persons associated with the Portfolio Manager or any other entity or person described herein are not indicative of the Portfolio Manager's future investment results as Portfolio Manager to the Issuer. The nature of, and risks associated with, the Issuer's future investments may differ substantially from those investments and strategies undertaken historically by such persons and entities. There can be no assurance that the Issuer's 71

investments will perform as well as the past investments of any such persons or entities. See "The Portfolio Manager" and "The Management Agreement." Investment Company Act. Neither of the Co-Issuers nor the pool of Collateral has been registered with the SEC as an investment company pursuant to the Investment Company Act. The Issuer has not so registered in reliance on an exception for investment companies organized under the laws of a jurisdiction other than the United States or any state thereof (a) whose investors resident in the United States are solely "qualified purchasers" (within the meaning given to such term in the Investment Company Act and the regulations of the SEC thereunder) or certain transferees thereof identified in Rule 3c-6 under the Investment Company Act and (b) which do not make a public offering of their securities in the United States. Counsel for the Co-Issuers will opine, in connection with the issuance of the Notes, that neither of the Co-Issuers nor the pool of Collateral is on the Closing Date an investment company required to be registered under the Investment Company Act (assuming, for the purposes of such opinion, that the Notes are sold in accordance with the terms of the Indenture, the Subordinated Note Issuing and Paying Agency Agreement and the Note Purchase Agreement). No opinion or no-action position has been requested of the SEC. If the SEC or a court of competent jurisdiction were to find that the Issuer or the Co-Issuer is required, but in violation of the Investment Company Act had failed, to register (or to register the pool of Collateral) as an investment company, possible consequences include, but are not limited to, the following: (i) the SEC could apply to a district court to enjoin the violation; (ii) investors in the Issuer or the Co-Issuer could sue the Issuer or the Co-Issuer, as the case may be, and recover any damages caused by the violation; and (iii) any contract to which the Issuer or the Co-Issuer, as the case may be, is a party that is made in, or whose performance involves a, violation of the Investment Company Act would be unenforceable by any party to the contract unless a court were to find that under the circumstances enforcement would produce a more equitable result than non-enforcement and would not be inconsistent with the purposes of the Investment Company Act. Should the Issuer or the Co-Issuer be subjected to any or all of the foregoing, the Issuer or the Co-Issuer, as the case may be, and the holders of the Notes would be materially and adversely affected. Each transferee of a Restricted Subordinated Note, a Restricted Combination Note, a Restricted Class E Note or a beneficial interest in a Restricted Global Investment Grade Funded Secured Note will be deemed to represent at the time of purchase that: (i) the purchaser is both (x) a Qualified Institutional Buyer and (y) a Qualified Purchaser; (ii) the purchaser is not a dealer described in paragraph (a)(1)(ii) of Rule 144A unless such purchaser owns and invests on a discretionary basis at least U.S.$25,000,000 in securities of issuers that are not affiliated persons of the dealer; (iii) the purchaser is not a plan referred to in paragraph (a)(1)(i)(D) or (a)(1)(i)(E) of Rule 144A, or a trust fund referred to in paragraph (a)(1)(i)(F) of Rule 144A that holds the assets of such a plan, unless investment decisions with respect to the plan are made solely by the fiduciary, trustee or sponsor of such plan; and (iv) the purchaser will provide written notice of the foregoing, and of any applicable restrictions on transfer, to any transferee. Issuer May Cause a Transfer of Notes. The Indenture provides that if, notwithstanding the restrictions on transfer contained therein, either of the Co-Issuers determines that any beneficial owner or holder of (A) a Regulation S Global Investment Grade Funded Secured Note (or any interest therein) or a Regulation S Global Class E Note (or any interest therein) is a U.S. Person (within the meaning of Regulation S under the Securities Act) or (B) a Restricted Global Investment Grade Funded Secured Note (or any interest therein) or a Restricted Class E Note (or any interest therein) is not both a Qualified Institutional Buyer and a Qualified Purchaser, then the Co-Issuers shall require, by notice to such beneficial owner or holder, that such beneficial owner or holder sell all of its right, title and interest to such Note. See "Transfer Restrictions."

72

The Subordinated Note Issuing and Paying Agency Agreement provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any holder or beneficial owner of a Subordinated Note (or any interest therein) (A) is a U.S. Person and (B) is not both (1) a Qualified Institutional Buyer that purchased such Subordinated Note (or any interest therein) directly from the Issuer or the Initial Purchaser and (2) a Qualified Purchaser, then the Issuer shall require, by notice to such holder (with a copy to the Portfolio Manager) that such holder sell all of its right, title and interest to such Subordinated Note (or interest therein) to a person or entity that is both (1) a Qualified Institutional Buyer and (2) a Qualified Purchaser, with such sale to be effected within 30 days after notice of such sale requirement is given. See "Transfer Restrictions." The Indenture and the Subordinated Note Issuing and Paying Agency Agreement provide that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any beneficial owner of a Class E Note (or any interest therein) or a Subordinated Note (or any interest therein) is a Benefit Plan Investor or Controlling Person (other than a Benefit Plan Investor or Controlling Person that acquired such Class E Note (or interest therein) or Subordinated Note (or interest therein) on the Closing Date), or that any beneficial owner of a Class E Note (or any interest therein) or a Subordinated Note (or any interest therein) did not disclose in an Investor Application Form or a transfer certificate in the form attached to the Indenture or the Subordinated Note Issuing and Paying Agency Agreement, respectively, delivered to the Issuer at the time of its acquisition of such Class E Note or Subordinated Note or beneficial interest in such Class E Note or Subordinated Note that it is a Benefit Plan Investor (or represented that it was not a Benefit Plan Investor or Controlling Person but actually was such a Benefit Plan Investor or Controlling Person) or, subsequent to the purchase of a Class E Note or Subordinated Note, any beneficial owner (other than a Benefit Plan Investor or Controlling Person that acquired such Class E Note (or interest therein) or Subordinated Note (or interest therein) on the Closing Date) is or has become a Benefit Plan Investor (including an insurance company general account any of whose underlying assets constitute "plan assets" under Section 401(c) of ERISA or a wholly-owned subsidiary thereof) or a Controlling Person, then the Issuer shall require, by notice to such holder, that such holder sell all of its right, title and interest to such Class E Note (or interest therein) or Subordinated Note (or interest therein), as applicable, to a person or entity that is not a Benefit Plan Investor or a Controlling Person, and otherwise complies with all the transfer restrictions relating to such Class E Note or Subordinated Note set forth herein and in the Indenture or the Subordinated Note Issuing and Paying Agency Agreement, as applicable, with such sale to be effected within 30 days after notice of such sale requirement is given. If such beneficial owner fails to effect the transfer required within such 30-day period, (i) the Issuer shall cause such beneficial owner's interest in such Class E Note or Subordinated Note to be transferred in a commercially reasonable sale (conducted by the Trustee or the Subordinated Note Issuing and Paying Agent, as applicable, in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person, and otherwise complies with all the transfer restrictions relating to such Note and (ii) pending such transfer, no further payments will be made in respect of such Note held by such beneficial owner. See "Transfer Restrictions." Average Life of the Secured Notes and Prepayment Considerations. The average life of each Class of Secured Notes is expected to be shorter than the number of years until the Stated Maturity. See "Maturity, Prepayment and Yield Considerations." The average life of each Class of Secured Notes will be affected by the financial condition of the obligors on or issuers of the Collateral Debt Securities and the characteristics of the Collateral Debt Securities, including the existence and frequency of exercise of any prepayment, optional redemption or sinking fund features, the prevailing level of interest rates, the redemption price, the actual default rate 73

and the actual level of recoveries on any Defaulted Securities, the frequency of tender or exchange offers for the Collateral Debt Securities and any Dispositions of Collateral Debt Securities and any reinvestment of Disposition Proceeds and principal payments, as well as the risks unique to investments in obligations of foreign issuers described above. See "Maturity, Prepayment and Yield Considerations" and "Security for the Secured Notes." Distributions on the Subordinated Notes; Investment Term; Non-Petition Agreement. Prior to the payment in full of the Secured Notes and all other amounts owing under the Indenture, Subordinated Noteholders will be entitled to receive distributions from Interest Proceeds released from the lien of the Indenture only to the extent permissible under the Indenture. The timing and amount of distributions payable to Subordinated Noteholders and the duration of the Subordinated Noteholders' investment in the Issuer therefore will be affected by the average life of the Secured Notes. See "—Average Life of the Secured Notes and Prepayment Considerations" above. Each initial purchaser of Subordinated Notes will be required to covenant in an Investor Application Form (and each transferee of Subordinated Notes will be required (or deemed, as the case may be) to covenant in a transfer certificate) that it will not cause the filing of a petition in bankruptcy against the Issuer before one year and one day have elapsed since the payment in full of the Notes or, if longer, the applicable preference period then in effect. If such provision failed to be effective to preclude the filing of a petition under applicable bankruptcy laws, then the filing of such a petition could result in one or more payments on the Secured Notes made during the period prior to such filing being deemed to be preferential transfers subject to avoidance by the bankruptcy trustee or similar official exercising authority with respect to the Issuer's bankruptcy estate. Listing. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List of the Irish Stock Exchange and to trading on its regulated market. There can be no assurance that such listing will be obtained or that, if it is obtained, that it will be maintained by the Issuer. If any Class or Classes of Secured Notes or the Subordinated Notes are admitted to the Daily Official List of the Irish Stock Exchange, the Issuer may at any time terminate the listing of such Notes if the Issuer determines that, as a result of a change in the requirements of the Irish Stock Exchange, the maintenance of such listing would impose any material obligation or expense on the Issuer (in excess of the amount anticipated on the Closing Date). If the Issuer terminates the listings, it will make reasonable endeavors to seek a replacement listing on such other stock exchange outside the European Union that is a member of the International Federation of Stock Exchanges and that is located in a state that is a member of the Organization for Economic Cooperation and Development, unless obtaining or maintaining a listing on such stock exchange requires the Issuer to restate its accounts or is otherwise unduly burdensome, in which event the Issuer will make reasonable endeavors to obtain a replacement listing elsewhere. Projections, Forecasts and Estimates. Any projections, forecasts and estimates contained herein are forward looking statements and are based upon certain assumptions that the Co-Issuers consider reasonable. Projections are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. Accordingly, the projections are only an estimate. Actual results may vary from the projections, and the variations may be material. In addition, a prospective investor may have received a prospective investor presentation or other similar materials from the Initial Purchaser. Such a presentation may have contained a summary of certain proposed terms of a hypothetical offering of Notes as contemplated at the time of preparation of such presentation in connection with preliminary discussions with prospective investors in the Notes. However, as indicated therein, no such presentation was an offering of securities for sale, and any offering is being made only pursuant to this Offering Memorandum. Given the foregoing and the fact that information contained in any such presentation was preliminary in nature and has been superseded and may no longer be accurate, neither any such presentation nor any information contained therein may be 74

relied upon in connection with the prospective investment in the Notes. In addition, the Initial Purchaser or the Issuer may make available to prospective investors certain information concerning the economic benefits and risks resulting from ownership of the Notes derived from modeling the cash flows expected to be received by, and the expected obligations of, the Issuer under various hypothetical assumptions provided to the Initial Purchaser or potential investors. Any such information may constitute projections that depend on the assumptions supplied and are otherwise limited in the manner indicated above. Some important factors that could cause actual results to differ materially from those in any forward looking statements include changes in interest rates, market, financial or legal uncertainties, the timing of acquisitions of Collateral Debt Securities, differences in the actual allocation of the Collateral Debt Securities among asset categories from those assumed, the timing of the Acquisition or Disposition of the Collateral Debt Securities, mismatches between the timing of accrual and receipt of Interest Proceeds and Principal Proceeds from the Collateral Debt Securities, defaults under Collateral Debt Securities and the effectiveness of any Interest Rate Hedge Agreement, among others. Consequently, the inclusion of projections herein should not be regarded as a representation by the Issuer, the Co-Issuer, the Portfolio Manager, the Trustee, the Initial Purchaser, the Hedge Counterparties or any of their respective Affiliates or any other person or entity of the results that will actually be achieved by the Issuer. None of the Issuer, the Co-Issuer, the Portfolio Manager, the Trustee, the Initial Purchaser, the Credit Default Swap Counterparty, the Hedge Counterparties, any of their respective Affiliates and any other person has any obligation to update or otherwise revise any projections, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of unanticipated events, even if the underlying assumptions do not come to fruition. In addition, a prospective investor may have received a prospective investor presentation or other similar materials from the Initial Purchaser. Such a presentation may have contained a summary of certain proposed terms of a hypothetical offering of securities as contemplated at the time of preparation of such presentation in connection with preliminary discussions with prospective investors in the Notes. However, as indicated therein, no such presentation was an offering of securities for sale, and any offering is being made only pursuant to this Offering Memorandum. Given the foregoing and the fact that information contained in any such presentation was preliminary in nature and has been superseded and may no longer be accurate, neither any such presentation nor any information contained therein may be relied upon in connection with a prospective investment in the Notes. In addition, the Initial Purchaser or the Issuer may make available to prospective investors certain information concerning the economic benefits and risks resulting from ownership of the Notes derived from modeling the cash flows expected to be received by, and the expected obligations of, the Issuer under various hypothetical assumptions provided to the Initial Purchaser or potential investors. Any such information may constitute projections that depend on the assumptions supplied and are otherwise limited in the manner indicated above. Money Laundering Prevention. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (as amended, the "PATRIOT Act") requires financial institutions to establish and maintain anti-money laundering programs. Pursuant to this statute, on September 18, 2002, the Treasury Department published proposed regulations that will, if enacted, require all "unregistered investment companies" to establish and maintain an anti-money laundering program. The proposed regulations would require "unregistered investment companies" to: (a) establish and implement policies, procedures and internal controls reasonably designed to prevent the investment company from being used for money laundering or the financing of terrorist activities and to achieve compliance with applicable anti-money laundering regulations; (b) periodically "test" the required compliance program; (c) designate and train all responsible personnel; (d) designate an anti-money laundering compliance officer; and (e) file a written notice with the Treasury Department within 90 days of the effective date of the regulations that identifies certain information regarding the 75

subject company, including the dollar amount of assets under company management and the number of interest holders in the subject company. As the proposed rule is currently drafted, an "unregistered investment company" includes any issuer that (i) would be an investment company but for the exclusion from registration provided for by Section 3(c)(1) or 3(c)(7) of the Investment Company Act, (ii) permits an owner to redeem his or her ownership interest within two years of the purchase of that interest, (iii) has total assets over U.S.$1,000,000 and (iv) is organized in the United States, is "organized, operated, or sponsored" by a U.S. person or sells ownership interests to a U.S. person. The Portfolio Manager, on behalf of the Issuer, will continue to monitor the developments with respect to the PATRIOT Act and, upon further clarification by the Treasury Department, will take all steps required to comply with the PATRIOT Act and regulations thereunder to the extent applicable to the Issuer. It is possible that other legislation or regulation could be promulgated which will require the Portfolio Manager or other service providers to the Co-Issuers to share information with governmental authorities with respect to investors in the Notes in connection with the establishment of anti-money laundering procedures or require the Issuer or Administrator to implement additional restrictions on the transfer of the Notes. The Issuer and the Administrator are subject to anti-money laundering legislation in the Cayman Islands pursuant to the Proceeds of Criminal Conduct Law (2005 Revision) (the "PCCL"). Pursuant to the PCCL the Cayman Islands government enacted The Money Laundering Regulations (2006 Revision), which impose specific requirements with respect to the obligation "to know your client". Except in relation to certain categories of institutional investors, the Issuer will require a detailed verification of each investor's identity and the source of the payment used by such investor for purchasing the Notes in a manner similar to the obligations imposed under the laws of other major financial centers. In addition, if any person who is resident in the Cayman Islands knows or has a suspicion that a payment to the Issuer (by way of investment or otherwise) contains the proceeds of criminal conduct, that person must report such suspicion to the Cayman Islands authorities pursuant to the PCCL. If the Issuer were determined by the Cayman Islands government to be in violation of the PCCL or The Money Laundering Regulations (2006 Revision), the Issuer could be subject to substantial criminal penalties. Such a violation could materially adversely affect the timing and amount of payments by the Issuer to the holders of the Notes. The Issuer may be subject to similar restrictions in other jurisdictions. Treatment as a "Variable Interest Entity". On January 17, 2003, the United States Financial Accounting Standards Board issued its Interpretation No. 46(R), Consolidation of Variable Interest Entities. This interpretation is intended to improve the public understanding and governance of "special purpose entities". At issue under this interpretation is when a participant in a financial transaction with a special purpose entity should include the assets, liabilities, revenues, and expenses of such special purpose entity in its own consolidated financial statements as opposed to accounting for just its investment in or contracts with such special purpose entity. This interpretation governs the consolidation of so-called "variable interest entities" by reason of factors other than ownership of a majority of the voting stock of a company. The Co-Issuers are likely to be treated as "variable interest entities" under this interpretation. Certain Legal Investment Considerations. None of the Issuer, the Co-Issuer, the Portfolio Manager, the Hedge Counterparties, the Trustee and the Initial Purchaser make any representation as to the proper characterization of the Notes for legal investment or other purposes, as to the ability of particular investors to purchase Notes for legal investment or other purposes or as to the ability of particular investors to purchase Notes under applicable investment restrictions. All institutions the activities of which are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities should consult their own legal advisors in determining whether and to what extent the Notes are subject to investment, capital or other restrictions. Without limiting the generality of the foregoing, none of the Issuer, the Co-Issuer, the Portfolio Manager, the Hedge Counterparties, the Trustee and the Initial Purchaser make any representation as to the characterization of 76

the Notes as a U.S.-domestic or foreign (non-U.S.) investment under any state insurance code or related regulations, and they are not aware of any published precedent that addresses such characterization. Although they are not making any such representation, the Co-Issuers understand that the New York State Insurance Department, in response to a request for guidance, has been considering the characterization (as U.S.-domestic or foreign (non-U.S.)) of certain collateralized debt obligation securities co-issued by a non-U.S. issuer and a U.S. co-issuer. There can be no assurance as to the nature of any advice or other action that may result from such consideration. The uncertainties described above (and any unfavorable future determinations concerning legal investment or financial institution regulatory characteristics of the Notes) may affect the liquidity of the Notes. Withholding on the Notes; No Gross-Up. The Issuer expects that payments on the Notes ordinarily will not be subject to withholding tax in the Cayman Islands, the United States or any other jurisdiction. See "Income Tax Considerations." In the event that tax must be withheld or deducted from payments on the Notes, neither Co-Issuer will be under any obligation to make any additional payments to the holders of the Secured Notes, the Combination Notes or the Subordinated Notes in respect of such withholding or deduction. Taxes on the Issuer. The Issuer expects to conduct its affairs so that its income generally will not become subject to net income tax in the United Kingdom, the United States or any other jurisdiction. There can be no assurance, however, that its income will not become subject to net income or withholding taxes in the United Kingdom, the U.S. or other jurisdictions as the result of unanticipated circumstances, changes in law, contrary positions of relevant tax authorities or other causes. The Issuer expects that payments received on the Collateral Debt Securities, Eligible Investments, U.S. Agency Securities and the Hedge Agreements generally will not be subject to withholding taxes imposed by the United States or reduced by withholding taxes imposed by other countries from which such payments are sourced. Payments on the Collateral Debt Securities, U.S. Agency Securities and Eligible Investments and under the Hedge Agreements, however, might become subject to U.S. or other net income or withholding tax due to a change in law, unanticipated circumstances, contrary positions of relevant taxing authorities or other causes. Payments with respect to equity securities likely will be subject to taxes imposed by the United States or other countries from which such payments are sourced. The imposition of unanticipated withholding taxes or tax on the Issuer's net income could materially impair the Issuer's ability to make payments on the Notes. See "Income Tax Considerations." U.S. Tax Treatment of Holders of Subordinated Notes, Class D Notes and Class E Notes. Because the Issuer will be a passive foreign investment company, a U.S. person holding Subordinated Notes may be subject to additional taxes unless it elects to treat the Issuer as a qualified electing fund and to recognize currently its proportionate share of the Issuer's income whether or not actually distributed. A holder that makes a qualified electing fund election may recognize income in amounts significantly greater than the distributions received from the Issuer because, for example, the Issuer uses income to retire other classes of Notes. The holder may be able to elect to defer payment, subject to an interest charge, of the tax on income recognized on account of the qualified electing fund election. The Issuer also may be a controlled foreign corporation, in which case U.S. persons holding Subordinated Notes could be subject to different tax treatment. See "Income Tax Considerations". The Issuer intends to treat the Secured Notes, and the Indenture requires that holders agree to treat the Secured Notes, as debt for U.S. Federal income tax purposes. The U.S. Internal Revenue Service may challenge the treatment of the Class D Notes and the Class E Notes as debt of the Issuer. If such a challenge were successful, the Class D Notes and the Class E Notes would be treated as equity interests in the Issuer, and the U.S. Federal income tax consequences of investing in the Class D Notes and the Class 77

E Notes would be the same as those of having invested in the Subordinated Notes without having made an election to treat the Issuer as a qualified electing fund. See "Income Tax Considerations". Combination Notes. An investment in the Combination Notes involves certain risks. In addition to the risks particular to Combination Notes described in the following two paragraphs, the risk of ownership of the Combination Notes will be (a) with respect to the Class D Note Component, the risks of ownership of the Class D Notes and (b) with respect to the Subordinated Note Component, the risks of ownership of the Subordinated Notes. Transfer of Components. Components are not separately transferable. See "Description of the Combination Notes—Exchange of Combination Notes for Underlying Components". Limited Liquidity. There is currently no market for the Combination Notes. Although the Portfolio Manager may from time to time make a market in the Combination Notes, the Portfolio Manager is under no obligation to do so. In the event that the Portfolio Manager commences any marketmaking, it may discontinue the same at any time without notice. There can be no assurance that a secondary market for any of the Combination Notes will develop, or if a secondary market does develop, that it will provide the holders of such Combination Notes with liquidity of investment or that it will continue for the life of the Combination Notes. Consequently, an investor in the Combination Notes must be prepared to hold its Combination Notes for an indefinite period of time or until the applicable Stated Maturity of the Combination Notes. Tax Characterization. The Issuer intends to treat the Combination Notes, and the Indenture requires that holders agree to treat the Combination Notes, as direct ownership of the Class D Notes and Subordinated Notes constituting the Class D Component and the Subordinated Note Component as if such Class D Notes and Subordinated Notes had been issued directly to such holders. ERISA Considerations. See "ERISA and Certain Related Considerations" German Investment Tax Act. Under the German Investment Tax Act (Investmentsteuergesetz or "InvStG" or "ITA") adverse tax consequences will arise for investors subject to tax in Germany if the InvStG is applied to the Notes. However, pursuant to a Circular released by the German Federal Ministry of Finance on the InvStG, dated June 2, 2005, the InvStG does not apply to CDO vehicles that allow a maximum of 20% of the assets of the issuer to be traded annually on a discretionary basis, in addition to the mere replacement of debt instruments for the purpose of maintaining the volume, the maturity and the risk structure of the CDO. If these conditions for non-application of the InvStG are satisfied the Secured Notes are not subject to the InvStG. None of the Issuer, the Co-Issuer, the Portfolio Manager, the Initial Purchaser and their respective Affiliates makes any representation, warranty or other undertaking whatsoever that the Notes are not qualified as unit certificates in a foreign investment fund pursuant to Section 1(1) no. 2 of the InvStG. The Issuer will not comply with any calculation and information requirements set forth in Section 5 of the InvStG. Prospective German investors in the Notes are urged to seek independent tax advice and to consult their professional advisors as to the legal and tax consequences that may arise from the application of the InvStG to the Notes, and none of the Issuer, the Co-Issuer, the Portfolio Manager and the Initial Purchaser accepts any responsibility in respect of the tax treatment of the Notes under German law.

78

DESCRIPTION OF THE SECURED NOTES The Secured Notes will be issued pursuant to the Indenture. The following summary describes certain provisions of the Secured Notes and the Indenture. This summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture. Following the closing, copies of the Indenture may be obtained by registered holders upon request to the Trustee at 181 West Madison Street, 32nd Floor, Chicago, Illinois 60602, Attention: CDO Trust Services—Cairn Mezz ABS CDO II. Status and Security The Secured Notes will be limited-recourse debt obligations of the Co-Issuers secured by the Collateral. All of the Class A1-VF Notes are entitled to receive payments pari passu among themselves, all of the Class A2A Notes are entitled to receive payments pari passu among themselves, all of the Class A2B Notes are entitled to receive payments pari passu among themselves, all of the Class B1 Notes are entitled to receive payments pari passu among themselves, all of the Class B2 Notes are entitled to receive payments pari passu among themselves, all of the Class C Notes are entitled to receive payments pari passu among themselves, all of the Class D Notes are entitled to receive payments pari passu among themselves and all of the Class E Notes are entitled to receive payments pari passu among themselves. Except as otherwise described in the Priority of Payments, the relative order of Seniority of payment of each Class of Secured Notes is as follows: first, Class A1-VF Notes, second, Class A2A Notes, third, Class A2B Notes, fourth, Class B1 Notes, fifth, Class B2 Notes, sixth, Class C Notes, seventh, Class D Notes and eighth, Class E Notes, with (a) each Class of Secured Notes (other than the Class E Notes) in such list being "Senior" or in "Seniority" to each other Class of Secured Notes that follows such Class of Secured Notes in such list and (b) each Class of Secured Notes (other than the Class A1-VF Notes) in such list being "Subordinate" to each other Class of Secured Notes that precedes such Class of Secured Notes in such list. No payment of interest on any Class of Secured Notes will be made until all accrued and unpaid interest (and, in the case of the Class A1-VF Notes, Commitment Fees) on the Secured Notes of each Class that is Senior to such Class and that remain outstanding have been paid in full. Under the terms of the Indenture, the Issuer will grant to the Trustee for the benefit of the Secured Parties a first priority security interest in the Collateral described herein to secure the Issuer's obligations under the Indenture and the Secured Notes. The Collateral does not include the Excepted Property or the Excluded Assets. Payments of principal of and interest and Commitment Fee on the Secured Notes will be made solely from the proceeds of the Collateral and, in the case of any Senior Interest Shortfall, Borrowings or Deemed Borrowings under the Class A1-VF Notes, in each case in accordance with the priorities described under "—Priority of Payments" below. If the amounts received in respect of the Collateral (net of certain expenses) are insufficient to make payments on the Secured Notes, no other assets will be available for payment of the deficiency and, following liquidation of all the Collateral, the obligations of the Co-Issuers to pay any such deficiency will be extinguished. Interest The aggregate outstanding principal amount of the Borrowings and Deemed Borrowings under the Class A1-VF Notes (the "Outstanding Class A1-VF Funded Amount") will bear interest commencing on the relevant date of Borrowing or Deemed Borrowing at a floating rate per annum equal to LIBOR (determined as set forth herein and which may be set at different levels with respect to intraperiod Borrowings or Deemed Borrowings) plus 0.32% (the "Class A1-VF Note Interest Rate"). Amounts deposited in a Class A1-VF Prepayment Account as a result of a holder of Class A1-VF Notes failing to 79

satisfy the Variable Funding Note Rating Threshold pursuant to the Variable Funding Note Purchase Agreement will not be deemed a Borrowing and will not accrue interest at the Class A1-VF Note Interest Rate until such amounts are applied to a Permitted Use (any such application, a "Deemed Borrowing"). Instead, the Class A1-VF Noteholder depositing such amounts shall be entitled to receive (i) any proceeds from the investment of such amounts in Eligible Investments and (ii) for each day that such holder is a Compliant Class A1-VF Noteholder, Commitment Fee on such amounts at the Commitment Fee Rate until such amounts are applied to any Permitted Use (upon the occurrence of which such applied amounts will constitute "Deemed Borrowings" and interest will commence accruing on the resulting increase in the Outstanding Class A1-VF Funded Amount at the Class A1-VF Note Interest Rate to the extent of such application). The Class A2A Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.40%. The Class A2B Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.44%. The Class B1 Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.53%. The Class B2 Notes will bear interest at a floating rate per annum equal to LIBOR plus 0.60%. The Class C Notes will bear interest at a floating rate per annum equal to LIBOR plus 1.35%. The Class D Notes will bear interest at a floating rate per annum equal to LIBOR plus 3.25%. The Class E Notes will bear interest at a floating rate per annum equal to LIBOR plus 6.25%. Interest on the Secured Notes and interest on Defaulted Interest in respect thereof will be computed on the basis of a 360-day year and the actual number of days elapsed. Interest will accrue on the outstanding principal amount of each Class of Secured Notes (determined as of the first day of each Interest Period and after giving effect to any redemption or other payment of principal occurring on such day) from the Closing Date (or with respect to any Borrowing or Deemed Borrowing under the Class A1-VF Notes after the Closing Date, from the date of such Borrowing or Deemed Borrowing) until such Secured Notes are paid in full. Interest accruing for any Interest Period will accrue for the period from and including the first day of such Interest Period to but excluding the last day of such Interest Period. Interest on each Borrowing or Deemed Borrowing under the Class A1-VF Notes shall be determined on any applicable Determination Date by (a) multiplying the Outstanding Class A1-VF Funded Amount as of the first day of the related Due Period by the Class A1VF Note Interest Rate and multiplying the product by a fraction equal to the number of days in the applicable Interest Period divided by 360 and (b) adding to such amount the Cumulative Intraperiod Interest Amount. Each Class A1-VF Noteholder will be paid a pro rata portion of the interest on the Class A1-VF Notes. Payments of interest on the Secured Notes, and Commitment Fee with respect to the Class A1-VF Notes, will be payable in U.S. Dollars quarterly in arrears on each February 13, May 13, August 13 and November 13 of each year, beginning on February 13, 2007 (each a "Distribution Date"), provided that (i) the final Distribution Date shall be February 13, 2047 and (ii) if any such date is not a Business Day, the relevant Distribution Date will be the next succeeding Business Day. So long as any Class of Investment Grade Funded Secured Notes is outstanding, if any Overcollateralization Test applicable to such Class is not satisfied on any Determination Date relating to any Distribution Date, then funds that would otherwise be used to make payments in respect of interest on any Class of Secured Notes Subordinate to such Class will be used instead (subject to the payment of certain other amounts prior thereto), first, to pay the Outstanding Class A1-VF Funded Amount, second, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account, third, to redeem each Class (if any) of Investment Grade Funded Secured Notes Senior to such Class (sequentially in direct order of Seniority) and, fourth, to redeem such Class of Investment Grade Funded Secured Notes, until each applicable Overcollateralization Test is satisfied. So long as any Class E Notes are outstanding, if the Class E Interest Diversion Test is not satisfied on any Determination 80

Date relating to any Distribution Date, then Interest Proceeds that would otherwise be distributed to Subordinated Noteholders (subject to the payment of certain other amounts prior thereto) will be used instead to redeem the Class E Notes, until the Class E Interest Diversion Test is satisfied. See "—Priority of Payments" below. So long as any Class A Notes or Class B Notes are outstanding (or the Commitment Termination Date has not yet occurred), the failure on any Distribution Date to make payment in respect of interest on the Class C Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class C Notes that is not paid when due by operation of the Priority of Payments will be deferred (such interest being referred to herein as "Class C Deferred Interest"); provided that no accrued interest on the Class C Notes shall become Class C Deferred Interest unless the Commitment Termination Date has not yet occurred or a more Senior Class of Secured Notes is then outstanding. Any Class C Deferred Interest will not be added to the aggregate outstanding principal amount of the Class C Notes but interest will accrue on Class C Deferred Interest at the rate applicable to the Class C Notes until such Class C Deferred Interest is paid in full. So long as any Class A Notes, Class B Notes or Class C Notes are outstanding (or the Commitment Termination Date has not yet occurred), the failure on any Distribution Date to make payment in respect of interest on the Class D Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class D Notes that is not paid when due by operation of the Priority of Payments will be deferred (such interest being referred to herein as "Class D Deferred Interest"); provided that no accrued interest on the Class D Notes shall become Class D Deferred Interest unless the Commitment Termination Date has not yet occurred or a more Senior Class of Secured Notes is then outstanding. Any Class D Deferred Interest will not be added to the aggregate outstanding principal amount of the Class D Notes but interest will accrue on Class D Deferred Interest at the rate applicable to the Class D Notes until such Class D Deferred Interest is paid in full. So long as any Class A Notes. Class B Notes, Class C Notes or Class D Notes are outstanding (or the Commitment Termination Date has not yet occurred), the failure on any Distribution Date to make payment in respect of interest on the Class E Notes by reason of the operation of the Priority of Payments will not constitute an Event of Default under the Indenture. Any interest on the Class E Notes that is not paid when due by operation of the Priority of Payments will be deferred (such interest being referred to herein as "Class E Deferred Interest"); provided that no accrued interest on the Class E Notes shall become Class E Deferred Interest unless the Commitment Termination Date has not yet occurred or a more Senior Class of Secured Notes is then outstanding. Any Class E Deferred Interest will not be added to the aggregate outstanding principal amount of the Class E Notes but interest will accrue on Class E Deferred Interest at the rate applicable to the Class E Notes until such Class E Deferred Interest is paid in full. Interest will cease to accrue on each Secured Note or, in the case of a partial repayment, on such part, from the date of repayment or the Stated Maturity unless payment of principal is improperly withheld or unless default is otherwise made with respect to such payments. To the extent lawful and enforceable, interest on any Defaulted Interest on any Secured Note will accrue at the interest rate applicable to such Secured Note until paid. "Defaulted Interest" means with respect to the Secured Notes, any portion of any interest (or, in the case of the Class A1-VF Notes, Commitment Fee) due and payable in respect of any Secured Note which is not punctually paid or duly provided for on the applicable Distribution Date or at Stated Maturity and which remains unpaid. Defaulted Interest will not include Class C Deferred Interest, Class D Deferred Interest or Class E Deferred Interest.

81

With respect to each Interest Period, "LIBOR" for purposes of calculating the interest rate for each Class of Secured Notes, for such Interest Period will be determined by the Trustee, as calculation agent (the "Calculation Agent") in accordance with the following provisions: (i) LIBOR for any Interest Period shall equal the offered rate, as determined by the Calculation Agent, for Dollar deposits in Europe of three months that appears on Telerate Page 3750 (or such other page as may replace such Telerate Page 3750 for the purpose of displaying comparable rates) as of 11:00 a.m. (London time) on the applicable LIBOR Determination Date. "LIBOR Determination Date" means, with respect to any Interest Period, the second London Banking Day prior to the first day of such Interest Period. (ii) If, on any LIBOR Determination Date, such rate does not appear on Telerate Page 3750 (or such other page as may replace such Telerate Page 3750 for the purpose of displaying comparable rates), the Calculation Agent shall determine the arithmetic mean of the offered quotations of the Reference Banks to prime banks in the London interbank market for Dollar deposits in Europe of three months (except that in the case where such Interest Period shall commence on a day that is not a LIBOR Business Day, for the relevant term commencing on the next following LIBOR Business Day), by reference to requests for quotations as of approximately 11:00 a.m. (London time) on such LIBOR Determination Date made by the Calculation Agent to the Reference Banks. If, on any LIBOR Determination Date, at least two of the Reference Banks provide such quotations, LIBOR shall equal such arithmetic mean. If, on any LIBOR Determination Date, fewer than two Reference Banks provide such quotations, LIBOR shall be deemed to be the arithmetic mean of the offered quotations that leading banks in New York City selected by the Calculation Agent are quoting on the relevant LIBOR Determination Date for Dollar deposits for the term of such Interest Period (except that in the case where such Interest Period shall commence on a day that is not a LIBOR Business Day, for the relevant term commencing on the next following LIBOR Business Day), to the principal London offices of leading banks in the London interbank market. (iii) In respect of any Interest Period having a Designated Maturity other than three months, LIBOR shall be determined through the use of straight-line interpolation by reference to two rates calculated in accordance with clauses (i) and (ii) above, one of which shall be determined as if the maturity of the Dollar deposits referred to therein were the period of time for which rates are available next shorter than the Interest Period and the other of which shall be determined as if the such maturity were the period of time for which rates are available next longer than the Interest Period; provided that, if an Interest Period is less than or equal to seven days, then LIBOR shall be determined by reference to a rate calculated in accordance with clauses (i) and (ii) above as if the maturity of the Dollar deposits referred to therein were a period of time equal to seven days. (iv) If the Calculation Agent is required but is unable to determine a rate in accordance with either procedure described in clauses (i) or (ii) above, LIBOR with respect to such Interest Period shall be the arithmetic mean of the offered quotations of the Reference Dealers as of 10:00 a.m. (New York time) on the first day of such Interest Period for negotiable U.S. Dollar certificates of deposit of major U.S. money market banks having a remaining maturity closest to the Designated Maturity. (v) If the Calculation Agent is required but is unable to determine a rate in accordance with any of the procedures described in clauses (i), (ii) or (iv) above, LIBOR with respect to such Interest Period will be calculated on the last day of such Interest Period and shall be the arithmetic mean of the Base Rate for each day during such Interest Period. 82

For purposes of clauses (i), (iii), (iv) and (v) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point. For the purposes of clause (ii) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one thirty-second of a percentage point. For so long as any Secured Note remains outstanding, the Issuer will at all times maintain an agent appointed to calculate LIBOR in respect of each Interest Period. As soon as possible after 11:00 a.m. (London time) on each LIBOR Determination Date, but in no event later than 11:00 a.m. (New York time) on the Business Day immediately following each LIBOR Determination Date, the Calculation Agent will calculate the interest rate for each Class of Secured Notes for the related Interest Period or Short Interest Period and the amount of interest for such Interest Period or Short Interest Period payable in respect of each U.S.$1,000 in principal amount of each Class of Secured Notes (in each case rounded to the nearest cent, with half a cent being rounded upward) on the related Distribution Date and will communicate such rates and amounts and the related Distribution Date to the Co-Issuers, the Trustee, the GIC Provider, each Paying Agent (other than the Subordinated Note Issuing and Paying Agent), Euroclear, Clearstream, Luxembourg and, for so long as the Secured Notes are listed on the Irish Stock Exchange, the Irish Paying Agent. The Calculation Agent may be removed by the Issuer at any time with notice to the Portfolio Manager. If the Calculation Agent is unable or unwilling to act as such, is removed by the Co-Issuers or fails to determine the Class A1-VF Note Interest Rate or the interest rate for any Class of Secured Notes or the amount of interest (and in the case of the Class A1-VF Notes, Commitment Fee) payable in respect of any Class of Secured Notes for any Interest Period, the Issuer will promptly appoint, with notice to the Portfolio Manager, as a replacement Calculation Agent a leading bank that is engaged in transactions in U.S. Dollar deposits in the international Eurodollar market and which does not control and is not controlled by or under common control with either of the Co-Issuers or any Affiliate thereof. The Calculation Agent may not resign its duties without a successor having been duly appointed. The determination of the interest rate for Secured Notes for each Interest Period by the Calculation Agent shall (in the absence of manifest error) be final and binding upon all parties. Class A1-VF Commitment Fee The Issuer will pay to each Class A1-VF Noteholder on each Distribution Date a commitment fee (the "Commitment Fee") quarterly in arrears which shall accrue on that portion of the Remaining Unfunded Facility Commitment represented by the Class A1-VF Notes of such Class A1-VF Noteholder at a rate equal to 0.18% per annum (the "Commitment Fee Rate") for each day on which the relevant holder is a Compliant Class A1-VF Noteholder from and including the Closing Date to but excluding the Commitment Termination Date, together with Defaulted Interest on such fee to the extent not paid when due. The Commitment Fee shall (i) continue accruing with respect to any amounts in a Class A1-VF Prepayment Account until they are applied to the funding of a Permitted Use and (ii) be reduced to the extent that the Remaining Unfunded Facility Commitment is reduced by any portion of the Class A1-VF Senior Excess which the Issuer is required or the Portfolio Manager elects, in each case in accordance with the Senior Excess Application Priority, to apply to reduce permanently the Remaining Unfunded Facility Commitment. The Commitment Fee will rank pari passu with the payment of interest on the Class A1-VF Notes. The Commitment Fee will be computed on the basis of a 360 day year and the actual number of days elapsed. No Class of Notes other than the Class A1-VF Notes will be entitled to a commitment fee.

83

Drawdowns and Repayment of the Class A1-VF Notes The Class A1-VF Notes will be issued on the Closing Date and the holders will make advances to the Issuer from time to time until the Commitment Termination Date. Pursuant to a Variable Funding Note Purchase Agreement, dated as of November 9, 2006 (the "Variable Funding Note Purchase Agreement") by and among the Issuer, the Co-Issuer, the Variable Funding Note Agent, the Trustee and the holders from time to time of the Class A1-VF Notes, the holders of Class A1-VF Notes will from time to time make advances (each, a "Borrowing", which term will include any excess deposited in the Reserve Account (due to the applicability of the minimum Borrowing amount as described below) of the amount borrowed over the amount required to make the relevant payment, but will not include any amounts on deposit in a Class A1-VF Prepayment Account) to the Issuer under the Class A1-VF Notes until the Commitment Termination Date, upon request by the Issuer for such advance and subject to compliance with certain conditions set forth in the Variable Funding Note Purchase Agreement. The aggregate outstanding principal amount of the Class A1-VF Notes may at no time exceed the Maximum VFN Facility Funding Commitment. Each request of the Issuer for a Borrowing shall be delivered to the Variable Funding Note Agent and the holders of the Class A1-VF Notes no less than three Business Days prior to the requested funding date. All of the Class A1-VF Notes are entitled to receive payments pari passu among themselves. Payment of interest and Commitment Fee on the Class A1-VF Notes on any Distribution Date will be subordinated to the payment of certain expenses of the Co-Issuers in accordance with the Priority of Payments. Interest with respect to the Class A1-VF Notes shall accrue on all Borrowings and Deemed Borrowings under the Class A1-VF Notes. Amounts deposited in a Class A1-VF Prepayment Account as a result of any holder of Class A1-VF Notes failing to satisfy the Variable Funding Note Rating Threshold pursuant to the Variable Funding Note Purchase Agreement will not be treated as a Borrowing and, therefore, will not accrue interest until the application thereof to a Permitted Use. The Class A1-VF Noteholder depositing such amounts in a Class A1-VF Prepayment Account shall be entitled to receive (i) any proceeds from the investment of such amounts in Eligible Investments and (ii) for each day that such holder is a Compliant Class A1-VF Noteholder, Commitment Fee on such amounts at the Commitment Fee Rate until such amounts are applied to any Permitted Use (upon the occurrence of which interest will commence accruing on the resulting increase in the Outstanding Class A1-VF Funded Amount at the Class A1-VF Note Interest Rate to the extent of such application). Prior to the Commitment Termination Date, the Issuer will have the right, pursuant to the Variable Funding Note Purchase Agreement and after giving effect to any application of prior withdrawals made from funds standing to the credit of the applicable Accounts that are available for the relevant Permitted Use pursuant to and in accordance with the Account Withdrawal Payment Priority, to draw funds under the Class A1-VF Notes to: (a)

make Issuer CDS Termination Payments equal to the full amount owed to the Credit Default Swap Counterparty in respect of any full or partial termination of a Credit Default Swap, provided that a Borrowing request is received at least two Business Days prior thereto;

(b)

on any Business Day, fund obligations of the Issuer to pay Credit Protection Payments (other than Credit Protection Payments in respect of Interest Shortfalls) or Physical Settlement Amounts to the Credit Default Swap Counterparty under Unhedged Long CDS Transactions, provided that a Borrowing request is received at least two Business Days prior thereto;

(c)

so long as no Event of Default has occurred and is continuing, on any Distribution Date on which a Senior Interest Shortfall exists, pay any accrued and 84

unpaid interest on the Class A2A Notes, the Class A2B Notes, the Class B1 Notes or the Class B2 Notes, as applicable, in order of seniority in an amount equal to such Senior Interest Shortfall pursuant to the Priority of Payments; provided that any such amount may not exceed the lowest of (x) the amount of such Senior Interest Shortfall and (y) the Class A1-VF Senior Excess as of the date of the related Borrowing request; and (d)

to pay Credit Protection Payments (after the application of any payment netting provisions in the Credit Default Swap Agreement) in respect of Interest Shortfalls;

(the uses described in clauses (a) through (d) above, each, a "Permitted Use"). Notwithstanding anything to the contrary in the foregoing, unless all of the Commitment Amounts of the Class A1-VF Noteholders have been deposited in one or more Class A1-VF Prepayment Accounts, no request for a Borrowing will be made for an amount less than U.S.$250,000 (or such lesser amount as may be agreed to by the relevant Class A1-VF Noteholder(s)). Any excess of such minimum amount over the amount (or portion thereof) of the applicable Permitted Use funded from Borrowings or Deemed Borrowings pursuant to the Account Withdrawal Payment Priority shall be deposited into the Reserve Account (other than any such excess which results from a Borrowing used to fund all or part of a Credit Protection Payment in respect of an Interest Shortfall pursuant to clause (c)(vi) of the definition of "Account Withdrawal Payment Priority"). The Class A1-VF Noteholders shall have no obligation to advance funds for Borrowings in respect of any Borrowing request after the occurrence and during the continuation of a Specified Event of Default. The obligation of a holder of the Class A1-VF Notes to advance funds in respect of any such Borrowing request, and the application of funds standing to the credit of a Class A1-VF Prepayment Account to any Deemed Borrowing upon request therefor, is subject to certain conditions precedent. These conditions precedent include the following requirements: (1) all funds available therefor pursuant to and in accordance with the operation of the Account Withdrawal Payment Priority have been applied to fund all or part of such Permitted Use simultaneously with or immediately prior to such advance, (2) in the case of any Borrowing or Deemed Borrowing, no Specified Event of Default has occurred and is continuing and (3) the proceeds of such Borrowing or Deemed Borrowing will be applied to a Permitted Use. With respect to each holder of Class A1-VF Notes (other than a Class A1-VF Noteholder that is a Specified Class A1-VF Noteholder), upon the initial issuance or transfer of Class A1-VF Notes to such holder, (i) the credit rating of its Rating Determining Party with respect to its short-term unsecured debt obligations must be (A) "P1" by Moody's (and such rating has not been placed on watch for possible downgrade) and (B) at least "A-1+" by Standard & Poor's or (ii) the credit rating of its Rating Determining Party with respect to its long-term unsecured debt obligations must be at least (A) "Aa3" by Moody's (and, if rated "Aa3" such rating has not been placed on watch for possible downgrade) and (B) at least "AA-" by Standard & Poor's (such rating requirements, the "Variable Funding Note Rating Threshold"); provided that, if the Class A1-VF Noteholder is also a Specified Class A1-VF Noteholder, it shall be deemed to satisfy the Variable Funding Note Rating Threshold for so long as it remains a Specified Class A1-VF Noteholder. The Variable Funding Note Purchase Agreement provides that, if any holder of a Class A1-VF Note (other than a Specified Class A1-VF Noteholder) fails to satisfy the Variable Funding Note Rating Threshold (with respect to such holder, a "Variable Funding Rating Decline Event"), such holder shall (i) send a written notice to the Issuer, the Trustee and the Portfolio 85

Manager of such failure and the date of the occurrence of such failure and (ii) within 30 days of the occurrence of such event, (A) find a replacement counterparty that satisfies the Variable Funding Note Rating Threshold and with respect to which the Rating Condition with respect to Standard & Poor's is satisfied, (B) obtain a guarantor (that satisfies the Rating Condition with respect to Standard & Poor's pursuant to a form of guarantee that satisfies all applicable then-current rating criteria of the Rating Agencies) for such holder's (or, in the case of a holder that is a commercial paper conduit, its external liquidity or credit support provider's) obligations under the Variable Funding Note Purchase Agreement that satisfies the Variable Funding Note Rating Threshold and with respect to which the Rating Condition with respect to Standard & Poor's is satisfied or (C) if no such replacement counterparty or guarantor has been found and such Variable Funding Rating Decline Event is continuing on the last day of such period (or, if such date is not a Business Day, the first Business Day thereafter), on or prior to such last day (as adjusted) transfer to the Trustee, pursuant to the Variable Funding Note Purchase Agreement, an amount equal to or greater than the entire unfunded amount of such holder's pro rata share of the Remaining Unfunded Facility Commitment, which amount shall be deposited by the Trustee into a Class A1-VF Prepayment Account established in relation to such Class A1-VF Noteholder in accordance with the Indenture and deliver an opinion satisfactory to Standard & Poor's addressing the ability of the Issuer to realize upon the amounts standing to the credit of the Class A1-VF Prepayment Account of such Class A1-VF Noteholder in the event of a bankruptcy of such Class A1-VF Noteholder. The deposit of any amount into a Class A1-VF Prepayment Account by any holder of Class A1VF Notes pursuant to the terms of the Variable Funding Note Purchase Agreement will not reduce such holder's Remaining Unfunded Facility Commitment until such amounts are applied to any Permitted Use, and the Commitment Fee shall continue accruing with respect to any amounts in a Class A1-VF Prepayment Account until such amounts are applied to the funding of a Permitted Use. With respect to any holder of Class A1-VF Notes that has deposited the balance of its pro rata share of the Remaining Unfunded Facility Commitment in a Class A1-VF Prepayment Account, (i) the Trustee will disburse as a Deemed Borrowing a portion of such amount on the date of a Borrowing by the Issuer in accordance with the Variable Funding Note Purchase Agreement in an amount equal to such Class A1-VF Noteholder's pro rata share of each Borrowing and (ii) on each Distribution Date, the Trustee will pay to such Class A1-VF Noteholder interest in an amount equal to earnings in respect of Eligible Investments in such Class A1-VF Prepayment Account (or subaccount, if applicable) received during the preceding Due Period. Investment earnings on Eligible Investments in a Class A1-VF Prepayment Account will not be transferred to the Interest Collection Account or treated as Interest Proceeds but will instead be paid directly to the Class A1-VF Noteholder for whom the applicable Class A1-VF Prepayment Account (or subaccount, if applicable) was established. For the avoidance of doubt, a Class A1-VF Noteholder that is also a Specified Class A1-VF Noteholder shall have no obligation to fund any payments in a Class A1-VF Prepayment Account. The failure of any holder of Class A1-VF Notes to fund any Borrowing required under the Variable Funding Note Purchase Agreement will not result in any increase to the Remaining Unfunded Facility Commitment of any other such holder. Any reduction of the Remaining Unfunded Facility Commitment will be applied to the holders of the Class A1-VF Notes pro rata. If a Borrowing request is made, a Borrowing or Deemed Borrowing is funded by any Class A1VF Noteholder in respect thereof and the relevant funds can no longer be applied to a Permitted Use (including, without limitation, as a result of an "Event of Default" or "Termination Event" with respect to which the Credit Default Swap Counterparty is the "Defaulting Party" or sole "Affected Party" under (and each as defined in) the Credit Default Swap Agreement), the Trustee shall promptly repay such amount to the relevant Class A1-VF Noteholder (for credit to the relevant Class A1-VF Prepayment Account in the case of a Deemed Borrowing) without regard to the Priority of Payments.

86

Reduction of the Remaining Unfunded Facility Commitment On the Closing Date, the Maximum VFN Facility Funding Commitment will be U.S.$450,000,000 and the Remaining Unfunded Facility Commitment will be U.S.$.450,000,000. During the Reinvestment Period, the Remaining Unfunded Facility Commitment will be reduced in the following circumstances: (i) on any Distribution Date, if any Overcollateralization Test is not satisfied, to the extent necessary to cause such Overcollateralization Test to be satisfied (and to the extent that funds are available for such purpose in accordance with the Priority of Payments and the Senior Excess Application Priority); and (ii) by application of the amounts of the Class A1-VF Senior Excess which the Portfolio Manager elects to apply to reduce permanently the Remaining Unfunded Facility Commitment in accordance with the Senior Excess Application Priority pursuant to the Indenture. Application of the Class A1-VF Senior Excess If, on any Determination Date, a Class A1-VF Senior Excess exists, it shall be applied as follows on the related Distribution Date: (a) first, to the payment of any Senior Interest Shortfall pursuant to paragraph (1)(b) of "Priority of Payments—Principal Proceeds"; (b) second, if any Overcollateralization Test is not satisfied and will not be satisfied after the application of all Interest Proceeds and Principal Proceeds in accordance with the Priority of Payments on the related Distribution Date, to make a permanent reduction of the Remaining Unfunded Facility Commitment (pursuant to clause (ii) of the definition of "Permanent Reduction Amount") in an amount equal to the lesser of (i) the amount of the remaining Class A1-VF Senior Excess (after giving effect to clause (a) above) and (ii) the amount required to satisfy any such Overcollateralization Test (after giving effect to payments of Interest Proceeds and Principal Proceeds on the related Distribution Date pursuant to the Priority of Payments); (c) third during the Reinvestment Period only, in an amount up to the remaining Class A1VF Senior Excess (after giving effect to clauses (a) and (b) above) as determined by the Portfolio Manager in its sole discretion (and communicated to the Trustee on or prior to the Determination Date), to the Acquisition of additional CDS Transactions; provided that the Class A1-VF Senior Excess will be reduced on the settlement date for the Acquisition by the Issuer of any such additional CDS Transaction by an amount equal to the initial Total Exposure under such CDS Transaction pursuant to the operation of clause (b) of the definition of "Class A1-VF Senior Excess"; (d) fourth, if such Distribution Date is a Pro Rata Distribution Date, in an amount equal to the lowest of (A) the remaining Class A1-VF Senior Excess (after giving effect to clauses (a), (b) and (c) above), (B) the excess (if any) of (1) the sum of (x) the Funded Secured Note Reduction Amount for the Due Period relating to the following Distribution Date and (y) the Deferred Funded Secured Notes Principal over (2) the remaining Principal Proceeds available after giving effect to the payments made pursuant to paragraph (8) of "Priority of Payments—Principal Proceeds" and (C) the amount on deposit in the Reserve Account after giving effect to the payments made pursuant to paragraph (8) of "Priority of Payments—Principal Proceeds", to make a deposit from the Reserve Account into the Principal Collection Account; and (e) fifth, during the Reinvestment Period only, in an amount equal to the remaining Class A1 VF Senior Excess (after giving effect to clauses (a), (b), (c) and (d) above), to the permanent reduction of the Remaining Unfunded Facility Commitment (pursuant to clause (iii) of the definition of "Permanent Reduction Amount"); 87

the foregoing application priority, the "Senior Excess Application Priority". In addition, after the last day of the Reinvestment Period, the Class A1-VF Senior Excess will be reduced to the extent that deposits are made into the Reserve Account pursuant to paragraph (9) of the "Priority of Payments—Principal Proceeds" on any Distribution Date. Principal The Stated Maturity of each Class of Secured Notes is February 13, 2047 or, if such date is not a Business Day, the next following Business Day. Each Class of Secured Notes is scheduled to mature at the Stated Maturity unless redeemed or repaid prior thereto. The Secured Notes may be paid in full prior to the Stated Maturity. See "Risk Factors—Average Life of the Secured Notes and Prepayment Considerations" and "Maturity, Prepayment and Yield Considerations." Any payment of principal with respect to any Class of Secured Notes (including any payment of principal made in connection with a Mandatory Redemption, Optional Redemption, Auction Call Redemption or Tax Redemption) will be made by the Trustee on a pro rata basis on each Distribution Date among the Secured Notes of such Class according to the respective unpaid principal amounts thereof outstanding immediately prior to such payment. The Trustee shall, so long as any Class of Secured Notes is listed on the Irish Stock Exchange, notify the Irish Paying Agent for delivery to the Irish Stock Exchange not later than each Distribution Date of the amount of principal payments to be made on the Secured Notes of each Class on such Distribution Date, the amount of any Class C Deferred Interest, the amount of any Class D Deferred Interest, the amount of any Class E Deferred Interest, the aggregate outstanding principal amount of the Secured Notes of each Class and the percentage of the original aggregate outstanding principal amount of the Secured Notes of such Class after giving effect to the principal payments, if any, on such Distribution Date. Payments of principal may be made on the Funded Secured Notes during the Reinvestment Period only in the following circumstances (subject to the Priority of Payments): (a) upon the failure of the Issuer to satisfy any Overcollateralization Test applicable to any Class of Secured Notes as of the related Determination Date (to the extent necessary to satisfy such tests), (b) in connection with a Tax Redemption, (c) upon the failure of the Issuer to satisfy the Class E Interest Diversion Test as of the related Determination Date (to the extent necessary to satisfy such test) and (d) in the event that the Portfolio Manager, in its sole discretion, does not transfer Principal Proceeds to the Reinvestment Account under paragraph (8) under "Description of the Secured Notes— Priority of Payments—Principal Proceeds". Payments of the Outstanding Class A1-VF Funded Amount may also be made during the Reinvestment Period in connection with the failure of the Issuer to satisfy an Overcollateralization Test. After the Reinvestment Period, Principal Proceeds will be applied on each Distribution Date in accordance with the Priority of Payments to pay the Outstanding Class A1-VF Funded Amount, to reduce the Remaining Unfunded Facility Commitment to zero and to pay principal of each Class of Funded Secured Notes. In addition, the Issuer may redeem the Secured Notes, in whole but not in part, at the applicable Redemption Price therefor on any Distribution Date occurring after the last day of the Reinvestment Period under the circumstances described in "—Optional Redemption and Tax Redemption," "—Mandatory Redemption," "—Auction Call Redemption" and "—Priority of Payments— Interest Proceeds" below. On any Distribution Date that occurs prior to the Note Acceleration Date and that is a Pro Rata Distribution Date, Principal Proceeds will be applied (A) first, to the payment of principal of the Funded Secured Notes (pro rata in accordance with the respective outstanding aggregate principal amounts of the Funded Secured Notes) in an amount equal to the Deferred Funded Secured Notes Principal, (B) second, to the payment of principal of the Funded Secured Notes (pro rata in accordance with the respective outstanding aggregate principal amounts of the Funded Secured Notes) in an amount equal to the Funded 88

Secured Note Reduction Amount and (C) third, on a pro rata basis to (i) pay the Outstanding Class A1VF Funded Amount, (ii) reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and (iii) pay, on a pro rata basis, principal of the Class A2A Notes, Class A2B Notes, Class B1 Notes, Class B2 Notes, Class C Notes, Class D Notes and Class E Notes (with such pro rata allocation for purposes of clauses (i), (ii) and (iii) to be based upon the then-current Outstanding Class A1-VF Funded Amount, the then-current Remaining Unfunded Facility Commitment and the respective outstanding aggregate principal amounts of the Funded Secured Notes after giving effect to distributions made on such Distribution Date prior to such pro rata payment). So long as any Class of Investment Grade Funded Secured Notes is outstanding, if any Overcollateralization Test applicable to such Class is not satisfied on any Determination Date related to any Distribution Date, then (subject to the payment of certain other amounts prior thereto) first, Uninvested Proceeds, second, Interest Proceeds and, third, Principal Proceeds will be used instead, first, to pay the Outstanding Class A1-VF Funded Amount, second, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account, third, to redeem each Class (if any) of Investment Grade Funded Secured Notes Senior to such Class (sequentially in direct order of Seniority) and, fourth, to redeem such Class of Investment Grade Funded Secured Notes, until each applicable Overcollateralization Test is satisfied. So long as any Class E Notes are outstanding, if the Class E Interest Diversion Test is not satisfied on any Determination Date related to any Distribution Date, then Interest Proceeds will be used instead to redeem the Class E Notes until the Class E Interest Diversion Test is satisfied in accordance with the Priority of Payments. On any Distribution Date that occurs after the Reinvestment Period and that is not a Pro Rata Distribution Date and on each Distribution Date occurring on or after the Note Acceleration Date, if the Secured Notes are not redeemed in full prior to such date, Principal Proceeds will be applied to pay principal of (and also, in the case of the Class A1-VF Notes, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account) the Secured Notes in accordance with the Priority of Payments until each Class of Secured Notes has been paid in full. In addition, Interest Proceeds may be applied to the payment of principal of certain of the Secured Notes in accordance with the Priority of Payments with respect to Interest Proceeds. See "— Priority of Payments" below. Mandatory Redemption Each Class of Investment Grade Funded Secured Notes shall, on any Distribution Date, be subject to mandatory redemption in the event that any Overcollateralization Test is not satisfied on the related Determination Date. Any such redemption will be effected (subject to the payment of certain other amounts prior thereto), first, from Uninvested Proceeds, second, from Interest Proceeds and, third (to the extent that the application of Interest Proceeds pursuant to the Priority of Payments would be insufficient to cause such tests to be satisfied), from Principal Proceeds, in each case, to the extent necessary to cause each applicable Overcollateralization Test to be satisfied. Any such redemption will be applied, first, to the payment of the Outstanding Class A1-VF Funded Amount, second, to the reduction of the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and third, to the repayment of the Investment Grade Funded Secured Notes (sequentially in direct order of Seniority) in accordance with the Priority of Payments. On the Note Acceleration Date and on each Distribution Date thereafter, if the Secured Notes are not redeemed in full on or prior to the Note Acceleration Date or, with respect to each subsequent Distribution Date, on or prior to such date, Interest Proceeds that would otherwise be released from the lien of the Indenture and paid to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders will be applied (i) first, to the payment of principal of the Funded Secured Notes in the following order: first, the Class E Notes (until the Class E Notes have been paid in full), 89

second, the Class D Notes (until the Class D Notes have been paid in full), third, the Class C Notes (until the Class C Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class B1 Notes (until the Class B1 Notes have been paid in full), sixth, the Class A2B Notes (until the Class A2B Notes have been paid in full) and seventh, the Class A2A Notes (until the Class A2A Notes have been paid in full) and, (ii) thereafter, first, to the payment of the Outstanding Class A1-VF Funded Amount (until the Outstanding Class A1-VF Funded Amount is reduced to zero) and, second, to the reduction of the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account. In addition, if on any Distribution Date the Class E Interest Diversion Ratio on the related Determination Date is lower than 100.68%, any Interest Proceeds remaining for distribution under paragraph (15) under the heading "Description of the Secured Notes—Priority of Payments—Interest Proceeds" will be applied to pay principal of the Class E Notes in accordance with the Priority of Payments with respect to Interest Proceeds. See "—Principal" and "—Mandatory Redemption" above and "—Priority of Payments—Interest Proceeds" below. Auction Call Redemption No later than 10 Business Days prior to (1) the Note Acceleration Date and (2) if the Secured Notes are not redeemed in full on the related Distribution Date, each Distribution Date thereafter until the Secured Notes have been redeemed in full (each such date, an "Auction Date"), (i) the Trustee shall, at the expense of the Issuer and with the assistance of the Portfolio Manager, conduct an auction (an "Auction") of the Cash Collateral Debt Securities in accordance with the Auction Procedures set forth below, (ii) the Trustee will request that the calculation agent under the Credit Default Swap Agreement determine the Liquidation Proceeds payable by or to the Issuer under the CDS Transactions in accordance with the Liquidation Procedures and (iii) the Trustee will request that the calculation agent under each Synthetic Security determine the net termination or assignment payment payable by or to the Issuer assuming a termination or assignment date for the relevant Synthetic Security six Business Days prior to the relevant Distribution Date. Auction of the Cash Collateral Debt Securities. Any of the Portfolio Manager, the Subordinated Noteholders, the Credit Default Swap Counterparty, the Trustee or their respective Affiliates may, but shall not be required to, bid at the Auction. The Trustee shall Dispose of the Cash Collateral Debt Securities (which may be divided into subpools) to the highest bidder therefor (or to the highest bidder for each subpool) at the Auction; provided that: (i)

the Auction has been conducted in accordance with the Auction Procedures;

(ii)

the Trustee has received bids for such Cash Collateral Debt Securities (or for each of the related subpools) from at least two prospective purchasers (including the winning bidder) identified on a list of qualified bidders (such bidders, "Qualified Bidders") for (x) the purchase of such Cash Collateral Debt Securities or (y) the purchase of each subpool;

(iii)

the highest bids would result in the Disposition of all of the Cash Collateral Debt Securities (or the related subpools constituting all of the Cash Collateral Debt Securities) for an amount (paid in cash) which, together with other Available Redemption Proceeds (including the Liquidation Proceeds of the CDS Transactions and any net termination or assignment payments payable to the Issuer under any Synthetic Security), will be at least equal to the Auction Call Redemption Amount; provided that holders of 100% of the 90

aggregate outstanding amount of any Class of Secured Notes (which, in the case of the Class A1-VF Notes, will include the Remaining Unfunded Facility Commitment) and/or holders of 100% of the aggregate outstanding principal amount of the Subordinated Notes, as the case may be, may elect, in connection with any Auction Call Redemption, to receive less than 100% of the portion of the Disposition Proceeds received in respect of the Collateral Debt Securities conducted for the purpose of such Auction Call Redemption and the balance of all Reserve Account Investments and Eligible Investments and cash in the Issuer's accounts (other than any Hedge Counterparty Collateral Account, any Asset Hedge Account, the Class A1-VF Noteholder Account, any Synthetic Security Issuer Account, any Synthetic Security Counterparty Account and any Class A1-VF Prepayment Account to the extent the Issuer is not entitled to the amounts in such accounts) that would otherwise be payable to holders of such Class and/or to the Subordinated Noteholders, as the case may be, if such sum were to equal the Auction Call Redemption Amount as defined without reference to this proviso, in which case the Auction Call Redemption Amount shall be reduced accordingly; and (iv)

the highest bidder(s) enter(s) into a written agreement with the Issuer in a form reasonably satisfactory to the Portfolio Manager (which the Issuer shall execute if the conditions set forth above and in the Indenture are satisfied, which execution shall constitute certification by the Issuer that such conditions have been satisfied) that obligates such highest bidders (or the highest bidder for each subpool) to purchase all such Cash Collateral Debt Securities (or the relevant subpool) and provides for payment in full (in cash) of the purchase price to the Trustee on or prior to the sixth Business Day prior to the relevant Distribution Date.

Provided that all of the conditions set forth in clauses (i), (ii), (iii) and (iv) above have been satisfied, (x) the Trustee shall Dispose of the Cash Collateral Debt Securities (or the related subpool), without representation, warranty or recourse, to the highest bidder (or the highest bidder for each subpool, as the case may be) and (y) the Issuer will Dispose of each Synthetic Security, in each case, (A) in accordance with and upon completion of the Auction Procedures or Liquidation Procedures (as applicable) and (B) on or before the sixth Business Day prior to the relevant Distribution Date. Notwithstanding the foregoing, but subject to the satisfaction of the conditions set forth in clauses (i) through (iv) of the last sentence of the preceding paragraph, the Portfolio Manager, although it may not have been the highest bidder, will have the option to purchase the Cash Collateral Debt Securities (or any subpool), on its own behalf or on behalf of an Affiliate or an account or fund advised by the Portfolio Manager or its Affiliates, for a purchase price equal to the highest bid therefor. The Trustee shall deposit the purchase price for the Cash Collateral Debt Securities and the Liquidation Proceeds received in respect of CDS Transactions, together with any Synthetic Security Collateral released from the Synthetic Security Counterparty Accounts and any net termination or assignment payments received by the Issuer under any Synthetic Security, in the Collection Accounts, and the Secured Notes and the Subordinated Notes shall be redeemed on the Distribution Date immediately following the relevant Auction Date (such redemption, the "Auction Call Redemption"). If (x) any of the foregoing conditions is not satisfied with respect to any Auction or (y) the highest bidder (or the highest bidder for any subpool) fails to pay the purchase price for any Cash Collateral Debt Security, (a) the Auction Call Redemption shall not occur on the Distribution Date following the relevant Auction Date, (b) the Trustee shall give notice of the withdrawal of the redemption notice to the Issuer, the Portfolio Manager and the holder of the Notes on or prior to the fifth Business Day preceding the scheduled Redemption Date (and shall provide notice of such withdrawal to each Hedge Counterparty and the Credit Default Swap Counterparty at least six Business Days prior to the 91

scheduled Redemption Date), (c) subject to clause (e) below, the Trustee shall decline to consummate such Disposition and shall not solicit any further bids or otherwise negotiate any further Disposition of Cash Collateral Debt Securities in relation to such Auction, and (d) unless the Secured Notes are redeemed in full prior to the next succeeding Auction Date, or the Portfolio Manager notifies the Trustee that market conditions are such that such Auction would not likely be successful, the Trustee will wait until 10 Business Days prior to the next Distribution Date and then shall again (i) at the expense of the Issuer, conduct an Auction of the Cash Collateral Debt Securities in accordance with the Auction Procedures, (ii) request that the calculation agent under the Credit Default Swap Agreement determine the Liquidation Proceeds payable by or to the Issuer under the CDS Transactions in accordance with the Liquidation Procedures and (iii) request that the calculation agent under each Synthetic Security determine the net termination or assignment payment payable by or to the Issuer assuming a termination or assignment date for the relevant Synthetic Security six Business Days prior to the relevant Distribution Date until, in each case, an Auction Date occurs on which the Available Redemption Proceeds are at least equal to the Auction Call Redemption Amount or the Secured Notes are redeemed in full. See "The Credit Default Swap Agreement—Liquidation Procedures". Auction Procedures. The following sets forth the auction procedures (the "Auction Procedures") to be followed in connection with a Disposition of Cash Collateral Debt Securities effected in connection with an Auction Call Redemption. I.

Pre-Auction Process

(a) The Trustee, in consultation with the Portfolio Manager, will initiate the Auction Procedures at least 24 Business Days prior to each Auction Date by: (i) with the assistance of the Portfolio Manager, preparing a list containing the names of the issuer and guarantor (if any), the par amount and the CUSIP number (if any) with respect to each Cash Collateral Debt Security and such other information as shall be notified to the Trustee by the Portfolio Manager; (ii) delivering a list of the constituents of each subpool received from the Portfolio Manager as described in subclause (b) below, which the Portfolio Manager shall prepare based upon the Portfolio Manager's good faith determination of the composition of subpools that will maximize Disposition Proceeds; provided that the maximum number of subpools shall be eight and if the Trustee has not received such list from the Portfolio Manager at least 24 Business Days prior to the relevant Auction Date, the Trustee shall be entitled to assume that the Cash Collateral Debt Securities will not be divided into subpools for the purposes of the relevant Auction; and (iii) sending the lists prepared pursuant to clauses (i) and (ii) above to the Qualified Bidders identified on the then-current list of Qualified Bidder (the "Listed Bidders") and requesting bids on the Auction Date. (b) The general solicitation package which the Trustee shall deliver to the Listed Bidders will include: (i) a form of a purchase agreement provided to the Trustee by the Portfolio Manager (which shall, among other things, provide that (A) upon satisfaction of all conditions precedent therein, the purchaser is irrevocably obligated to purchase, and the Issuer is irrevocably obligated to sell, the Cash Collateral Debt Securities (or relevant subpool, as the case may be) on the date and on the terms and conditions set forth therein and (B) if the subpools are to be sold to more than one bidder, the consummation of the purchase of each subpool must occur simultaneously and the closing of each purchase is conditional on the closing of each of the other purchases); (ii) the minimum purchase price; (iii) a formal bidsheet (which shall permit the relevant bidder to bid for all of the Cash Collateral Debt Securities, any subpool or separately for each of the subpools) provided to the Trustee by the Portfolio 92

Manager including a representation from the bidder that it is eligible to purchase all of the Cash Collateral Debt Securities; (iv) a detailed timetable; and (v) copies of all transfer documents provided to the Trustee by the Portfolio Manager (including transfer certificates and subscription agreements which a bidder must execute pursuant to the Underlying Instruments and a list of the requirements which the bidder must satisfy under the Underlying Instruments. (c) The Trustee shall send solicitation packages to all Listed Bidders at least 15 Business Days before the Auction Date. No later than 10 Business Days before the Auction Date, Listed Bidders may submit written due diligence questions relating to the legal documentation and other information contained in the general solicitation package (including comments on the draft purchase agreement to be used in connection with the Auction (the "Auction Purchase Agreement")) to the Portfolio Manager; provided that the Portfolio Manager shall only be obligated to answer questions relating to the Collateral to the extent that it is able to do so by reference to information which it is required to provide under the Management Agreement. The Portfolio Manager shall be solely responsible for (i) responding to all relevant questions and/or comments submitted to it in accordance with the foregoing and (ii) distributing the questions, answers and revised final Auction Purchase Agreement to all Listed Bidders at least five Business Days prior to the Auction Date. (d) To the extent that the information contained in the list of Cash Collateral Debt Securities or general solicitation package and delivered to the Listed Bidders pursuant to clauses (a), (b) and (c) above is provided to the Trustee by the Portfolio Manager and is not true or accurate in any respect or is misleading in any respect, the Portfolio Manager shall indemnify the Trustee and its officers, directors, employees and agents for, and hold them harmless against, any loss, liability or expense (including reasonable counsel fees) incurred without negligence, willful misconduct or bad faith on their part, arising out of or in connection with the provision of such information by the Portfolio Manager to the Trustee, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder. II.

Auction Process

(a) The Portfolio Manager will be allowed to bid in the Auction if it deems appropriate, but will not be required to do so. (b) On the Auction Date, all bids will be due by facsimile to the offices of the Trustee by 11:00 a.m. New York City time, with the winning bidder to be notified by 2:00 p.m. New York City time. All bids from Listed Bidders will be due on the bid sheet contained in the solicitation package. Each bid shall be for the purchase and delivery to one purchaser of (i) all (but not less than all) of the Cash Collateral Debt Securities or (ii) all (but not less than all) of the Cash Collateral Debt Securities that constitute the components of one or more subpools. (c) Upon notification to the winning bidder(s), the winning bidder (or, if the highest auction price requires the Disposition of subpools to more than one bidder, each winning bidder) will be required to deliver to the Trustee a signed counterpart of the Auction Purchase Agreement and a good faith deposit equal to one percent (1%) of the Aggregate Principal Balance will be required to be wired to the Trustee no later than 4:00 p.m. New York City time on the Auction Date. If the highest auction price requires the Disposition of subpools to more than one bidder, each winning bidder shall contribute to the good faith deposit an amount equal to one percent (1%) of the Aggregate Principal Balance of the subpool or subpools to which its bid relates. Such deposit will not be invested. This deposit will be credited to the purchase price but will not be refundable. The Trustee will establish a separate account for the acceptance of the good faith deposit, until such time as the winning bidder (or, if the highest auction price requires the Disposition of subpools to more than one bidder, each winning bidder) pays the full purchase price in cash, at which time all cash will be transferred into the Collection Accounts, such payment in full of the purchase price to be made by the winning bidder prior to the sixth Business Day following the relevant Auction Date. If such good faith deposit or payment in full of the purchase price is not made 93

when due (or, if the subpools are to be sold to more than one bidder, if any bidder fails to make its contribution to the good faith deposit or make payment of the purchase price when due), the Trustee shall decline to consummate the Disposition of each subpool and shall give notice that the Auction Call Redemption will not occur. (d) Notwithstanding the foregoing, the Portfolio Manager, although it may not have been the highest bidder, will have the option (subject to certain conditions set forth in the Indenture) to purchase the Cash Collateral Debt Securities (or any subpool) for a purchase price equal to the highest bid therefor. Optional Redemption and Tax Redemption Subject to certain conditions described herein, a Majority of Subordinated Noteholders may direct the Issuer to redeem the Secured Notes, in whole but not in part, in each case at the applicable Redemption Price therefor, on any Distribution Date, provided that no such Optional Redemption may be effected prior to the Distribution Date occurring in February 2011. In addition, upon the occurrence of a Tax Event, if the Tax Materiality Condition is satisfied, the Secured Notes shall be redeemable (such redemption, a "Tax Redemption"), in whole but not in part, by the Issuer (i) at the direction of a Majority of any Class of Secured Notes that, as a result of the occurrence of a Tax Event, has not received or will not receive 100% of the aggregate amount of principal and interest (and, in the case of the Class A1-VF Notes, Commitment Fee and, in each case, including any Defaulted Interest and interest on Defaulted Interest) payable to such Class on any Distribution Date (each such Class, an "Affected Class") or (ii) at the direction of a Majority of the Subordinated Noteholders. Any Optional Redemption or Tax Redemption may only be effected on a Distribution Date and only from (a) the Disposition Proceeds of the Collateral (including, without limitation, (i) the Liquidation Proceeds, if any, payable to the Issuer under the Credit Default Swap Agreement and (ii) any net termination or assignment payment payable to the Issuer under a Synthetic Security) and (b) all other cash, Eligible Investments and Reserve Account Investments in the Accounts (other than in any Hedge Counterparty Collateral Account, any Asset Hedge Account, the Class A1-VF Noteholder Account, any Synthetic Security Counterparty Account, any Class A1-VF Prepayment Account and any Synthetic Security Issuer Account, to the extent the Issuer is not entitled to the amounts in such Accounts) (collectively, the "Available Redemption Proceeds") on the relevant Distribution Date, at the applicable Redemption Price (exclusive of installments of principal and interest due on or prior to such date for which payment has been made or duly provided for to the holders of the Secured Notes as provided for in the Indenture). No Optional Redemption or Tax Redemption may be effected, however, unless funds under clauses (a) and (b) are sufficient, when applied in accordance with the Priority of Payments, to redeem all of the Funded Secured Notes at the Redemption Price, to pay the Outstanding Class A1-VF Funded Amount until it has been paid in full, to reduce the Remaining Unfunded Facility Commitment to zero and to pay any other amounts accrued and unpaid or otherwise owed to the holders of the Class A1VF Notes, including Commitment Fees, and to the Hedge Counterparties, the Portfolio Manager and the Credit Default Swap Counterparty and to pay certain other amounts in accordance with the procedures set forth in the Indenture and (iii) the Tax Materiality Condition is satisfied. A "Tax Event" occurs if, whether or not as a result of any change in law or interpretations, (i) any obligor is, or on the next scheduled payment date under any Collateral Debt Security any obligor will be, required to deduct or withhold from any payment under any Collateral Debt Security to the Issuer for or on account of any tax, and such obligor is not, or will not be, required to pay to the Issuer such additional amount as is necessary to ensure that the net amount actually received by the Issuer (free and clear of taxes, whether assessed against such obligor or the Issuer) will equal the full amount that the Issuer would have received had no such deduction or withholding occurred, (ii) the Issuer, a Synthetic Security 94

Counterparty, the Credit Default Swap Counterparty, the GIC Provider or the Hedge Counterparty is required to deduct or withhold from any payment under a Synthetic Security, the Credit Default Swap Agreement, the GIC or a Hedge Agreement for or on account of any tax and the Issuer is obligated, or such Synthetic Security Counterparty, the Credit Default Swap Counterparty, the GIC Provider, or such Hedge Counterparty is not obligated, to make a gross-up payment, (iii) any net-basis tax measured by or based on the income of the Issuer is imposed on the Issuer in any jurisdiction or (iv) the Issuer is, or on the next Distribution Date will be, required to deduct or withhold from any payment under any Secured Note as a result of deduction or withholding for or on account of any tax. The "Tax Materiality Condition" will be satisfied as of any determination date if (a) any combination of Tax Events described in any of clauses (i), (ii) and (iii) of the definition thereof during the 12-month period immediately preceding such determination date results, in aggregate, in a payment by, or charge or tax burden to, the Issuer in excess of the lesser of (x) 1% of the Net Outstanding Portfolio Collateral Balance and (y) U.S.$5,000,000 or (b) a Tax Event described in clause (iv) of the definition thereof occurs. In connection with any Tax Redemption, holders of at least 66-2/3% of the outstanding aggregate principal amount (including, in the case of the Class A1-VF Notes, the Remaining Unfunded Facility Commitment) of an Affected Class of Secured Notes may elect to receive less than 100% of the Redemption Price that would otherwise be payable to holders of such Affected Class (and the minimum Disposition Proceeds requirements will be reduced accordingly), and such election will be binding upon 100% of the Affected Class. Redemption Procedures. Notice of redemption will be given by first-class mail, postage prepaid, mailed not less than 10 Business Days prior to the date scheduled for redemption (with respect to such Auction Call Redemption, Optional Redemption or Tax Redemption, the "Redemption Date"), to each holder of Secured Notes at such holder's address in the register maintained by the registrar under the Indenture, to each Hedge Counterparty, the Portfolio Manager, the Credit Default Swap Counterparty, the GIC Provider and each Rating Agency. In addition, the Trustee will, if and for so long as any Class of Secured Notes to be redeemed is listed on the Irish Stock Exchange, (i) cause notice of such Auction Call Redemption, Optional Redemption or Tax Redemption to be delivered to the Company Announcements Office of the Irish Stock Exchange not less than 10 Business Days prior to the Redemption Date and (ii) promptly notify the Irish Stock Exchange of such Auction Call Redemption, Optional Redemption or Tax Redemption. Secured Notes must be surrendered at the offices of any Paying Agent under the Indenture in order to receive the applicable Redemption Price, unless the holder provides (i) an undertaking to surrender such Secured Note thereafter and (ii) in the case of a holder that is not a Qualified Institutional Buyer, such security or indemnity as may be required by the Co-Issuers or the Trustee. Any such notice of redemption may be withdrawn by the Issuer up to the fifth Business Day prior to the scheduled Redemption Date by written notice to the Trustee, each Rating Agency, the Credit Default Swap Counterparty, the GIC Provider and the Portfolio Manager (it being understood that notice of a withdrawal of a redemption shall be delivered to each Hedge Counterparty on or prior to the sixth Business Day preceding the scheduled Redemption Date), but only if (i) the Portfolio Manager is unable to deliver the sale agreement or agreements or certifications referred to in the immediately succeeding paragraph in form satisfactory to the Trustee or (ii) a Majority of the Subordinated Notes have, on or prior to the sixth Business Day preceding the scheduled Redemption Date, requested that such notice of redemption be withdrawn. During the period when a notice of redemption may be withdrawn, the Issuer shall not terminate any Hedge Agreement, the GIC or the Credit Default Swap Agreement, and the Hedge Agreements, the Credit Default Swap Agreement and the GIC shall not be terminable by the relevant Hedge Counterparty, the Credit Default Swap Counterparty, or the GIC Provider, respectively, in relation to such notice of redemption. Notice of any such withdrawal shall be given by the Trustee to each holder of Secured Notes at such holder's address in the Secured Note Register maintained by the Secured Note 95

Registrar under the Indenture by overnight courier guaranteeing next day delivery, sent not later than the fifth Business Day prior to the scheduled Redemption Date (and shall provide notice of such withdrawal to each Hedge Counterparty at least six Business Days prior to the scheduled Redemption Date). In addition, the Trustee will, if any Class of Secured Notes to have been redeemed was listed on the Irish Stock Exchange deliver a notice of such withdrawal to the Company Announcements Office of the Irish Stock Exchange not less than three Business Days prior to the scheduled Redemption Date. The Secured Notes may not be redeemed pursuant to an Optional Redemption or Tax Redemption unless at least six Business Days before the scheduled Redemption Date, the Portfolio Manager shall have furnished to the Trustee, each Hedge Counterparty, the GIC Provider and the Credit Default Swap Counterparty evidence (which evidence may be in the form of fax or electronic mail indicating firm bids), that the Portfolio Manager on behalf of the Issuer has entered into a binding agreement or agreements with a financial institution or institutions (or any Affiliate of such financial institution or any transferee thereof that guarantees the obligations of such financial institution or such transferee, as the case may be) whose short-term unsecured debt obligations have a credit rating of "P1" by Moody's (which rating is not on credit watch for possible downgrade by Moody's) and at least "A-1" by Standard & Poor's to Dispose of, not later than the Business Day immediately preceding the scheduled Redemption Date, for cash in immediately available funds payable to the Trustee no later than the Business Day preceding such Redemption Date, all or part of the Collateral Debt Securities for Disposition Proceeds (including, without limitation, (i) the Liquidation Proceeds, if any, payable to the Issuer under the Credit Default Swap Agreement and (ii) any net termination or assignment payment payable to the Issuer under a Synthetic Security) which, when added to all other Available Redemption Proceeds on the relevant Distribution Date, is at least equal to an amount sufficient to pay any accrued and unpaid amounts payable under the Priority of Payments prior to the payment of the Funded Secured Notes (including (i) the Outstanding Class A1-VF Funded Amount, (ii) any termination payments or other amounts which are or may become payable by the Issuer pursuant to any of the Hedge Agreements and the Credit Default Swap Agreement, (iii) any payments payable by the Issuer to the Reserve Account such that the Remaining Unfunded Facility Commitment is reduced to zero, (iv) any accrued and unpaid Portfolio Management Fee, (v) any accrued and unpaid Commitment Fee and (vi) all administrative expenses without regard to the Dollar limitation set forth in paragraph (2) of "Priority of Payments—Interest Proceeds"), and any fees and expenses incurred by the Trustee and the Portfolio Manager in connection with such Disposition of Collateral Debt Securities payable by the Issuer and to redeem the Secured Notes on the scheduled Redemption Date at the applicable Redemption Prices and reduce the Remaining Unfunded Facility Commitment to zero (the aggregate amount required to make all such payments, the "Total Senior Redemption Amount") or, in the case of an Auction Call Redemption, the Auction Call Redemption Amount. In connection with the calculation of the Total Senior Redemption Amount, the Issuer (or the Portfolio Manager on behalf of the Issuer) will request that each calculation agent under the CDS Transactions and other Synthetic Securities (i) determine the net termination or assignment payment payable by or to the Issuer assuming a termination or assignment date for the relevant CDS Transaction or Synthetic Security six Business Days prior to the relevant Redemption Date, and (ii) provide written notice to the Trustee of such amount and, in the case of a Defeased Synthetic Security, the Trustee, with the assistance of the Portfolio Manager, shall determine the amount (if any) that will be released from the related Synthetic Security Counterparty Account based on the information it receives with respect to the net termination or assignment payment and direct the Trustee to release such amount from the related Synthetic Security Counterparty Account.

96

Redemption Price The amount payable in connection with any Auction Call Redemption, Optional Redemption or Tax Redemption of any Secured Note will be as set forth in the remainder of this paragraph and as set forth above (with respect to each Class of Secured Notes, the "Redemption Price"). The Redemption Price payable with respect to any Secured Note will be an amount (determined without duplication) equal to (i) the outstanding principal amount of such Secured Note (which in the case of the Class A1-VF Notes shall be the Outstanding Class A1-VF Funded Amount) being redeemed plus (ii) accrued interest and Commitment Fee thereon (including Defaulted Interest, interest on any Deferred Interest and interest thereon). Cancellation All Secured Notes that are redeemed or paid and surrendered for cancellation as described herein will forthwith be canceled and may not be reissued or resold. Payments Payments in respect of principal of and interest on any Secured Note and Commitment Fee on any Class A1-VF Note will be made to the person in whose name such Secured Note is registered fifteen days prior to the applicable Distribution Date (the "Record Date"). Payments on each Secured Note will be payable by wire transfer in immediately available funds to a Dollar account maintained by the holder thereof in accordance with wire transfer instructions received by any paying agent appointed under the Indenture (each, a "Paying Agent") on or before the Record Date or, if no wire transfer instructions are received by a Paying Agent in respect of such Secured Note, by a Dollar check drawn on a bank in the United States mailed to the address of the holder of such Secured Note as it appears on the Secured Note Register at the close of business on the Record Date for such payment. Final payments in respect of principal of the Secured Notes will be made against surrender of such Secured Notes at the office of the Paying Agent. If any payment on the Secured Notes is due on a day that is not a Business Day, then payment will be made on the next succeeding Business Day with the same force and effect as if made on the date for payment. For this purpose, "Business Day" means a day on which commercial banks and foreign exchange markets settle payments in New York City and London and any other city in which the corporate trust office of the Trustee is located and, in the case of the final payment of principal of any Secured Note, the place of presentation of such Secured Note. For so long as any Secured Notes are listed on the Irish Stock Exchange and the rules of such exchange shall so require, the Co-Issuers will maintain a listing agent and a Paying Agent with respect to such Secured Notes with an office located in Dublin, Ireland. Except as otherwise required by applicable law, any money deposited with the Trustee or any Paying Agent in trust for the payment of principal of or interest or Commitment Fee, as applicable, on any Secured Note and remaining unclaimed for two years after such principal, interest or Commitment Fee, as applicable, has become due and payable shall be paid to the Issuer upon request by the Issuer therefor, and the holder of such Secured Note shall thereafter, as an unsecured general creditor, look to the Issuer or the Co-Issuer for payment of such amounts and all liability of the Trustee or such Paying Agent with respect to such trust money (but only to the extent of the amounts so paid to the Issuer) shall thereupon cease. The Trustee or the Paying Agent, before being required to make any such release of payment may, but shall not be required to, adopt and employ, at the expense of the Issuer, any reasonable means of notification of such release of payment, including mailing notice of such release to holders whose Secured 97

Notes have been called but have not been surrendered for redemption or whose right to or interest in monies due and payable but not claimed is determinable from the records of any Paying Agent, at the last address of record of each such holder. In the event that the amounts in the Interest Collection Account are insufficient to make Credit Protection Payments in respect of an Interest Shortfall pursuant to subclause (c)(i) of the definition of "Account Withdrawal Payment Priority", any proceeds in the Interest Collection Account on the following Distribution Date shall immediately (and without regard to the Priority of Payments) be deposited, (to the extent that such Credit Protection Payments were made using Borrowings or Deemed Borrowings under the Class A1-VF Notes) first, to the Class A1-VF Noteholder Account and then into the Uninvested Proceeds Account, the Principal Collection Account and the Reserve Account (in the reverse order of priority from the order in which they were withdrawn from such Uninvested Proceeds Account, Principal Collection Account and Reserve Account) and up to the same amounts as were withdrawn from such Accounts or received from the Class A1-VF Noteholders to make such payment pursuant to, respectively, subclause (c)(ii), (c)(iii), (c)(iv), (c)(v) or (c)(vi) of the definition of "Account Withdrawal Payment Priority". Priority of Payments With respect to each Distribution Date, collections received on the Collateral during the Due Period relating to such Distribution Date will be divided into Interest Proceeds and Principal Proceeds, transferred from the Collection Accounts to the Payment Account and applied in the priority set forth below under "—Interest Proceeds" and "—Principal Proceeds" below, respectively (collectively, the "Priority of Payments"). Interest Proceeds. On each Distribution Date, Interest Proceeds with respect to the related Due Period will be distributed in the order of priority set forth below: (1)

to the payment of taxes and filing and registration fees owed by the Co-Issuers, if any;

(2)

(a) first, to the payment to the Trustee of fees due to the Trustee in an amount not to exceed the greater of (1) 0.012% per annum of the Quarterly Asset Amount with respect to such Distribution Date and (2) U.S.$25,000, (b) second, to the payment, in the following order, to the Trustee, the Collateral Administrator, the Subordinated Note Issuing and Paying Agent, the Variable Funding Note Agent and the Administrator, of accrued and unpaid fees, expenses and other amounts (excluding fees, expenses and other amounts paid pursuant to sub-clause (a) above but including indemnification amounts) owing to them under the Indenture, the Collateral Administration Agreement, the Subordinated Note Issuing and Paying Agency Agreement, the Variable Funding Note Purchase Agreement and the Administration Agreement, as applicable, (c) third, to the payment of other accrued and unpaid administrative expenses of the Co-Issuers (including any outstanding amounts owing by the Issuer under the warehousing arrangements entered into by the Issuer for purposes of accumulating the Collateral but excluding indemnification amounts and fees, expenses and other amounts described in sub-clauses (a) and (b) above, the Portfolio Management Fee and principal of and interest and Commitment Fee on the Secured Notes), (d) fourth, to the payment to the Portfolio Manager of indemnification amounts and expenses owing to it under the Management Agreement and (e) fifth, if the balance of all Eligible Investments and cash in the Expense Account on the related Determination Date is less than U.S.$100,000, for deposit to the Expense Account of such amount as would cause the balance of all Eligible Investments and cash in the Expense Account immediately after such deposit to equal U.S.$100,000; 98

provided that the aggregate amount of the payments made on such Distribution Date pursuant to sub-clauses (b), (c), (d) and (e) above shall not exceed the greater of (x) 0.02% per annum of the Quarterly Asset Amount with respect to such Distribution Date and (y) U.S.$50,000; (3)

to the payment to the Credit Default Swap Counterparty of any unpaid termination payment (excluding any Defaulted Synthetic Termination Payment) payable by the Issuer in connection with the termination in full (but not the partial termination) of the Credit Default Swap Agreement, together with any accrued interest thereon;

(4)

to the pari passu payment to (a) the Portfolio Manager of accrued and unpaid Senior Portfolio Management Fee and (b) the Initial Purchaser of the Initial Purchaser Structuring Fee;

(5)

to the payment of all amounts scheduled to be paid to any Hedge Counterparty pursuant to any Hedge Agreement, together with any termination payments, other than any Subordinated Hedge Termination Payments, and any accrued interest thereon, payable by the Issuer pursuant to any Hedge Agreement to which such Hedge Counterparty is a party;

(6)

to the payment of interest and Commitment Fee with respect to the Class A1-VF Notes (in each case including Defaulted Interest and accrued interest thereon);

(7)

to the payment of interest with respect to, first, the Class A2A Notes, second, the Class A2B Notes, third, the Class B1 Notes and fourth, the Class B2 Notes (in each case including Defaulted Interest and accrued interest thereon);

(8)

if (so long as any Class A Notes or Class B Notes remain outstanding) the Class A/B Overcollateralization Test is not satisfied on the related Determination Date after giving effect to the application of Uninvested Proceeds (if any) on such Distribution Date: (I)

first, to the payment of the Outstanding Class A1-VF Funded Amount until the Outstanding Class A1-VF Funded Amount is reduced to zero,

(II)

second, to make a deposit into the Reserve Account, until the Remaining Unfunded Facility Commitment is reduced to zero, and

(III)

third, to the payment of principal of first, the Class A2A Notes (until the Class A2A Notes have been paid in full), second, the Class A2B Notes (until the Class A2B Notes have been paid in full), third, the Class B1 Notes (until the Class B1 Notes have been paid in full) and fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full),

in each case to the extent necessary to cause the Class A/B Overcollateralization Test to be satisfied as of such Determination Date; (9)

to the payment of interest with respect to the Class C Notes (including Defaulted Interest and accrued interest thereon and on Class C Deferred Interest but excluding Class C Deferred Interest);

(10)

to the payment of Class C Deferred Interest; 99

(11)

to the payment of interest with respect to the Class D Notes (including Defaulted Interest and accrued interest thereon and on Class D Deferred Interest but excluding Class D Deferred Interest);

(12)

if (so long as any Class C Note or Class D Note remains outstanding) the Class C/D Overcollateralization Test is not satisfied on the related Determination Date after giving effect to (x) the application of Interest Proceeds in accordance with paragraph (8) above, (y) the application of Principal Proceeds in accordance with paragraph (2) of "— Principal Proceeds" below and (z) the application of Uninvested Proceeds (if any) on such Distribution Date: (I)

first, to the payment of the Outstanding Class A1-VF Funded Amount until the Outstanding Class A1-VF Funded Amount is reduced to zero,

(II)

second, to make a deposit into the Reserve Account, until the Remaining Unfunded Facility Commitment is reduced to zero, and

(III)

third, to the payment of principal of, first, the Class A2A Notes (until the Class A2A Notes have been paid in full), second, the Class A2B Notes (until the Class A2B Notes have been paid in full), third, the Class B1 Notes (until the Class B1 Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class C Notes (until the Class C Notes have been paid in full) and sixth, the Class D Notes (until the Class D Notes have been paid in full),

in each case to the extent necessary to cause the Class C/D Overcollateralization Test to be satisfied as of such Determination Date; (13)

to the payment of Class D Deferred Interest;

(14)

to the payment of interest with respect to the Class E Notes (including Defaulted Interest and accrued interest thereon and on Class E Deferred Interest but excluding Class E Deferred Interest);

(15)

if (so long as any Class E Note remains outstanding) the Class E Interest Diversion Test is not satisfied on the related Determination Date, after giving effect to (x) the application of Interest Proceeds in accordance with paragraphs (8) and (12) above, (y) the application of Principal Proceeds in accordance with paragraphs (2) and (5) of "— Principal Proceeds" below and (z) the application of Uninvested Proceeds (if any) on such Distribution Date, to the payment of principal of the Class E Notes to the extent necessary to cause the Class E Interest Diversion Test to be satisfied as of such Determination Date;

(16)

to the payment of Class E Deferred Interest;

(17)

to the payment to the Portfolio Manager of accrued and unpaid Subordinated Portfolio Management Fee;

(18)

to the payment of, first, all other accrued and unpaid administrative expenses of the Co-Issuers (including any accrued and unpaid fees, expenses and other amounts owing, in the following order, to the Trustee, the Collateral Administrator, the Subordinated Note 100

Issuing and Paying Agent, the Variable Funding Note Agent, the Administrator and the Portfolio Manager under the Indenture, the Collateral Administration Agreement, the Subordinated Note Issuing and Paying Agency Agreement, the Variable Funding Note Purchase Agreement, the Administration Agreement and the Management Agreement (as applicable) not paid pursuant to paragraph (2) above in the order of priority set forth therein (whether as the result of the limitations on amounts set forth therein or otherwise) and, second, if the balance of all Eligible Investments and cash in the Expense Account is less than U.S.$100,000 after giving effect to any deposit to the Expense Account pursuant to paragraph (2) above, for deposit to the Expense Account of such amount required to cause the balance of all Eligible Investments and cash in the Expense Account to equal U.S.$100,000; (19)

to the payment of (a) any Subordinated Hedge Termination Payments (and any accrued interest thereon) payable by the Issuer pursuant to any Hedge Agreement and (b) any Defaulted Synthetic Termination Payments (and any accrued interest thereon) payable by the Issuer pursuant to any Synthetic Security, pro rata among each of the Hedge Counterparties and any Synthetic Security Counterparties to which such payments are payable;

(20)

on the Note Acceleration Date and on each Distribution Date occurring thereafter:

(21)

(I)

first, to the payment of principal of, first, the Class E Notes (until the Class E Notes have been paid in full), second, the Class D Notes (until the Class D Notes have been paid in full), third, the Class C Notes (until the Class C Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class B1 Notes (until the Class B1 Notes have been paid in full), sixth, the Class A2B Notes (until the Class A2B Notes have been paid in full) and seventh, the Class A2A Notes (until the Class A2A Notes have been paid in full),

(II)

second, to the payment of the Outstanding Class A1-VF Funded Amount until the Outstanding Class A1-VF Funded Amount is reduced to zero; and

(III)

third, to make a deposit into the Reserve Account, until the Remaining Unfunded Facility Commitment is reduced to zero; and

any remaining Interest Proceeds, to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders.

Principal Proceeds. On each Distribution Date, Principal Proceeds with respect to the related Due Period will be distributed in the order of priority set forth below: (1)

(a) to the payment of the amounts referred to in paragraphs (1) through (7) under "Priority of Payments—Interest Proceeds" above in the same order of priority and subject to the dollar amounts, specified therein, but only to the extent not paid in full thereunder and (b) to the extent that a Senior Interest Shortfall exists after the application of Principal Proceeds in accordance with clause (a), to the payment of such Senior Interest Shortfall in an amount equal to the lowest of (x) the amount of such Senior Interest Shortfall and (y) the Class A1-VF Senior Excess as of the date of the related Borrowing request;

101

(2)

if (so long as any Class A Notes or Class B Notes remain outstanding) the Class A/B Overcollateralization Test is not satisfied on the related Determination Date, after giving effect to (x) the application of Interest Proceeds in accordance with paragraph (8) of "— Interest Proceeds" above and (y) the application of Uninvested Proceeds (if any) on such Distribution Date: (I)

first, to the payment of the Outstanding Class A1-VF Funded Amount until the Outstanding Class A1-VF Funded Amount is reduced to zero,

(II)

second, to make a deposit into the Reserve Account, until the Remaining Unfunded Facility Commitment is reduced to zero, and

(III)

third, to the payment of principal of first, the Class A2A Notes, second, the Class A2B Notes, third, the Class B1 Notes and fourth, the Class B2 Notes (in each case including Defaulted Interest and accrued interest thereon),

in each case to the extent necessary to cause the Class A/B Overcollateralization Test to be satisfied as of such Determination Date; (3)

so long as no Class A Notes or Class B Notes remain outstanding, to the payment of the amounts referred to in paragraphs (9) and (10) under "—Interest Proceeds" above but only to the extent not paid thereunder, in the same order of priority specified therein;

(4)

so long as no Class A Notes, Class B Notes or Class C Notes remain outstanding, to the payment of the amounts referred to in paragraph (11) under "—Interest Proceeds" above but only to the extent not paid in full thereunder;

(5)

if (so long as any Class C Notes or Class D Notes remain outstanding) the Class C/D Overcollateralization Test is not satisfied on the related Determination Date after giving effect to (x) the application of Interest Proceeds in accordance with paragraphs (8) and (12) under "—Interest Proceeds" above, (y) the application of Principal Proceeds in accordance with paragraph (2) above and (z) the application of Uninvested Proceeds (if any) on such Distribution Date: (I)

first, to the payment of the Outstanding Class A1-VF Funded Amount until the Outstanding Class A1-VF Funded Amount is reduced to zero,

(II)

second, to make a deposit into the Reserve Account, until the Remaining Unfunded Facility Commitment is reduced to zero, and

(III)

third, to the payment of principal of, first, the Class A2A Notes (until the Class A2A Notes have been paid in full), second, the Class A2B Notes (until the Class A2B Notes have been paid in full), third, the Class B1 Notes (until the Class B1 Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class C Notes (until the Class C Notes have been paid in full) and sixth, the Class D Notes (until the Class D Notes have been paid in full),

in each case to the extent necessary to cause the Class C/D Overcollateralization Test to be satisfied as of such Determination Date;

102

(6)

so long as no Class A Notes, Class B Notes or Class C Notes remain outstanding, to the payment of the amounts referred to in paragraph (13) under "—Interest Proceeds" above but only to the extent not paid in full thereunder;

(7)

so long as no Class A Notes, Class B Notes, Class C Notes or Class D Notes remain outstanding, to the payment of the amounts referred to in paragraphs (14) and (16) under "—Interest Proceeds" above but only to the extent not paid thereunder but only to the extent not paid thereunder, in the same order of priority specified therein;

(8)

on any Distribution Date prior to the last day of the Reinvestment Period, in an amount determined at the sole discretion of the Portfolio Manager (and communicated to the Trustee on or prior to the Determination Date), all or part of the Principal Proceeds remaining after the application thereof pursuant to the foregoing paragraphs (1) through (7) to the Reinvestment Account to be held therein as "Principal Proceeds" deemed received during the Due Period related to the next succeeding Distribution Date (and invested in Eligible Investments pending application thereof to Acquire additional Collateral Debt Securities in accordance with the Eligibility Criteria set forth in the Indenture);

(9)

(a) if the Distribution Date is a Pro Rata Distribution Date and occurs prior to the Note Acceleration Date, then: (I)

first, to the payment of principal of the Funded Secured Notes (pro rata in accordance with the respective outstanding aggregate principal amounts of the Funded Secured Notes, in each case determined for purposes of this subclause (I) without regard to any Deferred Interest thereon) in an amount equal to the Deferred Funded Secured Notes Principal on the related Determination Date;

(II)

second, to the payment of principal of the Funded Secured Notes (pro rata in accordance with the respective outstanding aggregate principal amounts of the Funded Secured Notes, in each case determined for purposes of this subclause (II) only without regard to any Deferred Interest thereon) in an amount equal to the Funded Secured Note Reduction Amount for the related Due Period;

(III)

third, to the payment of the Outstanding Class A1-VF Funded Amount; and

(IV)

fourth, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit into the Reserve Account;

provided that (x) any amounts calculated pursuant to clause (d) of the Senior Excess Application Priority that are transferred by the Trustee from the Reserve Account to the Principal Collection Account as described under "Security for the Secured Notes—The Accounts—Reserve Account" shall be treated as Principal Proceeds and (y) if at any time the Net Outstanding Portfolio Collateral Balance (calculated, with regard to subclause (a) of this paragraph (9), after the application of any Principal Proceeds made pursuant to such subclause (a)) is less than U.S.$375,000,000, the amounts referred to such subclause (a) shall be paid sequentially in direct order of seniority; or

103

(b) if the Distribution Date is not a Pro Rata Distribution Date or occurs after the Note Acceleration Date, then, (I)

first, to the payment of the Outstanding Class A1-VF Funded Amount until the Outstanding Class A1-VF Funded Amount is reduced to zero,

(II)

second, to make a deposit into the Reserve Account, until the Remaining Unfunded Facility Commitment is reduced to zero, and

(III)

third, to the payment of principal of, first, the Class A2A Notes (until the Class A2A Notes have been paid in full), second, the Class A2B Notes (until the Class A2B Notes have been paid in full), third, the Class B1 Notes (until the Class B1 Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth, the Class C Notes (until the Class C Notes have been paid in full), sixth, the Class D Notes (until the Class D Notes have been paid in full) and seventh, the Class E Notes (until the Class E Notes have been paid in full);

(10)

to the payment of the amounts referred to in paragraphs (17), (18) and (19) under "— Interest Proceeds" above but only to the extent not paid in full thereunder, in the same order of priority specified therein; and

(11)

any remaining Principal Proceeds, to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders.

Uninvested Proceeds. On the Distribution Date relating to any Determination Date on which any Overcollateralization Test is not satisfied, Uninvested Proceeds will be applied, prior to the application of Interest Proceeds and Principal Proceeds for such purposes: (A) first, to the payment of the Outstanding Class A1-VF Funded Amount until the Outstanding Class A1-VF Funded Amount is reduced to zero; (B) second, to make a deposit into the Reserve Account, until the Remaining Unfunded Facility Commitment is reduced to zero; and (C) third, to the payment of principal of, first, the Class A2A Notes (until the Class A2A Notes have been paid in full), second, the Class A2B Notes (until the Class A2B Notes have been paid in full), third, the Class B1 Notes (until the Class B1 Notes have been paid in full), fourth, the Class B2 Notes (until the Class B2 Notes have been paid in full), fifth (in the case of the Class C/D Overcollateralization Test only), the Class C Notes (until the Class C Notes have been paid in full) and sixth (in the case of the Class C/D Overcollateralization Test only), the Class D Notes (until the Class D Notes have been paid in full), in each case to the extent necessary to cause the applicable Overcollateralization Test to be satisfied as of such Determination Date. Except as otherwise expressly provided in the Priority of Payments, if, on any Distribution Date, Interest Proceeds and Principal Proceeds received in the related Due Period are insufficient to make the full amount of the disbursements required by any paragraph in the Priority of Payments to different persons, the Trustee will make the disbursements called for by each such paragraph ratably in accordance with the respective amounts of such disbursements then due and payable to the extent that funds are 104

available therefor. Payments of Class C Deferred Interest, Class D Deferred Interest and Class E Deferred Interest on any Distribution Date will be made ratably in accordance with the interest distribution amounts payable in respect of the Class C Notes, Class D Notes and Class E Notes on such Distribution Date. Any amounts to be paid to the Subordinated Note Issuing and Paying Agent pursuant to paragraph (21) of "—Interest Proceeds" above (such amounts, "Excess Interest") or paragraph (11) (such amounts, "Excess Principal Proceeds" and, together with the Excess Interest, the "Excess Amounts") of "—Principal Proceeds" above will be released from the lien of the Indenture. Notwithstanding the foregoing, on the Redemption Date, the Stated Maturity, the Accelerated Maturity Date or any PostAcceleration Distribution Date, in the event that after the application of Principal Proceeds and the application of Interest Proceeds under paragraphs (1) through (20) under "—Priority of Payments— Interest Proceeds," the principal amount of the Notes has not been paid in full, any amount distributable under paragraph (21) under "—Priority of Payments—Interest Proceeds" shall be applied first to pay such principal (in order of Seniority) of the Notes prior to making any distribution to the Subordinated Note Issuing and Paying Agent. Distributions Upon Liquidation If the Secured Notes and the Subordinated Notes have not been redeemed prior to February 13, 2047, it is expected that the Issuer (or the Portfolio Manager acting pursuant to the Management Agreement on behalf of the Issuer) will Dispose of all of the Collateral Debt Securities, sell all of the Reserve Account Investments and Eligible Investments and sell or liquidate all other Collateral. All net proceeds from such liquidation and all available cash will be applied to the payment (in the order of priorities set forth above) of all (i) fees, (ii) expenses (including the amounts due to each Hedge Counterparty, the GIC Provider, the Credit Default Swap Counterparty) and the Portfolio Manager and (iii) principal of and interest (including any Defaulted Interest, interest on Defaulted Interest and any Class C Deferred Interest, Class D Deferred Interest or Class E Deferred Interest and interest thereon) on the Secured Notes. Net proceeds from such liquidation and available cash remaining after all payments required pursuant to the Indenture and the payment of the costs and expenses of such liquidation, the establishment of adequate reserves to meet all contingent, unliquidated liabilities or obligations of the Issuer, the payment to the Subordinated Noteholders of the aggregate outstanding amount of the Subordinated Notes, the return of U.S.$250 of capital to the owner of the Issuer's ordinary shares and the payment of a U.S.$250 profit fee to the owner of the Issuer's ordinary shares and interest thereon, will be distributed to the Subordinated Noteholders in accordance with the Subordinated Note Issuing and Paying Agency Agreement. Minimum Denomination The Secured Notes, with the exception of the Class A1-VF Notes, will be issuable in a minimum denomination of U.S.$250,000 and will be offered only in such minimum denomination or an integral multiple of U.S.$1,000 in excess thereof. The Class A1-VF Notes will be issuable in a minimum denomination of U.S.$25,000,000 and will be offered only in such minimum denomination or an integral multiple of U.S.$5,000,000 in excess thereof. The Overcollateralization Tests; The Class E Interest Diversion Test; The Pro Rata Payment Test; The Class A Overcollateralization Ratio The Overcollateralization Tests applicable to a Class of Secured Notes and the Class E Interest Diversion Test will be used primarily to determine whether and to what extent Interest Proceeds may be 105

used to pay interest on Classes of Secured Notes Subordinate to such Class, to pay certain expenses and to make distributions in respect of the Subordinated Notes and whether and to what extent Principal Proceeds may be reinvested in Collateral Debt Securities. For purposes of the Class A/B Overcollateralization Test and the Class C/D Overcollateralization Test (collectively, the "Overcollateralization Tests "), the Pro Rata Payment Test, the Class E Interest Diversion Test and the Class A Overcollateralization Ratio, unless otherwise specified, a Synthetic Security will be included as a Collateral Debt Security having the characteristics of the Synthetic Security and not of the related Reference Obligation. For purposes of the Overcollateralization Tests, the Class E Interest Diversion Test, the Pro Rata Payment Test and the Class A Overcollateralization Ratio, the Outstanding Class A1-VF Funded Amount shall be deemed to be reduced by the balance standing to the credit of the Class A1-VF Noteholder Account (excluding for these purposes, any income received on Eligible Investments standing to the credit of the Class A1-VF Noteholder Account). The Class A/B Overcollateralization Test The "Class A/B Overcollateralization Ratio" is, as of any Measurement Date, the number (expressed as a percentage) calculated by dividing (a) the Net Outstanding Portfolio Collateral Balance on such Measurement Date by (b) the Outstanding Class A1-VF Funded Amount plus the Remaining Unfunded Facility Commitment plus the aggregate outstanding principal amount of the Class A2A Notes plus the aggregate outstanding principal amount of the Class A2B Notes plus the aggregate outstanding principal amount of the Class B Notes. The "Class A/B Overcollateralization Test" will be satisfied on any Measurement Date if the Class A/B Overcollateralization Ratio on such Measurement Date is equal to or greater than 111.61%. The Class C/D Overcollateralization Test The "Class C/D Overcollateralization Ratio" is, as of any Measurement Date, the number (expressed as a percentage) calculated by dividing (a) the Net Outstanding Portfolio Collateral Balance on such Measurement Date by (b) the Outstanding Class A1-VF Funded Amount plus the Remaining Unfunded Facility Commitment plus the aggregate outstanding principal amount of the Class A2A Notes plus the aggregate outstanding principal amount of the Class A2B Notes plus the aggregate outstanding principal amount of the Class B Notes plus the aggregate outstanding principal amount of the Class C Notes plus the aggregate outstanding principal amount of the Class D Notes. The "Class C/D Overcollateralization Test" will be satisfied on any Measurement Date if the Class C/D Overcollateralization Ratio on such Measurement Date is equal to or greater than 102.76%. The Class E Interest Diversion Test The "Class E Interest Diversion Ratio" is, as of any Measurement Date, the number (expressed as a percentage) calculated by dividing (a) the Net Outstanding Portfolio Collateral Balance on such Measurement Date by (b) the Outstanding Class A1-VF Funded Amount plus the Remaining Unfunded Facility Commitment plus the aggregate outstanding principal amount of the Class A2A Notes plus the aggregate outstanding principal amount of the Class A2B Notes plus the aggregate outstanding principal amount of the Class B Notes plus the aggregate outstanding principal amount of the Class C Notes plus the aggregate outstanding principal amount of the Class D Notes plus the aggregate outstanding principal amount of the Class E Notes.

106

The "Class E Interest Diversion Test" will be satisfied on any Measurement Date if the Class E Interest Diversion Ratio on such Measurement Date is equal to or greater than 100.68%. The Pro Rata Payment Test The "Pro Rata Payment Ratio" is, as of any Determination Date, the number (expressed as a percentage) calculated by dividing (a) the Net Outstanding Portfolio Collateral Balance on such Measurement Date by (b) the Outstanding Class A1-VF Funded Amount plus the Remaining Unfunded Facility Commitment plus the aggregate outstanding principal amount of the Class A2A Notes plus the aggregate outstanding principal amount of the Class A2B Notes plus the aggregate outstanding principal amount of the Class B Notes. The "Pro Rata Payment Test" will be satisfied on any Determination Date if (i)(A) the Pro Rata Payment Test was satisfied on all previous Determination Dates and (B) the Pro Rata Payment Ratio is greater than 110.86% or (ii) the Pro Rata Payment Ratio on such Determination Date is greater than 115.61%. Class A Overcollateralization Ratio "Class A Overcollateralization Ratio" means, as of any Measurement Date, the number (expressed as a percentage) calculated by dividing (a) the Net Outstanding Portfolio Collateral Balance on such Measurement Date by (b) the Outstanding Class A1-VF Funded Amount plus the Remaining Unfunded Facility Commitment plus the aggregate outstanding principal amount of the Class A2A Notes plus the aggregate outstanding principal amount of the Class A2B Notes. The Class A Overcollateralization Ratio will be used to determine whether or not an Event of Default has occurred under clause (viii) of the definition thereof. Application of the Class A1-VF Senior Excess to Cure an Overcollateralization Test If, on any Determination Date, any Overcollateralization Test is not satisfied and will not be satisfied after the application of all Interest Proceeds and Principal Proceeds in accordance with the Priority of Payments on the related Distribution Date, the Issuer shall reduce the Class A1-VF Senior Excess on the related Distribution Date in accordance with the Senior Excess Application Priority by the lesser of (i) the amount thereof and (ii) the amount required to satisfy any such Overcollateralization Test (after giving effect to payments of Interest Proceeds and Principal Proceeds on the related Distribution Date pursuant to the Priority of Payments), by making a permanent reduction of the Remaining Unfunded Facility Commitment (pursuant to clause (ii) of the definition of "Permanent Reduction Amount"). No Gross-Up All payments made by the Issuer under the Secured Notes will be made without any deduction or withholding for or on the account of any tax unless such deduction or withholding is required by applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If the Issuer is so required to deduct or withhold, then the Issuer will not be obligated to pay any additional amounts in respect of such withholding or deduction.

107

The Indenture The following summary describes certain provisions of the Indenture. The summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Indenture. Events of Default An "Event of Default" is defined in the Indenture as: (i) a default in the payment of any interest or (with respect to the Class A1-VF Notes only) Commitment Fee (A) on any Class A1-VF Note, Class A2A Note, Class A2B Note, Class B1 Note or Class B2 Note, (B) if there are no Class A Notes or Class B Notes outstanding and the Commitment Termination Date has occurred, on any Class C Note, (C) if there are no Class A Notes, Class B Notes or Class C outstanding and the Commitment Termination Date has occurred, on any Class D Note, when the same becomes due and payable or (D) if there are no Class A Notes, Class B Notes, Class C Notes or Class D Notes outstanding and the Commitment Termination Date has occurred, on any Class E Note, when the same becomes due and payable, in each case which default continues for a period of three Business Days (or, in the case of a default in payment resulting solely from an administrative error or omission by the Trustee, the Administrator, a Paying Agent (other than the Subordinated Note Issuing and Paying Agent) or the Secured Note Registrar, five Business Days); (ii) a default in the payment of the Outstanding Class A1-VF Funded Amount or the principal of any Funded Secured Note when the same becomes due at the Stated Maturity or Redemption Date (or, in the case of a payment default resulting solely from an administrative error or omission by the Trustee, the Administrator, a Paying Agent (other than the Subordinated Note Issuing and Paying Agent) or the Secured Note Registrar, such default continues for a period of five Business Days); (iii) the failure on any Distribution Date to disburse amounts available in the Interest Collection Account or Principal Collection Account in accordance with the Priority of Payments (other than a default in payment described in clause (i) or (ii) above), which failure continues for a period of three Business Days (or, in the case of a failure resulting solely from an administrative error or omission by the Trustee, the Administrator, a Paying Agent (other than the Subordinated Note Issuing and Paying Agent) or the Secured Note Registrar, such failure continues for a period of five Business Days); (iv) either of the Co-Issuers or the pool of Collateral becomes an investment company required to be registered under the Investment Company Act; (v) a default in the performance, or breach, of any other covenant or other agreement (other than the covenant to meet the Collateral Quality Tests, the Overcollateralization Tests, the Pro Rata Payment Test or the Class E Interest Diversion Test (it being understood that with respect to the Acquisition or Disposition of any Collateral Debt Security all conditions applicable thereto under the Indenture, including those specified in the sections entitled "Security for the Secured Notes—Eligibility Criteria," shall be satisfied)) of the Issuer or the Co-Issuer under the Indenture or any representation or warranty of the Issuer or the Co-Issuer made in the Indenture or in any certificate or other writing delivered pursuant thereto or in connection therewith proves to be incorrect in any material respect when made, and the continuation of such default or breach for a period of 30 consecutive days (or, if such default, breach or failure has an adverse effect on 108

the validity, perfection or priority of the security interest granted under the Indenture, 15 consecutive days) after any of the Issuer, the Co-Issuer or the Portfolio Manager has actual knowledge thereof or after notice thereof to the Issuer and the Portfolio Manager by the Trustee, the holders of at least 25% in aggregate outstanding principal amount of Secured Notes of any Class (including, in the case of the Class A1-VF Notes, the amount of the Remaining Unfunded Facility Commitment); (vi) certain events of bankruptcy, insolvency, receivership or reorganization of either of the Co-Issuers (as set forth in the Indenture); (vii) an "Event of Default" or "Termination Event" with respect to which the Credit Default Swap Counterparty is the "Defaulting Party" or sole "Affected Party" occurs or an "Early Termination Date" is designated under (and each as defined in) the Credit Default Swap Agreement and a Majority of each Class of the Notes consent in writing to such event constituting an "Event of Default" for purposes of the Indenture; or (viii) the failure, on any Measurement Date, to cause the Class A Overcollateralization Ratio to be equal to or greater than 100%. If either of the Co-Issuers obtains knowledge, or has reason to believe, that an Event of Default has occurred and is continuing, such Co-Issuer is obligated to promptly notify the Trustee, the Subordinated Note Issuing and Paying Agent, the Portfolio Manager, the Secured Noteholders, each Hedge Counterparty, the Credit Default Swap Counterparty, the Variable Funding Note Agent, each Class A1-VF Noteholder and each Rating Agency of such Event of Default in writing. If an Event of Default occurs and is continuing (other than an Event of Default described in clause (vi) of the definition of "Events of Default"), (i) the Trustee may, or shall at the direction of a Majority of the Controlling Class, by notice to the Co-Issuers, or (ii) a Majority of the Controlling Class, by notice to the Co-Issuers and the Trustee, may (A) declare the Outstanding Class A1-VF Funded Amount (including any future additions to such Outstanding Class A1-VF Funded Amount as a result of additional Borrowings or Deemed Borrowings under the Variable Funding Note Purchase Agreement) to be immediately due and payable, (B) declare the principal of and accrued and unpaid interest and Commitment Fee (including Defaulted Interest and interest on Defaulted Interest) on all of the Secured Notes to be immediately due and payable and (C) terminate the Reinvestment Period. If an Event of Default described in clause (vi) of the definition of "Events of Default" occurs, (x) such an acceleration under clauses (A) and (B) above will occur automatically and without any further action and (y) the Reinvestment Period will terminate. Notwithstanding the foregoing, if the sole Event of Default is an Event of Default described in clause (i) or clause (ii) of the definition of "Events of Default" with respect to a default in the payment of any principal of or interest on the Secured Notes of a Class other than the Controlling Class, neither the Trustee nor the holders of such non-Controlling Class will have the right to declare such principal and other amounts to be immediately due and payable. Any declaration of acceleration may under certain circumstances, and subject to certain conditions set forth in the Indenture, be rescinded by a Majority of the Controlling Class. "Controlling Class" means the Class A1-VF Notes or, if there are no Class A1-VF Notes outstanding and the Commitment Termination Date has occurred, the Class A2A Notes, or, if there are no Class A2A Notes outstanding and the Commitment Termination Date has occurred, the Class A2B Notes or, if there are no Class A2B Notes outstanding and the Commitment Termination Date has occurred, the Class B1 Notes, or, if there are no Class A1-VF Notes, Class A2A Notes, Class A2B Notes or Class B1 Notes outstanding and the Commitment Termination Date has occurred, the Class B2 Notes or, if there are no Class A Notes or Class B Notes outstanding and the Commitment Termination Date has occurred, the Class C Notes or, if there are no Class A Notes, Class B Notes or Class C Notes outstanding and the Commitment Termination Date has occurred, the 109

Class D Notes, or, if there are no Class A Notes, Class B Notes, Class C Notes or Class D Notes outstanding and the Commitment Termination Date has occurred, the Class E Notes. If an Event of Default occurs and is continuing when any Secured Note is outstanding or the Remaining Exposure under the CDS Transactions is greater than zero, the Trustee will retain the Collateral intact (provided that Defaulted Securities and Equity Securities may continue to be Disposed of pursuant to the Indenture) and collect all payments in respect of the Collateral and continue making payments in the manner described under "—Priority of Payments" unless: (A) the Trustee determines that the anticipated net proceeds of a sale or liquidation of such Collateral would be sufficient to pay the Outstanding Class A1-VF Funded Amount and reduce the Remaining Exposure under the CDS Transactions to zero, to discharge in full any other amounts due and unpaid in respect of the Class A1-VF Notes, to discharge in full the amounts due and unpaid to the Portfolio Manager, to discharge in full the amounts then due and unpaid on the Funded Secured Notes and certain administrative expenses (including any termination payments or other amounts that are or will become due to the Hedge Counterparties or the Credit Default Swap Counterparty) in accordance with the Priority of Payments and a Majority of the Controlling Class agree with such determination; or (B) a Majority of the Class A Notes, voting as a single Class (including, in the case of the Class A1-VF Notes, the Remaining Unfunded Facility Commitment), the Credit Default Swap Counterparty and the Hedge Counterparties (unless no early termination or liquidation payment, including any accrued and unpaid amounts, would be owing by the Issuer to such Hedge Counterparty upon the termination thereof by reason of the occurrence of an event of default under any Hedge Agreement with respect to the Issuer) direct the sale and liquidation of the Collateral subject to the provisions of the Indenture. If any of the applicable conditions above to the liquidation of the Collateral is satisfied, the Trustee will Dispose of the Collateral following an Event of Default and, on the sixth Business Day (the "Accelerated Maturity Date") following the Business Day (which shall be the Determination Date for such Accelerated Maturity Date) on which the Trustee notifies the Issuer, the Portfolio Manager, the Credit Default Swap Counterparty, each Hedge Counterparty and each Rating Agency that such Disposition is completed, apply the Disposition Proceeds in accordance with the Priority of Payments. The Accelerated Maturity Date will be treated as a Distribution Date, and distributions on such date will be made in accordance with the Priority of Payments. Notwithstanding the foregoing, in no event shall any application of the proceeds of any sale or liquidation of the Collateral following an Event of Default occur prior to the earlier of (x) the sixth Business Day after the date on which either of the conditions set forth in clauses (A) and (B) above is satisfied and (y) the date on which amounts (if any) payable by the Issuer to the Hedge Counterparty due to an "Early Termination Event" (as defined in the Hedge Agreement) become due and payable. A Majority of the Controlling Class will have the right to direct the Trustee in the conduct of any proceedings for any remedy available to the Trustee, provided that (i) such direction will not conflict with any rule of law or the Indenture; (ii) the Trustee may take any other action not inconsistent with such direction; (iii) the Trustee has been provided with indemnity satisfactory to it (and the Trustee need not take any action that it determines might involve it in liability unless it has received such indemnity against such liability); and (iv) any direction to undertake a Disposition of the Collateral may be made only as described in the preceding paragraph. Pursuant to the Indenture, as security for the payment by the Issuer of the compensation and expenses of the Trustee and any sums the Trustee may be entitled to receive as indemnification by the 110

Issuer, the Issuer will grant the Trustee a lien on the Collateral, which lien is senior to the lien of the Secured Parties. The Trustee's lien will be exercisable by the Trustee only if the Secured Notes have been declared due and payable following an Event of Default and such acceleration has not been rescinded or annulled. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request of any holders of any of the Secured Notes, unless such holders have provided to the Trustee reasonable security or indemnity. A Majority of the Controlling Class may, prior to the time a judgment or decree for the payment of money due has been obtained by the Trustee, waive any past default on behalf of the holders of all the Secured Notes and its consequences, except a default (a) in the payment of the principal of any Secured Note or in the payment of interest or Commitment Fee (including any Defaulted Interest, interest on Defaulted Interest, (in the case of the Class C Notes) any Class C Deferred Interest and interest thereon, (in the case of the Class D Notes) any Class D Deferred Interest and interest thereon and (in the case of the Class E Notes) any Class E Deferred Interest and interest thereon), on the Class A1-VF Notes, the Class A2A Notes, the Class A2B Notes and the Class B1 Notes or, after such Class A1-VF Notes, Class A2A Notes, Class A2B Notes and Class B1 Notes have been paid in full, the Class B2 Notes or, after such Class A Notes and Class B Notes have been paid in full, the Class C Notes or, after such Class A Notes, Class B Notes and Class C Notes have been paid in full, the Class D Notes, or, after such Class A Notes, Class B Notes, Class C Notes and Class D Notes have been paid in full, the Class E Notes (b) in respect of a provision of the Indenture that cannot be modified or amended without the waiver or consent of the holder of each outstanding Secured Note affected thereby or (c) arising as a result of an Event of Default described in clause (vi) above under "Events of Default." The Issuer shall not terminate the Credit Default Swap Agreement, the GIC or any Hedge Agreement unless the liquidation of the Collateral has begun and such declaration is no longer capable of being rescinded or annulled. No holder of a Secured Note will have the right to institute any proceeding with respect to the Indenture unless (i) such holder previously has given to the Trustee written notice of an Event of Default, (ii) except in certain cases of a default in the payment of principal or interest, the holders of at least 662/3% of the aggregate outstanding principal amount of the Secured Notes of any Class (including, in the case of the Class A1-VF Notes, the Remaining Unfunded Facility Commitment) or any Hedge Counterparty or the Credit Default Swap Counterparty have made a written request upon the Trustee to institute such proceedings in its own name as Trustee and such holders have provided the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, (iii) the Trustee has for 30 days failed to institute any such proceeding and (iv) no direction inconsistent with such written request has been given to the Trustee during such 30-day period by any Hedge Counterparty, the Credit Default Swap Counterparty or a Majority of the Controlling Class. In determining whether the holders of the requisite percentage of Secured Notes have given any direction, notice or consent, (i) Secured Notes owned by the Issuer, the Co-Issuer or any Affiliate thereof shall be disregarded and deemed not to be outstanding, (ii) the aggregate outstanding principal amount of the Class A1-VF Notes shall be deemed to be the Outstanding Class A1-VF Funded Amount plus the Remaining Unfunded Facility Commitment and (iii) in relation to any assignment or termination of any of the express obligations of the Portfolio Manager under the Management Agreement (including the exercise of any right to remove the Portfolio Manager or terminate the Management Agreement or approve or object to a replacement officer), or any amendment or other modification of the Management Agreement increasing the rights or decreasing the obligations of the Portfolio Manager, Secured Notes 111

beneficially owned by the Portfolio Manager or any of its Affiliates, or by any accounts managed by them, shall be disregarded and deemed not to be outstanding. The Portfolio Manager and its Affiliates will be entitled to vote Secured Notes held by them, and by accounts managed by them, with respect to all matters other than those described in the foregoing clause (iii). The term "Portfolio Manager" for purposes of this paragraph includes any successor or successors to Cairn. Notices Notices to the Secured Noteholders will be given by first-class mail, postage prepaid, to the registered holders of the Secured Notes at their address appearing in the Secured Note Register. For so long as any Class of Secured Notes is listed on the Irish Stock Exchange, and so long as the rules of such exchange so require, notices to the holders of the Secured Notes shall also be given by delivery to the Company Announcements Office of the Irish Stock Exchange. Modification of the Indenture With the consent of (x) a Majority of each Class of Secured Notes materially and adversely affected thereby (if any Class of Secured Notes is materially and adversely affected thereby) and a Majority of Subordinated Noteholders (if the Subordinated Notes are materially and adversely affected thereby) and (y) the consent of each Hedge Counterparty (to the extent required in the related Hedge Agreement) and the Credit Default Swap Counterparty (to the extent required in the Credit Default Swap Agreement), and with notice to the Portfolio Manager, the Trustee and Co-Issuers may enter into one or more supplemental indentures to add provisions to, or change in any manner or eliminate any provisions of, the Indenture or modify in any manner the rights of the holders of the Secured Notes of such Class, the Subordinated Notes, the Credit Default Swap Counterparty or the Hedge Counterparties, as the case may be, under the Indenture. Unless notified by a Majority of any Class of Secured Notes or a Majority of Subordinated Noteholders that such Class of Secured Notes or the Subordinated Notes will be materially and adversely affected, or by a Hedge Counterparty, the Credit Default Swap Counterparty or the Portfolio Manager that such Hedge Counterparty, the Credit Default Swap Counterparty or the Portfolio Manager will be materially and adversely affected, the Trustee may, consistent with the written advice of counsel (which may rely, but not to the exclusion of such counsel’s professional judgment, on a certificate of the Portfolio Manager (except with regard to whether the Portfolio Manager will be materially and adversely affected) or the Issuer) or a certificate of the Issuer or the Portfolio Manager (except with regard to whether the Portfolio Manager will be materially and adversely affected), determine whether or not such Class of Secured Notes or the Subordinated Notes would be materially and adversely affected or such Hedge Counterparty, the Credit Default Swap Counterparty or the Portfolio Manager would be materially and adversely affected by such change (after giving at least 10 Business Days' prior written notice of such supplemental indenture to the holders of such Class of Secured Notes, the Subordinated Noteholders, the Credit Default Swap Counterparty, the Portfolio Manager and such Hedge Counterparty). Such determination shall be conclusive and binding on all present and future holders of the Secured Notes, the Subordinated Noteholders, the Credit Default Swap Counterparty, the Portfolio Manager and such Hedge Counterparty, as applicable. As long as any of the Secured Notes, Combination Notes, or Subordinated Notes are listed on the Irish Stock Exchange, the Issuer shall notify the Irish Stock Exchange following any modification to the Indenture that affects any of the Secured Notes, Combination Notes or Subordinated Notes that are listed on the Irish Stock Exchange. Notwithstanding the foregoing, the Trustee may not enter into any supplemental indenture without the consent of each holder of each outstanding Secured Note of each Class materially and adversely affected thereby, each Subordinated Noteholder (if the holders of the Subordinated Notes are materially and adversely affected thereby), the Hedge Counterparties (to the extent required in the related Hedge Agreement) and the Credit Default Swap Counterparty (to the extent required in the Credit Default 112

Swap Agreement) if such supplemental indenture (i) changes the Stated Maturity of the principal of or the due date of any installment of interest or Commitment Fee, if applicable, on any Secured Note, reduces the principal amount thereof or the rate of interest or Commitment Fee Rate (if applicable) thereon, or the redemption price with respect thereto, changes the earliest date on which the Issuer may redeem any Secured Note, changes the order of the clauses in the Priority of Payments, changes any place where, or the coin or currency in which, any Secured Note or the principal thereof or interest or Commitment Fee thereon is payable, or impairs the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the applicable redemption date) or changes the date on which any distribution in respect of the Subordinated Notes is payable, (ii) reduces the percentage in aggregate outstanding principal amount (including, in the case of the Class A1-VF Notes, the Remaining Unfunded Facility Commitment, where applicable) of holders of Secured Notes of each Class and holders of Subordinated Notes, in each case whose consent is required for the authorization of any supplemental indenture or for any waiver of compliance with certain provisions of the Indenture or certain defaults thereunder or their consequences, (iii) impairs or adversely affects the Collateral pledged under the Indenture except as otherwise permitted thereby, (iv) permits the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any part of the Collateral or terminates such lien on any property at any time subject thereto (other than in connection with the Disposition thereof in accordance with the Indenture) or deprives the holder of any Secured Note of the security afforded by the lien of the Indenture, (v) reduces the percentage of the aggregate outstanding principal amount (including, in the case of the Class A1-VF Notes, the Remaining Unfunded Facility Commitment, where applicable) of holders of Secured Notes of each Class or the percentage of aggregate outstanding principal amount of holders of Subordinated Notes, or removes any other Secured Party, in each case whose consent is required to request that the Trustee preserve the Collateral pledged under the Indenture or rescind the Trustee's election to preserve the Collateral or to Dispose of the Collateral pursuant to the Indenture, (vi) modifies any of the provisions of the Indenture with respect to the undertaking of party litigants to pay (if required) costs of suits for (among others) the enforcement of rights under the Indenture or against the Trustee, (vii) modifies any of the provisions of the Indenture with respect to supplemental indentures requiring the consent of Secured Noteholders or Subordinated Noteholders except to increase the percentage of outstanding Secured Notes or Subordinated Notes whose holders' consent is required for any such action or to provide that other provisions of the Indenture cannot be modified or waived without the consent of the holder of each outstanding Secured Note or Subordinated Note affected thereby, (viii) modifies the definition of the term "Outstanding" or the subordination provisions of the Indenture, (ix) changes the permitted minimum denominations of any Class of Secured Notes unless, with respect to a reduction of the permitted denominations of any Class of Secured Notes only, an opinion of counsel is provided to the Trustee to the effect that such reduction will not require any of the Co-Issuers or the pool of Collateral to become registered as an investment company under the Investment Company Act, (x) modifies any of the provisions of the Indenture in such a manner as to affect the calculation of the amount of (a) any payment of interest or Commitment Fee, if applicable, of any Secured Note, (b) the Redemption Price for any Class of Secured Notes or the earliest date on which an Auction Call Redemption or Optional Redemption may occur or (c) any deposit into the Reserve Account or (xi) changes the provisions of the Indenture relating to the reduction or calculation of the Remaining Unfunded Facility Commitment. The Trustee may not enter into any such supplemental indenture unless (1) (x) the Rating Condition with respect to Standard & Poor's shall have been satisfied with respect to such supplemental indenture or (y) consent from each affected holder of Secured Notes and the Credit Default Swap Counterparty is obtained and (2) notice of such supplemental indenture has been provided to Moody's. The Co-Issuers and the Trustee may also enter into supplemental indentures without obtaining the consent of holders of any Secured Notes or Subordinated Notes, the Hedge Counterparties (except to the extent required by the Hedge Agreements) or the Credit Default Swap Counterparty (except to the extent required in the Credit Default Swap Agreement) in order to (i) evidence the succession of any person to 113

the Issuer or the Co-Issuer and the assumption by such successor of the covenants in the Indenture and the Secured Notes, (ii) add to the covenants of the Co-Issuers or the Trustee for the benefit of the holders of all of the Secured Notes or to surrender any right or power conferred upon the Co-Issuers, (iii) convey, transfer, assign, mortgage or pledge any property to or with the Trustee, (iv) evidence and provide for the acceptance of appointment by a successor trustee and to add to or change any of the provisions of the Indenture as shall be necessary to facilitate the administration of the trusts under the Indenture by more than one Trustee, (v) correct or amplify the description of any property at any time subject to the lien created by the Indenture, or to better assure, convey and confirm unto the Trustee any property subject or required to be subject to the lien created by the Indenture (including, without limitation, any and all actions necessary or desirable as a result of changes in law or regulations) or to subject to the lien created by the Indenture any additional property, (vi) modify the restrictions on and procedures for resales and other transfers of the Secured Notes to reflect any changes in applicable law or regulation (or the interpretation thereof) or to enable the Co-Issuers to rely upon any less restrictive exemption from registration under the Securities Act or the Investment Company Act or to remove restrictions on resale and transfer to the extent not required thereunder, (vii) correct any inconsistency, defect, ambiguity, typographical error or other manifest error in the Indenture, (viii) obtain ratings for one or more Classes of Secured Notes from any rating agency, (ix) accommodate (a) the issuance of Secured Notes or Subordinated Notes in exchange for existing Secured Notes or Subordinated Notes, as the case may be, to be held in global form through the facilities of DTC, Euroclear or Clearstream, Luxembourg or otherwise, (b) the listing of the Secured Notes or the Subordinated Notes on, or the delisting of the Secured Notes or the Subordinated Notes from, any exchange or (c) the issuance of additional Subordinated Notes, (x) avoid the imposition of tax on the net income of the Issuer or of withholding tax on any payment to or by the Issuer or the Co-Issuer, avoid or reduce the imposition of the requirements of the German Investment Tax Act on the Issuer, the Secured Noteholders or the Subordinated Noteholders or avoid the Issuer or the Co-Issuer or the Collateral being required to register as an investment company under the Investment Company Act, (xi) give effect to any financing arrangements entered into by the Issuer (which may be documented by an ISDA Master Agreement or may involve the issuance of debt securities or other instruments by the Issuer) following a failure by a holder of Class A1-VF Notes to perform its obligations under the Variable Funding Note Purchase Agreement that (a) have the economic effect of replacing such holder by providing liquidity to the Issuer in order to enable it to satisfy its obligations under, and to Dispose of, CDS Transactions and (b) will not result in any reduction to amounts that would otherwise be payable or distributed to any of the Secured Parties or the Subordinated Noteholders under the Indenture if such failure had not occurred, (xii) accommodate the issuance of any Class of Secured Notes as definitive notes, (xiii) conform the terms of the Indenture to the terms set forth in this Offering Memorandum, (xiv) correct any error in any provision of the Indenture upon receipt by a trust officer of the Trustee of written direction from the Issuer describing in reasonable detail such error and the modification necessary to correct such error, (xv) to accommodate any replacement Hedge Agreement, replacement Credit Default Swap Agreement or the entry into any replacement GIC, (xvi) if and to the extent explicitly requested to effect such amendment or modification by the relevant Rating Agency in order to ensure that the Issuer complies with its most recent published criteria, to amend or otherwise to modify (A) if the Rating Condition with respect to Moody's is satisfied, (1) any reference in the Indenture to "Moody's Rating" or a rating assigned by Moody's, (2) the Moody's Minimum Weighted Average Recovery Rate Test, Moody's Weighted Average Rating Factor Test or the Moody's Asset Correlation Test, (3) the matrix attached as Part I of Schedule D hereto or (4) the Moody's Haircut Amount and the components that comprise the calculation of the Moody's Haircut Amount, (B) if the Rating Condition with respect to Standard & Poor's is satisfied, (1) the matrix attached as Part II of Schedule D hereto, (2) the Standard & Poor's Weighted Average Recovery Rate Test, the Standard & Poor's CDO Monitor Notification Test, (3) any reference herein to "Standard & Poor's Rating" or a rating assigned by Standard & Poor's or (4) the Standard & Poor's Haircut Amount and the components that comprise the calculation of the Standard & Poor's Haircut Amount or (C) if the Rating Condition with respect to each Rating Agency is satisfied, amend the Weighted Average Spread Test and the Weighted Average Life Test; or 114

(xvii) to modify the requirements for the Acquisition of a Synthetic Security relating to an Index or otherwise provide for the treatment of a Synthetic Security relating to an Index for purposes of the Indenture (including, without limitation, for purposes of the Collateral Quality Tests).; provided that, in each such case (other than clauses (xii) or (xiii)), such supplemental indenture would not materially and adversely affect any Secured Noteholder or any Subordinated Noteholder, and such supplemental indenture would not require the consent of the Credit Default Swap Counterparty under the Credit Default Swap Agreement or any Hedge Counterparty under any Hedge Agreement. Unless notified by (i) a Majority of any Class of Secured Notes or a Majority of Subordinated Noteholders that such Class or the Subordinated Notes will be materially and adversely affected, or (ii) the Credit Default Swap Counterparty that its consent to such supplemental indenture is required under the Credit Default Swap Agreement or any Hedge Counterparty that its consent is required under any Hedge Agreement, the Trustee may rely upon an opinion of counsel (which may rely on a certificate of the Portfolio Manager or the Issuer) or a certificate of the Issuer or the Portfolio Manager as to whether the interests of any Secured Noteholder or Subordinated Noteholder would be materially and adversely affected by any such supplemental indenture, and as to whether the consent of the Credit Default Swap Counterparty is required under the Credit Default Swap Agreement or the consent of any Hedge Counterparty is required under the applicable Hedge Agreement (after giving at least 10 Business Days' prior written notice of such change to each Secured Noteholder, each Subordinated Noteholder, the Credit Default Swap Counterparty and such Hedge Counterparty). The Trustee may not enter into any supplemental indenture described in clause (vi) or (vii) of the immediately preceding paragraph without the written consent of the Portfolio Manager. In addition, the Trustee may not enter into any supplemental indenture without the written consent of the Portfolio Manager if such supplemental indenture alters the rights or obligations of the Portfolio Manager in any respect or otherwise has a material adverse effect on the Portfolio Manager, and the Portfolio Manager will not be bound by any such supplemental indenture unless the Portfolio Manager has consented thereto. The Trustee shall not enter into any such supplemental indenture if, with respect to such supplemental indenture, the Rating Condition with respect to Standard & Poor's would not be satisfied; provided that the Trustee may, with the consent of the holders of 100% of the aggregate outstanding amount of Secured Notes of each Class, the Credit Default Swap Counterparty and each Hedge Counterparty, enter into any such supplemental indenture notwithstanding any such reduction or withdrawal of the ratings of such Class of Secured Notes. For purposes of this section, the holders of the Combination Notes shall not be treated as a separate Class for purposes of determining whether any Class of Secured Notes has been adversely affected by any supplemental indenture. For purposes of this section, the interests of the Credit Default Swap Counterparty and any Hedge Counterparty shall be deemed not to be materially and adversely affected by, and the Credit Default Swap Counterparty and Hedge Counterparties shall have no right of consent in relation to, any supplemental indenture with respect to, (i) the appointment of any successor Portfolio Manager in accordance with the Management Agreement and (ii) any change to the Portfolio Management Fee or otherwise in respect of the fees, liabilities and expenses to apply to such successor Portfolio Manager. Modification of Certain Other Documents Prior to entering into any amendment to the Management Agreement, the Variable Funding Note Purchase Agreement, the Collateral Administration Agreement, the Administration Agreement, the Credit Default Swap Agreement, the GIC or any Hedge Agreement (provided that the amendment to such agreement has been consented to by each of the other parties thereto), the Issuer is required by the Indenture to provide notice of such amendment to the Credit Default Swap Counterparty and to obtain the 115

written confirmation of Standard & Poor's and Moody's that the entry by the Issuer into such amendment satisfies the Rating Condition. Prior to entering into any waiver in respect of any of the foregoing agreements, the Issuer is required to provide each Rating Agency, each Hedge Counterparty, the Credit Default Swap Counterparty and the Trustee with written notice of such waiver. The amendment to and waiver of provisions of the Management Agreement are also subject to additional restrictions as described herein under "The Management Agreement." Each of the Hedge Counterparties, the Portfolio Manager and the Credit Default Swap Counterparty will be an express third party beneficiary of the Indenture. Consolidation, Merger or Transfer of Assets The Issuer shall not consolidate or merge with or into any other entity or transfer or convey all or substantially all of its assets to any entity, unless permitted by Cayman Islands law and unless, (i) the Issuer shall be the surviving entity, or the entity (if other than the Issuer) formed by such consolidation or into which the Issuer is merged or to which all or substantially all of the assets of the Issuer are transferred or conveyed shall be an exempted company with limited liability organized and existing under the laws of the Cayman Islands or such other jurisdiction outside the United States as may be approved by a Majority of each Class, the Portfolio Manager, the Credit Default Swap Counterparty and each Hedge Counterparty; provided that no such approval shall be required in connection with any such transaction undertaken solely to effect a change in the jurisdiction of organization pursuant to the terms of the Indenture, and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, the Credit Default Swap Counterparty, each Hedge Counterparty and each Secured Noteholder, the due and punctual payment of the principal of and interest or Commitment Fee, if applicable, on all Secured Notes and the performance of every covenant of the Issuer in the Indenture, the Variable Funding Note Purchase Agreement, the Credit Default Swap Agreement, the GIC and each Hedge Agreement on the part of the Issuer to be performed or observed, all as provided therein, (ii) each of the Hedge Counterparties, the Credit Default Swap Counterparty and the GIC Provider consents to the consummation of such transaction and each Rating Agency shall have received written notification of such consolidation, merger, transfer or conveyance and the Rating Condition shall have been satisfied with respect to the consummation of such transaction, (iii) if the Issuer is not the surviving entity, the entity formed by such consolidation or into which the Issuer is merged or to which all or substantially all of the assets of the Issuer are transferred or conveyed shall have agreed with the Trustee (a) to observe the same legal requirements for the recognition of such formed or surviving entity as a legal entity separate and apart from any of its Affiliates as are applicable to the Issuer with respect to its Affiliates and (b) not to consolidate or merge with or into any other entity or transfer or convey the Collateral or all or substantially all of its assets to any other entity except in accordance with the provisions set forth in the Indenture, (iv) if the Issuer is not the surviving entity, the entity formed by such consolidation or into which the Issuer is merged or to which all or substantially all of the assets of the Issuer are transferred or conveyed shall have delivered to the Trustee and each Rating Agency an officer's certificate and an opinion of counsel each stating that such entity shall be duly organized, validly existing and (if applicable) in good standing in the jurisdiction in which such entity is organized; that such entity has sufficient power and authority to assume the obligations set forth in clause (i) above and to execute and deliver a supplemental indenture for the purpose of assuming such obligations or other assumptions aforementioned; that such entity has duly authorized the execution, delivery and performance of a supplemental indenture for the purpose of assuming such obligations and that such supplemental indenture is a valid, legal and binding obligation of such entity, enforceable in accordance with its terms, subject only to bankruptcy, reorganization, insolvency, moratorium and other laws affecting the enforcement of creditors' rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); that, immediately following the event which causes such entity to become the successor to the Issuer, (a) such entity has good and marketable 116

title, free and clear of any lien, security interest or charge, other than the lien and security interest of the Indenture, to the Collateral; (b) the Trustee continues to have a valid perfected first priority security interest in the Collateral securing all of the Secured Notes and the obligations of the Issuer to the Secured Parties; (c) such entity will not be subject to net income tax or be treated as engaged in a trade or business within the United States for U.S. Federal income tax purposes; and (d) such other matters as the Trustee or any Secured Noteholder may reasonably require, (v) immediately after giving effect to such transaction, no default shall have occurred and be continuing, (vi) the Issuer shall have delivered to the Trustee, the Credit Default Swap Counterparty, the Portfolio Manager, the GIC Provider and each Secured Noteholder an officer's certificate and an opinion of counsel each stating that such consolidation, merger, transfer or conveyance and such supplemental indenture comply with the provisions set forth in the Indenture, that all conditions precedent set forth in the Indenture relating to such transaction have been complied with and that no adverse tax consequences will result therefrom to any Secured Noteholder or Subordinated Noteholder and (vii) the Issuer shall have delivered to the Trustee an opinion of counsel stating that after giving effect to such transaction, neither of the Co-Issuers nor the pool of Collateral will be required to register as an investment company under the Investment Company Act. The Co-Issuer shall not consolidate or merge with or into any other entity or transfer or convey all or substantially all of its assets to any entity, unless (i) the Co-Issuer shall be the surviving entity, or the entity (if other than the Co-Issuer) formed by such consolidation or into which the Co-Issuer is merged or to which all or substantially all of the assets of the Co-Issuer are transferred or conveyed shall expressly assume, by an indenture supplemental to the Indenture, executed and delivered to the Trustee, the due and punctual payment of the principal of and interest on all Secured Notes and the performance of every covenant of the Indenture or the Variable Funding Note Purchase Agreement on the part of the CoIssuer to be performed or observed, all as provided therein, (ii) each of the Hedge Counterparties, the Credit Default Swap Counterparty and each Rating Agency shall have received written notification of such consolidation, merger, transfer or conveyance and the Rating Condition shall have been satisfied with respect to the consummation of such transaction, (iii) if the Co-Issuer is not the surviving entity, the entity formed by such consolidation or into which the Co-Issuer is merged or to which all or substantially all of the assets of the Co-Issuer are transferred or conveyed shall have agreed with the Trustee (a) to observe the same legal requirements for the recognition of such formed or surviving corporation as a legal entity separate and apart from any of its Affiliates as are applicable to the Co-Issuer with respect to its Affiliates and (b) not to consolidate or merge with or into any other entity or transfer or convey all or substantially all of its assets to any other entity except in accordance with the provisions set forth in the Indenture, (iv) if the Co-Issuer is not the surviving entity, the entity formed by such consolidation or into which the Co-Issuer is merged or to which all or substantially all of the assets of the Co-Issuer are transferred or conveyed shall have delivered to the Trustee and each Rating Agency an officer's certificate and an opinion of counsel each stating that such entity shall be duly organized, validly existing and (if applicable) in good standing in the jurisdiction in which such entity is organized; that such entity has sufficient power and authority to assume the obligations set forth in clause (i) above and to execute and deliver a supplemental indenture for the purpose of assuming such obligations; that such entity has duly authorized the execution, delivery and performance of a supplemental indenture for the purpose of assuming such obligations and that such supplemental indenture is a valid, legal and binding obligation of such entity, enforceable in accordance with its terms, subject only to bankruptcy, reorganization, insolvency, moratorium and other laws affecting the enforcement of creditors' rights generally and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); and such other matters as the Trustee or any Secured Noteholder may reasonably require, (v) immediately after giving effect to such transaction, no Default shall have occurred and be continuing, (vi) the Co-Issuer shall have delivered to the Trustee and each Secured Noteholder an officer's certificate and an opinion of counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with the provisions set forth in the Indenture and that all conditions precedent in the Indenture relating to such transaction have been complied with and that no 117

adverse tax consequences will result therefrom to any Secured Noteholder or Subordinated Noteholder, (vii) after giving effect to such transaction, neither of the Co-Issuers nor the pool of Collateral will be required to register as an investment company under the Investment Company Act and (viii) after giving effect to such transaction, the outstanding stock of the Co-Issuer will not be beneficially owned by any entity other than the Issuer. Petitions for Bankruptcy The Indenture provides that the holders of the Secured Notes agree not to cause the filing of a petition for winding up or a petition in bankruptcy against the Issuer or the Co-Issuer before one year and one day have elapsed since the final payments to the holders of the then Controlling Class or, if longer, the applicable preference period then in effect. Satisfaction and Discharge of Indenture The Indenture will be discharged with respect to the Collateral upon delivery to the Trustee for cancellation of all of the Secured Notes, or, subject to certain limitations, upon deposit with the Trustee of funds sufficient for the payment or redemption of the Secured Notes and the payment by the Co-Issuers of all other amounts due under the Secured Notes, the Indenture, the Subordinated Note Issuing and Paying Agency Agreement, the Credit Default Swap Agreement, the Variable Funding Note Purchase Agreement, any Interest Rate Hedge Agreement, the Collateral Administration Agreement, the Administration Agreement, the Management Agreement and any Synthetic Securities. Trustee LaSalle Bank National Association will be the Trustee under the Indenture. The Co-Issuers, the Portfolio Manager and their respective Affiliates may maintain other banking relationships in the ordinary course of business with the Trustee. The payment of the fees and expenses of the Trustee is solely the obligation of the Co-Issuers. The Trustee and its Affiliates may receive compensation in connection with the investment of trust assets in certain Eligible Investments as provided in the Indenture. Eligible Investments may include investments for which the Trustee and/or its Affiliates provide services. The Indenture contains provisions for the indemnification of the Trustee for any loss, liability or expense incurred without negligence, willful misconduct or bad faith on its part, arising out of or in connection with the acceptance or administration of the Indenture. Pursuant to the Indenture, the Issuer has granted to the Trustee a lien senior to that of the Secured Noteholders to secure payment by the Issuer of the compensation and expenses of the Trustee and any sums the Trustee may be entitled to receive as indemnification by the Issuer under the Indenture (subject to the Dollar limitations set forth in the Priority of Payments with respect to applicable Distribution Date), which lien the Trustee is entitled to exercise only under certain circumstances. In the Indenture, the Trustee will agree not to cause the filing of a petition for winding up or a petition in bankruptcy against the Co-Issuers for nonpayment to the Trustee of amounts payable thereunder until at least one year and one day, or if longer, the applicable preference period then in effect, after the payment in full of all of the Secured Notes and Combination Notes. The Trustee may resign at any time by giving 30 days prior written notice thereof to the CoIssuers, the Secured Noteholders, the Portfolio Manager, each Hedge Counterparty, the Credit Default Swap Counterparty, the GIC Provider, each Rating Agency, the Variable Funding Note Agent and the Subordinated Note Issuing and Paying Agent. Upon receiving such notice of resignation, the Co-Issuers shall promptly appoint a successor trustee. If no successor trustee shall have been appointed and an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee or any holder of a Secured Note, on behalf of itself and all others similarly situated, may petition any court of competent jurisdiction for 118

the appointment of a successor Trustee. The Trustee may be removed at any time by holders of at least 66-2/3% in aggregate outstanding principal amount of each Class of Secured Notes (voting separately) or, at any time when an Event of Default shall have occurred and be continuing, by a Majority of the Controlling Class. The Co-Issuers may remove the Trustee, or any holder of a Secured Note may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee if (a) the Trustee ceases to be eligible to act in such capacity under the Indenture and fails to resign after written request therefor by the Co-Issuers or by any holder or (b) the Trustee becomes incapable of acting, is adjudged as bankrupt or insolvent or a receiver or liquidator of the Trustee or of its property is appointed or any public officer takes charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. No resignation or removal of the Trustee will become effective until the acceptance of the appointment of a successor Trustee. U.S. Tax Characterization The Issuer intends to treat the Secured Notes as debt instruments of the Issuer only for U.S. Federal and, to the extent permitted by law, state and local income and franchise tax purposes. The Indenture will provide that each registered holder and beneficial owner, by accepting a Secured Note, agrees to such treatment, to report all income (or loss) in accordance with such characterization and not to take any action inconsistent with such treatment unless otherwise required by any relevant taxing authority. Governing Law The Secured Notes, the Subordinated Notes, the Combination Notes the Indenture, the Investor Application Forms, each Hedge Agreement, the Collateral Administration Agreement, the GIC, the Subordinated Note Issuing and Paying Agency Agreement, the Credit Default Swap Agreement, the Variable Funding Note Purchase Agreement and the Note Purchase Agreement will be governed by, and construed in accordance with, the law of the State of New York. The Management Agreement will be governed by, and construed in accordance with, the laws of England and Wales. The Administration Agreement will be governed by, and construed in accordance with, the law of the Cayman Islands. Benefit Plan Investors and Certain Controlling Persons No Class E Note (or any interest therein) may be directly or indirectly acquired by or transferred to a Benefit Plan Investor (as defined herein) except on the Closing Date, and then only to the extent that after giving effect to such transfer, less than 25% of the aggregate value of the Class E Notes would be held by Benefit Plan Investors. No Class E Note (or any interest therein) may be directly or indirectly acquired by or transferred to a Controlling Person (as defined herein) at any time. See "Certain ERISA and Related Considerations" and "Transfer Restrictions." Each Original Purchaser of a Class E Note (or an interest therein) will be required to certify whether or not it is a Benefit Plan Investor and that it is not a Controlling Person. Each subsequent transferee of a Class E Note (or an interest therein) after the Closing Date will be required to certify (or in certain circumstances will be deemed to represent and warrant) that it is not a Benefit Plan Investor or a Controlling Person. Each Original Purchaser and each subsequent transferee of a Class E Note will be required to covenant (or in certain circumstances will be deemed to represent and warrant) that it will not transfer such Class E Note (or any interest therein) to a Benefit Plan Investor or a Controlling Person. No transfer of a Class E Note (or any interest therein) to a Benefit Plan Investor will be effected on the Closing Date unless, after giving effect to such transfer on the Closing Date, less than 25% of the value of the Class E Notes would be held by Benefit Plan Investors and no transfer of a Class E Note (or any interest therein) will be effected after the Closing Date. No transfer of a Class E Note will be effected to a Controlling Person at any time. If the Issuer determines 119

that any holder or beneficial owner of a Class E Note (or an interest therein) is a Benefit Plan Investor or a Controlling Person (other than a Benefit Plan Investor that acquired a Class E Note (or interest therein) on the Closing Date), or that any such holder or beneficial owner that represented it was not a Benefit Plan Investor or a Controlling Person was a Benefit Plan Investor or a Controlling Person or subsequent to the purchase of such Class E Note (or interest therein) is or has become a Benefit Plan Investor or a Controlling Person, the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Class E Note (or interest therein) to a person that is not a Benefit Plan Investor or a Controlling Person and otherwise satisfies the applicable requirements for holding such Class E Note (or interest therein) with such sale to be effected within 14 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 14-day period, (x) upon written direction from the Portfolio Manager or the Issuer, the Trustee shall, and will be deemed to be irrevocably authorized by such holder or beneficial owner to, cause such holder's or beneficial owner's interest in such security to be transferred in a commercially reasonable sale arranged by the Portfolio Manager (conducted by the Trustee in accordance with Section 9-610(b) of the UCC as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Secured Note Registrar and the Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person and otherwise meets the requirements for holding such Class E Note (or interest therein) and (y) pending such transfer, no further payments will be made in respect of the interest in such Class E Note held by such holder or beneficial owner, and the interest in such Class E Note shall not be deemed to be outstanding for the purpose of any vote or consent of the holders of the Class E Notes. See "Certain ERISA and Related Considerations" herein for a more detailed discussion of these considerations with respect to an investment in the Class E Notes.

120

DESCRIPTION OF THE SUBORDINATED NOTES The Subordinated Notes will be issued pursuant to the Subordinated Note Issuing and Paying Agency Agreement (the "Subordinated Note Issuing and Paying Agency Agreement") between LaSalle Bank National Association, as subordinated note issuing and paying agent (in such capacity, the "Subordinated Note Issuing and Paying Agent") and the Issuer and will be subject to the Investor Application Forms. The following summary describes certain provisions of the Subordinated Notes, the Subordinated Note Issuing and Paying Agency Agreement and the Investor Application Forms. This summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the Subordinated Note Issuing and Paying Agency Agreement and the Investor Application Forms. After the closing, copies of the Subordinated Note Issuing and Paying Agency Agreement and the form of Investor Application Form may be obtained by prospective investors upon request in writing to the Subordinated Note Issuing and Paying Agent at 181 West Madison Street, 32nd Floor, Chicago, Illinois 60602, Attention: CDO Trust Services–Cairn Mezz ABS CDO II. Status The Subordinated Notes will be limited recourse debt obligations of the Issuer and will not be secured under the Indenture. The Regulation S Global Subordinated Notes will be issuable in a minimum denomination of U.S.$100,000 and the Restricted Subordinated Notes will be issuable in a minimum denomination of U.S.$250,000 and, in each case, in integral multiples of U.S.$1,000 in excess thereof. Distributions On each Distribution Date, to the extent that funds are available therefor, Interest Proceeds will be released from the lien of the Indenture for payment to the Subordinated Note Issuing and Paying Agent only after the payment of interest and, in the case of the Class A1-VF Notes, Commitment Fee, on the Secured Notes and, in certain circumstances, principal due in respect of the Secured Notes and the payment of certain other amounts in accordance with the Priority of Payments. Any Interest Proceeds permitted to be released from the lien of the Indenture and paid to the Subordinated Note Issuing and Paying Agent will be distributed to the Subordinated Noteholders on each Distribution Date. The Stated Maturity of the Subordinated Notes is February 13, 2047. However, the Subordinated Notes may be paid in full prior to the Stated Maturity thereof following the Mandatory Redemption, Optional Redemption, Tax Redemption or Auction Call Redemption of the Secured Notes, out of proceeds of the liquidation of the pool of Collateral (and subject, in the case of an Auction Call Redemption, to the Subordinated Note Required Amount being paid in connection with such redemption in respect of the Subordinated Notes issued on the Closing Date). Until the Outstanding Class A1-VF Funded Amount and the Remaining Unfunded Facility Commitment have been reduced to zero and the Funded Secured Notes have been paid in full, Principal Proceeds are not permitted to be released from the lien of the Indenture and will not be available to make distributions in respect of the Subordinated Notes. See "Description of the Secured Notes—Priority of Payments—Interest Proceeds" and "—Principal Proceeds" and "Security for the Secured Notes." Distributions on any Subordinated Note will be made to the person in whose name such Subordinated Note is registered fifteen days prior to the applicable Distribution Date (the "Record Date"). Payments will be made by wire transfer in immediately available funds to a Dollar account maintained by the holder thereof appearing in the Subordinated Note Register in accordance with wire transfer instructions received from such holder by the Subordinated Note Issuing and Paying Agent on or before the Record Date or, if no wire transfer instructions are received by the Subordinated Note Issuing and Paying Agent, by a Dollar check drawn on a bank in the United States. Final distributions or payments made in respect of a Subordinated Note in the course of a winding up will be made only against surrender 121

of the certificate evidencing such Subordinated Notes at the office of the Subordinated Note Registrar. The Subordinated Note Registrar will communicate such distributions and payments and the related Distribution Date to the Issuer, the Subordinated Note Issuing and Paying Agent, Euroclear, Clearstream, Luxembourg and, for so long as the Subordinated Notes are listed on the Irish Stock Exchange, the Irish Paying Agent. If any of the Overcollateralization Tests is not satisfied on the Determination Date related to any Distribution Date, funds that would otherwise be distributed to Subordinated Noteholders (subject to the payment of certain other amounts prior thereto) may be used instead, first, to pay the Outstanding Class A1-VF Funded Amount, second, to reduce the Remaining Unfunded Facility Commitment to zero by making a deposit to the Reserve Account and, third, to repay principal of the Investment Grade Funded Secured Notes to the extent and as described herein. If the Class E Interest Diversion Test is not satisfied on the Determination Date related to any Distribution Date, Interest Proceeds that would otherwise be distributed to Subordinated Noteholders (subject to the payment of certain other amounts prior thereto) may be used instead to repay principal of the Class E Notes to the extent and as described herein. On the Note Acceleration Date, and on each Distribution Date thereafter, if the Secured Notes are not redeemed in full prior to such date, Interest Proceeds that would otherwise be released from the lien of the Indenture and paid to the Subordinated Note Issuing and Paying Agent for distribution to the Subordinated Noteholders will be applied to the payment of principal of the Funded Secured Notes, to the payment of the Outstanding Class A1-VF Funded Amount (until the Class A1-VF Funded Amount is reduced to zero) and to the reduction to zero of the Remaining Unfunded Facility Commitment by making a deposit to the Reserve Account. See "Description of the Secured Notes—Mandatory Redemption" and "—Priority of Payments—Interest Proceeds." For so long as the Subordinated Notes are listed on the Irish Stock Exchange and the rules of such exchange shall so require, the Issuer will maintain a listing agent and a Paying Agent with respect to the Subordinated Notes with an office located in Dublin, Ireland. Optional Redemption On any Distribution Date on or after the Distribution Date on which the Secured Notes have been paid in full, the Subordinated Notes may be redeemed (in whole but not in part) at the direction of a Majority of Subordinated Noteholders and upon notice to the Portfolio Manager. Final distributions or payments made in respect of a Subordinated Note in the course of a winding up will be made only against surrender of the certificate evidencing such Subordinated Notes at the office of the Subordinated Note Registrar. The Subordinated Note Registrar will communicate such distributions and payments and the related Distribution Date to the Issuer, the Subordinated Note Issuing and Paying Agent, Euroclear, Clearstream, Luxembourg and, for so long as the Subordinated Notes are listed on the Irish Stock Exchange, the Irish Paying Agent. Redemption Procedures. The Subordinated Note Issuing and Paying Agent will, if and for so long as any Subordinated Notes to be redeemed are listed on the Irish Stock Exchange, (i) cause notice of such Optional Redemption to be delivered to the Company Announcements Office of the Irish Stock Exchange not less than 10 Business Days prior to date of redemption and (ii) promptly notify the Irish Stock Exchange of such Optional Redemption. Any such notice of redemption may be withdrawn by the Subordinated Note Issuing and Paying Agent by delivering a notice of such withdrawal to the Company Announcements Office of the Irish Stock Exchange not less than three Business Days prior to the scheduled date of redemption.

122

Notices Notices to the Subordinated Noteholders will be given to the registered holders of the Subordinated Notes at their address appearing in the Subordinated Note Register. For so long as the Subordinated Notes are listed on the Irish Stock Exchange, and so long as the rules of such exchange so require, notices to the holders of the Subordinated Notes shall also be given by delivery to the Company Announcements Office of the Irish Stock Exchange. Voting Rights Set forth below is a summary of certain matters with respect to which Subordinated Noteholders are entitled to vote. This summary is not meant to be an exhaustive list, and, subject to covenants made by each Subordinated Noteholder in the Investor Application Forms (in the case of Original Purchasers of the Subordinated Notes) and, in the case of transferees of the Subordinated Notes, in the transfer certificates or deemed to have been made (as the case may be). Redemption of the Secured Notes. On any Distribution Date occurring on or after the Distribution Date occurring in February 2011, the Secured Notes may, subject to satisfaction of certain conditions described herein, be redeemed (in whole or in part) at the direction of a Majority of Subordinated Noteholders, as described under "Description of the Secured Notes—Optional Redemption and Tax Redemption." Redemption of the Subordinated Notes. On any Distribution Date on or after the Distribution Date on which the Secured Notes have been paid in full, the Subordinated Notes may be redeemed (in whole but not in part) at the direction of a Majority of Subordinated Noteholders. Final distributions or payments made in respect of a Subordinated Note in the course of a winding up will be made only against surrender of the certificate evidencing such Subordinated Notes at the office of the Subordinated Note Registrar. The Subordinated Note Registrar will communicate such distributions and payments and the related Distribution Date to the Issuer, the Subordinated Note Issuing and Paying Agent, Euroclear, Clearstream, Luxembourg and, for so long as the Subordinated Notes are listed on the Irish Stock Exchange, the Irish Paying Agent, as described above under "—Optional Redemption." The Management Agreement. For a description of certain of the provisions relating to the termination of the Management Agreement and the appointment of a replacement portfolio manager, if applicable, see "The Management Agreement." The Indenture. The Issuer is not permitted to enter into certain supplemental indentures without the consent of a Majority of Subordinated Noteholders (or in some cases 100% of Subordinated Noteholders, as described under "Description of the Secured Notes—The Indenture—Modification of the Indenture"). For a description of certain of the provisions of the Indenture relating to the modification of the Indenture, see "Description of the Secured Notes—The Indenture—Modification of the Indenture." Subordinated Note Issuing and Paying Agency Agreement. The Issuer is not permitted to consent to any amendment of the Subordinated Note Issuing and Paying Agency Agreement without the consent of each Subordinated Noteholder if such amendment would (i) reduce in any manner the amount of, or delay the timing of, or change the allocation of, the payment of any distributions on the Subordinated Notes or (ii) reduce the voting percentage of Subordinated Noteholders required to consent to any amendment to the Subordinated Note Issuing and Paying Agency Agreement that requires the consent the Subordinated Noteholders.

123

Additional Issuance. Prior to the end of the Reinvestment Period, subject to the prior consent of the Portfolio Manager, a Majority of the Controlling Class, the Credit Default Swap Counterparty (to the extent required in the Credit Default Swap Agreement) and a Special Majority of Subordinated Noteholders (including, for such purpose, any applicable Portfolio Manager Securities), the Issuer may, in one or more issuances, issue and sell additional Subordinated Notes having an aggregate principal amount up to but not exceeding 25% of the original aggregate principal amount of the Subordinated Notes in accordance with the terms of the Subordinated Note Issuing and Paying Agency Agreement; provided that with respect to any such additional issuance the following additional conditions are satisfied: (i) the Rating Condition shall have been satisfied with respect to such issuance; (ii) the additional Subordinated Notes are issued for cash and the net proceeds of such additional issuance are used to purchase additional Collateral Debt Securities and, if applicable, to enter into Hedge Agreements; (iii) the terms and conditions of the additional Subordinated Notes are identical to those of the initial Subordinated Notes (except that (x) the issue price may be different from that of the initial price of the Subordinated Notes and (y) distributions on the additional Subordinated Notes will accrue from the issue date of such additional Subordinated Notes and will be payable (to the extent that funds are available therefor in accordance with the Priority of Payments) commencing on the first Distribution Date following the issue date of such additional Subordinated Notes); (iv) the additional Subordinated Notes will rank pari passu in all respects with the initial Subordinated Notes; (v) other than the case where Subordinated Notes are issued in accordance with clause (b) above, the aggregate principal amount of the additional Subordinated Notes issued in connection with such issuance is not less than 5% of the initial aggregate principal amount of the Subordinated Notes; and (vi) any additional Subordinated Notes issued will, to the extent reasonably practicable, be offered first to holders of Subordinated Notes in such amounts as are necessary to preserve their pro rata holding of Subordinated Notes. Dissolution The Directors of the Issuer currently intend, in the event that the Subordinated Notes are not redeemed following the repayment in full of the Secured Notes, to liquidate all of the Issuer's remaining investments in an orderly manner and distribute the proceeds of such liquidation to the Subordinated Noteholders. However, there can be no assurance that the Subordinated Notes will be repaid before their Stated Maturity. See "Maturity, Prepayment and Yield Considerations" and "Risk Factors—Average Life of the Secured Notes and Prepayment Considerations." Petitions for Bankruptcy Each Original Purchaser of Subordinated Notes will be required to covenant in a Investor Application Form (and each transferee of Subordinated Notes will be required to covenant in a transfer certificate (or deemed to have covenanted, as applicable)) that it will not cause the filing of a petition in bankruptcy against the Issuer before one year and one day have elapsed since the payment in full of the Secured Notes and Combination Notes or, if longer, the applicable preference period then in effect. U.S. Tax Characterization The Issuer intends to treat the Subordinated Notes as equity interests in the Issuer for U.S. Federal and, to the extent permitted by law, state and local income and franchise tax purposes. The Subordinated Note Issuing and Paying Agency Agreement will provide that each registered holder and beneficial owner, by accepting a Subordinated Note, agrees to such treatment, to report all income (or loss) in accordance with such characterization and not to take any action inconsistent with such treatment unless otherwise required by any relevant taxing authority.

124

Governing Law The Subordinated Note Issuing and Paying Agency Agreement, the Subordinated Notes and the Investor Application Forms will be governed by, and construed in accordance with, the law of the State of New York. No Gross-Up All distributions and return of capital on the Subordinated Notes will be made without any deduction or withholding for or on account of any tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If the Issuer is so required to deduct or withhold, then the Issuer will instruct the Subordinated Note Issuing and Paying Agent to make such deduction or withholding and will pay any such withholding taxes in the country of origin, but will not be obligated to pay any additional amounts in respect of such withholding or deduction. Benefit Plan Investors and Controlling Persons No Subordinated Note (or any interest therein) may be directly or indirectly acquired by or transferred to a Benefit Plan Investor or a Controlling Person (each as defined herein) except on the Closing Date, and then only to the extent that after giving effect to such transfer, less than 25% of the aggregate value of the Subordinated Notes would be held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons. See "Certain ERISA and Related Considerations" and "Transfer Restrictions." Each Original Purchaser of a Subordinated Note (or an interest therein) will be required to certify whether or not it is a Benefit Plan Investor or a Controlling Person and each subsequent transferee of a Subordinated Note (or an interest therein) will be required to certify (or in certain circumstances will be deemed to represent and warrant) that it is not a Benefit Plan Investor or a Controlling Person. Each Original Purchaser and each subsequent transferee of a Subordinated Note will be required to covenant (or in certain circumstances will be deemed to represent and warrant) that it will not transfer such Subordinated Note (or any interest therein) to a Benefit Plan Investor or a Controlling Person. No transfer of a Subordinated Note (or any interest therein) to a Benefit Plan Investor or a Controlling Person will be effected on the Closing Date unless, after giving effect to such transfer on the Closing Date, less than 25% of the value of the Subordinated Notes would be held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons, and no transfer of a Subordinated Note (or any interest therein) to a Benefit Plan Investor or a Controlling Person will be effected after the Closing Date. If the Issuer determines that any holder or beneficial owner of a Subordinated Note (or an interest therein) is a Benefit Plan Investor or a Controlling Person (other than a Benefit Plan Investor or a Controlling Person that acquired a Subordinated Note (or interest therein) on the Closing Date, and then only if after such acquisition less than 25% of the aggregate value of the Subordinated Notes was held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons), or that any such holder or beneficial owner that represented it was not a Benefit Plan Investor or a Controlling Person was a Benefit Plan Investor or a Controlling Person or subsequent to the purchase of such Subordinated Note (or interest therein) is or has become a Benefit Plan Investor or a Controlling Person, the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Subordinated Note (or interest therein) to a person that is not a Benefit Plan Investor or a Controlling Person and otherwise satisfies the applicable requirements for holding such Subordinated Note (or interest therein) with such sale to be effected within 14 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 14-day period, (x) upon written direction from the Portfolio Manager or the Issuer, the Subordinated 125

Note Issuing and Paying Agent shall, and will be deemed to be irrevocably authorized by such holder or beneficial owner to, cause such holder's or beneficial owner's interest in such security to be transferred in a commercially reasonable sale arranged by the Portfolio Manager (conducted by the Subordinated Note Issuing and Paying Agent in accordance with Section 9-610(b) of the UCC as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Subordinated Note Issuing and Paying Agent and the Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person and otherwise meets the requirements for holding such Subordinated Note (or interest therein) and (y) pending such transfer, no further payments will be made in respect of the interest in such Subordinated Note held by such holder or beneficial owner, and the interest in such Subordinated Note shall not be deemed to be outstanding for the purpose of any vote or consent of the holders of the Subordinated Notes. See "Certain ERISA and Related Considerations" herein for a more detailed discussion of these considerations with respect to an investment in the Subordinated Notes.

126

DESCRIPTION OF THE COMBINATION NOTES General The Issuer will issue U.S.$10,000,000 Combination Notes due 2047 (the "Combination Notes"). The Combination Notes will be issued by the Issuer pursuant to the Indenture. The Combination Notes will consist of two components (each, a "Component"): (1) a component initially consisting of U.S.$8,000,000 aggregate original principal amount of the Class D Notes (the "Class D Note Component"); and (2) a component initially consisting of U.S.$2,000,000 aggregate original principal amount of the Subordinated Notes (the "Subordinated Note Component"). The aggregate principal amount of the Class D Notes included in the Class D Note Component is included in, and is not in addition to, the aggregate principal amount of the Class D Notes as described elsewhere in this Offering Memorandum. The Class D Notes included in the Class D Note Component of the Combination Notes will be represented by the certificates evidencing the Combination Notes. The aggregate principal amount of the Subordinated Notes included in the Subordinated Note Component is included in, and is not in addition to, the aggregate principal amount of the Subordinated Notes issued by the Issuer as described elsewhere in this Offering Memorandum. Subordinated Notes included in the Subordinated Note Component will be issued to the registered holders of the Combination Notes and will be represented by the certificates evidencing the Combination Notes. Except as otherwise described in this section entitled "Description of the Combination Notes", the terms and conditions of the Combination Notes (including amounts due and payable thereunder) will be (a) with respect to the Class D Note Component, the terms and conditions of the Class D Notes and (b) with respect to the Subordinated Note Component, the terms and conditions of the Subordinated Notes. Status and Security The Combination Notes are limited recourse obligations of the Issuer. The Combination Notes will be entitled to receive payments only to the extent that payments are made on the Class D Notes included in the Class D Note Component and the Subordinated Notes included in the Subordinated Note Component. The Combination Notes will be secured solely to the extent to which the underlying Components are secured. The Subordinated Note Component, therefore, will not be secured. Interest Registered holders of the Combination Notes will be entitled to interest at a rate equal to LIBOR (the "Combination Note Contingent Coupon") if and to the extent funds are available for such purposes (computed on the basis of a 360-day year and the actual number of days elapsed). The Combination Note Contingent Coupon shall apply so long as the aggregate outstanding principal amount of the Combination Notes is greater than zero. The registered holders of the Combination Notes will be entitled to receive all proceeds in respect of the Class D Note Component and the Subordinated Note Component if and to the extent that funds are available for such purposes as described below under "—Payments". 127

On any Distribution Date, if the amounts available for distribution on the Combination Notes are less than the Combination Note Contingent Coupon, the amount of interest that is not paid on the Combination Notes shall not be considered "due and payable" and shall be deemed to be deferred until the next succeeding Distribution Date on which amounts are available in accordance with the Priority of Payments to pay such Combination Note Contingent Coupon and shall accrue interest at a rate equal to LIBOR. On any Distribution Date, if the amounts available for distribution to the holders of the Combination Notes exceed the Combination Note Contingent Coupon, then any such excess amounts will be used to repay principal of the Combination Notes until the aggregate principal amount of the Combination Notes has been reduced to zero. After the principal amount of the Combination Notes has been reduced to zero, the holders of the Combination Notes will be entitled to receive all distributions on the Class D Note Component and the Subordinated Note Component pro rata in accordance with the respective initial principal amount of the Combination Notes held by them. Early Redemption The Combination Notes will only be redeemed prior to their Stated Maturity when and in the same manner as the Underlying Components are redeemed. Any proceeds of the early redemption of the Class D Component or the Subordinated Note Component will be paid to the registered holders of the Combination Notes on the related Distribution Date to the extent of the ratable portion of such proceeds allocated to the Components. See (i) "Description of the Secured Notes—Mandatory Redemption", "— Auction Call Redemption", "—Optional Redemption and Tax Redemption" and "—Redemption Price" and (ii) "Description of the Subordinated Notes—Optional Redemption". Redemption The Combination Notes will be redeemed, (i) with respect to the Class D Note Component, by allocation of payments in respect of the Class D Notes to such Component and (ii) with respect to the Subordinated Note Component, by allocation of payments in respect of the Subordinated Notes to such Component. The Combination Notes will be fully redeemed when the Subordinated Notes constituting the Subordinated Note Component have been fully redeemed. The Combination Notes will be redeemed in the manner described for the Subordinated Notes under "Description of the Subordinated Notes— Optional Redemption". Acts of Holders of Combination Notes The holders of the Combination Notes will be treated as holders of the Class D Notes and the Subordinated Notes to the extent of the respective Class D Note Component and the Subordinated Note Component, as applicable. Any reference in this Offering Memorandum to holders of the Secured Notes or Subordinated Notes, as applicable, shall be treated as including holders of the Combination Notes, to the extent of the Class D Note Component and the Subordinated Note Component, respectively, for purposes of any requests, demands, authorizations, directions, notices, consents, votes, waivers or other actions under the Indenture (in the case of the Class D Note Component) or the Subordinated Note Issuing and Paying Agency Agreement (in the case of the Subordinated Note Component). Other than with respect to the circumstances set forth in the Indenture requiring separate consent of the Combination Noteholders with respect to changes to the terms of the Combination Notes, the holders of the Combination Notes will only be entitled to vote, or to direct the voting of, the Class D Notes or Subordinated Notes, as applicable, constituting the Components of the Combination Notes.

128

Payments Payments will be made on the Combination Notes on each Distribution Date on which payments, if any, are made on the Class D Notes or the Subordinated Notes comprising the Class D Note Component and the Subordinated Note Component, respectively, of the Combination Notes. Such amounts will be paid to the registered holders of the Combination Notes pro rata based on the aggregate outstanding amount of the Class D Notes comprising the Class D Note Component of the Combination Notes, in the case of payments with respect to the Class D Note Component, or based on the aggregate outstanding amount of Subordinated Notes comprising the Subordinated Note Component of the Combination Notes, in the case of payments with respect to the Subordinated Note Component. Payments will be made in the manner described for the Components under "Description of the Secured Notes—Payments". Each Paying Agent appointed under the Indenture will also act as paying agent with respect to the Combination Notes. No other payments will be made on the Combination Notes. Cancellation All Combination Notes that are paid in full or redeemed and surrendered for cancellation will forthwith be canceled and may not be reissued or resold. For so long as any Combination Notes are listed on the Irish Stock Exchange and the rules of such exchange shall so require, the Issuer will have a paying agent (which shall be the Irish Paying Agent) for such Combination Notes in Ireland and payments on and transfers or exchanges of interests in such Combination Notes may be effected through the Irish Paying Agent; provided that all transfers and exchanges must be effected in accordance with the Indenture. In the event that the Irish Paying Agent is replaced at any time during such period, notice of the appointment of any replacement will be published in the Irish Stock Exchange's Daily Official List as promptly as practicable after such appointment. In addition, for so long as any Combination Notes are listed on the Irish Stock Exchange and the rules of such exchange shall so require, (i) in the case of a transfer or exchange of certificated Combination Notes, a holder thereof may effect such transfer or exchange by presenting such Combination Notes at, and obtaining a new certificated Combination Note from, the office of the Irish Paying Agent, (ii) in the case of a transfer of only a part of a certificated Combination Note, a new certificated Combination Note in respect of the balance of the principal amount of the certificated Combination Note not transferred will be delivered at the office of the Irish Paying Agent and (iii) in the case of a replacement of any lost, stolen, mutilated or destroyed certificated Secured Notes, a registered holder thereof may obtain a new certificated Combination Note from the Irish Paying Agent; provided that all transfers, exchanges and replacements must be effected in accordance with the Indenture. Restricted Combination Notes and interests in Global Combination Notes will be subject to certain restrictions on transfer set forth therein and in the Indenture, and the Combination Notes will bear the applicable legends regarding the restrictions set forth under "Transfer Restrictions". The Combination Notes will be issued in minimum denominations of $1,000,000 and integral multiples of $1,000 in excess thereof.

129

Exchange of Combination Notes for Underlying Components The Combination Notes comprise a single class of securities issued by the Issuer. The Combination Notes represent an interest equivalent to the Components comprising the Combination Notes, and the Class D Notes and Subordinated Notes relating to these Components therefore will not be issued directly to the holders of the Combination Notes. The Components are not separately transferable. However, a holder may exchange its Combination Note (in whole but not in part) for its ratable share of the underlying Class D Notes and Subordinated Notes, as applicable, represented by the applicable Components, subject to the minimum denominations as described herein, and in the Indenture and the Subordinated Note Issuing and Paying Agency Agreement, as applicable. Specifically, upon such an exchange, a holder of Combination Notes will receive its ratable share, based on the portion of the total amount of Combination Notes owned by such holder, of (i) Class D Notes in an aggregate outstanding amount equal to the proportion that the initial principal amount of the Class D Notes represented by the Class D Note Component bears to the initial principal amount of the Class D Notes as a whole (including the Class D Notes constituting the Class D Note Component) and (ii) Subordinated Notes in an aggregate outstanding amount equal to the proportion that the initial principal amount of the Subordinated Notes represented by the Subordinated Note Component bears to the initial principal amount of the Subordinated Notes as a whole. A holder of Class D Notes or Subordinated Notes (including a holder that received such Class D Notes or Subordinated Notes upon exchange of a Combination Note) will not have the right to exchange such Class D Notes or Subordinated Notes for a Combination Note. Notices Notices to the holders of the Combination Notes will be given by first-class mail, postage prepaid, to the registered holders of the Combination Notes at their address appearing in the Combination Note Register. For so long as the Combination Notes are listed on the Irish Stock Exchange, and so long as the rules of such exchange so require, notices to the holders of the Combination Notes shall also be given by delivery to the Company Announcements Office of the Irish Stock Exchange. Benefit Plan Investors and Controlling Persons No Combination Note (or any interest therein) may be directly or indirectly acquired by or transferred to a Benefit Plan Investor (as defined herein) at any time. See "Certain ERISA and Related Considerations" and "Transfer Restrictions." Each Original Purchaser and each subsequent transferee of a Combination Note (or an interest therein) will be required to certify (or in certain circumstances will be deemed to represent and warrant that (1) it is not a Benefit Plan Investor and (2) it will not transfer such Combination Note (or any interest therein) to a Benefit Plan Investor Person. No transfer of a Combination Note (or any interest therein) to a Benefit Plan Investor will be effected at any time. If the Issuer determines that any holder or beneficial owner of a Combination Note (or an interest therein) is a Benefit Plan Investor, the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Combination Note (or interest therein) to a person that is not a Benefit Plan Investor or a Controlling Person and otherwise satisfies the applicable requirements for holding such Combination Note (or interest therein) with such sale to be effected within 14 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 14-day period, (x) upon written direction from the Portfolio Manager or the Issuer, the Trustee shall, and will be deemed to be irrevocably authorized by such holder or beneficial owner to, cause such holder's or beneficial owner's interest in such security to be transferred in a commercially reasonable sale arranged by the Portfolio Manager (conducted 130

by the Trustee in accordance with Section 9-610(b) of the UCC as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Trustee and the Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor and otherwise meets the requirements for holding such Combination Note (or interest therein) and (y) pending such transfer, no further payments will be made in respect of the interest in such Combination Note held by such holder or beneficial owner, and the interest in such Combination Note shall not be deemed to be outstanding for the purpose of any vote or consent of the holders of the Combination Notes. See "Certain ERISA and Related Considerations" herein for a more detailed discussion of these considerations with respect to an investment in the Combination Notes. U.S. Tax Characterization The Issuer intends to treat the Combination Notes, and the Indenture requires that holders agree to treat the Combination Notes, as direct ownership of the Class D Notes and Subordinated Notes constituting the Class D Component and the Subordinated Note Component as if such Class D Notes and Subordinated Notes had been issued directly to such holders.

131

FORM, REGISTRATION AND TRANSFER OF NOTES Class A1-VF Notes Class A1-VF Notes initially sold or transferred to a U.S. Person or in the United States in reliance upon an exemption under Section 4(2) from the registration requirements of the Securities Act (the "Restricted Class A1-VF Notes") will be issued in the form of definitive, physical certificates without interest coupons attached, registered in the name of the legal and beneficial owner thereof. Class A1-VF Notes that are sold or transferred outside the United States in offshore transactions to persons that are not U.S. Persons (the "Regulation S Class A1-VF Notes") will be issued in the form of definitive, physical certificates without interest coupons attached, registered in the name of the beneficial owner thereof. The Restricted Class A1-VF Notes will be offered and may only be transferred in the United States to Qualified Institutional Buyers in reliance on the exemption from registration under the Securities Act provided by Rule 144A thereunder who are also Qualified Purchasers. Regulation S Class A1-VF Notes will be offered and may only be transferred to persons or entities that are not U.S. Persons in an offshore transaction in accordance with Regulation S. Transfers of Class A1-VF Notes may only be effected by delivery to the Variable Funding Note Agent and the Trustee of an assignment and acceptance agreement in substantially the form attached as an exhibit to the Variable Funding Note Purchase Agreement and registration in the applicable note register. Regulation S Global Securities The Class A2A Notes, Class A2B Notes, Class B1 Notes, Class B2 Notes, Class C Notes and the Class D Notes (collectively, the "Investment Grade Funded Secured Notes") that are sold or transferred outside the United States to persons that are not U.S. Persons will be represented by one or more permanent global notes (each a "Regulation S Global Investment Grade Funded Secured Note") and the Class E Notes, Combination Notes, and Subordinated Notes that are sold or transferred outside the United States in offshore transactions to persons that are not U.S. Persons will be represented by one or more permanent global notes (each a "Regulation S Global Class E Note", a "Regulation S Global Combination Note", or a "Regulation S Global Subordinated Note", respectively; the Regulation S Global Investment Grade Funded Secured Notes, Regulation S Global Class E Notes and Regulation S Class A1-VF Notes are referred to collectively as the "Regulation S Secured Notes"; the Regulation S Global Investment Grade Funded Secured Notes, Regulation S Global Class E Notes, Regulation S Global Subordinated Notes and Regulation S Global Combination Notes are referred to collectively as the "Regulation S Global Securities"), in each case, in definitive, fully registered form, without interest coupons, and deposited with the Trustee as custodian for, and registered in the name of, The Depository Trust Company ("DTC") or its nominee. By acquisition of a beneficial interest in a Regulation S Global Security, any purchaser thereof will be deemed to represent that (a) it is not a "U.S. Person" (as defined in Regulation S) and is purchasing such beneficial interest for its own account and not for the account or benefit of a U.S. Person and (b) if in the future it decides to transfer such beneficial interest, it will transfer such interest only in an offshore transaction in accordance with Regulation S or to a person who takes delivery in the form of a Restricted Security (or beneficial interest therein). Restricted Global Investment Grade Funded Secured Notes Investment Grade Funded Secured Notes that are sold or transferred to a U.S. Person or in the United States in reliance upon an exemption under Section 4(2) from the registration requirements of the Securities Act will be represented by one or more permanent global notes ("Restricted Global Investment Grade Funded Secured Notes". The Restricted Global Investment Grade Funded Secured Notes and the Regulation S Global Securities are collectively referred to as the "Global Securities") and will be represented by one or more permanent global notes in definitive, fully registered form, without interest

132

coupons, and deposited with the Trustee as custodian for, and registered in the name of DTC or its nominee. Restricted Class E Notes, Restricted Subordinated Notes, and Restricted Combination Notes Class E Notes, Combination Notes and Subordinated Notes that are sold or transferred to a U.S. Person or in the United States in reliance upon an exemption under Section 4(2) from the registration requirements of the Securities Act will be represented by certificates in definitive, fully registered form ("Restricted Class E Notes", "Restricted Subordinated Notes" and "Restricted Combination Notes", respectively, and, collectively with the Restricted Class A1-VF Notes and the Restricted Global Investment Grade Funded Secured Notes, "Restricted Securities"), registered in the name of the legal and beneficial owner thereof. Clearing Systems Beneficial interests in each Global Security will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct and Indirect Participants, including Euroclear and Clearstream, Luxembourg. Transfers between members of, or Participants in, DTC (each a "Participant") will be effected in the ordinary way in accordance with the Applicable Procedures and will be settled in immediately available funds. Transfers between Participants in Euroclear Bank S.A./N.V. ("Euroclear") and Clearstream Banking, Luxembourg S.A. ("Clearstream, Luxembourg") will be effected in the ordinary way in accordance with their respective rules and operating procedures. See "Settlement and Clearing—Global Securities." Transfer of Global Securities to Definitive Securities Owners of beneficial interests in Global Securities will be entitled or required, as the case may be, under certain limited circumstances described under "Settlement and Clearing—Transfers and Exchanges for Definitive Securities," to receive physical delivery of certificated Secured Notes ("Definitive Secured Notes"), certificated Combination Notes ("Definitive Combination Notes") or certificated Subordinated Notes ("Definitive Subordinated Notes" and, collectively with the Definitive Secured Notes and Definitive Combination Notes, "Definitive Securities"), in each case, in fully registered, definitive form. However, no owner of an interest in a Regulation S Global Security will be entitled to receive a Definitive Security unless such person provides written certification that the Definitive Security is beneficially owned by a person that is not a U.S. Person or held for the account or benefit of a U.S. Person. Transfer Restrictions The Notes are subject to the restrictions on transfer set forth in this Offering Memorandum under "Transfer Restrictions" and the Indenture, the Variable Funding Note Purchase Agreement or the Subordinated Note Issuing and Paying Agency Agreement, as applicable, and will bear a legend setting forth such restrictions. See "Transfer Restrictions." The Issuer may impose additional restrictions on the transfer of Notes in order to comply with the USA PATRIOT Act, to the extent it is applicable to the Issuer. Transfer and Exchange of Secured Notes Pursuant to the Indenture and the Variable Funding Note Purchase Agreement, LaSalle Bank National Association has been appointed and will serve as the registrar with respect to the Secured Notes (in such capacity, the "Secured Note Registrar") and will provide for the registration of Secured Notes and the registration of transfers of Secured Notes in the register maintained by it on behalf of the Issuer (the "Secured Note Register").

133

No Secured Note (or any interest therein) may be transferred to a transferee acquiring an interest in a Secured Note except (a) to a transferee that is acquiring such interest in an offshore transaction (within the meaning of Regulation S) in accordance with Regulation S, (b) to a transferee that is not a U.S. Person, (c) in compliance with the certification (if any) and other requirements set forth in the Indenture and Variable Funding Note Purchase Agreement (as applicable) and (d) in accordance with any applicable securities laws of any State of the United States and any other relevant jurisdiction. No Class A1-VF Note or Funded Secured Note (or any interest therein) may be transferred to a transferee acquiring an interest in a Restricted Class A1-VF Note, Restricted Global Investment Grade Funded Secured Note or Restricted Class E Note (as applicable) except (a) to a transferee whom the seller reasonably believes is a Qualified Institutional Buyer purchasing for its own account, to whom notice is given that the resale, pledge or other transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A, (b) to a transferee that is a Qualified Purchaser, (c) in compliance with the certification (if any) and other requirements set forth in the Indenture and Variable Funding Note Purchase Agreement (as applicable) and (d) in accordance with any applicable securities laws of any State of the United States and any other relevant jurisdiction. No Class A1-VF Note or Funded Secured Note (or any interest therein) may be transferred, and none of the Trustee, the Secured Note Registrar and the Variable Funding Note Agent will recognize any such transfer, unless (a) such transfer is made in a manner exempt from registration under the Securities Act, (b) such transfer is made in denominations greater than or equal to the minimum denomination therefor, (c) such transfer would not have the effect of requiring either of the Co-Issuers to register or the pool of Collateral to be registered as an investment company under the Investment Company Act and (d) the transferee is able to make all applicable certifications and representations required by the relevant transfer certificate attached as an exhibit to the Indenture or Variable Funding Note Purchase Agreement (as applicable) (if the Indenture or Variable Funding Note Purchase Agreement requires that a transfer certificate be delivered in connection with such a transfer). Notwithstanding the foregoing, an owner of a beneficial interest in a Regulation S Global Investment Grade Funded Secured Note may transfer such interest in the form of a beneficial interest in such Regulation S Global Investment Grade Funded Secured Note without the provision of written certification, but subject to certain deemed representations, warranties and agreements. See "Transfer Restrictions." Transfers by a holder of a beneficial interest in a Regulation S Global Investment Grade Funded Secured Note to a transferee who takes delivery of such interest in the form of a beneficial interest in a Restricted Global Investment Grade Funded Secured Note will be made only in accordance with the applicable procedures of the depositary and (in the case of a Regulation S Global Investment Grade Funded Secured Note) Euroclear or Clearstream, Luxembourg (in addition to those under the Indenture), in each case to the extent applicable (the "Applicable Procedures") and upon receipt by the Secured Note Registrar of written certifications from the transferor of the beneficial interest in the form provided in the Indenture to the effect that, among other things, such transfer is being made (a) to a person whom the transferor reasonably believes is a (x) Qualified Institutional Buyer to whom notice is given that the transfer is being made in reliance on Rule 144A and (y) to a Qualified Purchaser and (b) in accordance with any applicable securities laws of any State of the United States or any other jurisdiction and from the transferee in the form provided for in the Indenture. An owner of a beneficial interest in a Regulation S Global Investment Grade Funded Secured Note may transfer such interest in the form of a beneficial interest in such Regulation S Global Investment Grade Funded Secured Note without the provision of written certification; provided that (a) such transfer is not made to a U.S. Person or for the account or benefit of a U.S. Person and is effected through Euroclear or Clearstream, Luxembourg in an offshore transaction as required by Regulation S and only in accordance with the Applicable Procedures and (b) any transfer not effected in an offshore

134

transaction in accordance with Rule 904 of Regulation S may be made only upon provision to the Trustee, the Co-Issuers and the Secured Note Registrar of written certification from the transferee and transferor in the form provided for in the Indenture. Transfers by a holder of a beneficial interest in a Regulation S Global Class E Note to a transferee who takes delivery of such interest in the form of a beneficial interest in a Restricted Class E Note will be made only in accordance with the applicable procedures of the depositary and Euroclear or Clearstream, Luxembourg (in addition to those under the Indenture), in each case to the extent applicable (the "Applicable Procedures") and upon receipt by the Secured Note Registrar of written certifications from the transferor of the beneficial interest in the form provided in the Indenture to the effect that, among other things, such transfer is being made (a) to a person whom the transferor reasonably believes (x) is a Qualified Institutional Buyer to whom notice is given that the transfer is being made in reliance on Rule 144A, (y) is a Qualified Purchaser and (z) is not a Benefit Plan Investor or Controlling Person and (b) in accordance with any applicable securities laws of any State of the United States or any other jurisdiction and from the transferee in the form provided for in the Indenture. The Indenture provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any holder or beneficial owner of a Class E Note (or any interest therein) is a Benefit Plan Investor or a Controlling Person (other than a Benefit Plan Investor that acquired a Class E Note (or interest therein) on the Closing Date), or that a beneficial owner of a Class E Note did not disclose in an Investor Application Form or a transfer certificate in the form attached to the Indenture delivered to the Issuer at the time of its acquisition of such Class E Note or beneficial interest in such Class E Note that it is a Benefit Plan Investor or a Controlling Person (or represented that it was not a Benefit Plan Investor or a Controlling Person but actually was a Benefit Plan Investor or a Controlling Person) or, subsequent to the purchase of a Class E Note, any holder or beneficial owner (other than a Benefit Plan Investor that acquired a Class E Note (or interest therein) on the Closing Date) is or has become a Benefit Plan Investor or a Controlling Person, then the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Class E Note (or interest therein) to a person or entity that is not a Benefit Plan Investor or a Controlling Person, and otherwise complies with all the transfer restrictions relating to such Subordinated Note set forth herein and in the Indenture, with such sale to be effected within 30 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 30-day period, (i) upon written direction from the Portfolio Manager or the Issuer, the Trustee shall, and is hereby irrevocably authorized by such holder or beneficial owner to, cause such holder or beneficial owner's interest in such Class E Note to be transferred in a commercially reasonable sale (conducted by the Trustee in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Trustee, the Issuer and the Portfolio Manager, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person, and otherwise complies with all the transfer restrictions relating to such Note and (ii) pending such transfer, no further payments will be made in respect of such Note held by such holder or beneficial owner. The Indenture provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any beneficial owner of a Class A1-VF Note or Funded Secured Note (or any interest therein) (A) is a U.S. Person and (B) is not both a Qualified Institutional Buyer and a Qualified Purchaser, then the Issuer shall require, by notice to such holder, that such holder sell all of its right, title and interest to such Class A1-VF Note or Funded Secured Note (or any interest therein) to a person or entity that is both a Qualified Institutional Buyer and a Qualified Purchaser, with such sale to be effected within 30 days after notice of such sale requirement is given. If such beneficial owner fails to effect the transfer required within such 30-day period, (i) upon direction from the Issuer, the Trustee, on behalf of

135

and at the expense of the Issuer, shall cause such beneficial owner's interest in such Class A1-VF Note or Funded Secured Note to be transferred in a commercially reasonable sale arranged by an investment bank selected by the Portfolio Manager (conducted by such investment bank in accordance with Section 9610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person or entity that certifies to the Trustee and the Co-Issuers, in connection with such transfer, that such person is both a Qualified Institutional Buyer and a Qualified Purchaser and (ii) pending such transfer, no further payments will be made in respect of such Class A1-VF Note or Funded Secured Note held by such beneficial owner. Transfer and Exchange of Subordinated Notes LaSalle Bank National Association has been appointed as transfer agent with respect to the Subordinated Notes (the "Subordinated Note Transfer Agent"). Pursuant to the Subordinated Note Issuing and Paying Agency Agreement, LaSalle Bank National Association (on behalf of the Issuer) has been appointed and will serve as the registrar with respect to the Subordinated Notes (in such capacity, the "Subordinated Note Registrar") and will provide for the registration of Subordinated Notes and the registration of transfers of Subordinated Notes in the register maintained by it (the "Subordinated Note Register"). Written instruments of transfer are available at the office of the Subordinated Note Registrar. No Subordinated Note may be transferred to a U.S. Person or within the United States except (a) to a transferee whom the seller reasonably believes is a Qualified Institutional Buyer, purchasing for its own account, to whom notice is given that the resale, pledge or other transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A, (b) to a transferee that is a Qualified Purchaser, (c) to a transferee that is not a Benefit Plan Investor, (d) to a transferee that is not a Flow-Through Investment Vehicle (other than a Qualifying Investment Vehicle), (e) if such transfer is made in compliance with the certification and other requirements set forth in the Subordinated Note Issuing and Paying Agency Agreement and (f) if such transfer is made in accordance with any applicable securities laws of any State of the United States and any other relevant jurisdiction. The Subordinated Note Issuing and Paying Agency Agreement provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any holder or beneficial owner of a Subordinated Note (or any interest therein) is a Benefit Plan Investor or a Controlling Person (other than a Benefit Plan Investor that acquired a Subordinated Note (or interest therein) on the Closing Date), or that a beneficial owner of a Subordinated Note did not disclose in an Investor Application Form, purchaser letter in the form attached as an exhibit to the Subordinated Note Issuing and Paying Agency Agreement or a transfer certificate in the form attached to the Subordinated Note Issuing and Paying Agency Agreement delivered to the Issuer at the time of its acquisition of such Subordinated Note or beneficial interest in such Subordinated Note that it is a Benefit Plan Investor or a Controlling Person (or represented that it was not a Benefit Plan Investor or a Controlling Person but actually was a Benefit Plan Investor or a Controlling Person) or, subsequent to the purchase of a Subordinated Note, any holder or beneficial owner (other than a Benefit Plan Investor that acquired a Subordinated Note (or interest therein) on the Closing Date) is or has become a Benefit Plan Investor or a Controlling Person, then the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Subordinated Note (or interest therein) to a person or entity that is not a Benefit Plan Investor or a Controlling Person, and otherwise complies with all the transfer restrictions relating to such Subordinated Note set forth herein and in the Subordinated Note Issuing and Paying Agency Agreement, with such sale to be effected within 30 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such

136

30-day period, (i) upon written direction from the Portfolio Manager or the Issuer, the Subordinated Note Issuing and Paying Agent shall be deemed to be irrevocably authorized by such holder or beneficial owner to cause such holder or beneficial owner's interest in such Subordinated Note to be transferred in a commercially reasonable sale (conducted by the Subordinated Note Issuing and Paying Agent in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Subordinated Note Issuing and Paying Agent, the Issuer and the Portfolio Manager, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person, and otherwise complies with all the transfer restrictions relating to such Note and (ii) pending such transfer, no further payments will be made in respect of such Note held by such holder or beneficial owner. In addition, no Subordinated Note may be transferred to a person or entity acquiring an interest in a Regulation S Global Subordinated Note except (a) to a transferee that is acquiring such interest in an offshore transaction (within the meaning of Regulation S) in accordance with Regulation S, (b) to a transferee that is not a U.S. Person, (c) to a transferee that is not a Benefit Plan Investor or a Controlling Person, (d) if such transfer is made in compliance with the certification, if any, and other requirements set forth in the Subordinated Note Issuing and Paying Agency Agreement and (e) if such transfer is made in accordance with any applicable securities laws of any State of the United States and any other relevant jurisdiction. Transfers by a holder of a beneficial interest in a Regulation S Global Subordinated Note or a Restricted Subordinated Note to a transferee who takes delivery of a Restricted Subordinated Note will be made (a) in the case of a transfer by a holder of a beneficial interest in a Regulation S Global Subordinated Note, only in accordance with the Applicable Procedures and (b) in either case, upon receipt by the Subordinated Note Registrar of written certifications from each of the transferor and the transferee of such beneficial interest in the form provided in the Subordinated Note Issuing and Paying Agency Agreement to the effect that, among other things, such transfer is being made: (i) to a transferee that (A) is both (1) a Qualified Institutional Buyer, purchasing for its own account, to whom notice is given that the resale, pledge or other transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A and (2) a Qualified Purchaser, (B) is not a Flow-Through Investment Vehicle (other than a Qualifying Investment Vehicle) and (C) is not a Benefit Plan Investor or Controlling Person; and (ii) jurisdiction.

in accordance with all other applicable securities laws of any relevant

The Subordinated Note Issuing and Paying Agency Agreement provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any beneficial owner of a Subordinated Note (or any interest therein) (A) is a U.S. Person and (B) is not both (1) a Qualified Institutional Buyer that purchased such Subordinated Note (or any interest therein) directly from the Issuer or the Initial Purchaser and (2) a Qualified Purchaser, then the Issuer shall require, by notice to such holder (with a copy to the Portfolio Manager) that such holder sell all of its right, title and interest to such Subordinated Note (or interest therein) to a person or entity that is both (1) a Qualified Institutional Buyer and (2) a Qualified Purchaser, with such sale to be effected within 30 days after notice of such sale requirement is given. If such beneficial owner fails to effect the transfer required within such 30-day period, (i) upon written direction from the Portfolio Manager or the Issuer, the Subordinated Note Issuing and Paying Agent, on behalf of and at the expense of the Issuer, shall, and will be deemed to be irrevocably authorized by such beneficial owner to, cause such beneficial owner's interest in such

137

Subordinated Note to be transferred in a commercially reasonable sale arranged by an investment bank selected by the Portfolio Manager (conducted by such investment bank in accordance with Section 9610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Subordinated Note Issuing and Paying Agent and the Issuer, in connection with such transfer, that such person is both (1) a Qualified Institutional Buyer and (2) a Qualified Purchaser and (ii) pending such transfer, no further payments will be made in respect of such Subordinated Note held by such beneficial owner. Transfer and Exchange of Combination Notes Pursuant to the Indenture, LaSalle Bank National Association has been appointed and will serve as the registrar with respect to the Combination Notes (in such capacity, the "Combination Note Registrar") and will provide for the registration of Combination Notes and the registration of transfers of Combination Notes in the register maintained by it on behalf of the Issuer (the "Combination Note Register"). No Combination Note may be transferred to a U.S. Person or within the United States except (a) to a transferee whom the seller reasonably believes is a Qualified Institutional Buyer, purchasing for its own account, to whom notice is given that the resale, pledge or other transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A, (b) to a transferee that is a Qualified Purchaser or is not a U.S. Person, (c) to a transferee that is not a Benefit Plan Investor or a Controlling Person, (d) to a transferee that is not a Flow-Through Investment Vehicle (other than a Qualifying Investment Vehicle), (e) if such transfer is made in compliance with the certification and other requirements set forth in the Indenture and (f) if such transfer is made in accordance with any applicable securities laws of any State of the United States and any other relevant jurisdiction. In addition, no Combination Note may be transferred to a person or entity acquiring an interest in a Regulation S Global Combination Note except (a) to a transferee that is acquiring such interest in an offshore transaction (within the meaning of Regulation S) in accordance with Regulation S, (b) to a transferee that is not a U.S. Person, (c) to a transferee that is not a Benefit Plan Investor or a Controlling Person, (d) if such transfer is made in compliance with the certification, if any, and other requirements set forth in Indenture and (e) if such transfer is made in accordance with any applicable securities laws of any State of the United States and any other relevant jurisdiction. The Indenture provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any beneficial owner of a Combination Note (or any interest therein) is a Benefit Plan Investor or a Controlling Person, then the Issuer may require, by notice to such holder, that such holder sell all of its right, title and interest to such Combination Note (or any interest therein) to a person or entity that is not a Benefit Plan Investor or a Controlling Person and otherwise complies with all the transfer restrictions relating to such Combination Note set forth herein and in the Indenture, with such sale to be effected within 30 days after notice of such sale requirement is given. If such beneficial owner fails to effect the transfer required within such 30-day period, (i) the Issuer shall cause such beneficial owner's interest in such Combination Note to be transferred in a commercially reasonable sale (conducted by the Indenture in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that may decline speedily in value) to a person that certifies to Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person and otherwise complies with all the transfer restrictions relating to such Note and (ii) pending such transfer, no further payments will be made in respect of such Note held by such beneficial owner.

138

Transfers by a holder of a beneficial interest in a Regulation S Global Combination Note or a Restricted Combination Note to a transferee who takes delivery of a Restricted Combination Note will be made (a) in the case of a transfer by a holder of a beneficial interest in a Regulation S Global Combination Note, only in accordance with the Applicable Procedures and (b) in either case, upon receipt by the Combination Note Registrar of written certifications from each of the transferor and the transferee of such beneficial interest in the form provided in the Indenture to the effect that, among other things, such transfer is being made: (i) to a transferee that (A) is both (1) a Qualified Institutional Buyer, purchasing for its own account, to whom notice is given that the resale, pledge or other transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A and (2) a Qualified Purchaser, (B) is not a Flow-Through Investment Vehicle (other than a Qualifying Investment Vehicle) and (C) is not a Benefit Plan Investor or a Controlling Person; and (ii)

in accordance with all other applicable securities laws of any relevant jurisdiction.

139

USE OF PROCEEDS The gross proceeds received from the issuance and sale of the Notes and the upfront payments received by the Issuer under the Asset Hedge Agreement entered into on the Closing Date will be approximately U.S.$310,531,000 (which does not include U.S.$450,000,000 which may be borrowed under the Variable Funding Note Purchase Agreement after the Closing Date). The net proceeds from the issuance and sale of the Notes and the upfront payments received by the Issuer under the Asset Hedge Agreement entered into on the Closing Date taking into account any expenses incurred by the Co-Issuers are expected to be approximately U.S.$300,655,000 (which does not include U.S.$450,000,000 which may be borrowed under the Variable Funding Note Purchase Agreement after the Closing Date). Such net proceeds will be used by the Issuer to (1) Acquire (a) RMBS Securities, (b) CMBS Securities, (c) other Asset-Backed Securities and (d) Synthetic Securities (including CDS Transactions entered into under the Credit Default Swap Agreement) the Reference Obligations of which will be Asset-Backed Securities (including RMBS Securities, CMBS Securities and CDO Securities) that, in each case, satisfy the investment criteria described herein, (2) pay upfront management fees of the Portfolio Manager and (3) fund the initial deposit into the Expense Account of U.S.$100,000 and the initial deposit into the Reserve Account of U.S.$155,014,066 (for investment in the GIC on the Closing Date in the case of the initial deposit into the Reserve Account). On the Closing Date, the Issuer will have Acquired Collateral Debt Securities (assuming settlement in accordance with customary settlement procedures in the relevant markets on such day of all agreements entered into by the Issuer to Acquire Collateral Debt Securities and enter into CDS Transactions and other Synthetic Securities scheduled to settle on or following such day) having an Aggregate Principal Balance of not less than U.S.$750,000,000. Any such proceeds not invested in Collateral Debt Securities or deposited into the Expense Account or the Reserve Account will be deposited by the Trustee in the Collection Accounts and invested in Eligible Investments pending the use of such proceeds for the purchase of Collateral Debt Securities, as described herein, and, in certain limited circumstances described herein, for the payment of the Secured Notes. See "Security for the Secured Notes."

140

RATINGS OF THE SECURED NOTES AND COMBINATION NOTES Rating of the Secured Notes It is a condition to the issuance of the Notes that the Class A1-VF Notes be rated "AAA" by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's") and "Aaa" by Moody's Investors Service, Inc. ("Moody's" and, together with Standard & Poor's, the "Rating Agencies"), that the Class A2A Notes be rated "AAA" by Standard & Poor and "Aaa" by Moody's, that the Class A2B Notes be rated "AAA" by Standard & Poor and "Aaa" by Moody's, that the Class B1 Notes be rated at least "AA" by Standard & Poor's and at least "Aa2" by Moody's, that the Class B2 Notes be rated at least "AA-" by Standard & Poor's and at least "Aa3" by Moody's, that the Class C Notes be rated at least "A" by Standard & Poor's and at least "A2" by Moody's, that the Class D Notes be rated at least "BBB" by Standard & Poor's and at least "Baa2" by Moody's and that the Class E Notes be rated at least "BB+" by Standard & Poor's and at least "Ba1" by Moody's. The Subordinated Notes will not be rated by any Rating Agency. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time. To the extent required by applicable stock exchange rules, the Issuer will inform any such exchange on which any of the Notes are listed if any rating assigned by Standard & Poor's or Moody's to such Secured Notes is reduced or withdrawn. Rating of the Combination Notes The Combination Notes will be rated at least "Baa2" by Moody's and at least "BBB" by Standard & Poor's, which ratings will relate to the ultimate receipt of the initial Combination Note Rated Balance and the Combination Note Contingent Coupon. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time. The Trustee shall promptly notify the Combination Noteholders when the Combination Note Rated Balance has been reduced to zero and that, following the reduction of such Combination Note Rated Balance to zero, the rating of the Combination Notes shall not apply with respect to any additional payments thereon.

141

MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS The Stated Maturity of the Notes is February 13, 2047 or, if such date is not a Business Day, the next following Business Day. The Notes will mature at the Stated Maturity unless redeemed or repaid prior thereto. However, the average lives of the Secured Notes and the Effective Duration (as defined below) of the Subordinated Notes and Combination Notes may be less than the number of years until the Stated Maturity. Based on the portfolio of Collateral Debt Securities that the Portfolio Manager expects the Issuer to Acquire on the Closing Date, assuming (a) no Collateral Debt Securities default or are Disposed of, (b) during the Reinvestment Period, Principal Proceeds are used by the Issuer to Acquire additional Collateral Debt Securities, (c) any optional redemption of the Collateral Debt Securities occurs in accordance with their respective terms, (d) all outstanding Secured Notes are redeemed on the Distribution Date occurring in November 2014 and the Collateral Disposed of in connection with such redemption is sold at par and (e) LIBOR for each future Interest Period equals the rate for such Interest Period based on the zero coupon swap curve in effect on November 6, 2006 with such rate as of the first LIBOR Determination Date to be initially equal to approximately 5.4%, (i) the average life of the Class A2A Notes would be approximately 6.7 years from the Closing Date, (ii) the average life of the Class A2B Notes would be approximately 6.7 years from the Closing Date, (iii) the average life of the Class B1 Notes would be approximately 6.7 years from the Closing Date, (iv) the average life of the Class B2 Notes would be approximately 6.7 years from the Closing Date, (v) the average life of the Class C Notes would be approximately 6.7 years from the Closing Date, (vi) the average life of the Class D Notes would be approximately 6.7 years from the Closing Date, (vii) the average life of the Class E Notes would be approximately 6.7 years from the Closing Date, (viii) the average life of the Combination Notes would be approximately 5.7 years from the Closing Date and (ix) the Effective Duration of the Subordinated Notes would be approximately 3.6 years. The average life of the Class A1-VF Notes will depend primarily on the extent to which Borrowings and Deemed Borrowings are made thereunder. Such average lives of the Secured Notes and the Effective Duration of the Subordinated Notes and Combination Notes are presented for illustrative purposes only. The assumed identity of the portfolio Acquired by the Issuer and the other assumptions used to calculate such average lives of the Secured Notes and the Effective Duration of the Subordinated Notes and the Combination Notes are necessarily arbitrary, do not necessarily reflect historical experience with respect to securities similar to the Collateral Debt Securities and do not constitute a prediction with respect to the rates or timing of receipts of Interest Proceeds or Principal Proceeds, the Acquisition of Collateral Debt Securities on the Closing Date, defaults, recoveries, sales, reinvestments, prepayments or optional redemptions to which the Collateral Debt Securities may be subject. Actual experience as to these matters will differ, and may differ materially, from that assumed in calculating the illustrative average lives and the Effective Duration set forth above, and consequently the actual average lives of the Secured Notes and the Effective Duration of the Subordinated Notes and Combination Notes will differ, and may differ materially, from those set forth above. Accordingly, prospective investors should make their own determinations of the expected weighted average lives and maturity of the Secured Notes and the Effective Duration of the Subordinated Notes and Combination Notes and, accordingly, their own evaluation of the merits and risks of an investment in the Secured Notes, the Subordinated Notes or Combination Notes. See "Risk Factors—Projections, Forecasts and Estimates." The average lives of the Secured Notes, and the Effective Duration of the Subordinated Notes and Combination Notes, will be determined by the amount and frequency of principal payments, which are dependent upon any payments received at or in advance of the scheduled maturity of Collateral Debt Securities (whether through prepayment, sale, maturity, redemption, default or other liquidation or Disposition). The actual average lives of the Secured Notes and the Effective Duration of the Subordinated Notes and Combination Notes, will also be affected by the financial condition of the obligors of the underlying Collateral Debt Securities and the characteristics of such obligations, including the existence and frequency of exercise of any optional or mandatory redemption or prepayment features,

142

the prevailing level of interest rates, the redemption price, the actual default rate and the actual level of recoveries on any Defaulted Securities and the frequency of tender or exchange offers for such Collateral Debt Securities. Any Disposition of a Collateral Debt Security may change the composition and characteristics of the Collateral Debt Securities and the rate of payment thereon, and, accordingly, may affect the actual average lives of the Secured Notes and the Effective Duration of the Subordinated Notes and Combination Notes. The rate of future defaults and the amount and timing of any cash realization from Defaulted Securities also will affect the average lives of the Secured Notes and the Effective Duration of the Subordinated Notes and the Combination Notes.

143

THE CO-ISSUERS General The Issuer was incorporated as an exempted company with limited liability and incorporated on May 10, 2006 in the Cayman Islands with company number 167268 and is in good standing under the laws of the Cayman Islands. The Issuer’s present name was adopted on September 27, 2006. The registered office of the Issuer is at the offices of Walkers SPV Limited, Walker House, 87 Mary Street, George Town, Grand Cayman, KY1-9002, Cayman Islands, telephone number: 345-945-3727. The Issuer has no prior operating experience other than in connection with the acquisition of certain Collateral Debt Securities prior to the issuance of the Notes and the entering into of arrangements with respect thereto, and the Issuer will not have any substantial assets other than the Collateral pledged to secure the Secured Notes. The entire issued share capital of the Issuer will consist of (a) 250 ordinary shares, par value U.S.$1.00 per share (which will be held in trust for charitable purposes by Walkers SPV Limited, a licensed trust company incorporated in the Cayman Islands (in such capacity, the "Share Trustee") under the terms of a declaration of trust). Under the terms of such declaration of trust, the Share Trustee will, among other things, agree not to dispose of or otherwise deal with such ordinary shares while the Notes are outstanding. The Share Trustee will have no beneficial interest in and derive no benefit other than its fees from its holding of the Ordinary Shares. The Issuer was established as a special purpose vehicle for the purpose of issuing asset-backed securities. The objects of the Issuer under the Indenture are limited to (1) acquiring and disposing of, and investing and reinvesting in, Collateral Debt Securities (including Synthetic Securities), Reserve Account Investments, U.S. Agency Securities and Eligible Investments for its own account, (2) entering into and performing its obligations under the Indenture, any Interest Rate Hedge Agreement, the Credit Default Swap Agreement, the Variable Funding Note Purchase Agreement, the Management Agreement, the GIC, the Collateral Administration Agreement, the Purchase Agreement and the Subordinated Note Issuing and Paying Agency Agreement, (3) issuing and selling the Notes, (4) pledging the Collateral as security for its obligations in respect of the Secured Notes and otherwise for the benefit of the Secured Parties, (5) owning the capital stock of the Co-Issuer and (6) other activities incidental to the foregoing. The Co-Issuer was incorporated on October 16, 2006 under the law of the State of Delaware with the state identification number 4235754 and its registered office is c/o Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808. The sole officer of the Co-Issuer is Donald J. Puglisi and he may be contacted at Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711, telephone number: (302) 738-6680. The Co-Issuer has no prior operating experience. It will not have any assets (other than its U.S.$250 of share capital owned by the Issuer) and will not pledge any assets to secure the Secured Notes. The Co-Issuer will not have any interest in the Collateral Debt Securities or other assets held by the Issuer. The third Article of the Co-Issuer's Certificate of Incorporation sets out the objects of the Co-Issuer, which are limited to co-issuance of Notes under the Indenture. The Co-Issuer was established as a special purpose vehicle for the purpose of issuing asset-backed securities. The Secured Notes are obligations only of the Co-Issuers, the Class E Notes, Combination Notes and Subordinated Notes are obligations only of the Issuer and none of the Secured Notes, Combination Notes or Subordinated Notes is an obligation of the Trustee, the Share Trustee, the Administrator, the Portfolio Manager, the Initial Purchaser, the Hedge Counterparties or any of their respective Affiliates or any directors or officers of the Co-Issuers. Since the respective dates of incorporation of the Issuer and formation of the Co-Issuer, the Co-Issuers have not commenced operations and no annual accounts or reports have been prepared as of the date of the prospectus.

144

Walkers SPV Limited will act as the administrator (in such capacity, the "Administrator") of the Issuer. The office of the Administrator will serve as the general business office of the Issuer. Through this office and pursuant to the terms of an agreement by and between the Administrator and the Issuer (the "Administration Agreement"), the Administrator will perform various management functions on behalf of the Issuer, including communications with the general public and the provision of certain clerical, administrative and other services until termination of the Administration Agreement. In consideration of the foregoing, the Administrator will receive various fees and other charges payable by the Issuer at rates provided for in the Administration Agreement and will be reimbursed for expenses. The Administrator will be subject to the overview of the Board of Directors of the Issuer. The directors of the Issuer are David Egglishaw, Derrie Boggess and John Cullinane, each of whom is a director or officer of the Administrator and each of whose offices are at the offices of Walkers SPV Limited, Walker House, 87 Mary Street, George Town, Grand Cayman, KY1-9002, Cayman Islands. The Administration Agreement may be terminated by either the Issuer or the Administrator upon three months' written notice, in which case a replacement administrator will be appointed or upon at least fourteen days’ written notice if certain specified events occur. Capitalization The initial capitalization of the Issuer as of the Closing Date, after giving effect to the issuance of the Notes (including the Components of the Combination Notes) and the ordinary shares of the Issuer and before deducting expenses of the offering of the Notes and organizational expenses of the Co-Issuers, is expected to be as follows:

Class A1-VF Notes Class A2A Notes Class A2B Notes Class B1 Notes Class B2 Notes Class C Notes Class D Notes Class E Notes Total Debt

U.S.$450,000,000 (1) U.S.$30,000,000 U.S.$120,000,000 U.S.$37,500,000 U.S.$11,250,000 U.S.$33,750,000 U.S.$30,000,000 U.S.$16,875,000 U.S.$729,375,000

Ordinary Shares Subordinated Notes Total Equity

U.S.$250 U.S.$34,000,000(2) U.S.$34,000,250

Total Capitalization

U.S.$763,375,250

(1)

This represents the maximum Borrowings and Deemed Borrowings that may be outstanding: no Borrowing is expected to occur on the Closing Date. (2) Represents the principal amount of the Subordinated Notes, which may exceed the gross cash proceeds to the Issuer from the issuance thereof.

The Issuer will not have any material assets other than the Collateral and its equity interest in the Co-Issuer.

145

The Co-Issuer will be capitalized only to the extent of its U.S.$250 of capital stock, will have no assets other than its capital stock and will have no debt other than as Co-Issuer of the Secured Notes. Business Clause 3 of the Memorandum of Association of the Issuer (which, together with its Articles of Association, is referred to as the "Issuer Charter") sets out the objects of the Issuer. The Indenture will provide that the activities of the Issuer are limited to (1) acquiring and disposing of, and investing and reinvesting in, Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities and Eligible Investments for its own account, (2) entering into, and performing its obligations under, the Indenture, any Interest Rate Hedge Agreement, the Credit Default Swap Agreement, the Variable Funding Note Purchase Agreement, the GIC, the Management Agreement, the Collateral Administration Agreement, the Note Purchase Agreement and the Subordinated Note Issuing and Paying Agency Agreement, (3) issuing and selling the Notes, (4) pledging the Collateral as security for its obligations in respect of the Secured Notes and otherwise for the benefit of the Secured Parties, (5) owning the capital stock of the Co-Issuer and (6) other activities incidental to the foregoing. The Issuer has no employees and no subsidiaries other than the Co-Issuer. The Co-Issuer will not undertake any business other than the issuance of the Secured Notes. The Issuer is not required by Cayman Islands law, and the Issuer does not intend, to publish annual reports and accounts. The Co-Issuer is not required by Delaware State law, and the Co-Issuer does not intend, to publish annual reports and accounts. The Indenture, however, requires the Issuer to provide the Trustee with written confirmation, on an annual basis, that to the best of its knowledge following review of the activities for the prior year, no default or other matter required to be brought to the Trustee's attention has occurred or, if one has, specifying the same.

146

SECURITY FOR THE SECURED NOTES General The Collateral securing the Secured Notes and the Issuer's obligations to the Portfolio Manager, the Trustee, the Credit Default Swap Counterparty under the Credit Default Swap Agreement and the Hedge Counterparties under the Hedge Agreements (or, where particular Secured Parties are specified as the beneficiaries of the security interest with respect to items of personal property identified in any of the sub-clauses below, the Collateral securing the Issuer’s obligations to such Secured Parties only), except as expressly set forth below, will consist of: (i) the Collateral Debt Securities and Equity Securities; (ii) the Accounts (excluding any Class A1-VF Prepayment Account and the Class A1-VF Noteholder Account (other than any income from the investment of funds in the Class A1-VF Noteholder Account) and subject, (1) in the case of any Synthetic Security Counterparty Account, to the prior lien of the relevant Synthetic Security Counterparty and (2) in the case of each Asset Hedge Account, to the prior lien of the relevant Asset Hedge Counterparty) and the Reserve Account Investments, Eligible Investments and U.S. Agency Securities Acquired with funds on deposit in said Accounts and all income from the investment of funds therein; (iii) for the benefit of first, the Credit Default Swap Counterparty (to the extent necessary to secure the Issuer's obligations under the Credit Default Swap Agreement) and second, the other Secured Parties, the Issuer's rights as beneficiary of the Trustee's security interest in each Class A1VF Prepayment Account and the funds on deposit therein; (iv) the Issuer's right to any investment income in any Synthetic Security Counterparty Account, any Asset Hedge Account or the Class A1-VF Noteholder Account; (v) the rights of the Issuer under the Hedge Agreements, the GIC and the Credit Default Swap Agreement; (vi) for the benefit of the Credit Default Swap Counterparty and the Holders of the Class A2A Notes, the Class A2B Notes, the Class B1 Notes and the Class B2 Notes only, the rights of the Issuer under the Variable Funding Note Purchase Agreement to make Borrowings and Deemed Borrowings in respect of (a) amounts owing by the Issuer to the Credit Default Swap Counterparty under the Credit Default Swap Agreement and (b) any Senior Interest Shortfall; (vii) the rights of the Issuer under the Management Agreement, the Collateral Administration Agreement, the Purchase Agreement, the Subordinated Note Issuing and Paying Agency Agreement and the Investor Application Forms; (viii) for the benefit of the Class A1-VF Noteholders and, to the extent that amounts in the Class A1-VF Noteholder Account are used to make Credit Protection Payments in respect of Interest Shortfalls, the Credit Default Swap Counterparty, the Class A1-VF Noteholder Account and the Eligible Investments Acquired with funds on deposit in such Account (excluding any income received by the Issuer from the investment of such funds in Eligible Investments); (ix) all cash delivered to the Trustee; and (x) all proceeds of the foregoing (collectively, the "Collateral"). The Collateral securing the Secured Notes will not include the Excepted Property or the Excluded Assets. The "Excluded Assets" consist of (a) the account designated the "Subordinated Note Distribution Account" established pursuant to the Subordinated Note Issuing and Paying Agency Agreement (the "Subordinated Note Distribution Account") or any amounts on deposit therein, (b) any assets of the Co-Issuer or (c) except as set forth in clauses (iii), (iv) and (viii) above, any Class A1-VF Prepayment Account, any Synthetic Security Counterparty Account, each Asset Hedge Account and the Class A1-VF Noteholder Account. Notwithstanding the foregoing, the amounts on deposit in a Class A1-VF Prepayment Account will be available only for application to Permitted Uses and distribution to the holders of the Class A1-VF Notes pursuant to the Variable Funding Note Purchase Agreement and will not be available to the Issuer to pay amounts owed to any Secured Parties other than the Credit Default Swap Counterparty, the related holder of the Class A1-VF Notes and, to the extent of any Senior Interest Shortfall, the holders of the Class A2A Notes, the Class A2B Notes, the Class B1 Notes or the Class B2 Notes.

147

Collateral Debt Securities For the purpose of all calculations made under the Indenture or under the Variable Funding Note Purchase Agreement which are based on the Remaining Exposure under the CDS Transactions, the Trustee and the Issuer shall assume that the Remaining Exposure is the amount (if positive) equal to (i) the Remaining Exposure shown on the most recent report delivered by the Credit Default Swap Counterparty plus (ii) the aggregate initial Total Exposure of the Issuer under all CDS Transactions which the Issuer Acquired since the date of such report plus (iii) the sum of any Principal Reimbursements or Writedown Reimbursements paid to the Issuer under CDS Transactions since the date of such report minus (iv) the aggregate Total Exposure under all CDS Transactions which have been Disposed of since the date of such report minus (v) the aggregate Principal Amortizations under CDS Transactions. Alternatively, the Trustee or the Issuer may request a statement from the Credit Default Swap Counterparty of the Remaining Exposure and may rely on such statement in making any calculation under the Indenture. Eligibility Criteria The Issuer may (a) Acquire Asset-Backed Securities or Synthetic Securities on the Closing Date, (b) during the Reinvestment Period (and after the Reinvestment Period, in respect of commitments entered into prior to the end of the Reinvestment Period), apply Uninvested Proceeds, Principal Proceeds and Disposition Proceeds received during the Reinvestment Period to Acquire Asset-Backed Securities or Synthetic Securities and (c) during the Reinvestment Period (and after the Reinvestment Period, in respect of commitments entered into prior to the end of the Reinvestment Period), in connection with Principal Amortizations under, and the termination of, individual CDS Transactions, Acquire additional CDS Transactions, in each case only if, after such Collateral Debt Security is Acquired, each of the following criteria (the "Eligibility Criteria") is satisfied: Assignable

(1) in the case of a Cash Collateral Debt Security, the Underlying Instrument pursuant to which such Cash Collateral Debt Security was issued permits the Issuer to purchase it and grant it to the Trustee and the creation of a security interest in such Collateral Debt Security is not excluded from Article 9 of the UCC by reason of Section 9-109 of the UCC;

Jurisdiction of issuer

(2) the obligor on or issuer of such security (or of the Reference Obligation(s) in the case of a Synthetic Security) (x) is organized or incorporated under the law of the United States or a State thereof or in a Special Purpose Vehicle Jurisdiction or (y) is a Qualifying Foreign Obligor;

Dollar denominated

(3) such security (and the Reference Obligation(s) in the case of a Synthetic Security) is denominated and payable only in Dollars and may not be converted into a security payable in any other currency;

Fixed Principal Amount

(4) unless such security is a Synthetic Security (other than a Synthetic Security that is a credit-linked note or pays a scheduled amount of principal on a fixed date), such security requires the payment of a fixed amount of principal in cash no later than its stated maturity or termination date (subject to earlier amortization or sinking fund payments);

148

Rating

(5) such security (or the Reference Obligation(s), in the case of a Synthetic Security) has been assigned a Standard & Poor's Rating of "BB+" or higher (and such rating does not include the subscript "p," "pi," "q," "r" or "t") and a Moody's Rating of "Ba1" or higher;

Issuer or Obligor not Owned or Managed by the Portfolio Manager

(6) the obligor on or issuer of such security (or the Reference Obligation(s), in the case of a Synthetic Security) is not a fund or other entity owned or managed by the Portfolio Manager or any of its Affiliates;

Registered

(7)

No withholding

(8) the Issuer will receive payments due under the terms of such security and proceeds from Disposing of such security free and clear of withholding tax, other than withholding tax as to which the obligor or issuer must make additional payments so that the net amount received by the Issuer after satisfaction of such tax is the amount due to the Issuer before the imposition of any withholding tax;

Does not Subject Issuer to Tax on a Net Income Basis

(9) the Acquisition (including the manner of Acquisition), ownership, enforcement and Disposition of such security will not cause the Issuer to be treated as engaged in a U.S. trade or business for U.S. Federal income tax purposes or otherwise to be subject to tax on a net income basis in any jurisdiction outside the Issuer's jurisdiction of incorporation;

Excluded Securities

(10) such security (or, if such security is a Synthetic Security, the Reference Obligation(s)) is not one of the following Specified Types: ABS Chassis Securities, ABS Container Securities, ABS Natural Resource Receivable Securities, Aerospace and Defense Securities, Aircraft Leasing Securities, Bank Trust Preferred Securities, Car Rental Receivable Securities, Catastrophe Bonds, CDO of CDO Securities, CMBS Single Property Securities, Combination Securities, Corporate CDO Securities, Excluded Synthetic ABS CDO Securities, Franchise Securities, Future Flow Securities, Guaranteed Corporate Debt Securities, Healthcare Securities, HighYield CDO Securities, Insurance Trust Preferred CDO Securities, Interest Only Securities, Inverse Floating Rate Collateral Debt Securities, Lottery Receivable Securities, Manufactured Housing Securities, Mutual Fund Fees Securities, NIM Securities, Oil and Gas Securities, Principal Only Securities, Project Finance Securities, Recreational Vehicle Securities, Reinsurance Securities, REIT Debt Securities, Restaurant and Food Services Securities, Shipping Securities, Structured Settlement Securities secured with future legal fees, Subprime Automobile Securities, Subprime Credit Card Securities, Synthetic CDO of CDO Securities, Tax Lien Securities, Time Share Securities, Tobacco Bonds or Zero Coupon Bonds;

such security is Registered;

149

Limitation on Stated Final Maturity

(11) if the stated maturity of such security (or, if such security is a Synthetic Security, the earlier of (x) the stated maturity of the related Reference Obligation(s) or (y) the scheduled termination date of the Synthetic Security) occurs later than the Stated Maturity of the Secured Notes ("Long-Dated Security"), the Aggregate Principal Balance of all such Long-Dated Securities does not exceed the greater of (i) 10% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$75,000,000, provided that (i) no security shall have a scheduled termination date that occurs later than 10 years after the Stated Maturity of the Secured Notes, (ii) the Aggregate Principal Balance of Long-Dated Securities with a stated maturity of more than five years but less than 10 years after the Stated Maturity of the Secured Notes shall not exceed the greater of (x) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000 and (y) the expected maturity of such security is less than the Stated Maturity of the Secured Notes;

No Foreign Exchange Controls

(12) such security (or the Reference Obligation(s) in the case of a Synthetic Security) is not a security issued by an issuer located in a country that imposes foreign exchange controls that effectively limit the availability or use of Dollars to make when due the scheduled payments of principal of and interest on such security;

No Substantial Non-CreditRelated Risk

(13) such security (or the Reference Obligation(s) in the case of a Synthetic Security) is not a Defaulted Security, Written-Down Security or Credit Risk Security as reasonably determined by the Portfolio Manager;

No Margin Stock

(14) such security (or the Reference Obligation(s) in the case of a Synthetic Security) and any Equity Security Acquired in connection with such security (or Reference Obligation(s)) is not Margin Stock;

Investment Company Act

(15) the Acquisition of such security would not cause the Issuer or the pool of Collateral to be required to register as an investment company under the Investment Company Act; and if the issuer of such security is excepted from the definition of an "investment company" solely by reason of Section 3(c)(1) of the Investment Company Act, then either (x) such security does not constitute a "voting security" for purposes of the Investment Company Act or (y) the aggregate principal amount of such security is less than 10% of the entire Issue of which such security is a part;

No Debtor-InPossession Financing

(16) such security (or the Reference Obligation(s) in the case of a Synthetic Security) is not a financing by a debtor-in-possession in any insolvency proceeding;

Convertible Securities; Attached Equity Securities

(17) (A) such security (or the Reference Obligation(s) in the case of a Synthetic Security) is not a security that by the terms of its Underlying Instruments provides for conversion or exchange (whether mandatory, at the option of the issuer or the holder thereof or otherwise) into equity capital at any time prior to its maturity and (B) such security is not Acquired as a unit with an attached equity security;

Not Subject to an Offer or a Call for Redemption

(18) such security (or the Reference Obligation(s) in the case of a Synthetic Security) is not the subject of an Offer and has not been called for redemption;

150

No Future Advances

(19) after the Acquisition of such security, the Issuer is not required by the Underlying Instruments related thereto to make any payment or advance to the issuer thereof or to the related Synthetic Security Counterparty under the related Underlying Instruments (other than a Defeased Synthetic Security);

Fixed Rate Collateral Debt Securities

(20) if such security (or, if such security is a Synthetic Security, the Reference Obligation(s)) is a Fixed Rate Collateral Debt Security, the Aggregate Principal Balance of all such Collateral Debt Securities does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000; provided that each Fixed Rate Collateral Debt Security will be subject to a separate Deemed Floating Asset Hedge Agreement;

Pure Private Collateral Debt Securities

(21) if such security (or, if such security is a Synthetic Security, the Reference Obligation(s)) was not (A) issued pursuant to an effective registration statement under the Securities Act or (B) a privately placed security that is eligible for resale under Rule 144A or Regulation S under the Securities Act, the Aggregate Principal Balance of all such Collateral Debt Securities (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000;

Guaranteed Asset-Backed Securities

(22) such security (including the Reference Obligation(s) of any Synthetic Security) is not a Guaranteed Asset-Backed Security;

Ratings Criteria

(23) (A) unless such security (or, if such security is a Synthetic Security, the Reference Obligation(s)) is a Mortgage-Related Security, such security does not, at the time of Acquisition by the Issuer, have a Standard & Poor's Rating of "BB+" or below or a Moody's Rating of "Ba1" or below and (B) the Aggregate Principal Balance of all Collateral Debt Securities (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) that, at the time of Acquisition by the Issuer, have a Standard & Poor's Rating of below "BBB-" or a Moody's Rating of below "Baa3" does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000; provided that, for purposes of this paragraph, any security (or the Reference Obligation(s) in the case of a Synthetic Security) rated "BBB" or "BBB-" by Standard & Poor's shall, if such security or Reference Obligation is not rated by Moody's, be treated as having a rating of "Ba1" from Moody's (but such rating shall not constitute the Moody's Rating of such security or the related Synthetic Security (as applicable));

CDO Securities

(24) if such Collateral Debt Security (or, if such security is a Synthetic Security, the Reference Obligation(s)) is a CDO Security, the Aggregate Principal Balance of all such Collateral Debt Securities (together with the Aggregate Principal Balance of any Synthetic Securities) does not exceed the greater of (i) 10% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$75,000,000;

Single Servicer

(25) with respect to the Servicer of the security being Acquired (or, if such security is a Synthetic Security, the Servicer of the related Reference Obligation(s)), the Aggregate Principal Balance of all Collateral Debt Securities serviced by such Servicer (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) does not exceed (A) if such

151

Servicer (i) services Mortgage-Related Securities, (ii) has a servicer rating of "Above Average" or better by Standard & Poor's and (iii) does not have a servicer outlook of "Negative" by Standard & Poor's, the greater of (i) 15% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$112,500,000, provided that up to six such Servicers can each service Collateral Debt Securities or the Reference Obligations of Synthetic Securities with an Aggregate Principal Balance that does not exceed the greater of (i) 25% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$187,500,000, (B) if such Servicer (i) services MortgageRelated Securities, (ii) has a servicer rating of "Average" by Standard & Poor's and (iii) does not have a servicer outlook of "Negative" by Standard & Poor's, the greater of (i) 10% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$75,000,000, provided that up to three such Servicers can each service Collateral Debt Securities or the Reference Obligations of Synthetic Securities with an Aggregate Principal Balance that does not exceed the greater of (i) 20% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$150,000,000, and (C) if such Servicer (i) services Mortgage-Related Securities, (ii) has a servicer rating of below "Average" by Standard & Poor's and (iii) does not have a servicer outlook of "Negative" by Standard & Poor's, the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000, and (D) if such Servicer does not service Mortgage-Related Securities, the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000; provided that references herein to the rating or ranking of any Servicer shall mean the rating or ranking given by Standard & Poor's or Moody's, as applicable, to the majority of the individual operational service groupings provided from time to time by such Servicer; Specified Type – Minority ABS Securities

(26) if such security (or, if such security is a Synthetic Security, the Reference Obligation(s)) is a Minority ABS Security, (A) the Aggregate Principal Balance of all Collateral Debt Securities (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) that are Minority ABS Securities does not exceed the greater of (i) 10% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$75,000,000; and (B) no such Minority ABS Security (or the Reference Obligation(s) in the case of a Synthetic Security) shall be publicly rated below "BBB-" by Standard & Poor's or below "Baa3" by Moody's;

Specified Type – Majority ABS Securities

(27) if such security (or, if such security is a Synthetic Security, the Reference Obligation(s)) is a Majority ABS Security with respect to CMBS Securities, the Aggregate Principal Balance of all such Collateral Debt Securities (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) does not exceed the greater of (i) 10% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$75,000,000;

PIK Bonds; Deferred Interest PIK Bonds

(28) if such security is a PIK Bond, (A)(x) no payment of interest thereon has been deferred or capitalized as additional principal thereof and no identical securities in place of payments of interest in cash have been issued with respect to such Collateral Debt Security and (y) the Aggregate Principal Balance of all Collateral Debt Securities that are PIK Bonds (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) does not exceed the greater of (i) 10% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$75,000,000 and (B) such security (or, in the case of any

152

Synthetic Security, the Reference Obligation(s)) is not a Deferred Interest PIK Bond at the time of its Acquisition by the Issuer; Interest paid less frequently than quarterly

(29) if such security provides for periodic payments of interest in cash less frequently than quarterly, the Aggregate Principal Balance of all such Collateral Debt Securities does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000; provided that Non-LIBOR Floating Rate Collateral Debt Securities shall not provide for periodic payments of interest in cash less frequently than quarterly;

Step-Down Bonds; Step-Up Bonds

(30) (A) if such security is a Step-Down Bond, the Aggregate Principal Balance of all such Collateral Debt Securities (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000 and (B) if such security is a Step-Up Bond, the Aggregate Principal Balance of all such Collateral Debt Securities (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000;

Indices

(31) if such security is a Synthetic Security that relates to an Index, (A) the Aggregate Principal Balance of all such Collateral Debt Securities does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000 and (B) the Aggregate Principal Balance of all such Collateral Debt Securities that relate to a single index does not exceed the greater of (i) 2% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$15,000,000;

Backed by Obligations Qualifying Foreign Obligors

(32) the Aggregate Principal Balance of all Collateral Debt Securities related to Qualifying Foreign Obligors (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) does not exceed the greater of (i) 5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$37,500,000;

Average Life Restriction

(33) the Average Life of such Collateral Debt Security (or the Reference Obligation(s) of any Synthetic Security) does not exceed 15 years; and

Certain Issuer Concentrations

(34) with respect to all Collateral Debt Securities Acquired by the Issuer: (i)

the Aggregate Principal Balance of all such Collateral Debt Securities publicly rated "BBB-" or higher by Standard & Poor's or "Baa3" or higher by Moody's issued by any single issuer (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are issued by such single issuer) does not exceed the greater of (i) 1.5% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$11,250,000; and

(ii)

the Aggregate Principal Balance of all such Collateral Debt Securities publicly rated "BB+" or below by Standard & Poor's or "Ba1" or below by Moody's issued by any single issuer (together with the Aggregate Principal Balance of any Synthetic Securities

153

the Reference Obligations of which are issued by such single issuer) does not exceed the greater of (i) 1.0% of the Net Outstanding Portfolio Collateral Balance and (ii) U.S.$7,500,000; provided that (x) the Aggregate Principal Balance of all Collateral Debt Securities issued (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) by such issuer shall not exceed all applicable percentages specified in any such clause describing the highest grouping of ratings, and (y) the Aggregate Principal Balance of all Collateral Debt Securities issued by such issuer having ratings described in each such clause applicable to such securities (together with the Aggregate Principal Balance of any Synthetic Securities the Reference Obligations of which are such securities) by such issuer shall not exceed all applicable percentages specified in such clause; provided that, in the case of the Eligibility Criteria set forth in paragraphs (11), (15), (20), (21), (23) through (32) and (34) above, if prior to such investment such Eligibility Criteria is not satisfied, such Eligibility Criteria shall be deemed to be satisfied if, after giving effect to such investment, the extent of compliance with such Eligibility Criteria is maintained or improved. If the Issuer has previously entered into a commitment to Acquire an obligation or security for inclusion in the Collateral, then the Eligibility Criteria other than those described in paragraphs (7) through (9) need not be satisfied (x) on the trade date relating to such Acquisition if the Eligibility Criteria were satisfied on the date of such Acquisition or (y) on the date of Acquisition if the Eligibility Criteria were or will be satisfied on the trade date relating to such Acquisition. However, the Issuer may only enter into commitments to Acquire securities for inclusion in the Collateral if such commitments to Acquire securities do not extend beyond a 60-day period. For purposes of determining compliance with the Eligibility Criteria, each calculation made to determine compliance with the Eligibility Criteria will be made with the assumption that the Net Outstanding Portfolio Collateral Balance will remain unchanged by the Disposition or Acquisition of the applicable Collateral Debt Securities. The Issuer shall not Acquire any Collateral Debt Security after the Closing Date unless each of the Collateral Quality Tests and Overcollateralization Tests shall be satisfied or, if immediately prior to such Acquisition one or more of the Collateral Quality Tests or the Overcollateralization Tests was not satisfied, the extent of compliance with each such Collateral Quality Test or Overcollateralization Test shall be maintained or improved and, with respect to the Standard & Poor's CDO Monitor Notification Test, the Issuer (or the Portfolio Manager on behalf of the Issuer) shall have promptly delivered to the Trustee, the Secured Noteholders, the Hedge Counterparty and Standard & Poor's an Officer's certificate specifying the extent of such non compliance; provided that (x) if a breach of an Overcollateralization Test has occurred and is continuing from (but excluding) any Distribution Date to (but excluding) the immediately succeeding Distribution Date, recoveries or other unscheduled principal proceeds on Defaulted Securities shall not be used to Acquire additional Collateral Debt Securities during such period but shall be used on the next Distribution Date to satisfy such breached Overcollateralization Test as necessary and (y) the Standard & Poor's CDO Monitor Notification Test shall not be required to be maintained or improved in connection with the reinvestment of proceeds from the Disposition of a Defaulted Security or Credit Risk Security. Notwithstanding the foregoing provisions, (A) cash on deposit in the Collection Accounts may be invested in Eligible Investments, pending investment in Collateral Debt Securities and (B) if an Event of

154

Default shall have occurred and be continuing, no Collateral Debt Security may be Acquired unless it was the subject of a commitment entered into by the Issuer prior to the occurrence of such Event of Default. The Issuer may not Acquire any Collateral Debt Security unless such Acquisition is made on an "arm's-length basis" for fair market value. The Issuer has agreed in the Indenture that it will not exercise its rights to convert any Collateral Debt Security into another instrument if such resulting instrument would be denominated in a currency other than Dollars. Asset Acquisition Guidelines The Management Agreement provides that in purchasing, entering into, managing, selling or terminating Collateral Debt Securities on behalf of the Issuer, the Portfolio Manager shall be deemed to have satisfied the requirements in paragraph (9) of the Eligibility Criteria that the Issuer not become subject to United States net income tax if it follows certain guidelines. Compliance by the Portfolio Manager with such guidelines may limit the investment opportunities available to the Portfolio Manager and have a material and adverse effect on the holders of the Notes. Asset-Backed Securities The Collateral Debt Securities will consist of Asset-Backed Securities (or, in the case of Long CDS Transactions or other Synthetic Securities of which the related Reference Obligation is an Assetbacked Security and under which the Issuer is acting as seller of protection, the related Reference Obligations) of the following "Specified Types": Automobile Securities, CDO Securities, CMBS Conduit Securities, CMBS Credit Tenant Lease Securities, CMBS Large Loan Securities, Credit Card Securities, Floorplan Receivable Securities, Mid-Prime Residential Mortgage Securities, Prime Residential Mortgage Securities, Small Business Loan Securities, Student Loan Securities and Sub-Prime Residential Mortgage Securities. After the Closing Date, any other type of Asset-Backed Security may be designated as a "Specified Type" (and designated as an "ABS Type Diversified Security," an "ABS Type Residential Security" or an "ABS Type Undiversified Security") in a notice from the Portfolio Manager to the Trustee so long as (i) Moody's and Standard & Poor's have confirmed in writing to the Issuer, the Trustee and the Portfolio Manager that such designation satisfies the Rating Condition, (ii) such Asset-Backed Security is not one of the Specified Types listed in paragraph (10) of the Eligibility Criteria and (iii) such AssetBacked Security is designated as a Minority ABS Security. If any type of Asset-Backed Security shall be so designated as an additional Specified Type, the definition of each Specified Type of Asset-Backed Security in existence prior to such designation shall be construed to exclude such newly-designated Specified Type of Asset-Backed Security. Asset-Backed Securities are obligations or securities that entitle the holders thereof to receive payments that depend primarily on the cash flow from a specified pool of financial assets, either static or revolving, that by their terms convert into cash within a finite time period, together with rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities. The collateral underlying Asset-Backed Securities includes assets such as credit card receivables, home equity loans, leases, residential mortgage loans, commercial mortgage loans, auto finance receivables and other debt obligations. Issuers of Asset-Backed Securities are primarily banks and finance companies, captive finance subsidiaries of non-financial corporations or specialized originators such as credit card lenders. Credit risk is an important issue in Asset-Backed Securities because of the significant credit risks inherent in the underlying collateral and because issuers are primarily private entities. Accordingly, Asset-Backed Securities generally include one or more credit enhancements that are designed to raise the overall credit quality of the security above that of the underlying collateral.

155

Another important type of Asset-Backed Security is commercial paper issued by special-purpose entities. Asset-backed commercial paper is often backed by trade receivables, though such conduits may also fund commercial and industrial loans and other types of financial and non-financial assets. Banks are typically more active as issuers of these instruments than as investors in them. An Asset-Backed Security is created by the sale of assets or collateral to a conduit, which becomes the legal issuer of the Asset-Backed Securities. The securitization conduit or issuer is generally a bankruptcy-remote vehicle such as a grantor trust or, in the case of an asset-backed commercial paper program, a special-purpose entity. The sponsor or originator of the collateral usually establishes the issuing entity. Interests in the issuing entity, which embody the right to certain cash flows arising from the underlying assets, are then generally sold in the form of securities to investors through an investment bank or other securities underwriter. Each Asset-Backed Security typically has a servicer (often the originator of the collateral) that is responsible for collecting the cash flows generated by the securitized assets—principal, interest and fees net of losses and any servicing costs as well as other expenses—and for passing them along to the investors in accordance with the terms of the securities. The servicer normally processes the payments and administers the borrower accounts in the pool. The structure of an Asset-Backed Security and the terms of the investors' interest in the collateral can vary widely depending on the type of collateral, the desires of investors and the use of credit enhancements. Often Asset-Backed Securities are structured to reallocate the risks entailed in the underlying collateral (particularly credit risk) into security tranches that match the desires of investors. For example, senior subordinated security structures give holders of senior tranches greater credit risk protection (albeit at lower yields) than holders of subordinated tranches. Under this structure, at least two classes of Asset-Backed Securities are issued, with the senior class having a priority claim on the cash flows from the underlying pool of assets. The subordinated class normally must absorb credit losses on the collateral before losses can be allocated to the senior portion. Because the senior class has this priority claim, cash flows from the underlying pool of assets must first satisfy certain requirements of the senior class (as and to the extent specified in the underlying documents). Only after these requirements have been satisfied will the cash flows be directed to service the subordinated class. Asset-Backed Securities also use various forms of credit enhancements to transform the risk-return profile of underlying collateral, including third-party credit enhancements, recourse provisions, overcollateralization and various covenants. Third-party credit enhancements include standby letters of credit, collateral or pool insurance, or surety bonds from third parties. Recourse provisions are guarantees that require the originator to cover any losses up to a contractually agreed-upon amount. One type of recourse provision, usually seen in securities backed by credit card receivables, is the "spread account." This account is actually an escrow account whose funds are derived from a portion of the spread between the interest earned on the assets in the underlying pool of collateral and the lower interest paid on securities issued by the trust. The amounts that accumulate in this escrow account are used to cover credit losses in the underlying asset pool, up to several multiples of historical losses on the particular assets collateralizing the securities. Overcollateralization is another form of credit enhancement that covers a predetermined amount of potential credit losses. It occurs when the value of the underlying assets exceeds the face value of the securities. A similar form of credit enhancement is the cash-collateral account, which is established when a third party deposits cash into a pledged account. The use of cash-collateral accounts, which are considered by enhancers to be loans, grew as the number of highly rated banks and other credit enhancers declined in the early 1990s. Cash-collateral accounts provide credit protection to investors of a securitization by eliminating "event risk," or the risk that the credit enhancer will have its credit rating downgraded or that it will not be able to fulfill its financial obligation to absorb losses. An investment banking firm or other organization generally serves as an underwriter or placement for Asset-Backed Securities. In addition, a credit-rating agency often will analyze the policies and operations of the originator and servicer, as well as the structure, underlying pool

156

of assets, expected cash flows and other attributes of the securities. Before assigning a rating to the issue, the rating agency will also assess the extent of loss protection provided to investors by the credit enhancements associated with the issue. Holders of Asset-Backed Securities bear various risks, including credit risk, liquidity risk, interest rate risk, market risk, operations risk, structural risk and legal risk. The structure of an Asset-Backed Security and the terms of the investors' interest in the collateral can vary widely depending on the type of collateral, the desires of investors and the use of credit enhancements. Although the basic elements of all Asset-Backed Securities are similar, individual transactions can differ markedly in both structure and execution. Important determinants of the risk associated with issuing or holding the securities include the process by which principal and interest payments are allocated and down-streamed to investors, how credit losses affect the trust and the return to investors, whether collateral represents a fixed set of specific assets or accounts, whether the underlying collateral assets are revolving or closed-end, under what terms (including maturity of the asset-backed instrument) any remaining balance in the accounts may revert to the issuing company and the extent to which the company that is the actual source of the collateral assets is obligated to provide support to the trust or conduit or to the investors. Further issues may arise based on discretionary behavior of the issuer within the terms of the securitization agreement, such as voluntary buybacks from, or contributions to, the underlying pool of loans when credit losses rise. A bank or other issuer or sponsor may play more than one role in the securitization process. An issuer can simultaneously serve as originator of underlying collateral, servicer, administrator of the trust, underwriter, provider of liquidity and credit enhancer. Issuers typically receive a fee for each element of the transaction they undertake. Institutions acquiring Asset-Backed Securities should recognize that the multiplicity of roles that may be played by a single firm—within a single securitization or across a number of them—means that credit and operational risk can accumulate into significant concentrations with respect to one or a small number of firms. There are many different varieties of Asset-Backed Securities, often customized to the terms and characteristics of the underlying collateral. The most common types are securities collateralized by revolving credit-card receivables, but instruments backed by residential mortgage loans, commercial mortgage loans, home equity loans, other second mortgages and automobile-finance receivables are also common. Securities backed by closed-end installment loans are typically the least complex form of asset-backed instruments. Collateral for these Asset-Backed Securities typically includes leases, student loans and automobile loans. The loans that form the pool of collateral for the Asset-Backed Securities may have varying contractual maturities and may or may not represent a heterogeneous pool of borrowers. Unlike a mortgage pass-through instrument, the trustee typically does not need to take physical possession of any account documents to perfect a security interest in the receivables under the Uniform Commercial Code. The repayment stream on installment loans is fairly predictable, since it is primarily determined by a contractual amortization schedule. Early repayment on these instruments can occur for a number of reasons, with most tied to the disposition of the underlying collateral (for example, in the case of Asset-Backed Securities backed by automobile loans, the sale of the vehicles). Interest is typically passed through to security holders at a rate that is slightly below the weighted average coupon of the loan pool, allowing for servicing and other expenses as well as credit losses. Unlike closed-end installment loans, revolving credit receivables involve greater uncertainty about future cash flows. Therefore, Asset-Backed Securities structures using this type of collateral must be more complex to afford investors more comfort in predicting their repayment. Accounts included in the securitization pool may have balances that grow or decline over the life of the Asset-Backed Securities. Accordingly, at maturity of the Asset-Backed Securities, any remaining balances revert to the originator. During the term of the Asset-Backed Securities, the originator may be required to sell

157

additional accounts to the pool to maintain a minimum Dollar amount of collateral if accountholders pay down their balances in advance of predetermined rates. Credit card securitizations are the most prevalent form of revolving credit Asset-Backed Securities, although home equity lines of credit are a growing source of Asset-Backed Securities collateral. Credit card securitizations are typically structured to incorporate two phases in the life cycle of the collateral: an initial phase during which the principal amount of the securities remains constant and an amortization phase during which investors are paid off. A specific period of time is assigned to each phase. Typically, a specific pool of accounts is identified in the securitization documents, and these specifications may include not only the initial pool of loans but also a portfolio from which new accounts may be contributed. The dominant vehicle for issuing securities backed by credit cards is a master trust structure with a "spread account," which is funded up to a predetermined amount through "excess yield"—that is, interest and fee income less credit losses, servicing and other fees. With credit card receivables, the income from the pool of loans—even after credit losses—is generally much higher than the return paid to investors. After the spread account accumulates to its predetermined level, the excess yield reverts to the issuer. Under United States generally accepted accounting principles, issuers are required to recognize on their balance sheet an excess yield asset that is based on the fair value of the expected future excess yield; in principle, this value would be based on the net present value of the expected earnings stream from the transaction. Issuers are further required to revalue the asset periodically to take account of changes in fair value that may occur due to interest rates, actual credit losses and other factors relevant to the future stream of excess yield. The accounting and capital implications of these transactions are discussed further below. A number of banks have used a structure—a "special-purpose entity"—that is designed to acquire trade receivables and commercial loans from high-quality (often investment-grade) obligors and to fund those loans by issuing (asset-backed) commercial paper that is to be repaid from the cash flow of the receivables. Capital is contributed to the special-purpose entity by the originating bank that, together with the high quality of the underlying borrowers, is sufficient to allow the special-purpose entity to receive a high credit rating. The net result is that the special-purpose entity's cost of funding can be at or below that of the originating bank itself. The special-purpose entity is "owned" by individuals who are not formally affiliated with the bank, although the degree of separation is typically minimal. These securitization programs enable banks to arrange short-term financing support for their customers without having to extend credit directly. This structure provides borrowers with an alternative source of funding and allows banks to earn fee income for managing the programs. As the asset-backed commercial paper structure has developed, it has been used to finance a variety of underlying loans—in some cases, loans purchased from other firms rather than originated by the bank itself—and as a "remote origination" vehicle from which loans can be made directly. Like other securitization techniques, this structure allows banks to meet their customers' credit needs while incurring lower capital requirements and a smaller balance sheet than if it made the loans directly. Issuers obtain a number of advantages from securitizing assets, including improving their capital ratios and return on assets, monetizing gains in loan value, generating fee income by providing services to the securitization conduit, closing a potential source of interest-rate risk and increasing institutional liquidity by providing access to a new source of funds. Investors are attracted by the high credit quality of Asset-Backed Securities, as well as their attractive returns. Asset-Backed Securities carry coupons that can be fixed or floating. Pricing is typically designed to mirror the coupon characteristics of the loans being securitized. The spread will vary depending on the credit quality of the underlying collateral, the degree and nature of credit enhancement and the degree of variability in the cash flows emanating from the securitized loans. Credit risk arises from (1) losses due to defaults by the borrowers or obligors in the underlying collateral and (2) the issuer's or servicer's failure to perform. These two elements can blur together as, for

158

example, in the case of a servicer who does not provide adequate credit-review scrutiny to the serviced portfolio, leading to higher incidence of defaults. Asset-Backed Securities are rated by major rating agencies. Market risk arises from the cash-flow characteristics of the security, which for many Asset-Backed Securities tend to be predictable. The greatest variability in cash flows comes from credit performance, including the presence of wind-down or acceleration features designed to protect the investor in the event that credit losses in the portfolio rise well above expected levels. Interest-rate risk arises for the issuer from the relationship between the pricing terms on the underlying collateral and the terms of the rate paid to security holders. Liquidity risk can arise from increased perceived credit risk, like that which occurred in 1996 and 1997 with the rise in reported delinquencies and losses on securitized pools of credit cards. Liquidity can also become a major concern for asset-backed commercial paper programs if concerns about credit quality, for example, lead investors to avoid the commercial paper issued by the relevant special-purpose entity. For these cases, the securitization transaction may include a "liquidity facility," which requires the facility provider to advance funds to the relevant specialpurpose entity should liquidity problems arise. To the extent that the bank originating the loans is also the provider of the liquidity facility, and that the bank is likely to experience similar market concerns if the loans it originates deteriorate, the ultimate practical value of the liquidity facility to the transaction may be questionable. Operations risk arises through the potential for misrepresentation of loan quality or terms by the originating institution, misrepresentation of the nature and current value of the assets by the servicer and inadequate controls over disbursements and receipts by the servicer. Most of the Collateral Debt Securities are expected to consist of Prime Residential Mortgage Securities, Mid-Prime Residential Mortgage Securities and Sub-Prime Residential Mortgage Securities (collectively, "RMBS Securities"), CMBS Securities and CDO Securities (or Synthetic Securities with respect to which the related Reference Obligations are RMBS Securities, CMBS Securities or CDO Securities) meeting the eligibility criteria described herein. The collateral underlying RMBS Securities generally consists of a large, diversified pool of residential mortgage loans secured by one- to fourfamily residential properties. The mortgage loans themselves may earn interest at fixed, floating or hybrid rates, and provide for full amortization, negative amortization or partial amortization of principal with a balloon payment at maturity. RMBS Securities may have structural characteristics that distinguish them from other AssetBacked Securities. The rate of interest payable on RMBS Securities may be set or effectively capped at the weighted average net coupon of the underlying mortgage loans themselves, often referred to as an "available funds cap." As a result of this cap, the return to investors is dependent on the relative timing and rate of delinquencies and prepayments of mortgage loans bearing a higher rate of interest. In general, early prepayments will have a greater impact on the yield to an investor in such RMBS Securities. Federal and state law may also affect the return to investors by capping the interest rates payable by certain mortgagors. Most of the RMBS Securities which the Issuer may purchase are subject to such available funds caps or other caps on the interest rate payable to holders of such securities. The effect of such caps is to reduce the rate at which interest is paid to the holders of such securities (including the Issuer), which would have an adverse effect on the Issuer's ability to pay interest on the Secured Notes and to make distributions on the Subordinated Notes. Residential mortgage-backed transactions may provide that the resulting interest shortfalls be applied to reduce the entitlement of securityholders to payment of such amounts. Furthermore, such reduction in entitlement to interest payments may be allocated on a pro rata basis among all classes of securities, irrespective of their relative seniority. A number of transactions are structured without overcollateralization. If the interest rate payable on the securities is capped at the coupon on the mortgage loan pool, there will not be any excess spread available to cover losses. The sole source of credit support available to a class of securityholders is

159

provided by subordination of more junior classes of securities. Principal on the securities will be written down by losses on the mortgage loan pool, in inverse order of priority. Writedown of the principal balance of a class of securities reduces the amount of interest that would otherwise have been payable to such class at the applicable coupon. In addition, underlying mortgage loans may be segregated into two or more mortgage loan subpools, each of which provides funds for payment of one or more designated classes of securities. These classes may not be fully cross-collateralized. As a result, higher losses and delinquencies experienced by a mortgage loan subpool may have a disproportionate effect on certain classes of securities, although the total underlying mortgage loan pool may be performing within expectations. RMBS Securities often are in the form of certificates of beneficial ownership of the underlying mortgage loan pool. These securities are entitled to payments provided for in the underlying agreement only when and if funds are generated by the underlying mortgage loan pool. The likelihood of the return of interest and principal may be assessed as a credit matter. However, securityholders do not have the legal status of secured creditors, and cannot accelerate a claim for payment on their securities, or force a sale of the mortgage loan pool in the event that insufficient funds exist to pay such amounts on any date designated for such payment. The sole remedy available to such securityholders would be removal of the servicer of the mortgage loans. Local and national economic and demographic factors will impact prepayment rates on residential mortgage loans. Declining interest rates, job transfers and changes in housing needs may result in increased prepayments resulting from loan refinancing or from sale of the underlying mortgaged property. Increased interest rates and unemployment may increase default rates. Decreases in real estate values will result in increases in losses realized on foreclosure on the mortgaged properties following such defaults. Uninsurable natural disasters, such as earthquakes, hurricanes, and floods may also increase delinquencies and defaults and, ultimately, losses realized on foreclosure on the underlying mortgaged property. Residential mortgage loan pools with high concentrations in areas impacted by demographic shifts, economic changes and natural disasters will be disproportionately affected by resulting delinquencies, prepayments and losses. The subprime mortgage pools backing Mid-Prime Residential Mortgage Backed Securities are more likely to be affected by such delinquencies, prepayments and losses. Political events can also impact the performance of a residential mortgage loan pool. Military action by the United States in Iraq and other regions will affect the impact of the Relief Act on interest payable on a pool of residential mortgage loans. Terrorist attacks in the United States may result in Federal agencies and servicers deferring, reducing or forgiving payments or delaying foreclosure proceedings with respect to mortgagors adversely affected by possible future events. Certain interest rate features of many mortgage loans may increase credit, liquidity and interest rate risk with respect to residential mortgage-backed transactions. Mortgage loans may be structured with balloon payments, which increase the likelihood of default by the borrower at maturity. A number of mortgage loans convert from fixed to floating rates after a fixed period of time or may, at the option of the borrower, be converted to another rate. In addition, floating rate mortgage loans may be priced off of a wide variety of interest rates, which make it difficult to predict expected future interest on a mortgage loan portfolio. Certain mortgage loans contain negative amortization provisions which result in capitalization of interest. In certain residential mortgage-backed transactions, negative amortization of mortgage loans in the underlying mortgage pool will result in an equivalent increase in the principal balance of the RMBS Securities themselves, effectively resulting in capitalization of interest on the RMBS Securities. Some subprime residential mortgage loan transactions include mortgage loans with high loan-tovalue ratios and/or junior lien positions, which will affect loss severity on the occurrence of a default.

160

Consumer laws pose additional risks to transactions backed by mortgage loans to borrowers with poor credit ratings. These mortgage loans typically carry higher rates of interest and may be classified as "high cost loans." High cost loans may be subject to certain rules, disclosure requirements and other provisions added to the Federal Truth-in Lending Act by the Home and Equity Ownership Protection Act of 1994 and similar state laws. Other Federal and state laws also regulate disclosure and lending practices with respect to mortgage loans. See "Risk Factors—RMBS Securities." Purchasers of high-cost loans could be liable for all claims and subject to all defenses that the borrower could assert against the originator of the mortgage loan. The collateral underlying a CMBS Security generally consists of mortgage loans secured by income producing property, such as multi-family housing or commercial property. In general, incremental risks of delinquency, foreclosure and loss with respect to an underlying commercial mortgage loan pool may be greater than those associated with residential mortgage loan pools. In part, this is caused by lack of diversity. RMBS Securities are typically backed by mortgage loan pools consisting of thousands of mortgage loans and related mortgaged properties. Each residential mortgage loan represents a small percentage of the entire underlying collateral pool, the borrowers and mortgaged properties of which are geographically dispersed. Risk of delinquency, foreclosure and loss with respect to a residential mortgage loan pool can be analyzed statistically. By contrast, CMBS Securities may be backed by an underlying mortgage pool of only a few mortgage loans. As a result, each commercial mortgage loan in the underlying mortgage pool represents a large percentage of the principal amount of CMBS Securities backed by such underlying mortgage pool. A failure in performance of any one commercial mortgage loan in the underlying mortgage pool will have a much greater impact on the performance of the related CMBS Securities. Credit risk relating to commercial mortgage-backed transactions is, as a result, property-specific. In this respect, commercial mortgage-backed transactions resemble traditional nonrecourse secured loans. The collateral must be analyzed and transaction structured to address issues specific to an individual commercial property and its business. Performance of a commercial mortgage loan depends primarily on the net income generated by the underlying mortgaged property. The market value of a commercial property similarly depends on its income-generating ability. As a result, income generation will affect both the likelihood of default and the severity of losses with respect to a commercial mortgage loan. Successful management and operation of the related business (including property management decisions such as pricing, maintenance and capital improvements) will have a significant impact on performance of commercial mortgage loans. Issues such as tenant mix, success of tenant business, property location and condition, competition, taxes and other operational expenses, general economic conditions, governmental rules, regulations and fiscal policies, environmental issues and insurance coverage are among the factors that may impact both performance and market value. Property specific issues with respect to the underlying mortgaged property, such as significant government regulation of a particular industry, reliance on franchise, management or operating agreements, transferability on purchase or foreclosure of related valuable assets such as liquor and other licenses and ease of conversion of a commercial property to an alternative use will impact both risk of loss and loss severity with respect to the underlying mortgage loan pool and the CMBS. See "Risk Factors—Commercial Mortgage-Backed Securities."

161

Synthetic Securities A significant portion of the Collateral Debt Securities is expected to consist of Synthetic Securities entered into between the Issuer and a Synthetic Security Counterparty, and it is anticipated that a large portion of the Synthetic Securities Acquired by the Issuer will consist of CDS Transactions entered into by the Issuer with the Credit Default Swap Counterparty. "Synthetic Security Counterparty" means any entity (including, without limitation, the Credit Default Swap Counterparty) that is required to make payments on a Synthetic Security (whether premium payments, as a result of a Credit Event thereunder or based upon payments received from one or more Reference Obligors on one or more related Reference Obligations). For purposes of the Collateral Quality Tests (other than the Moody's Asset Correlation Test), the Overcollateralization Tests, the Pro Rata Payment Test, the Class E Interest Diversion Test, the Class A Overcollateralization Ratio and for determining the Moody's Rating and the Standard & Poor's Rating, a Synthetic Security (other than a Synthetic Security relating to an Index) that is not a CDS Transaction shall be included as a Collateral Debt Security having the characteristics of the Synthetic Security and not the related Reference Obligation; provided that for purposes of determining the industry with respect to a Synthetic Security that is not a CDS Transaction for the Standard & Poor's CDO Monitor Notification Test, a Synthetic Security (other than a Synthetic Security relating to an Index) that is not a CDS Transaction will be included as a Collateral Debt Security having the characteristics of the related Reference Obligation. For purposes of the Moody's Asset Correlation Test, a Synthetic Security that is not a CDS Transaction will have the characteristics of the related Reference Obligation (and the issuer thereof will be deemed to be the related Reference Obligor). For purposes of the Weighted Average Spread Test, an Unhedged Long CDS Transaction will have the characteristics of such Synthetic Security, and not its Reference Obligation. Otherwise, for purposes of the Collateral Quality Tests, the Overcollateralization Tests, the Pro Rata Payment Test, the Class E Interest Diversion Test, the Class A Overcollateralization Ratio and for determining the Moody's Rating and the Standard & Poor's Rating, an Unhedged Long CDS Transaction will have the characteristics of its Reference Obligation. For purposes of the Overcollateralization Tests, the Pro Rata Payment Test, the Class E Interest Diversion Test, the Class A Overcollateralization Ratio and the Collateral Quality Tests (including the Weighted Average Spread and other related definitions used to determine compliance with the Collateral Quality Tests) and the Eligibility Criteria, and for determining the Moody's Rating and the Standard & Poor's Rating, a Hedged Long CDS Transaction will be deemed to no longer be held by the Issuer. For purposes of the Collateral Quality Tests, the Overcollateralization Tests, the Class E Interest Diversion Test, the Pro Rata Payment Test, the Class A Overcollateralization Ratio, the Eligibility Criteria and for determining the Moody's Rating and the Standard & Poor's Rating, except as otherwise provided herein, a Synthetic Security relating to an Index shall be treated as a series of synthetic transactions Acquired by the Issuer with respect to each Reference Obligation that forms part of such Index, each with a Notional Amount equal to the Allocable Notional Amount of such Reference Obligation and providing for payments correlated to the coupon, spread, maturity, default, recovery upon default and other characteristics of such Reference Obligation. The Portfolio Manager (on behalf of the Issuer) may apply Uninvested Proceeds, Principal Proceeds and Disposition Proceeds during the Reinvestment Period to cause the Issuer to Acquire additional Synthetic Securities (including CDS Transactions) if the reinvestment criteria set forth under the Eligibility Criteria are satisfied or, if applicable, the extent of compliance is maintained or improved. In addition, upon the occurrence of a Principal Amortization or a CDS Transaction Termination during the Reinvestment Period, the Portfolio Manager (on behalf of the Issuer) may Acquire one or more replacement CDS Transactions.

162

The Issuer will not Acquire any CDS Transaction unless, immediately after giving effect to such Acquisition, (a) the sum of (i) the Remaining Unfunded Facility Commitment plus (ii) the balance of all Reserve Account Investments standing to the credit of the Reserve Account (other than any portion thereof that is investment income or that has irrevocably been designated for withdrawal therefrom as Principal Proceeds) is greater than or equal to (b) the aggregate Remaining Exposure under all CDS Transactions immediately after giving effect to such Acquisition. Payments to the Credit Default Swap Counterparty in respect of any CDS Transactions (other than any termination payments in connection with the termination of the Credit Default Swap Agreement which shall only be payable on a Distribution Date in accordance with the Priority of Payments) will be funded by the Issuer applying (x) all funds and other property standing to the credit of the Accounts available therefor and (y) Borrowings and Deemed Borrowings under the Class A1-VF Notes, in each case in accordance with the Account Withdrawal Payment Priority. In connection with the Acquisition of a Defeased Synthetic Security, the Issuer may grant to the counterparty to such Defeased Synthetic Security a first priority security interest in Synthetic Security Collateral (and the proceeds thereof) designated by the Issuer and deposited in a Synthetic Security Counterparty Account, which may be invested as provided in the terms of such Defeased Synthetic Security, and the proceeds of which may be applied to make periodic payments to the Synthetic Security Counterparty under such Defeased Synthetic Security. The grant of such security interest shall be treated as the payment of a purchase price equal to the value of the Synthetic Security Collateral covered by such grant, and the Issuer's obligations to make periodic payments under such Defeased Synthetic Security (to the extent recourse for such obligations is limited to such Synthetic Security Counterparty Account) shall be disregarded for purposes of determining compliance with the Eligibility Criteria. Withdrawals from such Synthetic Security Counterparty Account shall be made in accordance with the terms of the related Defeased Synthetic Security. The Issuer will not enter into any Defeased Synthetic Security unless the recourse of the relevant Synthetic Security Counterparty to the Issuer thereunder is limited to the Synthetic Security Collateral and as a consequence, the relevant Synthetic Security Counterparty bears the market risk of such Synthetic Security Collateral. See "—The Accounts—Synthetic Security Counterparty Accounts" below. In connection with (or after) the Acquisition of a Synthetic Security, the related Synthetic Security Counterparty may grant to the Issuer a first priority security interest in Synthetic Security Collateral (and the proceeds thereof) designated by the related Synthetic Security Counterparty and deposited in a Synthetic Security Issuer Account, which may be invested in accordance with the terms of such Synthetic Security, and the proceeds of which may be applied to make periodic payments to the Issuer under such Synthetic Security. Withdrawals from such Synthetic Security Issuer Account shall be made in accordance with the terms of the related Synthetic Security. Investments in Synthetic Securities present risks in addition to those associated with other types of Collateral Debt Securities. See "Risk Factors—Nature of Collateral" and "—Acquisition and Disposition of, and Credit Risk under, Synthetic Securities." The Collateral Quality Tests The "Collateral Quality Tests" will be used primarily as criteria for Acquiring Collateral Debt Securities. See "—Eligibility Criteria." The Collateral Quality Tests will consist of the Moody's Asset Correlation Test, the Moody's Weighted Average Rating Factor Test, the Moody's Minimum Weighted Average Recovery Rate Test, the Weighted Average Spread Test, the Standard & Poor's CDO Monitor Notification Test, the Weighted Average Life Test and the Standard & Poor's Weighted Average Recovery Rate Test described below.

163

Measurement of the degree of compliance with the Collateral Quality Tests will be required on each Measurement Date. For purposes of the Collateral Quality Tests (other than the Moody's Asset Correlation Test) or for determining the Moody's Rating or the Standard & Poor's Rating of a Synthetic Security, a Synthetic Security will be included as a Collateral Debt Security having the characteristics and Average Life of the Synthetic Security and not of the related Reference Obligation. For purposes of the Collateral Quality Tests, the Outstanding Class A1-VF Funded Amount shall be deemed to be reduced by the balance standing to the credit of the Class A1-VF Noteholder Account (excluding for these purposes, any income received on Eligible Investments standing to the credit of the Class A1-VF Noteholder Account). Moody's Asset Correlation Test. The "Moody's Asset Correlation Test" will be satisfied on any Measurement Date if the Moody's Asset Correlation Percentage (calculated based on a model that assumes 100 separate obligors as of the Closing Date) is less than or equal to 21.4% on such Measurement Date (as the same shall be adjusted with the consent of Moody's in order to take into account any adjustment to the number of obligors). The "Moody's Asset Correlation Percentage" is a percentage determined in accordance with any of the one or more asset correlation methodologies provided from time to time to the Portfolio Manager and the Trustee by Moody's; (applying the latest of such methodologies delivered to the Portfolio Manager by Moody's); provided that the Portfolio Manager shall give reasonably detailed instructions to the Trustee based on consultations among the Trustee, the Portfolio Manager and Moody's as to the application of such methodology. Moody's Weighted Average Rating Factor Test. The "Moody's Weighted Average Rating Factor Test" will be satisfied as of any Measurement Date if the Moody's Weighted Average Rating Factor of the Collateral Debt Securities (other than Defaulted Securities) as of such Measurement Date is less than or equal to 525. The "Moody's Weighted Average Rating Factor" on any Measurement Date is the number determined by dividing (i) the sum of the series of products obtained for Collateral Debt Securities (other than Defaulted Securities) by multiplying the Principal Balance on such Measurement Date of each such Collateral Debt Security by its respective Moody's Rating Factor on such Measurement Date by (ii) the sum of the Aggregate Principal Balance of all such Collateral Debt Securities on such Measurement Date. The "Moody's Rating Factor" relating to any Collateral Debt Security is the number set forth in the table below opposite the Moody's Rating of such Collateral Debt Security:

Moody's Rating

Moody's Rating Factor

Moody's Rating

Aaa

1

Ba1

940

Aa1

10

Ba2

1,350

Aa1

20

Ba3

1,766

Aa2

40

B1

2,220

A1

70

B2

2,720

A2

120

B3

3,490

A3

180

Caa1

4,770

Baa1

260

Caa1

6,500

164

Moody's Rating Factor

Moody's Rating

Moody's Rating Factor

Moody's Rating

Moody's Rating Factor

Baa1

360

Caa2

8,070

Baa2

610

Ca or lower

10,000

For purposes of the Moody's Weighted Average Rating Factor Test, if a Collateral Debt Security does not have a Moody's Rating at the date of Acquisition thereof, the Moody's Rating Factor with respect to such Collateral Debt Security shall be 10,000 for a period of 90 days from the Acquisition of such Collateral Debt Security and after such 90-day period, if such Collateral Debt Security does not have a Moody's Rating and the Issuer or the Portfolio Manager seeks to obtain an estimate of a Moody's Rating Factor, then the Moody's Rating Factor of such Collateral Debt Security will be deemed to be such estimate thereof as may be assigned by Moody's upon the request of the Issuer or the Portfolio Manager. Moody's Minimum Weighted Average Recovery Rate Test. The "Moody's Minimum Weighted Average Recovery Rate Test" will be satisfied as of any Measurement Date, if the Moody's Weighted Average Recovery Rate is greater than or equal to 24.3%. The "Moody's Weighted Average Recovery Rate" is the number, expressed as a percentage, obtained by summing the products obtained by multiplying the Principal Balance of each Collateral Debt Security, other than a Defaulted Security or a Deferred Interest PIK Bond, by its "Applicable Recovery Rate" (determined for purposes of this definition pursuant to clause (a) of the definition of "Applicable Recovery Rate"), dividing such sum by the Aggregate Principal Balance of all such Collateral Debt Securities and rounding up the result to the first decimal place. Weighted Average Spread Test. The "Weighted Average Spread Test" means a test that is satisfied on any Measurement Date if the Weighted Average Spread as of such Measurement Date is equal to or greater than 1.66%. The "Weighted Average Spread" means, as of any Measurement Date: (a) the sum (rounded up to the next 0.001%) of (i) the sum of the products obtained by multiplying (x) the Current Spread on each Collateral Debt Security that is a Floating Rate Collateral Debt Security or Deemed Floating Rate Collateral Debt Security (other than a Defaulted Security or a Deferred Interest PIK Bond) as of such date by (y) the Principal Balance of such Collateral Debt Security as of such date plus (ii) the sum of the products obtained by multiplying (x) the fixed rate premium percentage payable by the applicable Synthetic Security Counterparty, as buyer of protection, under each Synthetic Security structured as a credit default swap under which the Issuer is acting as seller of protection (including any Unhedged Long CDS Transaction but excluding any Hedged Long CDS Transaction) by (y) the Notional Amount of such Synthetic Security divided by (b) the sum of (i) the Aggregate Principal Balance of all Collateral Debt Securities that are Floating Rate Collateral Debt Securities or Deemed Floating Rate Collateral Debt Securities (excluding all Defaulted Securities and Deferred Interest PIK Bonds) plus (ii) the aggregate Notional Amount of all Synthetic Securities that are structured as credit default swaps under which the Issuer is acting as seller of protection, but not including Hedged Long CDS Transactions. For purposes of this definition, (1) a PIK Bond shall be deemed to be a Deferred Interest PIK Bond so long as any interest thereon has been deferred and capitalized for at least one payment date (until payment of interest on such PIK Bond has resumed and all capitalized and deferred interest has been paid in accordance with the terms of the Underlying Instruments), (2) no contingent payment of interest will be

165

included in such calculation and (3) in the case of any Collateral Debt Security (other than a Synthetic Security) paying interest at a floating rate that does not bear interest at a rate expressed as a stated spread above the applicable LIBOR, the spread on such Collateral Debt Security on any Measurement Date shall be calculated as the difference between the coupon on such Collateral Debt Security and LIBOR and if on such Measurement Date such rate is calculated as a spread below LIBOR, such spread shall be expressed as a negative number for purposes of making the calculation described in clause (a)(i) of the preceding sentence. For purposes of the foregoing: (a) the "Current Spread" means, as of any date of determination, (i) with respect to any Collateral Debt Security which is a Floating Rate Collateral Debt Security (other than a Synthetic Security), the stated spread above or below LIBOR at which interest accrues on such Floating Rate Collateral Debt Security and (ii) with respect to any Collateral Debt Security which is a Deemed Floating Rate Collateral Debt Security, the Deemed Floating Spread related to such Deemed Floating Rate Collateral Debt Security; provided that, for purposes of clause (i) of this definition, in the case of any Floating Rate Collateral Debt Security that does not bear interest at a rate expressed as a stated spread above or below LIBOR, the stated spread to LIBOR relating to such Floating Rate Collateral Debt Security shall be calculated on any Measurement Date by subtracting LIBOR (as determined on the most recent LIBOR Determination Date) from the interest rate payable on such Floating Rate Collateral Debt Security; and (b) the "Deemed Floating Spread" means for each Fixed Rate Collateral Debt Security (including a Hedged Hybrid Security) that comprises a Deemed Floating Rate Collateral Debt Security (excluding all Defaulted Securities and Deferred Interest PIK Bonds) the sum of (i) the difference between the stated rate at which interest accrues on such security and the related Fixed Payment Rate and (ii) the difference between the related Floating Payment Rate and LIBOR. Weighted Average Life Test. The "Weighted Average Life Test" will be satisfied as of any Measurement Date occurring during any period set forth below if the Weighted Average Life of all Collateral Debt Securities (other than Defaulted Securities) as of such Measurement Date is less than or equal to the number of years set forth in the table below. As of any Determination Date occurring during the period below

Weighted Average Life

On the Closing Date to and including the Distribution Date in February 2007

7.25 years

Thereafter to and including the Distribution Date in May 2007

7.0 years

Thereafter to and including the Distribution Date in August 2007

6.75 years

Thereafter to and including the Distribution Date in November 2007

6.5 years

Thereafter to and including the Distribution Date in February 2008

6.25 years

Thereafter to and including the Distribution Date in May 2008

6.0 years

Thereafter to and including the Distribution Date in August 2008

5.75 years

Thereafter to and including the Distribution Date in November 2008

5.5 years

Thereafter to and including the Distribution Date in February 2009

5.25 years

Thereafter to and including the Distribution Date in May 2009

5.0 years

166

As of any Determination Date occurring during the period below

Weighted Average Life

Thereafter to and including the Distribution Date in August 2009

4.75 years

Thereafter to and including the Distribution Date in November 2009

4.5 years

Thereafter to and including the Distribution Date in February 2010

4.25 years

Thereafter to and including the Distribution Date in May 2010

4.0 years

Thereafter to and including the Distribution Date in August 2010

3.75 years

Thereafter to and including the Distribution Date in November 2010

3.5 years

Thereafter to and including the Distribution Date in February 2011

3.25 years

Thereafter

3 years

On any Measurement Date with respect to any Collateral Debt Security other than a Defaulted Security, the "Weighted Average Life" is the number obtained by (i) summing the products obtained by multiplying (a) the Average Life at such time of each such Collateral Debt Security by (b) the outstanding Principal Balance of such Collateral Debt Security and (ii) dividing such sum by the Aggregate Principal Balance at such time of all Collateral Debt Securities other than Defaulted Securities. On any Measurement Date with respect to any Collateral Debt Security, the "Average Life" is the quotient obtained and provided to the Trustee by the Portfolio Manager by dividing (i) the sum of the products of (a) the number of years (rounded to the nearest one tenth thereof) from such Measurement Date to the respective dates of each successive distribution of principal of such Collateral Debt Security and (b) the respective amounts of principal of such scheduled distributions by (ii) the sum of all successive scheduled distributions of principal on such Collateral Debt Security. Standard & Poor's Weighted Average Recovery Rate Test. The "Standard & Poor's Weighted Average Recovery Rate Test" will be satisfied on any Measurement Date, if the Standard & Poor's Weighted Average Recovery Rate is equal or greater than (a) with respect to the Class A1-VF Notes, 29.50%, (b) with respect to the Class A2A Notes, 29.50%, (c) with respect to the Class A2B Notes, 29.50%, (d) with respect to the Class B1 Notes, 34.50%, (e) with respect to the Class B2 Notes, 34.50%, (f) with respect to the Class C Notes, 39.75%, (g) with respect to the Class D Notes, 45.00% and (h) with respect to the Class E Notes, 50.50%. The "Standard & Poor's Weighted Average Recovery Rate" means, as of any Measurement Date, the number obtained by summing the products obtained by multiplying the Principal Balance of each Collateral Debt Security, other than a Defaulted Security, by its "Applicable Recovery Rate" (determined for purposes of this definition pursuant to clause (b) of the definition of "Applicable Recovery Rate"), dividing such sum by the Aggregate Principal Balance of all such Collateral Debt Securities and rounding up to the first decimal place. Standard & Poor's CDO Monitor Notification Test. The "Standard & Poor's CDO Monitor Notification Test" is a test satisfied on any Measurement Date if after giving effect to the Disposition of one or more Collateral Debt Securities or the Acquisition of one or more Collateral Debt Securities (or both), as the case may be, on such Measurement Date the Notes Loss Differential of the Proposed Portfolio is positive or if the Notes Loss Differential of the Proposed Portfolio is negative prior to giving effect to such Disposition or Acquisition, the extent of compliance is improved after giving effect to the Disposition or Acquisition of a Collateral Debt Security; provided that (a) the Standard & Poor's CDO Monitor Notification Test shall not apply to the Disposition of a Defaulted Security or a Credit Risk

167

Security and (b) for purposes of determining the Standard & Poor's CDO Monitor Notification Test, unless otherwise specified, a Synthetic Security shall be included as a Collateral Debt Security having the characteristics of the Synthetic Security and not of the related Reference Obligation. The "Standard & Poor's CDO Monitor" is the dynamic, analytical computer program provided by Standard & Poor's (together with all assumptions and instruments necessary for running such model) to the Portfolio Manager and the Trustee within 30 days after the Closing Date for the purpose of estimating the default risk of Collateral Debt Securities, as modified by Standard & Poor's from time to time (provided that the program most recently provided by Standard & Poor's to the Portfolio Manager shall be utilized for purposes of the Standard & Poor's CDO Monitor Notification Test). The Standard & Poor's CDO Monitor calculates the cumulative default rate of a pool of Collateral Debt Securities consistent with a specified benchmark rating level based upon Standard & Poor's proprietary corporate debt default studies. In calculating the Class Scenario Default Rate, the Standard & Poor's CDO Monitor considers each obligor's most senior unsecured debt rating, the number of obligors in the portfolio, the obligor and industry concentration in the portfolio and the remaining weighted average maturity of the Collateral Debt Securities and calculates a cumulative default rate based on the statistical probability of distributions of defaults on the Collateral Debt Securities. If on any Measurement Date occurring on or after the Closing Date (after giving effect to the Acquisition of any Collateral Debt Security on such Measurement Date), the Standard & Poor's CDO Monitor Notification Test is not satisfied, the Issuer (or the Portfolio Manager on behalf of the Issuer) shall promptly deliver to the Trustee, the Secured Noteholders, the Hedge Counterparty and Standard & Poor's an officer's certificate specifying the extent of such non-compliance. There can be no assurance that actual defaults of the Collateral Debt Securities or the timing of defaults will not exceed those assumed in the application of the Standard & Poor's CDO Monitor or that recovery rates with respect thereto will not differ from those assumed in the Standard & Poor's CDO Monitor Notification Test. Standard & Poor's makes no representation that actual defaults will not exceed those determined by the Standard & Poor's CDO Monitor. Neither the Portfolio Manager nor the Issuer makes any representation as to the expected rate of defaults of the Collateral Debt Securities or the timing of defaults or as to the expected recovery rate or the timing of recoveries. Disposition and Substitution of Collateral Debt Securities The Collateral Debt Securities may be retired prior to their respective final maturities due to, among other things, the existence and frequency of exercise of any optional or mandatory redemption or principal prepayment features of such Collateral Debt Securities or Reference Obligations, as the case may be, or in the case of Synthetic Securities, due to early terminations or settlements, in accordance with their respective terms. In addition, pursuant to the Indenture and so long as (A) no Event of Default has occurred and is continuing and (B) on or prior to the trade date for such Disposition each of the conditions applicable to such Disposition set forth below has been satisfied, the Portfolio Manager on behalf of the Issuer acting pursuant to the Management Agreement may direct the Trustee in writing to Dispose of, and the Trustee will Dispose of, in the manner directed by the Portfolio Manager in writing (which writing shall specify whether such security is a Defaulted Security, Equity Security, Credit Risk Security or Credit Improved Security, if applicable, whether such Disposition is a Discretionary Disposition, or whether such security is otherwise permitted to be Disposed of pursuant to the Indenture, and which writing shall be deemed to be the Portfolio Manager's determination that each of the conditions applicable to such Disposition set forth below has been satisfied): (1)

any Defaulted Security at any time;

168

(2) any equity security Acquired by the Issuer as a result of the exercise or conversion of a Collateral Debt Security, in conjunction with the purchase of a Collateral Debt Security or in exchange for a Defaulted Security (any of the foregoing, an "Equity Security") at any time; (3) any Credit Risk Security at any time; provided that no such Disposition may be made during the Reinvestment Period unless the Portfolio Manager believes in good faith and in the exercise of its judgment (exercised in accordance with the standard of care set forth in the Management Agreement) that Disposition Proceeds received in respect thereof (unless reinvestment is prohibited due to the limitation imposed by clause (C) of clause (5) below (in which case any resulting Disposition Proceeds shall be treated as Principal Proceeds)) can be reinvested within 60 Business Days after the trade date on which such Credit Risk Security is Disposed of in (or in the case of a CDS Transaction committed to) one or more substitute Collateral Debt Securities which (I) in the case of the Disposition of a Collateral Debt Security that is not a CDS Transaction, have an Aggregate Principal Balance of not less than 100% of such Disposition Proceeds (excluding accrued interest Acquired with Interest Proceeds) or (II) in the case of a CDS Transaction, have an aggregate Notional Amount not less than (x) 100% of the Notional Amount of the CDS Transaction being Disposed of minus (y) any CDS Termination Payment paid by the Issuer in connection with such Disposition, and will not cause a Notional Amount Shortfall greater than zero to exist or be increased); (4)

any Credit Improved Security if:

(i) at any time during the Reinvestment Period, the Portfolio Manager believes in good faith and in the exercise of its judgment (exercised in accordance with the standard of care set forth in the Management Agreement) that Disposition Proceeds received in respect of such Credit Improved Security (unless reinvestment is prohibited due to the limitation imposed by clause (C) of clause (5) below (in which case any resulting Disposition Proceeds shall be treated as Principal Proceeds)) can be reinvested (or in the case of a CDS Transaction, committed) in accordance with the Eligibility Criteria within 30 Business Days after the trade date on which such Credit Improved Security is Disposed of in one or more substitute Collateral Debt Securities which (I) in the case of the Disposition of a Collateral Debt Security that is not a CDS Transaction, have an Aggregate Principal Balance of not less than 100% of the Principal Balance of the Credit Improved Security being Disposed of or (II) in the case of a CDS Transaction, have an aggregate Notional Amount not less than (x) 100% of the Notional Amount of the CDS Transaction being Disposed of and no amounts shall be payable by the Issuer in connection with such Disposition (unless an up-front payment shall be paid to the Issuer in connection with such reinvestment in one or more substitute Collateral Debt Securities in an amount equal to or greater than any such amounts payable by the Issuer), and (ii) after the Reinvestment Period, (A) the Moody's Rating Trigger is not in effect and (B) the Disposition Proceeds received in respect thereof (excluding accrued interest) (1)(a) in the case of the Disposition of a Collateral Debt Security that is not a CDS Transaction, are not less than 100% of the Principal Balance of the Credit Improved Security being Disposed of and (b) in the case of a CDS Transaction, have an aggregate Notional Amount not less than 100% of the Notional Amount of the CDS Transaction being Disposed of and no amounts shall be payable by Issuer in connection with such Disposition (unless an up-front payment shall be paid to the Issuer in connection with such reinvestment in one or more Substitute Collateral Debt Securities in an amount equal to or greater than any such amounts payable by the Issuer) and (2) are deposited in the Principal Collection Account and disbursed in accordance with the Priority of Payments; and

169

(5) without limiting the foregoing, any Collateral Debt Security that is not a Defaulted Security, an Equity Security, a Credit Risk Security or a Credit Improved Security may be Disposed of at any time during the Reinvestment Period (any such sale, a "Discretionary Disposition," with any security Disposed of in a Discretionary Disposition being referred to herein as a "Discretionary Disposition Security"); provided that (A) the Portfolio Manager believes in good faith that Disposition Proceeds from the Disposition of such Collateral Debt Security can be reinvested (or in the case of a CDS Transaction allocated to) within 30 days after such Collateral Debt Security is Disposed of, in one or more substitute Collateral Debt Securities having an Aggregate Principal Balance at least equal to 100% of the Principal Balance of the Collateral Debt Security being Disposed of (without, in the case of a CDS Transaction, causing or increasing a Notional Amount Shortfall greater than zero), (B) a Moody's Rating Trigger has not occurred and (C) the Aggregate Principal Balance of all Collateral Debt Securities, U.S. Agency Securities and Equity Securities Acquired with Disposition Proceeds from Discretionary Dispositions pursuant to this clause (5) during any 12 month period that commences on November 9, 2006 does not exceed 20% of the Net Outstanding Portfolio Collateral Balance as of the first day of such period. The Portfolio Manager shall be deemed to have knowledge of all information received by it that is delivered to it in accordance with the Indenture, and shall be responsible under the Management Agreement (to the extent provided therein) for obtaining and reviewing information available to it in its capacity as a portfolio manager (except to the extent any such information has been withheld from the Portfolio Manager by the Trustee or the Issuer). Notwithstanding the foregoing, the Portfolio Manager may declare any Collateral Debt Security to be a Defaulted Security if, in the Portfolio Manager's judgment (exercised in accordance with the standard of care set forth in the Management Agreement), the credit quality of the issuer of such Collateral Debt Security has significantly deteriorated such that there is a reasonable expectation of payment default as of the next due date. Any Defaulted Security must be Disposed of within one year after the related Collateral Debt Security became a Defaulted Security (or within one year of such later date as such security may first be Disposed of in accordance with its terms), provided that (i) the Issuer shall not be required to Dispose of such Defaulted Security if the Rating Condition with respect to Moody's is satisfied with respect to the retention of such Defaulted Security, (ii) the Issuer shall not be obligated to Dispose of any Collateral Debt Security that is a Defaulted Security solely because it is rated "CC," "D" or "SD" by Standard & Poor's, (iii) the Issuer shall not be obligated to Dispose of any Collateral Debt Security that is a Defaulted Security for up to three years after such Collateral Debt Security became a Defaulted Security, so long as the Aggregate Principal Balance of all Collateral Debt Securities that are Defaulted Securities does not exceed 5% of the Net Outstanding Portfolio Collateral Balance and (iv) any Defaulted Security that is held for more than three years shall be treated as having a Principal Balance of zero. Any Equity Security that is not "margin stock" as defined under Regulation U issued by the Board of Governors of the Federal Reserve System and complies with Eligibility Criteria (7) through (9) must be Disposed of within one year after the related Collateral Debt Security became a Defaulted Security (or within one year of such later date as such security may first be Disposed of in accordance with its terms and applicable law). Any other Equity Security and any Defaulted Security that does not comply with Eligibility Criteria (7) through (9) must be sold or terminated not later than five Business Days after the Issuer's receipt thereof (or within five Business Days of such later date as such security may first be Disposed of in accordance with its terms and applicable law). In the event of an Auction Call Redemption, Optional Redemption or a Tax Redemption of the Secured Notes, the Portfolio Manager on behalf of the Issuer acting pursuant to the Management Agreement may direct the Trustee in writing to Dispose of, and the Trustee will Dispose of in the manner

170

directed by the Portfolio Manager in writing, any Collateral Debt Security without regard to the foregoing limitations; provided that (i) the Disposition Proceeds therefrom will be at least sufficient to pay certain expenses and other amounts and redeem in whole but not in part all Secured Notes; and (ii) such Disposition Proceeds are used to make such a redemption. See "Description of the Secured Notes— Optional Redemption and Tax Redemption" and "—Auction Call Redemption." The Portfolio Manager may direct the Trustee (acting on behalf of the Issuer) to Acquire a Collateral Debt Security to be included in the Collateral directly or indirectly from the Portfolio Manager or any of its Affiliates, acting as principal or agent, or any account or portfolio for which the Portfolio Manager or any of its Affiliates serve as investment advisor or sell or assign any obligation included in the Collateral directly or indirectly to the Portfolio Manager or any of its Affiliates, acting as principal or agent, or any account or portfolio for which the Portfolio Manager or any of its Affiliates serve as investment adviser, in each case only to the extent that (a) such Acquisitions or Dispositions are made for Fair Market Value (as determined in good faith by the Portfolio Manager at the time such obligation is Acquired or Disposed of) and otherwise on arms' length terms and (b) the Portfolio Manager determines that such Acquisitions are consistent with the investment guidelines and objectives of the Issuer, the restrictions contained in the Indenture and applicable law. The Trustee shall have no responsibility to oversee compliance with the above conditions by the other parties. During the Reinvestment Period, Principal Proceeds (including those resulting from Dispositions, maturities or redemptions of Collateral Debt Securities as aforesaid) may be reinvested in Collateral Debt Securities if the reinvestment criteria set forth above under "—Eligibility Criteria" are satisfied or, if applicable, the extent of compliance is maintained or improved. See "—Eligibility Criteria." If, however, at the time of sale, maturity or redemption the Portfolio Manager is not required to and has not identified Collateral Debt Securities for purchase, Principal Proceeds may be reinvested in Eligible Investments in the Principal Collection Account, pending reinvestment in Collateral Debt Securities. In addition, upon the occurrence of a Principal Amortization or a CDS Transaction Termination during the Reinvestment Period, the Portfolio Manager (on behalf of the Issuer) may Acquire one or more replacement CDS Transactions so long as the reinvestment criteria set forth above under "—Eligibility Criteria" are satisfied. The Issuer may only Acquire any such replacement CDS Transaction if the Issuer and the Credit Default Swap Counterparty agree on the terms of such replacement CDS Transaction. The Hedge Agreements The Issuer will on or after the Closing Date enter into one or more interest rate protection agreements each consisting of one or more interest rate swaps, interest rate caps, and/or timing swaps (each such agreement, and any replacement therefor entered into in accordance with the Indenture, an "Interest Rate Hedge Agreement"), with a counterparty with respect to which the Rating Condition has been satisfied (each, an "Interest Rate Hedge Counterparty"). The Issuer is also authorized after the Closing Date to enter into additional Deemed Floating Asset Hedge Agreements and Hybrid Security Hedge Agreements (collectively, the "Asset Hedge Agreements" and each, an "Asset Hedge Agreement"; the Asset Hedge Agreements and each Interest Rate Hedge Agreement being collectively referred to herein as the "Hedge Agreements" and each, a "Hedge Agreement") with such hedge counterparties (each, an "Asset Hedge Counterparty"; the Asset Hedge Counterparties and each Interest Rate Hedge Counterparty are collectively referred to herein as the "Hedge Counterparties") as it may elect in its sole discretion upon or following the Acquisition of a Collateral Debt Security that in each case either (i) satisfy the Rating Condition or (ii) are Form-Approved Asset Hedge Agreements with respect to which the details of the Collateral Debt Security that is the subject of such Acquisition have been provided to each of the Rating Agencies.

171

Asset Hedge Account The Trustee shall, with respect to any Asset Hedge Agreement, deposit all amounts that are received in respect of interest on the Collateral Debt Security that is the subject of such Asset Hedge Agreement and are required to be paid to the related Asset Hedge Counterparty in accordance with the terms of such Asset Hedge Agreement into a separate securities account in the name of the Trustee and each such account will be designated an "Asset Hedge Account." Each Asset Hedge Account will be established on or prior to the entry into the relevant Asset Hedge Agreement and shall be maintained for the benefit of the relevant Asset Hedge Counterparty. All amounts standing to the credit of an Asset Hedge Account (including, without limitation, investment earnings on Eligible Investments standing to the credit of an Asset Hedge Account) shall be invested in Eligible Investments until such amounts are paid to the related Asset Hedge Counterparty in accordance with the terms of the related Asset Hedge Agreement. Any amounts (whether investment earnings on Eligible Investments or otherwise) remaining in an Asset Hedge Account on any Distribution Date that are not required to pay any amounts due to any Asset Hedge Counterparty under the related Asset Hedge Agreement shall be transferred to the Interest Collection Account on such Distribution Date and applied as Interest Proceeds in accordance with the Priority of Payments on such Distribution Date. Pursuant to the Priority of Payments, scheduled payments required to be made by the Issuer under each Interest Rate Hedge Agreement, together with any termination payments payable by the Issuer, will be payable pursuant to paragraphs (5) and (19) under "Priority of Payments—Interest Proceeds" and paragraphs (1) and (10) under "Priority of Payments—Principal Proceeds." Each Hedge Agreement will be governed by New York law. If the ratings of a Hedge Counterparty are withdrawn, suspended or fall to or below certain levels specified by the Rating Agencies and set forth (or incorporated by reference into) in the related Hedge Agreement, such Hedge Counterparty will be required either (x) to enter into an agreement with the Issuer providing for the posting of collateral or (y) to assign its rights and obligations to a replacement Hedge Counterparty that meets certain rating requirements (either based on the rating of such replacement Hedge Counterparty or the rating of an Affiliate of such replacement Hedge Counterparty that unconditionally and absolutely guarantees (pursuant to a form of guarantee that satisfies all applicable published rating criteria of the Rating Agencies) the obligations of such replacement Hedge Counterparty), unless the Issuer enters into a replacement Hedge Agreement with a replacement Hedge Counterparty that meets such rating requirements (in which case the Hedge Agreement between the Issuer and the Hedge Counterparty being replaced will be terminated) or the Issuer and the Hedge Counterparty whose ratings have been withdrawn, suspended or have fallen to or below certain levels take such other actions as may be set forth in the Indenture and the related Hedge Agreement. The Trustee shall deposit all collateral received from a Hedge Counterparty under a Hedge Agreement in a securities account (each, a "Hedge Counterparty Collateral Account") in the name of the Trustee that will be designated a "Hedge Counterparty Collateral Account," which account will be maintained for the benefit of the Secured Noteholders, such Hedge Counterparty and the Trustee. Any funds in the Hedge Counterparty Collateral Account, if invested, will be invested as provided in the Hedge Agreement. Each Hedge Agreement will be subject to termination upon, among other things, the earlier to occur of (a) an Event of Default followed by the liquidation of all or part of the Collateral in accordance with the Indenture and (b) any Auction Call Redemption, Optional Redemption or Tax Redemption. In the event that amounts are applied to the payment of the Outstanding Class A1-VF Funded Amount, to the reduction of the Remaining Unfunded Facility Commitment to zero and to the redemption of Funded Secured Notes on any Distribution Date in accordance with the Priority of Payments by reason of a failure

172

to satisfy any of the Overcollateralization Tests (or in the event that amounts are applied to the redemption of Class E Notes on any Distribution Date in accordance with the Priority of Payments by reason of a failure to satisfy the Class E Interest Diversion Test), then, subject to the satisfaction of the Rating Condition, any floating-fixed rate interest rate swap under an Interest Rate Hedge Agreement may be subject to partial termination on such Distribution Date with respect to a portion of the notional amount thereof equal to the sum of (a) the payment to the Outstanding Class A1-VF Funded Amount and reduction of the Remaining Unfunded Facility Commitment on such Distribution Date, if any, and (b) the aggregate principal amount of the Funded Secured Notes redeemed on such Distribution Date. In the event of any such reduction, an Interest Rate Hedge Counterparty or the Issuer may be required to make a termination payment in respect of such reduction to the other party. In addition, on any Distribution Date on which there is a payment of the Outstanding Class A1-VF Funded Amount and reduction of the Remaining Unfunded Facility Commitment and payment of principal of any Funded Secured Notes, the Portfolio Manager (on behalf of the Issuer), with the consent of the related Hedge Counterparty, may reduce the notional amount of any interest rate swap or cap outstanding under an Interest Rate Hedge Agreement by an amount corresponding to the sum of (a) the payment to the Outstanding Class A1-VF Funded Amount and reduction of the Remaining Unfunded Facility Commitment on such Distribution Date, if any, and (b) the principal amount of the Funded Secured Notes redeemed on such Distribution Date; provided that the Issuer satisfies the Rating Condition. In the event of any such reduction, an Interest Rate Hedge Counterparty or the Issuer may be required to make a termination payment in respect of such reduction to the other party. In addition, subject to satisfaction of the Rating Condition, the Portfolio Manager (on behalf of the Issuer), with the consent of the related Hedge Counterparty, may amend or modify the terms of any Hedge Agreement. The entry into or replacement of any Hedge Agreement (other than the entry into, or replacement with, a Form-Approved Asset Hedge Agreement) after the Closing Date shall be subject to satisfaction of the Rating Condition with respect to Standard & Poor's. The Rating Condition must be satisfied prior to any designation by the Issuer of an "Early Termination Date" under and as defined in any Asset Hedge Agreement with respect to all or part of the notional amount thereof, and the Issuer shall notify each of the Rating Agencies of the amount payable by or to the Issuer under any partially or fully terminated Asset Hedge Agreement promptly following the determination thereof. Amounts payable upon any early termination or reduction will be based substantially upon standard replacement transaction valuation methodology set forth in the 1992 ISDA Master Agreement published by the International Swaps and Derivatives Association, Inc. If any amount is payable by the Issuer to a Hedge Counterparty in connection with the occurrence of any such early termination or notional amount reduction, such amount, together with interest on such amount for the period from and including the date of termination to but excluding the date of payment, shall be payable on such Distribution Date to the extent funds are available for such purpose in accordance with the Priority of Payments, and any amount not so paid on such Distribution Date shall be payable on the first Distribution Date on which such amount may be paid in accordance with the Priority of Payments. The Issuer will not, however, enter into any hedge agreement (including any Hedge Agreement) the payments under which are subject to withholding tax (unless only the hedge counterparty is required to withhold and the hedge counterparty shall be required in accordance with the terms of the hedge agreement to pay additional amounts to the Issuer sufficient to cover any withholding tax due on payments made by the hedge counterparty to the Issuer under such hedge agreement (subject to the Issuer making customary tax representations) and the Issuer shall not be required to pay additional amounts to the hedge counterparty sufficient to cover any withholding tax due on payments made by the Issuer to the hedge counterparty). The Issuer shall not enter into any hedge agreement (including any Hedge Agreement) the entry into, performance or termination of which would subject the Issuer to net income tax in any jurisdiction outside the Issuer's jurisdiction of incorporation.

173

The obligations of the Issuer under each Hedge Agreement are limited recourse obligations payable solely from the Collateral pursuant to the Priority of Payments, or, in the case of an Asset Hedge Agreement, from interest payments received by the Issuer in respect of the Collateral Debt Securities to which such Asset Hedge Agreement relates. The Accounts Funds on deposit in the Accounts, if invested, shall only be invested or re-invested by the Trustee as directed by the Issuer in Eligible Investments or Reserve Account Investments, as applicable to such Account, unless other use of funds is expressly permitted in the Indenture. Collection Accounts All distributions on the Collateral Debt Securities and any proceeds received from the Disposition of any such Collateral Debt Securities, to the extent such distributions or proceeds constitute Interest Proceeds, and any amounts payable to the Issuer by the Hedge Counterparty under any Hedge Agreement (except for amounts, if any, required to be used by the Issuer to enter into a replacement Hedge Agreement pursuant to the Indenture) will be remitted to a single, segregated account established and maintained under the Indenture by the Trustee (the "Interest Collection Account"). All distributions on the Collateral Debt Securities and any Disposition Proceeds received in respect of any such Collateral Debt Securities to the extent such distributions or proceeds constitute Principal Proceeds (unless simultaneously reinvested in Collateral Debt Securities or Eligible Investments) will be remitted to a single, segregated account established and maintained under the Indenture by the Trustee (the "Principal Collection Account" and, together with the Interest Collection Account, the "Collection Accounts", which may be subaccounts of the Custodial Account). The Collection Accounts shall be maintained for the benefit of the Secured Parties and amounts on deposit therein will be available, together with reinvestment earnings thereon, (i) for application in the order of priority set forth above under "Description of the Secured Notes—Priority of Payments", (ii) for the Acquisition of Collateral Debt Securities under the circumstances and pursuant to the requirements described herein and in the Indenture, (iii) to pay Credit Protection Payments and Physical Settlement Amounts payable by the Issuer, (iv) to fund CDS Termination Payments payable by the Issuer, (v) in the case of the Interest Collection Account only, to make payments due under any Deemed Floating Asset Hedge Agreement (other than termination payments due thereunder), in each case subject to and in accordance with the Account Withdrawal Payment Priority and (vi) in the event that the amounts in the Interest Collection Account are insufficient to make Credit Protection Payments in respect of an Interest Shortfall pursuant to subclause (c)(i) of the definition of "Account Withdrawal Payment Priority", any proceeds in the Interest Collection Account on the following Distribution Date shall immediately (and without regard to the Priority of Payments) be deposited, (to the extent that such Credit Protection Payments were made using Borrowings or Deemed Borrowings under the Class A1-VF Notes) first, to the Class A1-VF Noteholder Account and then into the Uninvested Proceeds Account, the Principal Collection Account and the Reserve Account (in the reverse order of priority from the order in which they were withdrawn from such Uninvested Proceeds Account, Principal Collection Account and Reserve Account) and up to the same amounts as were withdrawn from such Accounts or received from the Class A1-VF Noteholders to make such payment pursuant to, respectively, subclause (c)(ii), (c)(iii), (c)(iv), (c)(v) or (c)(vi) of the definition of "Account Withdrawal Payment Priority. Notwithstanding the foregoing, the Trustee shall deposit 50% of all payments of interest received in respect of a Collateral Debt Security that pays interest less frequently than quarterly into the Semi-Annual Interest Reserve Account. All amounts in the Collection Accounts will be invested in Eligible Investments (as described below) with stated maturities no later than the Business Day immediately preceding the next Distribution Date. All such proceeds will be retained in the Collection Accounts unless used to Acquire Collateral Debt Securities in accordance with the Eligibility Criteria, to honor commitments with respect thereto

174

entered into during the Reinvestment Period, or used as otherwise permitted under the Indenture. See "— Eligibility Criteria." "Eligible Investments" means any Dollar-denominated investment that is one or more of the following (and may include investments for the issuer(s) of which the Trustee and/or its Affiliates provides services or receives compensation): (a)

cash;

(b)

direct Registered obligations of, and Registered obligations the timely payment of principal and interest on which is fully and expressly guaranteed by, the United States or any agency or instrumentality of the United States the obligations of which are expressly backed by the full faith and credit of the United States;

(c)

demand and time deposits in, certificates of deposit of, bankers' acceptances issued by, or Federal funds sold by any depository institution or trust company incorporated under the laws of the United States (including LaSalle Bank National Association) or any state thereof and subject to supervision and examination by Federal and/or state banking authorities so long as such investments are payable within 183 days of issuance and the commercial paper and/or the debt obligations of such depository institution or trust company (or, in the case of the principal depository institution in a holding company system, the commercial paper or debt obligations of such holding company) at the time of such investment or contractual commitment providing for such investment have a credit rating of not less than "Aa2" by Moody's (and, if such rating is "Aa2," such rating is not on watch for possible downgrade by Moody's) and not less than "AA+" by Standard & Poor's in the case of long-term debt obligations, or "P1" by Moody's (and such rating is not on watch for possible downgrade by Moody's) and "A-1+" by Standard & Poor's in the case of commercial paper and short-term debt obligations (or "A-1" by Standard & Poor's in the case of overnight time deposits issued by LaSalle Bank National Association for so long as it is acting as Trustee under the Indenture); provided that (x) in the case of commercial paper and short term debt obligations with a maturity of longer than 91 days, the issuer thereof must also have at the time of such investment a long term credit rating of not less than "AA" by Standard & Poor's and (y) the balance of all investments entered into with a depository institution or trust company (other than overnight time deposits offered by LaSalle Bank National Association for so long as it is acting as Trustee under the Indenture) described in this clause (c) whose short-term debt rating is "A-1" (instead of "A-1+" or higher) by Standard & Poor's shall not exceed 20% of the aggregate outstanding principal amount of all Classes of Secured Notes, and each such investment shall not have a maturity of longer than 30 days;

(d)

unleveraged repurchase obligations with respect to (i) any security described in clause (b) above or (ii) any other Registered security issued or guaranteed by an agency or instrumentality of the United States (in each case without regard to the stated maturity of such security), in either case entered into with a U.S. Federal or state depository institution or trust company (acting as principal) described in clause (c) above or entered into with a corporation (acting as principal) whose long-term rating is not less than "Aaa" by Moody's (and, if such rating is "Aaa," such rating is not on watch for possible downgrade by Moody's) and not less than "AAA" by Standard & Poor's or whose short-term credit rating is "P1" by Moody's (and such rating is not on watch for possible downgrade by Moody's) and "A-1+" by Standard & Poor's at the time of such investment; provided that (i) in each case, the issuer thereof must have at the time of such investment a long-term credit rating of not less than "Aaa" by Moody's (and, if such rating is "Aaa," such rating is not on watch for possible downgrade by Moody's) and (ii) if such security

175

has a maturity of longer than 91 days, the issuer thereof must also have at the time of such investment a long-term credit rating of not less than "AAA" by Standard & Poor's; (e)

Registered debt securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States or any state thereof that have a credit rating of not less than "Aaa" by Moody's (and, if such rating is " Aaa", such rating is not on watch for possible downgrade by Moody's) and not less than "AAA" by Standard & Poor's;

(f)

commercial paper or other short-term obligations maturing within 183 days of issuance and having at the time of such investment a credit rating of "P1" by Moody's (and such rating is not on watch for possible downgrade by Moody's) and "A-1+" by Standard & Poor's; provided that (i) except in the case of asset-backed commercial paper, the issuer thereof must have at the time of such investment a long-term credit rating of not less than "Aaa" by Moody's (and, if such rating is " Aaa" such rating is not on watch for possible downgrade by Moody's), and (ii) if such security has a maturity of longer than 91 days, the issuer thereof must also have at the time of such investment a long-term credit rating of not less than "AAA" by Standard & Poor's;

(g)

reinvestment agreements issued or guaranteed by any bank (if treated as a deposit by such bank), or a Registered reinvestment agreement issued or guaranteed by any insurance company or other corporation or entity organized under the laws of the United States or any state thereof (if treated as debt for tax purposes by such corporation or entity), in each case, that has a credit rating of not less than "P1" by Moody's (and such rating is not on watch for possible downgrade by Moody's) and "A-1+" by Standard & Poor's and a long-term credit rating of not less than "Aa2" by Moody's (and, if such rating is "Aa2," such rating is not on watch for possible downgrade by Moody's) or (ii) if such security has a maturity of longer than 91 days, the issuer or guarantor thereof must also have at the time of such investment a long-term credit rating of not less than "AA+" by Standard & Poor's and not less than "Aa1" by Moody's (and, if such rating is "Aa1," such rating is not on watch for possible downgrade by Moody's); and

(h)

investments in any money market fund or similar investment vehicle having at the time of investment therein the highest credit rating assigned by each of the Rating Agencies;

and, in each case (other than clause (a)), with a stated maturity (giving effect to any applicable grace period) no later than the Business Day immediately preceding the Distribution Date next following the Due Period in which the date of investment occurs; provided that Eligible Investments may not include (i) any Interest Only Security, (ii) any security Acquired at a price in excess of 100% of the par value thereof, (iii) any investment the income from or Disposition Proceeds of which is or will be subject to deduction or withholding for or on account of any withholding or similar tax, or the Acquisition (including the manner of Acquisition), ownership, enforcement or Disposition of which will subject the Issuer to net income tax in any jurisdiction outside the Issuer's jurisdiction of incorporation, (iv) any security whose repayment is subject to substantial non-credit related risk as determined in the judgment of the Portfolio Manager (exercised in accordance with the standard of care set forth in the Management Agreement), (v) any security the rating of which by Standard & Poor's includes the subscript "p," "pi," "q," "r" or "t," (vi) any mortgage-backed security, (vii) other than overnight time deposits offered by LaSalle Bank National Association pursuant to clause (c) for so long as it is acting as Trustee under the Indenture and under which the Issuer shall not incur any payment obligations, any Floating Rate Collateral Debt Security whose interest rate is inversely or otherwise not proportionately related to an interest rate index or is calculated as other than the sum of an interest rate index plus a spread or (viii) any security that is the subject of an Offer; provided that, notwithstanding the foregoing, when used in relation to a Synthetic Security Counterparty Account, Eligible Investments shall include any Dollar-denominated investments that meet the foregoing requirements or any other investments approved in writing by the

176

related Synthetic Security Counterparty that meet the requirements of clause (iii) above and that satisfy the Rating Condition and any Synthetic Security Collateral. Eligible Investments may be obligations of, and may be Acquired from, the Trustee and its Affiliates, and may include obligations for which the Trustee or an Affiliate thereof receives compensation for providing services. Payment Account On or about the Business Day prior to each Distribution Date, the Trustee will deposit into a single, segregated account established and maintained by the Trustee under the Indenture (the "Payment Account") for the benefit of the Secured Parties all funds in the Collection Accounts (other than amounts that the Issuer is entitled to reinvest in accordance with the Eligibility Criteria, which may be retained in the Collection Accounts for subsequent reinvestment, if the Issuer so elects as set forth in the Indenture) required for payments to Noteholders and payments of fees and expenses for application in accordance with the Priority of Payments described under "Description of the Secured Notes—Priority of Payments." All funds on deposit in the Payment Account will be held in cash and shall not be invested. Uninvested Proceeds Account On the Closing Date, the Trustee will deposit into a single, segregated account established and maintained by the Trustee under the Indenture (the "Uninvested Proceeds Account") all Uninvested Proceeds. The Portfolio Manager on behalf of the Issuer may only direct the Trustee to, and upon such direction the Trustee shall, apply all funds standing to the credit of the Uninvested Proceeds Account (i) to the Acquisition of (a) Collateral Debt Securities (which shall be credited to the Custodial Account upon the Acquisition thereof), (b) Eligible Investments, (c) U.S. Agency Securities, in each case as designated by the Portfolio Manager or (d) up-front payments payable by the Issuer in connection with the Acquisition of Synthetic Securities, provided that, after the Closing Date, the Issuer shall not be permitted to hold any U.S. Agency Securities unless such U.S. Agency Securities would be eligible for Acquisition by the Issuer as a Collateral Debt Security on the Closing Date (in which case such investment shall be deemed to be a Collateral Debt Security) and (ii) to pay Credit Protection Payments, Physical Settlement Amounts and CDS Termination Payments, in each case payable by the Issuer and subject to and in accordance with the Account Withdrawal Payment Priority. If a Borrowing or Deemed Borrowing is requested by the Issuer under the Variable Funding Note Purchase Agreement, such amounts will be deposited into the Uninvested Proceeds Account and, upon receipt of such amounts the Trustee shall withdraw such amounts from the Uninvested Proceeds Account and apply such amount to the payment of the applicable Credit Protection Amount or CDS Termination Payment, as directed by the Portfolio Manager. All interest and other income from such investments shall be deposited in the Uninvested Proceeds Account, any gain realized from such investments shall be credited to the Uninvested Proceeds Account, and any loss resulting from such investments shall be charged to the Uninvested Proceeds Account. Investment earnings on Eligible Investments and U.S. Agency Securities in the Uninvested Proceeds Account will be transferred to the Interest Collection Account and treated as Interest Proceeds on the first Distribution Date. Funds and other property standing to the credit of the Uninvested Proceeds Account may be transferred to a Synthetic Security Counterparty Account in order to fund the Acquisition by the Issuer of any Synthetic Security Collateral to the extent required pursuant to the terms of the related Defeased Synthetic Security.

177

The Uninvested Proceeds Account shall remain at all times with a financial institution having a long-term debt rating of at least "BBB+" by Standard & Poor's and at least "Baa1" by Moody's (and, if rated "Baa1", such rating must not be on watch for possible downgrade by Moody's) and a combined capital and surplus in excess of U.S.$200,000,000. "U.S. Agency Securities" means Registered obligations of (i) the U.S. Treasury, (ii) any U.S. Federal agency or (iii)(A) the Federal National Mortgage Association, (B) the Student Loan Marketing Association or (C) the Federal Home Loan Mortgage Corporation, in each case with a stated maturity that does not exceed Stated Maturity of the Secured Notes. Reinvestment Account The Trustee shall, prior to the Closing Date, cause to be established a single, segregated securities account which shall be designated as the "Reinvestment Account" which shall be held in the name of the Trustee in trust for the benefit of the Secured Parties. On any Distribution Date prior to the last day of the Reinvestment Period, the Portfolio Manager shall cause the Trustee to deposit Principal Proceeds (in an amount determined at the sole discretion of the Portfolio Manager) pursuant to paragraph (8) under "Description of the Secured Notes—Priority of Payments—Principal Proceeds" into the Reinvestment Account to be held therein as "Principal Proceeds" deemed received during the Due Period related to the next succeeding Distribution Date and invested in Eligible Investments pending application thereof to Acquire additional Collateral Debt Securities in accordance with the Eligibility Criteria set forth in the Indenture. Any funds or other property standing to the credit of the Reinvestment Account that are not invested in additional Collateral Debt Securities prior to the earlier of (x) the date which is 90 days following receipt and (y) the next Determination Date will be transferred to the Principal Collection Account for application as Principal Proceeds in accordance with the terms of the Indenture. Custodial Account The Trustee shall, prior to the Closing Date, cause the Custodian to establish a securities account (the "Custodial Account") in the name of the Trustee into which the Trustee shall from time to time deposit Collateral. All Collateral from time to time deposited in, or otherwise standing to the credit of, the Custodial Account shall be held by the Trustee as part of the Collateral and shall be applied in accordance with the terms of the Indenture. Funds (if any) in the Custodial Account will not be invested. Expense Account On the Closing Date, U.S.$100,000 from the proceeds of the offering of the Notes will be deposited by the Trustee into a single, segregated account established and maintained by the Trustee under the Indenture (the "Expense Account"). In addition, on each Distribution Date on which the balance of the Expense Account is less than U.S.$100,000, additional amounts will be deposited therein to the extent that funds are available therefor in accordance with the priority described under "Description of the Secured Notes—Priority of Payments." Amounts on deposit in the Expense Account may be withdrawn from time to time to pay accrued and unpaid expenses (other than the fees and expenses of the Trustee) of the Co-Issuers. All funds on deposit in the Expense Account will be invested in Eligible Investments. Semi-Annual Interest Reserve Account On the Closing Date, the Trustee shall establish a single, segregated account established and maintained by the Trustee under the Indenture (the "Semi-Annual Interest Reserve Account") for the purpose of holding a portion of the funds received in respect of each payment of interest in respect of a

178

Collateral Debt Security which pays interest less frequently than quarterly. On each date on which the Trustee receives a payment of interest in respect of any Collateral Debt Security that pays interest less frequently than quarterly and is not the subject of an Asset Hedge Agreement under which the Issuer receives payments from the related Asset Hedge Counterparty quarterly, the Trustee shall deposit 50% of the amount received into the Interest Collection Account and shall deposit the remaining portion into the Semi-Annual Interest Reserve Account. At least one Business Day prior to each Distribution Date, the Trustee shall transfer all amounts deposited in the Semi-Annual Interest Reserve Account on or prior to the Determination Date preceding the last Distribution Date (including any interest earned on Eligible Investments with respect to such amount) to the Interest Collection Account for application as Interest Proceeds in accordance with the Priority of Payments. The Trustee will invest all funds received into the Semi-Annual Interest Reserve Account during a Due Period in Eligible Investments as directed by the Portfolio Manager. All interest and other income from such investments shall be deposited in the SemiAnnual Interest Reserve Account, any gain realized from such investments shall be credited to the SemiAnnual Interest Reserve Account and any loss resulting from such investments shall be charged to the Semi-Annual Interest Reserve Account. Synthetic Security Counterparty Accounts The Trustee will cause to be established a single, segregated securities account for each Defeased Synthetic Security or for multiple Defeased Synthetic Securities with the same Synthetic Security Counterparty (each such account, a "Synthetic Security Counterparty Account"), which shall be held in the name of the Trustee for the benefit of the related Synthetic Security Counterparty and over which the Trustee will have exclusive control and the sole right of withdrawal in accordance with the applicable Defeased Synthetic Security and the Indenture. As directed by the Portfolio Manager (on behalf of the Issuer), the Trustee and the Issuer will, in connection with the establishment of a Synthetic Security Counterparty Account, enter into a separate account control agreement with the Synthetic Security Counterparty setting forth the rights and obligations of the Issuer, the Trustee and the Synthetic Security Counterparty with respect to such account. The Issuer will also grant to the Trustee for the benefit of the other Secured Parties, subject to the prior lien of the relevant Synthetic Security Counterparty, a security interest in any Synthetic Security Collateral or other amounts standing to the credit of a Synthetic Security Counterparty Account. Upon the termination of a Defeased Synthetic Security, the prior lien of the related Synthetic Security Counterparty over any Synthetic Security Collateral standing to the credit of the related Synthetic Security Counterparty Account shall be automatically released, and any remaining Synthetic Security Collateral credited to such Synthetic Security Counterparty Account shall become subject to a prior ranking lien in favor of the Secured Parties. The Issuer will not enter into any Defeased Synthetic Security unless the recourse of the relevant Synthetic Security Counterparty to the Issuer thereunder is limited to the Synthetic Security Collateral and as a consequence, the relevant Synthetic Security Counterparty bears the market risk of such Synthetic Security Collateral. Except for investment earnings on the Synthetic Security Collateral, the Issuer shall not have any legal, equitable or beneficial interest in any of the Synthetic Security Counterparty Accounts other than in accordance with the Indenture, the applicable Defeased Synthetic Security and applicable law. Upon the establishment of any Synthetic Security Counterparty Account, the Issuer shall notify the relevant Synthetic Security Counterparty of the Trustee's security interest therein and obtain the Synthetic Security Counterparty's written acknowledgement of such security interest. The fact that the terms of a Synthetic Security do not require the Issuer immediately to deposit Synthetic Security Collateral in the related Synthetic Security Counterparty Account shall not prevent the establishment of such Account. Upon the Acquisition of any Synthetic Security Collateral, the Issuer will, by an order of the Issuer executed by the Portfolio Manager, instruct the Trustee to deposit such Synthetic Security Collateral in the related Synthetic Security Counterparty Account. In addition, upon any amount

179

becoming due and payable by the Issuer under a Defeased Synthetic Security, the Issuer will, by an order of the Issuer executed by the Portfolio Manager, instruct the Trustee to withdraw such amount from the related Synthetic Security Counterparty Account and pay such amount to the applicable Synthetic Security Counterparty. All deposits into, and payments made out of, the Synthetic Security Counterparty Account shall be made without regard to either Priority of Payments or the occurrence of any Event of Default (other than an Event of Default described in clause (vi) of the definition of "Event of Default"). The Trustee shall be entitled to receive and rely upon, and shall act in accordance with, any instruction of the Portfolio Manager (acting on behalf of the Issuer), with respect to all withdrawals, deposits and other actions to be taken pursuant to the Synthetic Security Counterparty Account, and such instructions of the Portfolio Manager (acting on behalf of the Issuer), shall include such information as the Trustee reasonably may require. Amounts credited to a Synthetic Security Counterparty Account shall be invested in Synthetic Security Collateral until they are withdrawn by the Trustee and applied to the payment of any amounts payable by the Issuer to the related Synthetic Security Counterparty in accordance with the terms of such Defeased Synthetic Security. In particular: (i) Interest payments and redemption premium on the Synthetic Security Collateral shall constitute property of the Issuer and shall be paid to the Trustee and deposited into the Interest Collection Account for application as Interest Proceeds in accordance with the Priority of Payments. Principal payments on the Synthetic Security Collateral prior to the termination of the Defeased Synthetic Security shall be held in the applicable Synthetic Security Counterparty Account and invested in Eligible Investments until reinvested in Synthetic Security Collateral in accordance with the terms of the Indenture and the related Defeased Synthetic Security at the direction of the Portfolio Manager on behalf of the Issuer. (ii) In the event a Defeased Synthetic Security structured as a credit default swap is terminated prior to its scheduled maturity without the occurrence of a Credit Event, the Portfolio Manager, on behalf of the Issuer, shall direct the Trustee to deliver to the related Synthetic Security Counterparty such portion of the related Synthetic Security Collateral or other amounts deposited in the Synthetic Security Counterparty Account pursuant to the Indenture that, in each case, is required to make any termination payment owed to the related Synthetic Security Counterparty (other than any Defaulted Synthetic Termination Payment owing to such Synthetic Security Counterparty) and shall direct the Trustee to cause the remaining related Synthetic Security Collateral (if any) to the extent not required to be pledged to the related Synthetic Security Counterparty to be released from the lien of the related Synthetic Security Counterparty and delivered to the Trustee free of such lien. (iii) In the event that no Credit Event under a Defeased Synthetic Security structured as a credit default swap has occurred prior to the termination or scheduled maturity of the Defeased Synthetic Security, upon the termination or scheduled maturity of the Defeased Synthetic Security, the related Synthetic Security Counterparty's lien on the Synthetic Security Collateral (if any) related to the applicable Defeased Synthetic Security shall be released and the Issuer (or the Portfolio Manager on behalf of the Issuer) shall take or cause the taking of any and all other reasonable actions necessary to create in favor of the Trustee a valid, perfected, firstpriority security interest in such released Synthetic Security Collateral under applicable law and regulations (including without limitation Articles 8 and 9 of the Uniform Commercial Code in effect at the time of such release).

180

(iv) Upon the occurrence of a Credit Event under a Defeased Synthetic Security structured as a credit default swap, at the direction of the Portfolio Manager (acting on behalf of the Issuer), the Trustee shall instruct the custodian to deliver the portion of the related Synthetic Security Collateral (if any) and/or other amounts deposited in the Synthetic Security Counterparty Account pursuant to the Indenture that is necessary to satisfy the Issuer's payment obligations in respect of remaining exposure thereunder to the related Synthetic Security Counterparty upon delivery of the relevant Deliverable Obligations to the Issuer. (v) In the event that the Issuer is required to deliver the Synthetic Security Collateral to the related Synthetic Security Counterparty or to liquidate the Synthetic Security Collateral and deliver cash, any market risk on the liquidation of the Synthetic Security Collateral shall be allocated between the Issuer and the related Synthetic Security Counterparty in accordance with the Underlying Instruments relating to such Defeased Synthetic Security. (vi) Any Synthetic Security Collateral released from the lien of the related Synthetic Security Counterparty which satisfies the definition of Eligible Investments shall be treated as Eligible Investments and any Synthetic Security Collateral released from the lien of the related Synthetic Security Counterparty which satisfies the definition of Collateral Debt Security shall be treated as a Collateral Debt Security and in either case may be retained by the Trustee or Disposed of by the Portfolio Manager subject to the restrictions set forth herein, and the Portfolio Manager shall instruct the Trustee with respect to such treatment of Synthetic Security Collateral. Any cash received upon the maturity or liquidation of the Synthetic Security Collateral released to the Trustee shall be deemed to be Principal Proceeds. The Portfolio Manager on behalf of the Issuer shall direct the Trustee in writing to withdraw any other amounts held in a Synthetic Security Counterparty Account after payment of all amounts owing from the Issuer to the related Synthetic Security Counterparty in accordance with the terms of the related Defeased Synthetic Security from such Synthetic Security Counterparty Account and deposit such amounts in the Principal Collection Account for application as Principal Proceeds in accordance with the terms of the Indenture. Except for interest and redemption premium on the Synthetic Security Collateral credited to a Synthetic Security Counterparty Account payable to the Issuer in accordance with the foregoing, amounts contained in a Synthetic Security Counterparty Account shall not be considered to be an asset of the Issuer for purposes of any of the Collateral Quality Tests, the Overcollateralization Tests, the Pro Rata Payment Test, the Class A Overcollateralization Ratio or the Class E Interest Diversion Test, but the Defeased Synthetic Security that relates to the Synthetic Security Counterparty Account shall be considered an asset of the Issuer for such purposes. Synthetic Security Issuer Accounts If a GIC Collateralization Event occurs or the terms of any Synthetic Security require the Synthetic Security Counterparty to secure its obligations with respect to such Synthetic Security or for multiple Defeased Synthetic Securities with the same Synthetic Security Counterparty, the Trustee shall cause to be established a single, segregated securities account for each of the GIC and any such Synthetic Security which shall be held in the name of the Trustee in trust for the benefit of the Secured Parties (each such account, a "Synthetic Security Issuer Account"). The Trustee shall deposit into the applicable Synthetic Security Issuer Account all funds and other property that are received from the related Synthetic Security Counterparty or the GIC Provider (as applicable) to secure the obligations of such Synthetic Security Counterparty or the GIC Provider, as applicable, in accordance with the terms of the related Synthetic Security or the GIC.

181

Amounts on deposit in a Synthetic Security Issuer Account shall be invested in Synthetic Security Collateral or collateral permitted by the GIC (as applicable) that, in each case satisfies Eligibility Criteria (7), (8) and (9) as directed by the Portfolio Manager (acting on behalf of the Issuer), and in accordance with the applicable Synthetic Security or the GIC. Income received on amounts on deposit in each Synthetic Security Issuer Account shall be withdrawn from such account and paid to the related Synthetic Security Counterparty or the GIC Provider (as applicable) or the Issuer in accordance with the applicable Synthetic Security or the GIC, as applicable. Income received on amounts on deposit in a Synthetic Security Issuer Account in connection with a GIC Collateralization Event shall be withdrawn from such account and paid to the GIC Provider. Posted collateral on deposit in each Synthetic Security Issuer Account will not be included in the Collateral and will not be available to make payments under the Secured Notes other than as a result of an event of default, default or termination event (however described) under the related Synthetic Security or the GIC, as applicable caused by the related Synthetic Security Counterparty or the GIC Provider, as applicable. Amounts contained in any Synthetic Security Issuer Account shall not be considered to be an asset of the Issuer for purposes of any of the Collateral Quality Tests, the Overcollateralization Tests, the Pro Rata Payment Test, the Class A Overcollateralization Ratio or the Class E Interest Diversion Test, but the Issuer's right, title and interest in, to and under the GIC or any Synthetic Security that relates to such Synthetic Security Issuer Account shall be considered assets of the Issuer. Upon the occurrence of an event of default, default or termination event (however described) under the related Synthetic Security or the GIC (as applicable), amounts contained in the related Synthetic Security Issuer Account shall, as directed by the Portfolio Manager (acting on behalf of the Issuer), be withdrawn by the Trustee and applied to the payment of any termination payment or other amount payable by the related Synthetic Security Counterparty or the GIC Provider, as applicable, to the Issuer as a result of such event of default, default or termination event (however described). Any excess amounts held in a Synthetic Security Issuer Account after payment of all amounts owing from the related Synthetic Security Counterparty or the GIC Provider (as applicable) to the Issuer as a result of such event of default, default or termination event (however described) shall be withdrawn from such Synthetic Security Issuer Account and paid to the related Synthetic Security Counterparty or the GIC Provider (as applicable) in accordance with the applicable Synthetic Security or the GIC (as applicable). Reserve Account The Trustee shall, prior to the Closing Date, cause to be established a single, segregated securities account which shall be designated as the "Reserve Account", which shall be held in the name of the Trustee in trust for the benefit of the Secured Parties. The Trustee shall deposit in the Reserve Account, in each case for investment in Reserve Account Investments in accordance with the written instructions of the Portfolio Manager on behalf of the Issuer, (i) the initial deposit on the Closing Date of U.S.$155,014,066 from the net proceeds of the offering of the Notes for investment in Reserve Account Investments, (ii) such amounts as are required to be deposited into the Reserve Account pursuant to the Priority of Payments, (iii) any Principal Reimbursements or Writedown Reimbursements received by the Issuer in respect of any CDS Transactions and (iv) the excess (if any) of the amount of any Borrowing over the amount required to make a payment in connection with the applicable Permitted Use for which such Borrowing was requested (other than any such excess which results from a Borrowing used to fund all or part of a Credit Protection Payment in respect of an Interest Shortfall pursuant to clause (c)(vi) of the definition of "Account Withdrawal Payment Priority"). Any funds or other property standing to the credit of the Reserve Account may be withdrawn therefrom: (1) to pay (A) Credit Protection Payments and Physical Settlement Amounts payable by the Issuer, (B) CDS Termination Payments payable by the Issuer and (C) any Senior Interest Shortfall

182

pursuant to the Priority of Payments, in each case subject to and in accordance with the Account Withdrawal Payment Priority, (2) on any Determination Date relating to a Distribution Date occurring after the last day of the Reinvestment Period if the Remaining Unfunded Facility Commitment has been reduced to zero to the extent that such withdrawal will not result in or increase a Notional Amount Shortfall that is greater than zero, (3) on any Determination Date relating to a Distribution Date that is a Pro Rata Distribution Date, in the amount calculated pursuant to clause (d) of the Senior Excess Application Priority to make a deposit in the Principal Collection Account, (4) for deposit in the Principal Collection Account upon any Optional Redemption, Auction Call Redemption or Tax Redemption or the liquidation in full of the Collateral upon the Stated Maturity of the Notes or following the occurrence of an Event of Default and (5) to Acquire additional Cash Collateral Debt Securities during the Reinvestment Period in accordance with the Eligibility Criteria but only if and to the extent that such withdrawal will not result in or increase a Notional Amount Shortfall that is greater than zero. In addition, if on any Determination Date relating to a Distribution Date occurring after the last day of the Reinvestment Period the Remaining Unfunded Facility Commitment has been reduced to zero, Reserve Account Investments with an aggregate principal amount equal to any Class A1-VF Senior Excess shall be Disposed of and the proceeds of such Disposition shall be transferred to the Payment Account for application as Principal Proceeds in accordance with the Priority of Payments on the Distribution Date relating to such Determination Date. On any Determination Date on which any portion of the Class A1-VF Senior Excess would otherwise have been withdrawn from and redeposited to the Reserve Account on such related Distribution Date pursuant to the Priority of Payments, such portion shall be retained in the Reserve Account by the Trustee and shall be deemed to be Principal Proceeds and to have been deposited to the Reserve Account on such Distribution Date with the same effect as if such amounts were deposited thereto in accordance with the Priority of Payments on such Distribution Date. On the date on which substantially all of the Issuer's assets have been Disposed of, the Issuer shall direct the Trustee to transfer all funds and other property standing to the credit of the Reserve Account to the Principal Collection Account for application as Principal Proceeds in accordance with the Priority of Payments. Pursuant to the terms of the GIC, on any Redemption Date the GIC shall terminate and amounts on deposit in the GIC will be deposited into the Reserve Account by the GIC Provider, and such amounts shall be distributed by the Trustee in connection with such redemption. All funds credited to the Reserve Account shall be invested by the Trustee at the direction of the Issuer (or the Portfolio Manager on behalf of the Issuer) in Reserve Account Investments. Except to the extent (1) required in order for the Issuer to comply with its obligations in respect of any Remaining Exposure or CDS Termination Payments in respect of a CDS Transaction or (2) such transfer would cause or increase a Notional Amount Shortfall greater than zero, the Trustee, upon the Portfolio Manager's direction, will transfer on each Distribution Date, all interest and other income received in respect of Reserve Account Investments standing to the credit of the Reserve Account to the Interest Collection Account for application as Interest Proceeds in accordance with the Priority of Payments on such Distribution Date. Until any such transfer, all interest and other income from Reserve Account Investments standing to the credit of the Reserve Account will be deposited in the Reserve Account. Any gain realized from Reserve Account Investments standing to the credit of the Reserve Account will be credited to the Reserve Account, and any loss resulting from Reserve Account Investments will be charged to the Reserve Account, in each case for the applicable Due Period in which such gain or loss occurs. The Trustee shall give the Issuer and the Credit Default Swap Counterparty prompt notice if the Reserve Account or any funds or other property standing to the credit of the Reserve Account shall become subject to any writ, order, judgment, warrant of attachment, execution or similar process. The Reserve Account shall remain at all times with the Trustee or with a financial institution having a long-

183

term debt rating of at least "Baa1" by Moody's (and if rated "Baa1," such rating shall not be on watch for downgrade by Moody's) and at least "BBB+" by Standard & Poor's and a combined capital and surplus in excess of U.S.$200,000,000. Class A1-VF Prepayment Account The Trustee shall cause to be established a single, segregated securities account which shall be held in the name of the Trustee in trust for the benefit of the Issuer and the applicable holder of the Class A1-VF Notes (such account, the "Class A1-VF Prepayment Account"). The Trustee shall deposit into the applicable Class A1-VF Prepayment Account any amounts received from a Class A1-VF Noteholder (other than a Specified Class A1-VF Noteholder, which will have no obligation to fund amounts into any Class A1-VF Prepayment Account) to prepay its Remaining Unfunded Facility Commitment in accordance with the terms of the Variable Funding Note Purchase Agreement. Funds standing to the credit of a Class A1-VF Prepayment Account, if invested, shall be invested and reinvested in Eligible Investments described in any of clauses (a), (c), (g) and (h) of the definition thereof as directed by the relevant Class A1-VF Noteholder upon written notice to the Trustee. Funds and other property on deposit in a Class A1-VF Prepayment Account shall be withdrawn from such account and applied to fund Deemed Borrowings for Permitted Uses pursuant to the Variable Funding Note Purchase Agreement, and shall be reimbursed to the relevant Class A1-VF Noteholder when required pursuant to the Variable Funding Note Purchase Agreement. Funds and other property on deposit in the Class A1-VF Prepayment Account will not be available to the Issuer to pay amounts owed to any Secured Parties other than the Credit Default Swap Counterparty, the related holder of the Class A1-VF Notes and, to the extent of any Senior Interest Shortfall, the holders of the Class A2A Notes, the Class A2B Notes, the Class B1 Notes or the Class B2 Notes. With respect to any holder of Class A1-VF Notes that has deposited its Commitment Amount in a Class A1-VF Prepayment Account pursuant to the Variable Funding Note Purchase Agreement, (i) the Trustee will apply a portion of such amount on the date of a Deemed Borrowing by the Issuer to the relevant Permitted Use in accordance with the Variable Funding Note Purchase Agreement in an amount equal to such Class A1-VF Noteholder's pro rata share of the total amount specified in the applicable Borrowing Request and (ii) on each Distribution Date and without regard to the Priority of Payments, the Trustee will pay directly to such Class A1-VF Noteholder any interest in an amount equal to earnings in respect of Eligible Investments standing to the credit of the Class A1-VF Prepayment Account of such holder during the preceding Due Period. Investment earnings on Eligible Investments standing to the credit of a Class A1-VF Prepayment Account will not be transferred to the Interest Collection Account or treated as Interest Proceeds. None of the Co-Issuers or the Noteholders other than the related holders of Class A1-VF Notes shall have any rights to the amounts in a Class A1-VF Prepayment Account except to satisfy the obligations of the related holder and the Class A1-VF Notes to the Co-Issuers. The Trustee shall withdraw all funds and other property standing to the credit of a Class A1-VF Prepayment Account and pay or transfer the same to the relevant Class A1-VF Noteholder pursuant to and in accordance with the Variable Funding Note Purchase Agreement. The Class A1-VF Prepayment Account shall remain at all times with a financial institution having a long-term debt rating of at least "A" by Standard & Poor's and at least "A2" by Moody's (and, if rated "A2," such rating must not be on watch for possible downgrade by Moody's) and a combined capital and surplus in excess of U.S.$200,000,000.

184

Class A1-VF Noteholder Account On or prior to the Closing Date, the Trustee shall cause to be established a securities account (and any sub-ledgers or subaccounts deemed applicable by the Trustee), which shall be designated as the "Class A1-VF Noteholder Account", in the name of the Trustee in trust for the benefit of the holders of the Class A1-VF Notes. If and to the extent that Borrowings or Deemed Borrowings have been made from the Class A1-VF Noteholders to fund all or part of a Credit Protection Payment in respect of an Interest Shortfall pursuant to clause (c)(v) or (c)(vi) of the definition of "Account Withdrawal Payment Priority", the Trustee shall immediately transfer to the Class A1-VF Noteholder Account from the Interest Collection Account (to the extent Interest Proceeds are deposited in the Interest Collection Account and become available therefor) the amount (excluding any Excess Borrowing Amount) of such Borrowings or Deemed Borrowings for distribution to the Class A1-VF Noteholders without regard to the Priority of Payments on the Distribution Date immediately following the Due Period in which the relevant transfer occurs. In addition, any Excess Borrowing Amount shall be deposited in the Class A1-VF Noteholder Account. All funds credited to the Class A1-VF Noteholder Account shall be invested by the Trustee in Eligible Investments. The Class A1-VF Noteholder Account shall remain at all times with a financial institution having a long-term debt rating of at least "BBB+" by Standard & Poor's and at least "Baa1" by Moody's (and, if rated "Baa1", such rating is not on watch for possible downgrade by Moody's) and a combined capital and surplus in excess of U.S.$200,000,000.

185

THE CREDIT DEFAULT SWAP AGREEMENT General On or prior to the Closing Date, the Issuer will enter into a 1992 ISDA Master Agreement (Multicurrency-Cross Border) (together with the schedule and any confirmations thereto, the "Credit Default Swap Agreement") with The Royal Bank of Scotland plc (in such capacity, the "Credit Default Swap Counterparty"), under which the Issuer and the Credit Default Swap Counterparty will on the Closing Date and from time to time thereafter enter into Synthetic Securities in the form of credit default swap transactions (each, a "CDS Transaction") with respect to specified Reference Obligations. Each CDS Transaction shall constitute a "Synthetic Security" for all purposes of the Indenture. The term "CDS Transaction" includes Unhedged Long CDS Transactions, Hedged Long CDS Transactions and Hedging Short CDS Transactions. The Portfolio Manager shall only direct the Issuer to Acquire Long CDS Transactions with the Credit Default Swap Counterparty that themselves satisfy, and with respect to which all Reference Obligations would satisfy, if Acquired directly by the Issuer, the definition of "Collateral Debt Security" (as of the effective date of the relevant CDS Transaction). In addition, each CDS Transaction will provide for physical settlement upon the occurrence of a Credit Event thereunder by delivery of a Deliverable Obligation unless the buyer of protection elects that the seller of protection will pay Credit Protection Payments upon the occurrence of a Credit Event that is a Floating Amount Event; provided that, with respect to certain CDO CDS Transactions, physical settlement may only occur if certain conditions are satisfied as set forth under "—Terms of CDS Transactions" with respect to a Failure to Pay Interest. The Portfolio Manager shall certify that the CDS Transactions included in the Collateral on the Closing Date satisfy the requirements of the definition of "Synthetic Security" and that the Reference Obligations thereunder are Permitted Reference Obligations and certain other requirements set forth in the Indenture. The Credit Default Swap Counterparty shall have no responsibility to oversee compliance by the Issuer or the Portfolio Manager with their respective representations, warranties and covenants under the Indenture and Management Agreement (including, without limitation, with respect to the Eligibility Criteria) insofar as they relate to Acquisitions or Dispositions of CDS Transactions. On or after the Closing Date, the Issuer may modify all or a portion of the Credit Default Swap Agreement in accordance with the terms thereof and subject to compliance with the requirements of the Indenture and satisfaction of the Rating Condition. No material amendment, modification or waiver in respect of the Credit Default Swap Agreement may be entered into by the Issuer and the Credit Default Swap Counterparty unless (i) a copy of such proposed amendment, modification or waiver has been delivered to each of the Rating Agencies, the Portfolio Manager and the Trustee no less than 10 days prior to the proposed effective date thereof, (ii) a Majority of the Controlling Class has consented to such material amendment, modification or waiver and (iii) such material amendment, modification or waiver satisfies the Rating Condition. Upon termination of the Credit Default Swap Agreement pursuant to the terms thereof (other than as a result of an "Event of Default" or "Termination Event" with respect to which the Issuer is the "Defaulting Party" or the sole "Affected Party"), the Issuer shall use reasonable efforts to enter into a replacement Credit Default Swap Agreement that satisfies the Rating Condition or is a Form-Approved Synthetic Security and, in each case, satisfies the requirements of the Indenture. Each of the CDS Transactions is subject to and incorporates the 2003 ISDA Credit Derivatives Definitions as of the Closing Date, as published by the International Swaps and Derivatives Association, Inc. ("ISDA") (as so supplemented and as the same may be amended, modified or otherwise supplemented from time to time, to the extent agreed upon by the Portfolio Manager on behalf of the Issuer and the Credit Default Swap Counterparty, the "Credit Derivatives Definitions").

186

Each CDS Transaction will generally terminate on the earlier to occur of (I) the last to occur of (a) the fifth Business Day following the legal final maturity date of the related Reference Obligation, (b) the fifth Business Day following the Final Amortization Date, (c) the last date on which any Credit Protection Payments or Physical Settlement Amounts can be paid and (d) the final date on which the protection buyer could be required to make a payment in respect of a Principal Reimbursement, Writedown Reimbursement or Interest Reimbursement under such CDS Transaction and (II) the Stated Maturity of the Notes. The Notional Amount of each CDS Transaction will be reduced in an amount equal to each payment of principal paid to the holders of the related Reference Obligation (each such reduction, a "Principal Amortization") and by certain other amounts. In addition, the Notional Amount of any CDS Transaction may, with the consent of the Credit Default Swap Counterparty, be reduced in whole or in part (any such reduction, a "CDS Transaction Termination"). Each CDS Transaction will be entered into under a separate letter of execution in the form attached to a master confirmation and constitute a separate transaction thereunder. Accordingly, a Disposition in whole or in part of a CDS Transaction will constitute a termination or partial termination (as applicable) of such CDS Transactions. It is currently expected that the aggregate Notional Amount of CDS Transactions will be approximately equal to U.S.$605,014,000 on the Closing Date. All of the CDS Transactions will be subject to the Collateral Quality Tests and the Eligibility Criteria to the extent described herein. See "Security for the Secured Notes—Synthetic Securities." Payments to the Credit Default Swap Counterparty in respect of any CDS Transactions (including CDS Termination Payments payable upon the termination of an individual CDS Transaction but excluding any termination payments payable upon the termination in full of the Credit Default Swap Agreement due to an "Event of Default" or "Termination Event" under and as defined therein) will be made from the Payment Account on the date when such payment is due without regard to the Priority of Payments. The Payment Account will be funded for such purpose by the Issuer applying (x) funds and other property standing to the credit of the Accounts and (y) Borrowings and Deemed Borrowings under the Class A1-VF Notes, in each case in accordance with the Account Withdrawal Payment Priority. Payments to the Credit Default Swap Counterparty in respect of any termination payments payable upon the termination in full of the Credit Default Swap Agreement shall be made on a Distribution Date subject to and in accordance with the Priority of Payments. See "Description of the Secured Notes—Priority of Payments." Terms of CDS Transactions All CDS Transactions will be documented by a confirmation that is substantially in the form of (i) the "Credit Derivative Transaction on Mortgage-Backed Security With-Pay-As-You-Go or Physical Settlement (Form I) (Dealer Form)" template confirmation published by ISDA in April 2006, designed for use primarily with RMBS Securities and CMBS Securities with the elections set forth below (each CDS Transaction documented thereby, an "MBS CDS Transaction") or (ii) the "Credit Derivative Transaction on Collateralized Debt Obligation With-Pay-As-You-Go or Physical Settlement (Dealer Form)" template confirmation published by ISDA in June 2006, as amended in August 2006 (relating to CDO Securities) (each CDS Transaction documented thereby, a "CDO CDS Transaction"), in each case as approved by the Rating Agencies prior to the Closing Date, with important modifications and elections as described below.

187

The Credit Events applicable to each CDS Transaction will be: 1.

"Failure to Pay Principal."

This Credit Event will apply to all CDS Transactions and will occur upon the occurrence of the following: (i) a failure by the Reference Obligor (or any insurer thereof) to pay an expected amount of principal on the Final Amortization Date or the legal final maturity date, as the case may be, or (ii) payment on any such day of an actual amount of principal that is less than the expected amount of principal; provided that the failure by the Reference Obligor (or any insurer thereof) to pay any such amount in respect of principal in accordance with the foregoing shall not constitute a Failure to Pay Principal if such failure has been remedied within any grace period applicable to such payment obligation under the Underlying Instruments relating to the Reference Obligation or, if no such grace period is applicable, within three Business Days after the day on which the expected principal amount was scheduled to be paid. 2.

"Writedown."

This Credit Event will apply to all CDS Transactions and will occur if at any time any of the following occurs: (i) (A) a writedown or applied loss (however described in the Underlying Instruments) resulting in a reduction in the outstanding principal amount (other than as a result of a scheduled or unscheduled payment of principal); or (B) the attribution of a principal deficiency or realized loss (howsoever described in the Underlying Instruments) to the Reference Obligation resulting in a reduction or subordination of the current interest payable on the Reference Obligation; or (ii) the forgiveness of any amount of principal by the holders of the Reference Obligation pursuant to an amendment to the Underlying Instruments resulting in a reduction in the outstanding principal amount of the Reference Obligation unless the buyer of protection owns 100% of the outstanding principal amount of the related Reference Obligation. 3.

"Distressed Ratings Downgrade."

This Credit Event will apply to all CDS Transactions and will occur if the Reference Obligation: (i) if publicly rated by Moody's, (A) is downgraded to "Caa2" or below by Moody's or (B) has the rating assigned to it by Moody's withdrawn and, in either case, not reinstated within five Business Days of such downgrade or withdrawal; provided that if such Reference Obligation was assigned a public rating of "Baa3" or higher by Moody's immediately prior to the occurrence of such withdrawal, it shall not constitute a Distressed Ratings Downgrade if such Reference Obligation is assigned a public rating of at least "Caa1" by Moody's within three calendar months after such withdrawal; or

188

(ii) if publicly rated by Standard & Poor's, (A) is downgraded to "CCC" or below by Standard & Poor's or (B) has the rating assigned to it by Standard & Poor's withdrawn and, in either case, not reinstated within five Business Days of such downgrade or withdrawal; provided that if such Reference Obligation was assigned a public rating of "BBB-" or higher by Standard & Poor's immediately prior to the occurrence of such withdrawal, it shall not constitute a Distressed Ratings Downgrade if such Reference Obligation is assigned a public rating of at least "CCC+" by Standard & Poor's within three calendar months after such withdrawal. 4.

"Failure to Pay Interest."

This Credit Event will apply only to the CDO CDS Transactions and will occur upon the occurrence of an Interest Shortfall in excess of the relevant Payment Requirement and in the case of PIKable Reference Obligations after 360 days have elapsed. Credit Events under each CDS Transaction may be physically settled with respect to (i) a Writedown, (ii) a Failure to Pay Principal, (iii) a Distressed Ratings Downgrade or (iv) if the related Reference Obligation is a CDO Security, a Failure to Pay Interest; provided that if the Reference Obligation is a PIKable Reference Obligation it shall be a condition to physical settlement that a period of at least 360 calendar days shall have lapsed since the occurrence of the Failure to Pay Interest without the relevant Interest Shortfall having been reimbursed in full. In the case of a Writedown, a Failure to Pay Principal or (with respect to CDO CDS Transactions where the condition precedent to physical settlement has been satisfied) a Failure to Pay Interest, the Credit Default Swap Counterparty may elect to receive a Credit Protection Payment from the Issuer rather than physical settlement. Multiple Credit Event Notices may be delivered with respect to each CDS Transaction. In the event that the Credit Default Swap Counterparty declares a Credit Event under a Long CDS Transaction with respect to which the Issuer has entered into a related Hedging Short CDS Transaction, the respective payment and delivery obligations of the Credit Default Swap Counterparty or the Issuer, as the case may be, under such Long CDS Transaction and the related Hedging Short CDS Transaction shall be netted and offset against each other and the Issuer's and the Credit Default Swap Counterparty's respective obligations to deliver Deliverable Obligations in connection with such Credit Event shall be deemed to have been satisfied. Each CDS Transaction is designed to replicate the risk transfer profile of an actual holding of Asset-Backed Securities. Asset-Backed Securities have inherent risks that differ in nature to corporate credit risk, most notably the fact that the obligor is relying on the timely receipt of cash flows from the underlying assets (and therefore the obligor has limited control over its ability to pay investors). Distressed scenarios can occur where the cash flows of the Asset-Backed Security are adversely affected without triggering an event of default under the terms thereof. As well as the Credit Events that trigger physical settlement described above, each CDS Transaction requires the protection seller (under any CDS Transaction that is a Long CDS Transaction, the Issuer), to pay floating amounts to the protection buyer (under any CDS Transaction that is a Long CDS Transaction, the Credit Default Swap Counterparty) in amounts equal to (subject to any adjustments set forth in the relevant confirmation to reflect any applicable percentage or reference price) any principal shortfalls, written down amounts and interest shortfalls under the Reference Obligation (calculated, in the case of principal shortfalls and interest shortfalls, as the expected amount less the actual amount received) upon the occurrence of, respectively, a Failure to Pay Principal, Writedown or Interest Shortfall (any such payment made by a seller of protection, a "Credit Protection Payment"). A CDS Transaction may therefore, in some respects, be similar to a total return swap, although in the case of a Writedown, Failure to Pay Principal or the other Credit Events described above, the protection buyer may elect to deliver a Credit Event Notice in respect thereof in which case the relevant CDS Transaction will be physically settled (provided that a net

189

settlement may occur in the case of a Hedged Long CDS Transaction) and no further Credit Protection Payments will be payable. Credit Protection Payments paid by the Issuer under Unhedged Long CDS Transactions will be contingent insofar as the Credit Default Swap Counterparty, in its capacity as protection buyer, will be required to reimburse all or part of such Credit Protection Payments to the Issuer (any such payment, (a) if made in respect of an amount received as a result of a Writedown, a "Writedown Reimbursement", (b) if made as a result of a Failure to Pay Principal, "Principal Reimbursement" or (c) if made in respect of an amount received as a result of a Interest Shortfall, an "Interest Reimbursement") if it receives notice on or prior to the fifth Business Day following the day that is one calendar year after the Effective Maturity Date or the day that is one calendar year (or, in the case of a CDO CDS Transaction, if the overcollateralization ratio, as calculated therein and as of the date of early termination, is greater than or equal to 75%, three calendar years) after the early termination of the Credit Default Swap Agreement. A Writedown, Failure to Pay Principal or Failure to Pay Interest (if applicable) in respect of a Reference Obligation will entitle the protection buyer to elect whether to deliver a Credit Event Notice or require a contingent Credit Protection Payment under the related CDS Transaction. To the extent of any such Writedown Reimbursement, the Notional Amount of the CDS Transaction will be reinstated and the Premium payable by the protection buyer thereon will increase. On each day falling five Business Days after a Reference Obligation payment date, the protection buyer (under any CDS Transaction that is a Hedging Short CDS Transaction, the Issuer) will be required to pay to the protection seller with respect to each CDS Transaction (and not on a portfolio basis) an amount (a "Premium") equal to the product of: (i) the applicable fixed rate multiplied by (ii) an amount equal to (A) the sum of the Notional Amounts as at a specified time on each day during the related Reference Obligation calculation period divided by (B) the actual number of days in the related Reference Obligation calculation period multiplied by (iii) the actual number of days in the related Reference Obligation calculation period divided by 360. Each CDS Transaction with respect to a Reference Obligation that is an RMBS Security is expected to provide for an election by the Credit Default Swap Counterparty that the "WAC Cap Interest Provision" is not applicable. Each CDS Transaction with respect to a Reference Obligation that is a CMBS Security is expected to provide for an election by the Credit Default Swap Counterparty that the "WAC Cap Interest Provision" is applicable. For any CDO CDS Transaction, the confirmation with respect thereto will specify that implied writedown is not applicable and that Interest Shortfall Compounding is applicable. The CDS Transactions (other than CDO CDS Transactions) are expected to provide that the "step-up" provisions in the applicable ISDA template form of confirmation identified above will be applicable. Under the step-up provisions, the buyer of protection under the CDS Transaction may elect to either terminate the CDS Transaction or increase the fixed rate related to the Premium that it pays periodically to the seller of protection if the Reference Obligor or a third party fails to exercise, in accordance with the Underlying Instruments, a "clean up call" or other right to acquire, redeem, cancel or dispose of (however described in the Underlying Instruments) the Reference Obligation which failure results in an increase in the Reference Obligation coupon. If the protection buyer does not deliver a notice that it is terminating the CDS Transactions by the fifth Business Day after it receives notice of a step-up of the Reference Obligation coupon, it will be deemed to have elected to continue the CDS Transaction at the increased fixed rate.

190

Under each CDS Transaction, the parties to the CDS Transaction will elect to cap the interest shortfall risk being transferred to the protection seller by limiting amounts to be paid by the protection seller to the protection buyer to a fixed or (in the case of a CDO CDS Transaction only) variable capped amount. If the fixed cap applies (as will always be the case MBS CDS Transactions), the capped amount will be equal to the amount of Premium payable by the protection buyer under the CDS Transaction on the first Premium payment date immediately following the Reference Obligation payment date on which the relevant Interest Shortfall occurred. If the variable cap applies (as is currently expected to be the case with CDO CDS Transactions), the capped amount will be adjusted to take into account interest rate fluctuations and may result in an Interest Shortfall that exceeds the amount of Premium payable by the protection buyer to the protection seller on such date. The Credit Default Swap Counterparty is expected to seek to eliminate its credit exposure to the Reference Obligations by entering into back-to-back hedging transactions with Eligible Dealers which shall be identified by the Portfolio Manager when it obtains bids with respect to the Acquisition of any CDS Transaction (subject to the right of the Credit Default Swap Counterparty to match the highest bid obtained by the Portfolio Manager from an Eligible Dealer). Under such CDS Transactions in which the Credit Default Swap Counterparty enters into related back-to-back hedging transactions with Eligible Dealers, an intermediation fee equal to 0.02% will be payable by the Issuer to the Credit Default Swap Counterparty in respect of such CDS Transactions. Settlement The buyer of protection may elect to physically settle ("Physical Settlement") in whole or in part each CDS Transaction upon the occurrence of a Credit Event (which may be a net settlement in the case of a Hedged Long CDS Transaction); provided that, as discussed above, in the case of a Writedown, Failure to Pay Principal or (in the case of a CDO CDS Transaction) Failure to Pay Interest, the buyer of protection may elect to receive a Credit Protection Payment (which may be a net payment in the case of a Hedged Long CDS Transaction). Accordingly, it is expected that, upon settlement of a CDS Transaction if Physical Settlement is selected by the buyer of protection, the buyer of protection will deliver to the seller of protection the Deliverable Obligations specified in the notice of physical settlement (which shall only consist of Reference Obligations related to the relevant CDS Transaction) and the seller of protection will pay to the buyer of protection the agreed Physical Settlement Amount that corresponds to the Deliverable Obligations that the buyer of protection has delivered (provided that a net settlement may occur in the case of a Hedged Long CDS Transaction). Each CDS Transaction will provide that the buyer of protection, when providing a notice of physical settlement, may specify an amount (the "Exercise Amount") that is less than the Notional Amount as of the date on which such notice of physical settlement is delivered (calculated as though physical settlement in respect of all previously delivered Notices of Physical Settlement has occurred in full), in which case the rights and obligations of the parties under the CDS Transaction will continue and the buyer of protection may deliver additional Notices of Physical Settlement with respect to the initial Credit Event or with respect to any additional Credit Event at any time thereafter. In addition, each CDS Transaction will provide that only Reference Obligations may constitute Deliverable Obligations. Pursuant to clause (ii) of the definition of "Collateral Debt Security," Deliverable Obligations constitute Collateral Debt Securities. Accordingly, upon receipt of Deliverable Obligations, the Issuer may hold Deliverable Obligations as Collateral Debt Securities and such Deliverable Obligations shall be subject to the provisions relating to the disposition of Collateral Debt Securities set forth herein. See "Security for the Secured Notes—Dispositions of Collateral Debt Securities." The "Physical Settlement Amount" payable by the seller of protection under CDS Transactions will be an amount equal to: (a) the product of the Exercise Amount and an agreed reference price (which

191

is currently expected to be 100% under the majority of the CDS Transactions) minus (b) the sum of: (i) the product of (A) the aggregate of all Implied Writedown Amounts with respect to the relevant Reference Obligation determined immediately prior to the relevant delivery and (B) the relevant Exercise Percentage and (ii) the product of (A) the aggregate principal amount of the Reference Obligation which is subject to a Writedown Credit Event (as the same may be reduced by any reimbursement obligations of the buyer of protection under the relevant CDS Transaction) and (B) the relevant Exercise Percentage. For purposes of the foregoing, "Exercise Percentage" means, with respect to a notice of physical settlement, a percentage equal to the original face amount of the Deliverable Obligations specified in such notice of physical settlement divided by an amount equal to (i) the initial face amount of the Reference Obligation minus (ii) the aggregate of the original face amount of all Deliverable Obligations specified in all previously delivered Notices of Physical Settlement. If the buyer of protection delivers Deliverable Obligations in an amount greater than the Deliverable Obligations specified in the notice of physical settlement, the seller of protection will not be required to pay more than the Physical Settlement Amount that corresponds to the Deliverable Obligations specified in the notice of physical settlement. The Credit Default Swap Counterparty is expected to seek to eliminate its credit exposure to the Reference Obligations by entering into back-toback hedging transactions with Eligible Dealers which shall be identified by the Portfolio Manager when it obtains bids with respect to the Acquisition of any CDS Transaction (subject to the right of the Credit Default Swap Counterparty to match the highest bid obtained by the Portfolio Manager from an Eligible Dealer). Where the buyer of protection has delivered a notice of physical settlement but does not deliver in full the Deliverable Obligations (including, without limitation, as a result of the illegality or impossibility of physical settlement) on or prior to the physical settlement date, then such notice of physical settlement shall be deemed not to have been delivered. In no event will full or partial cash settlement apply. Ratings Provisions The Credit Default Swap Counterparty must satisfy the Credit Default Base Counterparty Ratings Requirement. It shall be a "Credit Default Swap Collateralization Event" if the Credit Default Swap Rating Determining Party with respect to the Credit Default Swap Counterparty fails to satisfy the Credit Default Base Counterparty Ratings Requirement. It is expected that other Synthetic Security Counterparties will be subject to similar ratings requirements. The "Credit Default Base Counterparty Ratings Requirement" means a requirement which will be satisfied if (a) either (i) the long-term debt obligations of the Credit Default Swap Rating Determining Party are rated at least "A1" by Moody's (and, if rated "A1", such rating is not on watch for downgrade by Moody's) or (ii) the short-term debt obligations of the Credit Default Swap Rating Determining Party are rated at least "P1" by Moody's (and such rating is not on watch for downgrade by Moody's) and (b) either (i) the long-term debt obligations of the Credit Default Swap Rating Determining Party are rated at least "AA-" by Standard & Poor's or (ii) the short-term debt obligations of the Credit Default Swap Rating Determining Party are rated at least "A-1+" by Standard & Poor's. "Credit Default Swap Rating Determining Party" means (a) unless clause (b) below applies, the Credit Default Swap Counterparty or any transferee thereof or (b) any Affiliate of the Credit Default Swap Counterparty or any transferee thereof that unconditionally and absolutely guarantees the obligations of the Credit Default Swap Counterparty or such transferee, as the case may be, under the Credit Default Swap Agreement pursuant to a form of guarantee that satisfies the then-current guarantee criteria publicly available from Standard & Poor's. For the purpose of this definition, no direct or indirect recourse against one or more shareholders of the Credit Default Swap Counterparty or any such transferee

192

(or against any person in control of, or controlled by, or under common control with, any such shareholder) shall be deemed to constitute a guarantee, security or support of the obligations of the Credit Default Swap Counterparty or any such transferee. Following the occurrence of a Credit Default Swap Collateralization Event due to a failure to satisfy the definition of Credit Default Base Counterparty Ratings Requirement, the Credit Default Swap Counterparty will be required to post collateral pursuant to, and in an amount described in, the Credit Default Swap Agreement; provided that if the Credit Default Swap Counterparty has not, within 30 calendar days following a Credit Default Swap Collateralization Event, (A) provided such collateral, (B) obtained a full and unconditional guarantee of all of its obligations under the Credit Default Swap Agreement pursuant to a form of guarantee that satisfies the Rating Condition with respect to Moody's and Standard & Poor's from a guarantor that satisfies the Credit Default Base Counterparty Ratings Requirement, (C) assigned all of its obligations under the Credit Default Swap Agreement to an assignee that satisfies the Credit Default Base Counterparty Ratings Requirement or (D) taken such other action as will satisfy the Rating Condition, a "Credit Default Swap Ratings Event" will be deemed to have occurred. If the Credit Default Swap Counterparty does not take one of the actions set forth in (A) through (D) within 30 calendar days following the occurrence of a Credit Default Swap Collateralization Event, a "Termination Event" (as defined in the Credit Default Swap Agreement) will be deemed to occur with respect to which the Credit Default Swap Counterparty is the sole "Affected Party" (as defined in the Credit Default Swap Agreement). It shall also be a "Credit Default Swap Ratings Event" if the Credit Default Swap Rating Determining Party with respect to the Credit Default Swap Counterparty fails to satisfy the Replacement Ratings Requirement. "Replacement Ratings Requirement" means a requirement which will be satisfied if (a)(i) the long-term debt obligations of the Credit Default Swap Rating Determining Party are rated at least "A3" by Moody's (and if rated "A3", such rating is not on watch for possible downgrade) or (ii) the short-term debt obligations of the Credit Default Swap Rating Determining Party are rated at least "P-2" by Moody's (and, if rated "P-2", such rating is not on watch for possible downgrade) and (b)(i) the longterm debt obligations of the Credit Default Swap Rating Determining Party are rated at least "BBB+" by Standard & Poor's or (ii) the short-term debt obligations of the Credit Default Swap Rating Determining Party are rated at least "A-2" by Standard & Poor's. If a Credit Default Swap Ratings Event occurs with respect to any Credit Default Swap Rating Determining Party, such Credit Default Swap Rating Determining Party, at its sole expense, will be required to (x) obtain a substitute counterparty that (i) satisfies the Rating Condition, (ii) either (A) satisfies the Credit Default Base Counterparty Ratings Requirement or (B) (1) does not satisfy the Credit Default Base Counterparty Ratings Requirement but has complied with the collateral delivery obligations set forth in the Credit Default Swap Agreement as if a Credit Default Swap Collateralization Event has occurred with respect to a substitute counterparty and (2) satisfies the Replacement Ratings Requirement and (iii) will not, as a result of such transfer, be required to withhold or deduct on account of tax under the Credit Default Swap Agreement, and the transfer to which will not result in a "Termination Event" or "Event of Default" (each as defined in the Credit Default Swap Agreement) under the Credit Default Swap Agreement, (y) obtain a full and unconditional guarantee of all of its obligations under the Credit Default Swap Agreement pursuant to a form of guarantee that satisfies the Rating Condition with respect to Moody's and Standard & Poor's from a guarantor that satisfies the Credit Default Base Counterparty Ratings Requirement or (z) take such other action that will satisfy the Rating Condition. If the Credit Default Swap Counterparty does not find such a replacement within 10 Business Days following the occurrence of a Credit Default Swap Ratings Event, an "Additional Termination Event" (as defined in the Credit Default Swap Agreement) shall be deemed to occur with respect to which the Credit Default Swap Counterparty is the sole "Affected Party" (as defined in the Credit Default Swap Agreement).

193

Conditions to Settlement In order for a Physical Settlement Amount (which may be a net settlement in the case of a Hedged Long CDS Transaction) to be due from the seller of protection to the buyer of protection in respect of a CDS Transaction, the Conditions to Settlement must be satisfied in relation to the relevant Reference Obligation. The "Conditions to Settlement" in relation to a Reference Obligation are that: (i) a Credit Event has occurred with respect to that Reference Obligation during the period from (and including) the effective date thereof to (and including) the applicable scheduled termination date of the related CDS Transaction; (ii) the buyer of protection has delivered a Credit Event Notice to the seller of protection that is effective during the period (from and including) the effective date to (and including) the date that is 14 calendar days after the scheduled termination date or any later date permitted under the terms of the CDS Transaction (the "Notice Delivery Period"); (iii) the buyer of protection has delivered the Notice of Publicly Available Information to the seller of protection that is effective during the Notice Delivery Period; and (iv) the buyer of protection has delivered a notice of physical settlement to the seller of protection that is effective no later than thirty calendar days after the first date on which both the Credit Event Notice and the Notice of Publicly Available Information are effective. In addition, with respect to any CDO CDS Transaction, it shall be a "Condition to Settlement" in relation to a Reference Obligation that is a PIKable Reference Obligation, that a period of at least 360 calendar days shall have elapsed since the occurrence of the Failure to Pay Interest without the relevant Interest Shortfall having been reimbursed in full. For purposes of the foregoing: "Credit Event Notice" means an irrevocable written notice from the buyer of protection to the seller of protection that describes a Credit Event and that is delivered during the Notice Delivery Period. A Credit Event Notice must contain a description in reasonable detail of the facts relevant to the determination that a Credit Event has occurred. The Credit Event that is the subject of the Credit Event Notice need not be continuing on the date the Credit Event Notice is effective. "Notice of Publicly Available Information" means an irrevocable written notice from the buyer of protection to the seller of protection that, consistent with the requirements of the Credit Derivatives Definitions (as modified by the Form-Approved Synthetic Security), cites publicly available information reasonably confirming the facts relevant to the determination that the Credit Event described in a Credit Event Notice has occurred. "PIKable Reference Obligation" means, in relation to a Reference Obligation that is a CDO Security, that the Underlying Instruments include provisions that provide for capitalization or deferral of interest on such Reference Obligation. Only the buyer of protection has a right (but not an obligation) to deliver a Credit Event Notice and a Notice of Publicly Available Information with respect to any Reference Obligation for which a Credit Event has occurred.

194

Hedging Short CDS Transactions The Portfolio Manager may, in its sole discretion, instead of Disposing of an Unhedged Long CDS Transaction (or portion of the Notional Amount thereof) by means of a termination or assignment, cause the Issuer to Acquire a Hedging Short CDS Transaction. Each Hedging Short CDS Transaction will be evidenced by a letter of execution in the form attached to the relevant Form-Approved CDS Confirmation having the same terms as the original CDS Transaction, and will reference the same Reference Obligation, except that (i) the Issuer will be the credit protection buyer and the Credit Default Swap Counterparty will be the credit protection seller, (ii) the Premium payable under the Hedging Short CDS Transaction will be fixed by the Credit Default Swap Counterparty as described below, and (iii) certain other terms, including, without limitation, that the effective date of the Hedging CDS Transaction, will be different and that it will not affect the obligation of the Credit Default Swap Counterparty to pay to the Issuer under the Hedged Long CDS Transaction any Principal Reimbursements, Writedown Reimbursements or Interest Reimbursements with respect to Credit Protection Payments paid by the Issuer prior to the effective date of the related Hedging Short CDS Transaction. The Issuer will not be exposed to any credit risk under a Hedged Short CDS Transaction, except to the credit risk of the Credit Default Swap Counterparty. The Issuer may only enter into Hedging Short CDS Transactions if (i) such Hedging Short CDS Transaction is entered into with the Credit Default Swap Counterparty and (ii) the Premium (inclusive of any intermediation fee payable to the Credit Default Swap Counterparty) payable by the Issuer under such Hedging Short CDS Transaction is equal to or less than the Counterparty Premium (as the same may be reduced by any intermediation fee payable to the Credit Default Swap Counterparty) payable by the Counterparty under the related Hedged Long CDS Transaction. The Portfolio Manager may obtain bids from Eligible Dealers and the Credit Default Swap Counterparty will be obligated (unless the Credit Default Swap Counterparty is unable, as a result of its then current credit or legal policies, to take credit exposure to such Eligible Dealer) to enter into a Hedging Short CDS Transaction at such Eligible Dealer's quoted rate plus an intermediation fee. If the Credit Default Swap Counterparty agrees to enter into the Hedging Short CDS Transaction itself, it will agree to do so at the quoted rate. Amendment of the Credit Default Swap Agreement The Credit Default Swap Agreement provides that no material amendment, modification or waiver in respect thereof may be entered into unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system; provided, that no material amendment, modification or waiver in respect of this Agreement shall be entered into by the parties unless (i) a copy of such proposed amendment, modification or waiver has been delivered to each of the Rating Agencies, the Portfolio Manager and the Trustee no less than 10 days prior to the proposed effective date thereof, (ii) a Majority of the Controlling Class has consented to such material amendment, modification or waiver and (iii) such material amendment, modification or waiver satisfies the Rating Condition. Termination of the Credit Default Swap Agreement The Credit Default Swap Agreement will be subject to termination by the Issuer or the Credit Default Swap Counterparty, whether or not the Secured Notes have been paid in full prior to such termination, upon the occurrence of (i) certain events of bankruptcy, insolvency, conservatorship, receivership or reorganization of the Issuer or the Credit Default Swap Counterparty, (ii) a failure on the part of the Issuer or the Credit Default Swap Counterparty to make any payment under the Credit Default Swap Agreement within the applicable grace period (unless such failure to pay on the part of the Issuer is due to a failure of any Specified Class A1-VF Noteholder to fund its Commitment Amount in full or otherwise comply with its obligations under the Variable Funding Note Purchase Agreement), (iii) a

195

change in law making it illegal for either the Issuer or the Credit Default Swap Counterparty to be a party to, or perform an obligation under, the Credit Default Swap Agreement or (iv) the consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all of the Issuer's or the Credit Default Swap Counterparty's assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer, the resulting, surviving or transferee entity fails to assume all the obligations of the Issuer or the Credit Default Swap Counterparty under the Credit Default Swap Agreement by operation of law or pursuant to an agreement reasonably satisfactory to the Issuer or the Credit Default Swap Counterparty; provided that, in lieu of terminating all the CDS Transactions as a result of a failure by the Issuer to make, when due, any payment required to be made by it pursuant to clause (ii) above as a result of a failure by any Class A1-VF Noteholder (that is not a Specified Class A1VF Noteholder) to fund its Commitment Amount in full or otherwise collateralize its obligations to fund its Commitment Amount or assign its obligations to a permitted assignee after a Variable Funding Rating Decline Event with respect to it, the Credit Default Swap Counterparty may elect to terminate a pro rata portion of each of the CDS Transactions such that the Remaining Exposure of all CDS Transactions does not exceed the sum of (A) the Remaining Unfunded Facility Commitment plus (B) the balance standing to the credit of the Reserve Account. "Termination Events" under (and as defined in) the Credit Default Swap Agreement will include: (i) certain tax events or a change in tax law affecting the Issuer or the Credit Default Swap Counterparty; (ii)

a Credit Default Swap Ratings Event;

(iii)

any Auction Call Redemption, Optional Redemption or Tax Redemption;

(iv) an Event of Default under the Indenture followed by the commencement of the sale or liquidation in full of the Collateral; and (v) any supplemental Indenture is entered into, or the Indenture is otherwise amended, that would have a material adverse effect on the Credit Default Swap Counterparty, without the prior consent of the Credit Default Swap Counterparty. The Issuer has agreed to use reasonable efforts to enter into a substitute credit default swap agreement on similar terms to the extent that the Issuer is able to enter into such an agreement but there is no guarantee that it will be able to do so and provided that the Issuer is not the defaulting party or affected party under the Credit Default Swap Agreement). Amounts payable upon any early termination of the Credit Default Swap Agreement will be based substantially upon standard replacement transaction valuation methodology described as "Market Quotation" set forth in the 1992 ISDA Master Agreement (Multicurrency-Cross Border) and in accordance with the Liquidation Procedures. If any amount is payable by the Issuer to the Credit Default Swap Counterparty in connection with the occurrence of any such early termination or Notional Amount reduction, such amount, together with interest on such amount for the period from and including the date of termination to but excluding the date of payment, shall be payable (i) if such payment is not a Defaulted Synthetic Termination Payment, to the extent funds are available for such purpose in the related Synthetic Security Counterparty Account (taking into account any deposits made into such Account in satisfaction of such payment in accordance with the procedures set forth in "Security for the Secured Notes—The Accounts—Synthetic Security Counterparty Accounts") on the next succeeding Distribution Date in accordance with the Priority of Payments or (ii) if such payment is a Defaulted Synthetic Termination Payment, on the next succeeding Distribution Date to the extent funds are available for such purpose in accordance with the Priority of Payments (and any portion of such Defaulted Synthetic Termination Payment not paid pursuant to this clause (ii) on such

196

Distribution Date shall be payable on the first Distribution Date on which such amount may be paid in accordance with the Priority of Payments). Liquidation Procedures The liquidation procedures (the "Liquidation Procedures"), which will be used in order to determine the aggregate amount which the Credit Default Swap Counterparty or the Issuer would pay (or be paid) in order to Dispose of or replace the CDS Transactions, will be carried out at the sole expense of the Issuer and are summarized below: First, with respect to an Auction Call Redemption, the Liquidation Procedures are as follows: (i)

The Portfolio Manager on behalf of the Issuer will, on or prior to the 34th Business Day prior to the related Liquidation Date provide a written notice to the Credit Default Swap Counterparty (the "CDS Termination Payment Notice") (with a copy to the Trustee) requesting that the Credit Default Swap Counterparty specify the CDS Termination Payment which the Credit Default Swap Counterparty would pay to the Issuer or the CDS Termination Payment that the Issuer would be required to pay to the Credit Default Swap Counterparty (calculated as if the Issuer were the "Defaulting Party" or the sole "Affected Party" under and as defined in the Credit Default Swap Agreement) if all obligations of the parties under the CDS Transactions were to terminate on the related Liquidation Date (other than Unpaid Amounts). The Credit Default Swap Counterparty's calculation of the CDS Termination Payment will, with respect to the CDS Transactions, (x) take into account the possibility (i) that there are Unsettled Credit Events for which the settlement date will not occur on or prior to the Liquidation Date, (ii) that a Credit Event may occur on or prior to the Liquidation Date and (iii) that the protection buyer may be required to reimburse to the protection seller any amounts it received from the Reference Obligor in respect of Credit Protection Payments within one year (or within three years, in the case of a CDO CDS Transaction) following the Liquidation Date and (y) specify all amounts (including Unpaid Amounts) that will be due and payable by the Issuer or the Credit Default Swap Counterparty on or prior to the Liquidation Date (the "CDS Designated Unpaid Amounts");

(ii)

The Credit Default Swap Counterparty will, on or prior to the 26th Business Day prior to such Liquidation Date, provide written notice to the Issuer and the Portfolio Manager (with a copy to the Trustee) specifying the CDS Termination Payment and the CDS Designated Unpaid Amounts payable by the Issuer to the Credit Default Swap Counterparty or payable by the Credit Default Swap Counterparty to the Issuer;

(iii)

The Portfolio Manager (on behalf of the Issuer) will provide written notice to the Credit Default Swap Counterparty (with a copy to the Trustee) on or prior to the 26th Business Day prior to such Liquidation Date specifying that it accepts a CDS Termination Payment Notice (a "CDS Termination Payment Acceptance") or that it does not accept a CDS Termination Payment Notice (a "CDS Termination Payment Rejection"), and failure to respond unconditionally by such deadline will be deemed to be a CDS Termination Payment Rejection;

(iv)

If a CDS Termination Payment Acceptance occurs, (x) the Portfolio Manager on behalf of the Issuer will cause the Issuer to enter into a binding agreement (on or prior to the 17th Business Day before the Liquidation Date) with the Credit Default Swap Counterparty providing for termination of the Issuer's obligations

197

under the Credit Default Swap Agreement and the related payments and (y) the Credit Default Swap Counterparty will pay such CDS Termination Payment and the CDS Designated Unpaid Amounts to the Issuer or the Trustee (as specified by the Portfolio Manager) will pay the CDS Termination Payment and the CDS Designated Unpaid Amounts to the Credit Default Swap Counterparty on the Liquidation Date and, upon such payment, all obligations of the parties under the CDS Transactions will terminate on and as of such Liquidation Date; provided that from the date of delivery of the CDS Termination Payment Notice to the Liquidation Date, neither the Issuer nor the Credit Default Swap Counterparty will pay any amounts in respect of the CDS Transactions other than CDS Designated Unpaid Amounts; (v)

If a CDS Termination Payment Rejection occurs, the Portfolio Manager will attempt to obtain firm bids (by the 16th Business Day prior to such Liquidation Date), with respect to the CDS Transactions in whole or with respect to sub-pools of CDS Transactions (which, in the aggregate, comprise all of the CDS Transactions), from (A) at least five Eligible Dealers identified by the Portfolio Manager and acceptable to the Credit Default Swap Counterparty and (B) if it wishes to participate, the Credit Default Swap Counterparty, in each case to enter into the CDS Transactions as seller (in the case of Long CDS Transactions) or buyer (in the case of Short CDS Transactions) of protection (in each case under a confirmation governed by the Standard Terms). The Portfolio Manager will deliver as soon as commercially practicable, a statement of the CDS Designated Unpaid Amounts and each of the firm bids obtained from the Eligible Dealers and (if applicable) the Credit Default Swap Counterparty to the Trustee and the Credit Default Swap Counterparty (assuming, for this purpose, that such firm bids will take into account (x) any Credit Events for which the Conditions to Settlement have been satisfied but for which the settlement date is not scheduled to occur on or prior to the Liquidation Date, and (y) the possibility that a Credit Event may occur on or prior to the Liquidation Date);

(vi)

If the Portfolio Manager determines that the highest amount which the Eligible Dealers and (if applicable) the Credit Default Swap Counterparty would pay to enter into the CDS Transactions as seller of protection (considering the bids on the CDS Transactions in whole and for subpools of the CDS Transactions or, if none of the Eligible Dealers and the Credit Default Swap Counterparty agrees to pay any such amount for the CDS Transactions in whole or for a particular subpool, the lowest amount which any such Eligible Dealer or the Credit Default Swap Counterparty would require to be paid to enter into the CDS Transactions as seller (in the case of Long CDS Transactions) or buyer (in the case of Short CDS Transactions) of protection (considering the bids on the CDS Transactions in whole and for subpools of the CDS Transactions)), would result in an amount which, together with other Available Redemption Proceeds (after taking into account any payment by the Issuer to such Eligible Dealers and the CDS Designated Unpaid Amounts), would be at least equal to the Total Senior Redemption Amount, the Portfolio Manager (on behalf of the Issuer) (x) will deliver a notice of acceptance (the "CDS Termination Acceptance Notice") to the Credit Default Swap Counterparty (with a copy to the Trustee) by the 15th Business Day prior to the Liquidation Date and (y) will cause the Issuer to enter into a binding agreement on the date of such CDS Termination Acceptance Notice with the Credit Default Swap Counterparty providing for termination of the Issuer's obligations under the Credit Default Swap Agreement and the related

198

payments and, upon the Issuer making such payment, if any, all obligations of the Issuer under the CDS Transactions will terminate on and as of such Liquidation Date (except that the Issuer and the Credit Default Swap Counterparty each will pay any CDS Designated Unpaid Amounts on the Liquidation Date); (vii)

In no event will the CDS Transactions be Disposed of or any CDS Termination Payment be due from the Issuer if notice of an Auction Call Redemption has been withdrawn by the Trustee; and

(viii)

The Trustee will only Dispose of the CDS Transactions on the Liquidation Date in connection with an Auction Call Redemption if it is satisfied that (A) the Liquidation Procedures have been complied with, (B) the Available Redemption Proceeds will be at least equal to the Total Senior Redemption Amount and (C) the Credit Default Swap Counterparty has entered (or prior to the Liquidation Date will enter) into one or more written agreements with the Issuer (which the Issuer will execute if the conditions set forth in (A) and (B) above are satisfied) which provide that either (1) the Credit Default Swap Counterparty will pay directly to the Issuer any Liquidation Proceeds in cash on the Liquidation Date or (2) the Issuer will satisfy its payment obligations to the Credit Default Swap Counterparty on the Liquidation Date, in each case if required by the Liquidation Procedures.

Second, with respect to an Optional Redemption, Tax Redemption or Disposition of the Collateral following an Event of Default, the Liquidation Procedures are as follows: (i)

If the redemption has been requested by the Secured Noteholders or Subordinated Noteholders, or if the redemption is to occur following the Disposition of the Collateral after an Event of Default, the Trustee will, on or prior to the 21st Business Day prior to the related Liquidation Date provide a written notice to the Credit Default Swap Counterparty (with a copy to the Portfolio Manager) requesting that the Credit Default Swap Counterparty specify the CDS Termination Payment which the Credit Default Swap Counterparty would pay to the Issuer or the CDS Termination Payment that it would require that the Issuer pay to the Credit Default Swap Counterparty (calculated as if the Issuer were the "Defaulting Party" or sole "Affected Party" under and as defined in the Credit Default Swap Agreement) if all obligations of the parties under the CDS Transactions were to terminate on the related Liquidation Date (other than Unpaid Amounts). The Credit Default Swap Counterparty's calculation of the CDS Termination Payment will, (x) take into account the possibility that (i) there are Unsettled Credit Events for which the settlement date will not occur on or prior to the Liquidation Date and (ii) a Credit Event may occur on or prior to the Liquidation Date and (y) specify the CDS Designated Unpaid Amounts. The Credit Default Swap Counterparty will deliver such notice to the Trustee (with a copy to the Issuer and the Portfolio Manager) specifying such CDS Termination Payment and the CDS Designated Unpaid Amounts on or prior to the 16th Business Day prior to the related Liquidation Date;

(ii)

The Portfolio Manager on behalf of the Issuer will provide written notice of a CDS Termination Payment Acceptance or a CDS Termination Payment Rejection to the Credit Default Swap Counterparty (with a copy to the Trustee) on or prior to the 26th Business Day prior to such Liquidation Date, provided that failure to respond unconditionally by such deadline will be deemed to be a CDS Termination Payment Rejection;

199

(iii)

If any CDS Termination Payment (including the CDS Designated Unpaid Amounts) payable to the Issuer, together with other Available Redemption Proceeds (reduced by any CDS Termination Payment and CDS Designated Unpaid Amounts payable by the Issuer), would be at least equal to, in the case of an Optional Redemption or a Tax Redemption, the Total Senior Redemption Amount (as the same may be reduced in the case of a Tax Redemption with the consent of holders of 100% of the aggregate outstanding principal amount of an Affected Class of Secured Notes up to the portion of the Total Senior Redemption Amount that would otherwise be payable to holders of such Affected Class), the Issuer or the Credit Default Swap Counterparty will pay (as applicable) such CDS Termination Payment and CDS Designated Unpaid Amounts on the Liquidation Date and, upon such payment, all obligations of the parties under the CDS Transactions will terminate on and as of such Liquidation Date. In no event will the CDS Transactions be Disposed of if notice of an Optional Redemption or a Tax Redemption has been withdrawn by the Trustee or the Collateral is not Disposed of pursuant to the Indenture following an Event of Default;

(iv)

If a CDS Termination Payment Rejection occurs, the Portfolio Manager will attempt to obtain firm bids (by the 16th Business Day prior to such Liquidation Date), with respect to the CDS Transactions in whole or with respect to sub-pools of CDS Transactions (which, in the aggregate, comprise all of the CDS Transactions), from (A) at least five Eligible Dealers acceptable to the Credit Default Swap Counterparty and (B) if its wishes to participate, the Credit Default Swap Counterparty, in each case to enter into the CDS Transactions as seller (in the case of Long CDS Transactions) or buyer (in the case of Short CDS Transactions) of protection (in each case under a confirmation governed by the Standard Terms). The Portfolio Manager will deliver as soon as commercially practicable, a statement of the CDS Designated Unpaid Amounts and each of the firm bids obtained from the Eligible Dealers and (if applicable) the Credit Default Swap Counterparty to the Trustee and the Credit Default Swap Counterparty (assuming, for this purpose, that such firm bids will take into account (x) any Credit Events for which the Conditions to Settlement have been satisfied but for which the settlement date is not scheduled to occur on or prior to the Liquidation Date, and (y) the possibility that a Credit Event may occur on or prior to the Liquidation Date); and

(v)

The Trustee will only Dispose of the CDS Transactions on the Liquidation Date in connection with an Optional Redemption, Tax Redemption or Disposition of the Collateral following an Event of Default if it is satisfied that (A) the Liquidation Procedures have been complied with, (B) in the case of an Optional Redemption or Tax Redemption, the Available Redemption Proceeds will be at least equal to the Total Senior Redemption Amount (as the same may be reduced in the case of a Tax Redemption with the consent of holders of 100% of the aggregate outstanding principal amount of an Affected Class of Secured Notes up to the portion of the Total Senior Redemption Amount that would otherwise be payable to holders of such Affected Class) and (C) the Credit Default Swap Counterparty has entered (or prior to the Liquidation Date will enter) into one or more written agreements with the Issuer (which the Issuer will execute if the conditions set forth in (A) and (B) above are satisfied) which provide that either (1) the Credit Default Swap Counterparty will pay directly to the Issuer any Liquidation Proceeds in cash on the Liquidation Date or (2) the Issuer will satisfy

200

its payment obligations to the Credit Default Swap Counterparty on the Liquidation Date, in each case if required by the Liquidation Procedures. Third, with respect to any termination of the Credit Default Swap Agreement other than as a result of an Auction Call Redemption, Optional Redemption, Tax Redemption or Event of Default, the Liquidation Procedures are as follows: In the event that any termination of the Credit Default Swap Agreement is a result of an "Event of Default" or a "Termination Event" under the Credit Default Swap Agreement where the Issuer is the "Defaulting Party" or an "Affected Party" or if a "Termination Event" under the Credit Default Swap Agreement occurs where the Credit Default Swap Counterparty or the Issuer (or both) is an "Affected Party" due to a "Tax Event" or "Illegality" (each, as defined in the Credit Default Swap Agreement): (i)

By the 15th Business Day prior to the related Liquidation Date, the Credit Default Swap Counterparty will notify the Issuer and the Portfolio Manager (with a copy to the Trustee) of the CDS Termination Payment which the Credit Default Swap Counterparty would pay to the Issuer or the CDS Termination Payment that it would require that the Issuer pay to the Credit Default Swap Counterparty and the CDS Designated Unpaid Amounts if all obligations of the parties under the CDS Transactions were to terminate on the related Liquidation Date; and

(ii)

The Issuer or the Credit Default Swap Counterparty will pay (as applicable) such CDS Termination Payment and any CDS Designated Unpaid Amounts on the Liquidation Date and, upon such payment, all obligations of the parties under the Credit Default Swap Agreement will terminate on and as of such Liquidation Date.

Any CDS Termination Payment payable to the Issuer pursuant to the Liquidation Procedures is referred to herein as the "Liquidation Proceeds".

201

DESCRIPTION OF THE GIC The following description consists of a summary of certain provisions of the GIC. This summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the GIC. The Issuer will on or about the Closing Date enter into an investment agreement (the "GIC") with the Trustee and The Royal Bank of Scotland plc in its capacity as provider of the GIC (together with its successors and assigns in such capacity, the "GIC Provider"). Under the terms of the GIC, the GIC Provider will invest amounts that are transferred to it from time to time by the Issuer from the net proceeds of the Offering or from the Reserve Account and the Uninvested Proceeds Account up to an aggregate amount not exceeding U.S.$300,000,000. On the Closing Date an amount equal to U.S.$155,014,066 will be deposited into the Reserve Account. The Issuer will only be permitted to enter into the GIC if, as of the Closing Date, it will receive all payments due under the terms of the GIC free and clear of withholding tax. If a GIC Tax Event occurs as a result of any action or omission of the GIC Provider (and not as a result of a change in applicable law or regulations), the GIC Provider will pay to the Issuer such additional amount as is necessary to ensure that the net amount actually received by the Issuer will equal the full amount the Issuer would have received had no deduction or withholding been required with respect to payments under the GIC. In all other circumstances, the GIC Provider shall not be required to gross up any payment under the GIC or to pay any additional amount to the Issuer in respect of any such deduction or withholding. The GIC will be governed by New York law. Interest The GIC Interest on the funds standing to the credit of the GIC will accrue on each day during each GIC Interest Accrual Period at the rate of three-month (or such other designated maturity as agreed by the Issuer with the GIC Provider) LIBOR less 0.04%, (the "GIC Interest Rate"). All interest that has accrued on the GIC will be paid into the Reserve Account on each GIC Interest Payment Date without any prior notice from the Issuer (or the Portfolio Manager on behalf of the Issuer) to the GIC Provider. Deposits On each GIC Investment Date, the Trustee (as instructed by the Portfolio Manager on behalf of the Issuer) will transfer additional Amounts Invested for such GIC Investment Date for immediate deposit into the GIC Provider's account. Withdrawals from the GIC The Issuer may withdraw all or a portion of the funds standing to the credit of the GIC on a Withdrawal Date for any permitted use of funds standing to the credit of the Reserve Account and the Uninvested Proceeds Account set forth in the GIC and in the Indenture including, without limitation (A) (i) to pay Credit Protection Payments and Physical Settlement Amounts to the Credit Default Swap Counterparty under Long CDS Transactions; (ii) to pay Principal Reimbursements and Writedown Reimbursements; (iii) to pay the purchase price of Collateral Debt Securities; (iv) to make CDS Termination Payments payable by the Issuer to the Credit Default Swap Counterparty in respect of the termination of individual CDS Transactions; (v) on any Determination Date relating to a Distribution Date that is a Pro Rata Distribution Date, in the amount calculated pursuant to clause (d) of the Senior Excess Application Priority, to make a deposit in the Principal Collection Account; or (vi) to transfer any Class A1-VF Senior Excess from the Reserve Account to the Payment Account for application as

202

Principal Proceeds after the Reinvestment Period if the Remaining Unfunded Facility Commitment has been reduced to zero, in each case in accordance with the provisions of the Indenture; (B) following a GIC Event of Default pursuant to and in accordance with the GIC; or (C) on the GIC Agreement Termination Date. GIC Breakage Costs If any amounts are withdrawn from the GIC Provider's account on a date other than a GIC Interest Payment Date, a breakage fee will be payable by the Issuer on the next scheduled GIC Interest Payment Date and calculated by the GIC Provider equal to the product of (i) the amount of such Withdrawal, (ii) the GIC Interest Rate Differential and (iii) the number of days from and including the applicable Withdrawal Date to but excluding the next scheduled GIC Interest Payment Date divided by 360. Termination The GIC will terminate on the GIC Agreement Termination Date (or if such date is not a Business Day, on the next succeeding Business Day); provided that the Rating Agencies shall be given prior notice of the termination of the GIC. Pursuant to the GIC, the Issuer has the right to terminate the GIC upon the occurrence of a GIC Tax Event. On the GIC Agreement Termination Date, the GIC Provider will transfer to the Trustee for deposit in the Reserve Account the Available Amounts Invested by wire transfer in immediately available funds. Downgrade Event The GIC Provider will be required to maintain its credit ratings no lower than the GIC Required Ratings. If the GIC Provider fails to satisfy the GIC Required Ratings, the GIC Provider shall (solely at its expense) notify the Trustee, the Issuer, the Portfolio Manager, the Credit Default Swap Counterparty and the Rating Agencies within five Business Days of the receipt by it of notice of such downgrade (including by virtue of any public announcement of such downgrade) and the GIC Provider shall, within 30 days of the receipt by it of a notice of such downgrade, in each case at no cost to the Issuer, (i) identify and transfer all of its rights and obligations under the GIC to another entity acceptable to the Rating Agencies (as evidenced by satisfaction of the Rating Condition) which (x) has (or whose obligations are unconditionally and irrevocably guaranteed (with such form of guarantee meeting Standard & Poor's then-current criteria for guarantees) by an entity which has) at least the GIC Required Ratings, (y) can make all payments that are required to be made under the GIC to the Issuer free and clear of deduction or withholding on account of tax and (z) has executed an agreement in substantially the form as the GIC or in a form which otherwise satisfies the Rating Condition, (ii) cause an entity acceptable to the Rating Agencies (as evidenced by satisfaction of the Rating Condition) which has (or is guaranteed (with such form of guarantee meeting Standard & Poor's then-current criteria for guarantees) by an entity which has) a rating of at least the GIC Required Ratings to guarantee or provide an indemnity in respect of the GIC Provider's obligations under the GIC and/or (iii) take such other action as shall satisfy the Rating Condition. GIC Events of Default The following constitute "GIC Events of Default" under the GIC (as more fully described therein):

203

(i) the failure of the GIC Provider to make any payment when due under the GIC and the continuation of such failure for one Business Day after receipt by the GIC Provider of written notice thereof from the Trustee or the Portfolio Manager acting on behalf of the Issuer, (ii) the failure of the GIC Provider to perform or observe in any material respect any of its material obligations under the GIC and the continuation of such failure for more than 10 Business Days (or with respect to a failure to maintain the GIC Required Ratings, one Business Day) after receipt by the GIC Provider of written notice thereof from the Trustee or the Issuer (or the Portfolio Manager acting on behalf of the Issuer), (iii)

the occurrence of certain bankruptcy related events with respect to the GIC Provider, or

(iv) any representation or warranty made by the GIC Provider to the Trustee, the Portfolio Manager or the Issuer under the GIC that proves to have been false or misleading in any material respect when made. Upon the occurrence of a GIC Event of Default specified in clause (iii) above, all Available Amounts Invested shall immediately become due and payable. Upon the occurrence and continuation of any other GIC Event of Default, the Trustee may declare all Available Amounts Invested to be immediately due and payable. In each case, the Trustee (as directed by the Portfolio Manager on behalf of the Issuer) shall have the right to take whatever other action at law or equity as may appear necessary or desirable to enforce the covenants of the GIC Provider under the GIC or to collect amounts due or to become due thereunder including, without limitation, directing the GIC Provider to transfer the Available Amounts Invested to the Reserve Account and all GIC Interest thereon to the Interest Collection Account. If, as a result of the occurrence of a GIC Event of Default, all Available Amounts Invested are withdrawn by the Trustee, the GIC will be terminated on the Withdrawal Date as if such date were the GIC Agreement Termination Date. Assignment of the GIC The GIC will not be sold, pledged or assigned or otherwise transferred by the GIC Provider, the Issuer or the Trustee without the prior written consent of the other parties to the GIC and the satisfaction of the Rating Condition; provided that the GIC Provider may transfer the GIC or any of its interests or obligations thereunder to any subsidiary of the GIC Provider if (i) any subsidiary of the GIC Provider if (i) from and including the date of such transfer, the obligations of the transferee under the GIC shall be guaranteed by the GIC Provider (with such form of guarantee meeting Standard & Poor's then-current criteria for guarantees) (which shall remain the relevant party for determining whether or not any of the events described under "Description of the GIC—Downgrade Event" above has occurred) or (ii) any entity that has credit ratings no lower than the GIC Required Ratings; provided, in each case, that the GIC Provider provides an opinion of counsel addressed to the Issuer, the Trustee and the Rating Agencies to the effect that such transfer will not have an adverse regulatory or tax effect on the Issuer, the Trustee or the Noteholders and will not result in any withholding or other tax being imposed on payments under the GIC.

204

THE ROYAL BANK OF SCOTLAND PLC The information appearing under the heading "The Royal Bank of Scotland plc" has been prepared by The Royal Bank of Scotland plc and has not been independently verified by the Co-Issuers, the Initial Purchaser, the Trustee or any other person. Accordingly, The Royal Bank of Scotland plc assumes the responsibility for the accuracy, completeness or applicability of such information and to the best of its knowledge the information is in accordance with the facts and does not omit anything likely to affect the import of such information. The Royal Bank of Scotland Group plc ("RBSG") is a public limited company incorporated in Scotland with registration number 45551. RBSG was incorporated under Scots law on 25 March 1968 under the name “National and Commercial Banking Group Limited” and its name was changed to "The Royal Bank of Scotland Group Limited" by Special Resolution passed on 4 July 1979. By Resolution of the Directors passed on 28 January 1982, pursuant to section 8 of the Companies Act, 1980, the name of RBSG was changed to “The Royal Bank of Scotland Group public limited company”. RBSG (together with its subsidiaries, the "Group") is the holding company of one of the world’s largest banking and financial services groups, based on a market capitalisation of £56.8 billion as at 30 June 2006. The Group’s operations are conducted principally The Royal Bank of Scotland plc ("RBS") and its subsidiaries including National Westminster Bank Plc ("NatWest") other than the general insurance business (primarily Direct Line Group and Churchill Insurance). RBS is a public limited company incorporated in Scotland with registration number 90312, having been incorporated under Scots law on 31 October 1984. Both RBS and NatWest are major UK clearing banks whose origins go back over 275 years. The Group has a large and diversified customer base and provides a wide range of products and services to personal, commercial and large corporate and institutional customers The Group had total assets of £839.3 billion and shareholders’ equity of £37.4 billion at 30 June 2006. The Group is strongly capitalised with a total capital ratio of 11.9 per cent and tier 1 capital ratio of 7.6 per cent as at 30 June 2006. Organisational Structure and Business Overview The Group’s activities are organised in the following business divisions: Corporate Markets (formerly Corporate Banking & Financial Markets), Retail Markets (comprising Retail Banking, Direct Channels (formerly Retail Direct) and Wealth Management), Ulster Bank, Citizens, RBS Insurance and Manufacturing. A description of each of the divisions is given below. Corporate Markets Corporate Markets is focused on the provision of debt and risk management services to medium and large businesses and financial institutions in the United Kingdom and around the world. Corporate Banking & Financial Markets was renamed Corporate Markets on 1 January 2006 when its activities were reorganised into two businesses, UK Corporate Banking and Global Banking & Markets, in order to enhance the Group’s focus on the distinct needs of these two customer segments. Corporate Markets provides an integrated range of core banking, structured finance and financial markets products and services, including acquisition finance, trade finance, leasing, factoring, treasury services, money markets, foreign exchange, derivatives, bond origination and trading, sovereign debt trading, futures brokerage and interest rate risk management services.

205

Corporate Markets is a provider of banking, finance and risk management services to Mid-Corporate and Commercial customers in the United Kingdom. Through its network of relationship managers across the country it provides the full range of Corporate Markets products and services to small, medium and large companies. Corporate Markets is also a banking partner to major corporations and financial institutions around the world, specialising in providing a full range of debt financing, risk management and investment services to its Global Banking & Markets customers. Retail Markets Retail Markets comprises Retail Banking, Direct Channels and Wealth Management. Retail Banking Retail Banking comprises both the RBS and NatWest retail brands. It offers a full range of banking products and related financial services to the personal, premium and small business markets. In the personal banking market, Retail Banking offers a comprehensive product range: money transmission, savings, loans, mortgages and insurance. In the small business market, Retail Banking provides a full range of services which include money transmission and cash management, short, medium and long-term financing, deposit products and insurance. Customer choice and product flexibility are central to the Retail Banking proposition and customers are able to access services through a full range of channels: branches, ATMs, the internet and the telephone. Direct Channels Direct Channels consists of the Group’s non-branch based retail businesses. Direct Channels issues a comprehensive range of credit, charge and debit cards to personal and corporate customers and provides card processing services for retail businesses. It also includes Tesco Personal Finance, The One account, First Active UK, Direct Line Financial Services and Lombard Direct, all of which offer products to customers through direct channels principally in the United Kingdom. In continental Europe, Direct Channels offers a similar range of products through the RBS and Comfort Card brands. Wealth Management Wealth Management provides private banking and investment services to its clients through a number of United Kingdom and overseas private banking subsidiaries and offshore banking businesses. Coutts has over 20 offices worldwide, including Switzerland, Dubai, Monaco, Hong Kong and Singapore, as well as its premier position in the United Kingdom. Adam & Company is the major private bank in Scotland. The offshore banking businesses – The Royal Bank of Scotland International and NatWest Offshore – deliver retail banking services to local and expatriate customers, principally in the Channel Islands, the Isle of Man and Gibraltar. Ulster Bank Group Ulster Bank Group provides a comprehensive range of financial services products to customers in Ireland. Serving personal and small business customers, Ulster Bank Retail Banking provides branch banking, wealth management and direct banking throughout the Republic of Ireland and Northern Ireland. With a continued focus on providing customer choice and value, First Active serves personal and small business

206

customers through its separately branded product offerings and branch network throughout the Republic of Ireland. Both First Active and Ulster Bank retain their own brands, branch networks and distinctive customer propositions. Ulster Bank Corporate Banking & Financial Markets caters for the banking needs of business and corporate customers, including treasury and money market activities, asset finance, ebanking and international services. Citizens Citizens provides retail and corporate banking services under the Citizens brand in Connecticut, Delaware, Massachusetts, New Hampshire, New Jersey, New York state, Pennsylvania, Rhode Island and Vermont and the Charter One brand in Illinois, Indiana, Michigan and Ohio. Through its branch network, Citizens provides a full range of retail and corporate banking services, including personal banking, residential mortgages and cash management. In addition, Citizens engages in a wide variety of commercial lending, consumer lending, commercial and consumer deposit products, merchant credit card services, insurance products, trust services and retail investment services. RBS Insurance RBS Insurance is the second largest general insurer in the United Kingdom, by gross earned premiums. Through the Direct Line, Churchill and Privilege brands it sells and underwrites personal insurance over the telephone and the internet in the United Kingdom. Through the Direct Line brand, RBS Insurance also sells and underwrites personal insurance in Spain, Italy and Germany. Through UKI Partnerships, our partnership business, the Group operates insurance schemes on behalf of third parties who in turn sell insurance products to their customers. The National Insurance and Guarantee Corporation sells personal and commercial products through a network of intermediaries, while Inter Group acts as an insurance administrator and Devitt Insurance Services operates as a specialist broker administrator. Manufacturing Manufacturing supports the customer facing businesses in the United Kingdom and Ireland and manages the Group’s telephony, account management and money transmission operations. It is also responsible for information technology operations and development, global purchasing, property and other services. Recent Developments Sir George Ross Mathewson retired as Chairman from the boards of directors of each of RBSG and RBS at the Annual General Meeting on 28 April 2006. Sir Tom McKillop, Deputy Chairman, succeeded him as Chairman. On 1 March 2006 the Group appointed Johnny Cameron, Chief Executive, Corporate Markets and Mark Fisher, Chief Executive, Manufacturing as executive directors. William Friedrich was also appointed as a non-executive director of the Group and of RBS on 1 March 2006. On 30 October 2006 the Group announced the acquisition of GreatBanc Inc, a holding company headquartered in Illinois, in a cash transaction worth approximately US$180 million. This transaction is subject to regulatory approval and is expected to complete in the first quarter of 2007.

207

Principal Subsidiary Undertakings RBSG’s shares are widely held and, to the best of its knowledge, RBSG is not directly or indirectly controlled by anyone. RBS is wholly-owned by RBSG and supervised by the Financial Services Authority as a bank. RBSG’s direct principal operating subsidiaries are RBS and RBS Insurance Group Limited. The principal subsidiary undertakings of RBS are shown below. Their capital consists of ordinary and preference shares, which are unlisted with the exception of certain preference shares issued by NatWest. All of the subsidiary undertakings are owned directly or indirectly through intermediate holding companies and are wholly-owned. All of the subsidiaries shown below are included in the consolidated financial statements of RBSG and RBS and have an accounting reference date of 31 December. Citizens Financial Group, Inc. Coutts & Co Greenwich Capital Markets, Inc. National Westminster Bank Plc Ulster Bank Limited

208

THE PORTFOLIO MANAGER The Portfolio Manager has provided the information contained in this section relating to the Portfolio Manager (other than the information contained under the subheading "General") and accepts responsibility for the information contained in this section and the information contained herein. Such information has not been independently verified by the Co-Issuers, the Hedge Counterparties, the Initial Purchaser, the Trustee or any other person or entity. Accordingly, the Portfolio Manager assumes the responsibility for the accuracy, completeness or applicability of such information and to the best of the Portfolio Manager's knowledge the information is in accordance with the facts and does not omit anything likely to affect the import of such information. The Portfolio Manager is a limited liability company incorporated in England under the laws of England and Wales on 3 September 2003. The Portfolio Manager is authorized and regulated in the conduct of its investment management business by the UK Financial Services Authority, which authorisation was effective as of 5 August 2004. The personnel of the Portfolio Manager have extensive experience in all areas of credit analysis, credit derivative markets, portfolio management, execution, analytics and modelling and have been individually recruited from financial institutions such as RBS, Merrill Lynch, Bank of America, AIG Financial Products and JPMorgan and their Affiliates. The Portfolio Manager serves and, in the future, it or any of its Affiliates may serve as an investment manager or adviser of corporations, partnerships and other entities, including entities organised to issue collateralised debt obligations secured by any combination of asset-backed securities or other obligations or securities. The Portfolio Manager is a wholly-owned subsidiary of Cairn Capital Limited. The delivery of this Offering Memorandum shall not create any implication that there has been no change in the affairs of the Portfolio Manager since the date of this Offering Memorandum, or that the information contained or referred to herein is correct as of any time subsequent to the date of this Offering Memorandum. Biographies The following is a brief summary of the background and experience of the members of the Executive Management Committee of the Portfolio Manager, which is the committee to which the board of directors of the Portfolio Manager has delegated the day to day management of the Portfolio Manager and which is responsible for the strategy, direction and oversight of the business of the Portfolio Manager. Such persons may not perform or provide services to the Issuer and may not necessarily continue to hold such positions or to be employed by the Portfolio Manager for the entire term of the Management Agreement: Paul Campbell (40) is a director of the Portfolio Manager. Mr. Campbell was formerly Managing Director, Europe at Banque AIG, the European subsidiary of AIG Financial Products Corp., where he worked for over ten years and was responsible for all credit and portfolio management activity globally. He previously had six years’ experience with JP Morgan trading fixed income securities. Tim Frost (41) is a director of the Portfolio Manager. Mr. Frost was formerly European Head of Credit Sales, Trading and Research with JP Morgan where he worked for over 15 years. Mr. Frost played a key role in building JP Morgan’s European credit derivatives business and served on the European Credit and Rates executive committee.

209

David Henriques (41) is a director of the Portfolio Manager. Mr. Henriques was formerly coGlobal Head of Structured Credit Products with RBS. He has over seven years’ experience in structured credit products and, prior to that, ten years’ experience of insurance and insurance capital markets. David Littlewood (40) is a director of the Portfolio Manager. Mr. Littlewood was formerly coGlobal Head of Structured Credit Products with RBS. He has over 15 years’ experience in structured credit, derivatives and structured finance. He was previously Head of Structured Derivatives at RBS and prior to that Head of Structured Finance at Hambros Bank. Robert Pierce Jones (39) is a director of the Portfolio Manager. Mr. Pierce Jones was formerly Managing Director, Europe at Banque AIG, the European subsidiary of AIG Financial Products Corp. Since 1991 he was instrumental in building and successfully running the structured finance team, annually growing revenues for over 12 years. He was previously in the Capital Markets Group at Bankers Trust Company. James Starky (48) is the Chief Legal Officer of the Portfolio Manager. Mr. Starky was formerly Associate General Counsel of Banque AIG, the European subsidiary of AIG Financial Products Corp., responsible for legal oversight of derivative, credit and structured finance business for Europe and Asia. Prior to that Mr. Starky was a partner for two and a half years with Cadwalader Wickersham & Taft and was a partner for five years at Freshfields.

210

THE MANAGEMENT AGREEMENT The following is a summary of the Management Agreement and is qualified in its entirety by reference to the Management Agreement. A copy of the Management Agreement may be obtained by prospective purchasers upon request in writing to the Initial Purchaser at the address set forth under "Available Information." Certain administrative and advisory functions with respect to the Collateral will be performed by the Portfolio Manager under the portfolio management agreement to be entered into between the Issuer and the Portfolio Manager and dated November 9, 2006 (the "Management Agreement"). The Management Agreement provides that the Issuer shall delegate to the Portfolio Manager its day-to-day rights and discretion as to, among other things, the selection of the portfolio of Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities and Eligible Investments, and the Disposition of Collateral Debt Securities and investment in Reserve Account Investments and Eligible Investments. Pursuant to the terms of the Management Agreement, the Portfolio Manager will monitor the Collateral Debt Securities and provide the Issuer with certain information, with respect to the composition of the Collateral Debt Securities, any Disposition of a Collateral Debt Security, the reinvestment of the proceeds of any such disposition in Reserve Account Investments or Eligible Investments and with respect to the retention of the proceeds of any such Disposition or the application thereof toward the Acquisition of a substitute Collateral Debt Security. The Portfolio Manager will also monitor the Interest Rate Hedge Agreements, the GIC, the Credit Default Swap Agreement and the Variable Funding Note Purchase Agreement. The Portfolio Manager and its Affiliates may engage in other business and furnish investment management, advisory and other types of services to other clients with similar investment policies and also to other clients whose investment policies differ from those followed by the Portfolio Manager on behalf of the Issuer, as required by the Indenture. The Portfolio Manager may make recommendations to or effect transactions for such other clients which may differ from those effected with respect to the Collateral Debt Securities. Some of the Collateral Debt Securities Acquired by the Issuer on or prior to the Closing Date may have been held by other clients or Affiliates of the Portfolio Manager. The Portfolio Manager may direct the Trustee (acting on behalf of the Issuer) to Acquire a Collateral Debt Security to be included in the Collateral from the Portfolio Manager or any of its Affiliates acting as principal or agent, sell or assign any Collateral Debt Security to the Portfolio Manager or any of its Affiliates acting as principal or agent, Acquire any Collateral Debt Security for inclusion in the Collateral directly from any account or portfolio for which the Portfolio Manager serves as investment advisor or sell or assign any Collateral Debt Security directly to any account or portfolio for which the Portfolio Manager serves as investment adviser only to the extent that (a) such Acquisitions were made at fair market value as determined in the Portfolio Manager’s judgment (exercised in accordance with the standard of care set forth in the Management Agreement at the time such Collateral Debt Security was originally Acquired) and otherwise on arms' length terms and (b) the Portfolio Manager determined that such Acquisitions were consistent with the investment guidelines and objectives of the Issuer, the restrictions contained in the Indenture and applicable law. In addition, the Portfolio Manager, its Affiliates and accounts for which the Portfolio Manager or any Affiliate thereof acts as investment adviser may at times own Secured Notes of one or more Classes and/or Subordinated Notes. At any given time, the Portfolio Manager and its Affiliates will not be entitled to vote the Notes held by any of such Portfolio Manager, its Affiliates and accounts for which such Portfolio Manager or any Affiliate thereof acts as investment adviser (and for which such Portfolio Manager or such Affiliate has discretionary authority) with respect to any assignment or termination of any of the express rights of the Portfolio Manager under the Management Agreement (including the exercise of any rights to remove such Portfolio Manager or terminate the Management Agreement), or

211

any amendment or other modification of the Management Agreement increasing the rights or decreasing the obligations of the Portfolio Manager. However, at any given time the Portfolio Manager and its Affiliates will be entitled to vote Notes held by them and by such accounts with respect to all other matters. See "Risk Factors—Certain Potential Conflicts of Interest—Conflicts of Interest Involving the Portfolio Manager." Compensation, Indemnification and Expenses As compensation for the performance of its obligations as Portfolio Manager under the Management Agreement, the Portfolio Manager will receive a fee, payable in arrears on each Distribution Date, equal to (i) 0.10% per annum of the Quarterly Asset Amount for such Distribution Date until and including the Distribution Date in February 2011 and (ii) 0.125% per annum of the Quarterly Asset Amount thereafter (the "Senior Portfolio Management Fee"). The Portfolio Manager will receive an additional fee, payable in arrears on each Distribution Date, equal to 0.125% per annum of the Quarterly Asset Amount (the "Subordinated Portfolio Management Fee" and, together with the Senior Portfolio Management Fee, the "Portfolio Management Fee"). See "Description of the Secured Notes—Priority of Payments." The Portfolio Management Fee will be payable only to the extent that funds are available for such purpose in accordance with the Priority of Payments. The Portfolio Management Fee will be calculated based on the Quarterly Asset Amount as of the beginning of the Due Period preceding the applicable Distribution Date. The Senior Portfolio Management Fee will be payable from Interest Proceeds prior to any payments on the Notes and, if such amounts are insufficient, from Principal Proceeds prior to any payments on the Notes. The Subordinated Portfolio Management Fee will be payable from Interest Proceeds and, if such amounts are insufficient, from Principal Proceeds, in accordance with the Priority of Payments. To the extent not paid on any Distribution Date when due, any accrued Senior Portfolio Management Fee or Subordinated Portfolio Management Fee will be deferred and will be payable on subsequent Distribution Dates. On the Closing Date, the Portfolio Manager will receive an upfront management fee out of the proceeds of the issuance of the Notes that is additional to the Portfolio Management Fee payable under the Management Agreement. The Portfolio Manager may in its sole discretion three Business Days prior to any Distribution Date direct the Issuer and the Trustee that all or a portion of the Portfolio Management Fee payable to it on such Distribution Date be deferred, provided that the non-payment on such Distribution Date or any subsequent Distribution Date on which any such deferred Portfolio Management Fee is further deferred a the direction of the Portfolio Manager shall not constitute an Event of Default under the Indenture notwithstanding anything to the contrary in the Priority of Payments or clause (iii) of the definition of "Event of Default". Any deferred Portfolio Management Fee, whether deferred due to the operation of the Priority of Payments or in the discretion of the Portfolio Manager, shall be paid on the next succeeding Distribution Date to the extent funds are available in accordance with the Priority of Payments and shall accrue interest at a rate equal to LIBOR. In the event that Cairn resigns or is terminated as Portfolio Manager and a successor Portfolio Manager is appointed pursuant to the Management Agreement, Cairn nonetheless will be entitled to receive payment of all unpaid Portfolio Management Fees, including the Senior Portfolio Management Fee and the Subordinated Portfolio Management Fee, accrued through the effective date of the termination or resignation, to the extent that funds are available for that purpose in accordance with the

212

Priority of Payments and such payments will rank pari passu with the Portfolio Management Fees due to the successor Portfolio Manager. Termination of the Management Agreement The Issuer may (at the direction or with the consent of holders of at least 66-2/3% of the Controlling Class, holders of at least 66-2/3% of each Class of Secured Notes voting as a single class and holders of at least 66-2/3% of the Subordinated Notes (for the purposes of making any such determination, not including any Portfolio Manager Securities)) remove the Portfolio Manager without cause upon 90 days' prior written notice to the Portfolio Manager; provided that such removal will become effective only following the date upon which a replacement Portfolio Manager has been appointed by the Issuer in accordance with the procedures described below with respect to a Replacement Manager and has assumed the Portfolio Manager's obligations thereunder. The Management Agreement also provides that, so long as any Notes are outstanding, the Portfolio Manager may be removed for Cause upon 30 days' prior written notice by the Issuer to the Portfolio Manager and the Trustee at the direction or with the consent of (i) holders of at least 66-2/3% in aggregate outstanding principal amount of the Controlling Class or (ii) so long as no Event of Default has occurred and is continuing, a Majority of the Controlling Class and a Majority of the Subordinated Notes. In determining whether a specified percentage of holders of Notes has directed any such removal or termination as described above or given any objection to a successor Portfolio Manager, Notes held by one or more of the Portfolio Manager, any of its Affiliates and any account as to which the Portfolio Manager or any of its Affiliates has discretionary investment authority will be excluded. No removal or termination of the Portfolio Manager for Cause will be effective unless a successor Portfolio Manager is appointed as described herein. For purposes of the Management Agreement, "Cause" means any of the following events: (i)

the Portfolio Manager intentionally breaches any provision of the Management Agreement applicable to it;

(ii)

violation by the Portfolio Manager of any material provision of the Management Agreement (including, for these purposes, any material misrepresentation) and failure to cure such violation within 30 days of the Portfolio Manager becoming aware of, or receiving notice from the Issuer or the Trustee of, such violation provided that, if such violation cannot be cured within 30 days, no cause will exist if such violation will not in the reasonable opinion of the Issuer or Trustee have a material adverse effect on the Noteholders and the Portfolio Manager is using all reasonable efforts to effect a cure and a cure can be effected within a reasonable time period;

(iii)

the Portfolio Manager (A) ceases to be able to, or admits in writing its inability to, pay its debts when and as they become due, (B) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or takes advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (C) makes an assignment for the benefit of its creditors, (D) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property or (E) is adjudicated as insolvent or to be liquidated;

(iv)

any licences, approvals, authorizations and consents which are necessary for the performance of the Portfolio Manager's obligations under the Management Agreement

213

are not in place and the Portfolio Manager has not obtained such licences, approvals, authorizations and consents within 30 days of the same not being in place; (v)

the Portfolio Manager ceases to be authorized by the FSA in the conduct of its business or its authorization is suspended and such suspension is not discharged by the FSA within one week;

(vi)

the Portfolio Manager has committed an act constituting fraud or criminal activity in the performance of its obligations under the Management Agreement or the Portfolio Manager has been indicted for a criminal offence materially related to the primary business of the Portfolio Manager;

(vii)

the Portfolio Manager consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another person and, at the time of such consolidation, amalgamation, merger or transfer, the resulting, surviving or transferee person fails to assume the material obligations of the Portfolio Manager under the Management Agreement by operation of law or pursuant to an agreement reasonably satisfactory to the Issuer;

(viii)

the Portfolio Manager is negligent in the performance of its obligations under the Management Agreement and such negligence has a material adverse effect on the Noteholders which is not capable of remedy or if capable of remedy, is not remedied within 30 days; or

(ix)

the occurrence of an Event of Default under the Indenture which results from the breach by the Portfolio Manager of its duties under the Management Agreement.

The Portfolio Manager shall have the right to resign and terminate the Management Agreement upon 90 days' written notice to the Issuer, the Controlling Class, each Rating Agency and the Trustee; provided, however, that no such resignation or termination will be effective unless a successor Portfolio Manager is appointed as described herein and has assumed the Portfolio Manager's obligations thereunder. The Management Agreement shall terminate automatically if the provision of services by the Portfolio Manager (i) creates a tax liability for the Issuer in the United Kingdom (or there being a substantial likelihood that such a tax liability will arise) (unless the Portfolio Manager shall remedy the conditions giving rise to such tax liability or such substantial likelihood of tax liability), (ii) leads to a determination by a taxing authority or court of competent jurisdiction that the Issuer is subject to US federal income tax on a net income basis (or there being a substantial likelihood that such a determination will be made) other than in the case of deemed ownership of a Reference Obligation, pending the termination of a Synthetic Security (unless the Portfolio Manager shall remedy the conditions underlying such determination) or (iii) becomes subject to United Kingdom value added tax (subject, in the case of clause (iii), to certain qualifications set forth in the Management Agreement). The Management Agreement and any obligations or duties of the Portfolio Manager thereunder may not be assigned or otherwise transferred by the Portfolio Manager, in whole or in part, without (i) satisfaction of the Rating Condition with respect thereto and (ii) satisfaction of the Replacement Conditions. Notwithstanding the foregoing, if the Replacement Conditions (as defined below) are satisfied, the Portfolio Manager may assign all of its rights and responsibilities under the Management Agreement to an Affiliate or in any transaction that would not constitute an "assignment" within the meaning of the Investment Advisers Act of 1940 and any rules and interpretations thereunder. In

214

addition, the Portfolio Manager may, pursuant to the Management Agreement, enter into arrangements pursuant to which its Affiliates or third parties may perform certain services on behalf of the Portfolio Manager so long as such actions or services do not cause the Issuer to be subject to tax in any jurisdiction outside its jurisdiction of incorporation, but such arrangements shall not relieve the Portfolio Manager from any of its duties or obligations hereunder. The Management Agreement provides that the Portfolio Manager shall provide prior written notice of any assignment or delegation to the Trustee and to each of the Rating Agencies. No removal, termination or resignation of the Portfolio Manager will be effective unless a successor Portfolio Manager (the "Replacement Manager") that satisfies the Replacement Conditions has been appointed pursuant to this paragraph and a Majority of the Controlling Class has consented to such appointment. Within 30 days after notice of resignation by the Portfolio Manager or within 20 days after notice of removal or termination of the Portfolio Manager, the resigning or terminated Portfolio Manager may designate a Replacement Manager by delivering notice thereof to the Controlling Class, the Trustee and the Noteholders, to which a Majority of the Controlling Class must consent; provided that that if an event described in clause (ii) or clause (vi) of the definition of "Cause" has occurred, a Majority of the Controlling Class may appoint a Replacement Manager within 20 days after the termination of the Portfolio Manager. If the resigning or terminated Portfolio Manager does not designate a Replacement Manager within such time period or if a Majority of the Controlling Class does not consent to such appointment within 30 days after such designation, then a Majority of the Subordinated Notes may designate a Replacement Manager within 20 days after such 30-day period which shall be appointed by the Issuer to assume all of the Portfolio Manager's duties and obligations pursuant to the Management Agreement (or pursuant to a substantially similar agreement). If a Majority of the Controlling Class does not consent to such appointment, a Majority of the Controlling Class shall propose an alternate Replacement Manager, which Replacement Manager shall be appointed by the Issuer to assume all of the Portfolio Manager's duties and obligations pursuant to the Management Agreement (or pursuant to a substantially similar agreement) unless a Majority of the Subordinated Notes objects within 20 days after such proposal. If the Portfolio Manager shall resign or be terminated or removed but a Replacement Manager has not assumed all of the Portfolio Manager's duties and obligations within 90 days after such resignation, termination or removal, a Majority of the Controlling Class shall appoint a Replacement Manager. None of the holders of the Controlling Class, the resigning, removed or terminated Portfolio Manager and the holders of the Subordinated Notes is obligated to designate a Replacement Manager. A Replacement Manager must be an established institution (i) that is legally qualified and has the capacity to act as Portfolio Manager under the Management Agreement, as successor to the Portfolio Manager thereunder in the assumption of all of the responsibilities, duties and obligations of the Portfolio Manager thereunder and under the applicable terms of the Indenture, (ii) that will not cause the Issuer, the Co-Issuer or the pool of Collateral to become required to register under the Investment Company Act, (iii) that has demonstrated an ability to professionally and competently perform duties similar to those to be performed by the Portfolio Manager under the Management Agreement, (iv) that will perform its obligations as Portfolio Manager in jurisdictions where performance of those obligations would not constitute a basis for imposing income or similar taxes on the Issuer or imposing withholding taxes on the Issuer in such jurisdictions in respect of payments on the Notes and (v) the appointment of which satisfies the Rating Condition (the "Replacement Conditions"). No compensation payable to a Replacement Manager will be greater than that which would have been paid to the Portfolio Manager under the Management Agreement unless a Majority of the Subordinated Notes (excluding Notes held by one or more of the Portfolio Manager, any of its Affiliates and any account as to which the Portfolio Manager or any of its Affiliates has discretionary investment

215

authority if such increase in compensation is a condition to the appointment of the Replacement Manager) consent to such compensation and notice thereof is provided to Standard & Poor's. Upon expiration of the applicable notice period with respect to termination specified in the Management Agreement, all authority and power of the Portfolio Manager under the Management Agreement, whether with respect to the Credit Default Swap Agreement or otherwise, will automatically and without further action by any person or entity pass to and be vested in the Replacement Manager. Notwithstanding the foregoing, the outgoing Portfolio Manager shall be entitled to any accrued and unpaid Management Fees earned by it prior to termination or resignation. Pursuant to the Indenture, the Issuer is granted a license by the Trustee to exercise the rights of the Issuer under the Management Agreement and the Collateral Administration Agreement which license shall be automatically revoked by the Trustee, for amongst other reasons, (a) upon delivery of notice to the Portfolio Manager of the occurrence of an event specified in the Management Agreement pursuant to which the Issuer is removing the Portfolio Manager for Cause or (b) upon a default in the performance or breach (other than any default or breach that has not had, and would not reasonably be expected to have, a material adverse effect on the Collateral, the Noteholders or the Issuer), of any covenant, representation, warranty or other agreement of the Portfolio Manager under the Management Agreement if (i) holders of at least 25% in aggregate outstanding principal amount of the Controlling Class give notice of such default or breach to the Trustee and the Portfolio Manager and (ii) such default or breach (if capable of cure) has continued for a period of at least 30 days. The Portfolio Manager and/or its Affiliates may have ongoing relationships with, render service to and engage in transactions with, and may own debt or equity securities issued by issuers of certain of the Collateral Debt Securities. The Portfolio Manager, its Affiliates and/or its clients may invest in securities that are senior or subordinated to, or have interests different from or adverse to, the Collateral Debt Securities. The interests of such parties may be different than or adverse to the interest of the holders of the Secured Notes, the holders of the Subordinated Notes, or the holders of the Combination Notes. In addition, such persons may possess information relating to the Collateral Debt Securities which is not known to the individuals at the Portfolio Manager responsible for monitoring the Collateral Debt Securities and performing the other obligations under the Management Agreement. Such persons will not be required (and may not be permitted) to share such information or pass it along to the Issuer, the Portfolio Manager or any holder of any Notes. Neither the Portfolio Manager nor any of such persons will have liability to the Issuer or any holder of any Note for failure to disclose such information or for taking, or failing to take, any action based upon such information. Portfolio Manager Obligations The Portfolio Manager, its Affiliates and its and their partners, directors, members, officers, stockholders, managers, employees, agents, accountants and attorneys (collectively, the "Portfolio Manager Affiliates") will not be liable to the Co-Issuers, the Trustee, the Credit Default Swap Counterparty, the GIC Provider, the Administrator, the Collateral Administrator or the holders of the Notes, or any of their respective partners, directors, managing directors, members, officers, stockholders, managers, employees, agents, accountants and Affiliates or any other person for any losses, claims, damages, judgments, assessments, demands, charges, costs or other expenses or liabilities of any nature arising from or in connection with this Offering Memorandum, the Management Agreement, the Indenture, the Credit Default Swap Agreement, the GIC and the transactions contemplated thereby or incurred as a result of the actions taken, recommended or directed or for any omissions by the Portfolio Manager or any of the Portfolio Manager Affiliates under or in connection with the Management Agreement or the Indenture or for any decrease in the value of the Collateral Debt Securities or in connection with any loss arising out of any investment, except (i) by reason of acts constituting bad faith, willful misconduct or gross negligence in the performance of the Portfolio Manager's duties and

216

obligations under the Management Agreement or (ii) with respect to the information concerning the Portfolio Manager provided in writing by the Portfolio Manager for inclusion in this Offering Memorandum under the headings entitled "The Portfolio Manager" and "Risk Factors—Certain Potential Conflicts of Interest—Conflicts of Interest Involving the Portfolio Manager", such information containing any untrue statement of material fact or omitting to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Portfolio Manager shall, subject to the terms and conditions of the Management Agreement, perform its duties and obligations under the Management Agreement with reasonable care using a degree of skill and attention no less than customarily used by institutional managers of national standing in the management of assets (and/or derivatives transactions with respect to assets) of the nature and character of the Collateral Debt Securities, Reserve Account Investments, Eligible Investments and U.S. Agency Securities. The Issuer shall indemnify and hold harmless the Portfolio Manager and its Affiliates, and its and their members, managers, managing directors, partners, directors, officers, agents, stockholders, attorneys, accountants and employees (each an "Indemnified Party"), from and against any and all expenses, losses, damages, demands, costs, fines, charges, claims or other liabilities of any kind or nature whatsoever (including without limitation reasonable attorneys' fees and costs and expenses relating to investigating or defending any demands, charges or claims) (collectively, "Expenses") in respect of or arising from (i) acts or omissions of any Indemnified Party in respect of or arising out of the performance of the duties of the Portfolio Manager under the Management Agreement, the Indenture, the Credit Default Swap Agreement, the GIC or this Offering Memorandum and not constituting bad faith, willful misconduct, gross negligence or reckless disregard of its duties under the Management Agreement, in connection with the issuance of the Secured Notes or Subordinated Notes, the transactions contemplated by this Offering Memorandum and the Transaction Documents and (ii) any untrue statement or alleged untrue statement of a material fact contained in this Offering Memorandum, or omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except in each case, only with respect to the material set forth under the headings "The Portfolio Manager", "Risk Factors—Certain Potential Conflicts of Interest—Conflicts of Interest Involving the Portfolio Manager" and "Risk Factors—Dependence on the Portfolio Manager and Key Personnel and Prior Investment Results" but only in respect of information for such sections of this Offering Memorandum that has been included in this Offering Memorandum in reliance upon and in conformity with written information furnished to the Issuer by the Portfolio Manager for use herein. The Issuer shall also indemnify any Indemnified Party for actions taken by any such Indemnified Party prior to the Closing Date in connection with the accumulation of the Collateral and not constituting bad faith, willful misconduct, gross negligence or reckless disregard of such party. The Portfolio Manager shall make certain covenants in the Management Agreement designed to mitigate the risk that actions taken by it would or would likely result in adverse United Kingdom tax consequences for the Issuer, including becoming subject to tax in the United Kingdom. The activities engaged in under the provisions of the Management Agreement by the Portfolio Manager or its Affiliates or any third party employed by it shall be subject to review by the board of directors of the Issuer. Manner of Acquisition When causing the Issuer to Acquire or commit to Acquire Collateral Debt Securities, the Portfolio Manager shall be deemed in acting on behalf of the Issuer to have complied with its obligation that the manner of acquisition not cause the Issuer to be engaged in a U.S. trade or business if it follows certain guidelines set forth in the Management Agreement. Compliance by the Portfolio Manager with

217

such guidelines may prevent the Issuer from taking advantage of otherwise attractive investment opportunities.

218

INCOME TAX CONSIDERATIONS The following is a summary based on current law of certain Cayman Islands and U.S. Federal income tax considerations for prospective purchasers of the Notes. It addresses only purchasers that buy in the original offering at the original offering price, hold the Notes as capital assets and use the U.S. dollar as their functional currency. The discussion is a general summary. It is not a substitute for tax advice. The discussion does not consider the circumstances of particular purchasers, some of which (such as banks, insurance companies, securities traders and dealers, tax-exempt organizations or persons holding the Notes as part of a hedge, straddle, conversion, integrated or constructive sale transaction) are subject to special tax regimes. THE STATEMENTS ABOUT U.S. FEDERAL TAX ISSUES ARE MADE TO SUPPORT MARKETING OF THE NOTES. NO TAXPAYER CAN RELY ON THEM TO AVOID TAX PENALTIES. EACH PROSPECTIVE PURCHASER SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISOR ABOUT THE TAX CONSEQUENCES UNDER ITS OWN PARTICULAR CIRCUMSTANCES OF INVESTING IN NOTES UNDER THE LAWS OF THE CAYMAN ISLANDS, THE UNITED STATES AND ITS CONSTITUENT JURISDICTIONS AND ANY OTHER JURISDICTION WHERE THE PURCHASER MAY BE SUBJECT TO TAXATION. For purposes of this discussion, a "Holder" is a beneficial owner of a Secured Note, Combination Note, or a Subordinated Note. A "U.S. Holder" is a Holder that is, for U.S. Federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation, partnership or other entity organized in or under the laws of the United States or its political subdivisions, (iii) a trust subject to the control of a U.S. person and the primary supervision of a U.S. court or (iv) an estate the income of which is subject to U.S. Federal income taxation regardless of its source. A "Non-U.S. Holder" is any Holder other than a U.S. Holder. Taxation of the Issuer Cayman Islands Taxation The Issuer will not be subject to income, capital, transfer, sales or corporation tax in the Cayman Islands. The Issuer has been incorporated under the laws of the Cayman Islands as an exempted company, and it has applied for and expects to receive from the Governor in Cabinet of the Cayman Islands an Undertaking as to Tax Concessions pursuant to Section 6 of the Tax Concessions Law (1999 Revision) providing that, for a period of 30 years from the date of such Undertaking, being 16 May 2006, no law subsequently enacted in the Cayman Islands imposing any tax or withholding tax on profits, income, gains or appreciations will apply to the Issuer or its operations. U.S. Taxation The Issuer expects to conduct its affairs so that it will not be engaged in a trade or business within the United States and that its net income therefore will not be subject to U.S. Federal income tax except to the extent that it holds certain Equity Securities or Defaulted Obligations, issued by non-corporate entities that are so engaged. The Issuer also expects that payments received on the Collateral Debt Securities, U.S. Agency Securities, Eligible Investments and the Hedge Agreements generally will not be subject to withholding taxes imposed by the United States or other countries from which such payments are sourced. There can be no assurance, however, that the Issuer's income will not be subject to net income or withholding taxes in the United States or other countries as the result of unanticipated activities by the Issuer, changes in law, contrary conclusions by relevant tax authorities or other causes. Payments from

219

equity securities of U.S. issuers are likely to be subject to U.S. tax. The extent to which United States or other source-country withholding taxes may apply to the Issuer's income will depend on the actual composition of its assets. The imposition of unanticipated net income or withholding taxes could materially impair the Issuer's ability to pay principal, interest and Commitment Fee on the Secured Notes and to make distributions on the Combination Notes and Subordinated Notes. Taxation of the Holders Cayman Islands Taxation No Cayman Islands withholding tax applies to payments on the Secured Notes or to distributions on the Subordinated Notes. Holders are not subject to any income, capital, transfer, sales, or other taxes in the Cayman Islands in respect of their purchase, holding, or disposition of the Secured Notes or Subordinated Notes (except that an instrument transferring title to a Secured Note or Subordinated Note, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty). U.S. Taxation of Secured Notes Freshfields Bruckhaus Deringer LLP, special U.S. Federal income tax counsel to the Issuer, believes that the Class A Notes, the Class B Notes and the Class C Notes will, and the Class D Notes should, be treated as debt for U.S. Federal income tax purposes. The Issuer intends to treat all of the Secured Notes as debt for such purposes, and the following discussion assumes that each Class of the Secured Notes will be debt. U.S. Holders. Interest paid on a Class A Note or Class B Note and Commitment Fee paid on a Class A1-VF Note generally will be includible in the gross income of a U.S. Holder in accordance with its regular method of tax accounting. Because interest on the Class A Notes and Class B Notes is determined at a floating rate, it is treated as accruing at a hypothetical fixed rate equal to the value of the floating rate on the issue date. The amount of interest actually recognized for any accrual period will increase (or decrease) if the interest actually paid during the period is more (or less) than the amount accrued at the hypothetical rate. U.S. Holders therefore generally will recognize income for each period equal to the amount paid during that period. The timing of income from the Class C Notes, Class D Notes and Class E Notes depends on whether they are considered to have been issued with original issue discount ("OID"). If a debt instrument has OID, its holder must accrue that OID into income on a constant yield basis without regard to the receipt of cash payments. Generally, a debt instrument has OID if its stated redemption price at maturity exceeds its issue price by more than a specified de minimis amount. The issue price of a debt instrument is the initial offering price at which a substantial amount is sold (excluding sales to brokers or similar persons). Stated redemption price at maturity is the total of all payments due on the debt instrument other than payments of qualified stated interest. Because interest on the Class C Notes, Class D Notes and Class E Notes may be deferred, stated interest on those Notes will not be treated as qualified stated interest and therefore will be treated as OID unless the likelihood of deferral is remote. The Issuer has not been able to determine that the likelihood of deferral is remote. Therefore, the Issuer will treat all stated interest on the Class C Notes, Class D Notes and Class E Notes as OID that includes all stated interest as well as any excess of their par amount over issue price (since any such excess will, together with stated interest exceed the de minimis amount). Because interest on the Class C Notes, Class D Notes and Class E Notes is determined at a floating rate, accrual of OID is determined as though stated interest were payable at a hypothetical fixed rate equal to the value of the floating rate on the issue date, and OID for each accrual period were determined on such

220

hypothetical fixed rate debt instrument. A U.S. Holder then makes adjustments to the OID recognized each accrual period if the interest actually payable for the period differs from the interest payable at the hypothetical rate. Accrual of OID on the Class C Notes, Class D Notes and Class E Notes also may be affected by special rules applicable to debt instruments that are subject to principal acceleration due to prepayments on debt obligations that secure them. U.S. Holders should consult their tax advisors about the application of those rules. A U.S. Holder of Class A1-VF Notes who deposits funds in a Class A1-VF Prepayment Account is expected to be treated as owning the assets in that account and as subject to tax on income from them. Assuming the Issuer is not engaged in a U.S. trade or business, interest and OID on the Secured Notes will be generally from sources outside the United States. A U.S. Holder will recognize gain or loss on the disposition of a Secured Note in an amount equal to the difference between the amount realized (other than accrued but unpaid qualified stated interest) and the U.S. Holder's adjusted tax basis in the Secured Note. The gain or loss generally will be capital gain or loss from sources within the United States. Alternative Treatment. The U.S. Internal Revenue Service may challenge the treatment of the Secured Notes, particularly the Class D Notes and the Class E Notes, as debt of the Issuer. If the challenge succeeded, a U.S. Holder of the affected Secured Notes would generally be treated like a holder of Subordinated Notes that had not elected to treat the Issuer as a qualified electing fund, as described below. Non-U.S. Holders. Interest and Commitment Fees paid to a Non-U.S. Holder will not be subject to U.S. withholding tax as long as the Issuer is not engaged in a U.S. trade or business. If the Issuer were engaged in a U.S. trade or business, Commitment Fees may not be subject to withholding and interest paid to many Non-U.S. Holders would qualify for an exemption from withholding tax if the Holders certify their foreign status. Interest paid to a Non-U.S. Holder also will not be subject to U.S. net income tax unless the interest is effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States. Gain realized by a Non-U.S. Holder on the disposition of a Secured Note will not be subject to U.S. tax unless (i) the gain is effectively connected with the Holder's conduct of a U.S. trade or business or (ii) the Holder is an individual present in the United States for at least 183 days during the taxable year of disposition and certain other conditions are met. U.S. Taxation of Combination Notes The Issuer intends to treat U.S. Holders of Combination Notes for U.S. Federal income tax purposes as directly owning the Class D Notes constituting the Class D Note Component and the Subordinated Notes constituting the Subordinated Note Component as if such Class D Notes and Subordinated Notes had been issued directly to such holders. By acquiring a Combination Note, each U.S. Holder will agree to treat the Combination Note in that way for U.S. tax purposes, and the remainder of this discussion assumes this treatment is correct. A U.S. Holder of Combination Notes should determine its tax basis in the underlying Class D Notes and the Subordinated Notes by allocating its purchase price between the two in accordance with their relative fair market values on the purchase date. Payments on the Combination Notes should be treated for U.S. Federal income tax purposes as payments on the Class D Notes or the Subordinated Notes to the extent properly attributable to related payments on the Class D Notes or the Subordinated Notes. Therefore, whether such payments are interest, principal or return of capital for U.S. Federal income tax purposes is not determined under the terms of the Combination Notes but under the terms of the

221

underlying Class D Notes and Subordinated Notes. A sale or exchange of Combination Notes should be treated as a sale or exchange of the underlying Class D Notes and Subordinated Notes, and the amount realized from the sale or exchange should be allocated between those Class D Notes and Subordinated Notes in accordance with their relative fair market values. The exchange of Combination Notes for the underlying Class D Notes and the Subordinated Notes should not be a taxable event. A U.S. Holder of Combination Notes should review the portions of this summary under the headings "Taxation of the Holders—U.S. Taxation of Secured Notes" and "Taxation of the Holders—U.S. Taxation of Subordinated Notes". U.S. Taxation of Subordinated Notes U.S. Holders. Subject to the passive foreign investment company rules and the controlled foreign corporation rules discussed below, a U.S. Holder generally must treat distributions received with respect to the Subordinated Notes as dividend income. Dividends will not be eligible for the dividends received deduction allowable to corporations or for the preferential tax rate applicable to qualified dividend income of individuals and certain other non-corporate taxpayers. Dividends received from a foreign corporation generally are treated as income from sources outside the United States. If U.S. Holders together hold at least half (by vote or value) of the Subordinated Notes and other interests treated as equity in the Issuer, however, a percentage of the dividend income equal to the proportion of the Issuer's income that comes from U.S. sources will be treated as income from sources within the United States. Except as otherwise required by the rules discussed below, gain or loss on the sale or other disposition of the Subordinated Notes will be capital gain or loss. Gain and loss realized by a U.S. Holder generally will be U.S. source income. The Issuer will be a passive foreign investment company (a "PFIC"). A U.S. Holder therefore will be subject to additional tax on excess distributions received on the Subordinated Notes or gains realized on the disposition of the Subordinated Notes. A U.S. Holder will have an excess distribution if distributions received on the Subordinated Notes during any tax year exceed 125% of the average amount received during the three preceding tax years (or, if shorter, the U.S. Holder's holding period). A U.S. Holder may realize gain for this purpose not only through a sale or other disposition, but also by pledging the Subordinated Notes as security for a loan or entering into certain constructive disposition transactions. To compute the tax on an excess distribution or any gain, (i) the excess distribution or gain is allocated ratably over the U.S. Holder's holding period, (ii) the amount allocated to the current tax year is taxed as ordinary income and (iii) the amount allocated to each previous tax year is taxed at the highest applicable marginal rate for that year and an interest charge is imposed to recover the deemed benefit from the deferred payment of the tax. These rules effectively prevent a U.S. Holder from treating gain on the Subordinated Notes as capital gain. A U.S. Holder of Subordinated Notes may wish to avoid the tax consequences just described by electing to treat the Issuer as a qualified electing fund ("QEF"). If the U.S. Holder makes a QEF election, the U.S. Holder will be required to include in gross income each year whether or not the Issuer makes distributions, its pro rata share of the Issuer's net earnings. That income will be long-term capital gain to the extent of the U.S. Holder's pro rata share of the Issuer's net capital gains; any remainder will be ordinary income. Amounts recognized by a U.S. Holder making a QEF election generally are treated as income from sources outside the United States. If U.S. Holders together hold at least half (by vote or value) of the Subordinated Notes and other interests treated as equity in the Issuer, however, a percentage of those amounts equal to the proportion of the Issuer's income that comes from U.S. sources will be treated as income from sources within the United States. Because the U.S. Holder has already paid tax on them, the amounts previously included in income will not be subject to tax when they are distributed to the U.S. Holder. An electing U.S. Holder's basis in the Subordinated Notes will increase by any amounts

222

the holder includes in income currently and decrease by any amounts not subject to tax when distributed. Upon receipt of written request, the Issuer will provide U.S. Holders of the Subordinated Notes with the information needed to make a QEF election. A U.S. Holder that makes a QEF election may recognize income in amounts significantly greater than the distributions received from the Issuer. Income may exceed distributions when, for example, the Issuer uses earnings to repay principal on the Secured Notes. A U.S. Holder that makes a QEF election will be required to include in income currently its pro rata share of the Issuer's net earnings whether or not the Issuer actually makes distributions. The holder may be able to elect to defer payment, subject to an interest charge for the deferral period, of the tax on income recognized on account of the QEF election. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE ADVISABILITY OF MAKING THE QEF AND DEFERRED PAYMENT ELECTIONS. The Issuer also may be a controlled foreign corporation (a "CFC") if U.S. Holders that each own (directly, indirectly or by attribution) at least 10% of the Subordinated Notes and any other interests treated as voting equity in the Issuer (each a "10% U.S. Shareholder") together own more than half (by vote or value) of the Subordinated Notes and any other interests treated as equity in the Issuer. If the Issuer is a CFC, a 10% U.S. Shareholder will be subject to the CFC rules rather than the PFIC rules. A U.S. Holder that is a 10% U.S. Shareholder on the last day of the Issuer's taxable year must recognize ordinary income equal to its pro rata share of the Issuer's net earnings (including both ordinary earnings and capital gains) for the tax year whether or not the Issuer makes a distribution. The income will be treated as income from sources within the United States to the extent the Issuer derived it from U.S. sources. Earnings on which a U.S. Holder pays tax currently will not be taxed again when they are distributed to the U.S. Holder. A U.S. Holder's basis in its interest in the Issuer will increase by any amounts the holder includes in income currently and decrease by any amounts not subject to tax when distributed. If the Issuer is a CFC, (i) the Issuer will incur U.S. withholding tax on interest received from a related U.S. person, (ii) special reporting rules will apply to directors of the Issuer and certain other persons and (iii) certain other restrictions may apply. Subject to a special limitation for individual U.S. Holders that have held the Subordinated Notes for more than one year, gain from disposition of Subordinated Notes recognized by a U.S. Holder that is or recently has been a 10% U.S. Shareholder will be treated as dividend income to the extent earnings attributable to the Subordinated Notes accumulated while the U.S. Holder held the Subordinated Notes and the Issuer was a CFC. U.S. Holders generally must report, with their tax return for the tax year that includes the Closing Date, certain information relating to their purchase of the Subordinated Notes. A U.S. Holder may be required specifically to disclose any loss on the Subordinated Notes on its tax return under regulations related to tax shelter transactions. When a U.S. Holder holds 10% of the shares in a CFC or QEF, the holder also must disclose any Issuer transactions reportable under those regulations. U.S. Holders are urged to consult their tax advisors about these and all other specific reporting requirements. Non-U.S. Holders. Payments to a Non-U.S. Holder of Subordinated Notes will not be subject to U.S. tax unless the income is effectively connected with the Non-U.S. Holder's conduct of a trade or business within the United States. Gain realized by a Non-U.S. Holder on the sale or other disposition of the Subordinated Notes will not be subject to U.S. tax unless (i) the gain is effectively connected with the holder's conduct of a U.S. trade or business or (ii) the holder is an individual present in the United States for at least 183 days during the taxable year of disposition and certain other conditions are met. U.S. Information Reporting and Backup Withholding Payments on the Notes and proceeds from the disposition of the Notes paid to a non-corporate Holder generally will be subject to U.S. information reporting. Payments to Non-U.S. Holders that

223

provide certification of foreign status generally are exempt from information reporting. Backup withholding tax may apply to reportable payments unless the Holder provides a correct taxpayer identification number or otherwise establishes an exemption. Any amount withheld may be credited against a Holder's U.S. federal income tax liability or refunded to the extent it exceeds the Holder's liability. THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE IMPORTANT TO A PARTICULAR INVESTOR. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES OF AN INVESTMENT IN THE SECURED NOTES, THE COMBINATION NOTES AND THE SUBORDINATED NOTES UNDER THE INVESTOR'S OWN CIRCUMSTANCES.

224

CERTAIN ERISA AND RELATED CONSIDERATIONS THE STATEMENTS ABOUT U.S. FEDERAL TAX ISSUES ARE MADE TO SUPPORT MARKETING OF THE NOTES. NO TAXPAYER CAN RELY ON THEM TO AVOID TAX PENALTIES. EACH PROSPECTIVE PURCHASER SHOULD SEEK ADVICE FROM AN INDEPENDENT TAX ADVISOR ABOUT THE TAX CONSEQUENCES UNDER ITS OWN PARTICULAR CIRCUMSTANCES OF INVESTING IN NOTES UNDER THE LAWS OF THE CAYMAN ISLANDS, THE UNITED STATES AND ITS CONSTITUENT JURISDICTIONS AND ANY OTHER JURISDICTION WHERE THE PURCHASER MAY BE SUBJECT TO TAXATION. The United States Employee Retirement Income Security Act of 1974, as amended ("ERISA") imposes certain duties on persons who are fiduciaries of employee benefit plans (as defined in Section 3(3) of ERISA) ("ERISA Plans") that are subject to ERISA and of entities whose underlying assets include assets of ERISA Plans by reason of an ERISA Plan's investment in such entities. These duties include investment prudence and diversification and the requirement that an ERISA Plan's investments be made in accordance with the documents governing the ERISA Plan. The prudence of a particular investment must be determined by the responsible fiduciary of an ERISA Plan by taking into account the ERISA Plan's particular circumstances and liquidity needs and all of the facts and circumstances of the investment, including the availability of a public market for the investment. In addition, certain U.S. Federal, state and local laws impose similar duties on fiduciaries of governmental and/or church plans which are not subject to ERISA. Any fiduciary of an ERISA Plan, of an entity whose underlying assets include assets of ERISA Plans by reason of an ERISA Plan's investment in such entity, or of a governmental or church plan that is subject to fiduciary standards similar to those of ERISA ("plan fiduciary"), that proposes to cause such a plan or entity to purchase Notes should determine whether, under the general fiduciary standards of ERISA or other applicable law, an investment in the Notes is appropriate for such plan or entity. In determining whether a particular investment is appropriate for an ERISA Plan, U.S. Department of Labor regulations provide that the fiduciaries of an ERISA Plan must give appropriate consideration to, among other things, the role that the investment plays in the ERISA Plan's portfolio, taking into consideration whether the investment is designed reasonably to further the ERISA Plan's purposes, an examination of the risk and return factors, the portfolio's composition with regard to diversification, the liquidity and current return of the total portfolio relative to the anticipated cash flow needs of the ERISA Plan and the projected return of the total portfolio relative to the ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan in Notes, a fiduciary should determine whether such an investment is consistent with the foregoing regulations and its fiduciary responsibilities, including any specific restrictions to which such fiduciary may be subject. Prohibited Transactions Section 406(a) of ERISA and Section 4975 of the United States Internal Revenue Code of 1986, as amended (the "Code"), prohibit certain transactions ("prohibited transactions") involving the assets of ERISA Plans or plans described in Section 4975(e)(1) of the Code (together with ERISA Plans, "Plans") and certain persons (referred to as "Parties-In-Interest" in ERISA and as "Disqualified Persons" in Section 4975 of the Code) having certain relationships to such plans and entities. A Party-In-Interest or Disqualified Person who engages in a non-exempt prohibited transaction may be subject to nondeductible excise taxes and other penalties and liabilities under ERISA and/or the Code. Each of the Issuer, the Co-Issuer, the Initial Purchaser, the Credit Default Swap Counterparty, the GIC Provider, the Portfolio Manager and the obligors on the Collateral Debt Securities, as a result of its

225

own activities or because of the activities of an affiliate, may be considered a Party-In-Interest or a Disqualified Person with respect to Plans. Accordingly, prohibited transactions within the meaning of Section 406 of ERISA and Section 4975 of the Code may arise if Secured Notes are acquired by a Plan with respect to which any of the Issuer, the Co-Issuer, the Initial Purchaser, the Credit Default Swap Counterparty, the GIC Provider, the Portfolio Manager, the obligors on the Collateral Debt Securities or any of their respective affiliates is a Party-In-Interest or Disqualified Person. In addition, if a Party-In-Interest or Disqualified Person with respect to a Plan owns or acquires a beneficial interest in the Issuer or the Co-Issuer, the acquisition or holding of Secured Notes by or on behalf of the Plan could be considered to constitute an indirect prohibited transaction. Moreover, the acquisition or holding of Secured Notes or other indebtedness issued by the Issuer or the Co-Issuer by or on behalf of a Party-InInterest or Disqualified Person with respect to a Plan that owns or acquires a beneficial interest in the Issuer or the Co-Issuer, as the case may be, also could give rise to an indirect prohibited transaction. However, Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code generally provide a statutory exemption from the prohibitions of Section 406(a) of ERISA and Section 4975 of the Code for certain transactions between plans and persons that are Parties in Interest or Disqualified Persons solely by reason of providing services to such plans or that are related to such service providers, provided generally that such persons are not plan fiduciaries and certain other conditions are satisfied; and this exemption may apply to the acquisition and holding of Notes by Benefit Plan Investors. In addition, certain class exemptions issued by the United States Department of Labor from the prohibited transaction rules could be applicable, however, depending in part upon the type of Plan fiduciary making the decision to acquire a Secured Note and the circumstances under which such decision is made. Included among these exemptions are PTE 90-1, regarding investments by insurance company pooled separate accounts; PTE 91-38, regarding investments by bank collective investment funds; PTE 84-14, regarding transactions effected by a "qualified professional asset manager"; PTE 96-23, regarding investments by certain in-house asset managers; and PTE 95-60, regarding investments by insurance company general accounts. Even if the conditions specified in one or more of these exemptions are satisfied, the scope of the relief provided by these exemptions might or might not cover all acts which might be construed as prohibited transactions. If a purchase of Secured Notes were to be a non-exempt prohibited transaction, the purchase might have to be rescinded. Government plans and certain church plans, while not subject to the fiduciary responsibility provisions of ERISA or the provisions of Section 4975 of the Code, may nevertheless be subject to local, state or other Federal laws that are similar to the foregoing provisions of ERISA and the Code (a "Similar Law"). Plan Assets The United States Department of Labor (the "DOL"), the government agency primarily responsible for administering the ERISA fiduciary rules and the prohibited transaction rules under ERISA and the Code, has issued a regulation (the "Plan Asset Regulation," codified at 29 C.F.R. § 2510.3-101) that specifies the circumstances under which the underlying assets of an entity are treated for purposes of ERISA as assets of a plan, and are subject to the fiduciary provisions of ERISA, including the prohibited transaction provisions of ERISA, and the prohibited transaction provisions of the Code, by reason of the plan’s investment in the entity. The Pension Protection Act of 2006, which was signed into law on August 17, 2006, added section 3(42) to ERISA, which confirms the DOL’s authority to issue the Plan Asset Regulation but imposes certain modifications on the terms of the Plan Asset Regulation as originally adopted by the DOL. Under specified circumstances, the Plan Asset Regulation requires plan fiduciaries, and entities with certain specified relationships to a plan, to "look through" investment vehicles (such as the Issuer) in

226

which a plan invests and treat as an "asset" of the plan each underlying investment made by such investment vehicle. The Plan Asset Regulation provides, however, that if equity participation in any entity by "Benefit Plan Investors" is not significant then the "look-through" rule will not apply to such entity. Section 3(42) of ERISA generally confirms these rules. However, section 3(42) defines the term "Benefit Plan Investor" more narrowly than the Plan Asset Regulation as originally adopted by the DOL: under section 3(42), "Benefit Plan Investor" includes (1) any employee benefit plan that is subject to Part 4 of Title I of ERISA, (2) any plan that is subject to Section 4975(e)(1) of the Code, and (3) any entity whose underlying assets include plan assets by reason of a plan’s investment in the entity. Equity participation by Benefit Plan Investors in an entity is significant if, immediately after the most recent acquisition of any equity interests in the entity, 25% or more of the value of any class of equity interests in the entity (excluding the value of any interests held by certain persons, other than Benefit Plan Investors, who have discretionary authority or control with respect to the assets of the entity or providing investment advice with respect to such assets for a fee, direct or indirect (such as the Portfolio Manager), or any affiliates (within the meaning of the Plan Asset Regulation) of such persons (any such person, a "Controlling Person")) is held by Benefit Plan Investors (the "25% Threshold"). For this purpose, an "affiliate" of a person includes any person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the person. "Control" with respect to a person other than an individual, means the power to exercise a controlling influence over the management or policies of such person. Under the Plan Asset Regulation as currently in effect, an equity interest is any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and that has no substantial equity features. Section 3(42) of ERISA provides that an entity is considered to hold plan assets only to the extent of the percentage of the equity interest held by benefit plan investors. Under the Plan Asset Regulation as currently in effect, an equity interest is any interest in an entity other than an instrument that is treated as indebtedness under applicable local law and that has no substantial equity features. The Secured Notes other than the Class E Notes Based primarily on the investment-grade ratings of the Secured Notes other than the Class E Notes, the unconditional obligation of the Co-Issuers to pay interest and to repay principal by a fixed maturity date and the creditors' remedies available to holders of the Secured Notes other than the Class E Notes, it is anticipated that the Secured Notes other than the Class E Notes will not constitute "equity interests" in the Co-Issuers, despite their subordinated position in the capital structure of the Co-Issuers. No measures (such as those described below with respect to the Class E Notes and Subordinated Notes) will be taken to restrict investment in the Secured Notes other than the Class E Notes by "Benefit Plan Investors." However, there can be no assurance that any such Classes of Notes would be characterized by the United States Department of Labor or others as indebtedness and not as equity interests on the date of issuance or at any given time thereafter. In addition, the status of any Class of Notes as indebtedness could be affected, subsequent to their issuance, by certain changes in the structure or financial condition of the Co-Issuers. EACH ORIGINAL PURCHASER AND EACH TRANSFEREE OF A SECURED NOTE OTHER THAN A CLASS E NOTE OR AN INTEREST THEREIN WILL BE REQUIRED TO CERTIFY (OR IN CERTAIN CIRCUMSTANCES DEEMED TO REPRESENT AND WARRANT) THAT (1) EITHER (A) IT IS NOT (AND FOR SO LONG AS IT HOLDS SUCH SECURED NOTE OR ANY INTEREST THEREIN WILL NOT BE), AND IS NOT ACTING ON BEHALF OF (AND FOR SO LONG AS IT HOLDS SUCH SECURED NOTE OR INTEREST THEREIN WILL NOT BE ACTING ON BEHALF OF) A BENEFIT PLAN INVESTOR OR A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SIMILAR TO THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (ANY SUCH FEDERAL, STATE, LOCAL OR NON-U.S.

227

LAW, "SIMILAR LAW"), OR (B) ITS PURCHASE AND OWNERSHIP OF SUCH SECURED NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION CLASS IN VIOLATION OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN, WILL NOT RESULT IN A VIOLATION OF ANY SUCH SIMILAR LAW); AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE CO-ISSUER, THE INITIAL PURCHASER, THE TRUSTEE AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING REPRESENTATIONS AND WARRANTIES. The Class E Notes It is intended that the ownership interests in the Class E Notes will be restricted so that the Class E Notes (nor any interest therein) may not be directly or indirectly acquired by Benefit Plan Investors except on the Closing Date, and then only to the extent that, after giving effect to the relevant transfers on the Closing Date, less than 25% of the aggregate value of the Class E Notes would be held by Benefit Plan Investors, and Class E Notes (or any interest therein) may not be held by or transferred to Controlling Persons at any time. EACH ORIGINAL PURCHASER OF A CLASS E NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO EXECUTE AN INVESTOR APPLICATION FORM UNDER WHICH IT REPRESENTS AND WARRANTS WHETHER OR NOT IT IS, OR IS ACTING ON BEHALF OF, A BENEFIT PLAN INVESTOR AND THAT IT IS NOT A CONTROLLING PERSON, AND COVENANTS AND AGREES TO NOTIFY THE TRUSTEE IN THE EVENT THAT THE FOREGOING INFORMATION IS NO LONGER CORRECT. EACH SUBSEQUENT TRANSFEREE OF A CLASS E NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO CERTIFY (OR IN CERTAIN CIRCUMSTANCES WILL BE DEEMED TO REPRESENT AND WARRANT) THAT IT IS NOT, AND FOR SO LONG AS IT HOLDS SUCH CLASS E NOTE (OR INTEREST THEREIN) WILL NOT BE, A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON. NO CLASS E NOTE (OR ANY INTEREST THEREIN) MAY BE ACQUIRED BY OR TRANSFERRED TO A BENEFIT PLAN INVESTOR EXCEPT ON THE CLOSING DATE AND THEN ONLY TO THE EXTENT THAT AFTER GIVING EFFECT TO SUCH TRANSFER, LESS THAN 25% OF THE VALUE OF THE CLASS E NOTES WOULD BE HELD BY BENEFIT PLAN INVESTORS. NO CLASS E NOTE (OR ANY INTEREST THEREIN) MAY BE ACQUIRED BY OR TRANSFERRED TO A CONTROLLING PERSON AT ANY TIME. EACH ORIGINAL PURCHASER OF A CLASS E NOTE (OR AN INTEREST THEREIN) THAT IS A BENEFIT PLAN INVESTOR WILL BE REQUIRED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN CLASS E NOTES OR SUBORDINATED NOTES WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION IN VIOLATION OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF A CLASS E NOTE (OR AN INTEREST THEREIN) THAT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO A SIMILAR LAW WILL BE DEEMED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN CLASS E NOTES WILL NOT CONSTITUTE OR RESULT IN A VIOLATION OF ANY SIMILAR LAW. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF A CLASS E NOTE (OR AN INTEREST THEREIN) WILL BE DEEMED TO REPRESENT, WARRANT AND COVENANT THAT (1) IT WILL NOT TRANSFER SUCH CLASS E NOTE (OR INTEREST THEREIN) TO A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH CLASS E NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE INITIAL PURCHASER, THE

228

TRUSTEE OR THE SUBORDINATED NOTE ISSUING AND PAYING AGENT, AS APPLICABLE, AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING CERTIFICATIONS, REPRESENTATIONS AND WARRANTIES THAT ARE APPLICABLE TO IT. The Secured Note Registrar will not effect any transfer of a Class E Note (or an interest therein) to a Benefit Plan Investor after the Closing Date or to a Controlling Person at any time. The Secured Note Registrar will not effect any transfer of a Class E Note (or an interest therein) to a Benefit Plan Investor on the Closing Date if it has reason to believe that following such transfer the ownership interests of the Class E Notes that are held by Benefit Plan Investors would equal or exceed 25% of the aggregate value of the Class E Notes. If the Issuer determines that any holder or beneficial owner of a Class E Note (or an interest therein) is a Benefit Plan Investor or a Controlling Person (other than a Benefit Plan Investor that acquired a Class E Note (or interest therein) on the Closing Date), or that any such holder or beneficial owner that represented it was not a Benefit Plan Investor or a Controlling Person was a Benefit Plan Investor or a Controlling Person or subsequent to the purchase of such Class E Note or Subordinated Note (or interest therein) is or has become a Benefit Plan Investor or a Controlling Person, the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Class E Note or Subordinated Note (or interest therein) to a person that is not a Benefit Plan Investor or a Controlling Person and otherwise satisfies the applicable requirements for holding such Class E Note (or interest therein) with such sale to be effected within 14 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 14-day period, (x) upon written direction from the Portfolio Manager or the Issuer, the Trustee shall, and will be deemed to be irrevocably authorized by such holder or beneficial owner to, cause such holder's or beneficial owner's interest in such security to be transferred in a commercially reasonable sale arranged by the Portfolio Manager (conducted by the Trustee in accordance with Section 9-610(b) of the UCC as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Secured Note Registrar and the Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person and otherwise meets the requirements for holding such Class E Note (or interest therein) and (y) pending such transfer, no further payments will be made in respect of the interest in such Class E Note held by such holder or beneficial owner, and the interest in such Class E Note shall not be deemed to be outstanding for the purpose of any vote or consent of the holders of the Class E Notes. The Subordinated Notes It is intended that the ownership interests in the Subordinated Notes will be restricted so that the Subordinated Notes (nor any interest therein) may not be directly or indirectly acquired by Benefit Plan Investors or Controlling Persons except on the Closing Date, and then only to the extent that, after giving effect to the relevant transfers on the Closing Date, less than 25% of the aggregate value of the Subordinated Notes would be held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons. EACH ORIGINAL PURCHASER OF A SUBORDINATED NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO EXECUTE AN INVESTOR APPLICATION FORM UNDER WHICH IT REPRESENTS AND WARRANTS WHETHER OR NOT IT IS, OR IS ACTING ON BEHALF OF, A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON AND COVENANTS AND AGREES TO NOTIFY THE SUBORDINATED NOTE REGISTRAR IN THE EVENT THAT

229

THE FOREGOING INFORMATION IS NO LONGER CORRECT. EACH SUBSEQUENT TRANSFEREE OF A SUBORDINATED NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO CERTIFY (OR IN CERTAIN CIRCUMSTANCES WILL BE DEEMED TO REPRESENT AND WARRANT) THAT IT IS NOT, AND FOR SO LONG AS IT HOLDS SUCH SUBORDINATED NOTE (OR INTEREST THEREIN) WILL NOT BE, A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON. NO SUBORDINATED NOTE (OR ANY INTEREST THEREIN) MAY BE ACQUIRED BY OR TRANSFERRED TO A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON EXCEPT ON THE CLOSING DATE AND THEN ONLY TO THE EXTENT THAT AFTER GIVING EFFECT TO SUCH TRANSFER, LESS THAN 25% OF THE VALUE OF THE SUBORDINATED NOTES WOULD BE HELD BY BENEFIT PLAN INVESTORS, DISREGARDING SUBORDINATED NOTES HELD BY CONTROLLING PERSONS. EACH ORIGINAL PURCHASER OF A SUBORDINATED NOTE (OR AN INTEREST THEREIN) THAT IS A BENEFIT PLAN INVESTOR WILL BE REQUIRED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN SUBORDINATED NOTES OR SUBORDINATED NOTES WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION IN VIOLATION OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF A SUBORDINATED NOTE (OR AN INTEREST THEREIN) THAT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO A SIMILAR LAW WILL BE DEEMED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN SUBORDINATED NOTES WILL NOT CONSTITUTE OR RESULT IN A VIOLATION OF ANY SIMILAR LAW. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF A SUBORDINATED NOTE (OR AN INTEREST THEREIN) WILL BE DEEMED TO REPRESENT, WARRANT AND COVENANT THAT (1) IT WILL NOT TRANSFER SUCH SUBORDINATED NOTE (OR INTEREST THEREIN) TO A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH SUBORDINATED NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE INITIAL PURCHASER, THE SUBORDINATED NOTE ISSUING AND PAYING AGENT AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING CERTIFICATIONS, REPRESENTATIONS AND WARRANTIES THAT ARE APPLICABLE TO IT. The Secured Note Registrar will not effect any transfer of a Subordinated Note (or an interest therein) to a Benefit Plan Investor or a Controlling Person after the Closing Date. The Secured Note Registrar will not effect any transfer of a Subordinated Note (or an interest therein) to a Benefit Plan Investor or a Controlling Person on the Closing Date if it has reason to believe that following such transfer the ownership interests of the Subordinated Notes that are held by Benefit Plan Investors would equal or exceed 25% of the aggregate value of the Subordinated Notes, disregarding Subordinated Notes held by Controlling Persons. If the Issuer determines that any holder or beneficial owner of a Subordinated Note (or an interest therein) is a Benefit Plan Investor or a Controlling Person (other than a Benefit Plan Investor or a Controlling Person that acquired a Subordinated Note (or interest therein) on the Closing Date, and then only if after such transfer less than 25% of the aggregate value of the Subordinated Notes was held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons), or that any such holder or beneficial owner that represented it was not a Benefit Plan Investor or a Controlling Person was a Benefit Plan Investor or a Controlling Person or subsequent to the purchase of such Subordinated Note (or interest therein) is or has become a Benefit Plan Investor or a Controlling Person, the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Subordinated Note (or interest therein) to a person that is not a Benefit Plan Investor or a Controlling Person and otherwise satisfies the applicable requirements for holding such

230

Subordinated Note (or interest therein) with such sale to be effected within 14 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 14-day period, (x) upon written direction from the Portfolio Manager or the Issuer, the Subordinated Note Issuing and Paying Agent shall, and will be deemed to be irrevocably authorized by such holder or beneficial owner to, cause such holder's or beneficial owner's interest in such security to be transferred in a commercially reasonable sale arranged by the Portfolio Manager (conducted by the Subordinated Note Issuing and Paying Agent in accordance with Section 9-610(b) of the UCC as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Subordinated Note Registrar and the Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person and otherwise meets the requirements for holding such Subordinated Note (or interest therein) and (y) pending such transfer, no further payments will be made in respect of the interest in such Subordinated Note held by such holder or beneficial owner, and the interest in such Subordinated Note shall not be deemed to be outstanding for the purpose of any vote or consent of the holders of the Subordinated Notes. The Combination Notes It is intended that the ownership interests in the Combination Notes will be restricted so that the Combination Notes (nor any interest therein) may not be directly or indirectly acquired by Benefit Plan Investors or Controlling Persons at any time. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF A COMBINATION NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO CERTIFY (OR IN CERTAIN CIRCUMSTANCES WILL BE DEEMED TO REPRESENT AND WARRANT) THAT (1) IT IS NOT, AND FOR SO LONG AS IT HOLDS SUCH COMBINATION NOTE WILL NOT BE, AND IS NOT ACTING ON BEHALF OF, AND FOR SO LONG AS IT HOLDS SUCH COMBINATION NOTE WILL NOT BE ACTING ON BEHALF OF, A BENEFIT PLAN INVESTOR OR CONTROLLING PERSON; (2) IT WILL NOT TRANSFER SUCH COMBINATION NOTE (OR INTEREST THEREIN) TO A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND (3) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH COMBINATION NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE INITIAL PURCHASER, THE COMBINATION NOTE ISSUING AND PAYING AGENT AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING CERTIFICATIONS, REPRESENTATIONS AND WARRANTIES THAT ARE APPLICABLE TO IT. NO COMBINATION NOTE (OR ANY INTEREST THEREIN) MAY BE ACQUIRED BY OR TRANSFERRED TO A BENEFIT PLAN INVESTOR OR CONTROLLING PERSON. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF A COMBINATION NOTE (OR AN INTEREST THEREIN) THAT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO A SIMILAR LAW WILL BE DEEMED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN COMBINATION NOTES WILL NOT CONSTITUTE OR RESULT IN A VIOLATION OF ANY SIMILAR LAW. The Secured Note Registrar will not effect any transfer of a Combination Note (or an interest therein) to a Benefit Plan Investor or Controlling Person at any time. If the Issuer determines that any holder or beneficial owner of a Combination Note (or an interest therein) is a Benefit Plan Investor or Controlling Person, the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Combination Note (or interest therein) to a person that is not a Benefit Plan Investor or Controlling

231

Person and otherwise satisfies the applicable requirements for holding such Combination Note (or interest therein) with such sale to be effected within 14 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 14-day period, (x) upon written direction from the Portfolio Manager or the Issuer, the Trustee shall, and will be deemed to be irrevocably authorized by such holder or beneficial owner to, cause such holder's or beneficial owner's interest in such security to be transferred in a commercially reasonable sale arranged by the Portfolio Manager (conducted by the Trustee in accordance with Section 9-610(b) of the UCC as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Combination Note Registrar and the Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or Controlling Person and otherwise meets the requirements for holding such Combination Note (or interest therein) and (y) pending such transfer, no further payments will be made in respect of the interest in such Combination Note held by such holder or beneficial owner, and the interest in such Combination Note shall not be deemed to be outstanding for the purpose of any vote or consent of the holders of the Combination Notes. ______________________________ There can be no assurance, however, that the foregoing restrictions will be effective to prevent the ownership of the Class E Notes, the Subordinated Notes or the Combination Notes by Benefit Plan Investors from exceeding the 25% Threshold. Although each such owner will be required to indemnify the Issuer for the consequences of any breach of such obligations, there is no assurance that an owner will not breach such obligations or that, if any such breach occurs, such owner will have the financial capacity and willingness to indemnify the Issuer for any losses that the Issuer may suffer. If for any reason the assets of the Issuer are deemed to be "plan assets" of a Plan subject to Title I of ERISA or Section 4975 of the Code because Benefit Plan Investors own 25% or more of the Class E Notes, the Subordinated Notes, or the Combination Notes, certain transactions that either of the Co-Issuers might enter into, or may have entered into, in the ordinary course of its business might constitute non-exempt "prohibited transactions" under Section 406 of ERISA or Section 4975 of the Code and might have to be rescinded. In addition, if the assets of the Issuer are deemed to be "plan assets" of a Plan subject to Title I of ERISA or Section 4975 of the Code, the payment of certain of the fees to the Portfolio Manager might be considered to be a non-exempt "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code. Moreover, if the underlying assets of the Issuer were deemed to be assets constituting "plan assets," (i) the assets of the Issuer could be subject to ERISA's reporting and disclosure requirements, (ii) a fiduciary causing a Benefit Plan Investor to make an investment in the equity of the Issuer could be deemed to have delegated its responsibility to manage the assets of the Benefit Plan Investor, (iii) various providers of fiduciary or other services to the Issuer, and any other parties with authority or control with respect to the Issuer, could be deemed to be Plan fiduciaries or otherwise Parties-in-Interest or Disqualified Persons by virtue of their provision of such services and (iv) it is not clear that Section 404(b) of ERISA, which generally prohibits plan fiduciaries from maintaining the indicia of ownership of assets of plans subject to Title I of ERISA outside the jurisdiction of the district courts of the United States, would be satisfied in all instances. The sale of any Note to a Plan is in no respect a representation by the Issuer, the Initial Purchaser, the Portfolio Manager or any of their Affiliates that such an investment meets all relevant legal requirements with respect to investments by Plans generally or any particular Plan, or that such an investment is appropriate for a Plan generally or any particular Plan. ANY PLAN FIDUCIARY THAT PROPOSES TO CAUSE A PLAN TO PURCHASE NOTES SHOULD CONSULT WITH ITS OWN LEGAL AND TAX ADVISORS WITH RESPECT TO THE POTENTIAL APPLICABILITY OF ERISA AND THE CODE TO SUCH INVESTMENTS, THE

232

CONSEQUENCES OF SUCH AN INVESTMENT UNDER ERISA AND THE CODE AND THE ABILITY TO MAKE THE REPRESENTATIONS DESCRIBED ABOVE. MOREOVER, EACH PLAN FIDUCIARY SHOULD DETERMINE WHETHER, UNDER THE GENERAL FIDUCIARY STANDARDS OF ERISA, AN INVESTMENT IN THE NOTES IS APPROPRIATE FOR THE PLAN, TAKING INTO ACCOUNT THE OVERALL INVESTMENT POLICY OF THE PLAN AND THE COMPOSITION OF THE PLAN'S INVESTMENT PORTFOLIO. It should be noted that an insurance company's general account may be deemed to include assets of ERISA Plans under certain circumstances, e.g., where an ERISA Plan purchases an annuity contract issued by such an insurance company, based on the reasoning of the United States Supreme Court in John Hancock Mutual Life Ins. Co. v. Harris Trust and Savings Bank, 510 U.S. 86 (1993). An insurance company considering the purchase of Notes with assets of its general account as a wholly-owned subsidiary thereof should consider such purchase and the insurance company's ability to make the representations described above in light of John Hancock Mutual Life Ins. Co. v. Harris Trust and Savings Bank, Section 401(c) of ERISA and 29 C.F.R. §2550.401c. The discussion of ERISA and Section 4975 of the Code contained in this Offering Memorandum, is, of necessity, general, and does not purport to be complete. Moreover, the provisions of ERISA and Section 4975 of the Code are subject to extensive and continuing administrative and judicial interpretation and review. Therefore, the matters discussed above may be affected by future regulations, rulings and court decisions, some of which may have retroactive application and effect.

233

PLAN OF DISTRIBUTION The Notes are being offered by the Initial Purchaser. The Notes are being offered to prospective purchasers from time to time in individually negotiated transactions at varying prices to be determined in each case at the time of sale, within the United States to qualified purchasers (for purposes of Section 3(c)(7) of the Investment Company Act) that are also qualified institutional buyers (as defined in Rule 144A) in reliance on Rule 144A and outside the United States in reliance on Regulation S. A portion of the Subordinated Notes may be purchased by the Portfolio Manager, or funds or accounts managed by the Portfolio Manager, directly from the Issuer. The purchase agreement to be entered into between the Co-Issuers and the Initial Purchaser with respect to the Notes (other than the Class A1-VF Notes, which will be acquired pursuant to the Variable Funding Note Purchase Agreement) (the "Note Purchase Agreement") will provide that the obligations of the Initial Purchaser to purchase the Notes (other than the Class A1-VF Notes) are subject to approval of legal matters by counsel and to other conditions. The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except in transactions exempt from, or not subject to, the registration requirements of the Securities Act. See "Transfer Restrictions." United States The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons except pursuant to an exemption from the registration requirements under the Securities Act. (1) In the Purchase Agreement, the Initial Purchaser will represent and agree that it has not offered or sold Notes and will not offer or sell Notes except to persons who are not U.S. Persons in accordance with Rule 903 of Regulation S or as provided in paragraph (2) below. Accordingly, the Initial Purchaser will represent and agree that neither it, its Affiliates (if any) nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts with respect to Notes, and it and they have complied and will comply with the offering restrictions requirements of Regulation S. (2) In the Purchase Agreement, the Initial Purchaser will agree that it will not, acting either as principal or agent, offer or sell any Notes in the United States other than Notes in registered form bearing a restrictive legend thereon, and it will not, acting either as principal or agent, offer, sell, reoffer or resell any of such Notes (or approve the resale of any of such Notes): (iii)

(a) except (1) inside the United States through a U.S. broker dealer that is registered under the Exchange Act to investors each of which the Initial Purchaser reasonably believes is a Qualified Institutional Buyer that has such knowledge and experience in financial and business matters that it is capable of evaluating and bearing the risks of investing in the Notes or is represented by a fiduciary or agent with sole investment discretion having such knowledge and experience) that is also a Qualified Purchaser or (2) otherwise in accordance with the restrictions on transfer set forth in such Notes, the Purchase Agreement and this Offering Memorandum; or

(iv)

(b) by means of any form of general solicitation or general advertisement, including but not limited to (1) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or

234

radio and (2) any seminar or meeting whose attendees have been advised by any general solicitation or general advertising. Prior to the sale of any Notes in registered form bearing a restrictive legend thereon, the Initial Purchaser shall have provided each offeree that is a U.S. Person with a copy of this Offering Memorandum in the form the Issuer and the Initial Purchaser shall have agreed most recently to be used for offers and sales in the United States. Canada The Initial Purchaser will represent and warrant in the Note Purchase Agreement that none of the Notes has been or will be qualified by prospectus for sale to the public in Canada under applicable Canadian securities laws and, accordingly, any offer or sale of the Notes in Canada will be made pursuant to an exemption from the applicable prospectus filing requirements, and otherwise in compliance with applicable Canadian laws. This Offering Memorandum is not, and under no circumstances is to be construed as, a prospectus, an advertisement or a public offering of the Notes described herein in Canada. No securities commission or similar authority in Canada has reviewed or in any way passed upon this Offering Memorandum or the merits of the Notes described herein, and any representation to the contrary is an offence. United Kingdom The Initial Purchaser will also represent and agree as follows: (1) it has not offered or sold and, prior to the expiry of the period of six months from the Closing Date, will not offer or sell any Notes to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Prospectus Regulations; (2) it has not issued or passed on, and will not issue or pass on or cause to be issued or passed on, any document in connection with the offering and issuance of the Notes to any Person other than a Person of a kind described in Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or a Person to whom such documents may otherwise lawfully be issued or passed on (all such Persons together being referred to as "Relevant Persons"); and (3) any investment or investment activity to which this document relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. European Economic Area The Initial Purchaser will also represent and agree in the Purchase Agreement that in relation to each member state of the European Economic Area which has implemented the Prospectus Directive or where the Prospectus Directive is applied by the regulator (each, a "Relevant Member State"), with effect from and including the date on which the Prospectus Directive is implemented or applied (the "Relevant Implementation Date") in that Relevant Member State, 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:

235

(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 twelve months after the date of such publication; (b) at any time to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized 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. Cayman Islands The Initial Purchaser will represent and agree that it has not made and will not make any invitation to the public in the Cayman Islands to subscribe for any of the Notes. Hong Kong The Initial Purchaser will also represent and agree as follows: (1) that it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, the Secured Notes other than to persons whose ordinary business it is to buy or sell shares of debentures (whether as principal or agent) or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32) of Hong Kong (the "Companies Ordinance"); and (2) unless it is a person permitted to do so under the securities laws of Hong Kong, it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purpose of issue, in Hong Kong, any advertisement, invitation or document relating to the Secured Notes, other than with respect to Secured Notes intended to be disposed of to persons outside Hong Kong or to be disposed of in Hong Kong only to persons whose business involves the acquisition, disposal, or holdings of securities, whether as principal or agent.

236

Other Considerations Relating to the Initial Purchaser The Initial Purchaser and its Affiliates may have had in the past and may in the future have business relationships and dealings with one or more issuers of the Collateral Debt Securities and their Affiliates and may own equity or debt securities issued by such issuers or their Affiliates. The Initial Purchaser or its Affiliates may have provided and may in the future provide investment banking services to an issuer of Collateral Debt Securities or its Affiliates and may have received or may receive compensation for such services. In addition, the Initial Purchaser and its Affiliates may buy securities from and sell securities to an issuer of Collateral Debt Securities or its Affiliates for its own account or for the accounts of its customers. The Initial Purchaser or one or more of its Affiliates may also act as counterparty with respect to one or more Synthetic Securities. In addition, an Affiliate of the Initial Purchaser may act as a Hedge Counterparty under a Hedge Agreement. Risks associated with the Initial Purchaser acting in such capacities and other potential conflicts of interest involving the Initial Purchaser are described under "Risk Factors—Conflicts of Interest Involving the Initial Purchaser." The Issuer has agreed to indemnify the Initial Purchaser against certain liabilities, including liabilities under the Securities Act and has agreed to contribute to payments that the Initial Purchaser may be required to make in respect thereof. The Notes are offered when, as and if issued, subject to prior sale or withdrawal, cancellation or modification of the offer without notice and subject to approval of certain legal matters by counsel and certain other conditions. The Notes will constitute new classes of securities with no established trading market. Such a market may or may not develop, but the Initial Purchaser is not under any obligation to make such a market, and if the Initial Purchaser makes such a market it may discontinue any market-making activities with respect to the Secured Notes, the Combination Notes or the Subordinated Notes at any time without notice. In addition, market-making activity will be subject to the limits imposed by the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Accordingly, no assurances can be made as to the liquidity of, or the trading market for, the Secured Notes, the Combination Notes or the Subordinated Notes. The Initial Purchaser may be contacted at 600 Steamboat Road, Greenwich CT 06830, Attention: CDO Desk.

237

SETTLEMENT AND CLEARING Global Securities Investors may hold their interests in a Regulation S Global Security directly through Euroclear or Clearstream, Luxembourg, if they are Participants in such systems, or indirectly through organizations which are Participants in such systems. Euroclear and Clearstream, Luxembourg will hold interests in Regulation S Global Securities on behalf of their Participants through customers' securities accounts in their respective names on the books of their respective depositaries, which in turn will hold such interests in such Regulation S Global Security in customers' securities accounts in the depositaries' names on the books of DTC. Investors may hold their interests in a Restricted Global Investment Grade Funded Secured Note directly through DTC, if they are Participants in such system, or indirectly through organizations which are Participants in such system. So long as the depository for a Global Security, or its nominee, is the registered holder of such Global Security, such depository or such nominee, as the case may be, will be considered the absolute owner or holder of such Global Security for all purposes under the Indenture and Participants as well as any other persons on whose behalf Participants may act (including Euroclear and Clearstream, Luxembourg and account holders and Participants therein) will have no rights under the related Global Security, the Indenture or the Subordinated Note Issuing and Paying Agency Agreement. Owners of beneficial interests in a Global Security will not be considered to be the owners or holders of the related Note, any Secured Note under the Indenture or any Subordinated Note under the Subordinated Note Issuing and Paying Agency Agreement. In addition, 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 depository and (in the case of a Regulation S Global Security) Euroclear or Clearstream, Luxembourg (in addition to those under the Indenture or the Subordinated Note Issuing and Paying Agency Agreement (as the case may be)), in each case to the extent applicable (the "Applicable Procedures"). Payments or Distributions on a Global Security Payments or distributions on an individual Global Security (as the case may be) registered in the name of a depository or its nominee will be made to the depository or its nominee, as the case may be, as the registered owner of the Global Security. None of the Issuer, the Trustee, the Secured Note Registrar, the Subordinated Note Issuing and Paying Agent and any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in Global Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. With respect to the Global Securities, the Issuer expects that the depository for any Global Security or its nominee, upon receipt of any payment or distribution on such Global Security (as the case may be), will immediately credit the accounts of Participants with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Security as shown on the records of the depository or its nominee. The Issuer also expects that payments by Participants to owners of beneficial interests in such Global Securities held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the name of nominees for such customers. Such payments will be the responsibility of such Participants.

238

Transfers and Exchanges for Definitive Securities Interests in a Global Security will be exchangeable or transferable, as the case may be, for a Definitive Security if (a) DTC notifies the Issuer that it is unwilling or unable to continue as depository for such Note, (b) DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a successor depository is not appointed by the Issuer within 90 days, (c) the transferee of an interest in such Global Security is required by law to take physical delivery of securities in definitive form, (d) in the case of a Global Secured Note, there is an Event of Default under the Secured Notes or (e) the transferee is otherwise unable to pledge its interest in a Global Security. Because DTC can only act on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having a beneficial interest in a Global Security to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may require that such interest in a Global Security be exchanged for a Definitive Security. Upon the occurrence of any of the events described in the preceding sentence, the Issuer will cause Definitive Securities bearing an appropriate legend regarding restrictions on transfer to be delivered. The Trustee shall not execute and deliver a Definitive Security without the specified legend, unless there is delivered to the Issuer and the Trustee such satisfactory evidence, which may include an opinion of U.S. counsel, as may reasonably be required by the Issuer or the Trustee that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act or the Investment Company Act. Definitive Securities will be exchangeable or transferable for interests in other Definitive Securities as described herein. See "Form, Registration and Transfer of Notes." Cross-Border Transfers and Exchanges Subject to compliance with the transfer restrictions applicable to the Notes described under "Transfer Restrictions," cross-market transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream, Luxembourg Participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or Clearstream, Luxembourg, as the case may be, by its respective depository; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, Luxembourg, as the case may be, by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (Brussels time). Euroclear or Clearstream, Luxembourg, as the case may be, will if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in a Regulation S Global Security in DTC and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream, Luxembourg Participants and Euroclear Participants may not deliver instructions directly to the depositaries of Euroclear or Clearstream, Luxembourg. Because of time zone differences, cash received in Euroclear or Clearstream, Luxembourg as a result of sales of interests in a Regulation S Global Security by or through a Euroclear or Clearstream, Luxembourg participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream, Luxembourg cash account only as of the business day following settlement in DTC. DTC has advised the Co-Issuers that it will take any action permitted to be taken by a holder of the relevant Security (including, without limitation, the presentation of such Note for exchange as described above) only at the direction of one or more Participants to whose account with DTC interests in the related Global Security are credited and only in respect of such portion of the aggregate principal

239

amount of the Secured Notes or the Subordinated Notes (as the case may be) as to which such Participant or Participants has or have given such direction. DTC, Euroclear and Clearstream DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("Indirect Participants"). The information herein concerning DTC, Clearstream and Euroclear and their book-entry systems has been obtained from sources believed to be reliable, but none of the Co-Issuers and the Initial Purchaser take any responsibility for the accuracy or completeness thereof. Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the foregoing procedures in order to facilitate transfers of interests in Global Securities among Participants of DTC, Euroclear and Clearstream, Luxembourg, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of the Issuer, the Co-Issuer and the Trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream, Luxembourg or their respective Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations.

240

TRANSFER RESTRICTIONS Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of Notes. Representations by Purchasers Each purchaser of a Investment Grade Funded Secured Note will be deemed to acknowledge, represent to and agree with the Co-Issuers and the Initial Purchaser, each purchaser of a Class A1-VF Note will be required in an assignment and acceptance agreement in substantially the form attached as an exhibit to the Variable Funding Note Purchase Agreement, and each purchaser of a Class E Note or Subordinated Note will be required to sign an Investor Application Form pursuant to which such purchaser will be deemed to acknowledge, represent to and agree with the Issuer and the Initial Purchaser, as follows: (1) No Governmental Approval. The purchaser understands that the Notes have not been approved or disapproved by the SEC or any other governmental authority or agency of any jurisdiction and that neither the SEC nor any other governmental authority or agency has passed upon the accuracy or adequacy of this Offering Memorandum. The purchaser further understands that any representation to the contrary is a criminal offense. (2) Certification Upon Transfer. If required by the Indenture, the Variable Funding Note Purchase Agreement or the Subordinated Note Issuing and Paying Agency Agreement, the purchaser will, prior to any sale, pledge or other transfer by it of any Note (or any interest therein), deliver to the Issuer and the Secured Note Registrar (or, in the case of a Subordinated Note, the Subordinated Note Issuing and Paying Agent or, in the case of the Combination Note, the Combination Note Registrar) duly executed transferor and transferee certifications in the form of the relevant exhibit attached to the Indenture, the Variable Funding Note Purchase Agreement or the Subordinated Note Issuing and Paying Agency Agreement, as applicable, and such other certificates and other information as the Issuer or the Trustee (in the case of the Secured Notes) or the Subordinated Note Issuing and Paying Agent (in the case of the Subordinated Notes) or the Combination Note Registrar (in the case of the Combination Notes) may reasonably require to confirm that the proposed transfer complies with the transfer restrictions contained in this Offering Memorandum and in the Indenture, the Variable Funding Note Purchase Agreement or the Subordinated Note Issuing and Paying Agency Agreement, as applicable. (3) Minimum Denomination. The purchaser agrees that no Note (or any interest therein) may be sold, pledged or otherwise transferred in a denomination of less than the applicable minimum denomination set forth herein. (4) Securities Law Limitations on Resale. The purchaser understands that the Notes have not been registered under the Securities Act and, therefore, cannot be offered or sold in the United States or to U.S. Persons unless they are registered under the Securities Act or unless an exemption from registration is available and that the certificates representing the Notes will bear a legend setting forth such restriction. The purchaser understands that neither the Issuer nor the Co-Issuer has any obligation to register the Notes under the Securities Act or to comply with the requirements for any exemption from the registration requirements of the Securities Act (other than to supply information specified in Rule 144A(d)(4) of the Securities Act as required by the Indenture).

241

(5) Status; Investment Intent. In the case of a purchaser of a Restricted Global Investment Grade Funded Secured Note (or any interest therein) or a Restricted Subordinated Note, it is a Qualified Institutional Buyer that purchased such Subordinated Note (or any interest therein) directly from the Issuer or the Initial Purchaser and that is a Qualified Purchaser and it is acquiring the Secured Notes or Subordinated Notes for its own account for investment purposes and not with a view to the distribution thereof (except in accordance with Rule 144A). In the case of a purchaser of a beneficial interest in a Regulation S Global Security, it is not a U.S. Person and is purchasing such interest for its own account and not for the account or benefit of a U.S. Person. (6) Purchaser Sophistication; Non-Reliance; Suitability; Access to Information. The purchaser (a) has such knowledge and experience in financial and business matters that the purchaser is capable of evaluating the merits and risks (including for tax, legal, regulatory, accounting and other financial purposes) of its prospective investment in Notes, (b) is financially able to bear such risk, (c) in making such investment, is not relying on the advice or recommendations of the Initial Purchaser, the Issuer, the Co-Issuer, the Portfolio Manager, the Hedge Counterparties, the Credit Default Swap Counterparty, the GIC Provider or any of their respective Affiliates (or any representative of any of the foregoing) and (d) has determined that an investment in Notes is suitable and appropriate for it. The purchaser has received, and has reviewed the contents of, this Offering Memorandum. The purchaser has had access to such financial and other information concerning the Issuer and the Notes as it has deemed necessary to make its own independent decision to purchase Notes including the opportunity, at a reasonable time prior to its purchase of Notes, to ask questions and receive answers concerning the Issuer, the Co-Issuer and the terms and conditions of the offering of the Notes. (7) Certain Resale Limitations. The purchaser is aware that no Note (nor any interest therein) may be offered or sold, pledged or otherwise transferred: (a) in the United States or to a U.S. Person, except to a transferee (i)(A) whom the seller reasonably believes is a Qualified Institutional Buyer, purchasing for its own account, to whom notice is given that the resale, pledge or other transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A and (ii) that is a Qualified Purchaser; or (b) to a transferee acquiring an interest in a Regulation S Global Security, a Regulation S Class A1-VF Note or any Definitive Secured Note or Definitive Subordinated Note issued in respect thereof (any such Note a "Regulation S Security"), except to a transferee that is not a U.S. Person and is acquiring such interest in an offshore transaction (within the meaning of Regulation S) in accordance with Rule 903 or Rule 904 of Regulation S. In addition, (i) no Class E Note or Subordinated Note may be acquired by or transferred to a Benefit Plan Investor or a Controlling Person, and no Combination Note may be acquired by or transferred to a Benefit Plan Investor or a Controlling Person, except that (1) Class E Notes and Subordinated Notes may be transferred to Benefit Plan Investors, and Subordinated Notes may be transferred to Controlling Persons, on the Closing Date but only to the extent that after giving effect to such transfer on the Closing Date, less than 25% of the value of the Class E Notes or Subordinated Notes, as applicable, would be held by Benefit Plan Investors (in the case of Subordinated Notes, disregarding Subordinated Notes held by Controlling Persons), and (2) each transfer of a Note must be made in compliance with the other requirements set forth in the

242

Indenture and the Subordinated Note Issuing and Paying Agency Agreement and in accordance with any other applicable securities laws of any relevant jurisdiction. (8) Limited Liquidity. The purchaser understands that there is no market for the Notes and that there can be no assurance that a secondary market for any of the Notes will develop, or if a secondary market does develop, that it will provide the holders of such Notes with liquidity of investment or that it will continue for the life of the Notes. It further understands that, although the Initial Purchaser may from time to time make a market in one or more Classes of Secured Notes, Combination Notes or Subordinated Notes, the Initial Purchaser is under no obligation to do so and, following the commencement of any market-making, may discontinue the same at any time. Accordingly, the purchaser must be prepared to hold its Notes for an indefinite period of time or until the Stated Maturity. (9) Investment Company Act. If the purchaser is a U.S. Person that is an entity that would be an investment company but for the exception provided for in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act (any such entity, an "excepted investment company") (a) all of the beneficial owners of outstanding securities (other than short-term paper) of such entity (such beneficial owners determined in accordance with Section 3(c)(1)(A) of the Investment Company Act) that acquired such securities on or before April 30, 1996 ("pre-amendment beneficial owners") and (b) all pre-amendment beneficial owners of the outstanding securities (other than short-term paper) of any excepted investment company that, directly or indirectly, owns any outstanding securities of such entity, have consented to such entity's treatment as a Qualified Purchaser in accordance with the Investment Company Act. (10) ERISA. In the case of a purchaser of a Secured Note other than a Class E Note, either (a) it is not (and for so long as it holds any such Secured Note or any interest therein will not be) and is not acting on behalf of (and for so long as it holds any such Secured Note or any interest therein will not be acting on behalf of) a Benefit Plan Investor or a governmental, church or non-U.S. plan which is subject to any Similar Law, or (b) its purchase and ownership of such Secured Note will not constitute or result in a non-exempt prohibited transaction in violation of Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental, church or non-U.S. plan, will not result in a violation of any Similar Law). In the case of a purchaser of a Class E Note or a Subordinated Note, except as disclosed in an Investor Application Form, the purchaser is not a Benefit Plan Investor or, in the case of a purchaser of a Class E Note, a Controlling Person, and agrees to notify the Trustee or the Subordinated Note Issuing and Paying Agent, as applicable, in the event that the foregoing information is no longer correct. In the case of a purchaser of a Combination Note, the purchaser is not, and for so long as it holds such Combination Note, will not be, a Benefit Plan Investor or Controlling Person. Each subsequent transferee of a Class E Note, a Subordinated Note or a Combination Note (or an interest therein) will be required to certify (or in certain circumstances will be deemed to represent and warrant) that it is not, and for so long as it holds such Class E Note, Subordinated Note or Combination Note (or interest therein) will not be, a Benefit Plan Investor or a Controlling Person. The purchaser of a Class E Note acknowledges that no Class E Note (or any interest therein) may be acquired by or transferred to a Benefit Plan Investor except on the Closing Date and then only to the extent that after giving effect to such transfer, less than 25% of the value of the Class E Notes would be held by Benefit Plan Investors, and that no Class E Note may be acquired by or transferred to a Controlling Person at any time. The purchaser of a Subordinated Note acknowledges that no Subordinated Note (or any interest therein) may be acquired by or transferred to a Benefit Plan Investor or a Controlling Person except on the Closing Date and then only to the extent that after giving effect to such transfer, less than 25% of

243

the value of the Subordinated Notes would be held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons. The purchaser of a Combination Note acknowledges that no Combination Note (or any interest therein) may be acquired by or transferred to a Benefit Plan Investor or Controlling Person at any time. If the purchaser of a Class E Note or a Subordinated Note (or an interest therein) is a Benefit Plan Investor, it will be required to represent and warrant that its investment in Class E Notes or Subordinated Notes will not constitute or result in a prohibited transaction in violation of Section 406 of ERISA or Section 4975 of the Code. If the purchaser of a Class E Note, a Subordinated Note or a Combination Note (or an interest therein) that is a governmental, church or non-U.S. plan that is subject to a Similar Law, it will be deemed to represent and warrant that its investment in Class E Notes, Subordinated Notes or Combination Notes will not constitute or result in a violation of any Similar Law. The purchaser of a Class E Note, a Subordinated Note or a Combination Note (or an interest therein) will be deemed to represent, warrant and covenant that (1) it will not transfer such Class E Note, Subordinated Note or Combination Note (or interest therein) to a Benefit Plan Investor or a Controlling Person, and (2) it and any fiduciary causing it to acquire such Class E Note, Subordinated Note or Combination Note agree, to the fullest extent permissible under applicable law, to indemnify and hold harmless the Issuer, the Initial Purchaser, the Trustee or the Subordinated Note Issuing and Paying Agent, as applicable, and the Portfolio Manager and their respective Affiliates from any cost, damage or loss incurred by them as a result of its breach of the foregoing certifications, representations and warranties that are applicable to it. Each purchaser of a Class E Note, Subordinated Note or Combination Note acknowledges that the Subordinated Note Issuing and Paying Agency Agreement or Indenture (as applicable) provide that if the Issuer determines that any holder or beneficial owner of a Class E Note, Subordinated Note or Combination Note (or an interest therein) is a Benefit Plan Investor or a Controlling Person (other than a Benefit Plan Investor that acquired a Class E Note (or interest therein) on the Closing Date or a Benefit Plan Investor or Controlling Person that acquired a Subordinated Note on the Closing Date, and then only if less than 25% of the Class E Notes or Subordinated Notes, as applicable, were held by Benefit Plan Investors, disregarding Subordinated Notes held by Controlling Persons), or that any such holder or beneficial owner that represented it was not a Benefit Plan Investor or a Controlling Person was a Benefit Plan Investor or a Controlling Person or subsequent to the purchase of such Class E Note, Subordinated Note or Combination Note (or interest therein) is or has become a Benefit Plan Investor or a Controlling Person, the Issuer shall require, by notice to such holder or beneficial owner, that such holder or beneficial owner sell all of its right, title and interest to such Class E Note, Subordinated Note or Combination Note (or interest therein) to a person that is not a Benefit Plan Investor or a Controlling Person and otherwise satisfies the applicable requirements for holding such Class E Note, Subordinated Note or Combination Note (or interest therein) with such sale to be effected within 14 days after notice of such sale requirement is given. If such holder or beneficial owner fails to effect the transfer required within such 14-day period, (x) upon written direction from the Portfolio Manager or the Issuer, the Subordinated Note Issuing and Paying Agent or the Trustee (as applicable) shall, and will be deemed to be irrevocably authorized by such holder or beneficial owner to, cause such holder's or beneficial owner's interest in such security to be transferred in a commercially reasonable sale arranged by the Portfolio Manager (conducted by the Subordinated Note Issuing and Paying Agent or the Trustee, as applicable, in accordance with Section 9-610(b) of the UCC as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Secured Note Registrar, the Subordinated Note Registrar or the

244

Combination Note Registrar, as applicable, and the Issuer, in connection with such transfer, that such person is not a Benefit Plan Investor or a Controlling Person and otherwise meets the requirements for holding such Class E Note, Subordinated Note or Combination Note (or interest therein) and (y) pending such transfer, no further payments will be made in respect of the interest in such Class E Note, Subordinated Note or Combination Note held by such holder or beneficial owner, and the interest in such Class E Note, Subordinated Note or Combination Note shall not be deemed to be outstanding for the purpose of any vote or consent of the holders of the Class E Notes, Subordinated Notes or Combination Notes. If the purchaser is, or is acting on behalf of, a Plan subject to Title I of ERISA or an employee benefit plan that is not subject to Title I of ERISA but is subject to provisions of a law that is similar to Title I or ERISA, the fiduciaries of such Plan or such employee benefit plan, as applicable, represent and warrant that they have been informed of and understand the Issuer's investment objectives, policies and strategies and that the decision to invest such Plan's assets or such employee benefit plan's assets, as the case may be, in Notes was made with appropriate consideration of relevant investment factors with regard to such Plan or such employee benefit plan, as the case may be, and is consistent with the duties and responsibilities imposed upon fiduciaries with regard to their investment decisions under Title I of ERISA or such law similar to Title I of ERISA. (11) Limitations on Flow-Through Status. In the case of a purchaser of a Restricted Security, it is (a) either not a Flow-Through Investment Vehicle or it is a Flow-Through Investment Vehicle that is a Qualifying Investment Vehicle and (b) if it is a Qualifying Investment Vehicle, (x) it has only one class of securities outstanding (other than any nominal share capital the distributions in respect of which are not correlated to or dependent upon distributions on, or the performance of, the Notes) and (y) either (1) none of the beneficial owners of its securities is a U.S. Person or (2) some or all of the beneficial owners of its securities are U.S. Persons and each such beneficial owner has certified to the purchaser that such owner is a Qualified Purchaser. A purchaser is a "Flow-Through Investment Vehicle" if: (i) in the case of a purchaser that would be an investment company but for the exception in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, the amount of the purchaser's investment in the Notes exceeds 40% of the total assets (determined on a consolidated basis with its subsidiaries) of the purchaser, (ii) any person owning any equity or similar interest in the purchaser has the ability to control an investment decision of the purchaser (other than a general partner or similar entity) or to determine on an investment-by-investment basis, the amount of such person's contribution to any investment made by the purchaser, (iii) the purchaser was organized or reorganized for the specific purpose of acquiring any Notes or (iv) additional capital or similar contributions were specifically solicited from any person owning an equity or similar interest in the purchaser for the purpose of enabling the purchaser to purchase Notes. A "Qualifying Investment Vehicle" means an entity as to which all of the beneficial owners of any securities issued by such entity have made, and as to which (in accordance with the document pursuant to which such entity was organized or the agreement or other document governing such securities) each such beneficial owner must require any transferee of any such security to make) each of the representations set forth in this Offering Memorandum and/or the transfer certificate pursuant to which such Notes were transferred to such entity (in each case, with appropriate modifications to reflect the indirect nature of the interests of such beneficial owners in the Notes). (12) Certain Transfers Void. The purchaser agrees that (a) any sale, pledge or other transfer of a Note (or any interest therein) made in violation of the transfer restrictions contained in this Offering Memorandum and the Indenture, the Variable Funding Note Purchase Agreement or the Subordinated Note Issuing and Paying Agency Agreement, as applicable, or made based

245

upon any false or inaccurate representation made by the purchaser or a transferee to the Issuer, will be void and of no force or effect and (b) none of the Issuer, the Trustee, the Secured Note Registrar (in the case of the Secured Notes), the Combination Note Registrar (in the case of the Combination Notes), and the Subordinated Note Issuing and Paying Agent (in the case of the Subordinated Notes) has any obligation to recognize any sale, pledge or other transfer of a Note (or any interest therein) made in violation of any such transfer restriction or made based upon any such false or inaccurate representation. The purchaser acknowledges that the Indenture provides that if, notwithstanding the restrictions on transfer contained therein, either of the Co-Issuers (or in the case of a Class E Note, the Issuer) determines that any beneficial owner or holder of (A) a Regulation S Secured Note (or any interest therein) is a U.S. Person (within the meaning of Regulation S under the Securities Act) or (B) a Restricted Class A1-VF Note, Restricted Global Investment Grade Funded Secured Note (or any interest therein) or Restricted Class E Note is (x) not both a Qualified Institutional Buyer and also a Qualified Purchaser or (y) in the case of a Class A1-VF Noteholder, not in compliance with the requirements of the Variable Funding Note Purchase Agreement, then the Co-Issuers (or in the case of a Class E Note, the Issuer) shall require, by notice to such beneficial owner or holder, that such beneficial owner or holder sell all of its right, title and interest to such Note (or any interest therein) to a person that (A) is not a U.S. Person (in the case of a person acquiring its interest through a Regulation S Secured Note) or (B) in the case of a person acquiring its interest through a Restricted Class A1-VF Note or Restricted Global Investment Grade Funded Secured Note, is (x) both a Qualified Institutional Buyer and a Qualified Purchaser and (y) in the case of a Class A1-VF Noteholder, in compliance with the requirements of the Variable Funding Note Purchase Agreement, with such sale to be effected within 30 days after notice of such sale requirement is given. If such beneficial owner or holder fails to effect the transfer required within such 30-day period, (i) upon direction from the Issuer, the Trustee, on behalf of and at the expense of the Issuer, shall cause such beneficial owner's or holder's interest in such Note to be transferred in a commercially reasonable sale arranged by an investment bank selected by the Portfolio Manager (conducted by such investment bank in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations) to a person that certifies to the Trustee and the Co-Issuers, in connection with such transfer, that such person (A) is not a U.S. Person (in the case of a person acquiring its interest through a Regulation S Secured Note) or (B) in the case of a person acquiring an interest through a Restricted Class A1-VF Note or Restricted Global Investment Grade Funded Secured Note, is (1) both a Qualified Institutional Buyer and a Qualified Purchaser and (2) in the case of a Class A1-VF Noteholder, in compliance with the requirements of the Variable Funding Note Purchase Agreement and (ii) pending such transfer, no further payments will be made in respect of such Note (or beneficial interest therein) held by such beneficial owner. The purchaser of a Subordinated Note acknowledges that the Subordinated Note Issuing and Paying Agency Agreement provides that if, notwithstanding the restrictions on transfer contained therein, the Issuer determines that any beneficial owner of a Subordinated Note (or any interest therein) (A) is a U.S. Person and (B) is not both (1) a Qualified Institutional Buyer that purchased such Subordinated Note (or any interest therein) directly from the Issuer or the Initial Purchaser and (2) a Qualified Purchaser, then the Issuer shall require, by notice to such holder (with a copy to the Portfolio Manager) that such holder sell all of its right, title and interest to such Subordinated Note (or interest therein) to a person or entity that is both (1) a Qualified Institutional Buyer and (2) a Qualified Purchaser, with such sale to be effected within 30 days after notice of such sale requirement is given. If such beneficial owner fails to effect the transfer required within such 30-day period, (i) upon written direction from the Issuer (or the Portfolio Manager on behalf of the Issuer), the Subordinated Note Issuing and Paying Agent, on behalf of

246

and at the expense of the Issuer, shall cause such beneficial owner's interest in such Subordinated Note to be transferred in a commercially reasonable sale (conducted by the Subordinated Note Issuing and Paying Agent through an investment bank selected by the Subordinated Note Paying Agent and approved by the Portfolio Manager) in accordance with Section 9-610(b) of the Uniform Commercial Code as in effect in the State of New York as applied to securities that are sold on a recognized market or that are the subject of widely distributed standard price quotations to a person or entity that certifies to the Trustee and the Co-Issuers, in connection with such transfer, that such person is both (1) a Qualified Institutional Buyer and (2) a Qualified Purchaser and (ii) pending such transfer, no further payments will be made in respect of such Subordinated Note held by such beneficial owner. (13) Reliance on Representations, etc. The purchaser acknowledges that the Issuer and the Initial Purchaser will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and agrees that, if any of the acknowledgments, representations or warranties by it in connection with its purchase of the Notes are no longer accurate, the purchaser will promptly notify the Issuer and the Initial Purchaser. (14)

Cayman Islands. The purchaser is not a member of the public in the Cayman

(15)

Legend for Class A1-VF Notes. Each Class A1-VF Note shall bear the following

Islands. legend: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A)(1) TO A PERSON WHO IS A "QUALIFIED INSTITUTIONAL BUYER" (A QUALIFIED INSTITUTIONAL BUYER) WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (RULE 144A) PURCHASING FOR ITS OWN ACCOUNT, TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY RULE 144A OR (2) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (REGULATION S) AND (B) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY OTHER RELEVANT JURISDICTION. NO TRANSFER OF THIS NOTE (OR ANY INTEREST HEREIN) MAY BE MADE (AND NEITHER THE TRUSTEE NOR THE SECURED NOTE REGISTRAR WILL RECOGNIZE ANY SUCH TRANSFER) IF (A) SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE WHO IS A U.S. PERSON THAT IS NOT (I) A "QUALIFIED PURCHASER" AS DEFINED IN SECTION 2(a)(51)(A) OF THE INVESTMENT COMPANY ACT OR (II) A COMPANY EACH OF WHOSE BENEFICIAL OWNERS IS A QUALIFIED PURCHASER (ANY PERSON DESCRIBED IN CLAUSES (I) AND (II), A QUALIFIED PURCHASER). NEITHER OF THE CO-ISSUERS NOR THE POOL OF COLLATERAL HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT), (B) SUCH TRANSFER WOULD HAVE THE EFFECT OF REQUIRING EITHER OF THE CO-ISSUERS OR THE COLLATERAL TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT, (C) SUCH TRANSFER WOULD BE MADE TO A U.S. PERSON THAT IS A FLOW-THROUGH INVESTMENT VEHICLE OTHER THAN A QUALIFYING INVESTMENT VEHICLE (EACH AS DEFINED IN THE INDENTURE) OR (D) SUCH

247

TRANSFER WOULD BE MADE TO A PERSON WHO IS OTHERWISE UNABLE TO MAKE THE CERTIFICATIONS AND REPRESENTATIONS REQUIRED BY THE APPLICABLE TRANSFER CERTIFICATE (IF ANY) ATTACHED AS AN EXHIBIT TO THE INDENTURE REFERRED TO BELOW. EACH HOLDER OF THIS NOTE OR AN INTEREST THEREIN IS DEEMED TO REPRESENT AND WARRANT THAT (1) EITHER (A) IT IS NOT (AND FOR SO LONG AS IT HOLDS THIS NOTE OR ANY INTEREST HEREIN WILL NOT BE), AND IS NOT ACTING ON BEHALF OF (AND FOR SO LONG AS IT HOLDS SUCH SECURED NOTE OR INTEREST THEREIN WILL NOT BE ACTING ON BEHALF OF) A BENEFIT PLAN INVESTOR OR A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SIMILAR TO THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) OR SECTION 4975 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE) (ANY SUCH FEDERAL, STATE, LOCAL OR NON-U.S. LAW, A SIMILAR LAW), OR (B) ITS PURCHASE AND OWNERSHIP OF SUCH SECURED NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION CLASS IN VIOLATION OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN, WILL NOT RESULT IN A VIOLATION OF ANY SUCH SIMILAR LAW); AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE CO-ISSUER, THE INITIAL PURCHASER, THE TRUSTEE AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING REPRESENTATIONS AND WARRANTIES. BENEFIT PLAN INVESTOR MEANS A BENEFIT PLAN INVESTOR AS DEFINED IN SECTION 3(42) OF ERISA AND INCLUDES (1) ANY EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF TITLE I OF ERISA, (2) ANY PLAN SUBJECT TO SECTION 4975 OF THE CODE, AND (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY FOR PURPOSES OF ERISA OR SECTION 4975 OF THE CODE, INCLUDING THE GENERAL ACCOUNT OF AN INSURANCE COMPANY, ANY OF WHOSE ASSETS CONSTITUTE PLAN ASSETS UNDER SECTION 401(c) OF ERISA AND A WHOLLY-OWNED SUBSIDIARY THEREOF.TRANSFERS OF CLASS A1-VF NOTES MAY ONLY BE EFFECTED BY DELIVERY TO THE VARIABLE FUNDING NOTE AGENT AND THE TRUSTEE OF AN ASSIGNMENT AND ACCEPTANCE AGREEMENT IN SUBSTANTIALLY THE FORM ATTACHED AS AN EXHIBIT TO THE VARIABLE FUNDING NOTE PURCHASE AGREEMENT REFERRED TO BELOW AND REGISTRATION IN THE APPLICABLE NOTE REGISTER. IF, NOTWITHSTANDING THE RESTRICTIONS ON TRANSFER CONTAINED IN THE INDENTURE, EITHER OF THE CO-ISSUERS DETERMINES THAT ANY BENEFICIAL OWNER OF A CLASS A1-VF NOTE (OR ANY INTEREST THEREIN) (A) IS A U.S. PERSON AND (B) IS (X) NOT BOTH A QUALIFIED INSTITUTIONAL BUYER AND A QUALIFIED PURCHASER OR (Y) NOT IN COMPLIANCE WITH THE REQUIREMENTS OF THE VARIABLE FUNDING NOTE PURCHASE AGREEMENT, THEN THE COISSUERS SHALL REQUIRE, BY NOTICE TO SUCH HOLDER, THAT SUCH HOLDER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO SUCH CLASS A1-VF NOTE (OR ANY INTEREST THEREIN) TO A PERSON THAT IS (X) BOTH A QUALIFIED INSTITUTIONAL BUYER AND A QUALIFIED PURCHASER AND (Y) IN COMPLIANCE WITH THE REQUIREMENTS OF THE VARIABLE FUNDING NOTE PURCHASE AGREEMENT, WITH SUCH SALE TO BE EFFECTED WITHIN 30 DAYS AFTER NOTICE

248

OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH BENEFICIAL OWNER FAILS TO EFFECT THE TRANSFER REQUIRED WITHIN SUCH 30-DAY PERIOD, (I) UPON WRITTEN DIRECTION FROM THE PORTFOLIO MANAGER OR THE ISSUER, THE TRUSTEE, ON BEHALF OF AND AT THE EXPENSE OF THE ISSUER, SHALL CAUSE SUCH BENEFICIAL OWNER'S INTEREST IN SUCH CLASS A1-VF NOTE TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY AN INVESTMENT BANK SELECTED BY THE PORTFOLIO MANAGER (CONDUCTED BY SUCH INVESTMENT BANK IN ACCORDANCE WITH SECTION 9-610(B) OF THE UCC AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE TRUSTEE AND THE CO-ISSUERS IN CONNECTION WITH SUCH TRANSFER THAT SUCH PERSON IS (1) BOTH A QUALIFIED INSTITUTIONAL BUYER AND A QUALIFIED PURCHASER AND (2) IN COMPLIANCE WITH THE REQUIREMENTS OF THE VARIABLE FUNDING NOTE PURCHASE AGREEMENT AND (II) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF SUCH CLASS A1-VF NOTE HELD BY SUCH BENEFICIAL OWNER. In addition, the legend set forth on any Class A1-VF Note issued in reliance on Regulation S will also include the following: THIS SECURED NOTE OR ANY BENEFICIAL INTEREST HEREIN MAY NOT BE HELD BY A U.S. PERSON AT ANY TIME. (16) Legends for Investment Grade Funded Secured Notes. Each purchaser of an Investment Grade Funded Secured Note (or any beneficial interest therein) understands and agrees that a legend in substantially the following form will be placed on each Investment Grade Funded Secured Note: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (A QUALIFIED INSTITUTIONAL BUYER) WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (RULE 144A) PURCHASING FOR ITS OWN ACCOUNT, TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY RULE 144A OR (2) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (REGULATION S), (B) IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND (C) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY OTHER RELEVANT JURISDICTION. NEITHER OF THE CO-ISSUERS NOR THE POOL OF COLLATERAL HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). NO TRANSFER OF THIS NOTE (OR ANY INTEREST HEREIN) MAY BE MADE (AND NEITHER THE TRUSTEE NOR THE SECURED NOTE REGISTRAR WILL RECOGNIZE ANY SUCH TRANSFER) IF (A) SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE WHO IS A U.S. PERSON THAT IS NOT (I) A "QUALIFIED PURCHASER" AS DEFINED IN SECTION 2(a)(51)(A) OF THE

249

INVESTMENT COMPANY ACT OR (II) A COMPANY EACH OF WHOSE BENEFICIAL OWNERS IS A QUALIFIED PURCHASER, (ANY PERSON DESCRIBED IN CLAUSES (I) AND (II), A QUALIFIED PURCHASER), (B) SUCH TRANSFER WOULD HAVE THE EFFECT OF REQUIRING EITHER OF THE CO-ISSUERS OR THE COLLATERAL TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT, (C) SUCH TRANSFER WOULD BE MADE TO A U.S. PERSON THAT IS A FLOW-THROUGH INVESTMENT VEHICLE OTHER THAN A QUALIFYING INVESTMENT VEHICLE (EACH AS DEFINED IN THE INDENTURE) OR (D) SUCH TRANSFER WOULD BE MADE TO A PERSON WHO IS OTHERWISE UNABLE TO MAKE THE CERTIFICATIONS AND REPRESENTATIONS REQUIRED BY THE APPLICABLE TRANSFER CERTIFICATE (IF ANY) ATTACHED AS AN EXHIBIT TO THE INDENTURE REFERRED TO BELOW. EACH HOLDER OF THIS NOTE OR AN INTEREST THEREIN IS DEEMED TO REPRESENT AND WARRANT THAT (1) EITHER (A) IT IS NOT (AND FOR SO LONG AS IT HOLDS THIS NOTE OR ANY INTEREST HEREIN WILL NOT BE), AND IS NOT ACTING ON BEHALF OF (AND FOR SO LONG AS IT HOLDS SUCH SECURED NOTE OR INTEREST THEREIN WILL NOT BE ACTING ON BEHALF OF) A BENEFIT PLAN INVESTOR OR A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN WHICH IS SUBJECT TO ANY FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SIMILAR TO THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) OR SECTION 4975 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE) (ANY SUCH FEDERAL, STATE, LOCAL OR NON-U.S. LAW, A SIMILAR LAW) OR (B) ITS PURCHASE AND OWNERSHIP OF SUCH SECURED NOTE WILL NOT CONSTITUTE OR RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION CLASS IN VIOLATION OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN, WILL NOT RESULT IN A VIOLATION OF ANY SUCH SIMILAR LAW); AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE CO-ISSUER, THE INITIAL PURCHASER, THE TRUSTEE AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING REPRESENTATIONS AND WARRANTIES. BENEFIT PLAN INVESTOR MEANS A BENEFIT PLAN INVESTOR AS DEFINED IN SECTION 3(42) OF ERISA AND INCLUDES (1) ANY EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF TITLE I OF ERISA, (2) ANY PLAN SUBJECT TO SECTION 4975 OF THE CODE, AND (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY FOR PURPOSES OF ERISA OR SECTION 4975 OF THE CODE, INCLUDING THE GENERAL ACCOUNT OF AN INSURANCE COMPANY, ANY OF WHOSE ASSETS CONSTITUTE PLAN ASSETS UNDER SECTION 401(c) OF ERISA AND A WHOLLY-OWNED SUBSIDIARY THEREOF.THIS NOTE AND ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED ONLY IN PERMITTED DENOMINATIONS SPECIFIED IN THE INDENTURE. ACCORDINGLY, AN INVESTOR IN THIS NOTE MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. IF, NOTWITHSTANDING THE RESTRICTIONS ON TRANSFER CONTAINED IN THE INDENTURE, THE ISSUER DETERMINES THAT ANY BENEFICIAL OWNER OF A NOTE (OR ANY INTEREST THEREIN) (A) IS A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND (B) IS NOT BOTH (I) A QUALIFIED INSTITUTIONAL BUYER AND (II) A QUALIFIED PURCHASER, THEN THE

250

ISSUER SHALL REQUIRE, BY NOTICE TO SUCH HOLDER, THAT SUCH HOLDER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO SUCH NOTE (OR INTEREST THEREIN) TO A PERSON THAT IS BOTH A QUALIFIED INSTITUTIONAL BUYER AND A QUALIFIED PURCHASER, WITH SUCH SALE TO BE EFFECTED WITHIN 30 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH BENEFICIAL OWNER FAILS TO EFFECT THE TRANSFER REQUIRED WITHIN SUCH 30-DAY PERIOD, (1) UPON DIRECTION FROM THE ISSUER, THE TRUSTEE (ON BEHALF OF AND AT THE EXPENSE OF THE ISSUER) SHALL, AND IS HEREBY IRREVOCABLY AUTHORIZED BY SUCH BENEFICIAL OWNER TO, CAUSE SUCH BENEFICIAL OWNER'S INTEREST IN SUCH NOTE TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY AN INVESTMENT BANK SELECTED BY THE PORTFOLIO MANAGER (CONDUCTED BY SUCH INVESTMENT BANK IN ACCORDANCE WITH SECTION 9-610(b) OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE TRUSTEE, THE CO-ISSUERS AND THE PORTFOLIO MANAGER, IN CONNECTION WITH SUCH TRANSFER, THAT SUCH PERSON IS BOTH (I) A QUALIFIED INSTITUTIONAL BUYER AND (II) A QUALIFIED PURCHASER AND (2) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF SUCH NOTE (OR INTEREST THEREIN) HELD BY SUCH BENEFICIAL OWNER. In addition, the legend set forth on any Global Investment Grade Funded Secured Note will also have the following: IN ADDITION, NO TRANSFER OF THIS NOTE (OR ANY INTEREST HEREIN) MAY BE MADE (AND NEITHER THE TRUSTEE NOR THE SECURED NOTE REGISTRAR WILL RECOGNIZE ANY SUCH TRANSFER) IF SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE THAT IS (A) A DEALER DESCRIBED IN PARAGRAPH (A)(1)(ii) OF RULE 144A WHICH OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN U.S.$25,000,000 IN SECURITIES OF ISSUERS THAT ARE NOT AFFILIATED PERSONS OF THE DEALER OR (B) A PLAN REFERRED TO IN PARAGRAPH (a)(1)(I)(D) OR (a)(1)(i)(E) OF RULE 144A OR A TRUST FUND REFERRED TO IN PARAGRAPH (a)(1)(i)(F) OF RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, UNLESS INVESTMENT DECISIONS WITH RESPECT TO THE PLAN ARE MADE SOLELY BY THE FIDUCIARY, TRUSTEE OR SPONSOR OF SUCH PLAN. THE TRANSFEREE, AND EACH ACCOUNT FOR WHICH IT IS PURCHASING, IS REQUIRED TO HOLD AND TRANSFER AT LEAST THE MINIMUM DENOMINATIONS OF THE NOTES. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (DTC) TO THE SECURED NOTE REGISTRAR FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

251

In addition, the legend set forth on any Investment Grade Funded Secured Note issued in reliance on Regulation S will also include the following: THIS SECURED NOTE OR ANY BENEFICIAL INTEREST HEREIN MAY NOT BE HELD BY A U.S. PERSON AT ANY TIME. In addition, each Class C Note and Class D Note shall bear the following legend: THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID) FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE, AMOUNT OF OID, ISSUE DATE AND YIELD TO MATURITY OF THIS NOTE MAY BE OBTAINED BY WRITING TO: MANAGING DIRECTOR OF CDO DESK, GREENWICH CAPITAL MARKETS, INC., 600 STEAMBOAT ROAD, GREENWICH, CT 06830 (TEL: 203-618-2400). (17) Legends for Class E Notes. Each purchaser of a Class E Note (or any beneficial interest therein) understands and agrees that a legend in substantially the following form will be placed on each Class E Note: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (A QUALIFIED INSTITUTIONAL BUYER) WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (RULE 144A) PURCHASING FOR ITS OWN ACCOUNT, TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY RULE 144A OR (2) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (REGULATION S), (B) IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND (C) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY OTHER RELEVANT JURISDICTION. NEITHER OF THE CO-ISSUERS NOR THE POOL OF COLLATERAL HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). NO TRANSFER OF A CLASS E NOTE (OR ANY INTEREST THEREIN) MAY BE MADE (AND NEITHER THE TRUSTEE NOR THE SECURED NOTE REGISTRAR WILL RECOGNIZE ANY SUCH TRANSFER) IF (A) SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE WHO IS A U.S. PERSON THAT IS NOT (I) A "QUALIFIED PURCHASER" AS DEFINED IN SECTION 2(a)(51)(A) OF THE INVESTMENT COMPANY ACT OR (II) A COMPANY EACH OF WHOSE BENEFICIAL OWNERS IS A QUALIFIED PURCHASER, (ANY PERSON DESCRIBED IN CLAUSES (I) AND (II), A QUALIFIED PURCHASER), (B) SUCH TRANSFER WOULD HAVE THE EFFECT OF REQUIRING EITHER OF THE CO-ISSUERS OR THE COLLATERAL TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT, (C) SUCH TRANSFER WOULD BE MADE TO A U.S. PERSON THAT IS A FLOW-THROUGH INVESTMENT VEHICLE OTHER THAN A QUALIFYING INVESTMENT VEHICLE (EACH AS DEFINED IN THE INDENTURE) OR (D) SUCH TRANSFER WOULD BE MADE TO A PERSON WHO IS OTHERWISE UNABLE TO MAKE THE CERTIFICATIONS AND REPRESENTATIONS REQUIRED BY THE APPLICABLE

252

TRANSFER CERTIFICATE (IF ANY) ATTACHED AS AN EXHIBIT TO THE INDENTURE REFERRED TO BELOW. NO TRANSFER OF THIS NOTE (OR ANY INTEREST HEREIN) MAY BE MADE (AND NEITHER THE ISSUER NOR THE SECURED NOTE REGISTRAR WILL RECOGNIZE ANY SUCH TRANSFER) IF SUCH TRANSFER WOULD BE MADE TO (A) A BENEFIT PLAN INVESTOR EXCEPT IN THE CASE OF A TRANSFER TO A BENEFIT PLAN INVESTOR ON THE CLOSING DATE AND THEN ONLY TO THE EXTENT THAT AFTER GIVING EFFECT TO SUCH TRANSFER, LESS THAN 25% OF THE AGGREGATE VALUE OF THE CLASS E NOTES WOULD BE HELD BY BENEFIT PLAN INVESTORS OR (B) A CONTROLLING PERSON. EACH ORIGINAL PURCHASER OF THIS CLASS E NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO EXECUTE AN INVESTOR APPLICATION FORM UNDER WHICH IT REPRESENTS AND WARRANTS WHETHER OR NOT IT IS, OR IS ACTING ON BEHALF OF, A BENEFIT PLAN INVESTOR AND THAT IT IS NOT A CONTROLLING PERSON, AND COVENANTS AND AGREES TO NOTIFY THE TRUSTEE OR THE SUBORDINATED NOTE ISSUING AND PAYING AGENT, AS APPLICABLE, IN THE EVENT THAT THE FOREGOING INFORMATION IS NO LONGER CORRECT. EACH SUBSEQUENT TRANSFEREE OF THIS CLASS E NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO CERTIFY (OR IN CERTAIN CIRCUMSTANCES WILL BE DEEMED TO REPRESENT AND WARRANT) THAT IT IS NOT, AND FOR SO LONG AS IT HOLDS SUCH CLASS E NOTE OR SUBORDINATED NOTE (OR INTEREST THEREIN) WILL NOT BE, A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON. EACH ORIGINAL PURCHASER OF THIS NOTE (OR AN INTEREST THEREIN) THAT IS A BENEFIT PLAN INVESTOR WILL BE REQUIRED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN CLASS E NOTES WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION IN VIOLATION OF SECTION 406 OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) OR SECTION 4975 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE). EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF THIS NOTE (OR AN INTEREST THEREIN) THAT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO A FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS MATERIALLY TO THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (A SIMILAR LAW) WILL BE DEEMED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN CLASS E NOTES WILL NOT CONSTITUTE OR RESULT IN A VIOLATION OF ANY SIMILAR LAW. EACH ORIGINAL PURCHASER AND EACH TRANSFEREE OF THIS NOTE (OR AN INTEREST THEREIN) WILL BE DEEMED TO REPRESENT, WARRANT AND COVENANT THAT (1) IT WILL NOT TRANSFER SUCH NOTE (OR INTEREST THEREIN) TO A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH CLASS E NOTE OR SUBORDINATED NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE CO-ISSUER, THE INITIAL PURCHASER, THE TRUSTEE AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING CERTIFICATIONS, REPRESENTATIONS AND WARRANTIES THAT ARE APPLICABLE TO IT. BENEFIT PLAN INVESTOR MEANS A BENEFIT PLAN INVESTOR AS DEFINED IN SECTION 3(42) OF ERISA AND INCLUDES (1) ANY EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF TITLE I OF ERISA, (2) ANY PLAN SUBJECT TO SECTION 4975 OF THE CODE, AND (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS

253

BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY FOR PURPOSES OF ERISA OR SECTION 4975 OF THE CODE, INCLUDING THE GENERAL ACCOUNT OF AN INSURANCE COMPANY, ANY OF WHOSE ASSETS CONSTITUTE PLAN ASSETS UNDER SECTION 401(c) OF ERISA AND A WHOLLY-OWNED SUBSIDIARY THEREOF. CONTROLLING PERSONS INCLUDE PERSONS, OTHER THAN BENEFIT PLAN INVESTORS, HAVING DISCRETIONARY AUTHORITY OR CONTROL OVER THE ASSETS OF THE ISSUER OR PROVIDING INVESTMENT ADVICE WITH RESPECT TO THE ASSETS OF THE ISSUER FOR A FEE, DIRECT OR INDIRECT, OR ANY AFFILIATES OF SUCH PERSONS. FOR THIS PURPOSE, AN AFFILIATE OF A PERSON INCLUDES ANY PERSON, DIRECTLY OR INDIRECTLY, THROUGH ONE OR MORE INTERMEDIARIES, CONTROLLING, CONTROLLED BY, OR UNDER COMMON CONTROL WITH THE PERSON. CONTROL, WITH RESPECT TO A PERSON OTHER THAN AN INDIVIDUAL, MEANS THE POWER TO EXERCISE A CONTROLLING INFLUENCE OVER THE MANAGEMENT OR POLICIES OF SUCH PERSON. IF THE ISSUER DETERMINES THAT ANY HOLDER OR BENEFICIAL OWNER OF A CLASS E NOTE (OR AN INTEREST THEREIN) IS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON (OTHER THAN A BENEFIT PLAN INVESTOR THAT ACQUIRED A CLASS E NOTE (OR INTEREST THEREIN) ON THE CLOSING DATE), OR THAT ANY SUCH HOLDER OR BENEFICIAL OWNER THAT REPRESENTED IT WAS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON WAS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON OR SUBSEQUENT TO THE PURCHASE OF SUCH CLASS E NOTE (OR INTEREST THEREIN) IS OR HAS BECOME A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, THE ISSUER SHALL REQUIRE, BY NOTICE TO SUCH HOLDER OR BENEFICIAL OWNER, THAT SUCH HOLDER OR BENEFICIAL OWNER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO SUCH CLASS E NOTE (OR INTEREST THEREIN) TO A PERSON THAT IS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON AND OTHERWISE SATISFIES THE APPLICABLE REQUIREMENTS FOR HOLDING SUCH CLASS E NOTE (OR INTEREST THEREIN) WITH SUCH SALE TO BE EFFECTED WITHIN 14 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH HOLDER OR BENEFICIAL OWNER FAILS TO EFFECT THE TRANSFER REQUIRED WITHIN SUCH 14-DAY PERIOD, (X) UPON WRITTEN DIRECTION FROM THE PORTFOLIO MANAGER OR THE ISSUER, THE TRUSTEE SHALL, AND WILL BE DEEMED TO BE IRREVOCABLY AUTHORIZED BY SUCH HOLDER OR BENEFICIAL OWNER TO, CAUSE SUCH HOLDER'S OR BENEFICIAL OWNER'S INTEREST IN SUCH SECURITY TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY THE PORTFOLIO MANAGER (CONDUCTED BY THE TRUSTEE IN ACCORDANCE WITH SECTION 9-610(B) OF THE UCC AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE SECURED NOTE REGISTRAR, AND THE CO-ISSUERS, IN CONNECTION WITH SUCH TRANSFER, THAT SUCH PERSON IS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON AND OTHERWISE MEETS THE REQUIREMENTS FOR HOLDING SUCH CLASS E NOTE (OR INTEREST THEREIN) AND (Y) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF THE INTEREST IN SUCH CLASS E NOTE HELD BY SUCH HOLDER OR BENEFICIAL OWNER, AND THE INTEREST IN SUCH CLASS E NOTE SHALL NOT BE DEEMED TO BE OUTSTANDING FOR THE PURPOSE OF ANY VOTE OR CONSENT OF THE HOLDERS OF THE CLASS E NOTES.

254

AN INTEREST IN A REGULATION S GLOBAL CLASS E NOTE MAY BE HELD ONLY THROUGH EUROCLEAR OR CLEARSTREAM, LUXEMBOURG. ACCORDINGLY, AN INVESTOR IN THE CLASS E NOTES MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED TO A PERSON WHO ACQUIRES A BENEFICIAL INTEREST IN A REGULATION S CLASS E NOTE CERTIFICATE UPON RECEIPT BY THE TRUSTEE AND SECURED NOTE REGISTRAR OF A TRANSFER CERTIFICATE FROM THE TRANSFEROR SUBSTANTIALLY IN THE FORM SPECIFIED IN THE INDENTURE. IF, NOTWITHSTANDING THE RESTRICTIONS ON TRANSFER CONTAINED IN THE INDENTURE, THE ISSUER DETERMINES THAT ANY BENEFICIAL OWNER OF A CLASS E NOTE (OR ANY INTEREST THEREIN) (A) IS A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND (B) IS NOT BOTH (I) A QUALIFIED INSTITUTIONAL BUYER AND (II) A QUALIFIED PURCHASER, THEN THE ISSUER SHALL REQUIRE, BY NOTICE TO SUCH HOLDER, THAT SUCH HOLDER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO SUCH NOTE (OR INTEREST THEREIN) TO A PERSON THAT (1) IS A QUALIFIED INSTITUTIONAL BUYER, (2) IS A QUALIFIED PURCHASER AND (3) IS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, WITH SUCH SALE TO BE EFFECTED WITHIN 30 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH BENEFICIAL OWNER FAILS TO EFFECT THE TRANSFER REQUIRED WITHIN SUCH 30-DAY PERIOD, (1) UPON DIRECTION FROM THE ISSUER, THE TRUSTEE (ON BEHALF OF AND AT THE EXPENSE OF THE ISSUER) SHALL, AND IS HEREBY IRREVOCABLY AUTHORIZED BY SUCH BENEFICIAL OWNER TO, CAUSE SUCH BENEFICIAL OWNER'S INTEREST IN SUCH NOTE TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY AN INVESTMENT BANK SELECTED BY THE PORTFOLIO MANAGER (CONDUCTED BY SUCH INVESTMENT BANK IN ACCORDANCE WITH SECTION 9-610(b) OF THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE TRUSTEE, THE CO-ISSUERS AND THE PORTFOLIO MANAGER, IN CONNECTION WITH SUCH TRANSFER, THAT SUCH PERSON IS (I) A QUALIFIED INSTITUTIONAL BUYER, (II) A QUALIFIED PURCHASER AND (III) NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND (2) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF SUCH NOTE (OR INTEREST THEREIN) HELD BY SUCH BENEFICIAL OWNER. THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID) FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE, AMOUNT OF OID, ISSUE DATE AND YIELD TO MATURITY OF THIS NOTE MAY BE OBTAINED BY WRITING TO: MANAGING DIRECTOR OF CDO DESK, GREENWICH CAPITAL MARKETS, INC., 600 STEAMBOAT ROAD, GREENWICH, CT 06830 (TEL: 203-618-2400). In addition, the legend set forth on any Regulation S Global Class E Note will also include the following: UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (DTC) TO THE SECURED NOTE REGISTRAR FOR REGISTRATION OF TRANSFER OR PAYMENT, AND ANY CERTIFICATE ISSUED IS

255

REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. In addition, the legend set forth on any Class E Note offered in reliance on Regulation S will also include the following: THIS SECURED NOTE OR ANY BENEFICIAL INTEREST HEREIN MAY NOT BE HELD BY A U.S. PERSON AT ANY TIME. (18) Legend for Combination Notes. The purchaser understands and agrees that a legend in substantially the following form will be placed on each certificate representing any Combination Notes: THE COMBINATION NOTE REPRESENTED HEREBY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (A QUALIFIED INSTITUTIONAL BUYER) WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (RULE 144A), PURCHASING FOR ITS OWN ACCOUNT, TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY RULE 144A OR (2) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (REGULATION S), (B) IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN AND (C) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY OTHER RELEVANT JURISDICTION. NEITHER THE ISSUER NOR THE POOL OF COLLATERAL HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). NO TRANSFER OF A COMBINATION NOTE (OR ANY INTEREST THEREIN) MAY BE MADE (AND NEITHER THE ISSUER NOR THE COMBINATION NOTE REGISTRAR WILL RECOGNIZE ANY SUCH TRANSFER) IF (A) SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE WHO IS A U.S. PERSON THAT IS NOT (I) A "QUALIFIED PURCHASER" AS DEFINED IN SECTION 2(a)(51)(A) OF THE INVESTMENT COMPANY ACT OR (II) A COMPANY EACH OF WHOSE BENEFICIAL OWNERS IS A QUALIFIED PURCHASER, (ANY PERSON DESCRIBED IN CLAUSES (I) AND (II), A QUALIFIED PURCHASER), (B) SUCH TRANSFER WOULD HAVE THE EFFECT OF REQUIRING THE ISSUER OR THE COLLATERAL TO REGISTER AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT, (C) SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE THAT IS A U.S. PERSON WHICH IS A FLOW-THROUGH INVESTMENT VEHICLE OTHER THAN A QUALIFYING INVESTMENT VEHICLE (EACH AS DEFINED IN THE TRANSFER CERTIFICATE ATTACHED TO THE INDENTURE) OR (D) SUCH TRANSFER WOULD BE MADE TO A PERSON WHO IS OTHERWISE UNABLE TO MAKE THE CERTIFICATIONS AND REPRESENTATIONS REQUIRED OR DEEMED TO

256

BE MADE PURSUANT TO THE INDENTURE REFERRED TO HEREIN OR (E) SUCH TRANSFER WOULD BE MADE TO (I) A BENEFIT PLAN INVESTOR, AS DEFINED IN THE PLAN ASSET REGULATION ISSUED BY THE UNITED STATES DEPARTMENT OF LABOR, 29 C.F.R. SECTION 2510.3-101, (INCLUDING, FOR THIS PURPOSE THE GENERAL ACCOUNT OF AN INSURANCE COMPANY ANY OF THE UNDERLYING ASSETS OF WHICH CONSTITUTE "PLAN ASSETS" UNDER SECTION 401(c) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) OR A WHOLLY-OWNED SUBSIDIARY THEREOF). ACCORDINGLY, AN INVESTOR IN THE COMBINATION NOTES MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF THIS COMBINATION NOTE (OR AN INTEREST THEREIN) THAT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO A FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SIMILAR TO THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE UNITED STATES INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE) (A SIMILAR LAW) WILL BE DEEMED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN COMBINATION NOTES WILL NOT CONSTITUTE OR RESULT IN A VIOLATION OF ANY SIMILAR LAW. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF THIS NOTE (OR AN INTEREST THEREIN) WILL BE DEEMED TO REPRESENT, WARRANT AND COVENANT THAT (1) IT WILL NOT TRANSFER SUCH NOTE (OR INTEREST THEREIN) TO A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH COMBINATION NOTE OR SUBORDINATED NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE INITIAL PURCHASER, THE TRUSTEE, THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING CERTIFICATIONS, REPRESENTATIONS AND WARRANTIES THAT ARE APPLICABLE TO IT. THE INDENTURE PROVIDES THAT IF THE ISSUER DETERMINES THAT ANY HOLDER OR BENEFICIAL OWNER OF A COMBINATION NOTE (OR AN INTEREST THEREIN) IS A BENEFIT PLAN INVESTOR OR CONTROLLING PERSON, THE ISSUER SHALL REQUIRE, BY NOTICE TO SUCH HOLDER OR BENEFICIAL OWNER, THAT SUCH HOLDER OR BENEFICIAL OWNER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO SUCH COMBINATION NOTE (OR INTEREST THEREIN) TO A PERSON THAT IS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON AND OTHERWISE SATISFIES THE APPLICABLE REQUIREMENTS FOR HOLDING SUCH COMBINATION NOTE (OR INTEREST THEREIN) WITH SUCH SALE TO BE EFFECTED WITHIN 14 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH HOLDER OR BENEFICIAL OWNER FAILS TO EFFECT THE TRANSFER REQUIRED WITHIN SUCH 14-DAY PERIOD, (X) UPON WRITTEN DIRECTION FROM THE PORTFOLIO MANAGER OR THE ISSUER, THE TRUSTEE SHALL, AND WILL BE DEEMED TO BE IRREVOCABLY AUTHORIZED BY SUCH HOLDER OR BENEFICIAL OWNER TO, CAUSE SUCH HOLDER'S OR BENEFICIAL OWNER'S INTEREST IN SUCH SECURITY TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY THE PORTFOLIO MANAGER (CONDUCTED BY THE TRUSTEE IN ACCORDANCE WITH SECTION 9-610(B) OF THE UCC AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE TRUSTEE AND THE ISSUER, IN CONNECTION WITH SUCH TRANSFER, THAT SUCH PERSON IS NOT A BENEFIT

257

PLAN INVESTOR OR CONTROLLING PERSON AND OTHERWISE MEETS THE REQUIREMENTS FOR HOLDING SUCH COMBINATION NOTE (OR INTEREST THEREIN) AND (Y) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF THE INTEREST IN SUCH COMBINATION NOTE HELD BY SUCH HOLDER OR BENEFICIAL OWNER, AND THE INTEREST IN SUCH COMBINATION NOTE SHALL NOT BE DEEMED TO BE OUTSTANDING FOR THE PURPOSE OF ANY VOTE OR CONSENT OF THE HOLDERS OF THE COMBINATION NOTES. BENEFIT PLAN INVESTOR MEANS A BENEFIT PLAN INVESTOR AS DEFINED IN SECTION 3(42) OF ERISA AND INCLUDES (1) ANY EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF TITLE I OF ERISA, (2) ANY PLAN SUBJECT TO SECTION 4975 OF THE CODE, AND (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY FOR PURPOSES OF ERISA OR SECTION 4975 OF THE CODE, INCLUDING THE GENERAL ACCOUNT OF AN INSURANCE COMPANY, ANY OF WHOSE ASSETS CONSTITUTE PLAN ASSETS UNDER SECTION 401(c) OF ERISA AND A WHOLLYOWNED SUBSIDIARY THEREOF. CONTROLLING PERSONS INCLUDE PERSONS, OTHER THAN BENEFIT PLAN INVESTORS, HAVING DISCRETIONARY AUTHORITY OR CONTROL OVER THE ASSETS OF THE ISSUER OR PROVIDING INVESTMENT ADVICE WITH RESPECT TO THE ASSETS OF THE ISSUER FOR A FEE, DIRECT OR INDIRECT, OR ANY AFFILIATES OF SUCH PERSONS. FOR THIS PURPOSE, AN AFFILIATE OF A PERSON INCLUDES ANY PERSON, DIRECTLY OR INDIRECTLY, THROUGH ONE OR MORE INTERMEDIARIES, CONTROLLING, CONTROLLED BY, OR UNDER COMMON CONTROL WITH THE PERSON. CONTROL, WITH RESPECT TO A PERSON OTHER THAN AN INDIVIDUAL, MEANS THE POWER TO EXERCISE A CONTROLLING INFLUENCE OVER THE MANAGEMENT OR POLICIES OF SUCH PERSON. THE COMBINATION NOTES REPRESENTED HEREBY OR ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS ONLY IF THE PURCHASER IS (a)(1) A QUALIFIED INSTITUTIONAL BUYER AND (2) A QUALIFIED PURCHASER AND (b) ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, AND IN AN AMOUNT NOT LESS THAN THE MINIMUM DENOMINATION SPECIFIED IN THE INDENTURE. THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED TO A PERSON WHO ACQUIRES A BENEFICIAL INTEREST IN A REGULATION S GLOBAL COMBINATION NOTE CERTIFICATE UPON RECEIPT BY THE TRUSTEE OF A TRANSFER CERTIFICATE FROM THE TRANSFEROR SUBSTANTIALLY IN THE FORM SPECIFIED IN THE INDENTURE. IF, NOTWITHSTANDING THE RESTRICTIONS SET FORTH IN THE INDENTURE, THE ISSUER DETERMINES THAT ANY HOLDER OR BENEFICIAL OWNER OF A COMBINATION NOTE (OR AN INTEREST THEREIN) IS (X) IS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, OR THAT ANY SUCH HOLDER OR BENEFICIAL OWNER THAT REPRESENTED IT WAS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON WAS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON OR SUBSEQUENT TO THE PURCHASE OF SUCH COMBINATION NOTE (OR INTEREST THEREIN) IS OR HAS BECOME A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON OR (Y) (I) IS A U.S. PERSON AND (II) IS NOT BOTH (A) A QUALIFIED INSTITUTIONAL BUYER AND (B) A QUALIFIED PURCHASER, THE ISSUER MAY REQUIRE, BY NOTICE TO SUCH HOLDER THAT SUCH HOLDER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO THIS SECURITY (OR INTEREST HEREIN) TO A PERSON THAT IS NOT A BENEFIT PLAN INVESTOR AND IS BOTH (1) A QUALIFIED INSTITUTIONAL BUYER AND (2) A QUALIFIED PURCHASER, WITH SUCH SALE TO BE EFFECTED WITHIN 30 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH HOLDER FAILS TO EFFECT THE

258

TRANSFER REQUIRED WITHIN SUCH 30-DAY PERIOD, (X) UPON WRITTEN DIRECTION FROM THE PORTFOLIO MANAGER OR THE ISSUER, THE TRUSTEE SHALL, AND IS HEREBY IRREVOCABLY AUTHORIZED BY SUCH HOLDER TO, CAUSE SUCH HOLDER'S INTEREST IN THIS SECURITY TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY THE PORTFOLIO MANAGER (CONDUCTED BY TRUSTEE IN ACCORDANCE WITH SECTION 9-610 OF THE UCC AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE TRUSTEE, THE ISSUER AND THE PORTFOLIO MANAGER, IN CONNECTION WITH SUCH TRANSFER, THAT SUCH PERSON IS (1) A QUALIFIED INSTITUTIONAL BUYER, (2) A QUALIFIED PURCHASER AND (3) NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON AND (Y) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF THE INTEREST IN THIS SECURITY HELD BY SUCH HOLDER, AND THE INTEREST IN THIS SECURITY SHALL NOT BE DEEMED TO BE OUTSTANDING FOR THE PURPOSE OF ANY VOTE OR CONSENT OF THE HOLDERS OF THE COMBINATION NOTES. A COMPONENT OF THIS COMBINATION NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (OID) FOR U.S. FEDERAL INCOME TAX PURPOSES. THE ISSUE PRICE, AMOUNT OF OID, ISSUE DATE AND YIELD TO MATURITY OF THIS NOTE MAY BE OBTAINED BY WRITING TO: MANAGING DIRECTOR OF CDO DESK, GREENWICH CAPITAL MARKETS, INC., 600 STEAMBOAT ROAD, GREENWICH, CT 06830 (TEL: 203-618-2400). The following shall be inserted in the case of Regulation S Global Combination Notes: THIS COMBINATION NOTE CERTIFICATE REPRESENTS GLOBAL COMBINATION NOTES DEPOSITED WITH DTC ACTING AS DEPOSITORY, AND REGISTERED IN THE NAME OF CEDE & CO., A NOMINEE OF DTC, AND CEDE & CO., AS HOLDER OF RECORD, SHALL BE ENTITLED TO RECEIVE ALL DISTRIBUTIONS, OTHER THAN THE FINAL REDEMPTION AMOUNTS, BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS. THE STATEMENTS IN THE LEGEND RELATING TO DTC SET FORTH ABOVE ARE AN INTEGRAL PART OF THE TERMS OF THESE COMBINATION NOTES AND BY ACCEPTANCE THEREOF EACH HOLDER AGREES TO BE SUBJECT TO AND BOUND BY THE TERMS AND PROVISIONS SET FORTH IN SUCH LEGEND. UPON ANY SUCH EXCHANGE OR TRANSFER OF A BENEFICIAL INTEREST IN THIS COMBINATION NOTE CERTIFICATE FOR A DEFINITIVE COMBINATION NOTE CERTIFICATE OR FOR A RESTRICTED COMBINATION NOTE OR UPON ANY EXCHANGE OR TRANSFER OF A DEFINITIVE COMBINATION NOTE CERTIFICATE OR A RESTRICTED COMBINATION NOTE CERTIFICATE FOR AN INTEREST IN THIS COMBINATION NOTE CERTIFICATE IN ACCORDANCE WITH THE INDENTURE, THIS REGULATION S GLOBAL CERTIFICATE SHALL BE ENDORSED TO REFLECT THE CHANGE OF THE PRINCIPAL AMOUNT EVIDENCED HEREBY. (19) Legends for Subordinated Notes. The purchaser understands and agrees that a legend in substantially the following form will be placed on each certificate representing any Subordinated Notes unless otherwise determined by the Issuer:

259

THE SUBORDINATED NOTES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (A QUALIFIED INSTITUTIONAL BUYER) WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (RULE 144A), PURCHASING FOR ITS OWN ACCOUNT, TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON THE EXEMPTION FROM SECURITIES ACT REGISTRATION PROVIDED BY RULE 144A OR (2) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (REGULATION S), (B) IN COMPLIANCE WITH THE CERTIFICATION AND OTHER REQUIREMENTS SPECIFIED IN THE SUBORDINATED NOTE ISSUING AND PAYING AGENCY AGREEMENT REFERRED TO HEREIN AND (C) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY OTHER RELEVANT JURISDICTION. NEITHER THE ISSUER NOR THE COLLATERAL HAS BEEN REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). NO TRANSFER OF A SUBORDINATED NOTE (OR ANY INTEREST THEREIN) MAY BE MADE (AND NEITHER THE ISSUER NOR THE SUBORDINATED NOTE REGISTRAR WILL RECOGNIZE ANY SUCH TRANSFER) IF (A) SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE WHO IS A U.S. PERSON THAT IS NOT (I) A "QUALIFIED PURCHASER" AS DEFINED IN SECTION 2(a)(51)(A) OF THE INVESTMENT COMPANY ACT OR (II) A COMPANY EACH OF WHOSE BENEFICIAL OWNERS IS A QUALIFIED PURCHASER, (ANY PERSON DESCRIBED IN CLAUSES (I) AND (II), A QUALIFIED PURCHASER), (B) SUCH TRANSFER WOULD BE MADE TO (I) A BENEFIT PLAN INVESTOR, AS DEFINED IN THE PLAN ASSET REGULATION ISSUED BY THE UNITED STATES DEPARTMENT OF LABOR, 29 C.F.R. SECTION 2510.3-101, (INCLUDING, FOR THIS PURPOSE THE GENERAL ACCOUNT OF AN INSURANCE COMPANY ANY OF THE UNDERLYING ASSETS OF WHICH CONSTITUTE "PLAN ASSETS" UNDER SECTION 401(c) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) OR A WHOLLY-OWNED SUBSIDIARY THEREOF) OTHER THAN IN THE CASE OF A TRANSFER TO A BENEFIT PLAN INVESTOR THAT ACQUIRES AN INTEREST IN A SUBORDINATED NOTE ON THE CLOSING DATE AND THEN ONLY TO THE EXTENT THAT AFTER GIVING EFFECT TO SUCH TRANSFER, LESS THAN 25% OF THE VALUE OF THE SUBORDINATED NOTES WOULD BE HELD BY BENEFIT PLAN INVESTORS DISREGARDING SUBORDINATED NOTES HELD BY CONTROLLING PERSONS (C) SUCH TRANSFER WOULD BE MADE TO A TRANSFEREE THAT IS A U.S. PERSON WHICH IS A FLOW-THROUGH INVESTMENT VEHICLE OTHER THAN A QUALIFYING INVESTMENT VEHICLE (EACH AS DEFINED IN THE TRANSFER CERTIFICATE ATTACHED TO THE SUBORDINATED NOTE ISSUING AND PAYING AGENCY AGREEMENT), OR (D) SUCH TRANSFER WOULD BE MADE TO A PERSON WHO IS OTHERWISE UNABLE TO MAKE THE CERTIFICATIONS AND REPRESENTATIONS REQUIRED OR DEEMED TO BE MADE PURSUANT TO THE SUBORDINATED NOTE ISSUING AND PAYING AGENCY AGREEMENT REFERRED TO HEREIN. AN INTEREST IN A REGULATION S GLOBAL SUBORDINATED NOTE MAY BE HELD ONLY THROUGH EUROCLEAR OR CLEARSTREAM, LUXEMBOURG. ACCORDINGLY, AN INVESTOR IN THE SUBORDINATED NOTES MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. EACH ORIGINAL PURCHASER OF THIS SUBORDINATED NOTE (OR AN INTEREST

260

THEREIN) WILL BE REQUIRED CERTIFY (OR IN CERTAIN CIRCUMSTANCES WILL BE DEEMED TO REPRESENT AND WARRANT ) WHETHER OR NOT IT IS, OR IS ACTING ON BEHALF OF, A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND THAT IT COVENANTS AND AGREES TO NOTIFY THE SUBORDINATED NOTE ISSUING AND PAYING AGENT IN THE EVENT THAT THE FOREGOING INFORMATION IS NO LONGER CORRECT. EACH SUBSEQUENT TRANSFEREE OF THIS SUBORDINATED NOTE (OR AN INTEREST THEREIN) WILL BE REQUIRED TO CERTIFY (OR IN CERTAIN CIRCUMSTANCES WILL BE DEEMED TO REPRESENT AND WARRANT) THAT IT IS NOT, AND FOR SO LONG AS IT HOLDS SUCH SUBORDINATED NOTE (OR INTEREST THEREIN) WILL NOT BE, A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON. EACH ORIGINAL PURCHASER OF THIS SUBORDINATED NOTE (OR AN INTEREST THEREIN) THAT IS A BENEFIT PLAN INVESTOR WILL BE REQUIRED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN SUBORDINATED NOTES WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION IN VIOLATION OF SECTION 406 OF THE UNITED STATES EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA) OR SECTION 4975 OF THE UNITED STATES INTERNAL REVENUE CODE. OF 1986, AS AMENDED (THE CODE). EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF THIS NOTE (OR AN INTEREST THEREIN) THAT IS A GOVERNMENTAL, CHURCH OR NON-U.S. PLAN THAT IS SUBJECT TO A FEDERAL, STATE, LOCAL OR NON-U.S. LAW THAT IS SIMILAR TO THE PROHIBITED TRANSACTION PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE (A SIMILAR LAW) WILL BE DEEMED TO REPRESENT AND WARRANT THAT ITS INVESTMENT IN SUBORDINATED NOTES WILL NOT CONSTITUTE OR RESULT IN A VIOLATION OF ANY SIMILAR LAW. EACH ORIGINAL PURCHASER AND EACH SUBSEQUENT TRANSFEREE OF THIS NOTE (OR AN INTEREST THEREIN) WILL BE DEEMED TO REPRESENT, WARRANT AND COVENANT THAT (1) IT WILL NOT TRANSFER SUCH NOTE (OR INTEREST THEREIN) TO A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, AND (2) IT AND ANY FIDUCIARY CAUSING IT TO ACQUIRE SUCH SUBORDINATED NOTE OR SUBORDINATED NOTE AGREE, TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TO INDEMNIFY AND HOLD HARMLESS THE ISSUER, THE INITIAL PURCHASER, THE SUBORDINATED NOTE ISSUING AND PAYING AGENT AND THE PORTFOLIO MANAGER AND THEIR RESPECTIVE AFFILIATES FROM ANY COST, DAMAGE OR LOSS INCURRED BY THEM AS A RESULT OF ITS BREACH OF THE FOREGOING CERTIFICATIONS, REPRESENTATIONS AND WARRANTIES THAT ARE APPLICABLE TO IT. BENEFIT PLAN INVESTOR MEANS A BENEFIT PLAN INVESTOR AS DEFINED IN SECTION 3(42) OF ERISA AND INCLUDES (1) ANY EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF TITLE I OF ERISA, (2) ANY PLAN SUBJECT TO SECTION 4975 OF THE CODE, AND (3) ANY ENTITY WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY FOR PURPOSES OF ERISA OR SECTION 4975 OF THE CODE, INCLUDING THE GENERAL ACCOUNT OF AN INSURANCE COMPANY, ANY OF WHOSE ASSETS CONSTITUTE PLAN ASSETS UNDER SECTION 401(c) OF ERISA AND A WHOLLY-OWNED SUBSIDIARY THEREOF. CONTROLLING PERSONS INCLUDE PERSONS, OTHER THAN BENEFIT PLAN INVESTORS, HAVING DISCRETIONARY AUTHORITY OR CONTROL OVER THE ASSETS OF THE ISSUER OR PROVIDING INVESTMENT ADVICE WITH RESPECT TO THE ASSETS OF THE ISSUER FOR A FEE, DIRECT OR INDIRECT, OR ANY AFFILIATES OF SUCH PERSONS. FOR THIS PURPOSE, AN AFFILIATE OF A PERSON INCLUDES ANY PERSON, DIRECTLY OR INDIRECTLY, THROUGH ONE OR MORE INTERMEDIARIES, CONTROLLING, CONTROLLED BY, OR UNDER COMMON

261

CONTROL WITH THE PERSON. CONTROL, WITH RESPECT TO A PERSON OTHER THAN AN INDIVIDUAL, MEANS THE POWER TO EXERCISE A CONTROLLING INFLUENCE OVER THE MANAGEMENT OR POLICIES OF SUCH PERSON. IF THE ISSUER DETERMINES THAT ANY HOLDER OR BENEFICIAL OWNER OF A SUBORDINATED NOTE (OR AN INTEREST THEREIN) IS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON (OTHER THAN A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON THAT ACQUIRED THIS SUBORDINATED NOTE (OR INTEREST THEREIN) ON THE CLOSING DATE, AND THEN ONLY IF IMMEDIATELY AFTER SUCH TRANSFER LESS THAN 25% OF THE AGGREGATE VALUE OF THE SUBORDINATED NOTES WAS HELD BY BENEFIT PLAN INVESTORS, DISREGARDING SUBORDINATED NOTES HELD BY CONTROLLING PERSONS), OR THAT ANY SUCH HOLDER OR BENEFICIAL OWNER THAT REPRESENTED IT WAS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON WAS A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON OR SUBSEQUENT TO THE PURCHASE OF SUCH SUBORDINATED NOTE (OR INTEREST THEREIN) IS OR HAS BECOME A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, THE ISSUER SHALL REQUIRE, BY NOTICE TO SUCH HOLDER OR BENEFICIAL OWNER, THAT SUCH HOLDER OR BENEFICIAL OWNER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO SUCH SUBORDINATED NOTE (OR INTEREST THEREIN) TO A PERSON THAT IS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON AND OTHERWISE SATISFIES THE APPLICABLE REQUIREMENTS FOR HOLDING SUCH SUBORDINATED NOTE (OR INTEREST THEREIN) WITH SUCH SALE TO BE EFFECTED WITHIN 14 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH HOLDER OR BENEFICIAL OWNER FAILS TO EFFECT THE TRANSFER REQUIRED WITHIN SUCH 14-DAY PERIOD, (X) UPON WRITTEN DIRECTION FROM THE PORTFOLIO MANAGER OR THE ISSUER, THE SUBORDINATED NOTE ISSUING AND PAYING AGENT SHALL, AND WILL BE DEEMED TO BE IRREVOCABLY AUTHORIZED BY SUCH HOLDER OR BENEFICIAL OWNER TO, CAUSE SUCH HOLDER'S OR BENEFICIAL OWNER'S INTEREST IN SUCH SUBORDINATED NOTE TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY THE PORTFOLIO MANAGER (CONDUCTED BY THE SUBORDINATED NOTE ISSUING AND PAYING AGENT IN ACCORDANCE WITH SECTION 9-610(B) OF THE UCC AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE SUBORDINATED NOTE REGISTRAR AND THE ISSUER, IN CONNECTION WITH SUCH TRANSFER, THAT SUCH PERSON IS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON AND OTHERWISE MEETS THE REQUIREMENTS FOR HOLDING SUCH SUBORDINATED NOTE (OR INTEREST THEREIN) AND (Y) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF THE INTEREST IN SUCH SUBORDINATED NOTE HELD BY SUCH HOLDER OR BENEFICIAL OWNER, AND THE INTEREST IN SUCH SUBORDINATED NOTE SHALL NOT BE DEEMED TO BE OUTSTANDING FOR THE PURPOSE OF ANY VOTE OR CONSENT OF THE HOLDERS OF THE SUBORDINATED NOTES. THE SUBORDINATED NOTES REPRESENTED HEREBY OR ANY BENEFICIAL INTEREST HEREIN MAY BE TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS ONLY IF THE PURCHASER IS (a)(1) A QUALIFIED INSTITUTIONAL BUYER AND (2) A QUALIFIED PURCHASER AND (b) ACQUIRING THE SECURITIES FOR ITS OWN ACCOUNT, AND IN AN AMOUNT NOT LESS THAN THE MINIMUM DENOMINATION SPECIFIED IN THE SUBORDINATED NOTE ISSUING AND PAYING AGENCY AGREEMENT. THIS SECURITY OR ANY BENEFICIAL INTEREST HEREIN

262

MAY BE TRANSFERRED TO A PERSON WHO ACQUIRES A BENEFICIAL INTEREST IN A REGULATION S SUBORDINATED NOTE CERTIFICATE UPON RECEIPT BY THE SUBORDINATED NOTE ISSUING AND PAYING AGENT OF A TRANSFER CERTIFICATE FROM THE TRANSFEROR SUBSTANTIALLY IN THE FORM SPECIFIED IN THE SUBORDINATED NOTE ISSUING AND PAYING AGENCY AGREEMENT. IF, NOTWITHSTANDING THE RESTRICTIONS SET FORTH IN THE SUBORDINATED NOTE ISSUING AND PAYING AGENCY AGREEMENT, THE ISSUER DETERMINES THAT ANY HOLDER OR BENEFICIAL OWNER OF THIS SECURITY OR AN INTEREST HEREIN (I) IS A U.S. PERSON AND (II) IS NOT BOTH (A) A QUALIFIED INSTITUTIONAL BUYER AND (B) A QUALIFIED PURCHASER, THE ISSUER SHALL REQUIRE, BY NOTICE TO SUCH HOLDER OR BENEFICIAL OWNER, THAT SUCH HOLDER OR BENEFICIAL OWNER SELL ALL OF ITS RIGHT, TITLE AND INTEREST TO THIS SECURITY (OR INTEREST HEREIN) TO A PERSON THAT IS (1) A QUALIFIED INSTITUTIONAL BUYER, (2) A QUALIFIED PURCHASER AND (3) IS NOT A BENEFIT PLAN INVESTOR OR A CONTROLLING PERSON, WITH SUCH SALE TO BE EFFECTED WITHIN 30 DAYS AFTER NOTICE OF SUCH SALE REQUIREMENT IS GIVEN. IF SUCH HOLDER OR BENEFICIAL OWNER FAILS TO EFFECT THE TRANSFER REQUIRED WITHIN SUCH 30-DAY PERIOD, (X) UPON WRITTEN DIRECTION FROM THE PORTFOLIO MANAGER OR THE ISSUER, THE SUBORDINATED NOTE ISSUING AND PAYING AGENT SHALL, AND IS HEREBY IRREVOCABLY AUTHORIZED BY SUCH HOLDER TO, CAUSE SUCH HOLDER'S OR BENEFICIAL OWNER’S INTEREST IN THIS SECURITY TO BE TRANSFERRED IN A COMMERCIALLY REASONABLE SALE ARRANGED BY AN INVESTMENT BANK SELECTED BY THE PORTFOLIO MANAGER (CONDUCTED BY SUCH INVESTMENT BANK IN ACCORDANCE WITH SECTION 9610(b) OF THE UCC AS IN EFFECT IN THE STATE OF NEW YORK AS APPLIED TO SECURITIES THAT ARE SOLD ON A RECOGNIZED MARKET OR THAT ARE THE SUBJECT OF WIDELY DISTRIBUTED STANDARD PRICE QUOTATIONS) TO A PERSON THAT CERTIFIES TO THE SUBORDINATED NOTE ISSUING AND PAYING AGENT, THE ISSUER AND THE PORTFOLIO MANAGER, IN CONNECTION WITH SUCH TRANSFER, THAT SUCH PERSON IS (1) A QUALIFIED INSTITUTIONAL BUYER, (2) A QUALIFIED PURCHASER, AND (3) NOT A BENEFIT PLAN INVESTOR (INCLUDING, FOR THIS PURPOSE THE GENERAL ACCOUNT OF AN INSURANCE COMPANY ANY OF THE UNDERLYING ASSETS OF WHICH CONSTITUTE "PLAN ASSETS" UNDER SECTION 401(c) OF ERISA OR A WHOLLY-OWNED SUBSIDIARY THEREOF) OR A CONTROLLING PERSON, AND (Y) PENDING SUCH TRANSFER, NO FURTHER PAYMENTS WILL BE MADE IN RESPECT OF THE INTEREST IN THIS SECURITY HELD BY SUCH HOLDER OR BENEFICIAL OWNER, AND THE INTEREST IN THIS SECURITY SHALL NOT BE DEEMED TO BE OUTSTANDING FOR THE PURPOSE OF ANY VOTE OR CONSENT OF THE HOLDERS OF THE SUBORDINATED NOTES. The following shall be inserted in the case of Regulation S Global Subordinated Notes: THIS SUBORDINATED NOTE CERTIFICATE REPRESENTS REGULATION S GLOBAL SUBORDINATED NOTES DEPOSITED WITH DTC ACTING AS DEPOSITORY, AND REGISTERED IN THE NAME OF CEDE & CO., A NOMINEE OF DTC, AND CEDE & CO., AS HOLDER OF RECORD, SHALL BE ENTITLED TO RECEIVE ALL DISTRIBUTIONS, OTHER THAN THE FINAL REDEMPTION AMOUNTS, BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE FUNDS. THE STATEMENTS IN THE LEGEND RELATING TO DTC SET FORTH ABOVE ARE AN INTEGRAL PART OF THE TERMS OF THESE SUBORDINATED NOTES AND BY ACCEPTANCE THEREOF EACH HOLDER AGREES

263

TO BE SUBJECT TO AND BOUND BY THE TERMS AND PROVISIONS SET FORTH IN SUCH LEGEND. UPON ANY SUCH EXCHANGE OR TRANSFER OF A BENEFICIAL INTEREST IN THIS SUBORDINATED NOTE CERTIFICATE FOR A DEFINITIVE SUBORDINATED NOTE CERTIFICATE OR FOR A RESTRICTED SUBORDINATED NOTE CERTIFICATE OR UPON ANY EXCHANGE OR TRANSFER OF A DEFINITIVE SUBORDINATED NOTE CERTIFICATE OR A RESTRICTED SUBORDINATED NOTE CERTIFICATE FOR AN INTEREST IN THIS SUBORDINATED NOTE CERTIFICATE IN ACCORDANCE WITH THE SUBORDINATED NOTE ISSUING AND PAYING AGENCY AGREEMENT, THIS REGULATION S GLOBAL SUBORDINATED NOTE CERTIFICATE SHALL BE ENDORSED TO REFLECT THE CHANGE OF THE PRINCIPAL AMOUNT EVIDENCED HEREBY. THIS SUBORDINATED NOTE OR ANY BENEFICIAL INTEREST HEREIN MAY NOT BE HELD BY A U.S. PERSON AT ANY TIME. (20) The purchaser acknowledges that it is its intent and that it understands it is the intent of the Issuer that for U.S. Federal, state and local income and franchise tax purposes, the Issuer will be treated as a corporation, the Secured Notes will be treated as debt of the Issuer only and not of the Co-Issuer, the Subordinated Notes will be treated as equity in the Issuer, and the Combination Notes will be treated as direct ownership of the Class D Notes and Subordinated Notes that constitute the underlying Class D Note Component and Subordinated Note Component; it agrees to such treatment, to report all income (or loss) in accordance with such treatment and to take no action inconsistent with such treatment unless otherwise required by any relevant taxing authority. (21) The beneficial owner, if it is not a "United States person" as defined in Section 7701(a)(30) of the Code, is not acquiring any Note as part of a plan to reduce, avoid or evade U.S. Federal income taxes owing or potentially owed or owing. (22) The purchaser (a) is a United States person for U.S. Federal income tax purposes and is providing with this certificate a duly completed IRS Form W-9 or (b) is exempt from U.S. withholding tax on payments on the Notes and is providing with this certificate the appropriate duly completed IRS Form W-8 certifying its entitlement to such exemption. (23) Each purchaser of a Global Security understands that the Issuer may receive a list of participants holding positions in such Notes from one or more book-entry depositaries including DTC, Euroclear and Clearstream, Luxembourg. Investor Representations on Resale Except as provided below, each transferor and transferee of a Note will be required to deliver a duly executed transferee certificate in the form of the relevant exhibit attached to the Indenture or the Subordinated Note Issuing and Paying Agency Agreement, as the case may be, and such other certificates and other information as the Issuer, the Co-Issuer, the Trustee or the Subordinated Note Issuing and Paying Agent may reasonably require to confirm that the proposed transfer complies with the transfer restrictions contained in this Offering Memorandum and the Indenture or the Subordinated Note Issuing and Paying Agency Agreement, as applicable.

264

An owner of a beneficial interest in a Restricted Global Investment Grade Funded Secured Note may transfer such interest in the form of a beneficial interest in such Restricted Global Investment Grade Funded Secured Note without the provision of written certification, provided that such transfer is made (a) to a transferee that (i) is a Qualified Institutional Buyer, purchasing for its own account, to whom notice is given that the resale, pledge or other transfer is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A that is a Qualified Purchaser and (ii) is not a Flow-Through Investment Vehicle (other than a Qualifying Investment Vehicle) or, if such transferee is a Flow-Through Investment Vehicle (other than a Qualifying Investment Vehicle), has represented and warranted that it has only one class of securities outstanding (other than any nominal share capital the distributions in respect of which are not correlated to or dependent upon distributions on, or the performance of, the Notes), (b) in accordance with any applicable securities laws of any State of the United States or any other jurisdiction and (c) only in accordance with the Applicable Procedures. An owner of a beneficial interest in a Regulation S Global Subordinated Note or Regulation S Global Combination Note may transfer such interest in the form of a beneficial interest in such Regulation S Global Subordinated Note or Regulation S Global Combination Note without the provision of written certification, provided that such transfer is not made to a U.S. Person or for the account or benefit of a U.S. Person and such transfer is effected in an offshore transaction as required by Regulation S and only in accordance with the Applicable Procedures. No Class E Note or Subordinated Note may be transferred after the Closing Date to a Plan Investor or a Controlling Person. No Combination Note may be transferred at any time to a Benefit Plan Investor. Each transferee of a Note that is required to deliver a transfer certificate will be required, pursuant to such transferee certificate, and each transferee that is not required to deliver a certificate will be deemed (a) to acknowledge, represent to and agree with the Co-Issuers and the Trustee (in the case of a Secured Note) or the Issuer and the Subordinated Note Issuing and Paying Agent (in the case of a Subordinated Note or Combination Note) as to the matters set forth in each of paragraphs (1) through (23) under "—Representations by Purchasers" above (other than paragraphs (5) and (6) under "— Representations by Purchasers" above) as if each reference therein to "the purchaser" were instead a reference to the transferee and (b) to further represent to and agree with the Co-Issuers and the Trustee (in the case of a Secured Note) or to the Issuer and the Subordinated Note Issuing and Paying Agent (in the case of a Subordinated Note or Combination Note) as follows: (1) In the case of a transferee who takes delivery of a Restricted Security (or a beneficial interest therein), it is a Qualified Institutional Buyer and also a Qualified Purchaser and is acquiring such Restricted Security (or beneficial interest therein) for its own account and is aware that such transfer is being made to it in reliance on Rule 144A. In addition, if such transferee is acquiring a beneficial interest in a Restricted Global Investment Grade Funded Secured Note, it (i) is not a dealer described in paragraph (a)(1)(ii) of Rule 144A unless such purchaser owns and invests on a discretionary basis at least U.S.$25,000,000 in securities of issuers that are not affiliated persons of the dealer, (ii) is not a plan referred to in paragraph (a)(1)(i)(D) or (a)(1)(i)(E) of Rule 144A, or a trust fund referred to in paragraph (a)(1)(i)(F) of Rule 144A that holds the assets of such a plan, unless investment decisions with respect to the plan are made solely by the fiduciary, trustee or sponsor of such plan and (iii) it will provide written notice of the foregoing, and of any applicable restrictions on transfer, to any transferee. (2) In the case of a transferee who takes delivery of a Regulation S Security (or a beneficial interest therein), it is not a U.S. Person and (i) is acquiring such Regulation S Security

265

(or beneficial interest therein) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S, (ii) is acquiring such Regulation S Security for its own account and not for the account or benefit of a U.S. Person, (iii) is not acquiring, and has not entered into any discussions regarding its acquisition of, such Regulation S Security while it is in the United States or any of its territories or possessions, (iv) understands that such Regulation S Security is being sold without registration under the Securities Act by reason of an exemption that depends, in part, on the accuracy of these representations and (v) understands that such Regulation S Security may not, absent an applicable exemption, be transferred without registration and/or qualification under the Securities Act and applicable state securities laws and the laws of any other applicable jurisdiction. (3) It acknowledges that the foregoing acknowledgements, representations and agreements will be relied upon by the Co-Issuers and the Trustee (in the case of a Secured Note) or the Issuer and the Subordinated Note Issuing and Paying Agent (in the case of a Subordinated Note or Combination Note) for the purpose of determining its eligibility to purchase Notes. It agrees to provide, if requested, any additional information that may be required to substantiate or confirm its status as a Qualified Institutional Buyer or under the exception provided pursuant to Section 3(c)(7) of the Investment Company Act, to determine compliance with ERISA and/or Section 4975 of the Code or to otherwise determine its eligibility to purchase Notes.

266

LISTING AND GENERAL INFORMATION 1.

Application has been made to the Irish Financial Services Regulatory Authority, as competent authority under Directive 2003/71/EC, for a prospectus (the "Prospectus") to be approved. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulated market.

2.

For the life of the Prospectus, copies of the Issuer Charter, the Certificate of Incorporation and By-Laws of the Co-Issuer, the Administration Agreement, the Indenture, the Variable Funding Note Purchase Agreement, the Credit Default Swap Agreement, the Subordinated Note Issuing and Paying Agency Agreement, the Collateral Administration Agreement, form of Investor Application Form, the Management Agreement and the Hedge Agreements will be available for inspection and the transfer certificates will be available for inspection at the offices of the Issuer, where copies thereof may be obtained, in physical and electronic form, upon request. The Issuer is not required by Cayman Islands law, and the Issuer does not intend, to publish annual reports and accounts. The Co-Issuer is not required by Delaware state law, and the Co-Issuer does not intend, to publish annual reports and accounts. The Indenture, however, requires the Issuer to provide the Trustee with a written certificate, on an annual basis, that to the best of its knowledge following review of the activities of the prior year, no Event of Default has occurred or if there has been an Event of Default, the certificate shall set forth the nature and status thereof, including actions undertaken to remedy the same.

3.

Copies of the Issuer Charter, the Certificate of Incorporation and By-Laws of the Co-Issuer, the Administration Agreement, form of Investor Application Form, the resolutions of the Board of Directors of the Issuer authorizing the issuance of the Secured Notes and Subordinated Notes and the execution of the Indenture, the Variable Funding Note Purchase Agreement, the Credit Default Swap Agreement, the Subordinated Note Issuing and Paying Agency Agreement, the Collateral Administration Agreement, the Management Agreement and the Hedge Agreement and the resolutions of the independent manager of the Co-Issuer authorizing the issuance of the Secured Notes and the Indenture will be available for inspection during the term of the Secured Notes in the city of Columbia, Maryland at the office of the Trustee.

4.

So long as any Notes are listed on the Irish Stock Exchange, copies of the monthly reports and quarterly note valuation reports with respect to the Notes and the Collateral Debt Securities will be prepared in accordance with the Indenture by, respectively, the Collateral Administrator (acting on behalf of the Issuer) and the Issuer, and will be obtainable free of charge upon request at the offices of, respectively, the Collateral Administrator and the Issuer. The monthly reports will be prepared each month (excluding any month in which a quarterly noteholder report is prepared), beginning with the monthly report for January 2007, and the quarterly note valuation reports will be prepared with respect to each Distribution Date beginning with the first Distribution Date.

5.

The Issuer was incorporated under the Companies Law (2004 Revision) of the Cayman Islands. Cayman Islands company law combined with the holding structure of the Issuer, covenants made by the Issuer in the transaction documents and the role of the Trustee are together intended to prevent any abuse of control of the Issuer.

6.

The Issuer has not, since its incorporation, and the Co-Issuer has not, since its formation, been involved in any governmental, litigation or arbitration proceedings relating to claims in amounts which may have or have had a significant effect on the Co-Issuers in the context of the issue of

267

the Notes, nor, so far as either of the Co-Issuers is aware, is any such governmental, litigation or arbitration proceedings involving either of them pending or threatened. 7.

The issuance of the Notes was authorized by the Board of Directors of the Issuer on or about the Closing Date. The issuance of the Secured Notes was authorized by the independent manager of the Co-Issuer on or about the Closing Date.

8.

According to the guidelines of the Irish Stock Exchange, the Secured Notes shall be freely transferable.

9.

Notes sold in offshore transactions in reliance on Regulation S and represented by Global Securities have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The table below lists the CUSIP (CINS) Numbers and the International Securities Identification Numbers (ISIN) for Notes represented by Global Securities.

Class A1-VF Notes Class A2A Notes Class A2B Notes Class B1 Notes Class B2 Notes Class C Notes Class D notes Class E Notes Subordinated Notes Combination Notes

Regulation S Global Note CUSIP Numbers

Restricted Note CUSIP Numbers

Regulation S International Securities Identification Numbers

G18596AA7 G18596AB5 G18596AH2 G18596AC3 G18596AD1 G18596AE9 G18596AF6 G18596AG4 G18594AA2 G18594AB0

12777CAA7 12777CAB5 12777CAQ2 12777CAC3 12777CAD1 12777CAE9 12777CAF6 12777CAG4 12777DAA5 12777DAC1

USG18596AA77 USG18596AB50 USG18596AH21 USG18596AC34 USG18596AD17 USG18596AE99 USG18596AF64 USG18596AG48 USG18594AA20 USG18594AB03

Restricted International Securities Identification Numbers

US12777CAA71 US12777CAB54 US12777CAQ24 US12777CAC38 US12777CAD11 US12777CAE93 US12777CAF68 US12777CAG42 US12777DAA54 US12777DAC11

10.

There are no restrictions on the Initial Purchaser, the Portfolio Manager or any of their Affiliates, amongst others, acquiring the Notes and/or providing investment advice and/or financing to or for third parties. Consequently, conflicts of interest may exist or arise as a result of such entities having different roles in this transaction and/or carrying out transactions for third parties.

11.

The Issuer confirms that the assets backing the issue of the Notes, taken together with the other arrangements to be entered into by the Issuer on the Closing Date (including those described in "Summary of Terms"), have characteristics that demonstrate capacity to produce funds to service any payments due and payable on the Notes.

12.

The total expenses related to the admission to trading of the Notes on the Irish Stock Exchange are estimated at approximately €30,000.

268

LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for the Issuer by Freshfields Bruckhaus Deringer LLP, New York, New York. Certain matters with respect to Cayman Islands corporate law and tax law will be passed upon for the Issuer by Walkers. Certain legal matters with respect to the Portfolio Manager will be passed upon by Milbank, Tweed, Hadley & McCloy LLP. Certain legal matters with respect to the Initial Purchaser will be passed upon by Freshfields Bruckhaus Deringer LLP, New York, New York.

269

EXHIBIT A - GLOSSARY OF CERTAIN DEFINED TERMS Following is a glossary of certain defined terms used in this Offering Memorandum. Defined terms not appearing in this glossary are referenced in the Index of Certain Defined Terms.

"ABS CDO Security" means (i) any CDO Security that entitles the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CDO Securities) primarily on the credit exposure to, or cash flow from, a portfolio consisting of Asset-Backed Securities, (ii) any security issued by an investment vehicle whose assets (or substantially all of its assets) consist of notes issued by any CDO, the collateral for the payment obligations of which consists of Asset-Backed Securities and (iii) any Synthetic ABS CDO Security. "ABS Chassis Securities" means Asset-Backed Securities (other than Aircraft Leasing Securities, Oil and Gas Securities, Project Finance Securities and Restaurant and Food Services Securities) that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from leases and subleases of chassis (other than automobiles) to commercial and industrial customers, generally having the following characteristics: (1) the leases and subleases have varying contractual maturities; (2) the leases or subleases are obligations of a relatively limited number of obligors and accordingly represent an undiversified pool of obligor credit risk; (3) the repayment stream on such leases and subleases is primarily determined by a contractual payment schedule, with early termination of such leases and subleases predominantly dependent upon the disposition to a lessee, sublessee or third party of the underlying chassis; and (4) such leases or subleases typically provide for the right of the lessee or sublessee to purchase the chassis for their stated residual value, subject to payments at the end of lease term for excess usage. "ABS Container Securities" means Asset-Backed Securities (other than Aircraft Leasing Securities, Oil and Gas Securities, Project Finance Securities and Restaurant and Food Services Securities) that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from leases and subleases of containers to commercial and industrial customers, generally having the following characteristics: (1) the leases and subleases have varying contractual maturities; (2) the leases or subleases are obligations of a relatively limited number of obligors and accordingly represent an undiversified pool of obligor credit risk; (3) the repayment stream on such leases and subleases is primarily determined by a contractual payment schedule, with early termination of such leases and subleases predominantly dependent upon the disposition to a lessee, sublessee or third party of the underlying containers; and (4) such leases or subleases typically provide for the right of the lessee or sublessee to purchase the containers for their stated residual value, subject to payments at the end of lease term for excess usage. "ABS Natural Resource Receivable Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend on the cash flow from the sale of products derived from the right to harvest, mine, extract or exploit a natural resource such as timber, oil, gas and minerals, generally having the following characteristics: (i) the contracts have standardized payment terms, (ii) the contracts are the obligations of a few consumers of natural resources and accordingly represent an undiversified pool of credit risk and (iii) the repayment stream on such contracts is primarily determined by a contractual payment schedule.

270

"ABS Type Diversified Securities" means (1) Automobile Securities; (2) Car Rental Receivable Securities; (3) Credit Card Securities; (4) Student Loan Securities; and (5) any other type of Asset-Backed Securities that become a Specified Type after the Closing Date as described below and are designated as "ABS Type Diversified Securities" in connection therewith. "ABS Type Residential Securities" means (1) Manufactured Housing Securities; (2) Mid-Prime Residential Mortgage Securities; (3) Prime Residential Mortgage Securities; (4) Sub-Prime Residential Mortgage Securities and (5) any other type of Asset-Backed Securities that become a Specified Type after the Closing Date as described below and are designated as "ABS Type Residential Securities" in connection therewith. "ABS Type Undiversified Securities" means each Specified Type of Asset-Backed Securities, other than (a) ABS Type Diversified Securities or (b) ABS Type Residential Securities; and any other type of Asset-Backed Securities that become a Specified Type after the Closing Date as described below and are designated as "ABS Type Undiversified Securities" in connection therewith. "Account Withdrawal Payment Priority" means, with respect to each Permitted Use, the application to such Permitted Use of (x) all funds and other property standing to the credit of the Accounts (excluding any amount irrevocably designated for withdrawal therefrom for application to another purpose permitted under the Indenture) specified below and (y) Borrowings and Deemed Borrowings under the Class A1-VF Notes, in each case in the order of seniority specified below: (a) in the case of CDS Termination Payments, Credit Protection Payments (other than Credit Protection Payments in respect of Interest Shortfalls) and Physical Settlement Amounts payable by the Issuer under Unhedged Long CDS Transactions and CDS Termination Payments payable by the Issuer under any CDS Transaction, (i) first, the Uninvested Proceeds Account, (ii) second, the Principal Collection Account, (iii) third, the Reserve Account and (iv) fourth, subject to the conditions precedent thereto set forth in the Variable Funding Note Purchase Agreement, Borrowings and Deemed Borrowings under the Class A1-VF Notes; (b) in the case of payments pursuant to paragraph (1)(b) under "Priority of Payments-Principal Proceeds", (i) first, the Interest Collection Account, (ii) second, the Uninvested Proceeds Account, (iii) third, the Principal Collection Account, (iv) fourth, the Reserve Account, and (v) fifth, subject to the conditions precedent thereto set forth in the Variable Funding Note Purchase Agreement, Borrowings and Deemed Borrowings under the Class A-S1VF Notes; and (c) in the case of Credit Protection Payments in respect of Interest Shortfalls, (i) first, the Interest Collection Account, (ii) second, the Uninvested Proceeds Account, (iii) third, the Principal Collection Account, (iv) fourth, the Reserve Account, (v) fifth, the Class A1-VF Noteholder Account and (vi) sixth, subject to the conditions precedent thereto set forth in the Variable Funding Note Purchase Agreement, Borrowings and Deemed Borrowings under the Class A1-VF Notes. "Accounts" means any of the Interest Collection Account, the Principal Collection Account, the Uninvested Proceeds Account, each Synthetic Security Issuer Account, each Synthetic Security Counterparty Account, the Payment Account, the Expense Account, the Custodial Account, the Reserve Account, any Class A1-VF Prepayment Account, each Hedge Counterparty Collateral Account, the SemiAnnual Interest Reserve Account, the Reinvestment Account, the Class A1-VF Noteholder Account, each Asset Hedge Account and any subaccount thereof that the Trustee deems necessary or appropriate. "Acquire" means any purchase or other acquisition by the Issuer of, or entry by the Issuer into, any Collateral Debt Security, Equity Security, U.S. Agency Security, Eligible Investment, Reserve

271

Account Investment or Synthetic Security Collateral which, for purposes of determining the date of such acquisition or entry, shall be deemed to occur on the trade date of the transaction pursuant to which such Collateral Debt Security, Equity Security, U.S. Agency Security, Eligible Investment, Reserve Account Investment or Synthetic Security Collateral is acquired or entered into (or, if a Hedging Short CDS Transaction is terminated when the related Long CDS Transaction remains in effect), assuming for these purposes, settlement on the specified settlement date in accordance with the customary settlement procedures in the relevant market for such Collateral Debt Security, Equity Security, U.S. Agency Security, Eligible Investment, Reserve Account Investment or Synthetic Security Collateral; provided that (1) if such transaction does not settle by its customary settlement date, such Collateral Debt Security, Equity Security, U.S. Agency Security, Eligible Investment, Reserve Account Investment or Synthetic Security Collateral will be deemed not to have been "Acquired" by the Issuer for purposes of this definition until settlement is actually effected, (2) if at any time the Portfolio Manager or the Trustee determines in good faith that the relevant transaction will not settle by its customary settlement date, then such Collateral Debt Security, Equity Security, U.S. Agency Security, Eligible Investment, Reserve Account Investment or Synthetic Security Collateral will, immediately upon such determination, be deemed not to have been "Acquired" by the Issuer for purposes of this definition until settlement is actually effected and (3) the term "Acquisition" shall be construed in accordance with the foregoing. For the avoidance of doubt, (i) entering into a Long CDS Transaction or terminating a Hedging Short CDS Transaction results in an Acquisition and (ii) the simultaneous termination of a Hedged Long CDS Transaction and the related Hedging Short CDS Transaction does not result in an Acquisition "Actual Interest Amount" means, with respect to any payment date under the Reference Obligation related to a CDS Transaction, payment by or on behalf of the issuer of the Reference Obligation of an amount in respect of interest due under the Reference Obligation (including, without limitation, any deferred interest or any defaulted interest but excluding payments in respect of prepayment penalties, yield maintenance provisions or principal except that the Actual Interest Amount for CDS Transactions shall include any payment of principal representing capitalized interest) to the holder(s) of the Reference Obligation in respect of the Reference Obligation. "Aerospace and Defense Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend on the cash flow from leases and subleases of aircraft, vessels and telecommunications equipment to businesses for use in the provision of goods or services to consumers, the military or the government; provided that such dependence may in addition be conditional upon rights or added assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities such as a financial guaranty insurance policy. "Affiliate" with respect to specified person means (i) any other person who, directly or indirectly, is in control of, or controlled by, or is under common control with, such person or (ii) any other person who is a director, member, officer, employee or partner of (a) such person or (b) any such other person described in clause (i) above. For the purposes of the foregoing definition, "control" of a person shall mean the power, direct or indirect, (x) to vote more than 50% of the securities having ordinary voting power for the election of directors of such person or (y) to direct or cause the direction of the management and policies of such person whether by contract or otherwise; provided that no other company to which the Administrator provides directors and acts as share trustee or administrator shall be an Affiliate of the Issuer. "Aggregate Attributable Amount" means, with respect to any specified Collateral Debt Security and issuers incorporated or organized under the laws of any specified jurisdiction or jurisdictions, (a) the Aggregate Principal Balance of such Collateral Debt Security multiplied by (b) the aggregate par amount of collateral securing such Collateral Debt Security issued by issuers so organized divided by (c) the aggregate par amount of all collateral securing such Collateral Debt Security. The Portfolio Manager

272

shall determine the Aggregate Attributable Amount with respect to any specified Collateral Debt Security and issuer or issuers based upon information in the most recent servicing, trustee or other similar report delivered in accordance with the related Underlying Instruments and, if no such information is available after inquiry of the relevant issuer, servicer, Portfolio Manager or any other person or entity serving in a similar capacity, by estimating such Aggregate Attributable Amount in good faith and in the exercise of its judgment (exercised in accordance with the standard of care set forth in the Management Agreement) based upon all relevant information otherwise available to the Portfolio Manager. "Aggregate Principal Balance" means, when used as of any date of determination with respect to any Collateral Debt Securities that have been Acquired, the sum of the Principal Balances on such date of determination of all such Collateral Debt Securities. "Aircraft Leasing Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from a portfolio consisting of aircraft leases and subleases, generally having the following characteristics: (1) the leases and subleases have varying contractual maturities; (2) the leases or subleases are obligations of a relatively limited number of obligors and accordingly represent an undiversified pool of obligor credit risk; (3) the repayment stream on such leases and subleases is primarily determined by a contractual payment schedule, with early termination of such leases and subleases predominantly dependent upon the disposition to a lessee, sublessee or third party of the underlying equipment; (4) such leases or subleases typically provide for the right of the lessee or sublessee to purchase the equipment for its stated residual value, subject to payments at the end of lease term for excess usage or wear and tear; and (5) the obligations of the lessors or sublessors may be secured not only by the leased equipment but also by other assets of the lessee or sublessee or guarantees granted by third parties. For purposes of this definition, Aircraft Leasing Securities shall include enhanced equipment trust certificates with respect to aircraft. "Allocable Notional Amount" means, with respect to each Reference Obligation that forms part of an Index that is the subject of a Synthetic Security, the portion of the Notional Amount of such Synthetic Security that is allocable to such Reference Obligation, determined by allocating the Notional Amount of such Synthetic Security among the related Reference Obligations in the same proportion as the outstanding principal balance of such Reference Obligation bears to the aggregate principal balance of all Reference Obligations comprising such Index. "Amounts Invested" means the net proceeds from the issuance of the Notes (including Principal Proceeds and Uninvested Proceeds and the initial deposits in the Reserve Account on the Closing Date) deposited by the Issuer with the GIC Provider under the GIC and the Indenture, which initially will be approximately U.S.$155,014,066 on the Closing Date and may be from time to time subsequently increased on any Investment Date up to U.S.$300,000,000 or decreased on a Withdrawal Date down to zero; provided that (i) the reduction of the Amounts Invested to zero at any time shall not result in the termination of the GIC or prevent the Amounts Invested from being subsequently increased in accordance with the terms hereof and (ii) the maximum Amounts Invested shall not exceed U.S.$300,000,000. "Applicable Recovery Rate" means, with respect to any Collateral Debt Security on any Measurement Date, the lower of (a) an amount equal to the percentage for such Collateral Debt Security set forth in the Moody's recovery rate matrix set forth in Part I of Schedule A hereto (or, in the case of a Synthetic ABS CDO Security, the percentage assigned to such security by Moody's) in (x) the table corresponding to the relevant Specified Type of Collateral Debt Security, (y) the column in such table setting forth the Moody's Rating of such Collateral Debt Security as of the date of issuance of such Collateral Debt Security and (z) the row in such table opposite the percentage of the Issue of which such Collateral Debt Security including, for senior only bonds, all other bonds which are pari passu in terms of

273

losses, is a part relative to the total capitalization of (including both debt and equity securities issued by) the relevant issuer of or obligor on such Collateral Debt Security, determined on the original issue date of such Collateral Debt Security, provided that (1) if such Collateral Debt Security is a U.S. Agency Guaranteed Security or FHLMC/FNMA Guaranteed Security, it shall be treated as an ABS Type Diversified Security for the purposes of applying the recovery rate in Part I of Schedule A, and (2) if the timely payment of principal of and interest on such Collateral Debt Security is guaranteed (and such guarantee ranks equally and ratably with the guarantor's senior unsecured debt) by another person, unless such Collateral Debt Security is a U.S. Agency Guaranteed Security or FHLMC/FNMA Guaranteed Security, such amount shall be 30% and (b) an amount equal to the percentage for such Collateral Debt Security set forth in the Standard & Poor's recovery rate matrix set forth in Part II of Schedule A hereto (or, in the case of a Synthetic ABS CDO Security, the percentage assigned to such security by Standard & Poor's) in (x) the applicable table, (y) the row in such table opposite the Standard & Poor's Rating of such Collateral Debt Security at the time of issuance and (z) for purposes of determining the "Calculation Amount" of a Collateral Debt Security, in the column in such table below the rating of the Class of outstanding Secured Notes with the highest rating by Standard & Poor's and, for purposes of determining the "Standard & Poor's Weighted Average Recovery Rate," in the column in such table below the rating of the applicable Class of outstanding Secured Notes. "Asset-Backed Security" means an obligation or security issued by a bankruptcy remote entity that entitles the holder thereof to receive payments that depend primarily on the cash flow from a specified pool, either static or revolving (the identity of which cannot vary as a result a decision by the Portfolio Manager, any Synthetic Security Counterparty or their Affiliates), of (i) financial assets that by their terms convert into cash within a finite time period, together with rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities, (ii) real estate mortgages, together with rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities, provided, in the case of this clause (ii), that such Asset-Backed Securities do not entitle the holders to a right to share in the appreciation in value of or the profits generated by the related real estate assets or (iii) a beneficial interest in a trust, all of the assets of which are Asset-Backed Securities described in the foregoing clause (i) or (ii). "Auction Call Redemption Amount" means the sum of (x) the Total Senior Redemption Amount plus (y) the Subordinated Note Required Amount plus (z) the amount of any accrued and unpaid Subordinated Portfolio Management Fee. "Automobile Securities" means Asset-Backed Securities (other than Recreational Vehicle Securities) that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from prime installment sale loans made to finance the acquisition of, or from leases of, automobiles, generally having the following characteristics: (1) the loans or leases may have varying contractual maturities; (2) the loans or leases are obligations of numerous borrowers or lessees and accordingly represent a very diversified pool of obligor credit risk; (3) the borrowers or lessees under the loans or leases generally do not have a poor credit rating; (4) the repayment stream on such loans or leases is primarily determined by a contractual payment schedule, with early repayment on such loans or leases predominantly dependent upon the disposition of the underlying vehicle; and (5) such leases typically provide for the right of the lessee to purchase the vehicle for its stated residual value, subject to payments at the end of lease term for excess mileage or use. "Available Amounts Invested" means, as of any date, an amount (determined without duplication) equal to (without duplication) (i) the Amounts Invested plus (ii) any GIC Interest minus (iii) any Withdrawals minus (iv) any breakage fees payable to the GIC Provider under the GIC, in each case since (and including) the Closing Date.

274

"Bank Guaranteed Securities" means Asset-Backed Securities as to which, (a) if interest thereon is not timely paid when due, or the principal thereof is not timely paid at stated legal maturity, a national banking association organized under United States law or banking corporation organized under the laws of a State of the United States has undertaken in an irrevocable letter of credit or other similar instrument to make such payment against the presentation of documents, provided that any Asset-Backed Security falling within this definition shall be excluded from the definition of each other Specified Type of AssetBacked Security. "Bank Trust Preferred CDO Securities" means CDO Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CDO Securities) on the cash flow from a pool of trust preferred securities issued by a wholly-owned trust subsidiary of a financial institution which uses the proceeds of such issuance to purchase a portfolio of debt securities issued by its parent. They generally have the following characteristics: (1) the trust securities are non-amortizing preferred stock securities; (2) the trust securities have a 30-year maturity with a 5- or 10-year non-call period; and (3) the trust securities are subordinated debt. "Base Rate Reference Bank" means LaSalle Bank National Association, or, if such bank ceases to exist or is not quoting a base rate, prime rate reference rate or similar rate for Dollar loans, such other major money center commercial bank in New York City, as selected by the Calculation Agent. "Base Rate" means a fluctuating rate of interest determined by the Calculation Agent as being the rate of interest most recently announced by the Base Rate Reference Bank at its New York office as its base rate, prime rate, reference rate or similar rate for Dollar loans. Changes in the Base Rate will take effect simultaneously with each change in the underlying rate. "Below B- Amount" means on any Measurement Date, the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds) having a Standard & Poor's Rating below "B-" on such date. "Calculation Amount" means, with respect to any Collateral Debt Security at any time, the lesser of (a) the Fair Market Value of such Collateral Debt Security and (b) the amount obtained by multiplying the Applicable Recovery Rate by the Principal Balance of such Collateral Debt Security. "Car Rental Receivable Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from leases and subleases of vehicles to car rental systems (such as Hertz, Avis, National, Dollar, Budget, etc.) and their franchisees, generally having the following characteristics: (1) the leases and subleases have varying contractual maturities; (2) the subleases are obligations of numerous franchisees and accordingly represent a very diversified pool of obligor credit risk; (3) the repayment stream on such leases and subleases is primarily determined by a contractual payment schedule, with early termination of such leases and subleases predominantly dependent upon the disposition to a lessee or third party of the underlying vehicle; and (4) such leases or subleases typically provide for the right of the lessee or sublessee to purchase the vehicle for its stated residual value, subject to payments at the end of lease term for excess mileage or use. "Cash Collateral Debt Security" means a Collateral Debt Security that is not a Synthetic Security. "Catastrophe Bonds" means Asset-Backed Securities that entitle the holders thereof to receive a fixed principal or similar amount and a specified return on such amount, contingent upon amounts being

275

available for such payments following payments by the related issuer to a counterparty that are predicated on the occurrence of specified natural events generally having the following characteristics: (1) the issuer of such Asset-Backed Security has entered into a swap, insurance contract or similar arrangement with a counterparty pursuant to which such issuer agrees to pay amounts to the counterparty upon the occurrence of certain specified events, including but not limited to: hurricanes, earthquakes and other events; and (2) payments on such Asset-Backed Security depend primarily upon the occurrence and/or severity of such events. "CDO of CDO Securities" means CDO Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CDO Securities) primarily on the credit exposure to, or cash flow from, a portfolio consisting of other CDO Securities if the terms of such portfolio permit the aggregate principal balance of such CDO Securities to exceed 35% of the aggregate principal balance of such portfolio. For the avoidance of doubt, CDO of CDO Securities includes Synthetic CDO of CDO Securities. "CDO Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) primarily on the cash flow from a portfolio (each such portfolio, the "Underlying Portfolio") of commercial and industrial bank loans, other asset-backed securities or corporate debt securities or any combination of the foregoing, or credit default swaps or total return swaps which reference such loans or securities (or the obligors thereon) generally having the following characteristics: (1) the bank loans and debt securities have varying contractual maturities; (2) repayment thereof can vary substantially from the contractual payment schedule (if any), with early prepayment of individual bank loans or debt securities depending on numerous factors specific to the particular issuers or obligors and upon whether, in the case of loans or securities bearing interest at a fixed rate, such loans or securities include an effective prepayment premium; and (3) proceeds from such repayments can for a limited period and subject to compliance with certain eligibility criteria be reinvested in additional bank loans and/or debt securities. CDO Securities include CMBS CDO Securities, Corporate CDO Securities, RMBS CDO Securities, CDO of CDO Securities, CLO Securities, ABS CDO Securities, High Yield CDO Securities and Bank Trust Preferred CDO Securities. "CDO Synthetic Security" means any Synthetic Security with respect to which the Reference Obligation is a CDO Security. "CDS Termination Payment" means a payment made or to be made by the Issuer to the Credit Default Swap Counterparty in connection with the Disposition of one or more CDS Transactions (including those payable upon a Disposition of individual CDS Transactions and, for the avoidance of doubt, including any termination payment payable upon termination of a Hedging Short CDS Transaction); provided that a Defaulted Synthetic Termination Payment shall not constitute a "CDS Termination Payment" for purposes of this definition. "Class A1-VF Senior Excess" means the amount, if any, by which (a) the sum of (i) the Remaining Unfunded Facility Commitment plus (ii) the Reserve Account Balance exceeds (b) the aggregate Remaining Exposure under all CDS Transactions, as the same may be adjusted from time to time in accordance with the Senior Excess Application Priority. "Class Scenario Default Rate" means, with respect to any Class of Secured Notes rated by Standard & Poor's, at any time, an estimate of the cumulative default rate for the Current Portfolio or the Proposed Portfolio, as applicable, consistent with Standard & Poor's rating of such Class of Secured

276

Notes on the Closing Date, determined by application of the Standard & Poor's CDO Monitor at such time. "CLO Security" means a CDO Security that entitles the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CDO Securities) on the credit exposure to, or cash flow from, a portfolio of collateral consisting of commercial loans (including eligible synthetic securities whose reference obligations consist of commercial loans). "CMBS CDO Securities" means (i) any CDO Security that entitles the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CDO Securities) primarily on the credit exposure to, or cash flow from, a portfolio consisting of CMBS Securities, and (ii) any security issued by an investment vehicle whose assets (or substantially all of its assets) consist of CDO Securities meeting the requirements set forth in clause (i) above. "CMBS Conduit Securities" means Asset-Backed Securities (i) (A) issued by a single-seller or multi-seller conduit under which the holders of such Asset-Backed Securities have recourse to a specified pool of assets (but not other assets held by the conduit that support payments on other series of securities) and (B) that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from a pool of commercial mortgage loans generally having the following characteristics: (1) the commercial mortgage loans have varying contractual maturities; (2) the commercial mortgage loans are secured by real property purchased or improved with the proceeds thereof (or to refinance an outstanding loan the proceeds of which were so used); (3) the commercial mortgage loans are obligations of a relatively limited number of obligors (with the creditworthiness of individual obligors being less material than for CMBS Large Loan Securities and Credit Tenant Lease Securities) and accordingly represent a relatively undiversified pool of obligor credit risk; (4) upon original issuance of such Asset-Backed Securities no 10 commercial mortgage loans account for more than 75% of the aggregate principal balance of the entire pool of commercial mortgage loans supporting payments on such securities and such pool contains at least 50 such loans; and (5) repayment thereof can vary substantially from the contractual payment schedule (if any), with early prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans or securities include an effective prepayment premium or (ii) backed by a pool of securities consisting of securities described in (i) above. "CMBS Credit Tenant Lease Securities" means Asset-Backed Securities (other than CMBS Large Loan Securities, CMBS Single Property Securities and CMBS Conduit Securities) that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from a pool of commercial mortgage loans made to finance the acquisition, construction and improvement of properties leased to corporate tenants (or on the cash flow from such leases). They generally have the following characteristics: (1) the commercial mortgage loans or leases have varying contractual maturities; (2) the commercial mortgage loans are secured by real property purchased or improved with the proceeds thereof (or to refinance an outstanding loan the proceeds of which were so used); (3) the leases are secured by leasehold interests; (4) the commercial mortgage loans or leases are obligations of a relatively limited number of obligors and accordingly represent a relatively undiversified pool of obligor credit risk; (5) payment thereof can vary substantially from the contractual payment schedule (if any), with prepayment of individual loans or termination of leases depending on numerous factors specific to the particular obligors or lessees and upon whether, in the case of loans bearing interest at a fixed rate,

277

such loans include an effective prepayment premium; and (6) the creditworthiness of such corporate tenants is the primary factor in any decision to invest in these securities. "CMBS Large Loan Securities" means Asset-Backed Securities (other than CMBS Conduit Securities, CMBS Credit Tenant Lease Securities and CMBS Single Property Securities) that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from a pool of commercial mortgage loans made to finance the acquisition, construction and improvement of properties. They generally have the following characteristics: (1) the commercial mortgage loans have varying contractual maturities; (2) the commercial mortgage loans are secured by real property purchased or improved with the proceeds thereof (or to refinance an outstanding loan the proceeds of which were so used); (3) the commercial mortgage loans are obligations of a relatively limited number of obligors and accordingly represent a relatively undiversified pool of obligor credit risk; (4) repayment thereof can vary substantially from the contractual payment schedule (if any), with early prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans or securities include an effective prepayment premium; and (5) the valuation of individual properties securing the commercial mortgage loans is the primary factor in any decision to invest in these securities. "CMBS Securities" means CMBS Conduit Securities, CMBS Credit Tenant Lease Securities, CMBS Large Loan Securities and CMBS Single Property Securities. "CMBS Single Property Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from one or more commercial mortgage loans made to finance the acquisition, construction and improvement of a single property. They generally have the following characteristics: (1) the commercial mortgage loans have varying contractual maturities; (2) the commercial mortgage loans are secured by real property purchased or improved with the proceeds thereof (or to refinance an outstanding loan the proceeds of which were so used); (3) the commercial mortgage loans or leases are obligations of a relatively limited number of obligors and accordingly represent a relatively undiversified pool of obligor credit risk; and (4) payment thereof can vary substantially from the contractual payment schedule (if any), with prepayment of individual loans or termination of leases depending on numerous factors specific to the particular obligors or lessees and upon whether, in the case of loans bearing interest at a fixed rate, such loans include an effective prepayment premium. "Collateral Administration Agreement" means the Collateral Administration Agreement between the Issuer and the Collateral Administrator relating to certain functions performed by the Collateral Administrator for the Issuer with respect to the Indenture and the Collateral, as amended from time to time. "Collateral Administrator" means LaSalle Bank National Association. "Collateral Debt Security" means (i) an Asset-Backed Security or a Synthetic Security that, in each case, satisfies each of the Eligibility Criteria when Acquired by the Issuer, (ii) any Deliverable Obligations and (iii) any Synthetic Security Collateral that satisfies paragraphs (1) through (4), (6) through (9) and (11) through (19) of "—Eligibility Criteria" below as to which the lien of the Synthetic Security Counterparty has been released following the termination of the Synthetic Security. "Combination Note Rated Balance" means an amount equal to (i) on the Closing Date, U.S.$10,000,000, which equals the aggregate capital contribution represented by the Combination Notes

278

and (ii) on each Distribution Date thereafter, the Combination Note Rated Balance on the immediately preceding Distribution Date (or, with respect to the first Distribution Date, on the Closing Date)), decreased by the aggregate amount of all payments in respect of the Combination Notes paid to the holders thereof on such current Distribution Date. "Combination Security" means a Collateral Debt Security made up of constituent component securities and with respect to which payments of all amounts (whether by way of interest, principal or otherwise) is dependent on and referable to, such component securities and for the avoidance of doubt this definition shall not include CDO Securities unless such security is itself comprised of component parts each of which is a stand alone security. "Commitment Amount" means, on any date and as to any Class A1-VF Noteholder, the product of (a) the Commitment Percentage of such Class A1-VF Noteholder as of such day and (b) an amount which is the Remaining Unfunded Facility Commitment (expressed as a Dollar amount) on such date. "Commitment Fee Rate" means a rate equal to 0.18% per annum. "Commitment Percentage" means, for any Class A1-VF Noteholder as of any date of determination, a percentage equal to (a)(i) the pro rata portion of the Remaining Unfunded Facility Commitment represented by the Class A1-VF Notes of such Class A1-VF Noteholder divided by (ii) the Remaining Unfunded Facility Commitment multiplied by (b) 100%. "Commitment Termination Date" means the earliest to occur of (a) the earlier of the Stated Maturity of the Notes and the Redemption Date for the Notes, (b)(i) any date after an Event of Default (other than a Specified Event of Default) has occurred and the liquidation of the Collateral under the Indenture as a result thereof has been completed or (ii) any date on which a Specified Event of Default has occurred and is continuing, and (c) the first date after the Reinvestment Period has terminated on which all of the CDS Transactions have been Disposed of and any termination or other payments thereunder or in connection therewith owing by the Issuer have been paid; provided that, for the avoidance of doubt, the occurrence and continuation of an Event of Default (other than a Specified Event of Default) shall not relieve the Class A1-VF Noteholders from their obligation to make advances for Borrowings or Deemed Borrowings in respect of Borrowing requests delivered prior to the Commitment Termination Date if the other conditions precedent to such Borrowing or Deemed Borrowing set forth in the Variable Funding Note Purchase Agreement and described herein are satisfied. "Compliant Class A1-VF Noteholder" means any holder of Class A1-VF Notes that, as of any date of determination, (a) has not failed to satisfy any of its obligations under the Variable Funding Note Purchase Agreement in respect of its pro rata share of the Remaining Unfunded Facility Commitment and (b) either (i) is a Specified Class A1-VF Noteholder or (ii) either (A) satisfies the Variable Funding Note Rating Threshold or (B) if such holder does not satisfy the Variable Funding Note Rating Threshold and such failure is continuing, has, by the date that is 30 days after the date such holder did not satisfy the Variable Funding Note Rating Threshold, either obtained a guarantor (that satisfies the Rating Condition with respect to Standard & Poor's) for its obligations under its Class A1-VF Notes that satisfies the Variable Funding Note Rating Threshold or deposited such holder's pro rata share of the Remaining Unfunded Facility Commitment into a Class A1-VF Prepayment Account, in each case in accordance with the Variable Funding Note Purchase Agreement; provided that a Class A1-VF Noteholder shall be deemed to satisfy the requirements of this clause (b)(ii) (but not, for the avoidance of doubt, the foregoing clause (a)) during such 30-day grace period. "Corporate CDO Security" means any CDO Security (other than a Corporate CLO Security) that entitles the holder thereof to receive payments that depend (except for rights or other assets designed to

279

assure the servicing or timely distribution of proceeds to holders of the CDO Securities) on the market value of, credit exposure to, or cash flow from, a portfolio of securities or other obligations that includes corporate loan obligations, corporate debt obligations, CLO Securities, other Corporate CDO Securities, or any combination of the foregoing (achieved either via cash or synthetically). "Corporate CLO Security" means any CLO Security that entitles the holder thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CLO Securities) on the market value of, credit exposure to, or cash flow from, a portfolio of securities or other obligations that includes corporate loan obligations, CLO Securities, other Corporate CLO Securities, or any combination of the foregoing (achieved either via cash or synthetically). "Corporate Debt Security" means any outstanding debt security, whether secured or unsecured, that on the date of Acquisition thereof by the Issuer, (i) if subordinated by its terms, is subordinated only to indebtedness for borrowed money, trade claims, capitalized leases or other similar obligations, (ii) is publicly issued or privately placed, (iii) is issued by an issuer incorporated or organized under the laws of the United States or any state thereof or by a Qualifying Foreign Obligor and (iv) is not a CDO Security or Asset-Backed Security. "Counterparty Premium" means, with respect to any Long CDS Transaction, the Premium payable by the Credit Default Swap Counterparty under such Long CDS Transaction. "Credit Card Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from balances outstanding under prime revolving consumer or corporate credit card accounts, generally having the following characteristics: (1) the accounts have standardized payment terms and require minimum monthly payments; (2) the balances are obligations of numerous borrowers and accordingly represent a very diversified pool of obligor credit risk; and (3) the repayment stream on such balances does not depend upon a contractual payment schedule, with early repayment depending primarily on interest rates, availability of credit against a maximum credit limit and general economic matters. "Credit Improved Security" means any Collateral Debt Security or any other security included in the Collateral that (or, in the case of an Unhedged Long CDS Transaction or other Synthetic Security under which the Issuer acts as seller of protection, any such Synthetic Security which has a related Reference Obligation that), in the Portfolio Manager's reasonable business judgment, has significantly improved in credit quality since it was Acquired by the Issuer; provided that if the Moody’s Rating Trigger is in effect, then, in order to constitute a Credit Improved Security, such Collateral Debt Security (or the related Reference Obligation, in the case of a Synthetic Security) must have (1) been upgraded by Moody's by at least one rating subcategory or been put on a watch list for possible upgrade by Moody's since such Collateral Debt Security was first Acquired by the Issuer or (2) decreased its credit spread over the applicable U.S. Treasury Benchmark, the applicable swap benchmark or the applicable LIBOR by (x) 0.10% or more if such Collateral Debt Security (or the related Reference Obligation, in the case of a Synthetic Security) is rated "Aaa" by Moody's, (y) 0.15% or more if such Collateral Debt Security (or the related Reference Obligation, in the case of a Synthetic Security) is rated "Aa2" or higher by Moody's or (z) 0.25% or more if such Collateral Debt Security (or the related Reference Obligation, in the case of a Synthetic Security) is rated "A2" or higher by Moody's, in each case since such Collateral Debt Security was Acquired by the Issuer or (3) increased in price to at least 102% of its price at Acquisition by the Issuer and, in the case of each of clause (1), (2) and (3) of this proviso, in the Portfolio Manager's reasonable business judgment, also has significantly improved in credit quality.

280

"Credit Protection Amount" means, with respect to any CDS Transaction, any Credit Protection Payment or Physical Settlement Amount. "Credit Risk Security" means any Collateral Debt Security (or the Reference Obligation of a Synthetic Security) or any other security included in the Collateral that, in the Portfolio Manager's reasonable business judgment, has a significant risk of declining in credit quality; provided that if the Moody’s Rating Trigger is in effect, then, in order to constitute a Credit Risk Security, such Collateral Debt Security (or the related Reference Obligation, in the case of a Synthetic Security) must have (1) been downgraded by Moody's by at least one rating subcategory or been put on a watch list for possible downgrade by Moody's since such Collateral Debt Security was Acquired by the Issuer or (2) experienced an increase in credit spread over the applicable U.S. Treasury Benchmark, the applicable swap benchmark or the applicable LIBOR by (x) 0.50% or more if the original credit spread on such Collateral Debt Security or Reference Obligation (as of the date on which such Collateral Debt Security was Acquired by the Issuer) was greater than 0.50% or (y) 0.20% if the original credit spread on such Collateral Debt Security or Reference Obligation (as of the date on which such Collateral Debt Security was Acquired by the Issuer) was less than or equal to 0.50% and, in the case of each of clause (1) and (2) of this proviso in the Portfolio Manager's reasonable business judgment, also has a significant risk of declining in credit quality. "Cumulative Intraperiod Interest Amount" means, as of any Distribution Date, an amount equal to the aggregate Intraperiod Interest Amounts for the preceding Interest Period. "Current Portfolio" means the portfolio (measured by Principal Balance) of (a) Collateral Debt Securities, (b) Principal Proceeds or Uninvested Proceeds held as cash, (c) Eligible Investments and U.S. Agency Securities Acquired with Principal Proceeds or Uninvested Proceeds and (d) the Class A1-VF Senior Excess existing immediately prior to the Disposition or maturity of a Collateral Debt Security or immediately prior to the proposed Acquisition of a Collateral Debt Security. "Dealer" means (i) a counterparty to a Disposition of a CDS Transaction which the Credit Default Swap Counterparty has determined meets the following criteria: (1) it has an executed ISDA Master Agreement with the Credit Default Swap Counterparty or agrees to execute promptly an ISDA Master Agreement with the Credit Default Swap Counterparty with terms acceptable to the Credit Default Swap Counterparty, (2) it agrees to assume all of the Issuer's obligations under the relevant CDS Transaction and (3) it satisfies the Credit Default Swap Counterparty's legal and credit criteria in accordance with the credit and legal policies of the Credit Default Swap Counterparty in effect at the time of such Disposition or (ii) the Portfolio Manager or an Affiliate thereof, if it agrees to execute promptly an ISDA Master Agreement with the Credit Default Swap Counterparty with terms acceptable to the Credit Default Swap Counterparty and to assume all of the Issuer's obligations under each CDS Transaction; provided that in each case on the date of and following the transfer of each CDS Transaction to be governed under the executed ISDA Master Agreement between the Credit Default Swap Counterparty and the replacement seller (which may be the Portfolio Manager or an Affiliate thereof) (a) the Credit Default Swap Counterparty will not be required to pay to the transferee an amount in respect of any Indemnifiable Tax under (and as defined in) Section 2(d)(i)(4) of the Credit Default Swap Agreement greater than the amount in respect of which the Credit Default Swap Counterparty would have been required to pay in the absence of such transfer; (b) the Credit Default Swap Counterparty will not receive a payment from the transferee from which an amount has been withheld or deducted, on account of a "Tax" under (and as defined in) Section 2(d)(i) of the Credit Default Swap Agreement, in excess of that which would have been required to be so withheld or deducted in the absence of such transfer; and (c) no "Potential Event of Default", "Event of Default" or "Termination Event" under (and as defined in) the Credit Default Swap Agreement would occur as a result of such Disposition.

281

"Deemed Borrowing" means a permitted withdrawal from or application of funds or other property standing to the credit of a Class A1-VF Prepayment Account to any Permitted Use. "Deemed Floating Asset Hedge Agreement" means, with respect to a Fixed Rate Collateral Debt Security, an interest rate swap and/or an interest rate cap, timing swap or basis swap having a notional amount (or scheduled notional amounts) based upon the Principal Balance (as it may be reduced by expected amortization) of such Fixed Rate Collateral Debt Security; provided that (a) at the time of entry into a Deemed Floating Asset Hedge Agreement, (i) principal payments on such Fixed Rate Collateral Debt Security will not extend beyond 15 years after the Closing Date and (ii) the scheduled notional amount of such Deemed Floating Asset Hedge Agreement is based upon the expected principal amount of the related Fixed Rate Collateral Debt Security (as calculated at such time), (b) the Rating Agencies and the Trustee are notified prior to the Issuer's entry into a Deemed Floating Asset Hedge Agreement, and will be provided with the identity of the relevant Asset Hedge Counterparty and copies of the hedge documentation and notional schedule, (c) the hedge documentation (including the applicable master agreement, confirmation and schedule attached thereto) either (i) is a Form-Approved Asset Hedge Agreement or (ii) satisfies the Rating Condition, (d) such Deemed Floating Asset Hedge Agreement is priced at then current market rates (other than in the case of a Deemed Floating Asset Hedge Agreement entered into with respect to a Fixed Rate Collateral Debt Security acquired on behalf of the Issuer during the warehousing period prior to the Closing Date, which shall be priced at market rates equivalent to the market rates obtained by the warehouse financing provider for its own hedging arrangements with respect to such Collateral Debt Security) and (e) if such Deemed Floating Asset Hedge Agreement is to be terminated (i) on a Distribution Date, the Rating Agencies and the Trustee are notified prior to the termination (provided that a Deemed Floating Asset Hedge Agreement may only be terminated on a Distribution Date if on such Distribution Date the Issuer has available funds to pay all amounts due and payable to the holders of the Secured Notes and all payments ranking in priority thereto in accordance with the Priority of Payments) or (ii) on any date other than a Distribution Date, the Portfolio Manager has received confirmation that such termination satisfies the Rating Condition and the Trustee is notified prior to such termination. "Deemed Floating Rate Collateral Debt Security" means (a) a Fixed Rate Collateral Debt Security the interest rate of which is hedged into a Floating Rate Collateral Debt Security using a Deemed Floating Asset Hedge Agreement; provided that (i) the notional amortization schedule of such Deemed Floating Rate Asset Hedge Agreement shall match the expected amortization of such Fixed Rate Collateral Debt Security, (ii) at the time of the Acquisition thereof by the Issuer, each such Fixed Rate Collateral Debt Security shall have a Moody’s Rating higher than "Ba1" and (iii) at the time of entry into the Deemed Floating Asset Hedge with respect to a Fixed Rate Collateral Debt Security that converts to payments of periodic interest at a floating rate after a designated period, the average life of such Deemed Floating Rate Collateral Debt Security would not increase or decrease by more than 18 months from its expected average life if it were to prepay at either 50% or 200% of its pricing speed; or (b) a Hedged Hybrid Security. "Deemed Floating Rate" means, with respect to any Deemed Floating Rate Asset Hedge Agreement or Hybrid Security Hedge Agreement, the floating rate in excess of LIBOR or such other floating rate index as applicable that the related Asset Hedge Counterparty agrees to pay on such Deemed Floating Rate Asset Hedge Agreement or Hybrid Security Hedge Agreement at the time such hedge is executed.

282

"Defaulted Security" means any Collateral Debt Security or any other security included in the Collateral: (1) with respect to which there has occurred and is continuing a payment default thereunder (without giving effect to any applicable grace period or waiver); provided, however, that a payment default of up to five days with respect to which the Portfolio Manager certifies in writing to the Trustee, in its judgment exercised in accordance with the standard of care set forth in the Management Agreement), is due to non-credit and non-fraud related reasons shall not cause a Collateral Debt Security to be classified as a Defaulted Security; (2) with respect to which there has occurred a default (other than any payment default) which entitles the holders thereof, with the giving of notice or passage of time or both, to accelerate the maturity of all or a portion of the principal amount of such obligation, and such default has not been cured or waived; (3) as to which a bankruptcy, insolvency, or receivership proceeding has been initiated (whether voluntarily or involuntarily) with respect to the issuer of such Collateral Debt Security, or there has been proposed or effected any distressed exchange or other debt restructuring where the issuer of such Collateral Debt Security has offered the holders thereof a new security or package of securities that, in the judgment of the Portfolio Manager (exercised in accordance with the standard of care set forth in the Management Agreement), either (a) amounts to a diminished financial obligation or (b) has the purpose of helping the borrower to avoid default, provided that a security that was Acquired in exchange for a Collateral Debt Security in connection with a distressed exchange or other debt restructuring shall not constitute a "Defaulted Security" if it satisfies the requirements of the definition of a "Collateral Debt Security" including the Eligibility Criteria at the time it is Acquired and has paid and is currently paying scheduled interest and principal; (4) as to which the Portfolio Manager knows the issuer thereof is (or is reasonably expected by the Portfolio Manager to be, as of the next scheduled payment distribution date) in default (without giving effect to any applicable grace period or waiver) as to payment of principal and/or interest on another obligation (and such default has not been cured or waived) which is senior to or pari passu in right of payment to, and (in the case of Asset-Backed Securities only) is secured by the same collateral as, such Collateral Debt Security, except that a Collateral Debt Security shall not constitute a "Defaulted Security" under this clause (4) if the Portfolio Manager, in its judgment (exercised in accordance with the standard of care set forth in the Management Agreement), expects that on the next scheduled payment distribution date of such Collateral Debt Security such issuer will make payments required to be made on such Collateral Debt Security on such date and the Rating Condition with respect to Standard & Poor's is satisfied in respect of such determination, provided, however, that this exception shall not apply where the issuer of such Collateral Debt Security is (or is reasonably expected by the Portfolio Manager to be) in default as to payment of principal and/or interest of another obligation that is senior to or pari passu in right of payment to such Collateral Debt Security; (5) that is received upon acceptance of an Offer for another Collateral Debt Security which Offer expressly stated that failure to accept such Offer might result in a default under the related Underlying Instruments and with respect to which no payment of interest or principal has yet been received;

283

(6) that (x) has a Moody's Rating of "Ca" or "C" or (y) is rated "CC," "D" or "SD" by Standard & Poor's or was rated "CC," "D" or "SD" by Standard & Poor's prior to having its rating withdrawn; (7)

that is a Defaulted Synthetic Security;

(8) that is a Synthetic Security (other than a Defaulted Synthetic Security) with respect to which there is a Synthetic Security Counterparty Defaulted Obligation; (9) that is an obligation delivered to the Issuer upon the occurrence of a "credit event" under a Synthetic Security (the occurrence of which shall be determined, in the case of a Synthetic Security relating to an Index, by treating such Synthetic Security as a series of separate synthetic transactions Acquired by the Issuer with respect to each Reference Obligation that forms part of such Index, each with a Notional Amount equal to the Allocable Notional Amount of such Reference Obligation such that only the Allocable Notional Amount of the Reference Obligation comprising such Index that is the subject of a Credit Event shall constitute a "Defaulted Security" for purposes of this definition) or otherwise delivered under a Synthetic Security that (x) does not qualify as a Deliverable Obligation or (y) would be classified as a "Defaulted Security" pursuant to any of the preceding clauses (1) through (8) at the time that such obligation was delivered to the Issuer; or (10) that is an obligation released from the lien in favor of a Synthetic Security Counterparty but is not "Synthetic Security Collateral", provided that, in respect of any Collateral Debt Security that constitutes a Defaulted Security pursuant to any of sub-clauses (x) and (y) of clause (6) above only, such Collateral Debt Security shall not be treated as a Defaulted Security other than for purposes of calculating the Net Outstanding Portfolio Collateral Balance so long as (i) such Collateral Debt Security is not a PIK Bond with respect to which any principal has been deferred and/or capitalized, (ii) interest in respect of such Collateral Debt Security was paid in full on the immediately preceding payment date for such Collateral Debt Security and (iii) the Portfolio Manager believes in the exercise of its judgment (exercised in accordance with the standard of care set forth in the Management Agreement) that the interest in respect of such Collateral Debt Security will be paid in full on the next payment date for such Collateral Debt Security. "Defaulted Synthetic Security" means (a) a Synthetic Security referencing a Reference Obligation that would, if such Reference Obligation were a Collateral Debt Security, constitute a "Defaulted Security" under paragraphs (1), (2), (3), (4) or (6) of the definition thereof (determined, in the case of a Synthetic Security relating to an Index, by treating such Synthetic Security as a series of separate synthetic transactions Acquired by the Issuer with respect to each Reference Obligation that forms part of such Index, each with a Notional Amount equal to the Allocable Notional Amount of such Reference Obligation) and (b) any Synthetic Security structured as a credit default swap (including an Unhedged Long CDS Transaction) under which the Issuer is acting as seller of protection as to which a Deliverable Obligation has become deliverable to the Issuer by reason of the occurrence of one or more "credit events" or other similar circumstances. "Defaulted Synthetic Termination Payment" means, with respect to any Synthetic Security any termination payment (and any accrued interest thereon) payable by the Issuer pursuant to the Underlying Instruments relating thereto (including, if applicable, the Credit Default Swap Agreement) as a result of an "Event of Default" or "Termination Event" (other than an "Illegality" or "Tax Event"), as to which the relevant Synthetic Security Counterparty is the "Defaulting Party" or the sole "Affected Party" (with

284

"Event of Default," "Termination Event," "Defaulting Party" and "Affected Party" each as defined in such Underlying Instruments). "Defeased Synthetic Security" means any Synthetic Security that requires payment by the Issuer after the date upon which it is pledged to the Trustee and that satisfies the following: (a) the Issuer has caused Synthetic Security Collateral to be deposited in a Synthetic Security Counterparty Account an amount at least equal to the aggregate of (or the amount required under the terms of the Synthetic Security to provide for) all further payments (contingent or otherwise) that the Issuer is or may be required to make to the Synthetic Security Counterparty under the Synthetic Security; (b) the agreement relating to such Synthetic Security contains "non-petition" provisions with respect to the Issuer and "limited recourse" provisions limiting the Synthetic Security Counterparty's rights in respect of the Synthetic Security to the funds and other property credited to the Synthetic Security Counterparty Account related to such Synthetic Security and (c) the agreement relating to such Synthetic Security contains provisions to the effect that upon the occurrence of an "Event of Default" or "Termination Event" (other than an "Illegality" or "Tax Event"), if any, where the Synthetic Security Counterparty is the sole "Defaulting Party" or the sole "Affected Party" (with "Event of Default," Termination Event," Illegality," "Tax Event" and "Affected Party" each as defined in the ISDA Master Agreement relating to such Synthetic Security) (x) the Issuer may terminate its obligations under such Synthetic Security and, upon such termination, any lien in favor of the Synthetic Security Counterparty over its related Synthetic Security Counterparty Account will be terminated and (y) the Issuer will no longer be obligated to make any payments to the Synthetic Security Counterparty with respect to such Synthetic Security. "Deferred Funded Secured Notes Principal" means, as of any Determination Date (with the balance of Deferred Funded Secured Notes Principal to be determined as of the Determination Date immediately preceding the next subsequent Distribution Date), the sum of (i)(A) with respect to the first Determination Date, zero or (B) with respect to any subsequent Determination Date, the Deferred Funded Secured Notes Principal as of the Determination Date relating to the preceding Distribution Date that was not paid to Funded Secured Noteholders in respect of principal pursuant to paragraph (9)(a)(I) under "Priority of Payments—Principal Proceeds" on such preceding Distribution Date plus (ii) the excess (if any) of (A) the Funded Secured Note Reduction Amount for the Due Period relating to the preceding Distribution Date over (B) the amount of Principal Proceeds paid to Funded Secured Noteholders in respect of principal pursuant to paragraph (9)(a)(I) under "Priority of Payments—Principal Proceeds" on such preceding Distribution Date. "Deferred Interest PIK Bond" means a PIK Bond with respect to which payment of interest either in whole or in part has been deferred and/or capitalized in an amount equal to the amount of interest payable in respect of the lesser of (a) one payment period and (b) a period of six months, but only until such time as payment of interest on such PIK Bond has resumed and all capitalized and deferred interest has been paid in accordance with the terms of the Underlying Instruments. For the purposes of the Overcollateralization Tests only, a PIK Bond with a Moody's Rating of at least "Baa3" (and if rated "Baa3," such PIK Bond has not been placed on a watch list for possible downgrade) will not be a Deferred Interest PIK Bond unless interest either in whole or in part has been deferred and capitalized in an amount equal to the amount of interest payable in respect of the lesser of (x) two payment periods and (y) a period of one year. "Deliverable Obligation" means (i) the Reference Obligation that may be or is delivered to the Issuer upon the occurrence of a Credit Event under a Synthetic Security under which the Issuer is acting as the protection seller (including a Long CDS Transaction) or (ii) if it satisfies the criteria set forth in (a) paragraphs (1) through (4), (6) through (9) and (11) through (19) of the Eligibility Criteria at the time of delivery or (b) paragraphs (7), (8) and (9) of the Eligibility Criteria at the time such debt obligation is delivered and would, if it were a Collateral Debt Security, satisfy the Rating Condition, another debt

285

obligation that may be delivered to the Issuer upon the occurrence of a Credit Event under a Synthetic Security in lieu of the Reference Obligation. "Designated Maturity" means, with respect to any Class of Secured Notes, (i) for the first Interest Period, the number of calendar days from, and including the Closing Date to, but excluding, the first Distribution Date (or with respect to any Borrowing or Deemed Borrowing under the Class A1-VF Notes after the Closing Date, from the date of such Borrowing or Deemed Borrowing to but excluding the first Distribution Date after the date of such Borrowing or Deemed Borrowing) and (ii) for each Interest Period after the first Interest Period, three months. "Determination Date" means the last day of a Due Period. "Discount Haircut Amount" means (1) with respect to any Discount Security that is not a Synthetic Security, an amount equal to the greater of (a) zero and (b)(i) the Principal Balance of such Collateral Debt Security at the time of the Acquisition thereof by the Issuer minus (ii) the purchase price (exclusive of accrued interest) of such Discount Security minus (iii) an amount equal to (A) all principal payments received by the Issuer with respect to such Discount Security multiplied by (B) a fraction the numerator of which is such purchase price and the denominator of which is the Principal Balance of such Discount Security at the time of the Acquisition thereof by the Issuer and (2) with respect to any Discount Security that is a Synthetic Security, an amount equal to the greater of (a) zero and (b)(i) the initial Notional Amount of such Synthetic Security minus (ii) the initial Fair Market Value of such Discount Security (as determined by the Portfolio Manager in accordance with the proviso to the definition of "Discount Security") multiplied by the initial Notional Amount of such Synthetic Security minus (iii) an amount equal to (A) all reductions to the Notional Amount of such Synthetic Security multiplied by (B)(x) one minus (y) a fraction the numerator of which is such initial Fair Market Value and the denominator of which is 100% of the initial Notional Amount of such Synthetic Security at the time of the Acquisition thereof by the Issuer. "Discount Security" means a Collateral Debt Security (other than a Hedging Short CDS Transaction or Hedged Long CDS Transaction) Acquired at a cost to the Issuer (exclusive of accrued interest) of (or, in the case of a Synthetic Security, which has an initial Fair Market Value determined in accordance with the proviso to this definition of): (a)

if such Collateral Debt Security is a Floating Rate Collateral Debt Security and has a Moody's Rating of "Aa3" or higher (for purposes of calculating the Moody's Haircut Amount) or is publicly rated "AA-" or higher by Standard & Poor's (for purposes of calculating the Standard & Poor's Haircut Amount) at the time it is Acquired by the Issuer, less than (i) in the case of a Collateral Debt Security that is not a Synthetic Security, 92.0% of the outstanding principal balance thereof or (ii) in the case of a Synthetic Security, 92.0%; provided that a Collateral Debt Security shall cease to constitute a "Discount Security" for purposes of this clause (a) if the Fair Market Value thereof equals or exceeds (i) in the case of a Collateral Debt Security that is not a Synthetic Security, 95.0% of its outstanding principal balance or (ii) in the case of a Synthetic Security, 95.0%, in each case for 60 consecutive days following the initial valuation date on which such percentage was equaled or exceeded;

(b)

if such Collateral Debt Security is a Fixed Rate Security and has a Moody's Rating of "Aa3" or higher (for purposes of calculating the Moody's Haircut Amount) or is publicly rated "AA-" or higher by Standard & Poor's (for purposes of calculating the Standard & Poor's Haircut Amount) at the time it is Acquired by the Issuer, less than (i) in the case of a Collateral Debt Security that is not a Synthetic Security, 85.0% of the outstanding

286

principal balance thereof or (ii) in the case of a Synthetic Security, 85.0%; provided that a Collateral Debt Security shall cease to constitute a "Discount Security" for purposes of this clause (b) if the Fair Market Value thereof equals or exceeds (i) in the case of a Collateral Debt Security that is not a Synthetic Security, 90.0% of its outstanding principal balance or (ii) in the case of a Synthetic Security, 90.0%, in each case for 60 consecutive days following the initial valuation date on which such percentage was equaled or exceeded; and (c)

for any Collateral Debt Security not described in clauses (a) and (b), less than (i) in the case of a Collateral Debt Security that is not a Synthetic Security, 75.0% of the outstanding principal balance thereof or (ii) in the case of a Synthetic Security, 75.0%; provided that a Collateral Debt Security shall cease to constitute a "Discount Security" for purposes of this clause (c) if the Fair Market Value thereof equals or exceeds (i) in the case of a Collateral Debt Security that is not a Synthetic Security, 85.0% of its outstanding principal balance or (ii) in the case of a Synthetic Security, 85.0%, in each case for 60 consecutive days following the initial valuation date on which such percentage was equaled or exceeded;

provided, in each case, that in the case of a Synthetic Security, for purposes of this definition only and notwithstanding anything to the contrary in the definition of "Fair Market Value", the Fair Market Value thereof shall be a percentage determined by the Portfolio Manager in its reasonable business judgment, which determination shall take into account (A) any upfront payment received by the Issuer from, or paid by the Issuer to, the related Synthetic Security Counterparty upon entry into such Synthetic Security, (B) the reference price of such Synthetic Security, (C) any adjustment to the premium payable by the buyer of protection under such Synthetic Security that has been made to reflect the fact that the related Reference Obligation is trading at a price below par, (D) the expected amortization schedule of the Reference Obligation and (E) the par value of the related Reference Obligation (as shall be discounted by the premium rate payable to the Issuer in connection with such Synthetic Security unless the premium rate payable to the Issuer on such Synthetic Security does not exceed the underlying Reference Obligation’s spread by more than 1.0%). "Disposition" means any sale, termination, liquidation, assignment, participation, transfer, novation or other disposition of a Collateral Debt Security (including, in the case of a CDS Transaction or Synthetic Security, any Acquisition of a related Hedging Short CDS Transaction or equivalent hedging Synthetic Security with respect thereto) which, for purposes of determining the date of such disposition by the Issuer of any Collateral Debt Security, shall be deemed to occur on the trade date of the transaction pursuant to which such Collateral Debt Security is disposed of, assuming for these purposes, (x) settlement on the specified settlement date in accordance with the customary settlement procedures in the relevant market for such Collateral Debt Security and (y) the receipt by the Issuer of the Disposition Proceeds from the relevant counterparty to such transaction on such settlement date; provided that (1) if such transaction does not settle by its customary settlement date, such Collateral Debt Security will be deemed not to have been "Disposed" of by the Issuer for purposes of this definition until settlement is actually effected, (2) if at any time the Portfolio Manager or the Trustee determines in good faith that the relevant transaction will not settle by its customary settlement date, then such Collateral Debt Security will, immediately upon such determination, be deemed not to have been "Disposed" of by the Issuer for purposes of this definition until settlement is actually effected and (3) the terms "Dispose" and "Disposition" shall be construed in accordance with the foregoing. For the avoidance of doubt, the simultaneous termination of a Hedged Long CDS Transaction and the related Hedging Short CDS Transaction shall not be considered a Disposition.

287

"Disposition Proceeds" means (a) all proceeds received as a result of Dispositions of Collateral Debt Securities, Equity Securities, U.S. Agency Securities, Eligible Investments and Reserve Account Investments pursuant to the Indenture or an Auction or otherwise which shall: (i) include (A) in the case of any Long CDS Transaction or other Synthetic Security under which the Issuer acts as seller of protection, the proceeds of sale of any Deliverable Obligations delivered in respect thereof, (B) in the case of any Hedging Short CDS Transaction or other Synthetic Security under which the Issuer acts as buyer of protection, any Physical Settlement Amount received by the Issuer in respect thereof, (C) in the case of a Defeased Synthetic Security, any distribution received (other than interest income) in respect of property credited to the related Synthetic Security Counterparty Account and (D) in the case of any Synthetic Security (including a CDS Transaction), any termination payment made by the Synthetic Security Counterparty if the Synthetic Security is terminated or the Synthetic Security is Disposed of prior to its scheduled maturity; and (ii) be calculated net of (A) in the case of a Short CDS Transaction or other Synthetic Security under which the Issuer acts as buyer of protection, the purchase price of the Deliverable Obligations transferred to the Credit Default Swap Counterparty or other Synthetic Security Counterparty by the Issuer upon the settlement thereof and (B) any termination payments payable by the Issuer and net of any reasonable out-of-pocket expenses of the Issuer, the Portfolio Manager or the Trustee in connection with any such Disposition; and (b) all amounts released from a Synthetic Security Counterparty Account (other than any investment income thereon) in accordance with the Indenture. "Distribution Date" means February 13, May 13, August 13 and November 13 of each year, beginning on February 13, 2007; provided that (i) the final Distribution Date shall be February 13, 2047 and (ii) if any such date is not a Business Day, the relevant Distribution Date will be the next succeeding Business Day. "Due Period" means, with respect to any Distribution Date, the period commencing on the day immediately following the fifth Business Day prior to the immediately preceding Distribution Date (or on the Closing Date, in the case of the Due Period relating to the first Distribution Date) and ending on the fifth Business Day prior to such Distribution Date (without giving effect to any Business Day adjustment thereto), provided that (i) in the case of the Due Period that is applicable to the Distribution Date relating to the Stated Maturity of the Secured Notes, such Due Period shall end on the day preceding the Stated Maturity and (ii) with respect to payments on and proceeds from a U.S. Agency Security or an Eligible Investment, the "Due Period" shall mean the period from (and including) the immediately preceding Distribution Date (or, with respect to the first Distribution Date, from and including the Closing Date) to (and excluding) such Distribution Date. Amounts that would otherwise have been payable in respect of a Collateral Debt Security on the last day of a Due Period but for such day not being a designated business day in the Underlying Instruments or a Business Day in the Indenture shall be considered included in collections received during such Due Period provided that such amounts are received by the Trustee no later than the second Business Day preceding the related Distribution Date. "EETC Security" means an enhanced equipment trust certificate. "Effective Duration" means the weighted average term-to-maturity (expressed in years) of the cash flows in respect of the Subordinated Notes and the Combination Notes, where the weights are the present values of each cash flow as a percentage of the present value of all cash flows to the Subordinated Noteholders and the Combination Noteholders. The cash flows are discounted at the internal rate of return to the Subordinated Noteholders and Combination Noteholders for that scenario. "Effective Maturity Date" means the earlier of (a) the scheduled termination date of the applicable CDS Transaction and (b) the Final Amortization Date with respect to the CDS Transaction.

288

"Eligible Dealer" means, each Dealer selected by the Portfolio Manager and the Credit Default Swap Counterparty for inclusion on a standing list of approved Dealers agreed on or before the Closing Date between the Credit Default Swap Counterparty and the Portfolio Manager, as such list may be amended from time to time either (a) by the Credit Default Swap Counterparty or (b) at the request of the Portfolio Manager and with the consent of the Credit Default Swap Counterparty (such consent not to be unreasonably withheld or delayed), but provided that such list shall not at any time include (i) the Credit Default Swap Counterparty or (ii) any entity to which the Credit Default Swap Counterparty is unable, as a result of its then current credit or legal policies, to take credit exposure. "Excepted Property" means (a) the U.S.$250, being the proceeds of the issuance of the Issuer's ordinary shares and U.S.$250 representing a transaction fee payable to the Issuer in connection with its issuance of the Notes, together with, in each case, any interest accruing thereon and the bank account in which such cash is held and (b) the shares of the Co-Issuer and any assets of the Co-Issuer. "Excepted Security" means, for purposes of Part II of Schedule A, (a) cashflow structured finance obligations not rated by Standard & Poor's the cash flow of which is primarily from non-U.S. sources, (b) collateralized debt obligations the underlying collateral of which consists primarily of real estate obligations and structured finance obligations, (c) collateralized debt obligations the underlying collateral of which consists primarily of Asset-Backed Securities, (d) collateralized bond obligations the underlying collateral of which consists primarily of collateralized debt obligations, (e) collateralized bond obligations the underlying collateral of which is distressed debt, (f) obligations secured by contingent deferred sales charges, asset-based sales charges, shareholder servicing fees and other similar fees associated with the marketing and distribution of interests in, and management and servicing of, mutual funds registered under the Investment Company Act, (g) Catastrophe Bonds, (h) the first loss tranche of any securitization, (i) synthetic obligations, (j) synthetic collateralized debt obligations, (k) combination securities, (l) ReREMICs, (m) market value collateralized debt obligations, (n) net interest margin securities, (o) Project Finance Securities, (p) Interest Only Securities or (q) Structured Settlement Securities; provided that Form-Approved Synthetic Securities shall not constitute "Excepted Securities" for purposes of this definition. "Excess BB- Amount" means the excess, if any, of (i) the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds) that have a Standard & Poor's Rating below "BB-" over (ii) the Below B- Amount. "Excess BBB- Amount" means the excess, if any, of (i) the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds) that have a Standard & Poor's Rating below "BBB-" over (ii)(a) the Excess BB- Amount plus (b) the Below BAmount plus (c) 10% (or, in the case of the Pro Rata Payment Test, 5%) of the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds). "Excess Borrowing Amount" means the excess (if any) of the amount of a Borrowing used to fund all or part of a Credit Protection Payment in respect of an Interest Shortfall pursuant to clause (c)(vi) of the definition of "Account Withdrawal Payment Priority" over the amount of such Credit Protection Payment (or portion thereof) for which such Borrowing was requested resulting from the minimum Borrowing requirements set forth in the Variable Funding Note Purchase Agreement. "Excluded Synthetic ABS CDO Securities" means any Synthetic ABS CDO Security that contains an underlying derivative transaction (or an instrument the underlying assets of which comprise one or more underlying derivative transactions) for which (i) the seller of credit protection (the "Protection Seller") under a credit derivative transaction (or any other derivative transaction which contains characteristics of a credit derivative transaction) undertakes to make payments to the buyer of

289

credit protection, in respect of interest shortfalls on one or more Reference Obligations under such derivative transaction (an "Interest Shortfall Undertaking") and (ii) in respect of such Interest Shortfall Undertaking, no interest shortfall cap is applicable. "Expected Interest Amount" means, with respect to any payment date under the Reference Obligation related to a CDS Transaction, the amount of current interest that would accrue during the related calculation period on a principal balance of the Reference Obligation equal to (a) the outstanding principal amount of the Reference Obligation taking into account any writedowns, applied losses, forgiven amounts or other reductions due to a principal deficiency balance or realized loss amount that are attributable to the Reference Obligation minus (b) the aggregate Implied Writedown Amounts (if any) that will be payable on the related payment date assuming for this purpose that sufficient funds are available therefor in accordance with the Underlying Instruments relating to the Reference Obligation. "Fair Market Value" means, with respect to any Collateral Debt Security as of any date of determination, the market value (excluding any accrued interest) of such Collateral Debt Security, expressed as a percentage, as determined by the Portfolio Manager based upon (i) the arithmetic average of three bid-side quotations for such Collateral Debt Security obtained by the Portfolio Manager from any three nationally recognized dealers (which dealers are Independent from one another and from the Portfolio Manager) in the relevant market, (ii) if the Portfolio Manager is unable after reasonable efforts to obtain three such quotations as described in clause (i) above, the lower of two bid-side quotations for such Collateral Debt Security obtained from two different dealers (which dealers are Independent from one another and from the Portfolio Manager) in the relevant market, (iii) if the Portfolio Manager is not able after reasonable efforts to obtain two such quotations as described in clause (ii) above, the bid-side quotation for such Collateral Debt Security obtained from any nationally recognized dealer chosen by the Portfolio Manager in the relevant market (which dealer is Independent from the Portfolio Manager); provided that (x) subject to clause (y) below, if the Portfolio Manager is not able after reasonable efforts to obtain one such quotation as described in clause (iii) above, the "Fair Market Value" of such Collateral Debt Security shall be the market value determined by the Credit Default Swap Counterparty; provided that in no event shall the Aggregate Principal Balance of Collateral Debt Securities, the Fair Market Value of which is determined by the Credit Default Swap Counterparty pursuant to this clause (x), exceed 5% of the Net Outstanding Portfolio Collateral Balance and any such excess Collateral Debt Securities shall have a Fair Market Value (solely for the purpose of the definition of "Aggregate Principal Balance") equal to zero and (y) if the Portfolio Manager is unable in good faith to determine the Fair Market Value of such Collateral Debt Security pursuant to either clause (i) or clause (ii) as applicable above, within 60 days after the date of the initial attempted determination, the Fair Market Value of such Collateral Debt Security solely for the purpose of the definition of "Aggregate Principal Balance" shall be zero. In connection with such determination, the Portfolio Manager shall in good faith solicit bid quotations not later than 10:00 a.m. (New York time) on such date of determination. "FHLMC/FNMA Guaranteed Securities" means any Asset-Backed Security as to which the timely payment of interest when due, and the payment of principal no later than stated legal maturity, is fully and unconditionally guaranteed by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association but only if such guarantee (x) expires no earlier than such stated maturity and (y) is independent of the performance by the obligor on the relevant Asset-Backed Security; provided that any Asset-Backed Security falling within this definition shall be excluded from the definition of each other type of Asset-Backed Security. "Final Amortization Date" means the first to occur of (i) the date on which the Notional Amount of the CDS Transaction is reduced to zero and (ii) the date on which the assets securing the Reference Obligation or designated to fund amounts due in respect of the Reference Obligation are liquidated,

290

distributed or otherwise disposed of in full and the proceeds thereof are distributed or otherwise disposed of in full. "Fitch" means Fitch, Inc. "Fixed Payment Rate" means, with respect to any Deemed Floating Asset Hedge Agreement or Hybrid Security Hedge Agreement, the fixed rate that the Issuer agrees to pay on such Deemed Floating Asset Hedge Agreement or Hybrid Security Hedge Agreement at the time such swap is executed. "Fixed Rate Collateral Debt Security" means any Collateral Debt Security other than a Floating Rate Collateral Debt Security. For the avoidance of doubt, Hedged Hybrid Securities shall not be included as Fixed Rate Collateral Debt Securities. "Floating Amount Event" means a Failure to Pay Principal, Writedown or Interest Shortfall. "Floating Payment Rate" means, with respect to any Deemed Floating Asset Hedge Agreement or Hybrid Security Hedge Agreement, the floating rate that the Issuer agrees to receive on such Deemed Floating Asset Hedge Agreement or Hybrid Security Hedge Agreement at the time such swap is executed. "Floating Rate Collateral Debt Security" means any Collateral Debt Security (other than a CDS Transaction or other Synthetic Security structured as a credit default swap) (a) that is expressly stated to bear interest based upon a floating rate index for Dollar-denominated obligations commonly used as a reference rate in the United States or the United Kingdom (including, for these purposes, any passthrough debt security or Synthetic Security structured as a credit-linked note) or (b) the interest payments on which are derived primarily from underlying assets that bear interest based on a floating rate index. For the avoidance of doubt, Hedged Hybrid Securities shall be included as Floating Rate Collateral Debt Securities. "Floorplan Receivable Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) upon assets that will consist of a revolving pool of receivables arising from the purchase and financing by domestic retail motor vehicle dealers for their new and used automobile and light-duty truck inventory. The receivables are comprised of principal receivables and interest receivables. In addition to receivables arising in connection with designated accounts, the trust assets may include interests in other floorplan assets, such as: (1) participation interests in pools of assets existing outside the trust and consisting primarily of receivables arising in connection with dealer floorplan financing arrangements originated by a manufacturer or one of its affiliates; (2) participation interests in receivables arising under dealer floorplan financing arrangements originated by a third party and participated to a manufacturer; (3) receivables originated by a manufacturer under syndicated floorplan financing arrangements between a motor vehicle dealer and a group of lenders; or (4) receivables representing dealer payment obligations arising from purchases of vehicles. "Form-Approved Asset Hedge Agreement" means an Asset Hedge Agreement with respect to which (a) the related Fixed Rate Collateral Debt Security or Hedged Hybrid Security could be Acquired by the Issuer without any required action by the Rating Agencies and (b) the related underlying documentation conforms in all respects other than changes relating to the identity, nature and jurisdiction of the counterparty and the economic terms of the relevant transaction (as certified to the Trustee by the Portfolio Manager) to a form with respect to which the Rating Condition has been satisfied; provided that any Rating Agency may revoke its consent to the use of a Form-Approved Asset Hedge Agreement upon 30 days' prior notice to the Trustee and the Portfolio Manager (provided that such revocation shall not

291

affect any existing Asset Hedge Agreement) and (iii) the Issuer shall provide the Rating Agencies with a copy of each Asset Hedge Agreement entered into pursuant to any Form-Approved Asset Hedge Agreement promptly following the execution thereof. "Form-Approved Synthetic Security" means a Synthetic Security (including a CDS Transaction) (a) (i) the Reference Obligation of which, if it were a Collateral Debt Security, could be Acquired by the Issuer without requiring the satisfaction of the Rating Condition or with respect to which the Rating Condition has been satisfied or (ii) the Reference Obligation of which would satisfy clause (i) but for (x) the currency in which it is payable, and such Synthetic Security is payable in U.S. Dollars and does not expose the Issuer to currency risk or (y) the frequency of the scheduled periodic payments of interest on such Reference Obligation and (b) entered into pursuant to the Credit Default Swap Agreement or other documentation which conforms in all material respects (but for the amount and timing of periodic payments, the name of the Reference Obligation, the Notional Amount, the effective date, the termination date and other similarly necessary changes) to a form that either (i) was delivered to the Rating Agencies prior to the Closing Date in connection with this transaction and was approved by the Rating Agencies or (ii) has satisfied the Rating Condition with respect to the Rating Agencies for use in this transaction; and (2) with respect to any replacement to the Credit Default Swap Agreement entered into after the Closing Date, has been approved by a Majority of the Class A1-VF Notes and has satisfied the Rating Condition with respect to Standard & Poor's and Moody's; provided that if any Rating Agency notifies the Trustee or the Portfolio Manager that it has withdrawn form-approved status with respect to a particular FormApproved Synthetic Security, then the Issuer shall no longer use such form as a Form-Approved Synthetic Security; and provided further that such withdrawal of form-approved status shall not affect the status of any Synthetic Security entered into by the Issuer using such form prior to the withdrawal of form-approved status. The Issuer will not enter into a Form-Approved Synthetic Security that is based upon the form of the Credit Default Swap Agreement entered into on the Closing Date unless the related Synthetic Security Counterparty satisfies the "Credit Default Base Counterparty Ratings Requirement". "Franchise Securities" means (1) Oil and Gas Securities and (2) Restaurant and Food Services Securities, to the extent that such Oil and Gas Securities or Restaurant and Food Services Securities entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities) on the cash flow from a pool of franchise loans made to operators of franchises. "Funded Amount" means with respect to (a) any funded Synthetic Security, (1) the portion of the Notional Amount theretofore paid by the Issuer to the related Synthetic Security Counterparty in respect thereof minus (2) the portion of the Notional Amount theretofore reimbursed or otherwise paid by the related Synthetic Security Counterparty to the Issuer in respect thereof and added back to the Notional Amount and (b) any Synthetic Security that is an unfunded Synthetic Security, zero. "Funded Note Share" means, for each Distribution Date as of the related Determination Date, the ratio of (a) (i) the aggregate outstanding principal amount of the Funded Secured Notes immediately following the previous Distribution Date (or in the case of the first Distribution Date, the initial aggregate outstanding principal amount of the Funded Secured Notes) minus (ii) the amount of the Deferred Funded Secured Notes Principal to (b) the sum of (i) the aggregate outstanding principal amount of the Funded Secured Notes immediately following the previous Distribution Date (or in the case of the first Distribution Date, the initial aggregate outstanding principal amount of the Funded Secured Notes) plus (ii) the Outstanding Class A1-VF Funded Amount immediately following the previous Distribution Date (or in the case of the first Distribution Date, the Outstanding Class A1-VF Funded Amount on the Closing Date) plus (iii) the Remaining Unfunded Facility Commitment immediately following the operation of the Priority of Payments on the previous Distribution Date (or in the case of the first Distribution Date, the Remaining Unfunded Facility Commitment on the Closing Date); provided, in each case, that any

292

determination of the aggregate outstanding principal amount of any Class of Notes for purposes of this definition shall be made without regard to any Deferred Interest thereon. "Funded Secured Note Reduction Amount" means, with respect to any Distribution Date, an amount equal to the greater of (a) zero and (b)(i) the Funded Note Share multiplied by (ii) the Total Reduction Amount. "Future Flow Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from trade accounts receivable, entertainment royalties, franchise royalties, structured litigation settlements or ticket receivables. "GIC" means the guaranteed investment contract dated as of November 9, 2006 between the Issuer, the GIC Provider and the Trustee. "GIC Agreement Termination Date" means the earliest to occur of (i) the Stated Maturity of the Notes, (ii) a Redemption Date, (iii) the Disposition in full of the Collateral following the occurrence of an Event of Default under the Indenture, (iv) the date on which the Issuer (or the Portfolio Manager on behalf of the Issuer) terminates the GIC in accordance with the GIC following the occurrence of a GIC Tax Event and (v) the date on which the parties to the GIC mutually agree to terminate the GIC upon prior notice to Standard & Poor's. "GIC Interest" means, with respect to the Amounts Invested, the interest which will accrue daily at the GIC Interest Rate on the Amounts Invested at the commencement of such day less any portion of the Amounts Invested withdrawn prior to the close of business on such day. "GIC Interest Accrual Period" means (i) in the case of the initial GIC Interest Accrual Period, the period from, and including, the Closing Date to, but excluding, the first Distribution Date and (ii) thereafter, the period from, and including, the Distribution Date immediately following the last day of the immediately preceding GIC Interest Accrual Period to, but excluding, the next succeeding Distribution Date. "GIC Interest Payment Date" means the first Business Day immediately preceding each Distribution Date, commencing with the Business Day immediately preceding the Distribution Date in February 2007. "GIC Interest Rate Differential" means the excess, if any, of (i) two-week LIBOR or interpolated LIBOR (as determined by the GIC Provider for the period commencing on and including a Withdrawal Date and ending on but excluding the next scheduled GIC Interest Payment Date) over (ii) the applicable GIC Interest Rate for the GIC Interest Accrual Period during which such Withdrawal Date occurs. "GIC Investment Date" means the Closing Date and any date on which the Portfolio Manager on behalf of the Issuer directs the Trustee to transfer funds standing to the GIC Provider in accordance with the terms of the Indenture. "GIC Required Ratings" means (i) a short-term rating of "P1" (and such rating is not on watch for possible downgrade by Moody's) and a long-term rating of at least "Aa3" by Moody's (and, if rated "Aa3" by Moody's, such rating is not on watch for possible downgrade by Moody's) and (ii) a short-term issuer credit rating of "A-1+" by Standard & Poor's.

293

"GIC Tax Event" means the imposition of any withholding or deduction with respect to any payments of the GIC Provider under the GIC. "Guaranteed Asset-Backed Security" means an Insurance Company Guaranteed Security, a Bank Guaranteed Security, a Guaranteed Corporate Debt Security or any security the rating of which is based upon an unconditional and irrevocable guarantee as to ultimate or timely payment of principal or interest at the time of Acquisition. "Guaranteed Corporate Debt Security" means a Corporate Debt Security guaranteed as to ultimate or timely payment of principal or interest, including a Corporate Debt Security guaranteed by a monoline financial insurance company. "Healthcare Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from (i) leases and subleases of equipment to hospitals, non-hospital medical facilities, physicians and physician groups for use in the provision of healthcare services or (ii) Medicare, Medicaid or any other third-party payor receivables related to medical, hospital or other health care related expenses, charges or fees. "Hedged Hybrid Security" means a Hybrid Security where the fixed rate or fixed pass-rate on the security is hedged into a floating rate using a Hybrid Security Hedge Agreement; provided that at the time of purchasing the Hybrid Security and entering into the Hybrid Security Hedge Agreement (a) the number of years that the Hybrid Security pays a fixed rate of interest does not exceed 10 years, and (b) the average life of the fixed interest rate or fixed pass through rate period of such Hybrid Security would not increase or decrease by more than two years from its expected average life if it were to prepay at either 75% or 150% of its expected prepayment speed. "Hedged Long CDS Transaction" means a Long CDS Transaction (or portion of the Notional Amount thereof) that is the subject of a related Hedging Short CDS Transaction. "Hedging Short CDS Transaction" means a Short CDS Transaction with respect to which the Issuer has previously entered into one or more Long CDS Transactions that relate to the identical Reference Obligation that is the subject of such Short CDS Transaction and which shall terminate upon the termination of the related Long CDS Transaction; provided that no such Hedging Short CDS Transaction shall be entered into (x) unless (i) it is entered into with the Credit Default Swap Counterparty, (ii) it is entered into under the same form of confirmation as the related Long CDS Transaction and (iii) the Premium (inclusive of any intermediation fee payable to the Credit Default Swap Counterparty) payable by the Issuer under such Hedging Short CDS Transaction is equal to or less than the Counterparty Premium (as the same may be reduced by any intermediation fee payable to the Credit Default Swap Counterparty) payable by the Counterparty under the related Hedged Long CDS Transaction and (y) with respect to a CDS Transaction relating to an Index. "High-Yield CDO Securities" means CDO Securities (other than CLO Securities) which entitle the holders thereof to receive payments that depend primarily on the cash flow from a portfolio of Corporate Debt Securities that are obligations of issuers that have a Moody's Rating below "Baa3." "Hybrid Security Hedge Agreement" means, with respect to a Hedged Hybrid Security, an interest rate swap with an amortizing notional schedule; provided that, (a) at the time of entry into the Hybrid Security Hedge Agreement, (i) the period during which Hybrid Security pays fixed or passthrough interest shall not extend beyond 10 years after its Acquisition and (ii) the scheduled amortizing notional amount of such Hybrid Security Hedge Agreement is based on the expected principal payments

294

of the related Hybrid Security (from the time of entry into the Hybrid Security Hedge Agreement until the end of the period during which the Hybrid Security pays fixed interest), (b) the Rating Agencies and the Trustee are notified prior to the Issuer’s Acquisition of such Hedged Hybrid Security, and shall be provided the identity of the related Asset Hedge Counterparty and copies of the hedge documentation and notional schedule, (c) the Hybrid Security Hedge Agreement shall require satisfaction of the Rating Condition with respect to Standard & Poor's to the extent the applicable master agreement or schedule attached thereto is not a Form-Approved Asset Hedge Agreement and (d) such Hybrid Security Hedge Agreement is priced at then-current market rates. "Hybrid Security" means any Collateral Debt Security (including but not limited to Asset-Backed Securities the payments on which depend on the cash flow from adjustable rate mortgages) that, pursuant to its Underlying Instruments, bears interest at a fixed rate for a limited period of time, after which it bears interest based upon a floating rate index for Dollar-denominated obligations commonly used as a reference rate in the United States or the United Kingdom. "Index" means (a) any CMBX index (as published by Markit Group), (b) any ABX index (as published by Markit Group) and (c) any other Index with respects to which the Rating Condition is satisfied; provided that the Issuer shall not be permitted to Acquire any Synthetic Security relating to an Index unless (i) the Issuer has obtained an opinion of counsel to the effect that the Acquisition (including the manner of Acquisition), Disposition, ownership or enforcement by the Issuer of such Synthetic Security or any of the Reference Obligations that form part of the related Index will not cause the Issuer to be treated as engaged in a U.S. trade or business or subject to tax on a net income basis in the United States or the United Kingdom; and (ii) at least one of the following three conditions is satisfied: (A) the applicable offering memorandum or comparable disclosure document in respect of such Index indicates that payments and proceeds of disposition received in respect of such Index by a non-U.S. holder thereof will not currently be subject to U.S. withholding tax, (B) the Issuer has obtained advice of counsel to the effect that payments and proceeds of Disposition received by the Issuer in respect of such Synthetic Security or any of the Reference Obligations that form part of the related Index will not currently be subject to U.S. withholding tax or (C) the issuer of such Index or another Person is required pursuant to the terms thereof to make "gross up" payments that cover the full amount of any such U.S. withholding tax. For the avoidance of doubt, (i) a Synthetic Security relating to an Index which is Acquired by the Issuer must satisfy the proviso to the definition of "Synthetic Security" and (ii) the Reference Obligations comprising each Index must each satisfy the definition of "Collateral Debt Security". "Insurance Company Guaranteed Securities" means any Asset-Backed Security as to which the timely payment of interest when due, and the payment of principal no later than stated legal maturity, is (a) unconditionally guaranteed pursuant to an insurance policy, guarantee or other similar instrument issued by an insurance company organized under the laws of a State of the United States, but only if such insurance policy, guarantee or other similar instrument (i) expires no earlier than such stated maturity, (ii) provides that payment thereunder is independent of the performance by the obligor on the relevant Asset-Backed Security and (iii) is issued by an insurance company having a credit rating assigned by each nationally recognized statistical rating organization that currently rates such Asset-Backed Security higher than the credit rating assigned by such rating organization to such Asset-Backed Security determined without giving effect to such insurance policy, guarantee or other similar instrument or (b) in the judgment of the Portfolio Manager (exercised in accordance with the standard of care set forth in the Management Agreement), dependent upon an insurance policy, guarantee or other similar instrument issued by an insurance company organized under the laws of a State of the United States, provided that any Asset-Backed Security falling within this definition shall be excluded from the definition of each other type of Asset-Backed Security.

295

"Insurance Receivables Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend on the future cash flows from commissions, servicing receivables, reinsurance receivables and all other revenue that arise from the sale of life insurance policies or other insurance products. "Insurance Trust Preferred CDO Securities" means CDO Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CDO Securities) primarily on credit exposure to or cash flow from a pool of trust preferred securities issued by insurance companies or by wholly-owned trust subsidiaries of insurance holding companies which use the proceeds of such issuance to purchase a portfolio of debt securities issued by its parent. They generally have the following characteristics: (1) the trust securities are non-amortizing preferred stock securities; (2) the trust securities have a 30-year maturity with a 5- or 10-year non-call period; and (3) the trust securities are subordinated debt. "Interest Only Security" means any Collateral Debt Security that does not provide for the repayment of a stated principal amount in one or more installments on or prior to the date two Business Days prior to the Stated Maturity of the Secured Notes. "Interest Period" means (i) in the case of the initial Interest Period, the period from, and including, the Closing Date to, but excluding, the first Distribution Date and (ii) thereafter, the period from, and including, the Distribution Date immediately following the last day of the immediately preceding Interest Period to, but excluding, the next succeeding Distribution Date. Notwithstanding the foregoing, with respect to the Class A1-VF Notes, the term "Interest Period" shall include Short Interest Periods with respect to any Intraperiod Payment Amounts. "Interest Proceeds" means, with respect to any Due Period, the sum (without duplication) of: (1) all payments of interest on the Collateral Debt Securities received in cash by the Issuer during such Due Period, including (a) payments of Counterparty Premiums in respect of Long CDS Transactions (but excluding any such Counterparty Premiums that are payable under Hedged Long CDS Transactions), (b) all payments of interest or premium received by the Issuer in respect of Synthetic Securities that are not CDS Transactions, and interest on securities credited to any Synthetic Security Counterparty Account that are not payable to a Synthetic Security Counterparty, (c) any Interest Reimbursements received by the Issuer in respect of any Long CDS Transactions or other Synthetic Securities structured as credit default swaps and (d) the portion of any Disposition Proceeds received in respect of the Disposition of any Synthetic Security that is attributable to accrued but unpaid fixed premium amounts payable by the related Synthetic Security Counterparty but excluding (i) with respect to Collateral Debt Securities that pay interest less frequently than quarterly, the portion of the interest on such Collateral Debt Securities that is to be deposited in the Semi-Annual Interest Reserve Account during such Due Period, (ii) payments in respect of accrued interest included in Principal Proceeds, (iii) payments in respect of deferred interest on Deferred Interest PIK Bonds previously capitalized and treated as "Principal Proceeds" pursuant to clause (8) of the definition thereof, (iv) interest on any Collateral Debt Security that is required to be paid to an Asset Hedge Counterparty in accordance with the terms of an Asset Hedge Agreement and (v) payments of interest in respect of Defaulted Securities (but only so long as the aggregate amount of payments received by the Issuer in respect of any such Defaulted Security does not exceed the original principal amount of such Defaulted Security); (2) all amounts to be transferred by the Trustee from the Semi-Annual Interest Reserve Account to the Interest Collection Account on the fourth Business Day prior to the Distribution Date relating to such Due Period pursuant to the Indenture;

296

(3) all accrued interest received in cash by the Issuer with respect to Collateral Debt Securities Disposed of by the Issuer (excluding payments in respect of accrued and unpaid interest on any Discretionary Disposition Security, Credit Improved Security or Credit Risk Security Disposed of and reinvested at the option of the Portfolio Manager in any substitute Collateral Debt Security, Disposition Proceeds received in respect of Defaulted Securities (but only so long as the aggregate amount of payments received by the Issuer in respect of any such Defaulted Security does not exceed the original principal amount of such Defaulted Security) and payments in respect of accrued interest included in Principal Proceeds pursuant to clause (7) of the definition of "Principal Proceeds"); (4) all payments of interest (including any amount representing the accreted portion of a discount from the face amount of an Eligible Investment) on Reserve Account Investments, Eligible Investments or U.S. Agency Securities in the Collection Accounts, the Semi-Annual Interest Reserve Account, the Reserve Account, the Class A1-VF Noteholder Account, the Reinvestment Account and the Uninvested Proceeds Account (excluding, for the avoidance of doubt, income earned on amounts deposited in any Class A1-VF Prepayment Account) received in cash by the Issuer during such Due Period and all payments of principal, including repayments, on Eligible Investments Acquired with amounts from the Interest Collection Account received by the Issuer during such Due Period; (5) all amendment and waiver fees, all late payment fees, and all other fees and commissions received in cash by the Issuer during such Due Period in connection with such Collateral Debt Securities, Reserve Account Investments, Eligible Investments and U.S. Agency Securities (other than fees and commissions received in respect of Defaulted Securities (but only so long as the aggregate amount of payments received by the Issuer in respect of any such Defaulted Security does not exceed the original principal amount of such Defaulted Security) and yield maintenance payments included in Principal Proceeds pursuant to clause (9) of the definition thereof); (6) all payments received pursuant to any Interest Rate Hedge Agreement or any Asset Hedge Agreement (excluding any payments received by the Issuer by reason of an event of default or termination event (as defined in the relevant Hedge Agreement), other than the portion of any scheduled payment to the Issuer which accrued prior to termination) less any scheduled payments payable by the Issuer under such Hedge Agreement during such Due Period; and (7) any carry paid to the Issuer in cash with respect to Collateral Debt Securities Acquired on behalf of the Issuer in connection with the warehousing arrangements entered into prior to the Closing Date; provided that (A) Interest Proceeds shall in no event include (i) any payment or proceeds that constitute "Principal Proceeds" pursuant to the definition thereof or (ii) any Excepted Property, (B) any Interest Proceeds transferred from the Interest Collection Account to the Class A1-VF Noteholder Account as described under "Security of the Secured Notes—The Accounts—Class A1-VF Noteholder Account" shall cease to constitute Interest Proceeds immediately upon such transfer, (C) any Interest Proceeds transferred from the Interest Collection Account to the Reserve Account, the Principal Collection Account or the Uninvested Proceeds Account as described under "Security of the Secured Notes—The Accounts—Collection Accounts" shall cease to constitute Interest Proceeds immediately upon such transfer, (D) if the presence of a legal or business holiday causes a scheduled distribution on any Collateral Debt Security or other security held as Collateral to be received in the period between the end of the Due Period in which such payment would otherwise have been received and the related Distribution Date, such payment will be deemed to have been received during such Due Period and (E) payments made by a Hedge Counterparty or the GIC Provider on or prior to a Distribution Date will be deemed to have been made during the related Due Period.

297

"Interest Shortfall" means, with respect to any payment date under the Reference Obligation related to a CDS Transaction, either (a) the non-payment of an Expected Interest Amount or (b) the payment of an Actual Interest Amount that is less than the Expected Interest Amount. "Internal Rate of Return" means, as of any Redemption Date relating to an Auction Call Redemption, the per annum discount rate derived with the Microsoft Excel XIRR function that would result in the present value of the sum of the following cashflows equaling zero: (1) the Subordinated Notes issued on the Closing Date (which amount would be deemed to be negative for purposes of this calculation) and (2) each distribution in respect of the Subordinated Notes made on or prior to such Redemption Date (which amount will be positive for the purposes of this calculation). "Interpolated LIBOR" means, in respect of any Short Interest Period, LIBOR determined in accordance with clause (iii) of the definition of "LIBOR," provided that "Interest Period" shall be replaced with "Short Interest Period" in such definition for purposes of calculating Interpolated LIBOR. "Intraperiod Interest Amount" means, for each Intraperiod Payment Amount, an amount equal to the product of (i) the Intraperiod Payment Amount, (ii) Interpolated LIBOR plus 0.32% and (iii) the number of days in the Short Interest Period divided by 360. For the avoidance of doubt, a Borrowing or Deemed Borrowing shall not result in an Intraperiod Payment Amount if such payment is made on any Distribution Date. "Intraperiod Payment Amount" means any Borrowing or Deemed Borrowing by the Issuer (including any withdrawals from a Class A1-VF Prepayment Account for such purpose) from (but excluding) any Distribution Date to (but excluding) the immediately succeeding Distribution Date. For the avoidance of doubt, a Borrowing or Deemed Borrowing shall not be an Intraperiod Payment Amount if such payment is made on any Distribution Date (as such payments will be included in the Outstanding Class A1-VF Funded Amount as of such date). "Inverse Floating Rate Collateral Debt Security" means any Floating Rate Collateral Debt Security whose interest rate is inversely or otherwise not proportionately related to an interest rate index. "Investment Grade Security" means any security that is (i) issued by a (a) United States issuer or (b) Qualifying Foreign Obligor and (ii) rated "Baa3" or above by Moody's or "BBB-" or above by Standard & Poor's. "Investor Application Forms" means the several investor application forms that collectively account for all of the Class E Notes, Combination Notes and Subordinated Notes to be issued on the Closing Date, each dated on or prior to the Closing Date, in favor of the Initial Purchaser and executed by the respective original purchaser of Class E Notes, Combination Notes or Subordinated Notes named therein, as modified and supplemented and in effect from time to time. "Issue" of Collateral Debt Securities means Collateral Debt Securities issued by the same issuer, secured by the same collateral pool having the same terms and conditions (as to, among other things, coupon, maturity, security and subordination). "Issuer Premium" means, with respect to any Short CDS Transaction, the Premium payable by the Issuer under such Short CDS Transaction. "LIBOR Business Day" means a day on which commercial banks and foreign exchange markets settle payments in Dollars in New York and London.

298

"Liquidation Date" means the date on which the CDS Transactions are Disposed of pursuant to the Liquidation Procedures; provided that (i) in the case of an Optional Redemption, Auction Call Redemption or Tax Redemption or the termination of the Credit Default Swap Agreement other than as a result of any Event of Default under the Indenture, such date shall be the second Business Day prior to the related Redemption Date or termination date; and (ii) in the case of an Event of Default, such date shall be the second Business Day prior to the application of proceeds of Disposition of the Collateral to redeem the Notes. "London Banking Day" means a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London. "Long CDS Transaction" means a CDS Transaction pursuant to which the Synthetic Security Counterparty, as buyer of protection, transfers the credit risk associated with the related Reference Obligation to the Issuer (or, in the case of a Synthetic Security relating to an Index, each Reference Obligation under such Index up to its Allocable Notional Amount), as seller of protection. "Lottery Receivable Security" means an Asset-Backed Security that (a) entitles the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such Asset-Backed Security) upon an arrangement that compensates a winner of a state lottery with one lump sum payment in exchange for a pledge of the lottery payments that individual would have received over a future period of time and (b) is backed by a diversified pool of payments received from various state lottery commissions in exchange for a lump sum payment to a bona fide winner of a given state lottery. "Majority ABS Security" means any security that is one of the following Specified Types: ABS CDO Securities, CMBS Securities, CLO Securities, Mid-Prime Residential Mortgage Securities, Prime Residential Mortgage Securities and Sub-Prime Residential Mortgage Securities. "Majority" means (a) with respect to any Class or Classes of Secured Notes, the holders of more than 50% of the aggregate outstanding principal amount (including, in the case of the Class A1-VF Notes, the Remaining Unfunded Facility Commitment) of the Secured Notes of such Class or Classes, as the case may be, (b) with respect to the Subordinated Notes, holders of more than 50% of the aggregate outstanding principal amount of Subordinated Notes held by all Subordinated Noteholders and (c) with respect to the Combination Notes, holders of more than 50% of the aggregate outstanding principal amount of the Combination Notes held by all Combination Noteholders at such time. "Manufactured Housing Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from manufactured housing (also known as mobile homes and prefabricated homes) installment sales contracts and installment loan agreements, generally having the following characteristics: (1) the contracts and loan agreements have varying, but typically lengthy, contractual maturities; (2) the contracts and loan agreements are secured by the manufactured homes and, in certain cases, by mortgages and/or deeds of trust on the real estate to which the manufactured homes are deemed permanently affixed; (3) the contracts and/or loans are obligations of a large number of obligors and accordingly represent a relatively diversified pool of obligor credit risk; (4) repayment thereof can vary substantially from the contractual payment schedule, with early prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans or securities include an effective prepayment premium; and (5) in some cases, obligations are fully or partially guaranteed by a governmental agency or instrumentality.

299

"Market Value CDO Security" means a CDO Security whose overcollateralization is measured by reference to the market value of the Underlying Portfolio securing such CDO Security. "Maximum VFN Facility Funding Commitment" means, in the aggregate, U.S.$450,000,000 and, with respect to any holder of Class A1-VF Notes, the Maximum VFN Facility Funding Commitment is the portion of such amount represented by the aggregate principal amount of the Class A1-VF Notes held by such Class A1-VF Noteholder (whether at the time funded or unfunded) which such holder is obligated to advance from time to time to the Issuer under the Variable Funding Note Purchase Agreement. "Measurement Date" means any of the following: (a) the Closing Date; (b) any date after the Closing Date on which the Issuer Acquires or Disposes of any Collateral Debt Security (other than a Deliverable Obligation); (c) any date after the Closing Date on which a Collateral Debt Security becomes a Defaulted Security; (d) each Determination Date; (e) each Monthly Report Determination Date; and (f) with written notice of two Business Days to the Issuer, the Portfolio Manager and the Trustee, any other Business Day that any Rating Agency, or a Majority of any Class of Secured Notes requests to be a "Measurement Date"; provided that if any such date would otherwise fall on a day that is not a Business Day, the relevant Measurement Date will be the next succeeding day that is a Business Day. "Mid-Prime Residential Mortgage Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from subprime residential mortgage loans secured by residential real estate (single or multi-family properties) the proceeds of which are used to purchase real estate and purchase or construct dwellings thereon (or to refinance indebtedness previously so used), generally having the following characteristics: (1) the mortgage loans have generally not been underwritten to the standards of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (without regard to the size of the loan); (2) the mortgage loans have standardized payment terms and require minimum monthly payments of interest and minimum monthly payments of principal each month; (3) the mortgage loans are obligations of numerous borrowers and accordingly represent a very diversified pool of obligor credit risk; (4) the repayment of such mortgage loans is subject to a contractual payment schedule, with early repayment depending primarily on interest rates and the sale of the mortgaged real estate and related dwelling and (5) the mortgage loans have an average FICO score of greater than 625 but less than 700 at the time of acquisition of the Asset-Backed Security. "Minority ABS Security" means any security that, based on its Specified Type, is not a Majority ABS Security. "Monthly Report Determination Date" means, with respect to any Monthly Report, the date five Business Days prior to the publication date of such Monthly Report. "Monthly Report" means the monthly report to be compiled and provided or made available, not later than the ninth day of each month (or, if such day is not a Business Day, the immediately succeeding Business Day) commencing with the 13th day of January 2007 or, in the case of a calendar month in which a Distribution Date occurs, not later than such Distribution Date, by the Collateral Administrator, acting on behalf of the Issuer, to each Rating Agency, the Trustee, the Portfolio Manager, the Credit Default Swap Counterparty, each Hedge Counterparty, each Class A1-VF Noteholder and each Transfer Agent and, upon written request therefor, any holder of a Secured Note shown on the Secured Note Registers and any Subordinated Noteholder.

300

"Moody's Below B3 Haircut Amount" means, as of any Measurement Date, the higher of (i) 50% of the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds) that have a Moody's Rating below "B3" and (ii) the sum of the products for each Collateral Debt Security (other than a Defaulted Security or Deferred Interest PIK Bond) that has a Moody's Rating below "B3" of (a) 100% minus the Fair Market Value of such Collateral Debt Security and (b) the Aggregate Principal Balance of such Collateral Debt Security. "Moody's Below Ba3 Haircut Amount" means, as of any Measurement Date 30% of the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds) that have a Moody's Rating below "Ba3" but that have a Moody's Rating of at least "B3". "Moody's Below Baa3 Haircut Amount" means, as of any Measurement Date, 10% of the excess (if any) of (a) the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds) that have a Moody's Rating below "Baa3 but that have a Moody's Rating of at least "Ba3" over (b) 10% of the Aggregate Principal Balance of all Collateral Debt Securities (other than Defaulted Securities or Deferred Interest PIK Bonds). "Moody's Haircut Amount" means, as of any Measurement Date, the sum (without duplication) of (i) the Moody's Below Baa3 Haircut Amount plus (ii) the Moody's Below Ba3 Haircut Amount plus (iii) the Moody's Below B3 Haircut Amount plus (iv) the aggregate Discount Haircut Amount for all Discount Securities; provided, however, that a Collateral Debt Security shall only be included in one of clauses (i) through (iv), which shall be the clause that results in the greatest Moody's Haircut Amount. "Moody's Rating Trigger" means that the rating assigned by Moody's to any Class of Secured Notes on the Closing Date has been (i) withdrawn, (ii) reduced by at least one subcategory in the case of the Class A1-VF Notes, the Class A2A Notes, the Class A2B Notes, the Class B1 Notes or the Class B2 Notes, (iii) reduced by two or more subcategories in the case of the Class C Notes or the Class D Notes or (iv) reduced by three or more subcategories in the case of the Class E Notes, in each case from the rating assigned by Moody's on the Closing Date (and such rating has not been (1) with respect to the Class A1VF, the Class A2A Notes, the Class A2B Notes, the Class B1 Notes or the Class B2 Notes restored to the rating assigned by Moody's on the Closing Date, or (2) with respect to the Class C Notes, the Class D Notes or the Class E Notes, restored within one subcategory of the rating assigned by Moody's on the Closing Date). "Moody's" means Moody's Investors Service, Inc. and any successor or successors thereto. "Mortgage-Related Securities" means, for purposes of the Eligibility Criteria, any Prime Residential Mortgage Securities, Mid-Prime Residential Mortgage Securities, CMBS Securities and SubPrime Residential Mortgage Securities. "Mutual Fund Fees Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from a pool of brokerage fees and costs relating to various mutual funds, generally having the following characteristics: (1) the brokerage arrangements have standardized payment terms and require minimum payments; (2) the brokerage fees and costs arise out of numerous mutual funds and accordingly represent a very diversified pool of credit risk; and (3) the collection of brokerage fees and costs can vary substantially from the contractual payment schedule (if any), with collection depending on numerous factors specific to the particular mutual funds, interest rates and general economic matters.

301

"Negative Amortization Capitalization Amount" means, with respect to any Negative Amortization Security and any specified period of time, the aggregate amount of accrued interest thereon that has been capitalized as principal pursuant to the related Underlying Instruments during such period, as the same may be reduced from time to time pursuant to and in accordance with the related Underlying Instruments. "Negative Amortization Haircut Amount" means, with respect to any Negative Amortization Security on any date of determination, the excess (if any) of (a) the Negative Amortization Capitalization Amount therefor (if any) for the period from and including the date of issuance thereof to but excluding such date of determination over (b) the sum of (i) 5% of the original principal amount of such Negative Amortization Security upon issuance and (ii) the amount by which such Negative Amortization Security has already been haircut pursuant to the operation of sub-clause (B) of the proviso to the definition of "Net Outstanding Portfolio Collateral Balance" (taking into account the proviso to the definition of "Negative Amortization Security" below in the case of such sub-clause (B)). "Negative Amortization Security" means a Prime Residential Mortgage Security which (a) permits the related mortgage loan or mortgage loan obligor for a specified period of time to make no repayments of principal and payments of interest in amounts that are less than the interest payments that would otherwise be payable thereon based upon the stated rate of interest thereon, (b) to the extent that interest proceeds received in respect of the related underlying collateral are insufficient to pay interest that is due and payable thereon, permits principal proceeds received in respect of the related underlying collateral to be applied to pay such interest shortfall and (c) to the extent that the aggregate amount of interest proceeds and principal proceeds received in respect of the related underlying collateral are insufficient to pay interest that is due and payable thereon, permits such unpaid interest to be capitalized as principal and itself commence accruing interest at the applicable interest rate, in each case pursuant to the related Underlying Instruments; provided that, for purposes of determining which Collateral Debt Securities comprise the Excess BB- Amount or the Excess BBB- Amount (and consequently which Collateral Debt Securities are haircut pursuant to the operation of the "Moody's Haircut Amount" definition or "Standard & Poor's Haircut Amount" definition (as applicable)), the identity of the Collateral Debt Securities comprising any such excess shall be determined by assuming that any Negative Amortization Securities that could form part of such excess will be the last Collateral Debt Securities that are added to such excess. "Net Counterparty Hedged Long Premium" means, with respect to a Hedged Long CDS Transaction, on any payment date thereunder, the excess, if any, of the Counterparty Premium payable by the Credit Default Swap Counterparty under such Hedged Long CDS Transaction over the Issuer Premium payable by the Issuer under the related Hedging Short CDS Transaction on such payment date. "Net Outstanding Portfolio Collateral Balance" means, on any Measurement Date, an amount equal to (a) the Aggregate Principal Balance on such Measurement Date of all Collateral Debt Securities plus (b) the Aggregate Principal Balance of all Principal Proceeds and Uninvested Proceeds held as cash and Eligible Investments and U.S. Agency Securities Acquired with Principal Proceeds or Uninvested Proceeds and any amount on deposit at such time in the Principal Collection Account or the Uninvested Proceeds Account (without duplication) plus (c) the Class A1-VF Senior Excess as of such Measurement Date minus (d) the Aggregate Principal Balance on such Measurement Date of all Collateral Debt Securities that are (i) Defaulted Securities or Deferred Interest PIK Bonds (except with respect to the calculation of the Trustee's fees) or (ii) Equity Securities plus (e) for each Defaulted Security or Deferred Interest PIK Bond, the Calculation Amount with respect to such Defaulted Security or Deferred Interest PIK Bond plus (f) without duplication of clause (b) above, Net Counterparty Hedged Long Premiums due in the related Due Period regardless of whether the applicable due date has occurred; provided that (x) solely for the purpose of calculating the Net Outstanding Portfolio Collateral Balance in connection with

302

any of the Overcollateralization Tests, the Pro Rata Payment Test, the Class E Interest Diversion Test or the Class A Overcollateralization Ratio, the "Net Outstanding Portfolio Collateral Balance" means (A) the amount determined pursuant to the preceding clauses of this definition minus (B) the greater of (1) the Standard & Poor's Haircut Amount and (2) the Moody's Haircut Amount minus (C) for each Negative Amortization Security, the Negative Amortization Haircut Amount (if any) with respect to such Negative Amortization Security and (y) the provisions of the preceding proviso and the definitions used therein may be modified in order to comply with any amendments or modifications to the applicable Rating Agency criteria if the Rating Condition is satisfied with respect thereto. "NIM Security" means a security that entitles the holder to receive payments that depend (except for the rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from interest spreads from mortgage securitizations. "Non-LIBOR Floating Rate Collateral Debt Security" means a Floating Rate Collateral Debt Security that bear interest based upon a floating rate index for Dollar-denominated obligations other than the London interbank offered rate. "Note Break-Even Loss Rate" means, with respect to any Class of Secured Notes rated by Standard & Poor's, at any time, the maximum percentage of defaults (as determined by application of the Standard & Poor's CDO Monitor) which the Current Portfolio or the Proposed Portfolio, as applicable, can sustain such that, after giving effect to Standard & Poor's assumptions on recoveries and timing and to the Priority of Payments, will result in sufficient funds remaining for the ultimate payment of principal of and interest on such Class of Secured Notes in full by its Stated Maturity and (in the case of the Class A Notes and Class B Notes) the timely payment of interest on such Class of Secured Notes. "Notes Loss Differential" means, with respect to any Class of Secured Notes rated by Standard & Poor's, at any time, the rate calculated by subtracting the Class Scenario Default Rate at such time from the Note Break-Even Loss Rate for such Class of Secured Notes at such time. The Notes Loss Differential is based on a proprietary model developed by Standard & Poor's, the application of which may change from time to time as directed by Standard & Poor's. "Notional Amount" means, with respect to any Synthetic Security (including any CDS Transaction), without duplication, (a) the "Floating Rate Payer Calculation Amount" as defined in the Credit Derivatives Definitions, (b) the "notional amount" as defined in the related Underlying Instruments or (c) any similar term in the related Underlying Instruments that refers to the par amount of indebtedness that would be valued for purposes of determining the cash or physical settlement obligations of the parties thereto. "Notional Amount Shortfall" means, at any time, the greater of (1) zero and (2) the excess (if any) of (a) the aggregate Remaining Exposure of all CDS Transactions over (b) the sum of (i) the Remaining Unfunded Facility Commitment plus (ii) the Aggregate Principal Balance of all Reserve Account Investments credited to the Reserve Account excluding any portion thereof consisting of Principal Proceeds and any investment income on Reserve Account Investments that has been irrevocably designated for transfer to the Interest Collection Account. "Offer" means, with respect to any security, (i) any offer by the issuer of such security or by any other person made to all of the holders of such security to purchase or otherwise acquire such security (other than pursuant to any redemption in accordance with the terms of its Underlying Instruments) or to convert or exchange such security into or for cash, securities or any other type of consideration or (ii) any solicitation by the issuer of such security or any other person to amend, modify or waive any provision of such security or any of its Underlying Instruments.

303

"Oil and Gas Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from (a) a pool of franchise loans made to operators of franchises that provide oil and gasoline and provide other services related thereto and (b) leases or subleases of equipment to such operators for use in the provision of such goods and services. They generally have the following characteristics: (1) the loans, leases or subleases have varying contractual maturities; (2) the loans are secured by real property purchased or improved with the proceeds thereof (or to refinance an outstanding loan the proceeds of which were so used); (3) the obligations of the lessors or sublessors of the equipment may be secured not only by the leased equipment but also the related real estate; (4) the loans, leases and subleases are obligations of a relatively limited number of obligors and accordingly represent a relatively undiversified pool of obligor credit risk; (5) payment of the loans can vary substantially from the contractual payment schedule (if any), with prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans include an effective prepayment premium; (6) the repayment stream on the leases and subleases is primarily determined by a contractual payment schedule, with early termination of such leases and subleases predominantly dependent upon the disposition to a lessee, a sublessee or third party of the underlying equipment; (7) such leases and subleases typically provide for the right of the lessee or sublessee to purchase the equipment for its stated residual value, subject to payments at the end of a lease term for excess usage or wear and tear; and (8) the ownership of a franchise right or other similar license and the creditworthiness of such franchise operators is the primary factor in any decision to invest in these securities. "Payment Requirement" means the amount specified as such in the related confirmation or its equivalent in the relevant currency or currencies in which a Reference Obligation related to a CDS Transaction is denominated or, if "Payment Requirement" is not so specified, U.S.$10,000 or its equivalent in the relevant currency or currencies in which a Reference Obligation related to a CDS Transaction is denominated, in either case as of the occurrence of the relevant Failure to Pay Interest. "Permanent Reduction Amount" means, with respect to any date of determination, the sum (without duplication) of (i) the aggregate amount of Principal Proceeds and Interest Proceeds applied on or prior to such date of determination by the Issuer pursuant to any of paragraphs (8), (12) and (15) under "Priority of Payments—Interest Proceeds" and paragraphs (2), (5) and (9) under "Priority of Payments— Principal Proceeds" to the payment of the Outstanding Class A1-VF Funded Amount or a deposit to the Reserve Account to reduce the Remaining Unfunded Facility Commitment plus (ii) the sum of the amounts of the Class A1-VF Senior Excess which the Issuer is required (after the application of all Interest Proceeds and Principal Proceeds available therefor in accordance with the Priority of Payments) to apply to the reduction of the Remaining Unfunded Facility Commitment in order to satisfy any Overcollateralization Test in accordance with the Senior Excess Application Priority plus (iii) the sum of (x) the aggregate amount of Principal Proceeds applied to permanently reduce the Remaining Unfunded Facility Commitment by making a deposit to the Reserve Account pursuant to paragraph (9) under "Priority of Payments—Principal Proceeds" and (y) the amounts of the Class A1-VF Senior Excess applied during the Reinvestment Period to permanently reduce the Remaining Unfunded Facility Commitment in accordance with clause (e) of the Senior Excess Application Priority plus (iv) the sum of the amount of Uninvested Proceeds applied after the Closing Date and on or prior to such date of determination to the payment of the Outstanding Class A1-VF Funded Amount or a deposit to the Reserve Account to reduce the Remaining Unfunded Facility Commitment to zero. "Permitted Reference Obligation" means (a) with respect to any Synthetic Security under which the Issuer is acting as the seller of protection (including a Long CDS Transaction), any Asset-Backed Security that is a Specified Type of Asset-Backed Security and (b) with respect to any Synthetic Security under which the Issuer is acting as the buyer of protection, an Asset-Backed Security or Corporate Debt

304

Security, in each case, which, if Acquired directly by the Issuer, would satisfy paragraphs (1) through (4) and (6) through (34) and, with respect to any Long CDS Transaction only, paragraph (5) of the Eligibility Criteria described in "—Eligibility Criteria". "PIK Bond" means any Collateral Debt Security that, pursuant to the terms of the related Underlying Instruments, permits the payment of interest thereon to be deferred or capitalized as additional principal thereof or that issues identical securities in place of payments of interest in cash; provided that in no event will a Negative Amortization Security constitute a "PIK Bond" for purposes of this definition. "Portfolio Expected Maturity" means the earliest date, as determined by the Portfolio Manager using assumptions consistent with its calculation of the Average Life for each Collateral Debt Security, on which every Collateral Debt Security (other than a Defaulted Security or a Deferred Interest PIK Bond) is expected to have a Principal Balance of zero. "Portfolio Manager Securities" means any Secured Notes, Combination Notes and Subordinated Notes beneficially owned by the Portfolio Manager or any Affiliate thereof or by an account or fund for which the Portfolio Manager or an Affiliate thereof acts as the investment adviser (with discretionary authority). "Premium" means, with respect to any CDS Transaction or other Synthetic Security structured as a credit default swap, the fixed rate premium payable by the protection buyer to the protection seller under such Synthetic Security as calculated based on the Notional Amount of the related Reference Obligation. "Prime Residential Mortgage Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from residential mortgage loans secured (on a first priority basis, subject to permitted liens, easements and other encumbrances) by residential real estate (single or multi-family properties) the proceeds of which are used to purchase real estate and purchase or construct dwellings thereon (or to refinance indebtedness previously so used), generally having the following characteristics: (1) the mortgage loans have generally been underwritten to the standards of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (without regard to the size of the loan); (2) the mortgage loans have standardized payment terms and require minimum monthly payments; (3) the mortgage loans are obligations of numerous borrowers and accordingly represent a very diversified pool of obligor credit risk; (4) the repayment of such mortgage loans is subject to a contractual payment schedule, with early repayment depending primarily on interest rates and the sale of the mortgaged real estate and related dwelling; and (5) the mortgage loans have an average FICO score of greater than or equal to 700 at the time of acquisition of the Asset-Backed Security. "Principal Balance" means, with respect to any Collateral Debt Security, as of any date of determination, the outstanding principal amount of such Collateral Debt Security; provided that: (a) the Principal Balance of a Collateral Debt Security received upon acceptance of an Offer for another Collateral Debt Security, which Offer expressly states that failure to accept such Offer may result in a default under the Underlying Instruments of such tendered Collateral Debt Security, shall be deemed to be the Calculation Amount of such received Collateral Debt Security until such time as Interest Proceeds and Principal Proceeds, as applicable, are received when due with respect to such received Collateral Debt Security;

305

(b) the Principal Balance of any Synthetic Security shall be equal to (i) in the case of a Synthetic Security that is a credit default swap under which the Issuer is acting as the protection seller (including any Long CDS Transaction), (A) at any time prior to the delivery of a notice of physical settlement, (1) the Notional Amount of such Synthetic Security minus (2) in the case of a Long CDS Transaction, the Notional Amount of any related Hedging Short CDS Transaction (which Hedging Short CDS Transaction shall be treated as part of the Synthetic Security to which it relates for purposes of determining the Principal Balance of both under this clause (A)) or (B) at any time following the delivery of a notice of physical settlement but prior to the due date on which the related Deliverable Obligations are required to be delivered to the Issuer, (1) the Physical Settlement Amount of such Synthetic Security minus (2) the Physical Settlement Amount of any Hedging Short CDS Transaction (which shall be treated as part of the Synthetic Security to which it relates for purposes of determining the Principal Balance of both under this clause (B)), in each case determined in accordance with the Underlying Instruments relating thereto, (ii) in the case of any other Synthetic Security not described in the foregoing clause (i) other than a Synthetic Security in the form of a note, the aggregate amount of the repayment obligations of the Synthetic Security Counterparty payable to the Issuer through the maturity of such Synthetic Security or (iii) in the case of a Synthetic Security in the form of a note, the outstanding principal amount thereof; (c) the Principal Balance of any Equity Security, unless otherwise expressly stated herein, shall be deemed to be zero; (d) the Principal Balance of any PIK Bond (including any Deferred Interest PIK Bond) shall be equal to the outstanding principal amount thereof (exclusive of any principal thereof representing capitalized interest); (e) the Principal Balance of any Eligible Investment that does not pay cash interest on a current basis will be the lesser of par or the original issue price thereof; (f) the Principal Balance of any Written-Down Security shall be reduced to reflect the percentage by which the aggregate par amount of the entire Issue of which such Written-Down Security is a part (taking into account all securities ranking senior in priority of payment thereto and secured by the same pool of collateral) exceeds the aggregate par amount (including reserved interest or other amounts available for overcollateralization) of all collateral securing such Issue (excluding defaulted collateral), as determined by the Portfolio Manager using customary procedures and information available in the servicer reports relating to such Written-Down Security; and (g) the Principal Balance of a Negative Amortization Security shall be (i) the original principal amount of such Negative Amortization Security on the date of issuance thereof (which amount shall in no event be adjusted to reflect any Negative Amortization Capitalization Amounts thereon) minus (ii) the aggregate amount of all payments made in respect of principal thereof (excluding any payments made in respect of Negative Amortization Capitalization Amounts for any period) from and including the date of issuance thereof to but excluding such date of determination. "Principal Only Security" means any security (other than a Zero Coupon Bond) that does not provide for the periodic payment of interest. "Principal Proceeds" means, with respect to any Due Period, the sum (without duplication) of: (1) any Uninvested Proceeds transferred from the Uninvested Proceeds Account to the Principal Collection Account on the first Distribution Date (after application of funds on such Distribution Date in accordance with the Priority of Payments);

306

(2) all payments of principal on the Collateral Debt Securities, U.S. Agency Securities and Eligible Investments received in cash by the Issuer during such Due Period (excluding (x) any amount representing the accreted portion of a discount from the face amount of an Eligible Investment and any amounts received in respect of Negative Amortization Capitalization Amounts and (y) payments of principal of Eligible Investments Acquired with Interest Proceeds) but including (i) prepayments or mandatory sinking fund payments, (ii) payments in respect of optional redemptions, exchange offers, tender offers and interest, (iii) recoveries on Defaulted Securities, (iv) the Disposition Proceeds received in respect of any Equity Security and any amounts received as a result of optional redemptions, exchange offers or tender offers for any Equity Security and (v) any Principal Reimbursements or Writedown Reimbursements received by the Issuer in respect of any Long CDS Transactions or other Synthetic Securities structured as credit default swaps, in each case received in cash by the Issuer during such Due Period); (3) Disposition Proceeds received by the Issuer during such Due Period (excluding those included in Interest Proceeds as defined above); (4) all amendment, waiver, late payment fees and other fees and commissions, received in cash by the Issuer during the related Due Period in respect of Defaulted Securities; (5)(a) any proceeds (other than any portion thereof consisting of a scheduled payment to the Issuer which accrued prior to termination) resulting from the termination, liquidation or reduction of the notional amount of a Hedge Agreement or the Credit Default Swap Agreement, to the extent such proceeds exceed the cost of entering into a replacement Hedge Agreement or Credit Default Swap Agreement in accordance with the requirements set forth in the Indenture and (b) payments of Net Counterparty Hedged Long Premiums in respect of Hedged Long CDS Transactions received by the Issuer; (6) all payments received in cash by the Issuer during such Due Period that represent call or prepayment amounts; (7) all payments of interest on Collateral Debt Securities received in cash by the Issuer to the extent that they represent accrued interest Acquired with Principal Proceeds or Uninvested Proceeds; (8) all payments received in cash by the Issuer in respect of deferred interest on Deferred Interest PIK Bonds previously capitalized; (9)

all yield maintenance payments received in cash by the Issuer during such Due Period;

(10) all amounts transferred by the Trustee from the Reserve Account to the Payment Account as described under "Security for the Secured Notes—The Accounts—Reserve Account"; (11) all payments of interest on Defaulted Securities received in cash by the Issuer during such Due Period to the extent such payments are less than or equal to the par amount of such Defaulted Securities and any other payments in respect thereof not addressed in clauses (1) through (10) above received in cash by the Issuer during such Due Period; (12) cash and any Synthetic Security Collateral (other than investment income) released from a Synthetic Security Counterparty Account after termination of the related Synthetic Security; (13) any amounts received in respect of Negative Amortization Capitalization Amounts for such Due Period;

307

(14) any Borrowings or Deemed Borrowings received by the Issuer in respect of the application of the Class A1-VF Senior Excess to pay any Senior Interest Shortfall pursuant to paragraph 1(b) of "Priority of Payments—Principal Proceeds"; (15) all amounts calculated pursuant to clause (d) of the Senior Excess Application Priority that are transferred by the Trustee from the Reserve Account to the Principal Collection Account as described under "Security for the Secured Notes—The Accounts—Reserve Account"; (16) any Interest Reimbursements received by the Issuer in respect of an Interest Shortfall to the extent that such Interest Shortfall was paid pursuant to any of clauses (c)(ii), (c)(iii), (c)(iv), (c)(v) and (c)(vi) of the definition of "Account Withdrawal Payment Priority; and (17) all other payments received in connection with the Collateral Debt Securities, Reserve Account Investments, U.S. Agency Securities and Eligible Investments that are not included in Interest Proceeds (excluding amounts standing to the credit of the Class A1-VF Prepayment Account); provided that (i) in no event shall Principal Proceeds include any Excepted Property, (ii) if the presence of a legal or business holiday causes a scheduled distribution on any Collateral Debt Security or other security held as Collateral to be received in the period between the end of the Due Period in which such payment would otherwise have been received and the related Distribution Date, such payment will be deemed to have been received during such Due Period and (iii) for purposes of clause (13) of this definition, at any time when any Negative Amortization Capitalization Amounts have accrued on a Negative Amortization Security, (x) first, unscheduled payments of principal in respect thereof and (y) second (but only if the related payment report delivered to investors indicates that the aggregate Negative Amortization Capitalization Amount (if any) in respect thereof has decreased in the related reporting period), scheduled payments of principal in respect thereof shall be deemed to be applied to the reduction of such aggregate Negative Amortization Capitalization Amount and therefore constitute "Principal Proceeds" for purposes of this definition until such aggregate Negative Amortization Capitalization Amount has been reduced to zero. "Pro Rata Distribution Date" means any Distribution Date prior to the Note Acceleration Date on which (a) the Net Outstanding Portfolio Collateral Balance (calculated, with regard to any paragraph of "—Priority of Payments—Interest Proceeds" or "—Priority of Payments—Principal Proceeds", after the application of any distributions of Interest Proceeds or Principal Proceeds made prior to such paragraph as reflected in the related quarterly note valuation report) is equal to or greater than U.S.$375,000,000, (b) the Overcollateralization Tests are satisfied on the applicable Determination Date (prior to the application of any payments to cure such Overcollateralization Tests), (c) solely with respect to any Distribution Date occurring on or after the last day of the Reinvestment Period, the Overcollateralization Tests were satisfied on each Determination Date related to any prior Distribution Date that occurred after the Reinvestment Period (prior to the application of any payments to cure such Overcollateralization Tests), (d) the Pro Rata Payment Test is satisfied on the applicable Determination Date (prior to the application of any Interest Proceeds or Principal Proceeds on the related Distribution Date pursuant to the Priority of Payments) and (e) no Event of Default has occurred and is continuing or will occur or be continuing immediately after the application of Interest Proceeds and Principal Proceeds on such Distribution Date. "Project Finance Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from (1) the sale of products, such as electricity, nuclear energy, steam or water, in the utility industry by a special purpose entity formed to own the assets generating or otherwise producing such products and such assets were or

308

are being constructed or otherwise acquired primarily with the proceeds of debt financing made available to such entity on a limited-recourse basis (including recourse to such assets and the land on which they are located) or (2) fees or other usage charges, such as tolls collected on a highway, bridge, tunnel or other infrastructure project, collected by a special purpose entity formed to own one or more such projects that were constructed or otherwise acquired primarily with the proceeds of debt financing made available to such entity on a limited-recourse basis (including recourse to the project and the land on which it is located). "Proposed Portfolio" means the portfolio (measured by Principal Balance) of (a) Collateral Debt Securities, (b) Principal Proceeds or Uninvested Proceeds held as cash, (c) Eligible Investments Acquired with Principal Proceeds or Uninvested Proceeds and (d) the Class A1-VF Senior Excess resulting from the Disposition or maturity of a Collateral Debt Security or a proposed Acquisition of a Collateral Debt Security, as the case may be. "Prospectus Directive" means Directive 2003/71/EC of the European Parliament and of the Council of the European Union dated 4 November, 2003 regarding any prospectus published in relation to securities offered to the public or admitted to trading. "Qualifying Foreign Obligor" means a corporation, partnership, trust or other entity organized in any of Australia, Canada, France, Germany, Ireland, the Netherlands, New Zealand, Sweden, Switzerland or the United Kingdom, so long as the unguaranteed, unsecured and otherwise unsupported long term foreign currency or Dollar sovereign debt obligations of such country are rated "Aa2" or better by Moody's and "AA" or better by Standard & Poor's. "Quarterly Asset Amount" means, with respect to any Distribution Date, the Net Outstanding Portfolio Collateral Balance on the first day of the Interest Period commencing on the preceding Distribution Date (as shown in the quarterly note valuation report prepared in accordance with the Indenture with respect to the immediately preceding Distribution Date) or, in the case of the first Interest Period, on the Closing Date. "Rating Condition" means, with respect to any action taken or to be taken under the Indenture, a condition that is satisfied when each of Moody's and Standard & Poor's (or, if the Indenture expressly so specifies in respect of such action, the specified Rating Agency) has confirmed in writing to the Issuer, the Trustee, each Hedge Counterparty and the Portfolio Manager that such action will not result in the withdrawal or reduction with respect to its then-current rating (including any private or confidential ratings) of any Class of Secured Notes or Combination Notes. "Rating Determining Party" means, with respect to any Hedge Agreement or Synthetic Security, (a) unless clause (b) applies with respect to the Hedge Agreement or such Synthetic Security, the related Hedge Counterparty or Synthetic Security Counterparty or any transferee thereof or (b) any Affiliate of the related Hedge Counterparty or Synthetic Security Counterparty or any transferee thereof that unconditionally and absolutely guarantees (pursuant to a form of guarantee that satisfies the Rating Condition with respect to Standard & Poor's) the obligations of such Hedge Counterparty or Synthetic Security Counterparty or such transferee, as the case may be under the Hedge Agreement or related Synthetic Security. For the purpose of this definition, no direct or indirect recourse against one or more shareholders of a Hedge Counterparty or such Synthetic Security Counterparty or any such transferee (or against any person in control of, or controlled by, or under common control with, any such shareholder) shall be deemed to constitute a guarantee, security or support of the obligations of such Hedge Counterparty or Synthetic Security Counterparty or any such transferee.

309

"Rating Trigger" means that either (A) the rating assigned by Moody's to any Class of Notes on the Closing Date has been (i) withdrawn, (ii) reduced by at least one subcategory in the case of the Class A1-VF Notes, the Class A2A Notes or the Class A2B Notes, or (iii) reduced by two or more subcategories in the case of the or the Class B1 Notes, the Class B2 Notes, the Class C Notes, the Class D Notes or the Class E Notes, in each case from the rating assigned by Moody's on the Closing Date or (B) the rating assigned by Standard & Poor's to any Class of Notes on the Closing Date has been (i) withdrawn, (ii) reduced by at least one subcategory in the case of the Class A1-VF Notes, the Class A2A Notes or the Class A2B Notes, or (iii) reduced by two or more subcategories in the case of the Class B1 Notes, the Class B2 Notes, the Class C Notes, the Class D Notes or the Class E Notes, in each case from the rating assigned by Standard & Poor's on the Closing Date. "Recreational Vehicle Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from installment sale loans made to finance the acquisition of, or from leases of, recreational vehicles, generally having the following characteristics: (1) the loans or leases may have varying contractual maturities; (2) the loans or leases are obligations of numerous borrowers or lessors and accordingly represent a very diversified pool of obligor credit risk; (3) the borrowers or lessees under the loans or leases generally do not have a poor credit rating; (4) the repayment stream on such loans or leases is primarily determined by a contractual payment schedule, with early repayment on such loans or leases predominantly dependent upon the disposition of the underlying recreational vehicle; and (5) such leases typically provide for the right of the lessee to purchase the recreational vehicle for its stated residual value, subject to payments at the end of lease term for excess mileage or use. "Reference Banks" means four major banks in the London interbank market, selected by the Calculation Agent. "Reference Dealers" means three major dealers in the secondary market for U.S. Dollar certificates of deposit, selected by the Calculation Agent. "Reference Obligation" means a Permitted Reference Obligation in respect of which the Issuer has Acquired a Synthetic Security (including a CDS Transaction). For the avoidance of doubt, any reference herein to a Reference Obligation with respect to any Synthetic Security relating to an Index shall be deemed to be a reference to the Reference Obligations comprising such Index. "Reference Obligor" means the obligor on a Reference Obligation. "Registered" means in registered form for U.S. Federal income tax purposes and issued after July 18, 1984, provided, that a certificate of interest in a trust that is treated as a grantor trust for U.S. Federal income tax purposes shall not be treated as Registered unless each of the obligations or securities held by the trust was issued after that date. "Reinsurance Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend in part on the premiums from reinsurance policies held by a special purpose vehicle created for such purpose, generally having the following characteristics: (1) proceeds from the security are invested in a collateral account; (2) such collateral account is subject to claims from the reinsurance policies; and (3) the repayment of principal on the security is dependent on the exercise of the reinsurance policies. "Reinvestment Period" means the period from the Closing Date and ending on and including the first to occur of (i) the Distribution Date immediately following any date on which the Portfolio Manager

310

on behalf of the Issuer (with the written consent of a Majority of the Subordinated Notes and the written consent of a Majority of the Controlling Class) notifies the Trustee, the Credit Default Swap Counterparty and each Hedge Counterparty that, in light of the composition of Collateral Debt Securities, general market conditions and other factors (including any change in U.S. Federal tax law requiring tax to be withheld on payments to the Issuer with respect to obligations or securities held by the Issuer), the Portfolio Manager (in its sole discretion) has determined that investments in additional Collateral Debt Securities within the foreseeable future would either be impractical or not beneficial to the Issuer; (ii) the Distribution Date occurring in February 2011; (iii) an Event of Default that is not either cured or waived; and (iv) the end of the Due Period related to the date on which all of the Notes are redeemed in connection with a Tax Redemption. "REIT Debt Security" means a debt security issued by a real estate investment trust (as defined in Section 856 of the Code or any successor provision). "Remaining Exposure" means, with respect to (i) any Synthetic Security (other than a CDS Transaction) at any time, the excess, if any, of (a) the Total Exposure of such Synthetic Security at such time over (b) the Funded Amount of such Synthetic Security at such time and (ii) with respect to any CDS Transaction, the Total Exposure under such CDS Transaction. "Remaining Unfunded Facility Commitment" means, with respect to any date of determination, (i) prior to and including the last day of the Reinvestment Period, the excess (if any) of: (A) the Maximum VFN Facility Funding Commitment over (B) the sum of (1) the Outstanding Class A1-VF Funded Amount and (2) the Permanent Reduction Amount, (ii) after the last day of the Reinvestment Period but prior to the Commitment Termination Date, the excess (if any) of (A) the Remaining Exposure of all CDS Transactions (including, for these purposes, the Remaining Exposure of all CDS Transactions for which the applicable trade date has occurred but excluding the Remaining Exposure of all CDS Transactions with respect to which the Issuer has entered into a binding commitment to Dispose thereof, in each case regardless of the effective date thereof) over (B) the Reserve Account Balance and (iii) at any time on or after the Commitment Termination Date, zero; provided, in each case, that (x) the Remaining Unfunded Facility Commitment shall not be reduced by the amount of any funds deposited in a Class A1-VF Prepayment Account by any holder of Class A1-VF Notes until such amounts are applied to a Permitted Use as a Deemed Borrowing, thereby increasing the Outstanding Class A1-VF Funded Amount and (y) for purposes of determining the Remaining Unfunded Facility Commitment in connection with the application of the Class A1-VF Senior Excess to any of the purposes identified in the Senior Excess Application Priority, the Remaining Unfunded Facility Commitment shall be determined after giving effect to any prior application of the Class A1-VF Senior Excess in accordance with the Senior Excess Application Priority. "Re-REMIC" means an Asset-Backed Security the issuer of which is a REMIC (within the meaning of the Code) and whose holders are entitled to receive payments that depend entirely on the cash flow from one or more subordinated tranches of securities issued by other REMICs. "Reserve Account Balance" means the balance of the Reserve Account Investments standing to the credit of the Reserve Account, including amounts irrevocably designated for deposit in the Reserve Account but excluding any portion thereof consisting of (i) investment income or (ii) amounts irrevocably designated for withdrawal from the Reserve Account for application as Principal Proceeds. "Reserve Account Investments" means (i) the GIC, (ii) any Eligible Investment described in any of clauses (a), (c), (g) and (h) of the definition thereof or any investment that satisfies any of clauses (a), (c), (g) and (h) of the definition of "Eligible Investments" except that the counterparty thereto has (1) a long term rating of not less than "AAA" by Standard & Poor's and not less than "Aaa" by Moody's (and, if

311

rated "Aaa" by Moody's, such rating is not on watch for possible downgrade by Moody's) or (2) a short term credit rating of "A-1+" by Standard & Poor's (or "A-1" by Standard & Poor's in the case of overnight time deposits issued by LaSalle Bank National Association for so long as it is acting as Trustee under this Indenture) and "P1" by Moody's (and, if so rated by Moody's, such rating is not on watch for possible downgrade by Moody's) at the time of such investment, provided that, in the case of commercial paper or other short term obligations maturing within 183 days of issuance, such Eligible Investment must have a short term credit rating of "A-1+" by Standard & Poor's at the time of such investment, (iii) commercial paper maturing no later than the Business Day prior to the Distribution Date next succeeding the date of investment in such commercial paper having at the time of such investment a credit rating of "P1" by Moody's (and such rating is not on watch for possible downgrade by Moody's) and (except in the case of asset-backed commercial paper) at least "Aaa" by Moody's (and, if such rating is "Aaa", such rating is not on watch for possible downgrade by Moody's) and at least "A-1+" by Standard & Poor's or (iv) other investments the Acquisition of which would satisfy the Rating Condition, in each case which mature no later than the Stated Maturity; provided that Reserve Account Investments may not include any investment the income from or proceeds of Disposition of which is or will be subject to deduction or withholding for or on account of any withholding or similar tax or the Acquisition (including the manner of Acquisition), ownership, enforcement or Disposition of which will subject the Issuer to net income tax in any jurisdiction outside its jurisdiction of incorporation. "Restaurant and Food Services Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from (a) a pool of franchise loans made to operators of franchises that provide goods and services relating to the restaurant and food services industries and (b) leases or subleases of equipment to such operators for use in the provision of such goods and services. They generally have the following characteristics: (1) the loans, leases or subleases have varying contractual maturities; (2) the loans are secured by real property purchased or improved with the proceeds thereof (or to refinance an outstanding loan the proceeds of which were so used); (3) the obligations of the lessors or sublessors of the equipment may be secured not only by the leased equipment but also the related real estate; (4) the loans, leases and subleases are obligations of a relatively limited number of obligors and accordingly represent a relatively undiversified pool of obligor credit risk; (5) payment of the loans can vary substantially from the contractual payment schedule (if any), with prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans include an effective prepayment premium; (6) the repayment stream on the leases and subleases is primarily determined by a contractual payment schedule, with early termination of such leases and subleases predominantly dependent upon the disposition to a lessee, a sublessee or third party of the underlying equipment; (7) such leases and subleases typically provide for the right of the lessee or sublessee to purchase the equipment for its stated residual value, subject to payments at the end of a lease term for excess usage or wear and tear; and (8) the ownership of a franchise right or other similar license and the creditworthiness of such franchise operators is the primary factor in any decision to invest in these securities. "RMBS CDO Securities" means (i) any CDO Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the CDO Securities) primarily on the credit exposure to, or cash flow from, a portfolio consisting of RMBS Securities, and (ii) any securities issued by an investment vehicle whose assets (or substantially all of its assets) consist of CDO Securities meeting the requirements set forth in clause (i) above. "RMBS Securities" means Prime Residential Mortgage Securities, Mid-Prime Residential Mortgage Securities and Sub-Prime Residential Mortgage Securities.

312

"Senior Interest Shortfall" means, with respect to any Distribution Date, an amount equal to the aggregate shortfalls in funds available to pay all interest due on the Class A2A Notes, the Class A2B Notes, the Class B1 Notes and the Class B2 Notes due to insufficient Interest Proceeds to pay all amounts due and payable pursuant to paragraph (7) under the "Priority of Payments—Interest Proceeds" and insufficient Principal Proceeds with respect to amounts due and payable pursuant to paragraph (1)(a) under the "Priority of Payments—Principal Proceeds". "Servicer" means, with respect to any Collateral Debt Security, the entity that, absent any default, event of default or similar condition (however described), is primarily responsible for managing, servicing, monitoring and otherwise administering the cash flows from which payments to investors in such Collateral Debt Security are made. "Shipping Securities" means Asset-Backed Securities that entitle holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cashflows from ship financing and shipping industry related loans. "Short CDS Transaction" means a CDS Transaction pursuant to which the Issuer, as buyer of protection, transfers the credit risk associated with the related Reference Obligation to the Synthetic Security Counterparty, as seller of protection. "Short Interest Period" means, with respect to each Intraperiod Payment Amount, the period from (and including) the date that the applicable Borrowing is made under the Class A1-VF Notes (or the date of a withdrawal of a Deemed Borrowing from a Class A1-VF Prepayment Account for such purpose) to (and excluding) the immediately succeeding Distribution Date. "Small Business Loan Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from general purpose corporate loans made to "small business concerns" (generally within the meaning given to such term by regulations of the United States Small Business Administration), including but not limited to those (a) made pursuant to Section 7(a) of the United States Small Business Act, as amended, and (b) not guaranteed or partially guaranteed by the United States Small Business Administration. Small Business Loan Securities generally have the following characteristics: (1) the loans have payment terms that comply with any applicable requirements of the Small Business Act, as amended; (2) the loans are obligations of a relatively limited number of borrowers and accordingly represent an undiversified pool of obligor credit risk; and (3) repayment thereof can vary substantially from the contractual payment schedule (if any), with early prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans or securities include an effective prepayment premium. "Special Majority of Subordinated Noteholders" means, at any time, holders of more than 662/3% of the aggregate principal amount of Subordinated Notes held by all Subordinated Noteholders at such time. "Special Purpose Vehicle Jurisdiction" means the Cayman Islands, the Bahamas, Bermuda, the Republic of Ireland, the Netherlands Antilles, the Channel Islands or, subject to satisfaction of the Rating Condition, any similar jurisdiction. "Specified Class A1-VF Noteholder" means (a) the Credit Default Swap Counterparty or any Affiliate thereof, in each case, for so long as such entity is a Class A1-VF Noteholder or (b) any Class

313

A1-VF Noteholder which the Credit Default Swap Counterparty wishes not to be subject to the Variable Funding Note Rating Threshold and has designated as a "Specified Class A1-VF Noteholder" for purposes of this definition by written notice to the Trustee who shall in turn notify the Portfolio Manager and the Rating Agencies of the percentage of Class A1-VF Notes held by Specified Class A1-VF Noteholders as a result of such designation; provided that (x) the Trustee shall notify the Credit Default Swap Counterparty of any transfer by a Class A1-VF Noteholder of all or part of its Class A1-VF Notes and, upon receipt of such notification, the Credit Default Swap Counterparty may designate the new Class A1-VF Noteholder as a "Specified Class A1-VF Noteholder" in accordance with clause (b), (y) the designation of a Class A1-VF Noteholder as a "Specified Class A1-VF Noteholder" may only be withdrawn by the Credit Default Swap Counterparty with the prior written consent of the relevant Class A1-VF Noteholder and upon notice to the Trustee who shall in turn notify the Portfolio Manager and the Rating Agencies of the percentage of Class A1-VF Notes held by Specified Class A1-VF Noteholders as a result of such withdrawal (whereupon if the Trustee determines that such Class A1-VF Noteholder (i) satisfies the Variable Funding Note Rating Threshold, upon the effective date of such withdrawal, such Class A1-VF Noteholder shall become subject to the requirements of this Agreement relating to the Variable Funding Note Rating Threshold including, without limitation, with respect to deposits into a Class A1-VF Prepayment Account or (ii) does not satisfy the Variable Funding Note Rating Threshold, such Class A1-VF Noteholder shall be required to take one of the remedial actions within 30 days as specified under "Description of the Secured Notes—Drawdowns and Repayment of the Class A1-VF Notes" following the occurrence of a Variable Funding Rating Decline Event and (z) if a Specified Class A1-VF Noteholder does not satisfy the Variable Funding Note Rating Threshold after the appointment of a replacement Credit Default Swap Counterparty, either (i) such replacement Credit Default Swap Counterparty shall, by written notice to the Trustee, confirm the designation of such Class A1-VF Noteholder as a "Specified Class A1-VF Noteholder" or (ii) such Class A1-VF Noteholder shall be required to take one of the remedial actions within 30 days as specified under "Description of the Secured Notes—Drawdowns and Repayment of the Class A1-VF Notes" following the occurrence of a Variable Funding Rating Decline Event. "Specified Event of Default" means the occurrence and continuation of any Event of Default described in clause (vi) of the definition of "Event of Default." "Standard & Poor's Haircut Amount" means the sum of (i) the higher of (a) 50% of the Below BAmount and (b) the sum of the products for each Collateral Debt Security (other than a Defaulted Security or Deferred Interest PIK Bond) that has a Standard & Poor's Rating below "B-" of (1) 100% minus the Fair Market Value of such Collateral Debt Security and (2) the Aggregate Principal Balance of such Collateral Debt Security, (ii) 30% of the Excess BB- Amount and (iii) 10% of the Excess BBBAmount; provided that a Collateral Debt Security shall only be included in one of clauses (i) through (iii), which shall be the clause that results in the greatest Standard & Poor's Haircut Amount. "Standard & Poor's Rating" has the meaning set forth in Schedule E. "Standard Terms" means the applicable ISDA template form of confirmation identified herein with the same elections as the elections in the relevant CDS Transaction. "Step-Down Bond" means a security which by the terms of the related Underlying Instrument provides for a decrease, in the case of a Fixed Rate Collateral Debt Security, in the per annum interest rate on such security or, in the case of a Floating Rate Collateral Debt Security, in the spread over the applicable index or benchmark rate, solely as a function of the passage of time; provided that a Step-Down Bond shall not include any such security providing for payment of a constant rate of interest at all times after the date of Acquisition by the Issuer. In calculating any Collateral Quality Test by reference to the spread (in the case of a floating rate Step-Down Bond) or coupon (in the case of a fixed

314

rate Step-Down Bond) of a Step-Down Bond, the spread or coupon on any date shall be deemed to be the lowest spread or coupon, respectively, scheduled to apply to such Step-Down Bond on or after such date. "Step-Up Bond" means a security which by the terms of the related Underlying Instrument provides for an increase, in the case of a Fixed Rate Collateral Debt Security, in the per annum interest rate on such security or, in the case of a Floating Rate Collateral Debt Security, in the spread over the applicable index or benchmark rate, solely as a function of the passage of time; provided that a Step-Up Bond shall not include any such security (i) that provides for payment of a constant rate of interest at all times after the date of Acquisition by the Issuer or (ii) with respect to which, in calculating any Collateral Quality Test that is determined in part by reference to the spread thereon (in the case of a floating rate Step-Up Bond) or coupon thereon (in the case of a fixed rate Step-Up Bond), the Portfolio Manager elects to apply on the relevant Measurement Date the stated spread or coupon in effect on such date. "Structured Settlement Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from receivables representing the right of litigation claimants to receive future scheduled payments under settlement agreements that are funded by annuity contracts, which receivables may have varying maturities. "Student Loan Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from loans made to students (or their parents) to finance educational needs, generally having the following characteristics: (1) the loans have standardized terms; (2) the loans are obligations of numerous borrowers and accordingly represent a very diversified pool of obligor credit risk; (3) the repayment stream on such loans is primarily determined by a contractual payment schedule, with early repayment on such loans predominantly dependent upon interest rates and the income of borrowers following the commencement of amortization; and (4) such loans may be fully or partially insured or reinsured by the United States Department of Education. "Subordinated Hedge Termination Payment" means, with respect to any Hedge Agreement, any termination payment (and any accrued interest thereon) payable by the Issuer as the result of an "Event of Default" or "Termination Event" other than "Illegality" or "Tax Event" as to which the Hedge Counterparty party thereto is the "Defaulting Party" or the sole "Affected Party" (each, as defined in the relevant Hedge Agreement). "Subordinated Note Required Amount" means, with respect to any Redemption Date relating to an Auction Call Redemption, an amount sufficient to ensure that the Subordinated Notes issued on the Closing Date have received (or will on the applicable Redemption Date have received) cumulative distributions in an amount sufficient for an investor which purchased a Subordinated Note on the Closing Date to have achieved an Internal Rate of Return on such Redemption Date of at least 12%. "Subprime Automobile Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from subprime installment sale loans made to finance the acquisition of, or from leases of, automobiles, generally having the following characteristics: (1) the loans or leases may have varying contractual maturities; (2) the loans or leases are obligations of numerous borrowers or lessors and accordingly represent a very diversified pool of obligor credit risk; (3) the borrowers or lessors under the loans or leases have a poor credit rating; (4) the repayment stream on such loans or leases is primarily determined by a contractual

315

payment schedule, with early repayment on such loans or leases predominantly dependent upon the disposition of the underlying vehicle; and (5) such leases typically provide for the right of the lessee to purchase the vehicle for its stated residual value, subject to payments at the end of lease term for excess mileage or use. "Subprime Credit Card Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from balances outstanding under subprime revolving consumer or corporate credit card or charge card accounts (other than subprime credit card or charge card accounts), generally having the following characteristics: (1) the accounts have standardized payment terms and require minimum monthly payments; (2) the balances are obligations of numerous borrowers that generally have a poor credit rating and accordingly represent a diversified pool of obligor credit risk; and (3) the repayment stream on such balances does not depend upon a contractual payment schedule, with early repayment depending primarily on interest rates, availability of credit against a maximum credit limit, individual choice and general economic matters. "Sub-Prime Residential Mortgage Security" means any Asset-Backed Security that entitles the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) primarily on the cash flow from balances (including revolving balances) outstanding under loans or lines of credit typically made to prime borrowers secured by (but which typically have a second priority lien on) residential real estate (single or multi-family properties) the proceeds of which loans or lines of credit are not generally used to purchase such real estate or to purchase or construct dwellings thereon (or to refinance indebtedness previously so used), generally having the following characteristics: (1) the balances have standardized payment terms and require minimum monthly payments; (2) the balances are obligations of numerous borrowers and accordingly represent a diversified pool of obligor credit risk; (3) early repayment depends primarily on interest rates, availability of credit against a maximum line of credit and general economic matters; (4) the loan or line of credit may be secured by residential real estate with a market value (determined on the date of origination of such loan or line of credit) that is less, more or equal to than the original proceeds of such loan or line of credit and (5) the mortgage loans have an average FICO score of less than or equal to 625 at the time of acquisition of the Asset-Backed Security. "Synthetic ABS CDO Securities" means any ABS CDO Security that entitles the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of Asset-Backed Securities) on the market value of and/or cash flow from underlying assets of which greater than 25% of the aggregate principal balance (or notional balance) consists of one or more credit default swaps that reference in the aggregate a portfolio of Reference Obligations (based upon the aggregate notional amount or "Floating Rate Payer Calculation Amount" of such credit default swap as such term is used in the underlying credit default swap); provided, that, (i) the characteristics of such portfolio of Reference Obligations including, without limitation, its portfolio characteristics, investment and reinvestment criteria, and credit profile (e.g., probability of default, recovery upon default and expected loss characteristics) shall be those normally associated with the current market practice for CDO Securities; and (ii) the issuer secures the issuer's obligations under such credit default swap(s) by holding eligible investments the characteristics of which are substantially similar to (or more conservative than) the investments described in the definition of "Eligible Investments" or "Synthetic Security Collateral," including the type, quality and tenor of such investments or other investments permitted by the related indenture or other similar document of the issuer that are market standard for Synthetic ABS CDO Securities. "Synthetic CDO of CDO Securities" means Collateral Debt Securities the underlying assets of which are credit default swaps or total return swaps the reference obligations of which are CDO

316

Securities, together with collateral held by the issuer thereof primarily as collateral to secure its obligations under the swap. "Synthetic Security" means any credit default swap (including any CDS Transaction and any Defeased Synthetic Security), credit linked note, derivative instrument, structured note or trust certificate Acquired by the Issuer with or from a Synthetic Security Counterparty (including, without limitation, with the Credit Default Swap Counterparty under the Credit Default Swap Agreement) that provides for payments closely correlated to the default, recovery upon default and other expected loss characteristics of a Permitted Reference Obligation or Index (other than the risk of default of the related Synthetic Security Counterparty), but that may provide for payments based on a maturity shorter than or a principal amount, interest rate, currency, premium, payment terms or other non-credit terms different from that of the related Reference Obligation or Index; provided that: (i) any Credit Event under any Synthetic Security that can result in termination and settlement of the Synthetic Security prior to its scheduled maturity date (a "Credit Event") shall not include restructuring, repudiation, moratorium, obligation default or obligation acceleration unless such Synthetic Security may be settled only through a physical settlement of one or more Deliverable Obligations to the Issuer, and not in cash; (ii) an Asset Hedge Agreement entered into by the Issuer with respect to a Collateral Debt Security held by the Issuer shall not constitute a Synthetic Security for purposes of this definition; (iii) if such Synthetic Security requires or permits physical settlement upon the occurrence of a Credit Event or otherwise by delivery of one or more assets, each such asset must be a Deliverable Obligation that is also a Permitted Reference Obligation on the date the Issuer Acquires such Synthetic Security; and (iv) if such Synthetic Security is not a Form-Approved Synthetic Security, then the Rating Condition is satisfied prior to the Issuer Acquiring such Synthetic Security. "Synthetic Security Collateral" means, in connection with any Synthetic Security, (i) any floating rate security that is rated "AAA" by Standard & Poor's or "Aaa" by Moody's and matures no later than the Stated Maturity, the expected average life of which does not exceed the expected average life of the related Reference Obligation under such Synthetic Security by more than one year, and which is a credit card security that entitles the holders thereof to receive payments that depend on the cash flow from balances outstanding under revolving consumer credit card accounts, (ii) any Eligible Investment or any investment of a type described in the definition of "Eligible Investments" but with respect to which the counterparty thereto (if any) has a long term rating of not less than "AA-" by Standard & Poor's and not less than "A3" by Moody's (and, if rated "A3" by Moody's, such rating is not on watch for possible downgrade by Moody's) or a short term credit rating of not less than "A-1+" by Standard & Poor's and "P1" by Moody's (and such rating is not on watch for possible downgrade by Moody's) at the time of such investment, (iii) commercial paper maturing no later than the earlier of 183 days from the date of issuance and the Business Day prior to the Distribution Date next succeeding the date of investment in such commercial paper having at the time of such investment a credit rating of "P1" by Moody's (and such rating is not on watch for possible downgrade by Moody's) and not less than "A-1+" by Standard & Poor's or (iv) other investments that satisfy Eligibility Criteria (7), (8) and (9) and the Acquisition of which would satisfy the Rating Condition, in each case which mature no later than the Stated Maturity; provided that Synthetic Security Collateral may not include any investment the income from or proceeds of Disposition of which is or will be subject to deduction or withholding for or on account of any withholding or similar tax or the Acquisition (including the manner of Acquisition), ownership,

317

enforcement or Disposition of which will subject the Issuer to net income tax in any jurisdiction outside its jurisdiction of incorporation. "Synthetic Security Counterparty Defaulted Obligation" means a Synthetic Security (other than a Defaulted Synthetic Security) with respect to which: (a)

the long-term debt obligations of such Synthetic Security Counterparty are rated less than "A3" by Moody's (or, if rated "A3," are on watch for possible downgrade by Moody's) or the shortterm debt obligations of the Synthetic Security Counterparty are rated "D" or "SD" by Standard & Poor's, or cease to be rated; provided that the foregoing shall not apply in the case of a Defeased Synthetic Security so long as the Synthetic Security Counterparty shall periodically (and in no event less frequently than once each month) transfer collateral to the related Synthetic Security Issuer Account, together with all other collateral previously transferred, having a value (as determined in accordance with the Underlying Instruments relating to such Defeased Synthetic Security) at least equal to any termination payment that would be due to the Issuer upon the early termination of such Synthetic Security; or

(b)

the Synthetic Security Counterparty has defaulted in the performance of any of its payment obligations under the Synthetic Security.

"Synthetic Security Counterparty Ratings Requirement" means a requirement which will be satisfied with respect to any Synthetic Security if (i)(A) the long-term debt obligations of the Rating Determining Party with respect to the related Synthetic Security Counterparty are rated at least "A2" by Moody's (and, if rated "A2" by Moody's, such rating is not on watch for possible downgrade) and (2) the short-term debt obligations of the Rating Determining Party with respect to the related Synthetic Security Counterparty are rated "P-1" by Moody's (and such rating is not on watch for possible downgrade) or (B) if the Rating Determining Party does not have a short-term debt rating from Moody's, the long-term debt obligations of such Rating Determining Party are rated at least "A1" by Moody's (and if rated "A1," such rating is not on watch for possible downgrade) and (ii)(A) the short-term debt obligations of the Rating Determining Party with respect to the related Synthetic Security Counterparty are rated at least "A-1" by Standard & Poor's or (B) if the Rating Determining Party does not have a short-term debt rating from Standard & Poor's, the long-term debt obligations of the Rating Determining Party with respect to the related Synthetic Security Counterparty are rated at least "AA-" by Standard & Poor's; provided, in each case, that if the related Synthetic Security Counterparty does not satisfy the foregoing requirements for any Rating Agency, the related Synthetic Security Counterparty shall nevertheless be deemed to satisfy the requirements of this definition if the selection of such Synthetic Security Counterparty satisfies the Rating Condition with respect to such Rating Agency. "Tax Lien Securities" means Asset-Backed Securities that entitle the holders thereof to receive payments that depend (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of the Asset-Backed Securities) on the cash flow from a pool of tax obligations owed by businesses and individuals to state and municipal governmental taxing authorities, generally having the following characteristics: (1) the obligations have standardized payment terms and require minimum payments; (2) the tax obligations are obligations of numerous borrowers and accordingly represent a very diversified pool of obligor credit risk; and (3) the repayment stream on the obligation is primarily determined by a payment schedule entered into between the relevant tax authority and obligor, with early repayment on such obligation predominantly dependent upon interest rates and the income of the obligor following the commencement of amortization. "Time Share Securities" means Asset-Backed Securities (other than Prime Residential Mortgage Securities, Mid-Prime Residential Mortgage Securities and Sub-Prime Residential Mortgage Securities)

318

that entitle the holders thereof to receive payments that depend primarily on the cash flow from residential mortgage loans (secured on a first priority basis, subject to permitted liens, easements and other encumbrances) by residential real estate the proceeds of which were used to purchase fee simple interests in time share estates in units in a condominium, generally having the following characteristics: (1) the mortgage loans have standardized payment terms and require minimum monthly payments; (2) the mortgage loans are obligations of numerous borrowers and accordingly represent a diversified pool of obligor credit risk; (3) repayment of such securities can vary substantially from their contractual payment schedules and depends entirely upon the rate at which the mortgage loans are repaid; and (4) the repayment of such mortgage loans is subject to a contractual payment schedule, with early prepayment of individual loans depending on numerous factors specific to the particular obligors and upon whether, in the case of loans bearing interest at a fixed rate, such loans or securities include an effective prepayment premium and with early repayment depending primarily on interest rates and the sale of the mortgaged real estate and related dwelling and generally no penalties for early repayment. "Tobacco Bonds" means Structured Settlement Securities resulting from tobacco-related litigation. "Total Exposure" means an amount calculated by the Portfolio Manager and notified to the Trustee equal to (i) with respect to any Synthetic Security that is an Unhedged Long CDS Transaction, the sum (without duplication) of the maximum aggregate Credit Protection Payments (excluding payments in respect of Interest Shortfalls) or Physical Settlement Amounts that the Issuer could be required to pay or otherwise transfer to the Credit Default Swap Counterparty thereunder, in each case to the extent such obligation to make such payment or transfer has not expired or been terminated pursuant to the Credit Default Swap Agreement and (ii) with respect to any Synthetic Security that is a Hedged Long CDS Transaction, zero. "Total Reduction Amount" means, with respect to any Distribution Date, the sum of (i) the Class A1-VF Senior Excess (after giving effect to any reductions thereto on such Distribution Date pursuant to clauses (a), (b), (c) or (d) of the Senior Excess Application Priority) plus (ii) the remaining Principal Proceeds available after the application thereof on such Distribution Date pursuant to paragraphs (1) through (8) (inclusive) of the "Priority of Payments—Principal Proceeds" on such Distribution Date. "Trust Preferred CDO Securities" means any Bank Trust Preferred CDO Securities or Insurance Trust Preferred CDO Securities. "U.S. Agency Guaranteed Security" means any Asset-Backed Security as to which the timely payment of interest when due, and the payment of principal no later than stated legal maturity, is (a) (1) fully and unconditionally guaranteed by a U.S. Federal agency the obligations of which are backed by the full faith and credit of the United States, but only if such guarantee (x) expires no earlier than such stated maturity and (y) is independent of the performance by the obligor on the relevant Asset-Backed Security or (b) in the judgment of the Portfolio Manager (exercised in accordance with the standard of care set forth in the Management Agreement), dependent upon the credit of a U.S. Federal agency backed by the full faith and credit of the United States; provided that any Asset-Backed Security falling within this definition shall be excluded from the definition of each other type of Asset-Backed Security. "Underlying Instruments" means the indenture or other agreement pursuant to which a Collateral Debt Security, U.S. Agency Security, Eligible Investment or Equity Security has been issued or created and each other agreement that governs the terms of or secures the obligations represented by such Collateral Debt Security, U.S. Agency Security, Eligible Investment or Equity Security or of which holders of such Collateral Debt Security, U.S. Agency Security, Eligible Investment or Equity Security are the beneficiaries.

319

"Unhedged Long CDS Transaction" means a Long CDS Transaction (or portion of the Notional Amount thereof) that is not a Hedged Long CDS Transaction. "Uninvested Proceeds" means, at any time, the net proceeds received by the Issuer on the Closing Date from (x) the initial issuance of the Secured Notes and (y) any premium payable by the Interest Rate Hedge Counterparty to the Issuer pursuant to any Interest Rate Hedge Agreement, to the extent such proceeds have not been deposited in the Expense Account or the Reserve Account or invested in Collateral Debt Securities (including the deposit of any required amounts in a Synthetic Security Counterparty Account). "Unpaid Amounts" means, with respect to each of the Issuer and the Credit Default Swap Counterparty, amounts due but not yet paid under a CDS Transaction. "Unscheduled Principal Payments" means, with respect to any Collateral Debt Security that has been pledged to the Trustee under the Indenture, a repayment of principal received as the result of the exercise by the issuer thereof, or by security holders of the issuer, of a right to optional redemption with respect to such Collateral Debt Security or as the result of an Offer with respect to such Collateral Debt Security. "Unsettled Credit Event" means any Credit Event with respect to a Reference Obligation as to which the conditions to settlement under the Credit Default Swap have occurred but as to which no Physical Settlement Amount has been paid. "Variable Funding Note Agent" means LaSalle Bank National Association in its capacity as note agent acting on behalf of the Issuer under the Variable Funding Note Purchase Agreement. "Withdrawal Date" means, with respect to the Fund, (i) each date set forth in a notice from the Issuer (or the Portfolio Manager on behalf of the Issuer) given in accordance with the GIC, (ii) each GIC Interest Payment Date or (iii) any date on which monies are withdrawn as described under"—Downgrade Event" above or upon the occurrence of a GIC Event of Default. "Withdrawal" means (i) any withdrawal pursuant to the GIC of all or any portion of the Amounts Invested and/or any GIC Interest on a Withdrawal Date or the GIC Agreement Termination Date (as applicable) or (ii) the payment of GIC Interest on the Amounts Invested pursuant to the GIC. "Written-Down Security" means any Collateral Debt Security (other than a Defaulted Security) as to which the aggregate par amount of such Collateral Debt Security and all other securities secured by the same pool of collateral that rank pari passu with or senior in priority of payment to such Collateral Debt Security exceeds the aggregate par amount (including reserved interest or other amounts available for overcollateralization) of all collateral securing such securities (excluding defaulted collateral which has been charged off) as determined by the Portfolio Manager using customary procedures and information available in the servicer reports received by the Portfolio Manager relating to such Written-Down Security; provided that, for purposes of the Overcollateralization Tests, the Pro Rata Payment Test, the Class E Interest Diversion Test or the Class A Overcollateralization Ratio, (x) in the event the Moody's rating of any Written-Down Security (other than a CDO Security) has been reduced below "Caa3" or the Standard & Poor's rating of any Written-Down Security has been reduced below "CCC-," or (y) in the event that the Standard & Poor's rating of any Written-Down Security that is a CDO Security has been reduced below "CC", such Written-Down Security will instead be treated as a "Defaulted Security" unless the Portfolio Manager elects not to treat such Written-Down Security as a Defaulted Security and the Rating Condition is satisfied with respect to such treatment.

320

"Zero Coupon Bond" means a security (other than a Step-Up Bond) that, pursuant to the terms of its Underlying Instruments, on the date on which it is Acquired by the Issuer, does not provide for the periodic payment of interest or provides that all payments of interest will be deferred until the final maturity thereof.

321

SCHEDULE A RECOVERY RATES Part I Moody's Recovery Rate Matrix (see definition of "Applicable Recovery Rate") A.

ABS Type Diversified Securities

Percentage of Total Capitalization

Aaa

Aa

A

Baa

Ba

B

Greater than 70%

85%

80%

70%

60%

50%

40%

Less than or equal to 70%, but greater than 10%

75%

70%

60%

50%

40%

30%

Less than or equal to 10%

70%

65%

55%

45%

35%

25%

B.

Moody's Rating

ABS Type Residential Securities

Percentage of Total Capitalization

Aaa

Aa

A

Baa

Ba

B

Greater than 70%

85%

80%

65%

55%

45%

30%

Less than or equal to 70%, but greater than 10%

75%

70%

55%

45%

35%

25%

Less than or equal to 10%, but greater than 5%

65%

55%

45%

40%

30%

20%

Less than or equal to 5%, but greater than 2%

55%

45%

40%

35%

25%

15%

Less than or equal to 2%

45%

35%

30%

25%

15%

10%

Moody's Rating

C.

ABS Type Undiversified Securities

Percentage of Total Capitalization

Aaa

Aa

A

Baa

Ba

B

Greater than 70%

85%

80%

65%

55%

45%

30%

Less than or equal to 70%, but greater than 10%

75%

70%

55%

45%

35%

25%

Less than or equal to 10%, but greater than 5%

65%

55%

45%

35%

25%

15%

Less than or equal to 5%, but greater than 2%

55%

45%

35%

30%

20%

10%

Less than or equal to 2%

45%

35%

25%

20%

10%

05%

D.

Moody's Rating

Low-Diversity CDO Securities and CDO Securities with a Moody's Asset Correlation of 15% or more

Percentage of Total Capitalization

Aaa

Aa

A

Baa

Ba

B

Greater than 70%

80%

75%

60%

50%

45%

30%

Less than or equal to 70%, but greater than 10%

70%

60%

55%

45%

35%

25%

Less than or equal to 10%, but greater than 5%

60%

50%

45%

35%

25%

15%

Less than or equal to 5%, but greater than 2%

50%

40%

35%

30%

20%

10%

Less than or equal to 2%

30%

25%

20%

15%

07%

04%

Moody's Rating

323

E.

High-Diversity CDO Securities and CDO Securities with a Moody's Asset Correlation of less than 15%

Percentage of Total Capitalization

Aaa

Aa

A

Baa

Ba

B

Greater than 70%

85%

80%

65%

55%

45%

30%

Less than or equal to 70%, but greater than 10%

75%

70%

60%

50%

40%

25%

Less than or equal to 10%, but greater than 5%

65%

55%

50%

40%

30%

20%

Less than or equal to 5%, but greater than 2%

55%

45%

40%

35%

25%

10%

Less than or equal to 2%

45%

35%

30%

25%

10%

5%

Moody's Rating

F.

If the Collateral Debt Security is a Synthetic Security (other than a CDS Transaction or other Synthetic Security structured as a credit default swap that is entered into pursuant to a Form-Approved Synthetic Security), the recovery rate thereof will by assigned by Moody's upon the Acquisition of such Synthetic Security by the Issuer.

G.

If the Collateral Debt Security is a CDS Transaction or other Synthetic Security structured as a credit default swap that is entered into pursuant to a Form-Approved Synthetic Security, the recovery rate thereof will be the same as the Moody's recovery rate of the underlying Reference Obligation.

324

Part II Standard & Poor's Recovery Rate Matrix A.

If the Collateral Debt Security (other than a CMBS Security, a Synthetic Security or an Excepted Security), is the senior-most tranche of securities issued by the issuer of such Collateral Debt Security or is a U.S. Agency Guaranteed Security or a U.S. Agency Security, the recovery rate is as follows, provided that for purposes of the Standard & Poor's recovery rate matrix, the applicable rating shall be the Standard & Poor's Rating of the Collateral Debt Security at the time of issuance:

Standard & Poor's Rating (at time of issuance) Assets "AAA" "AA-," "AA" or "AA+" "A-," "A" or "A+" "BBB-," "BBB" or "BBB+" B.

Recovery Rate Liabilities (at time of measurement) AAA

AA

A

BBB

BB

B

CCC

80.0% 70.0%

85.0% 75.0%

90.0% 85.0%

90.0% 90.0%

90.0% 90.0%

90.0% 90.0%

90.0% 90.0%

60.0% 50.0%

65.0% 55.0%

75.0% 65.0%

85.0% 75.0%

90.0% 85.0%

90.0% 85.0%

90.0% 85.0%

If the Collateral Debt Security (other than a CMBS Security, a Synthetic Security or an Excepted Security) (1) is not the senior-most tranche of securities issued by the issuer of such Collateral Debt Security or (2) is the senior-most tranche of securities issued by the issuer of such Collateral Debt Security and such Collateral Debt Security has a Standard & Poor's Rating of "BBB-" or below, the recovery rate is as follows, provided that for purposes of the Standard & Poor's recovery rate matrix, the applicable rating shall be the Standard & Poor's Rating of the Collateral Debt Security at the time of issuance:

Standard & Poor's Rating (at time of issuance) Assets "AAA" "AA-," "AA" or "AA+" "A-," "A" or "A+" "BBB-," "BBB" or "BBB+" "BB-," "BB" or "BB+" "B-," "B" or "B+" "CCC+" and below

Recovery Rate Liabilities (at time of measurement) AAA 65.0% 55.0%

AA 70.0% 65.0%

A 80.0% 75.0%

BBB 85.0% 80.0%

BB 85.0% 80.0%

B 85.0% 80.0%

CCC 85.0% 80.0%

40.0% 30.0%

45.0% 35.0%

55.0% 40.0%

65.0% 45.0%

80.0% 50.0%

80.0% 60.0%

80.0% 70.0%

10.0%

10.0%

10.0%

25.0%

35.0%

40.0%

50.0%

2.5% 0.0%

5.0% 0.0%

5.0% 0.0%

10.0% 0.0%

10.0% 2.5%

20.0% 5.0%

25.0% 5.0%

325

C.

If the Collateral Debt Security is a CMBS Security, the recovery rate is as follows, provided that for purposes of the Standard & Poor's recovery rate matrix, the applicable rating shall be the Standard & Poor's Rating of the Collateral Debt Security at the time of issuance:

Standard & Poor's Rating (at time of issuance)

Recovery Rate Liabilities (at time of measurement)

Assets

AAA

AA

A

BBB

BB

B

CCC

"AAA" "AA-," "AA" or "AA+" "A-," "A" or A+" "BBB-," "BBB" or "BBB+" "BB-," "BB" or "BB+" "B-," "B" or "B+" "CCC" Below "CCC" or not rated

80% 70%

85% 75%

90% 85%

90% 90%

90% 90%

90% 90%

90% 90%

60% 45%

65% 50%

75% 55%

85% 60%

90% 65%

90% 70%

90% 75%

35%

40%

45%

45%

50%

50%

50%

20%

25%

30%

35%

35%

40%

40%

5% 0%

5% 0%

5% 0%

5% 0%

5% 0%

5% 0%

5% 0%

D.

If the Collateral Debt Security is a Synthetic Security or an Excepted Security, the recovery rate will by assigned by Standard & Poor's upon the Acquisition of such Collateral Debt Security by the Issuer.

E.

If the Collateral Debt Security is a Synthetic Security (other than a CDS Transaction or other Synthetic Security structured as a credit default swap that is entered into pursuant to a Form-Approved Synthetic Security) or an Excepted Security, the recovery rate thereof will by assigned by Standard & Poor's upon the acquisition of such Synthetic Security by the Issuer.

F.

If the Collateral Debt Security is a CDS Transaction or other Synthetic Security structured as a credit default swap that is entered into pursuant to a Form-Approved Synthetic Security, the recovery rate thereof will be the same as the Standard & Poor's recovery rate of the underlying Reference Obligation.

G.

If the Collateral Debt Security (other than a Synthetic Security or Excepted Security), is guaranteed by (1) an insurance company that has been assigned an Insurer Financial Enhancement Rating (FER) by Standard & Poor's (including Collateral Debt Securities guaranteed by a monoline financial insurance company that has been assigned a FER), the recovery rate will be 50% and (2) a company that has not been assigned an Insurer FER by Standard & Poor's the recovery rate will be 40%.

SCHEDULE B STANDARD & POOR'S ASSET CLASSES Part A

1.

Consumer ABS Automobile Loan Receivable Securities Automobile Lease Receivable Securities Car Rental Receivables Securities Credit Card Securities Student Loan Securities

2.

Commercial ABS Cargo Securities Equipment Leasing Securities Aircraft Leasing Securities Small Business Loan Securities Restaurant and Food Services Securities Tobacco Bonds

3.

Non-RE-REMIC RMBS Manufactured Housing Loan Securities

4.

Non-RE-REMIC CMBS CMBS – Conduit CMBS – Credit Tenant Lease CMBS – Large Loan CMBS – Single Borrower CMBS – Single Property

5.

CDO Cashflow Securities Cash Flow CBO – at least 80% High Yield Corporate Cash Flow CBO – at least 80% Investment Grade Corporate Cash Flow CLO – at least 80% High Yield Corporate Cash Flow CLO – at least 80% Investment Grade Corporate

6.

REITs REIT – Multifamily & Mobile Home Park REIT – Retail REIT – Hospitality REIT – Office REIT – Industrial REIT – Healthcare REIT – Warehouse REIT – Self Storage REIT – Mixed Use

7.

Real Estate Operating Companies

327

Part B

Residential Mortgages Prime Residential Mortgages Mid-Prime Residential Mortgages Sub-Prime Residential Mortgages Part C

Specialty Structured Stadium Financings Project Finance Future flows

328

SCHEDULE C STANDARD & POOR'S TYPES OF ASSET-BACKED SECURITIES INELIGIBLE FOR NOTCHING The following types of Asset-Backed Securities are not eligible to be notched in accordance with Part II of Schedule D unless otherwise agreed to by Standard & Poor's. Accordingly, the Standard & Poor's Rating of such Asset-Backed Securities must be determined pursuant to clause (a)(i) or (ii) of the definition of "Standard & Poor's Rating" in Schedule E to this Offering Memorandum. This Schedule may be modified from time to time by Standard & Poor's and its applicability should be confirmed with Standard & Poor's prior to use. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Non-U.S. Structured Finance Securities Guaranteed Securities CDOs of Structured Finance and Real Estate Securities CBOs of CDOs CLOs of Distressed Debt Mutual Fund Fee Securities Catastrophe Bonds First Loss Tranches of any Securitization Synthetics other than Form-Approved Synthetic Securities Synthetic CBOs Combination Notes RE-REMICS Market value CDOs Net Interest Margin Securities (NIMs) Any asset class not listed in Part II of Schedule D Interest Only Securities

329

SCHEDULE D NOTCHING OF ABS SECURITIES PART 1 MOODY'S NOTCHING OF ASSET BACKED SECURITIES The following notching conventions are appropriate for Standard & Poor's-only rated tranches. The figures represent the number of notches to be subtracted from the Standard & Poor's rating. (For example, a "1" applied to a Standard & Poor's rating of "BBB" implies a Moody's rating of "Baa3"). ASSET CLASS

"AAA" to AA-"

"A+" to "BBB-"

Below "BBB-"

1

2

3

2

3

4

1 1 1 1

2 2 2

3 3 3

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2

3 2 2 2 2 2 1 2 2 2 2 2 2 2 2 2 3

4 3 3 3 3 4 2 3 3 4 3 3 3 3 3 3 4

Asset Backed Agricultural and Industrial Equipment loans Aircraft and Auto leases and Car Rental Receivable Securities Arena and Stadium Financing Financing Auto loan Boat, Motorcycle, RV, Truck Computer, Equipment and Smallticket item leases Consumer Loans Credit Card Cross-border transactions Entertainment Royalties Floorplan Franchise Loans Future Receivables Health Care Receivables Manufactured Housing Mutual Fund Fees Small Business Loans Stranded Utilities Structured Settlements Student Loan Tax Liens Time Share Securities Trade Receivables

Residential Mortgage Related (note that rating category groups differ here from above)

Jumbo A Alt –A or mixed pools HEL (including Residential B&C)

AAA 1 1 1

AA+ to BBB2 3 2

330

Below BBB3 4 3

The following notching conventions are with respect to Fitch: Residential Mortgage Related Jumbo A Alt-A or mixed pools HEL (including Residential B&C)

"AAA"

"AA+" to "BBB-"

Below "BBB-"

1 1 No notching

2 3 No notching

4 5 No notching

For dual-rated Jumbo A or Alt-A transactions, take the lower of the two ratings on the security, apply the appropriate single-rated notching guideline from above, then go up by ½ notch. The following CMBS notching conventions are with respect to Standard & Poor's and Fitch: ASSET CLASS

Tranche Rated by Fitch and Standard & Poor's; no tranche in deal rated by Moody’s

Tranche Rated by Fitch and/or Standard & Poor's; at least one other tranche in deal rated by Moody’s

Commercial Mortgage Backed Securities Conduit# 2 notches from lower of 1.5* notches from lower of Fitch/Standard & Poor's Fitch/Standard & Poor's Credit Tenant Lease Follow corporate notching Follow corporate notching practice practice Large Loan No Notching Permitted # For this purpose, conduits are defined as fixed rate, sequential pay, multi-borrower transactions having a Herfindahl score of 40 or higher at the loan level with all collateral (conduit loans, A notes, large loans, CTLs and any other real estate collateral) factored in. *A 1.5 notch haircut implies, for example, that if the Standard & Poor's/Fitch rating were BBB, then the Moody’s rating factor would be halfway between the Baa3 and Ba1 rating factors. CDOs – No notching permitted. (Moody’s must in all cases assign a rating or a rating estimate to the CDO tranche to be included in a resecuritization transaction.)

331

PART II STANDARD & POOR'S NOTCHING OF ASSET-BACKED SECURITIES The Standard & Poor's Rating of a Collateral Debt Security that is not of a type specified on Schedule C and that has not been assigned a rating by Standard & Poor's may be determined as set forth below. A.

If such Collateral Debt Security is rated by Moody's and Fitch, the Standard & Poor's Rating of such Collateral Debt Security shall be the Standard & Poor's equivalent of the rating that is the number of subcategories specified in Table A below the lowest of the ratings assigned by Moody's and Fitch.

B.

If the Collateral Debt Security is rated by Moody's or Fitch, the Standard & Poor's Rating of such Collateral Debt Security shall be the Standard & Poor's equivalent of the rating that is one subcategory below the rating that is the number of subcategories specified in Table A below the rating assigned by Moody's or Fitch.

This Schedule may be modified from time to time by Standard & Poor's and its applicability should be confirmed with Standard & Poor's prior to use. TABLE A Asset-Backed Securities issued prior to August 1, 2001

Asset-Backed Securities issued on or after August 1, 2001

(Lowest) current rating is:

(Lowest) current rating is: "BBB-" or its Below "BBB-" "BBB-"or its or its equivalent or Below "BBB-" equivalent or its equivalent or higher equivalent higher 1. Consumer ABS Automobile Loan Receivable Securities Automobile Lease Receivable Securities Car Rental Receivables Securities Credit Card Securities Healthcare Securities Student Loan Securities

-1

-2

-2

-3

2. Commercial ABS Cargo Securities Equipment Leasing Securities Aircraft Leasing Securities Small Business Loan Securities Restaurant and Food Services Securities Tobacco Bonds

-1

-2

-2

-3

332

Asset-Backed Securities issued prior to August 1, 2001

Asset-Backed Securities issued on or after August 1, 2001

(Lowest) current rating is:

(Lowest) current rating is: "BBB-" or its Below "BBB-" "BBB-"or its or its equivalent or Below "BBB-" equivalent or its equivalent or higher equivalent higher 3. Non-Re-REMIC RMBS Manufactured Housing Loan Securities

-1

-2

-2

-3

4. Non-Re-REMIC CMBS CMBS – Conduit CMBS – Credit Tenant Lease CMBS – Large Loan CMBS – Single Borrower CMBS – Single Property

-1

-2

-2

-3

5. CDO Cashflow Securities Cash Flow CBO – at least 80% High Yield Corporate Cash Flow CBO – at least 80% Investment Grade Corporate Cash Flow CLO – at least 80% High Yield Corporate Cash Flow CLO – at least 80% Investment Grade Corporate

-1

-2

-2

-3

6. REITs REIT – Multifamily & Mobile Home Park REIT – Retail REIT – Hospitality REIT – Office REIT – Industrial REIT – Healthcare REIT – Warehouse REIT – Self Storage REIT – Mixed Use

-1

-2

-2

-3

7. Specialty Structured Stadium Financings Project Finance Future flows

-3

-4

-3

-4

8. Residential Mortgages Prime Residential Mortgages Mid-Prime Residential Mortgages Sub-Prime Residential Mortgages

-1

-2

-2

-3

9. Real Estate Operating Companies

-1

-2

-2

-3

as of March 7, 2006 333

SCHEDULE E RATINGS DEFINITIONS The "Moody's Rating" of any Collateral Debt Security will be determined as follows: (i) (x) if such Asset-Backed Security is publicly rated by Moody's, the Moody's Rating shall be such rating, or (y) if such Collateral Debt Security is not publicly rated by Moody's, but the Issuer or the Portfolio Manager on behalf of the Issuer has requested that Moody's assign a rating to such Collateral Debt Security, the Moody's Rating shall be the rating so assigned by Moody's; (ii) with respect to an Asset-Backed Security, if such Asset-Backed Security is not publicly rated by Moody's, then the Moody's Rating of such Asset-Backed Security may be determined using any one of the methods below: (A) with respect to any ABS Type Residential Security not publicly rated by Moody's, if such ABS Type Residential Security is publicly rated by Standard & Poor's, then the Moody's Rating thereof will be (i) one subcategory below the Moody's equivalent rating assigned by Standard & Poor's if the rating assigned by Standard & Poor's is "AAA"; (ii) two rating subcategories (or, in the case of Alt-A or mixed pool RMBS Securities, three rating subcategories) below the Moody's equivalent rating assigned by Standard & Poor's if the rating assigned by Standard & Poor's is below "AAA" but above "BB+"; and (iii) three rating subcategories (or, in the case of Alt-A or mixed pool RMBS Securities, four rating subcategories) below the Moody's equivalent rating assigned by Standard & Poor's if the rating assigned by Standard & Poor's is below "BBB-"; (B) with respect to any CMBS Conduit Security or CMBS Credit Tenant Lease Security not publicly rated by Moody's, (x) if Moody's has rated a tranche or class of CMBS Conduit Security or CMBS Credit Tenant Lease Security senior to the relevant Issue, then the Moody's Rating thereof shall be one and one-half rating subcategories below the Moody's equivalent rating assigned by Standard & Poor's for purposes of determining the Moody's Rating Factor and one rating subcategory below the Moody's equivalent rating assigned by Standard & Poor's for all other purposes and (y) if Moody's has not rated any such tranche or Class and Standard & Poor's has rated the subject CMBS Conduit Security or CMBS Credit Tenant Lease Security, then the Moody's Rating thereof will be two rating subcategories below the Moody's equivalent rating assigned by Standard & Poor's; (C) with respect to notched ratings on any other type of Asset-Backed Securities (including those rated only by Fitch), the Moody's Rating shall be determined in conjunction with the notching conventions set forth in Part I of Schedule A; and (D) with respect to any other type of Asset-Backed Securities designated as a Specified Type after the date hereof upon notification from the Portfolio Manager to the Trustee and written confirmation by Moody's to the Issuer, the Trustee and the Portfolio Manager that such designation satisfies the Rating Condition, pursuant to any method specified by Moody's;

334

(iii) with respect to any corporate guarantees on Asset-Backed Securities, if such corporate guarantees are not publicly rated by Moody's but another security or obligation of the issuer or guarantor thereof (an "other security") is publicly rated by Moody's, and no rating has been assigned in accordance with clause (i) above, the Moody's Rating of such corporate guarantee shall be determined as follows: (A) if the corporate guarantee is a senior secured obligation of the issuer, guarantor or obligor and the other security is also a senior secured obligation, the Moody's Rating of such corporate guarantee shall be the rating of the other security; (B) if the corporate guarantee is a senior unsecured obligation of the issuer, guarantor or obligor and the other security is a senior secured obligation, the Moody's Rating of such corporate guarantee shall be one rating subcategory below the rating of the other security; (C) if the corporate guarantee is a subordinated obligation of the issuer, guarantor or obligor and the other security is a senior secured obligation that is: (1)

rated "Ba3" or higher by Moody's, the Moody's Rating of such corporate guarantee shall be three rating subcategories below the rating of the other security; or

(2)

rated "B1" or lower by Moody's, the Moody's Rating of such corporate guarantee shall be two rating subcategories below the rating of the other security;

(D) if the corporate guarantee is a senior secured obligation of the issuer, guarantor or obligor and the other security is a senior unsecured obligation that is: (1)

rated "Baa3" or higher by Moody's, the Moody's Rating of such corporate guarantee shall be the rating of the other security; or

(2)

rated "Ba1" or lower by Moody's, the Moody's Rating of such corporate guarantee shall be one rating subcategory above the rating of the other security;

(E) if the corporate guarantee is a senior unsecured obligation of the issuer, guarantor or obligor and the other security is also a senior unsecured obligation, the Moody's Rating of such corporate guarantee shall be the rating of the other security; (F) if the corporate guarantee is a subordinated obligation of the issuer, guarantor or obligor and the other security is a senior unsecured obligation that is: (1)

rated "B1" or higher by Moody's, the Moody's Rating of such corporate guarantee shall be two rating subcategories below the rating of the other security; or

(2)

rated "B2" or lower by Moody's, the Moody's Rating of such corporate guarantee shall be one rating subcategory below the rating of the other security;

335

(G) if the corporate guarantee is a senior secured obligation of the issuer, guarantor or obligor and the other security is a subordinated obligation that is: (1)

rated "Baa3" or higher by Moody's, the Moody's Rating of such corporate guarantee shall be one rating subcategory above the rating of the other security;

(2)

rated below "Baa3" but not rated "B3" by Moody's, the Moody's Rating of such corporate guarantee shall be two rating subcategories above the rating of the other security; or

(3)

rated "B3" by Moody's, the Moody's Rating of such corporate guarantee shall be "B2";

(H) if a corporate guarantee is a senior unsecured obligation of the issuer, guarantor or obligor and the other security is a subordinated obligation that is: (1)

rated "Baa3" or higher by Moody's, the Moody's Rating of such corporate guarantee shall be one rating subcategory above the rating of the other security; or

(2)

rated "Ba1" or lower by Moody's, the Moody's Rating of such corporate guarantee shall also be one rating subcategory above the rating of the other security; and

(I) if the Collateral Debt Security is a subordinated obligation of the issuer, guarantor or obligor and the other security is also a subordinated obligation, the Moody's Rating of such corporate guarantee shall be the rating of the other security; (iv) with respect to corporate guarantees issued by U.S., U.K. or Canadian issuers or guarantors or by any other Qualifying Foreign Obligor, if such corporate guarantee does not have a Moody's Rating, and no other security or obligation of the issuer or guarantor thereof is rated by Moody's, then the Moody's Rating of such corporate guarantee may be determined using any one of the methods below: (A)

(1)

if such corporate guarantee is publicly rated by Standard & Poor's, then the Moody's Rating of such corporate guarantee shall be (x) one rating subcategory below the Moody's equivalent of the rating assigned by Standard & Poor's if such security is rated "BBB-" or higher by Standard & Poor's and (y) two subcategories below the Moody's equivalent of the rating assigned by Standard & Poor's if such security is rated "BB+" or lower by Standard & Poor's; and

(2)

if such corporate guarantee is not publicly rated by Standard & Poor's but another security or obligation of the issuer is publicly rated by Standard & Poor's (a "parallel security"), then the Moody's equivalent of the rating of such parallel security will be determined in accordance with the methodology set forth in subclause (1) above, and the Moody's Rating of such corporate guarantee will be determined in accordance with the methodology set forth in clause (iii) above (for such purpose treating the

336

parallel security as if it were rated by Moody's at the rating determined pursuant to this subclause (2)); (B) if such corporate guarantee does not have a Moody's Rating or is not publicly rated by Standard & Poor's, and no other security or obligation of the guarantor has a Moody's Rating or is publicly rated by Standard & Poor's, then the Issuer or the Portfolio Manager on behalf of the Issuer, may present such corporate guarantee to Moody's for an estimate of such Collateral Debt Security's rating factor, from which its corresponding Moody's Rating may be determined, which shall be its Moody's Rating; (C) with respect to a corporate guarantee issued by a U.S. corporation, if (1) neither the issuer nor any of its Affiliates is subject to reorganization or bankruptcy proceedings, (2) no debt securities or obligations of the issuer are in default, (3) none of the issuer, guarantor or any of their Affiliates have defaulted on any debt during the past two years, (4) the issuer or guarantor has been in existence for the past five years, (5) the issuer or guarantor is current on any cumulative dividends, (6) the fixed-charge ratio for the issuer or guarantor exceeds 125% for each of the past two fiscal years and for the most recent quarter, (7) the issuer or guarantor had a net annual profit before tax in the past fiscal year and the most recent quarter and (8) the annual financial statements of the issuer or guarantor are unqualified and certified by a firm of independent accountants of national reputation, and quarterly statements are unaudited but signed by a corporate officer, the Moody's Rating of such corporate guarantee will be "B3"; (D) with respect to a corporate guarantee issued by a non-U.S. issuer, if (1) none of the issuer, guarantor or any of their Affiliates is subject to reorganization or bankruptcy proceedings and (2) no debt security or obligation of the issuer or guarantor has been in default during the past two years, the Moody's Rating of such corporate guarantee will be "Caa2"; and (E) if a debt security or obligation of the issuer or guarantor has been in default during the past two years, the Moody's Rating of such corporate guarantee will be "Ca"; provided that (I) in respect of any U.S. Agency Guaranteed Security or FHLMC/FNMA Guaranteed Security, if such U.S. Agency Guaranteed Security or FHLMC/FNMA Guaranteed Security is not assigned a Moody's Rating pursuant to clause (i) above, the Moody's Rating will be the rating assigned to the relevant guarantor of such U.S. Agency Guaranteed Security or FHLMC/FNMA Guaranteed Security by Moody's, (II) the ratings of no more than 10% of the Aggregate Principal Balance of all Collateral Debt Securities may be assigned rating factors derived via notching from single-rated (i.e., rated by Standard & Poor's or Fitch, but not both) instruments, (III) with respect to any one Rating Agency, the single-rated notched bucket for Collateral Debt Securities that are not Moody's Notching Approved Securities may be no larger than 7.5% of the Aggregate Principal Balance of all Collateral Debt Securities, (IV) the Aggregate Principal Balance of Collateral Debt Securities the Moody's Rating of which is based on a Standard & Poor's or Fitch rating may not exceed 20% of the Aggregate Principal Balance of all Collateral Debt Securities, (V) other than for the purposes of paragraphs (5) and (23) of the Eligibility Criteria, if a Collateral Debt Security (1) is placed on a watch list for possible upgrade by Moody's, the Moody's Rating applicable to such Collateral Debt Security shall be one rating subcategory above the Moody's Rating applicable to such Collateral Debt Security immediately prior to such Collateral Debt Security being placed on such watch list and (2) if a Collateral Debt Security is placed on a watch list for possible downgrade by Moody's, the Moody's Rating applicable to such Collateral Debt Security shall be one rating subcategory (or, in the case of a Collateral Debt Security (other than any Bank Guaranteed Security or Insurance Company Guaranteed Security) that would otherwise have a Moody's Rating below "Aaa," two rating subcategories) below the Moody's Rating applicable to such Collateral Debt Security immediately prior to such Collateral Debt Security being placed on such watch list and (VI) the Moody's 337

Rating of any Form-Approved Synthetic Security shall be the Moody's Rating that would be applicable to the related Reference Obligation if determined in accordance with the foregoing. The "Standard & Poor's Rating" of any Asset-Backed Security or Form-Approved Synthetic Security will be determined as follows: (i) if Standard & Poor's has assigned a rating to such Collateral Debt Security (or, in the case of a Form-Approved Synthetic Security, the applicable Reference Obligation) either publicly or privately (provided that with respect to a private or confidential rating, consent of the party that obtained such rating shall be provided to Standard & Poor's), the Standard & Poor's Rating shall be the rating assigned thereto by Standard & Poor's; (ii) if such Collateral Debt Security (or, in the case of a Form-Approved Synthetic Security, the applicable Reference Obligation) is not rated by Standard & Poor's but the Issuer or the Portfolio Manager on behalf of the Issuer has requested that Standard & Poor's assign a rating to such Collateral Debt Security (or Reference Obligation), the Standard & Poor's Rating shall be the rating so assigned by Standard & Poor's; provided that pending receipt from Standard & Poor's of such rating, (x) if such Collateral Debt Security (or Reference Obligation) is of a type listed on Schedule C or is not eligible for notching in accordance with Part II of Schedule D, such Collateral Debt Security (or Reference Obligation) shall have a Standard & Poor's Rating of "CCC-" and (y) if such Collateral Debt Security (or Reference Obligation) is not of a type listed on Schedule C and is eligible for notching in accordance with Part II of Schedule D, the Standard & Poor's Rating of such Collateral Debt Security (or Reference Obligation) shall be the rating assigned in accordance with Part II of Schedule D until such time as Standard & Poor's shall have assigned a rating thereto; provided further that the Issuer or the Portfolio Manager (on behalf of the Issuer) must request that Standard & Poor's assign a rating to such Collateral Debt Security (or Reference Obligation) prior to or upon Acquisition of such Collateral Debt Security (or Reference Obligation); (iii) if such Collateral Debt Security (or, in the case of a Form-Approved Synthetic Security, the applicable Reference Obligation) is a Collateral Debt Security (or Reference Obligation) that has not been assigned a rating by Standard & Poor's pursuant to clause (i) or (ii) above, but is guaranteed by a corporate guarantee (which meets the then-current guarantee criteria by Standard & Poor's), the issuer of which is rated by Standard & Poor's, the Standard & Poor's Rating shall be the rating so assigned to such guarantor; (iv) if such Collateral Debt Security (or, in the case of a Form-Approved Synthetic Security, the applicable Reference Obligation) is a Collateral Debt Security (or Reference Obligation) that has not been assigned a rating by Standard & Poor's pursuant to clause (i), (ii) or (iii) above, and is not of a type listed on Schedule C, the Standard & Poor's Rating of such Collateral Debt Security (or Reference Obligation) shall be the rating determined in accordance with Part II of Schedule D; provided that if any Collateral Debt Security (or Reference Obligation) shall, at the time of its Acquisition by the Issuer, be on watch for a possible upgrade or downgrade by either Moody's or Fitch, the Standard & Poor's Rating of such Collateral Debt Security (or Reference Obligation) shall be one subcategory above or below, respectively, the rating otherwise assigned to such Collateral Debt Security (or Reference Obligation) in accordance with Part II of Schedule D; and

338

(v) if any Collateral Debt Security (or, in the case of a Form-Approved Synthetic Security, the applicable Reference Obligation) is a Collateral Debt Security (or Reference Obligation) that has not been assigned a rating by Standard & Poor's but the Issuer or the Portfolio Manager on behalf of the Issuer has requested that Standard & Poor's assign a credit estimate to such Collateral Debt Security (or Reference Obligation), the Standard & Poor's Rating shall be the credit estimate so assigned by Standard & Poor's; provided that the Issuer or the Portfolio Manager (on behalf of the Issuer) must request that Standard & Poor's assign a credit estimate to such Collateral Debt Security (or Reference Obligation) (A) prior to or upon Acquisition of such Collateral Debt Security (or Reference Obligation) and (B) thereafter, on each anniversary of the Acquisition of such Collateral Debt Security (or Reference Obligation); provided that, (1) if a Collateral Debt Security (or, in the case of a Form-Approved Synthetic Security, the related Reference Obligation) (x) is placed on a watch list for possible upgrade by Standard & Poor's, the Standard & Poor's Rating applicable to such Collateral Debt Security shall be one rating subcategory above the Standard & Poor's Rating applicable to such Collateral Debt Security (or, in the case of a FormApproved Synthetic Security, the related Reference Obligation) immediately prior to such Collateral Debt Security (or, in the case of a Form-Approved Synthetic Security, the related Reference Obligation) being placed on such watch list or (y) is placed on a watch list for possible downgrade by Standard & Poor's, the Standard & Poor's Rating applicable to such Collateral Debt Security shall be one rating subcategory below the Standard & Poor's Rating applicable to such Collateral Debt Security (or, in the case of a FormApproved Synthetic Security, the related Reference Obligation) immediately prior to such Collateral Debt Security or Reference Obligation (as applicable) being placed on such watch list, (2) the Rating of not more than 20% of the Aggregate Principal Balance of all Collateral Debt Securities may be determined pursuant to clause (iv) above and provided further that, in respect of any U.S. Agency Guaranteed Security or FHLMC/FNMA Guaranteed Security, the Standard & Poor's Rating will be the issuer credit rating assigned to the relevant guarantor of such Collateral Debt Security by Standard & Poor's if such U.S. Agency Guaranteed Security or FHLMC/FNMA Guaranteed Security is not assigned a Standard & Poor's Rating pursuant to clause (i) above.

339

INDEX OF DEFINED TERMS Following is an index of defined terms used in this Offering Memorandum and the page number where each definition appears. 10% U.S. Shareholder .........................................................................................................................223 25% Threshold .....................................................................................................................................227 ABS CDO Security...............................................................................................................................270 ABS Chassis Securities ........................................................................................................................270 ABS Container Securities....................................................................................................................270 ABS Natural Resource Receivable Securities....................................................................................270 ABS Type Diversified Securities.........................................................................................................271 ABS Type Residential Securities ........................................................................................................271 ABS Type Undiversified Securities ....................................................................................................271 Accelerated Maturity Date..................................................................................................................110 Account Withdrawal Payment Priority .............................................................................................271 Accounts................................................................................................................................................271 Acquire..................................................................................................................................................271 Actual Interest Amount .......................................................................................................................272 Administration Agreement .................................................................................................................145 Administrator.......................................................................................................................................145 Aerospace and Defense Securities ......................................................................................................272 Affected Class ................................................................................................................................... 14, 94 Affiliate .................................................................................................................................................272 Aggregate Attributable Amount.........................................................................................................272 Aggregate Principal Balance...............................................................................................................273 Aircraft Leasing Securities..................................................................................................................273 Allocable Notional Amount .................................................................................................................273 Amounts Invested.................................................................................................................................273 Applicable Procedures......................................................................................................... 134, 135, 238 Applicable Recovery Rate ...................................................................................................................273 Asset Hedge Account ...........................................................................................................................172 Asset Hedge Agreement.......................................................................................................................171 Asset Hedge Agreements .....................................................................................................................171 Asset Hedge Counterparty ..................................................................................................................171 Asset-Backed Security .........................................................................................................................274 Auction ....................................................................................................................................................90 Auction Call Redemption ......................................................................................................................91 Auction Date ...........................................................................................................................................90 Auction Procedures................................................................................................................................92 Auction Purchase Agreement ...............................................................................................................93 Automobile Securities ..........................................................................................................................274 Available Amounts Invested ...............................................................................................................274 Available Redemption Proceeds ...........................................................................................................94 Average Life .........................................................................................................................................167 Bank Guaranteed Securities ...............................................................................................................275 Bank Trust Preferred CDO Securities...............................................................................................275 Base Rate ..............................................................................................................................................275 Base Rate Reference Bank ..................................................................................................................275 Below B- Amount .................................................................................................................................275 Benefit Plan Investors..........................................................................................................................227 340

Borrowing ...............................................................................................................................................84 Business Day ...........................................................................................................................................97 Cairn .........................................................................................................................................................5 Calculation Agent...................................................................................................................................82 Calculation Amount.............................................................................................................................275 Car Rental Receivable Securities........................................................................................................275 Cash Collateral Debt Security ............................................................................................................275 Catastrophe Bonds...............................................................................................................................275 Cause .....................................................................................................................................................213 CDO CDS Transaction ........................................................................................................................187 CDO of CDO Securities.......................................................................................................................276 CDO Securities .....................................................................................................................................276 CDS Designated Unpaid Amounts......................................................................................................197 CDS Termination Acceptance Notice.................................................................................................198 CDS Termination Payment .................................................................................................................276 CDS Termination Payment Acceptance ............................................................................................197 CDS Termination Payment Notice .....................................................................................................197 CDS Termination Payment Rejection................................................................................................197 CDS Transaction............................................................................................................................ 18, 186 CDS Transaction Termination ...........................................................................................................187 CFC .......................................................................................................................................................223 Class ..........................................................................................................................................................1 Class A Notes ............................................................................................................................................1 Class A Overcollateralization Ratio ...................................................................................................107 Class A/B Overcollateralization Ratio ...............................................................................................106 Class A/B Overcollateralization Test .................................................................................................106 Class A1-VF Note Interest Rate..............................................................................................................8 Class A1-VF Note Interest Rate............................................................................................................79 Class A1-VF Noteholder Account.......................................................................................................185 Class A1-VF Notes ...................................................................................................................................1 Class A1-VF Prepayment Account.....................................................................................................184 Class A1-VF Senior Excess .................................................................................................................276 Class A2A Notes .......................................................................................................................................1 Class A2B Notes .......................................................................................................................................1 Class B Notes ............................................................................................................................................1 Class B1 Notes ..........................................................................................................................................1 Class B2 Notes ..........................................................................................................................................1 Class C Deferred Interest ..................................................................................................................9, 81 Class C Notes ............................................................................................................................................1 Class C/D Overcollateralization Ratio ...............................................................................................106 Class C/D Overcollateralization Test .................................................................................................106 Class D Deferred Interest ..................................................................................................................9, 81 Class D Note Component.....................................................................................................................127 Class D Notes ............................................................................................................................................1 Class E Deferred Interest ..................................................................................................................9, 81 Class E Interest Diversion Ratio.........................................................................................................106 Class E Interest Diversion Test...........................................................................................................107 Class E Notes ............................................................................................................................................1 Class Scenario Default Rate ................................................................................................................276 Clearing Agency ...................................................................................................................................239 Clearstream, Luxembourg ..................................................................................................................133 341

CLO Security........................................................................................................................................277 Closing Date..............................................................................................................................................2 CMBS CDO Securities ........................................................................................................................277 CMBS Conduit Securities ...................................................................................................................277 CMBS Credit Tenant Lease Securities ..............................................................................................277 CMBS Large Loan Securities .............................................................................................................278 CMBS Securities ..................................................................................................................................278 CMBS Single Property Securities.......................................................................................................278 Code.......................................................................................................................................................225 Co-Issuer...................................................................................................................................................5 Co-Issuers .................................................................................................................................................5 Collateral ........................................................................................................................................ 16, 147 Collateral Administration Agreement ...............................................................................................278 Collateral Administrator.....................................................................................................................278 Collateral Debt Security ......................................................................................................................278 Collateral Quality Tests.......................................................................................................................163 Collection Accounts .............................................................................................................................174 Combination Note Contingent Coupon..............................................................................................127 Combination Note Rated Balance ......................................................................................................278 Combination Note Register .................................................................................................................138 Combination Note Registrar ...............................................................................................................138 Combination Noteholders .......................................................................................................................2 Combination Notes........................................................................................................................... 1, 127 Commitment Amount..........................................................................................................................279 Commitment Fee................................................................................................................................7, 83 Commitment Fee Rate ............................................................................................................... 7, 83, 279 Commitment Percentage .....................................................................................................................279 Commitment Termination Date .........................................................................................................279 Companies Ordinance .........................................................................................................................236 Compliant Class A1-VF Noteholder...................................................................................................279 Component ...........................................................................................................................................127 Conditions to Settlement .....................................................................................................................194 Consumer Protected Securities.............................................................................................................46 Controlling Class..................................................................................................................................109 Controlling Person ...............................................................................................................................227 Corporate CDO Security.....................................................................................................................279 Corporate CLO Security .....................................................................................................................280 Corporate Debt Security .....................................................................................................................280 Counterparty Premium .......................................................................................................................280 Credit Card Securities .........................................................................................................................280 Credit Default Base Counterparty Ratings Requirement ................................................................192 Credit Default Swap Agreement................................................................................................... 18, 186 Credit Default Swap Collateralization Event ....................................................................................192 Credit Default Swap Counterparty .............................................................................................. 18, 186 Credit Default Swap Rating Determining Party ...............................................................................192 Credit Default Swap Ratings Event ...................................................................................................193 Credit Derivatives Definitions.............................................................................................................186 Credit Event ................................................................................................................................... 48, 317 Credit Event Notice..............................................................................................................................194 Credit Improved Security ...................................................................................................................280 Credit Protection Amount...................................................................................................................281 342

Credit Protection Payment...................................................................................................... 19, 49, 189 Credit Risk Security ............................................................................................................................281 Cumulative Intraperiod Interest Amount .........................................................................................281 Current Portfolio .................................................................................................................................281 Current Spread ....................................................................................................................................166 Custodial Account................................................................................................................................178 Deemed Borrowing..................................................................................................................... 8, 80, 282 Deemed Floating Asset Hedge Agreement.........................................................................................282 Deemed Floating Rate..........................................................................................................................282 Deemed Floating Rate Collateral Debt Security ...............................................................................282 Deemed Floating Spread .....................................................................................................................166 Defaulted Interest...................................................................................................................................81 Defaulted Security................................................................................................................................283 Defaulted Synthetic Security...............................................................................................................284 Defaulted Synthetic Termination Payment .......................................................................................284 Defeased Synthetic Security ................................................................................................................285 Deferred Funded Secured Notes Principal ........................................................................................ 285 Deferred Interest ......................................................................................................................................9 Deferred Interest PIK Bond................................................................................................................285 Definitive Combination Notes .............................................................................................................133 Definitive Secured Notes......................................................................................................................133 Definitive Securities .............................................................................................................................133 Definitive Subordinated Notes ............................................................................................................133 Deliverable Obligation.........................................................................................................................285 Designated Maturity ............................................................................................................................286 Determination Date..............................................................................................................................286 Discount Haircut Amount ...................................................................................................................286 Discount Security .................................................................................................................................286 Discretionary Disposition ....................................................................................................................170 Discretionary Disposition Security .....................................................................................................170 Disposition ............................................................................................................................................287 Disqualified Persons.............................................................................................................................225 Distressed Ratings Downgrade ...........................................................................................................188 Distribution Date............................................................................................................................ 80, 288 DTC ................................................................................................................................................. 22, 132 Due Period ............................................................................................................................................288 EETC Security .....................................................................................................................................288 Effective Duration................................................................................................................................288 Effective Maturity Date .......................................................................................................................288 Eligibility Criteria ................................................................................................................................148 Eligible Dealer ......................................................................................................................................289 Eligible Investments.............................................................................................................................175 Equity Security.....................................................................................................................................169 ERISA ...................................................................................................................................................225 ERISA Plans .........................................................................................................................................225 Euroclear ..............................................................................................................................................133 Event of Default....................................................................................................................................108 Excepted Security.................................................................................................................................289 Excess Amounts................................................................................................................................ 4, 105 Excess BB- Amount..............................................................................................................................289 Excess BBB- Amount...........................................................................................................................289 343

Excess Borrowing Amount..................................................................................................................289 Excess Interest......................................................................................................................................105 Excess Principal Proceeds ...................................................................................................................105 Exchange Act........................................................................................................................................237 Excluded Assets.............................................................................................................................. 16, 147 Excluded Synthetic ABS CDO Securities .......................................................................................... 289 Exercise Amount ..................................................................................................................................191 Exercise Percentage .............................................................................................................................192 Expected Interest Amount ..................................................................................................................290 Expense Account ..................................................................................................................................178 Failure to Pay Interest .........................................................................................................................189 Failure to Pay Principal.......................................................................................................................188 Fair Market Value ...............................................................................................................................290 FHLMC/FNMA Guaranteed Securities.............................................................................................290 Final Amortization Date......................................................................................................................290 Fitch.......................................................................................................................................................291 Fixed Payment Rate.............................................................................................................................291 Fixed Rate Collateral Debt Security...................................................................................................291 Floating Amount Event .......................................................................................................................291 Floating Rate Collateral Debt Security..............................................................................................291 Floorplan Receivable Securities..........................................................................................................291 Flow-Through Investment Vehicle .....................................................................................................245 Form-Approved Asset Hedge Agreement..........................................................................................291 Form-Approved Synthetic Security ...................................................................................................292 Franchise Securities .............................................................................................................................292 Funded Amount ...................................................................................................................................292 Funded Note Share ..............................................................................................................................292 Funded Secured Note Reduction Amount .........................................................................................293 Funded Secured Noteholders ..................................................................................................................1 Funded Secured Notes .............................................................................................................................1 Future Flow Securities.........................................................................................................................293 GCFP.......................................................................................................................................................70 GIC ................................................................................................................................................ 202, 293 GIC Agreement Termination Date.....................................................................................................293 GIC Events of Default .........................................................................................................................203 GIC Interest..........................................................................................................................................293 GIC Interest Accrual Period...............................................................................................................293 GIC Interest Payment Date.................................................................................................................293 GIC Interest Rate Differential ............................................................................................................293 GIC Investment Date ...........................................................................................................................293 GIC Provider........................................................................................................................................202 GIC Rate ...............................................................................................................................................202 GIC Required Ratings.........................................................................................................................293 GIC Tax Event .....................................................................................................................................294 Global Securities ............................................................................................................................ 22, 132 Guaranteed Asset-Backed Security....................................................................................................294 Guaranteed Corporate Debt Security ................................................................................................294 Healthcare Securities ...........................................................................................................................294 Hedge Agreement.................................................................................................................................171 Hedge Agreements ...............................................................................................................................171 Hedge Counterparties..........................................................................................................................171 344

Hedge Counterparty Collateral Account...........................................................................................172 Hedged Hybrid Security......................................................................................................................294 Hedged Long CDS Transaction ....................................................................................................20, 294 Hedging Short CDS Transaction ..................................................................................................20, 294 High-Yield CDO Securities .................................................................................................................294 Hybrid Security....................................................................................................................................295 Hybrid Security Hedge Agreement ....................................................................................................294 Indenture ..................................................................................................................................................2 Index......................................................................................................................................................295 Indirect Participants............................................................................................................................240 Initial Purchaser.......................................................................................................................................2 Initial Purchaser Structuring Fee.........................................................................................................68 Insurance Company Guaranteed Securities......................................................................................295 Insurance Trust Preferred CDO Securities.......................................................................................296 Interest Collection Account.................................................................................................................174 Interest Only Security..........................................................................................................................296 Interest Period......................................................................................................................................296 Interest Proceeds..................................................................................................................................296 Interest Rate Hedge Agreement..........................................................................................................171 Interest Rate Hedge Counterparty.....................................................................................................171 Interest Reimbursement ......................................................................................................................190 Interest Shortfall ..................................................................................................................................298 Internal Rate of Return .......................................................................................................................298 Interpolated LIBOR ............................................................................................................................298 Intraperiod Interest Amount ..............................................................................................................298 Intraperiod Payment Amount.............................................................................................................298 Inverse Floating Rate Collateral Debt Security ................................................................................298 Investment Company Act......................................................................................................................20 Investment Grade Funded Secured Noteholders ..................................................................................2 Investment Grade Funded Secured Notes ............................................................................... 2, 22, 132 Investment Grade Security .................................................................................................................298 Investor Application Form............................................................................................................ 21, 298 Irish Paying Agent .................................................................................................................................24 ISDA ......................................................................................................................................................186 Issue.......................................................................................................................................................298 Issuer .........................................................................................................................................................4 Issuer Premium ....................................................................................................................................298 LIBOR.....................................................................................................................................................82 LIBOR Business Day ...........................................................................................................................298 LIBOR Determination Date..................................................................................................................82 Liquidation Date ..................................................................................................................................299 Liquidation Procedures .......................................................................................................................197 Liquidation Proceeds ...........................................................................................................................201 Listed Bidders.........................................................................................................................................92 Listing Agent ..........................................................................................................................................24 London Banking Day...........................................................................................................................299 Long CDS Transaction .................................................................................................................. 20, 299 Long-Dated Security ............................................................................................................................150 Lottery Receivable Security ................................................................................................................299 Majority ................................................................................................................................................299 Majority ABS Security ........................................................................................................................299 345

Management Agreement ................................................................................................................. 5, 211 Manufactured Housing Securities ......................................................................................................299 margin stock .........................................................................................................................................170 Market Value CDO Security...............................................................................................................300 Maximum VFN Facility Funding Commitment................................................................................300 MBS CDS Transaction ........................................................................................................................187 Measurement Date ...............................................................................................................................300 Mid-Prime Residential Mortgage Securities .....................................................................................300 Minority ABS Security ........................................................................................................................300 Monthly Report....................................................................................................................................300 Monthly Report Determination Date .................................................................................................300 Moody's................................................................................................................................... 21, 141, 301 Moody's Asset Correlation Percentage ..............................................................................................164 Moody's Asset Correlation Test..........................................................................................................164 Moody's Below B3 Haircut Amount...................................................................................................301 Moody's Below Ba3 Haircut Amount.................................................................................................301 Moody's Below Baa3 Haircut Amount...............................................................................................301 Moody's Haircut Amount....................................................................................................................301 Moody's Minimum Weighted Average Recovery Rate Test ............................................................165 Moody's Rating ....................................................................................................................................334 Moody's Rating Factor ........................................................................................................................164 Moody's Rating Trigger ......................................................................................................................301 Moody's Weighted Average Rating Factor .......................................................................................164 Moody's Weighted Average Rating Factor Test ...............................................................................164 Moody's Weighted Average Recovery Rate ......................................................................................165 Mortgage-Related Securities...............................................................................................................301 Mutual Fund Fees Securities...............................................................................................................301 Net Counterparty Hedged Long Premium ........................................................................................302 Net Outstanding Portfolio Collateral Balance...................................................................................302 NIM Security ........................................................................................................................................303 Non-LIBOR Floating Rate Collateral Debt Security........................................................................303 Non-U.S. Holder ...................................................................................................................................219 Note Acceleration Date ..........................................................................................................................12 Note Break-Even Loss Rate ................................................................................................................303 Note Purchase Agreement ...................................................................................................................234 Noteholders...............................................................................................................................................2 Notes ..........................................................................................................................................................2 Notes Loss Differential ........................................................................................................................303 Notice Delivery Period .........................................................................................................................194 Notice of Publicly Available Information ..........................................................................................194 Notional Amount..................................................................................................................................303 Notional Amount Shortfall..................................................................................................................303 Offer ......................................................................................................................................................303 Offering...................................................................................................................................................31 Offering Memorandum ...........................................................................................................................1 Oil and Gas Securities .........................................................................................................................304 Original Purchaser...................................................................................................................................2 other security........................................................................................................................................335 Outstanding Class A1-VF Funded Amount.....................................................................................8, 79 Overcollateralization Tests..................................................................................................................106 parallel security....................................................................................................................................336 346

Participant ............................................................................................................................................133 Parties-In-Interest................................................................................................................................225 Paying Agent...........................................................................................................................................97 Payment Account .................................................................................................................................177 Payment Requirement .........................................................................................................................304 PCCL.......................................................................................................................................................76 Permitted Reference Obligation .........................................................................................................304 Permitted Use .....................................................................................................................................6, 85 PFIC ......................................................................................................................................................222 Physical Settlement ..............................................................................................................................191 Physical Settlement Amount ...............................................................................................................191 PIK Bond ..............................................................................................................................................305 PIKable Reference Obligation ............................................................................................................194 Plan Asset Regulation ..........................................................................................................................226 plan fiduciary .......................................................................................................................................225 Portfolio Expected Maturity ...............................................................................................................305 Portfolio Management Fee ..................................................................................................................212 Portfolio Manager....................................................................................................................................5 Portfolio Manager Affiliates ...............................................................................................................216 Post-Acceleration Distribution Date.....................................................................................................27 Premium ....................................................................................................................................... 190, 305 Prime Residential Mortgage Securities..............................................................................................305 Principal Amortization ........................................................................................................................187 Principal Balance .................................................................................................................................305 Principal Collection Account ..............................................................................................................174 Principal Only Security .......................................................................................................................306 Principal Proceeds ...............................................................................................................................306 Principal Reimbursement ...................................................................................................................190 Priority of Payments ..............................................................................................................................98 Pro Rata Distribution Date .................................................................................................................308 Pro Rata Payment Ratio......................................................................................................................107 Pro Rata Payment Test........................................................................................................................107 Project Finance Securities ...................................................................................................................308 Proposed Portfolio ...............................................................................................................................309 Prospectus Directive .................................................................................................................... 236, 309 QEF .......................................................................................................................................................222 Qualified Bidders ...................................................................................................................................90 Qualified Institutional Buyers ..............................................................................................................20 Qualified Purchaser ...............................................................................................................................20 Qualifying Foreign Obligor.................................................................................................................309 Qualifying Investment Vehicle............................................................................................................245 Quarterly Asset Amount .....................................................................................................................309 Rating Agencies.............................................................................................................................. 21, 141 Rating Condition..................................................................................................................................309 Rating Determining Party ...................................................................................................................309 Rating Trigger......................................................................................................................................310 RBSG.....................................................................................................................................................205 Record Date .................................................................................................................................... 97, 121 Recreational Vehicle Securities...........................................................................................................310 Redemption Date....................................................................................................................................95 Redemption Price...................................................................................................................................97 347

Reference Banks...................................................................................................................................310 Reference Dealers.................................................................................................................................310 Reference Obligation ............................................................................................................................310 Reference Obligor ................................................................................................................................310 Registered..............................................................................................................................................310 Regulation S............................................................................................................................................20 Regulation S Class A1-VF Notes................................................................................................... 22, 132 Regulation S Global Class E Note ................................................................................................ 22, 132 Regulation S Global Combination Note....................................................................................... 22, 132 Regulation S Global Investment Grade Funded Secured Note ................................................. 22, 132 Regulation S Global Securities...................................................................................................... 22, 132 Regulation S Global Subordinated Note...................................................................................... 22, 132 Regulation S Secured Notes .......................................................................................................... 22, 132 Regulation S Security ..........................................................................................................................242 Reinsurance Securities.........................................................................................................................310 Reinvestment Account .........................................................................................................................178 Reinvestment Period............................................................................................................................310 REIT Debt Security .............................................................................................................................311 Relevant Member State .......................................................................................................................235 Remaining Exposure............................................................................................................................311 Remaining Unfunded Facility Commitment .....................................................................................311 Replacement Conditions......................................................................................................................215 Replacement Manager.........................................................................................................................215 Replacement Ratings Requirement....................................................................................................193 Re-REMIC............................................................................................................................................311 Reserve Account...................................................................................................................................182 Reserve Account Balance ....................................................................................................................311 Reserve Account Investments .............................................................................................................311 Restaurant and Food Services Securities...........................................................................................312 Restricted Class A1-VF Notes....................................................................................................... 22, 132 Restricted Class E Note .........................................................................................................................22 Restricted Class E Notes......................................................................................................................133 Restricted Combination Notes ............................................................................................................133 Restricted Global Investment Grade Funded Secured Notes ............................................................22 Restricted Global Investment Grade Funded Secured Notes ..........................................................132 Restricted Securities ...................................................................................................................... 23, 133 Restricted Subordinated Note...............................................................................................................22 Restricted Subordinated Notes ...........................................................................................................133 RMBS CDO Securities ........................................................................................................................312 RMBS Securities .......................................................................................................................... 159, 312 Rule 144A................................................................................................................................................20 Secured Note Register..........................................................................................................................133 Secured Note Registrar........................................................................................................................133 Secured Noteholders ................................................................................................................................1 Secured Notes ...........................................................................................................................................1 Secured Parties.........................................................................................................................................2 Securities Act..........................................................................................................................................20 Semi-Annual Interest Reserve Account .............................................................................................178 Senior ........................................................................................................................................................3 Senior Excess Application Priority.......................................................................................................88 Senior Interest Shortfall ......................................................................................................................313 348

Senior Portfolio Management Fee ......................................................................................................212 Seniority ....................................................................................................................................................3 Servicer .................................................................................................................................................313 Share Trustee ................................................................................................................................... 4, 144 Shipping Securities...............................................................................................................................313 Short Calculation Period.....................................................................................................................313 Short CDS Transaction ................................................................................................................. 20, 313 Similar Law .................................................................................................................................. 228, 248 Small Business Loan Securities...........................................................................................................313 Special Majority of Subordinated Noteholders.................................................................................313 Special Purpose Vehicle Jurisdiction .................................................................................................313 Specified Class A1-VF Noteholder .....................................................................................................313 Specified Event of Default ...................................................................................................................314 Specified Type ......................................................................................................................................155 Specified Types.....................................................................................................................................155 Standard & Poor's ......................................................................................................................... 21, 141 Standard & Poor's CDO Monitor ......................................................................................................168 Standard & Poor's CDO Monitor Notification Test.........................................................................167 Standard & Poor's Haircut Amount ..................................................................................................314 Standard & Poor's Rating...................................................................................................................314 Standard & Poor's Weighted Average Recovery Rate.....................................................................167 Standard & Poor's Weighted Average Recovery Rate Test.............................................................167 Standard Terms ...................................................................................................................................314 Stated Maturity ......................................................................................................................................10 Step-Down Bond...................................................................................................................................314 Step-Up Bond .......................................................................................................................................315 Structured Settlement Securities ........................................................................................................315 Student Loan Securities.......................................................................................................................315 Subordinate ..............................................................................................................................................3 Subordinated Hedge Termination Payment......................................................................................315 Subordinated Note Component ..........................................................................................................127 Subordinated Note Distribution Account .................................................................................... 16, 147 Subordinated Note Issuing and Paying Agency Agreement ........................................................ 2, 121 Subordinated Note Issuing and Paying Agent............................................................................... 2, 121 Subordinated Note Register ................................................................................................................136 Subordinated Note Registrar ..............................................................................................................136 Subordinated Note Required Amount ...............................................................................................315 Subordinated Note Transfer Agent ....................................................................................................136 Subordinated Noteholders.......................................................................................................................2 Subordinated Notes..................................................................................................................................1 Subordinated Portfolio Management Fee..........................................................................................212 Subprime Automobile Securities ........................................................................................................315 Subprime Credit Card Securities .......................................................................................................316 Sub-Prime Residential Mortgage Security ........................................................................................316 Synthetic ABS CDO Securities ...........................................................................................................316 Synthetic CDO of CDO Securities......................................................................................................316 Synthetic Security ................................................................................................................................317 Synthetic Security Collateral ..............................................................................................................317 Synthetic Security Counterparty........................................................................................................162 Synthetic Security Counterparty Account.........................................................................................179 Synthetic Security Counterparty Defaulted Obligation ...................................................................318 349

Synthetic Security Counterparty Ratings Requirement ..................................................................318 Synthetic Security Issuer Account......................................................................................................181 Tax Event................................................................................................................................................94 Tax Lien Securities ..............................................................................................................................318 Tax Materiality Condition ....................................................................................................................95 Tax Redemption ............................................................................................................................... 14, 94 Time Share Securities ..........................................................................................................................318 Tobacco Bonds .....................................................................................................................................319 Total Exposure .....................................................................................................................................319 Total Reduction Amount .....................................................................................................................319 Total Senior Redemption Amount........................................................................................................96 Trust Preferred CDO Securities.........................................................................................................319 Trustee ......................................................................................................................................................2 U.S. Agency Guaranteed Security ......................................................................................................319 U.S. Agency Securities .........................................................................................................................178 U.S. Collateral Debt Security ................................................................................................................64 U.S. Holder ...........................................................................................................................................219 U.S. Person............................................................................................................................................132 Underlying Instruments ......................................................................................................................319 Underlying Portfolio ............................................................................................................................276 Unhedged Long CDS Transaction................................................................................................ 20, 320 Uninvested Proceeds ............................................................................................................................320 Uninvested Proceeds Account .............................................................................................................177 Unpaid Amounts ..................................................................................................................................320 Unscheduled Principal Payments .......................................................................................................320 Unsettled Credit Event ........................................................................................................................320 Variable Funding Note Agent ......................................................................................................... 6, 320 Variable Funding Note Purchase Agreement..................................................................................6, 84 Variable Funding Note Rating Threshold ...........................................................................................85 Variable Funding Rating Decline Event ..............................................................................................85 Weighted Average Life ........................................................................................................................167 Weighted Average Life Test................................................................................................................166 Weighted Average Spread...................................................................................................................165 Weighted Average Spread Test ..........................................................................................................165 Withdrawal...........................................................................................................................................320 Withdrawal Date..................................................................................................................................320 Writedown ............................................................................................................................................188 Writedown Reimbursement ................................................................................................................190 Written-Down Security .......................................................................................................................320 Zero Coupon Bond...............................................................................................................................321

350

PRINCIPAL OFFICES OF THE CO-ISSUERS Cairn Mezz ABS CDO II Inc. c/o Puglisi & Associates 850 Library Avenue Suite 204 Newark, Delaware 19711

Cairn Mezz ABS CDO II Limited Walker House 87 Mary Street George Town Grand Cayman, KY1-9002 Cayman Islands

TRUSTEE, NOTE PAYING AGENT, SECURED NOTE REGISTRAR, SUBORDINATED NOTE REGISTRAR AND SUBORDINATED NOTE ISSUING AND PAYING AGENT LaSalle Bank National Association 181 West Madison Street, 32nd Floor Chicago, Illinois 60602 PORTFOLIO MANAGER Cairn Financial Products Limited 27 Knightsbridge London SW1X 7LY

LISTING AGENT AND IRISH PAYING AGENT NCB STOCKBROKERS LIMITED 3 George's Dock International Financial Centre Dublin 1, Ireland

LEGAL ADVISORS To the Co-Issuers

To the Initial Purchaser

As to U.S. Law Freshfields Bruckhaus Deringer LLP 520 Madison Avenue New York, New York 10022

Freshfields Bruckhaus Deringer LLP 520 Madison Avenue New York, New York 10022 To the Portfolio Manager

As to Cayman Islands Law Walkers Walker House 87 Mary Street George Town Grand Cayman, KY1-9001 Cayman Islands

Milbank, Tweed, Hadley & McCloy LLP Dashwood House 69 Old Broad Street London EC2M 1QS England To the Trustee Kaye Scholer LLP 425 Park Avenue New York, New York 10022