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«IMPORTANT NOTICE Attached please find an electronic copy of the Offering Circular (the “Offering Circular”), dated September 22, 2006 relating to ...»

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Holder” is a Holder that is a “United States person” for U.S. federal income tax purposes, generally including (i) a citizen or resident of the United States, (ii) a corporation, partnership or other business entity created or organized in or under the laws of the United States or its political subdivisions, or (iii) a trust or estate the income of which is subject to U.S. federal income taxation regardless of its source. If a partnership holds Offered Securities, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership, and partners of partnerships holding Offered Securities should consult their own tax advisors. A “Non-U.S. Holder” is any Holder other than a U.S.


Taxation of the Issuer

The Issuer expects, based on an opinion it will receive on the Closing Date from Orrick, Herrington & Sutcliffe LLP, special U.S. federal income tax counsel to the Issuer, that it will conduct its affairs so that it will not be engaged in a trade or business within the United States, except to the extent it holds certain Equity Securities issued by non-corporate entities that are so engaged, and that its net income therefore will not be subject to U.S. federal income tax. Prospective investors should be aware that the Issuer cannot rely on this opinion to avoid tax penalties, that an opinion of counsel is not binding on the Internal Revenue Service (“IRS”) or the courts and that no ruling will be sought from the IRS regarding the U.S. federal income tax treatment of the Issuer. There can be no assurance that the IRS will not take a position contrary to the opinion expressed by counsel or that a court will not agree with the contrary position and sustain tax penalties if the matter is litigated.

As long as the Issuer conducts its affairs so that it is not engaged in a trade or business within the United States, the Issuer expects that its net income will not be subject to U.S. federal income tax to the extent described above. Should the Issuer acquire Equity Securities issued by a non-corporate entity engaged in a U.S. trade or business, those investments should not cause the Issuer’s income from other investments to become subject to net income tax in the United States. The Issuer also expects that payments received on the Collateral Debt Securities and Eligible Investments 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 become 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. Income from Equity Securities of U.S. issuers is likely to be subject to U.S. tax. It should be noted as well that the United States Treasury Department and the IRS recently announced that they are considering taxpayer requests for specific guidance on, among other things, whether a foreign person may be treated as engaged in a trade or business in the United States by virtue of entering into credit default swaps such as the Credit Default Swaps. No guidance has been issued to date, and if any future guidance concludes that foreign persons entering into certain credit default swaps will be treated as engaged in a trade or business in the United States, such guidance would adversely impact the Issuer’s ability to pay principal and interest on the Notes. Additionally, the Issuer is generally prohibited from acquiring any interest in the business or assets of an issuer of a Defaulted Security that would cause the Issuer to be subject to U.S. tax and is required to promptly dispose of any such interest that may be acquired, but such interests nonetheless may be acquired and subject to tax. Similarly, the Issuer is generally prohibited from acquiring a “United States real property interest” or “USRPI,” an asset whose disposition will cause the Issuer to be subject to U.S. tax with respect to that disposition, but an asset held by the Issuer may become a USRPI after acquisition. Further, 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. In interpreting and complying with the transaction documents, the Issuer and Collateral Servicer may at times rely upon advice of counsel other than Orrick, Herrington & Sutcliffe LLP, whose above described opinion will assume that any such advice with respect to the Issuer’s U.S. trade or business posture is correct and complete. The imposition of unanticipated net income or withholding taxes for the foregoing or any other reasons could materially impair the Issuer’s ability to pay principal, interest and other amounts on the Notes and to make distributions on the Preference Shares.

Taxation of the Holders

–  –  –

It is the opinion of Orrick, Herrington & Sutcliffe LLP that the Class A Notes, 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 Notes as debt for such purposes, and the following discussion assumes that each Class of the Notes will be debt.

U.S. Holders. Interest paid on the Class A Notes and Class B Notes generally will be includible in the gross income of a U.S. Holder in accordance with its regular method of tax accounting. In general, if the issue price of a Note (the first price at which a substantial amount of the relevant class of the Notes is sold to investors) is less than its principal amount by more than a de minimis amount, the Note will be considered to have original issue discount (“OID”). Additionally, because interest on the Class C Notes and the Class D Notes may be deferred, all interest (including interest on accrued but unpaid interest) will be treated as OID unless the likelihood of deferral is remote. A U.S. Holder must include OID in income on a constant yield to maturity basis, whether or not it receives a cash payment on any payment date.

The Issuer has not determined whether the likelihood of interest being deferred is for this purpose remote.

Thus, the Issuer will treat interest on the Class C Notes and the Class D Notes as OID, and the following discussion assumes that treatment is correct. Even if the likelihood of deferral were remote, if the Issuer in fact defers an interest payment, a U.S. Holder thereafter must accrue OID on the principal amount (including accrued but undistributed OID) of the Class of Notes on which interest payments were deferred.

A U.S. Holder of a Note must accrue OID on the Note at a hypothetical fixed rate generally expected to be roughly equal to the rate at which the Note bears interest (or its yield in the case of a Note issued at an actual discount from its face amount) on its issue date. The amount of OID 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 are expected to recognize OID for each period roughly equal to the amount paid (or payable, in the case of the Class C Notes or Class D Notes) during that period (assuming such Note is not issued at an actual discount from its face amount). Interest and OID on a Note will be ordinary income.

A U.S. Holder will recognize gain or loss on the disposition of a Note in an amount equal to the difference between the amount realized (other than accrued but unpaid interest) and the U.S. Holder’s adjusted tax basis in the Note. Such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the Note for more than one year at the time of disposition. In certain circumstances, U.S.

Holders that are individuals may be entitled to preferential treatment for net long-term capital gains; the ability of U.S. Holders to offset capital losses against ordinary income is limited. A U.S. Holder that purchased its Note at a discount may also recognize gain upon receipt of a principal payment upon retirement (in whole or in part) equal to the difference between the amount received and the portion of its basis that is considered to be allocable to such payment. Such gain may be ordinary income.

Non-U.S. Holders. Interest paid to a Non-U.S. Holder generally will not be subject to U.S.

withholding tax as long as the Issuer is not engaged in a U.S. trade or business. Even if the Issuer were engaged in a U.S. trade or business, 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 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.

Certain Non-U.S. Holders, such as banks not protected by an applicable income tax treaty with the United States, could possibly be subject to U.S. withholding under certain Treasury Regulations regarding “conduit financing arrangements” if such Notes are considered to have been issued or acquired pursuant to a “tax avoidance plan.” Non U.S. Holders generally are required, as a condition of their purchase of Notes, to make certain representations and warranties negating the existence of any such plan. Consequently, the Issuer expects that the IRS ultimately should not prevail if it were to attempt to establish such a plan and attempt to apply these regulation to the Issuer.

Alternative Treatment. The IRS may challenge the treatment of the Notes, particularly the Class D Notes, as debt of the Issuer. If the challenge succeeded, the affected Notes would be treated as equity interests in the Issuer and the U.S. federal income tax consequences of investing in those Notes would be the same as those of investing in the Preference Shares without making an election to treat the Issuer as a qualified electing fund. In order to avoid the adverse consequences of failing to make such an election, each U.S. Holder of a Note should consider making a qualified electing fund election on a “protective” basis (although such protective election may not be respected by the IRS because current regulations do not specifically authorize that particular election). See “—Taxation of Preference Shares— U.S. Holders—Passive Foreign Investment Company.”

Taxation of Preference Shares

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 Preference Shares as dividend income. These distributions will not be eligible for the dividends received deduction allowable to corporations or for the special reduced tax rate applicable to qualified dividend income of individuals. Except as otherwise required by the rules discussed below, gain or loss on the sale or other disposition of the Preference Shares will be capital gain or loss.

Passive Foreign Investment Company. 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 Preference Shares or gains realized on the disposition of the Preference Shares. A U.S. Holder will have an excess distribution if distributions received on the Preference Shares 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 Preference Shares 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 Preference Shares as capital gain.

A U.S. Holder of Preference Shares 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 share of the Issuer’s net capital gains; the remainder will be ordinary income. “Net capital gains” generally means net long-term capital gains reduced by net short-term capital losses. 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 Preference Shares will increase by any amounts the Holder includes in income currently and decrease by any amounts not subject to tax when distributed. The Issuer will provide Holders of the Preference Shares with the information reasonably necessary to make a QEF election.

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