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1 /1/.. Ct4'..ẓ-rPo 4 i»ir National Capital Instruments [Euro] LLC 2 as Issuer of f' 0 ikr?army a ,000,000 Floating Rate National Capital Instruments Issue Price 100 per cent. having the benefit of a limited subordinated guarantee of National Australia Bank Limited (ABN ) (incorporated with limited liability in Australia) /VAT, A,,,1%. A -.f ret A 1. Al rr.. f re 4 The 400,000,000 Floating Rate National Capital Instruments (the "NCIs") are expected to be issued on 29 September 2006 (the "Issue Date") by National Capital Instruments [Euro] LLC 2 (the "Issuer"). The NCIs will entitle holders, subject to the conditions described in this Prospectus, to receive non-cumulative distributions ("Distributions"), quarterly in arrears on each 29 March, 29 June, 29 September and 29 December of each year, commencing on 29 December 2006 (each, a "Distribution Payment Date"). Distributions on the NCIs will accrue from the Issue Date at a rate equal to three-month EURIBOR (as defined in clause 3.1 ("Distributions") of the terms of issue of the NCIs (the "NCI Terms") (see Terms and Conditions of the NCIs below)) plus a margin of 0.95 per cent. per annum up to (but not including) 29 September 2016 (the "Step-Up Date") and, from the Step-Up Date at a rate equal to three-month EURIBOR plus a margin of 1.95 per cent. per annum (the "Distribution Rate") (see further Terms and Conditions of the NCIs Distributions below). Payment of any Distribution on the NCIs is subject to the Issuer having sufficient funds to pay that Distribution. The funds available to the Issuer in respect of any Distribution Payment Date will be limited to the funds it receives in respect of the subordinated notes issued by National Capital Instruments [Euro] LLC 1 ("National LLC 1") and held by the Issuer (the "LLC Notes"). Payments of interest on the LLC Notes are limited to payments received by National LLC 1 on the subordinated debentures issued by National Australia Bank Limited ("National") acting through its New York Branch and held by National LLC 1 (the "Subordinated Debentures"). In addition, interest on the LLC Notes and the Subordinated Debentures is subject to the payment tests and conditions contained in the terms of the LLC Notes and Subordinated Debentures (see Summary of Principal Documents Terms of the LLC Notes and Summary of Principal Documents Terms of the Subordinated Debentures below). Distributions are non-cumulative and holders of NCIs ("NCI Holders") will not be entitled to recover any Distributions which are not paid because those tests have not been met. The NCIs have the benefit of a limited and subordinated guarantee by National (see Summary of Principal Documents Terms of the NCI Subordinated Guarantee below). They are not otherwise guaranteed by, or a liability of, any other person. The NCIs are perpetual instruments with no set maturity date. However, the NCIs may be redeemed or converted into preference shares of National (the "Preference Shares") in the circumstances described in this Prospectus. NCI Holders will have no right to require the NCIs to be redeemed or converted into Preference Shares. The NCIs are expected to be assigned on issue a rating of A " by Standard & Poor's Rating Services, a division of the McGraw Hill Companies Inc ("Standard & Poor's"), "A2" by Moody's Investor Services Inc ("Moody's") and "A+" by Fitch Ratings Limited ("Fitch"). A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating agency. See Risk Factors below for a discussion of certain factors that should be considered by prospective investors. The NCIs and the Preference Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority of any state or other jurisdiction of the United States. Unless they are so registered, the NCIs and the Preference Shares (if issued) may be offered only in transactions that are exempt from, or not subject to registration under, the Securities Act or the securities laws of any other jurisdiction. Accordingly, the NCIs and the Preference Shares (if issued) may only be offered outside the United States to non-u.s. persons in reliance on Regulation S under the Securities Act. The NCIs do not represent deposit liabilities of National or any affiliate of National for the purposes of the Banking Act 1959 of Australia, or any similar law of any jurisdiction. Application has been made to the Commission de surveillance du secteur financier in its capacity as competent authority under the Luxembourg act relating to prospectuses for securities (loi relative aux prospectus pour vale= mobilieres) (the "Competent Authority") to approve this Prospectus. Application has also been made to the Luxembourg Stock Exchange for the NCIs to be admitted to the official list and traded on the Regulated Market of the Luxembourg Stock Exchange in accordance with Directive 2003/71/EC (the "Prospectus Directive"). References in this Prospectus to NCIs being listed (and all related references) shall mean that such NCIs have been admitted to the official list and to trading on the Regulated Market of the Luxembourg Stock Exchange. The NCIs will be in registered form and issued in the denomination of 50,000 per NCI. The NCIs will be initially represented by a single global certificate in registered form (the "Registered Global NCI") and registered in the name of a nominee of, and deposited with, a common depositary for Euroclear Bank SA/NV ("Euroclear") and Clearstream Banking, sociite anonyme, Luxembourg ("Clearstream, Luxembourg"). NCIs issued in definitive certificated form ("Registered Definitive NCIs") will only be available in certain limited circumstances. See Terms and Conditions of the NCIs Form and ranking below. DEUTSCHE BANK (Structuring Adviser) Joint Lead Managers JPMORGAN The date of this Prospectus is 27 September 2006

2 National Capital Instruments [Euro] LLC 2 as Issuer of 400,000,000 Floating Rate National Capital Instruments Issue Price 100 per cent. having the benefit of a limited subordinated guarantee National Australia Bank Limited (ABN ) (incorporated with limited liability in Australia) 110(40,1, elf- cice. g("41-1- A it,-.61 ",1 -d-&-61 fatic--1-4 of fe4.4.1 rev"i 1-1-( The 400,000,000 Floating Rate National Capital Instruments (the "NCIs") are expected to be issued on 29 September 2006 (the "Issue Date") by National Capital Instruments [Euro] LLC 2 (the "Issuer"). The NCIs will entitle holders, subject to the conditions described in this Prospectus, to receive non-cumulative distributions ("Distributions"), quarterly in arrears on each 29 March, 29 June, 29 September and 29 December of each year, commencing on 29 December 2006 (each, a "Distribution Payment Date"). Distributions on the NCIs will accrue from the Issue Date at a rate equal to three-month EURIBOR (as defined in clause 3.1 ("Distributions") of the terms of issue of the NCIs (the "NCI Terms") (see Terms and Conditions of the NCIs below)) plus a margin of 0.95 per cent. per annum up to (but not including) 29 September 2016 (the "Step-Up Date") and, from the Step-Up Date at a rate equal to three-month EURIBOR plus a margin of 1.95 per cent. per annum (the "Distribution Rate") (see further Terms and Conditions of the NCIs Distributions below). Payment of any Distribution on the NCIs is subject to the Issuer having sufficient funds to pay that Distribution. The funds available to the Issuer in respect of any Distribution Payment Date will be limited to the funds it receives in respect of the subordinated notes issued by National Capital Instruments [Euro] LLC 1 ("National LLC 1") and held by the Issuer (the "LLC Notes"). Payments of interest on the LLC Notes are limited to payments received by National LLC 1 on the subordinated debentures issued by National Australia Bank Limited ("National") acting through its New York Branch and held by National LLC 1 (the "Subordinated Debentures"). In addition, interest on the LLC Notes and the Subordinated Debentures is subject to the payment tests and conditions contained in the terms of the LLC Notes and Subordinated Debentures (see Summary of Principal Documents Terms of the LLC Notes and Summary of Principal Documents Terms of the Subordinated Debentures below). Distributions are non-cumulative and holders of NCIs ("NCI Holders") will not be entitled to recover any Distributions which are not paid because those tests have not been met. The NCIs have the benefit of a limited and subordinated guarantee by National (see Summary of Principal Documents Terms of the NCI Subordinated Guarantee below). They are not otherwise guaranteed by, or a liability of, any other person. The NCIs are perpetual instruments with no set maturity date. However, the NCIs may be redeemed or converted into preference shares of National (the "Preference Shares") in the circumstances described in this Prospectus. NCI Holders will have no right to require the NCIs to be redeemed or converted into Preference Shares. The NCIs are expected to be assigned on issue a rating of "A " by Standard & Poor's Rating Services, a division of the McGraw Hill Companies Inc ("Standard & Poor's"), ",k2" by Moody's Investor Services Inc ("Moody's") and "A +" by Fitch Ratings Limited ("Fitch"). A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating agency. See Risk Factors below for a discussion of certain factors that should be considered by prospective investors. The NCIs and the Preference Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority of any state or other jurisdiction of the United States. Unless they are so registered, the NCIs and the Preference Shares (if issued) may be offered only in transactions that are exempt from, or not subject to registration under, the Securities Act or the securities laws of any other jurisdiction. Accordingly, the NCIs and the Preference Shares (if issued) may only be offered outside the United States to non-u.s. persons in reliance on Regulation S under the Securities Act. The NCIs do not represent deposit liabilities of National or any affiliate of National for the purposes of the Banking Act 1959 of Australia, or any similar law of any jurisdiction. Application has been made to the Commission de surveillance du secteur financier in its capacity as competent authority under the Luxembourg act relating to prospectuses for securities (loi relative aux prospectus pour valeurs mobiliêres) (the "Competent Authority") to approve this Prospectus. Application has also been made to the Luxembourg Stock Exchange for the NCIs to be admitted to the official list and traded on the Regulated Market of the Luxembourg Stock Exchange in accordance with Directive 2003/71/EC (the "Prospectus Directive"). References in this Prospectus to NCIs being listed (and all related references) shall mean that such NCIs have been admitted to the official list and to trading on the Regulated Market of the Luxembourg Stock Exchange. The NCIs will be in registered form and issued in the denomination of 50,000 per NCI. The NCIs will be initially represented by a single global certificate in registered form (the "Registered Global NCI") and registered in the name of a nominee of, and deposited with, a common depositary for Euroclear Bank SA/NV ("Euroclear") and Clearstream Banking, societê anonyme, Luxembourg ("Clearstream, Luxembourg"). NCIs issued in definitive certificated form ("Registered Definitive NCIs") will only be available in certain limited circumstances. See Terms and Conditions of the NCIs Form and ranking below. DEUTSCHE BANK (Structuring Adviser) Joint Lead Managers JPMORGAN The date of this Prospectus is 27 September 2006

3 IMPORTANT NOTICE Prospectus This Prospectus comprises a prospectus for the purposes of Article 5.4 of the Prospectus Directive and for the purpose of giving information with regard to the Issuer and National Australia Bank Limited ("National"). This Prospectus does not relate to, and is not relevant for, any other purpose than to assist the recipient to decide whether to proceed with a further investigation of the NCIs. No offer This Prospectus is not, and should not be construed as, an offer or invitation to any person to subscribe for or purchase or otherwise deal in any NCIs. Responsibility for Information The Issuer and National (each a "Responsible Person") accept responsibility for the information contained in this Prospectus. To the best of the knowledge of each of the Responsible Persons (each having taken all reasonable care to ensure that such is the case) the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. No independent verification None of the Joint Lead Managers, the Initial Subscriber, National LLC 1, the LLC Manager, the Agents, any other party named or referred to in this Prospectus (other than the Responsible Persons) or any of their respective affiliates or any external adviser to the Responsible Persons or any of the foregoing (each, an "Other Party") have independently verified the information contained or incorporated in this Prospectus except for having checked their respective names and addresses in the Directory at the back of this Prospectus. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by any Other Party as to the accuracy or completeness of the information contained or incorporated in this Prospectus. No Other Party accepts any liability in relation to the information contained or incorporated by reference in this Prospectus. The Other Parties and the Responsible Persons are together referred to in this Prospectus as the "Parties". Currency of information The delivery of this Prospectus, or any offer or issue of NCIs, at any time after the date of this Prospectus does not imply, nor should it be relied upon as a representation or warranty, that: (a) there has been no change since the date of this Prospectus in the affairs or financial condition of the Issuer, National LLC 1, National or any other party named in this Prospectus; or (b) the information contained in this Prospectus is correct at such later time. It should not be assumed that the information contained in this Prospectus is necessarily accurate or complete in the context of any offer to subscribe for or an invitation to subscribe for or buy any of the NCIs at any time after the date of this Prospectus, even if this Prospectus is circulated in conjunction with the offer or invitation. Supplementary Prospectus Following the publication of this Prospectus, the Issuer will, in the event of any significant new factor, material mistake or inaccuracy relating to information included in this Prospectus which is capable of affecting the assessment of the NCIs, prepare a supplement to this Prospectus approved by the Competent Authority pursuant to Article 16 of the Prospectus Directive. Pursuant to Article 14(2) of the Prospectus Directive, copies of any such supplementary prospectus will be available, free of charge, at the offices of National and of the Luxembourg Paying Agent referred to in the Directory at the back of this Prospectus and on the website of the Luxembourg Stock Exchange (being at the date of this Prospectus, 2

4 Authorised Material No person is or has been authorised by any Responsible Person to give any information or to make any representation which is not expressly contained in or consistent with this Prospectus and any information or representation not contained in this Prospectus must not be relied upon as having been authorised by or on behalf of the Responsible Persons or the Joint Lead Managers. Intending Purchasers to make Independent Investment Decision This Prospectus is not intended to be, and does not constitute, a recommendation by any Party that any person subscribe for or purchase any NCIs. Accordingly, any person contemplating the subscription or purchase of the NCIs must: (a) make their own independent investigation of: (i) the terms of the NCIs, including reviewing the Transaction Documents; and (ii) the financial condition, affairs and creditworthiness of the Issuer and the other Parties, after taking all appropriate advice from qualified professional persons; and (b) base any investment decision on the investigation and advice referred to in paragraph (a). Any person contemplating the subscription or purchase of the NCIs should have regard to the factors described under the section headed Risk Factors below. However, this Prospectus does not describe all of the risks of an investment in the NCIs. Offering restrictions The distribution of this Prospectus and the offer or sale of NCIs and Preference Shares (if issued) may be restricted by law in certain jurisdictions. No Party represents that this document may be lawfully distributed, or that any NCIs or Preference Shares (if issued) may be lawfully offered, in compliance with any application, registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by any Party which would permit a public offering of any NCIs or Preference Shares (if issued) or distribution of this Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no NCIs or Preference Shares (if issued) may be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Prospectus or any NCIs or Preference Shares (if issued) come must inform themselves about, and observe, any such restrictions. For a description of certain restrictions on offers, sales and deliveries of NCIs and on the distribution of the Prospectus and other offering material relating to the NCIs see Subscription and Sale below. In particular, the NCIs have not been and will not be registered under the United States Securities Act of 1933 (as amended) ("Securities Act"). Subject to certain exceptions, NCIs may not be offered, sold or delivered within the United States or to U.S. persons. Disclosure of Interest Each of the Structuring Adviser, the Joint Lead Managers and the Initial Subscriber discloses that it and its respective affiliates and their respective directors and employees: (a) may have a pecuniary or other interest in the NCIs; and (b) will receive fees, brokerage and commissions, and may act as principal, in any dealings in the NCIs. References to credit ratings There are references in this Prospectus to credit ratings. A credit rating is not a recommendation to buy, sell or hold securities and does not comment on the adequacy of market price or the suitability of any security for a particular investor. A credit rating may be subject to revision, suspension, withdrawal or placed on ratings watch at any time by the relevant rating agency. Each rating should be evaluated independently of any other rating. No rating agency has been involved in the preparation of this Prospectus. 3

5 Not a deposit liability The NCIs do not represent deposits or other liabilities of National or any affiliate of National. The NCIs are guaranteed by National only to the limited extent provided in the NCI Subordinated Guarantee and an NCI Holder otherwise has no claim on National for payment of any amount in respect of the NCIs. Risk Factors The holding of the NCIs is subject to investment risk, including possible delays in repayment and loss of distributions or return of investment in respect of the NCIs (see Risk Factors below). Stabilisation In connection with the issue of the NCIs, Deutsche Bank AG, London Branch (the "Co-ordinating Stabilising Manager") and J.P. Morgan Securities Ltd. (together with the Co-ordinating Stabilising Manager, the "Stabilising Managers") (or any person acting on behalf of the Stabilising Managers) may over-allot NCIs (provided that the aggregate principal amount of NCIs allotted does not exceed 105% of the aggregate principal amount of the NCIs) or effect transactions outside Australia, on a market operated outside Australia, with a view to supporting the market price of the NCIs at a level higher than that which might otherwise prevail for a limited period. However, there is no assurance that the Stabilising Managers (or persons acting on behalf of the Stabilising Managers) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the NCIs is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the NCIs and 60 days after the date of the allotment of the NCIs and must be in compliance with all relevant laws and regulations. Definitions Unless the context otherwise requires, all capitalised terms used in this Prospectus and not separately defined will have the meanings given to them in the Terms and Conditions of the NCIs below. All terms defined in this Prospectus are indexed in the Index of Defined Terms appearing at the end of this Prospectus. Unless otherwise stated, all references in this Prospectus to a "Member State" are references to a Member State of the European Economic Area, references to "C', "Euro" or "EUR" are to the single currency which was introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended, references to "US dollars" or "U.S. 5" are to the lawful currency of the United States, references to "pounds sterling", "Sterling", "I", "pence" or "p" are to the lawful currency of the United Kingdom and references to "As" or "Australian dollars" are to the lawful currency of Australia. Documents Incorporated by Reference This Prospectus is to be read in conjunction with all of the documents that are incorporated by reference (see Documents Incorporated by Reference below). Transaction Documents The definitive terms and conditions of the Component Instruments are contained in the documents described in General Information Documents Available (the "Available Documents"), which should be reviewed by any intending purchaser. If there is any inconsistency between this Prospectus and the Available Documents, the Available Documents should be regarded as containing the definitive information. A copy of the Available Documents may be viewed by intending purchasers at the offices of National or of the Luxembourg Paying Agent referred to in the Directory at the back of this Prospectus. 4

6 U.S. INFORMATION NEITHER THE NCIS NOR THE PREFERENCE SHARES HAVE BEEN OR WILL BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NEITHER THE NCIS NOR THE PREFERENCE SHARES (IF ISSUED) MAY BE Ohl ERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) UNLESS THE NCIS OR THE PREFERENCE SHARES (AS THE CASE MAY BE) ARE REGISTERED UNDER THE SECURITIES ACT OR OFFERED AND SOLD IN COMPLIANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THE NCIS NOR THE PREFERENCE SHARES HAVE BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY IN THE UNITED STATES, NOR HAVE THE FOREGOING AUTHORITIES APPROVED THIS PROSPECTUS OR CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES. NO PARTY MAKES ANY REPRESENTATION TO ANY INVESTOR IN THE NCIS OR THE PREFERENCE SHARES (IF ISSUED) REGARDING THE LEGALITY OF ITS INVESTMENT UNDER ANY APPLICABLE LAWS. ANY INVESTOR IN THE NCIS OR THE PREFERENCE SHARES (IF ISSUED) SHOULD BE ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN THE NCIS OR THE PREFERENCE SHARES (AS THE CASE MAY BE) FOR AN INDEFINITE PERIOD OF TIME. 5

7 TABLE OF CONTENTS TRANSACTION DIAGRAM 7 TRANSACTION SUMMARY 8 RISK FACTORS 15 DOCUMENTS INCORPORATED BY REFERENCE 22 DESCRIPTION OF THE ISSUER 24 DESCRIPTION OF NATIONAL LLC 1 28 DESCRIPTION OF NATIONAL 30 TERMS AND CONDITIONS OF THE NCIS 36 SUMMARY OF PROVISIONS RELATING TO THE NCIS IN GLOBAL FORM 54 SUMMARY OF PRINCIPAL DOCUMENTS 56 USE OF PROCEEDS 73 TAXATION 74 SUBSCRIPTION AND SALE 77 GENERAL INFORMATION 82 INDEX OF DEFINED TERMS 85 DIRECTORY 90 6

8 TRANSACTION DIAGRAM The diagram below sets out a simplified form of the structure of the transaction and of the expected periodic cash flows in the structure. This diagram is qualified in its entirety by the more detailed information contained elsewhere in this Prospectus. National New York Branch National Head Office National legal entity Subordinated Debentures V Subordinated Debenture Interest National LLC 1 Convertible Debentures Non-interest bearing LLC Notes LLC Note Interest Issuer Distributions 7

9 TRANSACTION SUMMARY This summary must be read as an introduction to this Prospectus and any decision to invest in NCIs should be based on a consideration of this Prospectus as a whole, including the documents incorporated by reference. Following the implementation of the relevant provisions of the Prospectus Directive in each Member State of the European Economic Area, no civil liability will attach to the Responsible Persons in any such Member State in respect of this summary, including any translation of it, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. Where a claim relating to information contained in this Prospectus is brought before a court in a Member State of the European Economic Area, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating this Prospectus before the legal proceedings are initiated. Key parties Issuer National Capital Instruments [Euro] LLC 2, a limited liability company established under the laws of Delaware, United States. National Capital Holdings I Inc. ("National Sub"), a subsidiary of National, will be the manager of the Issuer under Delaware law but neither it, nor National, will hold any equity interest in the Issuer. See further Description of the Issuer below. National LLC 1 National Capital Instruments [Euro] LLC 1, a limited liability company established under the laws of Delaware, United States. National Sub will be the manager of National LLC 1 and will hold all memberships interests in National LLC 1. See further Description of National LLC 1 below. National National Australia Bank Limited (ABN ), a limited liability company established under the laws of Australia. National is the holding company of National group, which consists of National and its consolidated subsidiaries (the "National Group"). See further Description of National below. National New York Branch National acting through its branch office at Level 28, 245 Park Avenue, New York, New York, United States of America ("National New York Branch"). National Head Office National acting through its head office at Level 13, 140 William Street, Melbourne, Victoria 3000, Australia ("National Head Office"). Initial Subscriber Deutsche Bank AG, acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom. Registrar Deutsche Bank Luxembourg S.A., of 2 Boulevard Konrad Adenauer, L-1115 Luxembourg or any other person appointed by the Issuer to maintain the Register (the "Registrar"). Principal Paying Agent Deutsche Bank AG, acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom or any successor principal paying agent appointed in accordance with the Agency Agreement (the "Principal Paying Agent"). Transfer Agent Deutsche Bank Luxembourg S.A., of 2 Boulevard Konrad Adenauer, L-1115 Luxembourg or any successor transfer agent appointed in accordance with the Agency Agreement (the "'Brander Agent"). 8

10 Calculation Agent Deutsche Bank AG, acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom or any successor calculation agent appointed in accordance with the Agency Agreement. Luxembourg Paying Agent Deutsche Bank Luxembourg SA., of 2 Boulevard Konrad Adenauer, L-1115 Luxembourg or any successor Luxembourg paying agent appointed in accordance with the Agency Agreement (the "Luxembourg Paying Agent" and, together with the Registrar, the Principal Paying Agent, the Transfer Agent and the Calculation Agent, the "Agents"). Structuring Adviser Deutsche Bank AG, acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom (the "Structuring Adviser"). Summary of the Offering Issue Issue Date The Issuer will issue f400,000,000 Floating Rate National Capital Instruments (the "NCIs") to investors. The NCIs will rank pan passu among themselves in all respects. NCIs do not represent deposits or securities of National, are guaranteed by National only to the limited extent as described under Summary of Principal Documents Terms of the NCI Subordinated Guarantee below and, apart from under that limited guarantee, an NCI Holder has no claim on National for payment of any amount in respect of the NCIs. The NCIs are expected to be issued on 29 September 2006 (the "Issue Date"). Maturity Date The NCIs are perpetual instruments with no set maturity date. However, an NCI is redeemable for cash (subject to APRA's prior written approval) and in certain circumstances will be automatically converted into a preference share of National ("Preference Share") according to the terms of issue of the NCIs (the "NCI Terms"). Use of Proceeds The proceeds of issue of the NCIs will be used to purchase the LLC Notes and the Convertible Debentures as described under Subscription and Sale Subscription, Assignment and Sale of the Relevant Instruments below. Distributions on the NCIs National New York Branch will use the ultimate proceeds of issue for its general business purposes including on-lending (see further Use of Proceeds below). NCIs will pay distributions ("Distributions") at a floating rate. Distributions on the NCIs will be paid quarterly in arrears on 29 March, 29 June, 29 September and 29 December of each year commencing on 29 December 2006 (each a "Distribution Payment Date"). The amount of each Distribution will be calculated in accordance with the relevant formula set out in the NCI Terms (see Terms and Conditions of the NC's Distributions below). 9

11 Distribution Limitations Distributions on the NCIs are limited to interest received by the Issuer from National LLC 1 on the LLC Notes. Payment of interest on the LLC Notes is subject to the tests and conditions set out in the terms of the LLC Notes (see Summary of Principal Documents Terms of the LLC Notes below). In turn, interest on the LLC Notes is limited to interest received by National LLC 1 from National New York Branch in respect of the Subordinated Debentures. Payment of interest on the Subordinated Debentures is also subject to similar tests and conditions as set out in the terms of the Subordinated Debentures (see Summary of Principal Documents Terms of the Subordinated Debentures below). Distributions on the NCIs are non-cumulative and the holders of the NCIs (the "NCI Holders") will have no claim for any Distribution not paid, or for any part of any Distribution not paid, pursuant to the limitations discussed above. However, on and from the occurrence of a Capital Disqualification Event, Distributions on the NCIs will not be subject to the limitations described above but will be absolute and unconditional liabilities of the Issuer on each Distribution Payment Date. A "Capital Disqualification Event" will occur if: (a) the NCIs would not be eligible to qualify (save where such non-qualification is only as a result of any applicable limitation on the amount of such capital) as Tier 1 regulatory capital for National on a Level 1 or a Level 2 basis under applicable regulatory capital requirements; and (b) the Australian Prudential Regulation Authority ("APRA") has confirmed to National in writing that the NCIs would not be eligible to qualify as Tier 1 regulatory capital for National on a Level 1 or a Level 2 basis. NCI Subordinated Guarantee National guarantees Distributions on the NCIs, the Redemption Price of the NCIs, and, if the Issuer is wound up, the Liquidation Amount of the NCIs, in each case to the extent the Issuer: (a) has funds available to make the payment after payment of any creditors it may have; and (b) does not make the payment, (the "NCI Subordinated Guarantee") (see Summary of Principal Documents Terms of the NCI Subordinated Guarantee below). Consequences of Non-Payment of Failure to pay in full, for any reason, Distributions on or within Distributions seven Business Days of the scheduled Distribution Payment Date, will trigger the Conversion Event (except where a Capital Disqualification Event has occurred) (see Terms and Conditions of the NCIs Conversion), but will not constitute an event of default and will not otherwise entitle the NCI Holder to a return of its investment. 10

12 Failure to pay in full, for any reason, Distributions on the scheduled Distribution Payment Date, will also immediately trigger distribution restrictions for National as described in the Terms and Conditions of the NCIs Distributions Restrictions in the case of non-payment and, when the Preference Shares are issued, substantially in the form described in Summary of Principal Documents Terms of the Preference Shares- Dividends Distribution Restrictions below. Withholding Tax and Additional The Issuer will make all payments of Distributions without Amounts deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, the Issuer must pay the full amount required to be deducted to the relevant revenue authority and, subject to: (a) certain exceptions (see Terms and Conditions of the NCIs- Payments to NCI Holders Gross-up below); and (b) having received sufficient amounts from National LLC 1 in respect of the LLC Notes or from National under the NCI Gross-Up Indemnity (as defined below), an additional amount ("Additional Amount") to the NCI Holders so that the NCI Holders receive the same amount in respect of that payment as if no such deduction had been made from the payment. National will covenant in a deed of covenant entered into between National, National LLC 1 and the Issuer (the "Deed of Covenant") to indemnify the Issuer for the payment of any Additional Amounts (see Summary of Principal Documents Terms of the Deed of Covenant Undertakings by National below) (the "NCI Gross-Up Indemnity"), subject to the same tests and conditions that apply to payment of interest on the Subordinated Debentures (see Summary of Principal Documents Terms of the Subordinated Debentures Interest below). Conversion Events In certain circumstances the Conversion Event (as defined in the NCI Terms (see Terms and Conditions of the NCIs Conversion below)) will occur with respect to the NCIs. An NCI Holder may not initiate the Conversion Event. Conversion Mechanics Upon the occurrence of the Conversion Event, each NCI will be redeemed in consideration for the delivery of a Preference Share in accordance with the steps set out under Summary of Principal Documents Terms of the Convertible Debentures Conversion below. In certain circumstances National may be prevented by law from issuing the Preference Shares (see Summary of Principal Documents Terms of the Convertible Debentures Failure to Issue Preference Shares below). NCIs will not convert into Preference Shares after a Capital Disqualification Event occurs. Optional Redemption Subject to APRA!s prior written approval, National has the option to redeem for cash: (a) all (but not some) of the Convertible Debentures on the occurrence of a Regulatory Event, a Tax Event or an Acquisition Event (each as defined in the NCI Terms (see Terms and Conditions of the NCIs Interpretation and Definitions Definitions below)); and 11

13 Redemption Price (b) some or all of the Convertible Debentures on the Step-Up Date or any subsequent date which is a Distribution Payment Date in respect of the NCIs. A redemption of the Convertible Debentures will, in turn, trigger a redemption of the NCIs for cash (see Terms and Conditions of the NCIs Redemption below). Where the NCIs are redeemed as provided under "Optional Redemption" above, they will be redeemed in consideration of the payment of the Redemption Price. This will generally be an amount equal to the Liquidation Amount of the NCIs plus any accrued but unpaid Distribution for the then current Distribution Period. See further Tenons and Conditions of the NC's Redemption- Redemption Price below. Voting and Other Rights The agreement under which the Issuer is constituted (the "Issuer LLC Agreement") contains provisions for convening meetings of the NCI Holders to consider any matter affecting their interests, including any variation of the NCI Terms which requires the consent of NCI Holders. Subject as provided above, NCI Holders will have no voting rights in respect of National Head Office, National New York Branch, National LLC 1, the Issuer, the LLC Manager or National Sub (each a "National Entity") unless and until the Preference Shares are issued (see further Summary of Principal Documents Terms of the Preference Shares Voting and Other Rights below). No Set-Off An NCI Holder has no right to set off any amounts owing by it to any National Entity against any claims owing by any National Entity and no offsetting rights or claims on any National Entity if a National Entity does not pay a Distribution or interest when scheduled under any Component Instrument. Not Deposit Liabilities The NCIs do not represent deposit liabilities of National or any affiliate of National. The NCIs are guaranteed by National only to the limited extent provided in the NCI Subordinated Guarantee and an NCI Holder otherwise has no claim on National for payment of any amount in respect of the NCIs. Rating It is expected that the NCIs, when issued, will be assigned a rating of "A " by Standard & Poor's, "A2" by Moody's and "A+" by Fitch. A credit rating is not a recommendation to buy, sell or hold securities and does not comment on the adequacy of market price or the suitability of any security for a particular investor. A credit rating may be subject to revision, suspension, withdrawal or placed on ratings watch at any time by the relevant rating agency. Each rating should be evaluated independently of any other rating. No rating agency has been involved in the preparation of this Prospectus. Indication of yield The yield depends on a number of factors including: (a) the amount and timing of any return of investment with respect to the NCIs; and (b) the amount of Distributions paid in respect of the NCIs. 12

14 Under certain assumptions including that the NCIs are redeemed on the Step-Up Date and an issue price of 50,000 per NCI, an indication of yield is the Distribution Rate on the NCIs. It is not an indication of future yield and it in no way indicates that the NCIs will be redeemed on the Step-Up Date. Listing and admission to trading of Application has been made to the Commission de surveillance du NCIs secteur financier in its capacity as competent authority under the Luxembourg act relating to prospectuses for securities (loi relative aux prospectus pour valeurs mobilieres) (the "Competent Authority") to approve this Prospectus. Application has also been made to the Luxembourg Stock Exchange for the NCIs to be admitted to the official list and traded on the Regulated Market of the Luxembourg Stock Exchange in accordance with Directive 2003/71/EC (the "Prospectus Directive"). References in this Prospectus to NCIs being listed (and all related references) shall mean that such NCIs have been admitted to the official list and to trading on the Regulated Market of the Luxembourg Stock Exchange. EU Directive 2004/109/EC ("'transparency Directive") was passed on 15 December 2004 and came into force on 20 January The Transparency Directive must be implemented by Member States of the European Union by 20 January If the implementation imposes obligations on the Issuer that are unduly burdensome, the Issuer may decide to de-list the NCIs from the official list and trading on the Regulated Market of the Luxembourg Stock Exchange. If the Issuer elects to do so, it must use its reasonable endeavours to obtain an alternative listing, quotation or admission to trading for the NCIs on such other stock exchange or exchanges or securities market or markets as the Issuer may decide on which it is then generally accepted in the sphere of international issues of securities to list, quote or admit to trading securities such as the NCIs. Clearing and Settlement The NCIs have been accepted for clearance through Euroclear and Clearstream, Luxembourg. If issued, National will apply to Euroclear and Clearstream, Luxembourg, to accept the Preference Shares. See further Summary of Provisions Relating to the NCIs in Global Form and General Information Clearing Systems below. Risk Factors An investment in the NCIs is subject to investment risks, including possible delays in repayment and loss of distributions and the amount invested in respect of the NCIs. See Risk Factors below. Selling Restrictions The NCIs are only to be offered or sold in circumstances which comply with laws and restrictions of any applicable jurisdiction. There are also specific restrictions on offering or selling the NCIs in Australia, the United Kingdom, Hong Kong, Singapore, Japan, the United States, the Republic of Italy and France. See Subscription and Sale below. Governing Law The NCIs, the NCI Terms, the Issuer LLC Agreement, the LLC 1 Agreement, the Issuer Management Agreement, the LLC 1 Management Agreement and the LLC 1 Common Securities are governed by the laws of the State of Delaware, United States of America. The Preference Shares (if issued) and the Preference Share Terms will be governed by the laws of Victoria, Australia. 13

15 Transaction Documents Means: Each of the other Component Instruments and Transaction Documents will be governed by English law. (a) each Component Instrument (including, in each case, the terms of such Component Instrument); (b) each document constituting a Component Instrument; (c) the Agency Agreement, the NCI Subscription Agreement and the Subscription, Sale and Assignment Agreement; and (d) the LLC 1 Agreement, the LLC 1 Management Agreement and the Issuer Management Agreement, (the "Transaction Documents"). 14

16 RISK FACTORS Prospective investors should consider carefully the risks set forth below and the other information contained in this Prospectus prior to making any investment decision with respect to the NCIs. Each of the risks highlighted below as being risks relating to National and its business could have a material adverse effect on National's business, operations, financial condition or prospects, which, in turn, could have a material adverse effect on the amount which investors will receive in respect of the NCIs. In addition, each of the risks highlighted below as being risks relating to the NCIs could adversely affect the trading price of the NCIs or the rights of investors under the NCIs and, as a result, investors could lose some or all of their investment. Prospective investors should note that the risks described below are not the only risks faced by the Issuer and National. The Issuer and National have described only those risks relating to their operations that they consider to be material. There may be additional risks that the Issuer or National currently considers not to be material or of which it is not currently aware, and any of these risks could have the effects set forth above. Risks relating to the Issuer The assets of the Issuer are limited The assets of the Issuer consist only of its rights against National LLC 1 on the LLC Notes and against National on the Convertible Debentures. If the assets of the Issuer are not sufficient to make payments of Distributions or repayments of the amount invested in respect of the NCIs, then payments to NCI Holders will be reduced. Under applicable Delaware law, the Issuer cannot make a distribution to an NCI Holder to the extent that at the time of the Distribution, after giving effect to the Distribution, all liabilities of the Issuer (other than liabilities to NCI Holders on account of the NCIs) exceed the fair value of its assets. Risks relating to National and its business General Economic Activity The business activities of National are dependent on the level of banking, finance and financial services required by its customers. In particular, levels of borrowing are heavily dependent on customer confidence, employment trends, the state of the economy and market interest rates at the time. As National conducts its business in various locations, including Australia, the United Kingdom and New Zealand, its performance is influenced by the level and cyclical nature of business activity in those locations, which is, in turn, affected by both domestic and international economic and political events. There can be no assurance that a weakening in the economies in which National operates will not have a material effect on its future results. Risks relating to the business of National As a result of its business activities, National is exposed to a variety of risks, the most significant of which are credit risk, market risk, operational risk and liquidity risk. Failure to control these risks could result in material adverse effects on the financial performance and reputation of National. Credit Risk Risks arising from changes in credit quality and the recoverability of loans and amounts due from counterparties are inherent in a wide range of the businesses of National. Adverse changes in the credit quality of its borrowers and counterparties or a general deterioration in the economic conditions in the locations in which it operates or globally, or arising from systemic risks in the financial systems, could affect the recoverability and value of its assets and require an increase in the provision for bad and doubtful debts and other provisions of National. Market Risk The most significant market risks National faces are interest rate, foreign exchange and bond and equity price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin realised between lending and borrowing costs. Changes in currency rates affect the value of assets and liabilities denominated in foreign currencies and may affect income from foreign exchange dealing. The 15

17 performance of financial markets may cause changes in the value of the investment and trading portfolios of National. National has implemented risk management methods to mitigate and control these and other market risks to which it is exposed and exposures are constantly measured and monitored. However, it is difficult to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on the financial performance and business operations of National. Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Losses can result from fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorisation, failure to comply with regulatory requirements and conduct of business rules, equipment failures, natural disasters or the failure of external systems, for example, those of suppliers or counterparties. Although National has implemented risk controls and loss mitigation actions and substantial resources are devoted to developing efficient procedures and to staff training, there are always elements of residual operational risk which cannot be entirely mitigated. Liquidity Risk The inability of any bank, including National, to anticipate and provide for unforeseen decreases or changes in funding sources could have consequences on such bank's ability to meet its obligations when they fall due. Impact of Regulatory Changes National is subject to financial services laws, regulations, administrative actions and policies in the locations in which it operates. Changes in supervision and regulation, in particular in Australia, could materially affect the business of National, the products and services offered or the value of its assets. Although National works closely with its regulators and continually monitors the situation, future changes in regulation, fiscal or other policies can be unpredictable and are beyond the control of National. National is subject to capital requirements that could limit its operations National is subject to capital adequacy guidelines adopted by the APRA for a bank or a bank holding company, which provide for a minimum ratio of total capital to risk-adjusted assets both on a solo basis and on a consolidated basis. National's failure to maintain its ratios may result in administrative actions or sanctions against it which may impact its ability to fulfil its obligations under the Subordinated Debentures (with the effect that the Issuer would not be able to make scheduled payments on the NCIs) or the Preference Shares (if issued). APRA has recently revised its capital adequacy regime following the introduction of Australian equivalent International Financial Reporting Standards ("AIFRS"). This revised regime became effective on 1 July 2006 and the NCIs are being issued under this regime. The revised regime also provides for transition arrangements and National is working in conjunction with APRA as to the application of transition provisions to it. In addition, the risk-adjusted capital guidelines (the "Basel Accord") promulgated by the Basel Committee on Banking Supervision (the "Basel Committee"), which form the basis for APRAs capital adequacy guidelines, have recently been revised. In June 2004, the Basel Committee published International Convergence of Capital Measurement and Capital Standards, a Revised Framework ("Basel II"). APRA currently expects to implement Basel II on a common starting date of 1 January The principal changes effected by the revised guidelines include the application of risk-weighting (depending upon the credit status of certain customers, using an "internal ratings-based" approach to credit risk, and subject to approval of supervising authorities), allocation of risk assets in relation to operational risk and supervisory review of the process of evaluating risk measurement and capital ratios. At this time, National is unable to predict how the revised guidelines will affect its calculations of capital and the impact of these revisions on other aspects of its operations. 16

18 Risks relating to the NCIs NCIs may not be a suitable investment for all investors Each potential investor in any NCIs must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (a) have sufficient knowledge and experience to make a meaningful evaluation of the NCIs, the merits and risks of investing in the NCIs and the information contained or incorporated by reference in this Prospectus; (b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the NCIs and the impact such investment will have on its overall investment portfolio; (c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the NCIs, including where the currency for payments in respect of the NCIs is different from the potential investor's currency; (d) understand thoroughly the terms of the NCIs; and (e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. The NCIs are complex fmancial instruments. A potential investor should not invest in NCIs unless it has the expertise (either alone or with a financial adviser) to evaluate how the NCIs will perform under changing conditions, the resulting effects on the value of the NCIs and the impact this investment will have on the potential investor's overall investment portfolio. If National's financial condition were to deteriorate, holders could lose all or a part of their investment If National's financial condition were to deteriorate, payments of distributions or other payments on the Subordinated Debentures (and, therefore, the NCIs) or the Preference Shares (if issued) could be suspended and holders would not receive any distributions or other payments. Potential investors should not assume that unfavourable market or other conditions or events will not harm National's financial condition. If National liquidates, dissolves or winds up, NCI Holders and holders of the Preference Shares (if issued) could lose all or a part of their investment. No Component Instrument is a deposit liability of National for the purposes of the Banking Act or any other similar law of any jurisdiction and no Component Instrument will be insured by any governmental agency or compensation scheme of Australia or any other jurisdiction. If National does not issue the Preference Shares pursuant to the terms of the Convertible Debentures following the occurrence of the Conversion Event, NCI Holders will not receive them and will continue to hold the NCIs, and the LLC Notes will automatically vest in National Head Office as assignee (see further Summary of Principal Documents Terms of the LLC Notes Assignment below). In addition, in the event of the liquidation or dissolution of the Issuer in circumstances where National has not issued the Preference Shares in redemption of the NCIs, NCI Holders may not receive the full Liquidation Amount per NCI and the accrued and unpaid distribution for the then current Distribution Period if the Issuer does not have sufficient funds after it pays any creditors it may have. Distributions on the NCIs are subject to payment and other restrictions and are non-cumulative A Distribution on the NCIs will only be payable if and to the extent that the Issuer has sufficient funds to make the payment of that Distribution. The funds available to the Issuer in respect of any Distribution Payment Date will be limited to the interest received from National LLC 1 on the LLC Notes. Payments of interest on the LLC Notes are limited to payments received by National LLC 1 on the Subordinated Debentures. In addition, interest on the LLC Notes and the Subordinated Debentures is subject to the payment tests and conditions described in the LLC Notes and Subordinated Debentures (see Summary of Principal Documents Terms of the LLC Notes and Summary of Principal Documents Terms of the Subordinated Debentures for details of these tests and conditions). These conditions include the exercise of the sole discretion of: (a) in the case of the LLC Notes, the LLC Manager as manager of National LLC 1; and 17

19 (b) in the case of the Subordinated Debentures, the directors of National. Distributions will only be paid when so determined and applicable law so permits, if sufficient resources exist and if all the conditions to payment are satisfied. NCI Holders will not be entitled to recover missed Distributions because they are non-cumulative. Accordingly, if Distributions on the NCIs for any Distribution Period are not paid, the NCI Holders will not be entitled to receive such Distributions (or any payment in respect of such Distributions) whether or not funds are, or subsequently become, available. Upon the occurrence of the Conversion Event (see further Summary of Principal Documents Terms of the Convertible Debentures Conversion below), unless National is legally unable or otherwise fails to issue the Preference Shares on the scheduled Conversion Date, the NCIs will be redeemed for Preference Shares. Dividends on the Preference Shares are also non-cumulative and subject to payment tests and conditions (see Summary of Principal Documents Terms of the Preference Shares below). If the Conversion Event is the failure of the Issuer to pay a Distribution in full on the NCIs and of National to pay that amount under the NCI Subordinated Guarantee, holders of the Preference Shares issued as a result of that Conversion Event will also not receive any Dividends on those Preference Shares for the corresponding Dividend period, unless National pays an Optional Dividend in its absolute discretion and with the consent of APRA. National will pay Dividends on the Preference Shares only if and when declared by the directors. If the directors do not declare all or any part of a Dividend payable on any Dividend Payment Date, then holders will have no right to receive that Dividend at any time, even if National pays other Dividends in the future. Distributions on the NCIs may be restricted by the terms of other similar instruments The terms of certain of National's outstanding instruments could limit National's ability to make payments on the Subordinated Debentures, the Convertible Debentures or the Preference Shares (if issued). If the Issuer does not make payments on the NCIs, distributions may not be permitted to be made in respect of other capital instruments National has previously issued having similar economic rights and benefits as the NCIs (such as certain other Tier 1 capital instruments issued by National, directly or indirectly). If a scheduled payment is not made in full on those capital instruments, Distributions will not be permitted to be made in respect of the NCIs. Perpetual nature of the NCIs and the Preference Shares Neither the NCIs nor the Preference Shares (if issued) have a fixed final maturity date and holders have no rights to call for the redemption of the NCIs or the Preference Shares. Although the NCIs or the Preference Shares (if issued) may be redeemed (subject to APRAs prior written approval) in certain circumstances (including at National's option on the Step-Up Date or on any Distribution Payment Date thereafter or following the occurrence of a Tax Event, a Regulatory Event or an Acquisition Event through the redemption of the Convertible Debentures which will, in turn, trigger a redemption of the NCIs), there are limitations on National's ability to do so. Therefore, holders should be aware that they may be required to bear the financial risks of an investment in the NCIs for an indefinite period of time. If a holder wishes to obtain the cash value of its investment, that holder will have to sell the NCIs or the Preference Shares (if issued). Neither the Distribution Rate on the NCIs nor the rate of Dividend on the Preference Shares will be adjusted to reflect subsequent changes in interest rates or other market conditions, National's results of operations or financial condition or any decline in the market price of National's ordinary shares. As a result, a holder may not be able to sell the NCIs or the Preference Shares (if issued) for the amount of that holder's original investment. NCIs may be redeemed at the option of National National's ability to cause the NCIs to be redeemed may limit the market value of the NCIs (see Summary of Principal Documents Terms of the Convertible Debentures and Terms and Conditions of the NCIs- Redemption for the circumstances in which this optional redemption right may be exercised by National). During any period when National may elect to cause the NCIs to be redeemed, the market value of the NCIs generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any redemption period. The Preference Shares (if issued) will be subject to similar redemption rights and, accordingly, their market value may be similarly limited. In the period post the Step-Up Date, National may be expected to bring about the redemption of the NCIs or the Preference Shares (if issued) when its cost of borrowing is lower than the Distribution Rate on the 18

20 NCIs or the Preference Shares (as the case may be). At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective rate as high as the rate of Distribution on the NCIs or the rate of Dividend on the Preference Shares (as the case may be) being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time. NCIs may be converted into Preference Shares Because NCI Holders will receive Preference Shares when the Conversion Event occurs (unless National is legally unable or otherwise fails to issue the Preference Shares at that time), in connection with any investment decision with regard to the NCIs, investors are also making an investment decision with regard to the Preference Shares. Prospective investors should carefully review all the information regarding the Preferences Shares contained in this Prospectus. If NCI Holders receive Preference Shares following the Conversion Event, the trading value of those Preference Shares may be lower than the trading value of the NCIs, which may result in a lower return upon a sale of those Preference Shares. Subordination National's obligations under the Subordinated Debentures, the Convertible Debentures and the NCI Subordinated Guarantee are unsecured and will rank subordinate and junior in right of payment to National's obligations to its depositors and other creditors, including other subordinated creditors, other than subordinated creditors holding subordinated indebtedness that by its terms ranks equally with, or junior to, the holders of the Subordinated Debentures the Convertible Debentures and the NCI Subordinated Guarantee. Accordingly, National's obligations under the Subordinated Debentures, the Convertible Debentures and the NCI Subordinated Guarantee will not be satisfied unless it can satisfy in full all of its other obligations ranking senior to the Subordinated Debentures, the Convertible Debentures and the NCI Subordinated Guarantee. Further, in the event that National is wound-up, liquidated or dissolved, the assets of National would be available to pay obligations under the Subordinated Debentures or in respect of the Preference Shares (if issued) only after all payments have been made on such senior liabilities and claims. There are no terms in the NCIs, the LLC Notes, the Subordinated Debentures, the Convertible Debentures, the NCI Subordinated Guarantee or the Preference Shares (if issued) that limit National's ability to incur additional indebtedness, including indebtedness that ranks senior to or equally with the Subordinated Debentures, the Convertible Debentures, the NCI Subordinated Guarantee or the Preference Shares (if issued) or to issue other instruments which rank senior to or equally with the Subordinated Debentures, the Convertible Debentures, the NCI Subordinated Guarantee or the Preference Shares (if issued). For example, as part of its ongoing capital management programme, National issued A$400,000,000 of similar Tier 1 capital instruments in the Australian markets on 18 September Although the NCIs may pay a higher rate of interest than comparable instruments which are not subordinated, there is a real risk that an investor in NCIs will lose all or some of his investment should National become insolvent. The NCIs and the Preference Shares have limited voting rights A NCI Holder has no voting rights in respect of the Issuer and has limited voting rights at a meeting of NCI Holders (see Terms and Conditions of the NCIs General provisions Voting and Description of the Issuer Issuer LLC Agreement below). A holder of Preference Shares after the Conversion Date will also have limited voting rights as a shareholder of National (see Summary of Principal Documents Terms of the Preference Shares Voting and Other Rights below). This limits the rights of holders to take action with respect to the NCIs or the Preference Shares (as the case may be). In addition, holders acknowledge in the terms of the NCIs and in the terms of the Preference Shares (if issued) that they have no right to apply for the winding-up or administration of any of National Head Office, National New York Branch, National LLC 1, the Issuer, the LLC Manager or National Sub (each a "National Entity"), or to cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that the National Entity does not make a scheduled payment of Distributions or interest. 19

21 NCI Holders will not receive Preference Shares on the Conversion Date if National is legally unable or otherwise fails to issue the Preference Shares If on the Conversion Date National is prohibited by law from issuing the Preference Shares, National will issue the Preference Shares if and when it is no longer prohibited from doing so. Under current Australian law, National may be prevented from issuing the Preference Shares on the Conversion Date if: National is in liquidation; APRA has assumed control of National under the Banking Act 1959 of Australia (the "Banking Act") and APRA does not cause National to issue the Preference Shares; or APRA has appointed a statutory manager under the Banking Act to take control of National's business and the statutory manager does not cause National to issue the Preference Shares. See further Summary of Principal Documents Terms of the Convertible Debentures Failure to Issue Preference Shares below. A holder of NCIs has no rights as a shareholder of National A holder of NCIs, will not have any rights conferred on holders of the Preference Shares, including rights to receive any Dividends or other distributions in respect of the Preference Shares or to vote as a holder of the Preference Shares, until the Preference Shares are issued on the Conversion Date. There is no prior market for NCIs or the Preference Shares The NCIs and the Preference Shares (if issued) each constitute new issues of securities with no established trading market. National cannot predict whether an active or liquid trading market for the NCIs or the Preference Shares (if issued) will develop or be sustained. Therefore, investors may not be able to sell their NCIs or their Preference Shares (if issued) easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a severely adverse effect on the market value of the NCIs or the Preference Shares (if issued). Modification, waivers and substitution Provisions in the Issuer LLC Agreement permit defined majorities of NCI Holders to bind all NCI Holders including NCI Holders who did not attend and vote at the relevant meeting and NCI Holders who voted in a manner contrary to the majority. The Issuer LLC Agreement also provides that: (a) the Issuer may, without the consent of the NCI Holders, agree to certain additions and amendments to the Issuer LLC Agreement (including the NCI Terms) without the consent of NCI Holders; and (b) each Component Instrument (other than the NCIs and the Preference Shares (if issued) but including the Preference Share Terms prior to the issue of the Preference Shares) may be added to or amended in certain circumstances without the consent of NCI Holders. See further Description of the Issuer Issuer LLC Agreement Amendments and Modifications below. Similar provisions are contained in the terms of the Preference Shares (if issued). Change of law The terms of each instrument (other than the NCIs, the LLC 1 Common Securities and the Preference Shares (if issued)) are based on English law in effect as at the date of this Prospectus. The terms of the NCIs and the LLC 1 Common Securities are based on Delaware law at that date and the terms of the Preference Shares are based on the laws of Victoria, Australia as at that date. National is formed under and subject to the laws in force in Australia and National LLC 1 and the Issuer are formed under and subject to the laws in force in Delaware. No assurance can be given as to the impact of any possible change to English, Australian or Delaware law, judicial decision or administrative practice after the date of this Prospectus. 20

22 Exchange rate risks and exchange controls Distributions and repayments of amounts invested in respect of the NCIs and the Preference Shares (if issued) will be made in Euro. This presents certain risks relating to currency conversions if an investor's financial activities are denominated principally in a currency or currency unit (the "Investor's Currency") other than Euro. These include the risk that exchange rates may significantly change (including changes due to devaluation of Euro or revaluation of the Investor's Currency) and the risk that authorities with jurisdiction over the Investor's Currency may impose or modify exchange controls. An appreciation in the value of the Investor's Currency relative to Euro would decrease (a) the Investor's Currency-equivalent yield on the NCIs or the Preference Shares (if issued), (b) the Investor's Currency-equivalent value of any repayments of amounts invested in respect of the NCIs or the Preference Shares (if issued) and (c) the Investor's Currency-equivalent market value of the NCIs or the Preference Shares (if issued). Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive lesser amounts in respect of the NCIs or the Preference Shares (if issued) than expected, or no amounts. Credit ratings may not reflect all risks One or more independent credit rating agencies may assign credit ratings to the NCIs. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the NCIs. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (a) NCIs or, if issued, the Preference Shares, are legal investments for it, (b) NCIs or, if issued, the Preference Shares, can be used as collateral for various types of borrowing and (c) other restrictions apply to its purchase or pledge of any NCIs or, if issued, the Preference Shares. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of NCIs under any applicable risk-based capital or similar rules. 21

23 DOCUMENTS INCORPORATED BY REFERENCE Pursuant to Article 11 of the Prospectus Directive, the following documents which have previously been published and have been filed with the Competent Authority are incorporated in, and form part of, this Prospectus on the basis set out below: (a) National's Annual Reports on Form 20-F for the financial years ended 30 September 2004 and 30 September 2005 (including the audit report and the consolidated audited financial statements of the National Group and the non-consolidated audited financial statements of National for the financial years ended 30 September 2004 and 30 September 2005 respectively); (b) National's Half Year Consolidated Report on Appendix 4D for the six months ended 31 March 2006 (including the consolidated unaudited financial statements of the National Group for the six months ended 31 March 2006); and (c) the statutory documents of National. The documents listed at (a) and (b) above contain financial information on National, as described in the table below. Information contained in such documents but not included in the cross-reference list is incorporated by reference into this Prospectus for information purposes only. Balance sheet 2004 Page 101 Form 20-F 2005 Page 115 Form 20-F 2006 Page 20 Appendix 4D Income statement 2004 Page 100 Form 20-F 2005 Page 114 Form 20-F 2006 Page 19 Appendix 4D Cash flow statement 2004 Page 102 Form 20-F 2005 Page 116 Form 20-F 2006 Page Appendix 4D Accounting policies and explanatory notes 2004 Page Form 20-F 2005 Page Form 20-F 2006 Page Appendix 4D Review report 2006 Page 82 Appendix 4D 22

24 Audit reports 2004 Page 228 Form 20-F 2005 Page Form 20-F 2006 Page 82 Appendix 4D Legal and arbitration proceedings 2005 Note 44 at page Form 20-F 2006 Note 16 at page Appendix 4D Copies of documents incorporated by reference in this Prospectus can be obtained from the registered office of National. Requests for such documents should be directed to National at its office set out in the Directory at the end of this Prospectus. In addition such documents will also be available from the offices of the Luxembourg Paying Agent set out in the Directory at the end of this Prospectus and to view on the website of the Luxembourg Stock Exchange (as at the date of this Prospectus, 23

25 Introduction and Organisational Structure DESCRIPTION OF THE ISSUER National Capital Instruments [Euro] LLC 2 (the "Issuer") is a Delaware limited liability company that was formed on 5 September 2006 under the Delaware Limited Liability Company Act (the "LLC Act") by filing a certificate of formation with the Secretary of the State of Delaware in the United States pursuant to an initial limited liability company agreement, which was amended and restated on 26 September 2006 (as amended and restated, the "Issuer LLC Agreement"). National Capital Holdings I Inc. is the holder of the initial limited liability company interest in the Issuer and will be the manager of the Issuer (the "LLC Manager"). The Issuer LLC Agreement provides, among other things, for the issuance by the Issuer of a class of limited liability company interests, the NCIs. The Issuer will not issue any common securities or other class of limited liability company interest while NCIs are on issue. When NCIs are issued, National Capital Holdings I Inc. ceases to have any limited liability company interest in the Issuer. However, the LLC Manager will at all times remain a wholly-owned subsidiary of National. As described in Description of the Issuer Administration below, the LLC Manager solely administers and manages the Issuer and, as such, controls the Issuer. Accordingly, whilst National will not retain any limited liability company interest in the Issuer, it will, through its ownership of the LLC Manager, at all times retain control of the Issuer. See further Description of the Issuer Administration below. The registered Delaware office of the Issuer is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, United States of America telephone number All correspondence in respect of the Issuer should be directed to the LLC Manager (see Description of the Issuer Administration below). Sole Activity The Issuer was established for the sole purpose of: issuing the NCIs; investing the proceeds of the NCIs in the LLC Notes and the Convertible Debentures; and engaging in any related or incidental activities. The Issuer has carried out no operations since its registration other than in relation to the creation of the NCIs and the other transactions contemplated by the Transaction Documents to which it is a party, including holding the LLC Notes and the Convertible Debentures. There are no recent events particular to the Issuer that are, to a material extent, relevant to the evaluation of its solvency. There has been no material adverse change in the prospects of the Issuer since the date of its formation. There has been no significant change in the financial or trading position of the Issuer since the date of its formation. Under the Deed of Covenant, National will agree to pay or reimburse the Issuer on a quarterly basis for all expenses incurred in connection with the Capital Instrument. However, no NCI Holder will be permitted to take action against National to enforce the Deed of Covenant. Administration The Issuer will be solely managed and administrated by the LLC Manager pursuant to and on the terms of a management agreement to be entered into between the Issuer and the LLC Manager (the "Issuer Management Agreement"). No NCI Holder may participate in the management or administration of the Issuer. The registered Delaware office of the LLC Manager is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, United States of America, telephone number The business address of the LLC Manager (to which all correspondence should be addressed) is c/o National Australia Bank Limited, Level 28, 245 Park Avenue, New York, New York, 10167, United States of America (attention "Senior Counsel"). 24

26 The Directors of the LLC Manager are as follows: Name Business Address Principal Activities Rick Sawers Level 13, 140 William Street, Melbourne, Victoria 3000, Australia Bruce Richards 245 Park Avenue, New York, New York, United States of America Mark Cahaney Dwayne McCallum 245 Park Avenue, New York, New York, United States of America 245 Park Avenue, New York, New York, United States of America Thomas DeMaio 245 Park Avenue, New York, New York, United States of America Group Treasurer, National Australia Bank Limited General Manager Americas, National Australia Bank Limited Head of Legal & Risk America, National Australia Bank Limited Senior Vice President & Head of Finance Americas, National Australia Bank Limited Senior Vice President, Markets Division, Americas, National Australia Bank Limited There are no potential conflicts of interest between any duties of these people as the manager of the Issuer and their private interests or other duties. Under the terms of the Issuer Management Agreement, the LLC Manager may appoint a successor LLC Manager, which must be a wholly-owned direct or indirect subsidiary of National. National will also undertake in the Deed of Covenant to ensure that any successor manager of the Issuer will at all times be a directly or indirectly wholly-owned subsidiary of National. The LLC Manager is also the manager of National LLC 1, which is separately established and whose assets are segregated from those of the Issuer. Covenants in the terms of the Component Instruments (including restrictions on National in the case of non-payment in respect of the NCIs (see Terms and Conditions of the NCIs Distributions Restrictions in the case of non-payment) and transfer restrictions in respect of the Convertible Debentures and the LLC Notes held by the Issuer) ensure that control of the Issuer is not abused. Capitalisation and Indebtedness Opening balance The following table sets out the opening balance of the Issuer as at 5 September As at 5 September 2006 Assets Cash 0 Total assets 0 Share Capital Limited liability company interests 0 Notes: 1. The holder of the initial limited liability company interest is National Capital Holdings I Inc. The initial limited liability company interest was issued to National Capital Holdings I Inc. without any capital contribution. (Euro) Capitalisation Under the LLC Act, a Delaware limited liability company, such as the Issuer, can be formed without any initial capitalisation. The LLC Act does not require an initial member, such as National Capital Holdings I Inc., to contribute cash in order to receive its limited liability company interest. 25

27 Immediately following the issue of the NCIs on the Issue Date, the capitalisation of the Issuer will consist of 400,000,000 in aggregate liquidation amount of NCIs. Indebtedness Since the date of its formation, the Issuer has not had any loan capital outstanding, has not incurred any borrowings, has had no contingent liabilities, has not granted any guarantees and does not intend to have outstanding any such loan capital, incur any such borrowings, have any such contingent liabilities or grant any such guarantees other than in connection with the Transaction Documents. Legal and arbitration proceedings Since the date of its formation, the Issuer has not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware), which may have, or have had in the recent past, significant effects on the Issuer's and/or the National Group's financial position or profitability. Issuer LLC Agreement Form of the NCIs The Issuer LLC Agreement provides that the NCIs will be issued in registered form and will initially be represented by a global certificate in registered form and interests in the global certificate will be exchangeable for definitive registered NCIs in the limited circumstances described in the Summary of the Provisions relating to the NCIs in Global Form below. Distributions The Issuer expects to pay distributions on the NCIs as described in the Terms and Conditions of the NCIs. Under applicable Delaware law, the Issuer cannot make a distribution to an NCI Holder to the extent that at the time of the Distribution, after giving effect to the Distribution, all liabilities of the Issuer (other than liabilities to NCI Holders on account of the NCIs) exceed the fair value of its assets. It is expected that the aggregate periodic interest payments on the LLC Notes held by the Issuer will equal or exceed the aggregate periodic Distribution payments on the NCIs. Under the Issuer LLC Agreement, any excess profits of the Issuer are payable to the LLC Manager. The NCI Holder has no right to such profits. Meetings The Issuer LLC Agreement contains provisions for convening meetings of the NCI Holders to consider any matter affecting their interests, including any variation of the NCI Terms which requires the consent of NCI Holders. This does not entitle the NCI Holders to manage or administrate the Issuer or to vote at any meeting of any other National Entity. Amendments and Modifications The Issuer LLC Agreement provides that the Issuer LLC Agreement (including the NCI Terms) may be amended with the approval of APRA (if required) but without the consent or approval of NCI Holders if the LLC Manager is of the opinion that the amendment: is of a formal, minor or technical nature; is made to cure any ambiguity or correct any manifest error; is expedient for the purpose of enabling NCIs to be listed or to remain listed on a stock exchange, to be lodged in a clearing system or to remain lodged in a clearing system or to be offered for sale or for subscription under the laws for the time being in force in any place and it is otherwise not considered by the LLC Manager to be materially prejudicial to the interests of NCI Holders as a whole; is necessary to comply with the provisions of any statute or the requirements of any statutory authority; or in any other case, will not materially adversely affect the NCI Holders' rights. 26

28 If the LLC Manager reasonably considers the amendment will materially adversely affect NCI Holders' rights, the amendment may only be made if it has been approved by a Special Resolution. The Issuer LLC Agreement also provides that each of the Component Instruments (other than the NCIs and the Preference Shares (if issued) but including the Preference Share Terms prior to the issue of the Preference Shares) may be amended with the approval of APRA (if required) but without the consent or approval of NCI Holders if the issuer of the Component Instrument (the "Relevant Issuer") (or, in the case of the Deed of Covenant, the Issuer) is of the opinion that the amendment: is of a formal, minor or technical nature; is made to cure any ambiguity or correct any manifest error; is expedient for the purpose of enabling NCIs to be listed or remain listed on a stock exchange, to be lodged in a clearing system or to remain lodged in a clearing system or to be offered for sale or for subscription under the laws for the time being in force in any place and it is otherwise not considered by the Relevant Issuer (or, in the case of the Deed of Covenant, the Issuer) to be materially prejudicial to the interests of the holder of the Component Instrument or NCI Holders as a whole; is necessary to comply with the provisions of any statute or the requirements of any statutory authority; or in any other case, will not materially adversely affect the holder of the Component Instrument or NCI Holders' rights. In addition, the Convertible Debenture Terms may be amended without the consent of NCI Holders as described under Summary of Principal Documents Terms of the Preference Shares Redemption below. In any other case, the terms of any Component Instrument (other than the NCIs and the Preference Shares (if issued) but including the Preference Share Terms prior to the issue of the Preference Shares) may be amended or added to if the amendment or addition has been approved by a Special Resolution. A "Special Resolution" is defined in the Issuer LLC Agreement as a resolution passed: (a) at a meeting of NCI Holders by a majority of at least 75% of the votes cast; or (b) by NCI Holders representing at least 75% of the aggregate Liquidation Amount of the NCIs signing a document stating they are in favour of the resolution, in each case as provided in the Issuer LLC Agreement. Dissolution The Issuer LLC Agreement also provides for the winding up of the Issuer, including in circumstances where National is liquidated, dissolved or wound up. Limited Liability Under the Issuer LLC Agreement, except as otherwise provided by the LLC Act, the debts, obligations and liabilities of the Issuer will be solely the debts, obligations and liabilities of the Issuer. The NCI Holders will not be obligated personally for any such debt, obligation or liability of the Issuer solely by reason of being a member of the Issuer. Exercise of rights The Issuer LLC Agreement will be governed by and construed in accordance with the laws of the State of Delaware United States of America. Accordingly, in order to enforce an NCI Holder's rights under the Issuer LLC Agreement (including the NCI Terms), a NCI Holder may file a claim in the State of Delaware in accordance with the applicable requirements and procedures under the laws of the State of Delaware. 27

29 Introduction and Organisational Structure DESCRIPTION OF NATIONAL LLC 1 National Capital Instruments [Euro] LLC 1 ("National LLC 1") is a Delaware limited liability company that was formed on 5 September 2006 under the LLC Act by filing a certificate of formation with the Secretary of the State of Delaware in the United States pursuant to an initial limited liability company agreement, which was amended and restated on 26 September 2006 (as amended and restated, the "LLC 1 Agreement"). The LLC Manager will be the manager of National LLC 1. The LLC 1 Agreement provides, among other things, for the issuance by National LLC 1 of one class of limited liability company interests in the form of common securities (the "LLC 1 Common Securities"), which are expected to be issued concurrently with this offering and will be held by National Sub. Terms of the LLC 1 Common Securities are set forth in the LLC 1 Agreement. See further Description of National LLC 1 Administration below. National LLC 1 has agreed to issue the LLC Notes to the Initial Subscriber and to subscribe for the Subordinated Debentures from National New York Branch. The registered Delaware office of National LLC 1 is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, United States of America, telephone number All correspondence in respect of National LLC 1 should be directed to the LLC Manager (see Description of National LLC 2 Administration above). Sole Activity National LLC 1 was established for the sole purpose of: issuing the LLC 1 Common Securities to National Sub; issuing the LLC Notes as provided under Subscription and Sale Subscription, Assignment and Sale of the Relevant Instruments below; investing the proceeds of the LLC Notes in the Subordinated Debentures; investing the proceeds of the LLC 1 Common Securities in a non-interest bearing account with National New York Branch; and engaging in any related or incidental activities. National LLC 1 has carried out no operations since its registration other than in relation to the creation of the LLC 1 Common Securities and the LLC Notes and the other transactions contemplated by the Transaction Documents to which it is a party, including holding the Subordinated Debentures. Under the Deed of Covenant, National will agree to pay or reimburse National LLC 1 on a quarterly basis for all expenses incurred in connection with the Capital Instrument. However, National will not guarantee any payments under the LLC Notes and no NCI Holder will be permitted to take action against National to enforce the Deed of Covenant. Dividends and LLC Note Interest National LLC 1 expects to dividend any residual income after payments on the LLC Notes and operating expenses to the holder of the LLC 1 Common Securities. Under applicable Delaware law, National LLC 1 cannot make a distribution on the LLC 1 Common Securities to the extent that at the time of the distribution, after giving effect to the distribution, all liabilities of National LLC 1 (other than liabilities to National Capital Holdings I Inc. on account of the LLC 1 Common Securities) exceed the fair value of its assets. It is expected that the aggregate periodic interest payments on the Subordinated Debentures held by National LLC 1 will equal or exceed the aggregate periodic interest payments on the LLC Notes. 28

30 Administration National LLC 1 will be solely managed and administered by the LLC Manager pursuant to and on the terms of a management agreement to be entered into between National LLC 1 and the LLC Manager (the "LLC 1 Management Agreement"). No NCI Holder may participate in the management or administration of National LLC 1. The registered office of the LLC Manager and the Directors of the LLC Manager are as set out under Description of the Issuer Administration above. Under the terms of the LLC 1 Management Agreement, the LLC Manager may appoint a successor LLC Manager, which must be a wholly-owned direct or indirect subsidiary of National. National will also undertake in the Deed of Covenant to procure that the LLC Manager will at all times be a directly or indirectly wholly-owned subsidiary of National. The LLC Manager is also the manager of the Issuer, which is separately established and whose assets are segregated from those of National LLC 1. Capitalisation and Indebtedness Capitalisation As at the Issue Date, the capitalisation of National LLC 1 will consist of U.S.$100 in aggregate liquidation amount of the LLC 1 Common Securities. Indebtedness Since the date of its registration, National LLC 1 has not had any loan capital outstanding, has not incurred any borrowings, has had no contingent liabilities, has not granted any guarantees and does not intend to have outstanding any such loan capital, incur any such borrowings, have any such contingent liabilities or grant any such guarantees other than in connection with the Transaction Documents. Legal and arbitration proceedings Since the date of its formation, National LLC 1 has not been involved in or threatened with any governmental, legal or arbitration proceedings, which may have, or have had in the recent past, significant effects on National LLC l's and/or the National Group's position or profitability. 29

31 DESCRIPTION OF NATIONAL Information about National History and development of National The legal name of National is "National Australia Bank Limited" and it trades commercially as "National Australia Bank" and, particularly within Australia, as "National" or "nab". National was incorporated on 23 June, National is a public limited company incorporated in the Commonwealth of Australia and it operates under Australian legislation including the Corporations Act 2001 of Australia (the "Corporations Act"). Its registered office is Level 13, 140 William Street, Melbourne, Victoria 3000, Australia (telephone number ) and its Australian Business Number ("ABN") is Business Overview Principal activities The National Group is an international financial services group, providing a comprehensive and integrated range of financial products and services. Globally, as at 31 March 2006, the National Group had: total assets of A$459 billion; A$96 billion in funds under management and administration; and A$442 billion in assets under custody and administration. The principal activities of the National Group are banking services, credit and access card facilities, leasing, housing and general finance, international banking, investment banking, wealth management, funds management, life insurance, and custodian, trustee and nominee services. The National Group business operating model runs along regional lines for Australia, Europe and New Zealand, together with Institutional Markets & Services, which operates on a global basis. This operating model is a change to the model that operated before Total Australia The Australian and Asian-based businesses are managed as one regional operation. This has resulted in the former operations of Financial Services Australia, the Australian components of Corporate & Institutional Banking's Corporate Banking, National Custodian Services and Transactional Solutions units, the Asian component of Corporate & Institutional Corporate Banking, and the Australian components of Wealth Management, being managed as Total Australia. As at 31 March 2006, Total Australia had 22,871 full-time equivalent employees. Total UK The National Group's UK businesses are now managed as one regional operation. This has resulted in the former operations of Financial Services Europe, the European component of Corporate & Institutional Banking's Corporate Banking unit, and the European components of Wealth Management, being managed as Total UK. As at 31 March 2006, Total UK had 9,246 full-time equivalent employees. Total New Zealand The New Zealand-based businesses of the National Group are now managed as one regional operation. This has resulted in the former operations of Financial Services New Zealand, the New Zealand component of Corporate & Institutional Banking's Corporate Banking unit, and the New Zealand components of Wealth Management, being managed as Total New Zealand. As at 31 March 2006, Total New Zealand had 4,628 full-time equivalent employees. 30

32 Institutional Markets & Services Institutional Markets & Services ("IMS") is a global business with operations in Australia, the United Kingdom, New Zealand, Asia and the United States. Key business lines include Global Markets, Corporate Finance, Structuring & Investments, and Institutional Banking IMS's relationship management unit in Australia incorporating blue chip corporate clients and organisations served by National's Financial Institutions group globally. In Corporate Finance, IMS provides funding solutions via Project Finance, Leveraged Finance, Structured Asset Finance, Structured Property, Mezzanine Finance and non-quoted equity product. The Structuring & Investments group is responsible for managing the asset portfolio and structuring investment products across such areas as Structured Finance, Alternative Investments, Capital Markets Solutions, Securitisation and Strategic Transactions. As at 31 March 2006, Institutional Markets & Services had 1,944 full-time equivalent employees. Corporate Centre and Global Funding The National Group's other services segment comprises Corporate Centre and Global Funding, which are not considered to be separate reportable operating segments. Corporate Centre comprises Corporate Development, Financial Risk Management, People & Culture, Technology, and the office of the CEO. As at 31 March 2006, these areas had 609 full-time equivalent employees. Principal markets The principal markets in which the National Group operates are banking services, credit and access card facilities, leasing, housing and general finance, international banking, wealth management, funds management, life insurance and custodian, trustee and nominee services. Organisational Structure National is the holding company for the National Group, as well as being the main operating company. As at the date of this Prospectus, National had four main operating subsidiaries: the Bank of New Zealand, MLC Limited, National Australia Financial Management Limited and Clydesdale Bank PLC (which includes the whole business and undertaking carried on under the Yorkshire Bank brand). Trend Information There has been no material adverse change in the prospects of National since 30 September There are no known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on National's prospects for at least the current financial year, other than as disclosed in the Financial Reports (as defined in Description of National Financial Information concerning National's Assets and Liabilities, Financial Position and Profits and Losses Historical financial information below) of National (as incorporated by reference in this Prospectus) and the contingent liabilities described under Description of National Legal and arbitration proceedings below. Profit Forecasts or Estimates National does not intend to make or imply any profit forecasts or profit estimates in this Prospectus. No statement contained in this Prospectus should be interpreted as such a forecast or estimate. Administrative, Management and Supervisory Bodies The name and function of each of the Directors of National are listed below. The business address of each Director is Level 13, 140 William Street, Melbourne, Victoria 3000, Australia. John Stewart Managing Director, Group Chief Executive Officer and an Executive Director of National Equities Limited. Michael J Ullmer Director, Finance & Risk, Group Chief Financial Officer and an Executive Director of National Equities Limited. 31

33 Ahmed Fahour Executive Director, Chief Executive Officer, Australia, and an Executive Director of National Equities Limited. Michael A Chaney Non-Executive Director, Chairman and a Non-Executive Director of National Equities Limited. Peter J B Duncan Non-Executive Director, Chairman of the Remuneration Committee and a Non-Executive Director of National Equities Limited. Daniel T Gilbert Non-Executive Director, member of the Principal Board Audit Committee and a Non-Executive Director of National Equities Limited. Paul J Rizzo Non-Executive Director, member of the Principal Board Audit Committee, Chairman of the Principal Board Risk Committee and a Non-Executive Director of National Equities Limited. Jillian S Segal Non-Executive Director, member of the Remuneration Committee, member of the Principal Board Risk Committee and a Non-Executive Director of National Equities Limited. John G Thorn Non-Executive Director, Chairman of the Principal Board Audit Committee and a Non-Executive Director of National Equities Limited. Geoffrey A Tomlinson Non-Executive Director, member of the Remuneration Committee and a Director of the following National Group companies: National Equities Limited, MLC Holdings Limited, MLC Limited, MLC Investments Limited, National Wealth Management Holdings Limited, Your Prosperity Limited, Heritage Management Limited, National Australia Financial Management Limited and National Australia Fund Management Limited. G Malcolm Williamson Non-Executive Director, Chairman of National Australia Group Europe Limited and a Non-Executive Director of National Equities Limited. T Kerry McDonald Non-Executive Director, Chairman of Bank of New Zealand, member of the Principal Board Audit Committee and a Non-Executive Director of National Equities Limited. Patricia A Cross Non-Executive Director, member of the Principal Board Risk Committee and a Non-Executive Director of National Equities Limited. There are no potential conflicts of interest between any duties of these people to National and their private interests or their other duties. Major Shareholders National is a public limited company. As at 31 July 2006, the following shareholders each held more than 1% of the issued share capital of National: National Nominees Limited (13.13%) 32

34 J.P. Morgan Nominees Australia Limited (10.96%) Westpac Custodian Nominees Limited (10.08%) Citicorp Nominees Pty Limited (3.11%) ANZ Nominees Limited (3.04%) Cogent Nominees Pty Limited (1.55%) Queensland Investment Corporation (1.12%) AMP Life Limited (1.08%) There are several provisions of Australian law that are relevant to the ability of any person to gain control of National. Mergers, acquisitions and divestments of Australian public companies listed on the ASX (such as National) are regulated by detailed and comprehensive legislation and the rules and regulations of the ASX. In summary, under the Corporations Act, a person must not acquire a relevant interest in issued voting shares in an Australian listed company if, broadly, because of the transaction, that person's or someone else's voting power in the company increases from 20% or below to more than 20%, or from a starting point that is above 20% and below 90%, unless those shares are acquired in a manner specifically permitted by law. This restriction also limits the options available to a shareholder wanting to sell a shareholding of more than 20% in an Australian listed company. Australian law also regulates acquisitions which would have the effect, or be likely to have the effect, of substantially lessening competition in a market in Australia, in a state or in a territory of Australia. Acquisitions of certain interests in Australian listed companies by foreign interests are also subject to review and approval by the Treasurer of the Commonwealth of Australia ("Australian Treasurer"). There are also specific limitations on the acquisition of a shareholding in a bank under the Financial Sector (Shareholdings) Act 1998 of Australia (the "FSSA"). Under the FSSA, a person (including a company) must not acquire an interest in an Australian financial sector company where the acquisition would take that person's voting power (which includes the voting power of the person's associates) in the financial sector company to more than 15% of the voting power of the financial sector company without first obtaining the Australian Treasurer's approval. Even if a person has less that 15% of the voting power, the Australian Treasurer has the power to declare that a person has practical control of that company and, by applying for an order from the Federal Court of Australia may require the person to relinquish that control. The definition of a financial sector company includes banks such as National. Financial Information concerning National's Assets and Liabilities, Financial Position and Profits and Losses Historical financial information The following financial information in relation to National for its financial years ended 30 September 2004 and 30 September 2005 is contained in its Annual Reports on Form 20-F for the years ended 30 September 2004 and 30 September 2005 respectively (the "Full Year Reports") and in its Half Year Consolidated Report on Appendix 4D for the six months ended 31 March 2006 (the "2006 Half Year Report" and, together with the Full Year Reports, the "Financial Reports") (at the locations listed) which are incorporated by reference in this Prospectus: the balance sheet for each such year (at pages 101, 115 and 20 respectively, referred to as the "Statement of Financial Position"); the income statement for each such year (at pages 100, 114 and 19 respectively, referred to as the "Statement of Financial Performance"); the cash flow statement for each such year (at pages 102, 116 and respectively, referred to as the "Statement of Cash Flows"); and the accounting policies and explanatory notes (at pages , and respectively, referred to as the "Notes to the financial statements"). 33

35 In accordance with Article 35(3) of Regulation (EC) No 809/2004 (the "Prospectus Regulation"), the obligation to restate historical financial information according to Regulation (EC) No 1606/2002 (the "IAS Regulation") set out in Annex XI item 11.1 of the Prospectus Regulation does not apply to National. The financial information relating to National in the Full Year Reports described above and incorporated by reference in this Prospectus has therefore been prepared in accordance with Australian Generally Accepted Accounting Principles ("AGAAP") and not in accordance with the international accounting standards adopted pursuant to the procedure of Article 3 of the IAS Regulation. However, the financial information relating to National in the 2006 Half Year Report described above and incorporated by reference into this Prospectus has been prepared in accordance with AIFRS. There may have been material differences in the financial information had the same accounting standards been applied to each of the Financial Reports. The financial statements referred to above contain both National's own statements and consolidated statements for the National Group. See further Documents Incorporated by Reference above. Auditing of historical annual financial information The historical annual financial information referred to above has been audited; please see the Auditors' Statements at page 228 of the Annual Report on Form 20-F for the year ended 30 September 2004 and at pages 251 and 252 of the Annual Report on Form 20-F for the year ended 30 September 2005 which are incorporated by reference in this Prospectus. Legal and arbitration proceedings Except as listed below, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which National is aware) in the 12-month period before the date of this Prospectus which may have, or have had in the recent past, significant effects on the financial position or profitability of National and/or that of the National Group. On 29 August 2003, a civil class action complaint was filed in the US District Court, Southern District of New York, against the National Group and others for alleged violations of the US federal securities law relating primarily to disclosure concerning the valuation of the mortgage servicing rights held by HomeSide US (sold in October 2002). The complaint failed to specify any quantum of damages. The plaintiffs in the complaint filed their consolidated amended class action complaint on 30 January 2004, and the National Group moved to dismiss the consolidated amended class action complaint on 11 March It is anticipated that the court will rule on the motion to dismiss during the 2006 financial year. On 26 February 2004, National announced that it had received a voluntary document request from the US Securities and Exchange Commission ("SEC") as part of an investigation into certain Australian registrants and public accounting firms. The document request covers National and controlled entities and includes issues relating to audit independence. In addition, National has provided certain information to the SEC about the accounting and internal controls of National and its controlled entities, including the foreign currency options trading matter and HomeSide US. For further information on contingent liabilities of the National Group, refer to note 44 in the financial report included in National's Annual Report on Form 20-F for the year ended 30 September 2005 incorporated by reference into this Prospectus. These contingent liabilities include amended assessments from the Australian Tax Office regarding ExCaps and amended assessments from the New Zealand Inland Revenue Department. Recent events National continues to consider a range of options to optimise its corporate structure to best support the bank's operations domestically and internationally. A non-operating holding company structure is one of the options being considered in response to the changing regulatory environment and its impact on capital and for future flexibility to deliver shareholder value. 34

36 Consideration of various structural options involves a range of complex issues and the analysis and any subsequent decision on a particular path are expected to take some time to complete. National is currently participating in industry-wide consultation with regulators in relation to the matter. As part of any structural review process, National remains committed to retaining the existing level of credit ratings for the National Group. Any non-operating holding company would continue to be regulated by APRA. Once any proposal is sufficiently advanced stakeholders will be consulted. There are no recent events particular to National that are, to a material extent, relevant to the evaluation of its solvency. Significant change in the financial or trading position of National There has been no significant change in the financial or trading position of the National Group since 31 March

37 TERMS AND CONDITIONS OF THE NCIs The following are the terms and conditions of the NCIs in the form in which they will be set out in the Issuer LLC Agreement. These terms and conditions are subject to the provisions of the Issuer LLC Agreement. These NCI Terms have been established pursuant to and are incorporated by reference into, the limited liability company agreement of National Capital Instruments [Euro] LLC Z a Delaware limited liability company (the "Issuer"), dated as of 5 September 2006 (as amended and restated on 26 September 2006 and as otherwise amended from time to time, the Issuer LLC Agreement") and, together with the Issuer LLC Agreement, constitute the limited liability company agreement of the Issuer within the meaning of the Act (as defined in the Issuer LLC Agreement). In the event of any inconsistency between the Issuer LLC Agreement and these NCI Terms, the provisions of these NCI Terms shall prevail. 1. LIQUIDATION AMOUNT Each NCI will be issued with a Liquidation Amount of 50,000. Each NCI must be paid for in full on application. 2. FORM AND RANKING 2.1 Form Each National Capital Instrument (NCI) is a limited liability company interest in the Issuer conferring the rights set out in these NCI Terms. A NCI is Redeemable for cash and Convertible into a Preference Share according to these NCI Terms. NCIs are not Redeemable or Convertible at the option of an NCI Holder. NCIs do not represent deposits or securities of National. NCIs are guaranteed by National only to the limited extent provided in the NCI Subordinated Guarantee and an NCI Holder otherwise has no claim on National for payment of any amount in respect of NCIs. NCIs are issued according to the Issuer LLC Agreement of which these NCI Terms form part. 2.2 Registered Global NCIs and Registered Definitive NCIs (a) NCIs are issued in registered form and will be initially represented by a global certificate in registered form (Registered Global NCI), which will be registered in the name of a nominee of, and deposited with a common depository for, Euroclear and Clearstream, Luxembourg. (b) On the occurrence of an Exchange Event, interests in the Registered Global NCI will be exchangeable (in whole but not in part and in the manner set out in the Issuer LLC Agreement) for definitive registered NCIs (Registered Definitive NCIs). The Issuer must notify NCI Holders in accordance with clause 12 ("Notices") of the occurrence of an Exchange Event. 2.3 Ranking Each NCI ranks equally with all other NCIs in all respects and subordinate to all creditors of the Issuer. 3. DISTRIBUTIONS 3.1 Distributions Subject to these NCI Terms, each NCI entitles the NCI Holder on a Record Date to receive on the relevant Distribution Payment Date a distribution in respect of the period ending on (but not including) that Distribution Payment Date (Distribution) calculated according to the following formula: Distribution = Distribution Rate x Liquidation Amount x D 360 where: Distribution Rate (expressed as a percentage per annum) is calculated according to the following formula: Distribution Rate = EURIBOR + Margin 36

38 where: EURIBOR means the rate determined by the Calculation Agent on the date (the Determination Date) which is two Business Days before the commencement of the relevant Distribution Period to be: (A) the three-month EURIBOR rate per annum published on page 248 of the Telerate Monitor (or such other screen page of Telerate or such other information service that is designated as the successor to Telerate Page 248 for the purpose of displaying comparable rates) (Screen Page) on the relevant Determination Date at or about 11:00am (Brussels time) as the rate offered in the interbank market in the Euro-zone for deposits in Euro for a period of 3 months; and (B) if EURIBOR cannot be so determined for any reason, then EURIBOR for the relevant Distribution Period is the arithmetic mean (rounded, if necessary, to the nearest one ten-thousandth of a percentage point, with being rounded upwards), determined by the Calculation Agent, of the rates which five major banks in the Euro-zone interbank market, (Reference Banks) selected by the Calculation Agent, quote to prime banks in the interbank market in the Euro-zone at approximately 11:00am (Brussels time) on the relevant Determination Date for deposits in Euro for a period of 3 months for an amount that is representative for a single transaction in that market at that time. If two or more of the Reference Banks provide the relevant quotation, the arithmetic mean shall be calculated as described above on the basis of the quotations supplied. If less than two Reference Banks provide a quotation, then EURIBOR for the relevant Distribution Period shall be the arithmetic mean (rounded if necessary to the nearest one-ten-thousandth of a percentage point, with being rounded upwards) which leading banks in the Euro-zone, selected by the Calculation Agent are quoting on the Determination Date to leading European banks for a period of 3 months. If banks so selected by the Calculation Agent are not quoting, EURIBOR for the Distribution Period is the rate in effect for the last preceding Distribution Period; Euro-zone means the region comprised of Member States of the European Union that adopt the single currency in accordance with the Treaty establishing the European Community, as amended (the Treaty); Margin (expressed as a percentage per annum) means, for a Distribution Period: (a) up to (but not including) the Step-Up Date, the Initial Margin; and (b) from (and including) the Step-Up Date, the Initial Margin plus 1.00% per annum; and D means in respect of: (a) the first Distribution Payment Date, the number of days from (and including) the Issue Date to (but not including) the first Distribution Payment Date; and (b) each subsequent Distribution Payment Date, the number of days from (and including) the preceding Distribution Payment Date to (but not including) that Distribution Payment Date. 3.2 Distribution Payment Dates The Distribution Payment Dates are each 29 March, 29 June, 29 September and 29 December, commencing on 29 December 2006, until the date on which the NCIs are Redeemed or Converted in accordance with these NCI Terms (and, if such date is also a Distribution Payment Pate, including such date). If a Distribution Payment Date is a day which is not a Business Day, then the Distribution Payment Date is the next Business Day, or if that day would fall in the next calendar month, the preceding Business Day. 3.3 Distributions subject to Issuer having Available Amount (a) The payment of a Distribution, including payment of any gross-up payable under clause 7.2 ("Gross-up"), is subject to the Issuer having received sufficient amounts on the Component Instruments (Available Amount) in respect of that Distribution Period. 37

39 (b) The Issuer will not have sufficient Available Amounts in respect of a Distribution Period if, for any reason, (including because an APRA Condition has occurred) a distribution scheduled to be paid in respect of that Distribution Period on any of the Component Instruments has not been paid or has not been paid in full or is subject to a withholding or deduction for which the issuer of that Component Instrument is not required to gross up. (c) If, in any Distribution Period, the Available Amounts are less than the amount which is required to pay the scheduled Distribution in respect of each NCI in full, the NCI Holder will receive a pro rata share of the Distribution it would otherwise have been entitled to in accordance with these NCI Terms. 3.4 Distributions are non-cumulative Distributions are non-cumulative. If all or any part of a Distribution is not paid (an Unpaid Distribution) on or within seven days after the relevant Distribution Payment Date because of the restrictions in clause 3.3 ("Distributions subject to Issuer having Available Amount"), the Issuer has no liability to pay the Unpaid Distribution and, notwithstanding the ability of the Issuer to make an Optional Distribution, the NCI Holder has no claim in respect of such Unpaid Distribution. No interest accrues on any unpaid Distribution or Optional Distribution and the NCI Holder has no claim or entitlement in respect of interest on any Unpaid Distribution or Optional Distribution. 3.5 Restrictions in the case of non-payment Subject to clause 3.6 ("Exceptions to restrictions"), if: (a) a Distribution (including any gross-up on that Distribution payable under clause 7.2 ("Gross-up")) has not been paid in full on the Distribution Payment Date because of the restrictions in clause 3.3 ("Distributions subject to Issuer having Available Amount"); or (b) a Conversion Event has occurred as a result of the Issuer for any reason not paying in full the Distribution payable on the NCIs on any Distribution Payment Date, National must not without approval of an Ordinary Resolution passed by NCI Holders: (i) pay any interest, dividends or similar distributions on any other capital instruments of National which rank for dividends equal with or junior to the Preference Shares (as if such Preference Shares had been issued); or (ii) redeem, buy-back or reduce capital on any other capital instruments of National which rank for return of capital in a winding up equal with or junior to the Preference Shares (as if such Preference Shares had been issued), (in each case other than by way of pro rata payments on the NCIs and the other capital instruments of National which rank for distributions or return of capital in a winding up (as the case may be) equal with the Preference Shares (as if such Preference Shares had been issued)), and unless and until, since the date of the failure to pay a Distribution as stated in clause 3.5(a) or the occurrence of a Conversion Event as stated in clause 3.5(b): (A) National shall have paid in full, either: (1) consecutive Distributions on the NCIs on each Distribution Payment Date during the 12 month period following the non-payment of the Distribution; or (2) with APRNs prior written approval, an optional Distribution equal to the unpaid amount of the scheduled Distributions for the period of 12 months prior to the date of payment of the optional Distribution (Optional Distribution); or (B) all NCIs have been: (1) Redeemed; or (2) Converted and National is permitted to do so in accordance with the Preference Share Terms. 38

40 3.6 Exceptions to restrictions The foregoing restrictions do not apply to: (a) a redemption, buy-back or return of capital in connection with: (i) any employment contract, benefit plan or other similar arrangement; (ii) any dividend reinvestment plan or shareholder share purchase plan; or (iii) the issuance of National's shares, or securities convertible into or exercisable for such shares, as consideration in an acquisition entered into prior to the occurrence of the Unpaid Distribution or the Conversion Event; (b) an exchange, redemption or conversion of any class of National's shares, or any shares of a subsidiary of National, for any class of National's shares, or any class of National's indebtedness for any class of National's shares; (c) the purchase of fractional interests in National's shares under the conversion or exchange provisions of the shares or the security being converted or exchanged; (d) any payment or declaration of a dividend in connection with any shareholder's rights plan or the redemption or repurchase of rights pursuant to the plan; (e) any dividend in the form of shares, warrants, options or other rights where the dividend shares or the shares issuable upon exercise of such warrants, options or other rights are the same class of shares as those on which the dividend is being paid or rank equal or junior to those shares; or (f) any capital raising through a rights issue. 3.7 Notification of Distribution Rate The Issuer will notify, or procure that the Calculation Agent notifies, the Distribution Rate and the amount of the Distribution for each Distribution Period: (a) as soon as possible after determination to NCI Holders in accordance with clause 12 ("Notices"); and (b) in any event, to any Stock Exchange on which the NCIs are for the time being listed or admitted to trading, not later than the first day of the relevant Distribution Period. 4. REDEMPTION 4.1 Redemption If NCIs are to be Redeemed, on the Redemption Date the Issuer must pay to the NCI Holder the Redemption Price in respect of each NCI which is Redeemed (Redemption). 4.2 Redemption by Issuer If National (with the prior written approval of APRA) redeems: (a) some or all of the Convertible Debentures on the Step-Up Date; (b) some or all of the Convertible Debentures on a Distribution Payment Date after the Step-Up Date; or (c) all (but not some) of the Convertible Debentures on or following the occurrence of an Acquisition Event, a Regulatory Event or a Tax Event, the Issuer must Redeem a number of NCIs equal to the number of Convertible Debentures redeemed upon receipt of the Redemption Amounts. 4.3 Redemption Price The Redemption Price is equal to the Par Redemption Amount. 39

41 4.4 Redemption Notice Before it Redeems, the Issuer must give a Redemption Notice which must state: (a) the Redemption Date, being a Business Day no less than 20 Business Days after the date of the Redemption Notice; and (b) if less than all NCIs are being Redeemed on the Redemption Date, state the proportion of NCIs to be Redeemed on that Redemption Date. A Redemption Notice is irrevocable once given and constitutes a promise by the Issuer, subject to receipt of the Redemption Amounts, to Redeem the NCIs specified in the Redemption Notice on the Redemption Date. 4.5 Partial Redemption If some but not all NCIs are Redeemed the Issuer must, in each case, endeavour to treat all NCI Holders: (a) in the case of Registered Global NCIs, in accordance with the rules of Euroclear and/or Clearstream, Luxembourg; and (b) in the case of Registered Defmitive NCIs, as far as practicable in the proportion that the aggregate Liquidation Amount of Registered Definitive NCIs held by that NCI Holder bears to the aggregate Liquidation Amount of all Registered Defmitive NCIs. 5. CONVERSION 5.1 Meaning of Conversion Conversion of a NCI means that the NCI is redeemed by the Issuer either delivering, or directing National to issue, the Preference Share to the NCI Holder on the Conversion Date. 5.2 Conversion The NCIs are to be Converted when the first of the following events occurs (the Conversion Event): (a) the Business Day prior to 29 September 2055; (b) National gives a National Conversion Notice (which National may do in its absolute discretion); (c) a scheduled Distribution is not paid in full (either by the Issuer or by National under the NCI Subordinated Guarantee) for any reason on or within seven Business Days after any Distribution Payment Date; (d) National LLC 1 or the Issuer: (e) (f) (g) (i) ceases to be managed by a wholly-owned subsidiary of National; or (ii) is wound up or dissolved; an order is made or effective resolution is passed for the winding up of National; an APRA Capital Event; or the Redemption Price is not paid in full for any reason on or within seven Business Days of a Redemption Date. 53 Conversion Dates The Conversion Date will be, if the Conversion Date occurs under: (a) clause 5.2(a), 5.2(d) or 5.2(e) ("Conversion"), the date of the Conversion Event; (b) clause 5.2(b) ("Conversion"), the date specified in the National Conversion Notice (which must be no later than 20 Business Days after the date of the National Conversion Notice); or (c) clause 5.2(c), 5.2(f) or 5.2(g) ("Conversion"), the date which is 10 Business Days after the date the Conversion Event occurs. 40

42 5.4 Conversion Notice Except where clause 5.2(a) ("Conversion") applies, the Issuer must give a Conversion Notice stating the Conversion Date in accordance with clause 5.3 ("Conversion Dates"): (a) where clause 5.2(b) ("Conversion") applies, immediately on receipt of a National Conversion Notice; and (b) in any other case, within 3 Business Days of the Conversion Event. A Conversion Notice is irrevocable once given. Failure to give a Conversion Notice when required by this clause 5.4 ("Conversion Notice") does not affect the obligation of National to Convert. 5.5 Failure to Convert If on a Conversion Date, a Preference Share is not issued or delivered in respect of a NCI, that NCI remains on issue until the Preference Share is issued or delivered to the NCI Holder or the NCI Holder receives the Redemption Price in accordance with clause 4 ("Redemption"). This clause 5.5 ("Failure to Convert") does not affect the obligation of National to issue the Preference Share. 6. REDEMPTION AND CONVERSION COMMON PROVISIONS 6.1 Effect of Redemption or Conversion Upon Redemption or Conversion of a NCI, and payment of the Redemption Price or the issue of the Preference Share and payment of any amount due and payable on the Conversion Date, in both cases, in respect of that NCI, all other rights conferred, or restrictions imposed, by that NCI will no longer have effect. 6.2 NCI Holder acknowledgements Each NCI Holder by subscribing for or acquiring an NCI irrevocably: (a) agrees to be bound by the terms of the Issuer LLC Agreement; (b) upon a Conversion, consents to becoming a member of National and agrees to be bound by the Preference Share Terms; (c) agrees it is obliged to accept the Preference Shares upon a Conversion notwithstanding anything which might otherwise affect Conversion including: (i) any change in the financial position of National since the Issue Date; (ii) any disruption to the market or potential market for the Preference Shares or to capital markets generally; (iii) any breach by any National Entity of any obligation in connection with the Capital Instrument; (iv) it being impossible or impracticable to list the Preference Shares on a Stock Exchange; or (v) it being impossible or impracticable to sell or otherwise dispose of Preference Shares. (d) agrees to provide to the Issuer any information necessary to give effect to a Redemption or a Conversion and to surrender, or (as the case may be) instruct Euroclear and/or Clearstream, Luxembourg to surrender, any NCI against payment of the Redemption Price or issue of the Preference Shares, as the case may be; (e) appoints the Issuer as its agent and attorney with power in the name and on behalf of the NCI Holder to do all things necessary to give effect to a Redemption or a Conversion, including: (i) completing and executing such instruments for and on the NCI Holder's behalf as the Issuer considers necessary or desirable to give effect to a Redemption or a Conversion; and (ii) appointing in turn its own agent or delegate; (f) acknowledges and agrees that a NCI Holder has no right to request a Redemption or a Conversion; (g) acknowledges and agrees that a NCI Holder has no right to apply for any National Entity to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in 41

43 respect of a National Entity merely on the grounds that a National Entity does not pay a Distribution or interest when scheduled under any Component Instrument; and (h) acknowledges and agrees that these NCI Terms contain no events of default. Accordingly (but without limitation) failure to pay in full, for any reason, a Distribution on the scheduled Distribution Payment Date will not constitute an event of default. 7. PAYMENTS TO NCI HOLDERS 7.1 Calculation of payments All calculations of payments will be rounded to four decimal places. For the purposes of making any payment in respect of a NCI Holder's aggregate holding of NCIs, any fraction of a cent will be disregarded. 7.2 Gross-up The Issuer may deduct from any payment payable to a NCI Holder the amount of any withholding or other tax, duty or levy required by law to be deducted in respect of such payment. If any deduction is required the Issuer must pay: (a) the full amount required to be deducted to the relevant revenue authority within the time allowed for such payment without incurring penalty under the applicable law; and (b) subject to clause 3.3 ("Distributions subject to Issuer having Available Amount"), if the withholding or other tax, duty or levy deducted is imposed or levied by or on behalf of Australia, the United States or any jurisdiction in which a Paying Agent is appointed from time to time (a Paying Agent Jurisdiction) (each a Relevant Jurisdiction), and the withholding, tax, duty or levy was imposed or levied because the payment was made by a Paying Agent in a Paying Agent Jurisdiction, an additional amount (Additional Amount) to the NCI Holder so that the NCI Holder receives the same amount in respect of that payment as if no such deduction had been made from the payment, except that no Additional Amount is payable: (i) to the extent that the relevant tax is imposed or levied by virtue of a NCI Holder, or a beneficial owner, of the NCIs having some connection (whether present, past or future) with a Relevant Jurisdiction or being or having been engaged in any activity, trade or business in a Relevant Jurisdiction, other than being a holder, or a beneficial owner, of the NCIs; (ii) to the extent that the relevant tax is imposed or levied by virtue of a holder, or a beneficial owner, of the NCIs not complying with any statutory requirements or not having made a declaration of non-residence in, or other lack of connection with, the Relevant Jurisdiction or similar claim for exemption, if the Issuer or its agent has provided the holder, or the beneficial owner, of the NCIs with at least 60 days' prior written notice of an opportunity to comply with such statutory requirements or make a declaration or claim; (iii) to the extent that the relevant tax is a United States "back-up" withholding tax; (iv) to the extent that the relevant tax is imposed or levied on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such directive; or (v) to the extent the relevant NCI is presented for payment by or on behalf of a NCI Holder who would have been able to avoid such withholding or deduction by presenting to another Paying Agent in a member state of the European Union appointed by the Issuer at that time. 7.3 No set-off or offsetting rights A NCI Holder has: (a) no right to set off any amounts owing by it to any National Entity against any claims owing by any National Entity to it in respect of any Component Instrument; and (b) no offsetting rights or claims on any National Entity if a National Entity does not pay a Distribution or interest when scheduled under any Component Instrument. 42

44 7.4 Payments in respect of NCIs Subject to all applicable fiscal or other laws and regulations and to clause 7.5 ("Payments in respect of a Registered Global NCI") below: (a) (b) each payment in respect of a Distribution on a NCI (whether or not in global form) will be made by cheque and mailed to the NCI Holder of record at such Holder's address as it appears on the Register on the relevant Record Date; and any payment in respect of the Redemption Price or the Liquidation Amount (as the case may be) of a NCI (whether or not in global form) will be made by cheque against presentation and surrender of the NCI at the Specified Office of the Registrar or any of the Paying Agents, provided, however, that a NCI Holder may receive such payment by direct transfer if appropriate direct transfer instructions have been received by the Registrar or the Paying Agent (as the case may be) in sufficient time prior to the relevant Payment Date. NCI Holders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due if the due date is not a Business Day, if the NCI Holder is late in surrendering a NCI (if required to do so) or if a cheque mailed in accordance with this clause 7.4 ("Payments in respect of NCIs") arrives after the due date for payment. 7.5 Payments in respect of a Registered Global NCI For so long as any of the NCIs is represented by a Registered Global NCI held on behalf of Euroclear and/or Clearstream, Luxembourg, the registered holder of a Registered Global NCI is the only person entitled to receive payments in respect of NCIs represented by such Registered Global NCI and the Issuer is discharged by payment to, or to the order of, the registered holder of such Registered Global NCI in respect of each amount so paid. Each of the persons shown in the records of Euroclear or Clearstream, Luxembourg as the beneficial holder of a particular nominal amount of a NCI represented by such Registered Global NCI must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for that person's share of each payment so made by the Issuer to the registered holder of that Registered Global NCI. 7.6 Payment to joint NCI Holders A payment to any one of joint NCI Holders will discharge the Issuer's liability in respect of the payment. 7.7 Time limit for claims To the fullest extent permitted by law, a claim against the Issuer for a payment of the Liquidation Amount, any Distribution or the Redemption Price under a NCI is void unless made within 10 years from the date on which payment first became due. 8. CAPITAL DISQUALIFICATION EVENT 8.1 Capital Disqualification Event Notwithstanding any other provision of these NCI Terms, a "Capital Disqualification Event" will occur if: (a) the NCIs would not be eligible to qualify as Tier 1 Capital for National on a Level 1 or a Level 2 basis (except where such non-qualification is only as a result of any applicable limitation on the amount or composition of National's Tier 1 Capital); and (b) APRA has confirmed to National in writing that the NCIs would not be eligible to qualify as Tier 1 Capital for National on a Level 1 or a Level 2 basis. 8.2 Consequences of Capital Disqualification Event On and from the occurrence of a Capital Disqualification Event: (a) clause 3.3 ("Distributions subject to Issuer having Available Amount"), clause 3.4 ("Distributions are non-cumulative") and clause 5 ("Conversion") shall be taken not to apply; (b) the Issuer must pay Distributions calculated in accordance with clause 3.1 ("Distributions") on the Distribution Payment Dates (to the maximum extent permitted by applicable law); (c) the NCIs cease to be Convertible; 43

45 (d) (e) the definition of "Redemption Price" in clause 4.3 ("Redemption Price") shall be taken to be deleted and replaced with the following definition: "Redemption Price means the Liquidation Amount together with any accumulated but unpaid Distributions."; and any consequential amendments or additions to these NCI Terms necessary to give effect to clauses 8.2(a), 8.2(b), 8.2(c) and 82(d) ("Consequences of Capital Disqualification Event") above are deemed to be made to these NCI Terms. 9. TITLE AND TRANSFER OF NCIS 9.1 Title Title to a NCI passes when details of the transfer are entered in the Register. 9.2 Register conclusive as to ownership Entries in the Register in relation to a NCI constitute conclusive evidence that the person so entered is the absolute owner of the NCI subject to correction for fraud or error. 93 Non-recognition of interests Except as required by law and as provided in this clause 9 ("Title and transfer of NCIs"), the Issuer, the Registrar, the Paying Agents and the Transfer Agent must treat the person whose name is entered in the Register as the NCI Holder as the absolute owner of that NCI. No notice of any trust or other interest in, or claim to, any NCI will be entered in the Register. None of the Issuer, the Registrar, the Paying Agents or the Transfer Agent need take notice of any trust or other interest in, or claim to, any NCI, except as ordered by a court of competent jurisdiction or required by law. For so long as any of the NCIs is represented by a Registered Global NCI held on behalf of Euroclear and/or Clearstream, Luxembourg: (a) with respect to the payment of amounts in respect a NCI, the registered holder of the Registered Global NCI shall be treated by the Issuer as the holder of such nominal amount of such NCIs in accordance with and subject to the terms of the Registered Global NCI; and (b) for each purpose other than that provided in paragraph (a) above, each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular nominal amount of NCIs (in which regard any certificate or other document issued by any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer as the holder of such nominal amount of such NCIs. The expression "NCI Holder" shall be construed accordingly. This clause 9.3 ("Non-recognition of interests") applies whether or not a payment has been made when scheduled on a NCI and despite any notice of ownership, trust or interest in the NCI. 9.4 Joint holders Where two or more persons are entered in the Register as the joint NCI Holders then they are taken to hold the NCI as joint tenants, but the Registrar is not bound to register more than three persons as joint holders of a NCI. 9.5 Transfers of NCIs represented by a Registered Global NCI For so long as any of the NCIs is represented by a Registered Global NCI held on behalf of Euroclear and/or Clearstream, Luxembourg, interests in the Registered Global NCI will be transferable only in accordance with the rules and procedures for the time being of Euroclear and Clearstream, Luxembourg, as the case may be. Transfers of beneficial interests in NCIs represented by a Registered Global NCI will be effected by Euroclear or Clearstream, Luxembourg, as the case may be, and, in turn, by other participants and, if 44

46 appropriate, indirect participants in such clearing systems acting on behalf of beneficial transferors and transferees of such interests. 9.6 Transfer of NCIs represented by Registered Definitive NCIs Where NCIs are in definitive form, transfers of NCIs may be effected by presentation and, where the transfer is of all of the NCIs represented by the Registered Definitive NCI, surrender of the relevant Registered Definitive NCI (together with the transfer certificate relating thereto duly completed on behalf of the transferor and the transferee) at the Specified Office of the Registrar or the Transfer Agent. If satisfied that the transfer should be registered, the Registrar or the Transfer Agent (as the case may be) will enter the transfer in the Register and authenticate and deliver (or procure the authentication and delivery of) a new Registered Definitive NCI of a like aggregate amount to the Registered Definitive NCI (or the relevant part of the Registered Defmitive NCI) transferred. Delivery will be to the Specified Office of the Registrar or the Transfer Agent (as the case may be) or by uninsured mail (at the risk of the transferee) to such address as the transferee may request. The Registrar or the Transfer Agent (as the case may be) shall only issue a Registered Definitive NCI in multiples of 50,000. NCI Holders will not be required to bear the costs and expenses of effecting any registration of transfer as provided above, except for: (a) any costs or expenses of delivery other than by regular uninsured mail; and (b) that the Issuer may require the payment of a sum sufficient to cover any stamp or other duty, or other tax or other governmental charge that may be imposed in relation to the registration. 10. LIQUIDATION AMOUNT 10.1 Rights on a Winding Up In a winding up or dissolution of the Issuer, an NCI Holder is entitled to payment in cash of an amount equal to the aggregate of the Liquidation Amount and the Accrued Distribution (if any) out of the surplus (if any) available for distribution to members of the Issuer, but no further or other right to participate in the assets of the Issuer or a return of capital in the winding up or dissolution Ranking for Payment An NCI Holder will rank for payment of the Liquidation Amount and the Accrued Distribution (if any): (a) in priority to other members of the Issuer; and (b) junior to all creditors of the Issuer. 11. GENERAL PROVISIONS 11.1 Issues of National shares Except as set out in these NCI Terms, the NCIs carry no right to participate in any offering of securities by any National Entity or other member of the National Group Variation The Issuer LLC Agreement contains provisions for amending the Issuer LLC Agreement (including these NCI Terms) with the consent of NCI Holders and, in certain circumstances, without the consent of NCI Holders. 113 Voting The Issuer LLC Agreement contains provisions for convening meetings of the NCI Holders to consider any matter affecting their interests, including any variation of these NCI Terms which requires the consent of NCI Holders. NCI Holders will have no voting rights in respect of the Issuer, National or any other National Entity. 45

47 11.4 Provision of information Subject to applicable law, NCI Holders are not entitled to be provided with copies of: (a) any notices of general meeting of National or the Issuer; or (b) other documents (including annual reports and fmancial statements) sent by National or the Issuer to holders of ordinary shares or securities (if any) in National or the Issuer Replacement of NCIs If a NCI is damaged or defaced or alleged to have been lost, stolen or destroyed, a new NCI representing the same NCI may be issued on payment of such fee and on such terms (if any) as evidence and indemnity and the payment of out-of-pocket expenses as the Issuer may reasonably determine and on payment of the costs of the Issuer incidental to its investigation of the evidence and, if damaged or defaced, as the tearing up of the old NCI at the Specified Office of the Registrar or any Paying Agent. 12. NOTICES 12.1 Notices Subject to clause 12.2 ("Notices while NCIs are represented by a Registered Global NCI"), all notices regarding the NCIs will be taken to be validly given if: (a) sent by first class mail or (if posted to an address overseas) by airmail to the holders (or the first named of joint holders) at their respective addresses recorded in the Register (which will be deemed to have been given on the fourth day after mailing); or (b) published in a leading English language newspaper of general circulation in Europe (which will be deemed to have been given on the first day of publication) Notices while NCIs represented by a Registered Global NCI For so long as any of the NCIs is represented by a Registered Global NCI held on behalf of Euroclear and/or Clearstream, Luxembourg, there may be substituted for the method of notice provided in clause 12.1 ("Notices"), delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg for communication by them to the NCIs Holders. Any such notice shall be deemed to have been given to the NCI Holders on the second day after the day on which the notice was given to Euroclear and/or Clearstream, Luxembourg Notices while NCIs are listed on a Stock Exchange For so long as any NCIs are listed on a Stock Exchange and the rules of that Stock Exchange (or any other relevant authority) so require, any notice given under this clause 12 ("Notices") will also be published in a daily newspaper of general circulation in Luxembourg (or any other place or places required by those rules) or on the website of the Luxembourg Stock Exchange (as at the Issue Date, GOVERNING LAW The Issuer LLC Agreement and the NCIs are governed by, and shall be construed in accordance with, the laws of the State of Delaware, United States of America. 14 INTERPRETATION AND DEFINITIONS 14.1 Interpretation (a) Unless otherwise specified in these NCI Terms, a reference to a clause or paragraph is a reference to a clause or paragraph of these NCI Terms. (b) If a calculation is required under these NCI Terms, unless the contrary intention is expressed, the calculation will be rounded to five decimal places. (c) Headings and boldings are for convenience only and do not affect the interpretation of these NCI Terms. 46

48 (d) The singular includes the plural and vice versa. (e) A reference to a statute, ordinance, code or other law includes regulations and other instruments under it and consolidations, amendments, re-enactments or replacements of any of them. (I) Unless otherwise specified in these NCI Terms, if an event under these NCI Terms must occur on a stipulated day which is not a Business Day, then the stipulated day will be taken to be the next Business Day. (g) A reference to "E" or "Euro" is a reference to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended from time to time. (h) Calculations, elections and determinations made by the Issuer, National or National directors under these NCI Terms are binding on NCI Holders in the absence of manifest error. (i) (j) Any provisions which refer to the requirements of APRA or any other prudential regulatory requirements will apply only if National is an entity, or the holding company of an entity, subject to regulation and supervision by APRA at the relevant time. Any provisions in these NCI Terms requiring the prior approval of APRA for a particular course of action to be taken do not imply that APRA has given its consent or approval to the particular action as of the Issue Date. (k) The terms "takeover bid", "related body corporate", "relevant interest", "holding company", "whollyowned subsidiary" and "subsidiary", when used in these NCI Terms have the meaning given in the Corporations Act. (1) A reference to a party to an agreement or deed includes a reference to a replacement or substitute of the party according to that agreement or deed. (m) A reference to an agreement or deed includes a reference to that agreement or deed as amended, added to or restated from time to time. (n) The words "includes" or "including", "for example" or "such as" do not exclude a reference to other items, whether of the same class or genus or not Definitions The following words have these meanings in these NCI Terms unless the contrary intention appears: Accrued Distribution means, in respect of an NCI, the greater of: (a) nil; and (b) an amount equal to: (i) the Redemption Price that would have been payable on that NCI had that NCI been redeemed on the date on which the winding up or dissolution commenced, less (ii) the Liquidation Amount. Acquisition Event means: (a) a takeover bid is made to acquire all or some of the ordinary shares in National and the offer is, or becomes, unconditional; and (i) the bidder has at any time during the offer period, a relevant interest in more than 50% of the ordinary shares in National on issue; or (ii) directors of National, acting as a board, issue a statement recommending acceptance of the offer; or (b) a court orders the holding of meetings to approve a scheme of arrangement under Part 5.1 of the Corporations Act which scheme would result in a person having a relevant interest in more than 50% of the ordinary shares in National that will be on issue after the scheme is implemented and either: (i) the holders of National's ordinary shares pass a resolution approving the scheme; or 47

49 (ii) an independent expert issues a report that the proposals in connection with the scheme are in the best interests of the holders of ordinary shares in National, in each case other than where such event is initiated by the directors of National, acting as a board, and the bidder or the person having a relevant interest in the ordinal), shares in National after the scheme is implemented is a non-operating holding company within the meaning of the Banking Act 1959 of Australia. Additional Amount has the meaning given in clause 7.2 ("Gross-up"). Agency Agreement means the agency agreement between the Issuer, National, Deutsche Bank AG, London Branch and Deutsche Bank Luxembourg S.A. to be dated on or around 28 September APRA means the Australian Prudential Regulation Authority or any authority succeeding to its powers and responsibilities. APRA Capital Event means, unless APRA otherwise approves: (a) APRA determines in writing that National has a Tier 1 Capital Ratio of less than 5% (or such other percentage as may be required from time to time by APRA) or a Total Capital Adequacy Ratio of less than 8% (or such other percentage as may be required from time to time by APRA) at either or both of Level 1 or Level 2; (b) APRA issues a written directive to National under section 11CA of the Banking Act 1959 of Australia for National to increase its capital; (c) APRA appoints a statutory manager to National under subsection 13A(1) of the Banking Act 1959 or the assumption by APRA of control under Australian banking law or proceedings are commenced for the winding-up of National (other than solvent reconstructions approved by APRA, including in relation to forming a holding company); or (d) the retained earnings of National have become negative. APRA Condition means: (a) unless APRA otherwise agrees: (i) the payment of the Distribution (including any gross-up in connection with the Capital Instrument) will result in the Total Capital Adequacy Ratio or the Tier 1 Capital Ratio of National (on a Level 1 basis) or of National Group (on a Level 2 or, if applicable, Level 3 basis) not complying with APRA's then current capital adequacy guidelines as they are applied to National or National Group (as the case may be) at the time; (ii) the payment of the Distribution (or any corresponding payment on a Component Instrument) would result in a National Entity becoming, or being likely to become, insolvent; or (iii) the payment of the Distribution (including any gross-up in connection with the Capital Instrument) will exceed Distributable Profits as at the Distribution Payment Date for that Distribution; or (b) APRA otherwise objects to the payment of the Distribution. Available Amount has the meaning given in clause 3.3 ("Distributions subject to Issuer having Available Amount"). Business Day means a day which is both: (a) a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in London, Melbourne, Sydney and New York; and (b) a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System (the TARGET System) is open. Calculation Agent means Deutsche Bank AG, London Branch, or any successor calculation agent appointed in accordance with the Agency Agreement. Capital Disqualification Event has the meaning given in clause 8 ("Capital Disqualification Events"). Capital Instrument means the capital instrument comprising each of the Component Instruments. 48

50 Change in Law means there is an introduction of, an amendment or clarification to or change in (or announcement of a prospective introduction of, amendment or clarification to or change in) a law or regulation of the Commonwealth of Australia or any State or Territory thereof or any directive, order, standard, requirement, guideline or statement of APRA (whether or not having the force of law). Clearstream, Luxembourg means Clearstream Banking, sociite anonyme or its successor. Component Instruments means each of the NCIs, the Subordinated Debentures, the Convertible Debentures, the Preference Shares (if issued), the LLC Notes, the Deed of Covenant and the NCI Subordinated Guarantee. Conversion has the meaning given in clause 5.1 ("Meaning of Conversion"), and Convert, Convertible and Converted have a corresponding meaning. Conversion Date means the date determined according to clause 53 ("Conversion Dates"). Conversion Event has the meaning given in clause 5.2 ("Conversion"). Conversion Notice means a notice given by the Issuer according to clause 5.4 ("Conversion Notice"). Convertible Debenture Deed Poll means the convertible debenture deed poll to be made by National on or about 28 September Convertible Debentures means the convertible debentures issued by National to the Issuer on the Issue Date on the Convertible Debenture Terms and convertible into Preference Shares on the occurrence of the Conversion Event. Convertible Debenture Terms means the terms of the Convertible Debentures set out in the schedule to the Convertible Debenture Deed Poll. Corporations Act means the Corporations Act 2001 of Australia. D has the meaning given in clause 3.1 ("Distributions"). Deed of Covenant means the deed so named to be dated on or about 28 September 2006 between National, National LLC 1 and the Issuer. Determination Date has the meaning given in clause 3.1 ("Distributions"). Distributable Profits means an amount calculated in accordance with the following formula: Distributable Profits = A B where: A is the consolidated net profit after income tax of National (determined before any interest, dividends or distributions paid or payable by a member of National Group on its Upper Tier 2 Capital and Tier 1 Capital) for the immediately preceding two six-monthly financial periods for which results have been publicly announced by National (or such other amount as determined by APRA in its discretion to be appropriate in National's circumstances for the purposes of paying dividends or distributions on National Group's Upper Tier 2 Capital and Tierl Capital); and B is the aggregate amount of any dividends or distributions paid or payable by a member of National Group before the relevant Distribution Payment Date on its Upper Tier 2 Capital and Tier 1 Capital in relation to the 12 month period prior to the most recent Distribution Payment Date, but not including any dividend or distribution paid or payable to a member of National Group by another member of National Group. Distribution has the meaning given in clause 3.1 ("Distributions"). Distribution Payment Date has the meaning given in clause 3.2 ("Distribution Payment Dates"). Distribution Period means, in respect of a NCI: (a) for the first Distribution Period, the period from (and including) the Issue Date to (and including) the first Distribution Payment Date; and (b) each subsequent period from (but not including) a Distribution Payment Date to (and including) the next Distribution Payment Date. Distribution Rate has the meaning given in clause 3.1 ("Distributions"). 49

51 EURIBOR has the meaning given in clause 3.1 ("Distributions"). Euroclear means Euroclear Bank SA/NV or its successor. Euro-zone has the meaning given in clause 3.1 ("Distributions"). Exchange Event has the meaning given in the Issuer LLC Agreement. Initial Margin means 0.95% per annum. Issue Date means the date on which the NCIs are issued. Issuer means National Capital Instruments [Euro] LLC 2, a limited liability company established under the laws of Delaware, United States of America. Issuer LLC Agreement means the limited liability company agreement relating to the Issuer dated 5 September 2006 (as amended and restated). Level 1, Level 2 and Level 3 means, in respect of the Total Capital Adequacy Ratio, the Tier 1 Capital Ratio or Tier 1 Capital, those terms as defined by APRA from time to time. Liquidation Amount has the meaning given in clause 1 ("Liquidation Amount"). LLC Manager means National Capital Holdings. LLC Note Deed means the deed to be entered into between National, National LLC 1 and the Issuer in relation to the LLC Notes. LLC Notes means the subordinated notes issued by National LLC 1 to the Issuer on the LLC Note Terms. LLC Note Terms means the terms of the LLC Notes set out in the schedule to the LLC Note Deed. Luxembourg Paying Agent means Deutsche Bank Luxembourg S.A. or any successor Luxembourg paying agent appointed in accordance with the Agency Agreement. Margin has the meaning given in clause 3.1 ("Distributions"). National means National Australia Bank Limited (ABN ). National Capital Holdings means National Capital Holdings I Inc., a Delaware corporation. National Conversion Notice means a conversion notice given by National under clause 4.2(b) ("Conversion") of the Convertible Debenture Terms. National Entity means each of the Issuer, National Head Office, National New York Branch, National LLC 1, the LLC Manager and National Capital Holdings. National Group means National and its controlled entities. National Head Office means National acting through its head office at Level 13, 140 William Street, Melbourne, Victoria, Australia National LLC 1 means National Capital Instruments [Euro] LLC 1, a limited liability company established under the laws of Delaware, United States of America. National New York Branch means National acting through its branch office located at 245 Park Avenue, New York, New York, United States of America. NCI means: (a) for so long as the NCIs are represented by a Registered Global NCI, a unit of f50,000 in respect of the Registered Global NCI; or (b) otherwise, a Registered Definitive NCI. NCI Holder means a person Registered as the holder of a NCI (including persons jointly Registered) as the context may require. NCI Subordinated Guarantee means the guarantee deed poll given on or about the Issue Date by National in favour of NCI Holders. NCI Terms means these terms and conditions. Optional Distribution has the meaning given in clause 3.5(b) ("Restrictions in the case of non-payment"). 50

52 Ordinary Resolution has the meaning given in the Issuer LLC Agreement. Par Redemption Amount means, in respect of a NCI, the Liquidation Amount together with: (a) if the Redemption Date is also a Distribution Payment Date, any accrued but unpaid Distribution for the then current Distribution Period; or (b) if the Redemption Date is not also a Distribution Payment Date, any accrued but unpaid Distribution for the then current Distribution Period to the Redemption Date calculated as if the Redemption Date were a Distribution Payment Date. Paying Agent means the Principal Paying Agent, the Luxembourg Paying Agent and each other paying agent appointed in accordance with the Agency Agreement. Paying Agent Jurisdiction has the meaning given in clause 7.2 ("Gross-up"). Payment Date means a Distribution Payment Date, the Redemption Date or any other date on which the Issuer is to make a payment in respect of a NCI. Preference Share means a fully paid preference share in the capital of National issued on Conversion on the Preference Share Terms. Preference Share Terms means the terms of issue of the Preference Shares annexed to the terms of issue of the Convertible Debentures. Principal Paying Agent means Deutsche Bank AG, London Branch or any successor principal paying agent appointed in accordance with the Agency Agreement. Record Date means: (a) in respect of any Distribution to be made by the Issuer under these NCI Terms on a Distribution Payment Date, the date which is one Business Day before the Distribution Payment Date or such other date as may be approved by the Issuer; or (b) in respect of any Optional Distribution, the Business Day prior to the date of payment of the Optional Distribution that is determined by the Issuer. Redemption has the meaning given in clause 4.1 ("Redemption") and Redeem, Redeemable and Redeemed have the corresponding meaning. Redemption Amounts means: (a) the proceeds of redemption of the Convertible Debentures; and (b) the Excluded Interest Amounts (if any) as such term is defined in the LLC Note Terms. Redemption Date means the date specified according to clause 4.4 ("Redemption Notice") or, if NCIs are not redeemed on that day, the date on which the NCIs are redeemed. Redemption Notice means a notice given by the Issuer according to clause 4.4 ("Redemption Notice"). Redemption Price has the meaning given in clause 4.3 ("Redemption Price"). Reference Banks has the meaning given in clause 3.1 ("Distributions"). Register means the register, including any branch register, of holders of NCIs established and maintained by, or on behalf of, the Issuer. Registered means recorded in the Register. Registered Definitive NCIs has the meaning given in clause 2.2 ("Registered Global NCIs and Registered Definitive NCIs"). Registered Global NCI has the meaning given in clause 2.2 ("Registered Global NCIs and Registered Definitive NCIs"). Registrar means Deutsche Bank Luxembourg S.A. or any other person appointed by the Issuer to maintain the Register. Regulatory Event means: (a) a Change in Law; 51

53 (b) National receives an opinion of nationally recognised legal counsel in Australia experienced in such matters as to the effect of a Change in Law; or (c) there is any statement, notification, or advice by APRA or a decision by any court or other authority interpreting, applying or administering any law, regulation, directive, order, standard, requirement, guideline or statement, in each case on or after the Issue Date to the effect that the Capital Instrument is not, or will not within 90 days be, eligible (in whole or in part) for inclusion in National's Tier 1 Capital on a Level 1, Level 2 or Level 3 (if applicable) basis. Relevant Jurisdiction has the meaning given in clause 7.2 ("Gross-up"). Screen Page has the meaning given in clause 3.1 ("Distributions"). Specified Office means, in the case of: (a) the Principal Paying Agent, 'Winchester House, 1 Great Winchester Street, London EC2N 2DB, United Kingdom; and (b) the Registrar, the Transfer Agent and the Luxembourg Paying Agent, 2 Boulevard Konrad Adenauer, L-1115 Luxembourg, or, in each case, such other office as may be notified to the NCI Holders from time to time. Step-Up Date means 29 September 2016 being the Distribution Payment Date falling on or immediately after the tenth anniversary of the Issue Date. Stock Exchange means the Luxembourg Stock Exchange or any other stock exchange on which the NCIs may be listed from time to time. Subordinated Debenture Deed Poll means the subordinated debenture deed poll to be made by National New York Branch on or about 28 September Subordinated Debentures means the subordinated debentures issued by National New York Branch to National LLC 1 in accordance with the Subordinated Debenture Terms. Subordinated Debenture Terms means the terms of the Subordinated Debentures set out in the schedule to the Subordinated Debenture Deed Poll. Tax Act means the Income Tax Assessment Act 1936 (1936 Act), the Income Tax Assessment Act 1997 (1997 Act) or both the 1936 Act and the 1997 Act, as appropriate. Tax Event means that, after the Issue Date, National receives an opinion from a reputable legal counsel or other tax adviser in Australia, the United States, the United Kingdom or New Zealand or any other jurisdiction, experienced in such matters that there is more than an insubstantial risk that, as a result of a Tax Law Change: (a) there is a requirement to gross-up any Distribution, interest payment or dividend on the Capital Instrument or any Component Instrument; (b) the rights entitling National to have transferred to it the LLC Notes upon the occurrence of a Conversion Event are, or will be, treated as controlled foreign entity equity for the purposes of Subdivision 820-D of the Tax Act; (c) a payment in connection with the Capital Instrument or any Component Instrument (except the Preference Shares) would be a frankable dividend or frankable distribution for Australian income tax purposes, other than by reason of a Regulatory Event; (d) income of National LLC 1, National Capital Holdings, the LLC Manager or the Issuer would be subject to United States federal income tax or Australian income tax; (e) (f) (g) one or more National Entity would be exposed to more than a de minimis amount of other taxes, assessments or other governmental charges in connection with the Capital Instrument; the Subordinated Debentures would cease to be treated as equity of National for United States tax purposes; or National New York Branch would suffer a material adverse change to its assessment to United States federal income tax in connection with its deployment of Subordinated Debentures issue proceeds. 52

54 Tax Law Change means: (a) an amendment to, change in or announced prospective change in any laws or regulations under those laws; (b) a judicial decision interpreting, applying or clarifying those laws or regulations; (c) an administrative pronouncement or action that represents an official position, including a clarification of an official position of the governmental authority or regulatory body making the administrative pronouncement or taking any action; or (d) a challenge asserted or threatened in connection with an audit of any National Entity or any member of the National Group, or a challenge asserted or threatened in writing against any other taxpayer that has raised capital through the issuance of securities that are substantially similar to the Capital Instruments or any of its Component Instruments, which amendment or change is announced or which action or clarification or challenge occurs on or after the Issue Date. Tier 1 Capital means tier 1 capital as defined by APRA from time to time. Tier 1 Capital Ratio means at any time the ratio as defined by APRA. Total Capital Adequacy Ratio means at any time the ratio as defined by APRA. Transfer Agent means the Luxembourg Paying Agent or any successor transfer agent appointed in accordance with the Agency Agreement. Treaty has the meaning given in clause 3.1 ("Distribution"). Unpaid Distribution has the meaning given in clause 3.4 ("Distributions are non-cumulative"). Upper Tier 2 Capital means upper tier 2 capital as defined by APRA from time to time. 53

55 Initial Issue of NCIs SUMMARY OF PROVISIONS RELATING TO THE NCIS IN GLOBAL FORM NCIs will be issued in registered form and will be initially represented by interests in a Registered Global NCI which will be registered in the name of a nominee of, and deposited with a common depositary for, Euroclear and Clearstream, Luxembourg on the Issue Date. Upon the registration of the NCIs in the name of a nominee of Euroclear and Clearstream, Luxembourg, and delivery of the Registered Global NCI to the common depositary for Euroclear and Clearstream, Luxembourg, Euroclear and Clearstream, Luxembourg will credit each subscriber with such number of NCIs equal to the number thereof for which that subscriber has subscribed and paid. Accountholders So long as an NCI is registered in the name of a nominee for Euroclear and Clearstream, Luxembourg, the nominee for Euroclear and Clearstream, Luxembourg will be the sole registered owner or holder of the NCIs represented by the relevant Registered Global NCI and will be treated by the Issuer as the holder of the NCI with respect to all payments (see Summary of Provisions Relating to the NCIs in Global Form Payments below). As set forth under Terms and Conditions of the NCIs Title and transfer of NCIs and under Summary of Provisions Relating to the NCIs in Global Form Transfers of Interests below, the persons shown in the records of Euroclear and Clearstream, Luxembourg or any other clearing system (an "Alternative Clearing System") as the holders of interests in the NCI evidenced by a Registered Global NCI (each an "Accountholder") will not be entitled to have NCIs registered in their names, will not receive or be entitled to receive physical delivery of Registered Definitive NCIs but will be considered holders of the nominal amount of NCIs recorded in their name in the clearing system for all other purposes (other than payment). Accordingly, each Accountholder must rely upon both the NCI Terms as well as the rules and procedures of Euroclear and Clearstream, Luxembourg, as the case may be, to exercise the rights and obligations of an NCI Holder under the NCI Terms. Exchange Interests in the Registered Global NCI will be exchangeable in whole but not in part (free of charge to the NCI Holder) for Registered Definitive NCIs upon the occurrence of an Exchange Event. An "Exchange Event" will occur where: (a) the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and in any case no successor clearing system satisfactory to the Issuer is available; (b) the Conversion Event has occurred but National has failed to issue the Preference Shares in accordance with the NCI Terms; or (c) the Issuer has been or will become subject to adverse tax consequences which would not be suffered were the NCIs in the form of Registered Definitive NCIs. Upon the occurrence of an Exchange Event, the Issuer may give notice to the Registrar of its intention to exchange the Registered Global NCI for Registered Defmitive NCIs on or after the Exchange Date and, in the case of the Exchange Event described in (a) or (b) above, Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any holder of an interest in the Registered Global NCI) may give notice to the Registrar requesting exchange. For these purposes, "Exchange Date" means a day specified in the notice requiring exchange falling not less than 10 days after that on which such notice is given and being a day on which banks are open for general business in the place in which the specified office of the Registrar is located. Payments Each Accountholder must look solely to Euroclear and Clearstream, Luxembourg or such Alternative Clearing System, as the case may be, for its share of each payment made by the Issuer to the registered Holder subject to and in accordance with the respective rules and procedures of Euroclear and Clearstream, Luxembourg or such Alternative Clearing System, as the case may be. Such persons shall have no claim directly against the Issuer or National in respect of payments due on the NCIs for so long as 54

56 the NCIs are represented by such Registered Global NCI and such obligation of the Issuer and National will be discharged by payment to the registered holder of the NCIs in respect of each amount so paid. Transfers of Interests Accountholders will only be able to transfer their beneficial interests in the NCIs in accordance with the restrictions described under Terms and Conditions of the NCIs Title and transfer of NCIs and, for so long as any of the NCIs is represented by a Registered Global NCI held on behalf of Euroclear and/or Clearstream, Luxembourg, with the rules and procedure of Euroclear and Clearstream, Luxembourg or the Alternative Clearing System, as the case may be. Preference Shares On conversion as described in Terms and Conditions of the NCI Terms Conversion, National will apply to Euroclear and Clearstream, Luxembourg, to accept the Preference Shares. If these applications are accepted, the Preference Shares, which will be in registered form, will be initially represented by interests in a single global certificate in registered form (the "Registered Global Preference Share") which will be registered in the name of the nominee of, and deposited with a common depository for, Euroclear and Clearstream, Luxembourg on the Conversion Date. Upon the registration of the Preference Shares in the name of a nominee of Euroclear and Clearstream, Luxembourg and delivery of the Registered Global Preference Share to the common depository for Euroclear and Clearstream, Luxembourg, Euroclear and Clearstream, Luxembourg will credit each subscriber with a number of Preference Shares equal to the number of NCIs in respect of which the subscriber held an interest through the Registered Global NCI prior to the Conversion Date. The provisions above in relation to Accountholders, &change, Payments and Transfers of Interests will thereafter apply and a reference to NCIs (and holders of interests therein) will be taken to be a reference to Preference Shares (and holders of interests therein). If those applications are not accepted, registered definitive certificates will be issued in respect of the Preference Shares to each Accountholder in respect of an NCI (if on the Conversion Date an Exchange Date has not occurred), or otherwise to each NCI Holder, on the Conversion Date. 55

57 SUMMARY OF PRINCIPAL DOCUMENTS The following is a summary of certain provisions of the principal documents relating to the transactions described in this Prospectus and is qualified in its entirety by reference to the detailed provisions of the Transaction Documents. Terms of the NCI Subordinated Guarantee General The terms of the NCI Subordinated Guarantee (the "NCI Guarantee Terms") will be set out in a deed poll given by National in favour of NCI Holders. Under the NCI Subordinated Guarantee National irrevocably guarantees on a subordinated basis and to the extent set out in the NCI Subordinated Guarantee Terms the following amounts (the "Guaranteed Amounts") payable by the Issuer in respect of the NCIs. The Guaranteed Amounts are: any accrued Distributions; the Redemption Price; and if the Issuer is wound up, the Liquidation Amount, in each case including any Additional Amount (as described below) and in each case to the extent the amount is unpaid and, except where there is a Capital Disqualification Event (as described in Terms of the NCI Subordinated Guarantee Capital Disqualification Event below), the Issuer has funds available to pay that amount after payment of any creditors it may have. Additional Amounts National will make all payments under the NCI Subordinated Guarantee without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, National must pay the full amount required to be deducted to the relevant revenue authority and an additional amount ("Additional Amount") to the NCI Holder so that the NCI Holder receives the same amount in respect of that payment as if no such deductions had been made from the payment, except that no Additional Amount is payable in the circumstances under the NCI Terms as described in the Terms and Conditions of the NCIs Payments to NCI Holders Gross-Up. Capital Disqualification Event If a Capital Disqualification Event occurs (as described in the Terms and Conditions of the NCIs Capital Disqualification Event), a claim on the NCI Subordinated Guarantee is not subject to the limitation that the Issuer has funds available to pay that amount but, after the occurrence of an Assignment Date, a claim on the NCI Subordinated Guarantee in respect of an unpaid Distribution will be subject to equivalent restrictions relating to retained earnings to those applying to payments of interest on the Convertible Debentures after that date. Obligations of National Under the NCI Subordinated Guarantee, National agrees that it will: comply with its obligations described in Terms and Conditions of the NCIs Distributions Restrictions in the case of non-payment; on the occurrence of the conversion of the NCIs: (a) comply with National's obligations to issue the Preference Shares in accordance with the Convertible Debenture Terms as directed by the Issuer; (b) use its reasonable endeavours to list the Preference Shares on the Stock Exchange; and (c) pay or reimburse the NCI Holders any amounts on account of certain taxes incurred in connection with the conversion; and 56

58 on the occurrence of an Exchange Event, procure that the Issuer issues Registered Definitive NCIs if required to do so by the NCI Terms, the Issuer LLC Agreement or the Registered Global NCI. Status and liquidation The NCI Subordinated Guarantee constitutes an unsecured, subordinated obligation of National. In the event of the dissolution, liquidation, termination or winding up of National, whether voluntary or involuntary, any claim in respect of the NCI Subordinated Guarantee will rank senior to the claims of the ordinary shares of National and pan passu with the claims of the holders of the Convertible Debentures, the Subordinated Debentures and the Preference Shares (if issued) and junior to the claims of all depositors and other creditors of National, other than creditors expressed to rank equally with, or junior to, the NCI Subordinated Guarantee. Amendment and Modifications The NCI Subordinated Guarantee provides that the NCI Guarantee Terms may be amended with the prior written approval of APRA (if required) but without the consent or approval of the Issuer or NCI Holders if National is of the opinion that the amendment: is of a formal, minor or technical nature; is made to cure any ambiguity or correct any manifest error; is expedient for the purpose of enabling NCIs to be listed or to remain listed on a stock exchange or lodged in a clearing system or to remain lodged in a clearing system or to be offered for sale or for subscription under the laws for the time being in force in any place and it is otherwise not considered by National to be materially prejudicial to the interests of the NCI Holders as a whole; is necessary to comply with the provisions of any statute or the requirements of any statutory authority; or in any other case, will not materially adversely affect the NCI Holders' rights. In any other case, the NCI Guarantee Terms may be amended or added to by National if the amendment or addition has been approved by a Special Resolution. No Set-off or Offsetting Rights An NCI Holder has no right to set-off any amounts owing by it to any National Entity against any claims owing to it by any National Entity, including under the NCI Subordinated Guarantee. An NCI Holder also has no offsetting rights or claims on any National Entity if a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Governing Law The NCI Subordinated Guarantee will be governed by, and construed in accordance with, English law. National irrevocably submits to the non-exclusive jurisdiction of the courts of England to settle any disputes arising out of the NCI Subordinated Guarantee. National irrevocably appoints National Australia Bank Limited London Branch, at its registered office at 88 Wood Street, London, EC2V 7QQ as its agent for the service of process in England. Terms of the LLC Notes General National LLC 1 will issue the LLC Notes to the Initial Subscriber, who will then sell the LLC Notes (together with the Convertible Debentures) to the Issuer, as more fully described under Subscription and Sale Subscription, Assignment and Sale of the Relevant Instruments below. Each LLC Note will be a fully paid subordinated note, in registered form, denominated in Euro, with a face value and principal amount of 50,000 ("Face Value"). The LLC Notes will rank pan passu among themselves in all respects. The terms of the LLC Notes (the "LLC Note Terms") will be set out in a tripartite deed between National, National LLC 1 and the Issuer (the "LLC Note Deed"). 57

59 Interest LLC Note Interest The LLC Notes will pay interest ("LLC Note Interest") at a floating rate. LLC Note Interest will be paid quarterly in arrears on 29 March, 29 June, 29 September and 29 December of each year commencing on 29 December 2006 (each a "LLC Note Interest Payment Date"). The LLC Note Interest Payment Dates will match the Distribution Payment Dates in respect of the NCIs (so long as the NCIs are on issue). The amount of each payment of LLC Note Interest will be calculated in accordance with the relevant formula set out in the LLC Note Terms, which, will equal the calculation of the Distributions on the NCIs (see Terms and Conditions of the NC's Distributions above). LLC Note Interest limitations, tests and conditions Payment of LLC Note Interest on the LLC Notes is subject and limited to the interest received by National LLC 1 from National New York Branch on the Subordinated Debentures. Payment of interest on the Subordinated Debentures is subject to tests and conditions (see Summary of Principal Documents Terms of the Subordinated Debentures below). Further, a payment of LLC Note Interest is subject to the LLC Manager resolving to pay the LLC Note Interest and the specific condition that no APRA Condition exists. The circumstances in which an "APRA Condition" will exist are set out in the NCI Terms (see Terms and Conditions of the NC's Interpretation and Definitions Definitions above). LLC Note Interest will be cumulative and, accordingly, any unpaid LLC Note Interest ("Accumulated LLC Note Interest") will accumulate. However: (a) interest will not accrue on any unpaid amount of Accumulated LLC Note Interest; (b) National LLC 1 is not permitted (unless approved by APRA) to pay any Accumulated LLC Note Interest until the first LLC Note Interest Payment Date thereafter on which no APRA Condition exists and the other interest payment tests are met; and (c) the Issuer (as holder of the LLC Notes) will have no claim for any Accumulated LLC Note Interest, or for any part of any Accumulated LLC Note Interest, because, upon the occurrence of a Conversion Date or Redemption Date, the Assignment will occur and, accordingly, the rights to such Accumulated LLC Note Interest will vest in National Head Office pursuant to the Assignment (see further Summary of Principal Documents Terms of the LLC Notes Assignment below). Failure to pay in full, for any reason, LLC Note Interest on or within seven Business Days of the scheduled LLC Note Interest Payment Date, will result in the Issuer having insufficient funds to pay, in full, the corresponding Distribution scheduled to be paid on the corresponding Distribution Payment Date and, accordingly, will trigger the Conversion Event (see Terms and Conditions of the NCIs Conversion above). Failure to pay the corresponding Distribution in respect of the NCIs will also immediately trigger distribution restrictions for National as described in the Terms and Conditions of the NCIs Distributions- Restrictions in the case of non-payment above and, when the Preference Shares are issued, substantially in the form described in Summary of Principal Documents Terms of the Preference Shares Dividends- Distribution Restrictions below but it will not constitute an event of default and it will not entitle the holder of the LLC Notes to take any other action, including, for example, to require that the LLC Notes be redeemed. On and from the Assignment but prior to the LLC Notes being redeemed, National LLC l's obligation to pay LLC Note Interest may be satisfied by National New York Branch paying all interest (if any) payable on the Subordinated Debentures to National Head Office (see further Summary of Principal Documents Terms of the LLC Notes Assignment below). Additional Amounts National LLC 1 will make all payments of LLC Note Interest without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, 58

60 National LLC 1 must pay the full amount required to be deducted to the relevant revenue authority and, subject to: (a) a demand being made for that amount by the Issuer (as holder of the LLC Notes); and (b) having received sufficient amounts from National New York Branch in respect of the Subordinated Debentures or from National under the LLC 1 Gross-Up Indemnity (as defined below) and the other interest payment tests are met, an additional amount ("Additional Amount") to the Issuer (as holder of the LLC Notes) so that the Issuer receives the same amount in respect of that payment as if no such deduction had been made from the payment. National will covenant in the Deed of Covenant to indemnify National LLC 1 for the payment of any Additional Amounts (See Summary of Principal Documents Terms of the Deed of Covenant Undertakings of National below) (the "LLC 1 Gross-up Indemnity"), subject to the same tests and conditions that apply to payment of interest on the Subordinated Debentures. Capital Disqualification Event If a Capital Disqualification Event (as described in the Terms and Conditions of the NCIs Capital Disqualification Event above) occurs, LLC Note Interest will not be subject to the limitations described above under the Summary of Principal Documents Terms of the LLC Notes LLC Note Interest limitations, tests and conditions and will be absolute and unconditional liabilities of National LLC 1 on each Interest Payment Date. Assignment On the Issue Date, National Head Office (the "Assignee") will pay the Initial Subscriber the Assignment Payment (as defined in Subscription and Sale below) in consideration for the rights in connection with the Assignment (as defined below). Payment of the Assignment Payment will entitle the Assignee to receive: (a) on a Conversion Date; (b) on a Redemption Date; or (c) on a Trigger Date after a Capital Disqualification Event occurs, as described in Summary of Principal Documents Terms of the Convertible Debentures Capital Disqualification Event, (an "Assignment Date"), LLC Note Interest and an amount in Euros equal to the Face Value on that number of LLC Notes which equals the number of Convertible Debentures being converted or redeemed on the relevant Assignment Date. Specifically: (a) until an Assignment Date, all rights to principal and interest on the LLC Notes vest in the Issuer (as holder of the LLC Notes prior to the Assignment); but (b) on and from an Assignment Date: (i) all rights to principal and interest payable on LLC Notes in number equal to the number of Convertible Debentures being redeemed or converted on that date will automatically vest in the Assignee (or, where a Capital Disqualification Event has occurred, all the LLC Notes); and (ii) that number of LLC Notes will be automatically transferred to the Assignee, (together the "Assignment"), but without affecting the obligation to pay to the Issuer (as holder of the LLC Notes prior to the Assignment) any Excluded Interest Amounts (as defined below). An "Excluded Interest Amount" is, in respect of an Assignment Date: (a) if the Assignment Date is also a LLC Note Interest Payment Date, any accrued but unpaid LLC Note Interest for the interest period ending on the day before that LLC Note Interest Payment Date; or (b) if the Assignment Date is not also a LLC Note Interest Payment Date and the Assignment Date occurs in connection with a redemption of the NCIs, any amount of LLC Note Interest payable on that date in accordance with the LLC Note Terms in respect of the period since the immediately preceding LLC Note Interest Payment Date (or the Issue Date if there has been no preceding LLC Note Interest Payment Date). 59

61 For the avoidance of doubt "Excluded Interest Amounts" do not include any other amounts of interest (including any Accumulated LLC Note Interest). Notwithstanding the Assignment, any Excluded Interest Amount will be paid by National LLC 1 to the Issuer (as holder of the LLC Notes prior to the Assignment). The Assignment will occur even if National fails to, or is unable on account of applicable law, to issue the Preference Shares on the Conversion Date. Redemption Redemption by holders Except for National Head Office (as Assignee), a holder of the LLC Notes has no right to require the LLC Notes be redeemed. Redemption after Assignment At any time after the Assignment occurs (and with APRAs prior written approval), the LLC Notes may be redeemed by National LLC 1, in its sole discretion, at their Face Value together with accrued interest (if any). The LLC Notes must be redeemed if National New York Branch elects to redeem the Subordinated Debentures. On and from the Assignment occurring, National LLC l's obligation to pay to National Head Office (as Assignee) the Face Value and accrued interest on redemption of the LLC Notes will be satisfied by National New York Branch paying the Face Value and all accrued interest (if any) payable on the Subordinated Debenture to National Head Office. On the Issue Date, National LLC 1 will irrevocably direct National New York Branch to make those payments, without any further act or direction on the part of National LLC 1. Liquidation In the event of the dissolution, liquidation, termination or winding up of National LLC 1, whether voluntary or involuntary, the Assignee is entitled to claim the Face Value and all accumulated and accrued and unpaid LLC Note Interest on the LLC Notes. Any such claim will rank subordinate to all creditors and other indebtedness of National LLC 1 and senior to the LLC 1 Common Securities. Voting and Other Rights The Issuer (as holder of the LLC Notes) has no right to vote as a shareholder of National, nor any right to vote on the management of National, National LLC 1 or any other National Entity. The Issuer (as holder of the LLC Notes) will acknowledge in the LLC Note Terms that a holder has no right to apply for any National Entity to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Amendments and Modifications The LLC Note Terms can be amended with the prior written approval of APRA (if required) but, in certain limited circumstances (see Description of the Issuer Issuer LLC Agreement Amendments and Modifications above), without the consent of the NCI Holders or the Issuer (as holder of the LLC Notes). Any other amendment to the LLC Note Terms will require a Special Resolution of NCI Holders and the approval of the Issuer (as holder of the LLC Notes). No Set-Off or Offsetting Rights The Issuer (as holder of the LLC Notes) has no right to set off any amounts owing by it to any National Entity against any claims owing to it by any National Entity. The Issuer also has no offsetting rights or claims on any National Entity if a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Governing Law The LLC Note Deed, the LLC Note Terms and the LLC Notes will be governed by, and construed in accordance with, English law. 60

62 Terms of the Subordinated Debentures General National New York Branch will issue the Subordinated Debentures to National LLC 1, as more fully described under Subscription and Sale Subscription, Assignment and Sale of the Relevant Instruments below. Each Subordinated Debenture ("Subordinated Debenture") will be a fully paid subordinated note, in registered form, denominated in Euro, with a face value of E50,000 ("Face Value"). The Subordinated Debentures will rank pad passu among themselves in all respects. The Subordinated Debentures will be constituted under a deed poll (the "Subordinated Debenture Deed Poll") and the terms of the Subordinated Debentures (the "Subordinated Debenture Terms") will be scheduled to the Subordinated Debenture Deed Poll. Interest Subordinated Debenture Interest The Subordinated Debentures will pay interest ("Subordinated Debenture Interest") at a floating rate. Subordinated Debenture Interest will be paid quarterly in arrears on 29 March, 29 June, 29 September and 29 December of each year commencing on 29 December 2006 (each a "Subordinated Debenture Interest Payment Date"). The Subordinated Debenture Interest Payment Dates will match the LLC Note Interest Payment Dates in respect of the LLC Notes (so long as the NCIs are on issue). The amount of each payment of Subordinated Debenture Interest will be calculated in accordance with the relevant formula set out in the Subordinated Debenture Terms, which, will equal the calculation of the LLC Note Interest on the LLC Notes (see Summary of Principal Documents Terms of the LLC Notes Interest above). Subordinated Debenture Interest limitations, tests and conditions A payment of Subordinated Debenture Interest is subject to the directors of National resolving to pay that Subordinated Debenture Interest and the specific condition that no APRA Condition exists. The circumstances in which an "APRA Condition" will exist are set out in the NCI Terms (see Terms and Conditions of the NCIs Interpretation and Definitions Definitions above). The APRA Conditions in respect of the Subordinated Debentures will mirror the APRA Conditions in respect of the LLC Notes. Subordinated Debenture Interest will be cumulative and, accordingly, any unpaid Subordinated Debenture Interest will accumulate. However: (a) interest will not accrue on any unpaid amount of Subordinated Debenture Interest ("Accumulated Subordinated Debenture Interest"); (b) National New York Branch is not permitted (unless approved by APRA) to pay any Accumulated Subordinated Debenture Interest until the first Subordinated Debenture Interest Payment Date thereafter on which no APRA Condition exists and the other interest payment tests are met; and (c) any Accumulated Subordinated Debenture Interest can never be distributed to NCI Holders, because, if the Assignment has occurred, National Head Office will be the holder of the LLC Notes and if the Subordinated Debentures are to be redeemed, National LLC 1 has irrevocably directed National New York Branch to pay the redemption amount to National Head Office (see further Summary of Principal Documents Terms of the LLC Notes Assignment and Summary of Principal Documents Terms of the LLC Notes Redemption above). Failure to pay in full, for any reason, Subordinated Debenture Interest on or within seven Business Days of the scheduled Subordinated Debenture Interest Payment Date, will ultimately result in the Issuer having insufficient funds to pay, in full, the corresponding Distribution scheduled to be paid on the corresponding Distribution Payment Date in respect of the NCIs and, accordingly, will trigger the Conversion Event (see Terms and Conditions of the NCIs Conversion). Failure to pay that corresponding Distribution in respect of the NCIs will also immediately trigger distribution restrictions for National as described in the Terms and Conditions of the NCIs Distributions Restrictions in the case of non-payment and, when the Preference Shares are issued, substantially in the form described in Summary of Principal Documents Terms of the Preference Shares Dividends Distribution Restrictions below but it will not constitute an event 61

63 of default and it will not entitle the holder of the Subordinated Debentures to take any other action, including, for example, to require that the Subordinated Debentures be redeemed. Payment of accrued interest on Assignment If an Assignment occurs National New York Branch is required to pay to National LLC 1 (as holder of the Subordinated Debentures) an amount of interest equivalent to any corresponding Excluded Interest Amount (as described under Summary of Principal Documents Terms of the LLC Notes Assignment above). Additional Amounts National New York Branch will make all payments of Subordinated Debenture Interest without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, National New York Branch must pay the full amount required to be deducted to the relevant revenue authority and, subject to: (a) a demand being made for that amount by National LLC 1 (as holder of the Subordinated Debentures); and (b) the same tests and conditions that apply to payment of Subordinated Debenture Interest, an additional amount ("Additional Amount") to National LLC 1 (as holder of the Subordinated Debentures) so that National LLC 1 receives the same amount in respect of that payment as if no such deduction had been made from the payment. Capital Disqualification Event If a Capital Disqualification Event (as described in the Terms and Conditions of the NCIs Capital Disqualification Event) occurs, Subordinated Debenture Interest will not be subject to the limitations described above under Summary of the Principal Documents Terms of the Subordinated Debentures- Interest Subordinated Debenture Interest limitations, tests and conditions and will be absolute and unconditional liabilities of National New York Branch on each Interest Payment Date. Redemption The holder of the Subordinated Debentures has no right to require the Subordinated Debentures to be redeemed. At any time after the occurrence of the Assignment, the Subordinated Debentures may, subject to APRNs prior written approval, be redeemed by National New York Branch, in its sole discretion, at their Face Value together with accrued interest (if any). If the Subordinated Debentures are redeemed at any time after the Assignment, National LLC l's obligation to pay to National Head Office (as Assignee) the Face Value and accrued interest on redemption of the LLC Notes will be satisfied by National New York Branch paying the Face Value and all accrued interest (if any) payable on an equivalent number of Subordinated Debentures to National Head Office. On the Issue Date, National LLC 1 will irrevocably direct National New York Branch to make those payments, without any further act or direction on the part of National LLC 1. Voting and Other Rights National LLC 1 (as holder of the Subordinated Debentures) has no right to vote as a shareholder of National, nor any right to vote on the management of National or any other National Entity. National LLC 1 (as holder of the Subordinated Debentures) will acknowledge in the Subordinated Debenture Terms that a holder has no right to apply for any National Entity to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Liquidation In the event of the dissolution, liquidation, termination or winding up of National, whether voluntary or involuntary, the holder of the Subordinated Debentures will be entitled to claim the Face Value plus any 62

64 accumulated and accrued interest on the Subordinated Debentures. Any such claim will rank senior to the claims of the ordinary shares of National and pari passu with the claims of the holders of the Convertible Debentures, the Preference Shares (if they were issued) and NCI Holders under the NCI Subordinated Guarantee and junior to the claims of all depositors and other creditors of National, other than creditors expressed to rank equally with, or junior to, the Subordinated Debentures. Amendments and Modifications The Subordinated Debenture Terms can be amended with the prior written approval of APRA (if required) but, in certain limited circumstances (see Description of the Issuer Issuer LLC Agreement Amendments and Modifications above), without the consent of the NCI Holders or National LLC 1 (as holder of the Subordinated Debentures). Any other amendment to the Subordinated Debenture Terms will require a Special Resolution of NCI Holders and the approval of National LLC 1 (as holder of the Subordinated Debentures). No Set-Off or Offsetting Rights National LLC 1 (as holder of the Subordinated Debentures) has no right to set-off any amounts owing by it to any National Entity against any claims owing to it by any National Entity. National LLC 1 also has no offsetting rights or claims on any National Entity if a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Governing Law The Subordinated Debenture Deed Poll, the Subordinated Debenture Terms and the Subordinated Debentures will be governed by, and construed in accordance with, English law. Terms of the Convertible Debentures General National Head Office will issue convertible debentures to the Initial Subscriber (the "Convertible Debentures"). The Initial Subscriber will then sell the Convertible Debentures (and the LLC Notes) to the Issuer, as more fully described under Subscription and Sale Subscription, Assignment and Sale of the Relevant Instruments below. Each Convertible Debenture will be a fully paid subordinated convertible note, in registered form, denominated in Euro, with a face value of 50,000 ("Face Value"). The Convertible Debentures will rank pari passu among themselves in all respects. The Convertible Debentures will be constituted under a deed poll (the "Convertible Debenture Deed Poll") and the terms of the Convertible Debentures (the "Convertible Debenture Terms") will be scheduled to the Convertible Debenture Deed Poll. Interest The Convertible Debentures will not bear interest unless: National fails to issue Preference Shares on the occurrence of a Conversion Event (see further Summary of Principal Documents Terms of the Convertible Debentures Failure to Issue Preference Shares below); or a Capital Disqualification Event occurs and the Trigger Date occurs (see further Summary of Principal Documents Terms of the Convertible Debentures Capital Disqualification Event). Redemption The Issuer (as holder of the Convertible Debentures) has no right to require the Convertible Debentures to be redeemed. Subject to APRNs prior written approval, National has the option to redeem: all (but not some) of the Convertible Debentures on the occurrence of a Regulatory Event, a Tax Event or an Acquisition Event, and 63

65 some or all of the Convertible Debentures on the Step-Up Date or any subsequent date which is a Distribution Payment Date in respect of the NCIs, provided that where a Convertible Debenture remains on issue after the Conversion Date, the Issuer may redeem the Convertible Debenture in the circumstances in which it would have been entitled to redeem the Preference Shares had those Preference Shares been issued to or as directed by the holder of the Convertible Debentures on the Conversion Date. "Regulatory Event", "Tax Event" and "Acquisition Event" are defined above in the definitions of the NCI Terms (see Terms and Conditions of the NCIs Interpretation and Definitions Definitions above). Where National elects to redeem the Convertible Debentures, the following events will occur automatically on the date for redemption provided in the Convertible Debenture Terms ("Redemption Date"): the Assignment will occur (see Summary of Principal Documents Terms of the LLC Notes Assignment above); National will redeem the Convertible Debentures for cash at their Face Value; the Issuer, upon receiving the proceeds of the Convertible Debentures and any Excluded Interest Amounts, will redeem the NCIs for cash at the Redemption Price; and the Issuer will be wound up. Conversion The Issuer (as holder of the Convertible Debentures) has no right to require conversion. Following the occurrence of the Conversion Event, the following events will automatically occur on the date for conversion (the "Conversion Date") provided in the Convertible Debenture Terms: the Assignment will occur (see Summary of Principal Documents Terns of the LLC Notes Assignment above); each Convertible Debenture will convert into one Preference Share; the NCIs will be redeemed by the Issuer delivering or directing National to issue the Preference Shares to, or as directed by, the NCI Holders; the Preference Shares will accrue dividends, subject to the applicable payment tests and conditions (see Summary of Principal Documents Terms of the Preference Shares Dividends below); and the Issuer will be wound-up. "Conversion Event" is defined above in clause 5.2 ("Conversion") of the Terms and Conditions of the NCIs (see Terms and Conditions of the NCIs Conversion above). Failure to Issue Preference Shares Limitations on Issue of Preference Shares If on the Conversion Date National is prohibited by law from issuing the Preference Shares, National will issue the Preference Shares if and when it is no longer prohibited from doing so. Under current Australian law, National may be prevented from issuing the Preference Shares on the Conversion Date if: National is in liquidation; APRA has assumed control of National under the Banking Act and APRA does not cause National to issue the Preference Shares; or APRA has appointed a statutory manager under the Banking Act to take control of National's business and the statutory manager does not cause National to issue the Preference Shares. 64

66 Consequences of a failure to Issue Preference Shares In the event that National fails to issue the Preference Shares when required to do so: the Assignment will still occur (see Summary of Principal Documents Terms of the LLC Notes Assignment above); and the Issuer will continue to hold the Convertible Debentures until National is no longer prevented from issuing the Preference Shares. However, on and from the occurrence of the Conversion Event and for so long as the Issuer continues to hold the Convertible Debentures, the Issuer will be entitled, as holder of the Convertible Debentures: prior to the commencement of the winding up of National, to interest on the Convertible Debentures calculated in the same manner and subject to the same tests and conditions as the payment of dividends on the Preference Shares (see Summary of Principal Documents Terms of the Preference Shares Dividends below), had they been issued; and in a winding up of National, to claim an amount in respect of the Convertible Debentures such that the Issuer recovers the same amount as it would have received if the Preference Shares had been issued and were held by it. Capital Disqualification Event Notwithstanding the description of the Convertible Debentures in Summary of Principal Documents Convertible Debentures Conversion, if a Capital Disqualification Event occurs (as described in Terms and Conditions of the NCIs Capital Disqualification Event), the Convertible Debentures will not convert into Preference Shares. If a Capital Disqualification Event occurs, the Assignment (as described in Summary of Principal Documents Terms of the LLC Notes Assignment above) will occur on the first to occur of the events described in clause 5.2 (a) and (b) of the Terms and Conditions of the NCIs (the "Trigger Date"). On and from such Assignment Date, the Issuer shall continue to hold the Convertible Debentures and will be entitled to interest on the Convertible Debentures ("Convertible Debentures Interest") until they are redeemed. Convertible Debentures Interest is payable in arrears on each Distribution Payment Date for the NCIs at a rate equal to the rate payable on the NCIs on the corresponding Distribution Payment Date, subject only to the availability of sufficient retained earnings. Where the Assignment Date occurs on a date that is not a Distribution Payment Date, the Convertible Debentures Interest will be calculated from the Distribution Payment Date in respect of the NCIs immediately preceding the Assignment Date (or if the Assignment occurs before the first scheduled Distribution Payment Date in respect of the NCIs, the issue date in respect of the NCIs). National will make all payments of Convertible Debentures Interest without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, National must pay the full amount required to be deducted to the relevant revenue authority and, subject to a demand being made for that amount by the Issuer (as holder of the Convertible Debentures) an additional amount ("Additional Amount") to the Issuer as holder of the Convertible Debentures so that the Issuer receives the same amount in respect of that payment as if no such deduction had been made from the payment. Voting and Other Rights The Issuer (as holder of the Convertible Debentures) has no right to vote as a shareholder of National unless and until the Preference Shares are issued, nor any right to vote on the management of National or any other National Entity. The Issuer (as holder of the Convertible Debentures) will acknowledge in the Convertible Debenture Terms that a holder has no right to apply for any National Entity to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in respect of a National Entity merely on the grounds that a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. 65

67 Liquidation In the event of the dissolution, liquidation, termination or winding up of National, whether voluntary or involuntary, the Convertible Debentures will rank, without any preference amongst themselves, senior to the claims of the ordinary shares of National and pari passu with the claims of the holders of the Preference Shares which would have been issued if the Convertible Debentures had converted into Preference Shares, the Subordinated Debentures and the beneficiaries of the NCI Subordinated Guarantee and junior to the claims of all depositors and other creditors of National, other than creditors expressed to rank equally with, or junior to, the Convertible Debentures. Amendments and Modifications The Convertible Debenture Terms can be amended with the prior written approval of APRA (if required) but, in certain circumstances (see Description of the Issuer Issuer LLC Agreement Amendments and Modifications above), without the consent of the NCI Holders or the Issuer (as holder of the Convertible Debentures). Any other amendment to the Convertible Debenture Terms will require a Special Resolution of NCI Holders and the approval of the Issuer (as holder of the Convertible Debentures). Without the consent of NCI Holders or the Issuer (as holder of the Convertible Debentures) National may, prior to the Conversion Date, amend the Convertible Debentures to provide for the issue of Preference Shares on the terms described in the third paragraph of Summary of Principal Documents Terms of the Preference Shares Redemption. No Set-Off or Offsetting Rights The Issuer (as holder of the Convertible Debentures) has no right to set-off any amounts owing by it to any National Entity against any claims owing to it by any National Entity. The Issuer also has no offsetting rights or claims on any National Entity if a National Entity does not pay a distribution or interest when scheduled under any Component Instrument. Governing Law The Convertible Debenture Deed Poll, the Convertible Debenture Terms and the Convertible Debentures will be governed by, and construed in accordance with, English law. Terms of the Preference Shares General The Preference Shares ("Preference Shares") will be issued on the occurrence of the Conversion Event, and will be fully paid preference shares in National, denominated in Euro, with a liquidation amount of E50,000 ("Liquidation Amount"), corresponding to the NCIs being converted into the Preference Shares through the conversion (see Summary of Principal Documents Terms of the Convertible Debentures Conversion above). National will bear the cost of any stamp duty on the issue of the Preference Shares. The Preference Shares will rank pan passu among themselves in all respects and with all Equal Ranking Instruments. "Equal Ranking Instruments" means: (a) the NIS preference shares; (b) the ExCap preference shares (if issued); (c) the 2003 trust preferred preference shares (if issued); (d) the 2005 trust preferred preference shares (if issued); (e) (f) each other preference share that National may issue that is expressed to rank equally with the foregoing for returns of capital in a winding-up of National; and any securities or other instruments that are expressed to rank in a winding-up equally with those preference shares. "NIS" means the income securities issued by National in 1999 comprising fully paid notes issued by National through National New York Branch stapled to unpaid preference shares issued by National. 66

68 "NIS preference shares" means the preference shares issued by National in connection with the NIS which, if paid up in accordance with the terms of the NIS, will be outstanding in an aggregate liquidation amount of up to A$2.0 billion. "ExCap preference shares" means the preference shares which may be issued by National in an aggregate liquidation amount of up to US$1.0 billion by National in connection with the ExCaps. "ExCaps" means the exchangeable capital securities issued by National in 1997, each consisting of a capital security exchangeable in certain circumstances into ExCap preference shares or ordinary shares of National. "2003 trust preferred securities" means the trust preferred securities issued by National Capital Trust I in 2003 which are exchangeable for global depositary receipts, or "GDRs", each evidenced by a global depositary share, or "GDS", representing one 2003 trust preferred preference share. "2003 trust preferred preference shares" means the preference shares which may be issued by National in an aggregate liquidation amount of up to 400 million by National in connection with the 2003 trust preferred securities. "2005 trust preferred securities" means the trust preferred securities issued by National Capital Trust II in 2005 which are exchangeable for 2005 trust preferred preference shares. "2005 trust preferred preference shares" means the preference shares which may be issued by National in an aggregate liquidation amount of up to US$800 million by National in connection with the 2005 trust preferred securities. The terms of the Preference Shares will be approved by the directors of National (the "Preference Share Terms") (see further General Information Authorisation below). Dividends Dividends The Preference Shares will pay dividends ("Dividends") at a floating rate. Dividends on any Preference Shares issued will be paid quarterly in arrears on 29 March, 29 June, 29 September and 29 December of each year (each a "Dividend Payment Date"). The Dividend Payment Dates will match the Distribution Payment Dates in respect of the NCIs. The amount of each Dividend will be calculated in accordance with the relevant formula set out in the Preference Share Terms, which will substantially mirror the calculation of the Distributions on the NCIs (see Terms and Conditions of the NCIs Distributions above). Where the Conversion Event occurs on a date that is not a Dividend Payment Date, the Dividend for the first Dividend Period will be calculated from the Distribution Payment Date in respect of the NCIs immediately preceding the Conversion Date (or, if the Conversion Date occurs before the first scheduled Distribution Payment Date in respect of the NCIs, the issue date in respect of the NCIs). Payment of a Dividend on the Preference Shares is subject to the directors of National resolving to pay the Dividend and the specific condition that no APRA Condition exists. The APRA Conditions in respect of the Preference Shares will substantially mirror the APRA Conditions in respect of the NCIs (see Terms and Conditions of the NCIs Interpretation and Definitions Definitions above). Dividends will not be cumulative and the holder of a Preference Share (the "Preference Shareholder") will have no claim for any Dividend not paid, or for any part of any Dividend not paid, pursuant to the limitations on Dividends discussed above. Failure to pay in full, for any reason, Dividends on the scheduled Dividend Payment Date, will trigger distribution restrictions for National (see Summary of Principal Documents Terms of the Preference Shares Dividends Distribution Restrictions below) but it will not constitute an event of default and it will not entitle the Preference Shareholders to take any other action, including, for example, to require that the Preference Shares be redeemed. Additional Amounts National will make all payments of Dividends without deduction or withholding for, or on account of, tax unless that deduction or withholding is required by law. If any deduction is required, National must pay the full amount required to be deducted to the relevant revenue authority and, subject to certain exceptions (which will substantially mirror the exceptions in the NCI Terms (see Terms and Conditions of the NCIs- 67

69 Payments to NCI Holders Gross-up above)), an additional amount ("Additional Amount") to Preference Shareholders so that each Preference Shareholder receives the same amount in respect of that payment as if no such deduction had been made from the payment. Distribution Restrictions National's ability to pay distributions will be restricted if: National fails to pay in full, on any Dividend Payment Date, the accrued dividends on the Preference Shares for the relevant Dividend Period; or a Conversion Event has occurred as a result of any failure by the Issuer to pay in full the distribution payable on the NCIs on any Distribution Payment Date; then, unless approved by the Preference Shareholders by ordinary resolution, National may not: (a) pay any interest, dividends or similar distributions on any other capital instruments of National which rank for dividends equal with, or junior to, the Preference Shares; or (b) redeem, buy-back or reduce capital on any other capital instruments of National which rank for return of capital in a winding up, equal with, or junior to, the Preference Shares, subject to certain limited exceptions (which will substantially mirror the exceptions to the distribution restriction in the NCI Terms (see Terms and Conditions of the NCIs Distributions Exceptions to restrictions above)). The distribution restrictions will remain in force until National has paid in full: (a) consecutive dividends on the Preference Shares on each Dividend Payment Date during the 12 month period following the non-payment of the Dividend; or (b) with APRiVs prior written approval, an optional dividend equal to the unpaid amount of the scheduled dividends, or distributions on the Preference Shares or NCIs, for the period of 12 months prior to the date of payment of the optional dividend ("Optional Dividend"). Redemption A Preference Shareholder has no right to require a redemption or buy-back of, or reduction of capital on, the Preference Shares. Subject to APRNs prior written approval, National has the option to redeem, buy-back or reduce capital (in such combination as National may determine) on: all (but not some) of the Preference Shares on the occurrence of a Preference Share Event (as defined below) or the issuance of Preference Shares (provided that the Conversion Event giving rise to the issue of the Preference Shares did not result from National exercising its discretionary right to cause the Conversion Event to occur); or some or all of the Preference Shares on the Step-Up Date or any subsequent Dividend Payment Date. Pursuant to the Convertible Debenture Terms (as described in Summary of Principal Documents Terms of the Convertible Debentures Amendment and Modification) National may, prior to the issue of the Preference Shares, elect that it issue Preference Shares on terms that it does not have the option to redeem those Preference Shares (but without limiting its rights to buy-back or reduce capital on such Preference Shares, in such combination as it may determine and otherwise on the same terms as the Preference Shares described in Summary of Principal Documents Terms of the Preference Shares below). A Preference Share Event ("Preference Share Event"), occurs in circumstances where an Acquisition Event, a Regulatory Event or a Tax Event occurs. For these purposes, "Acquisition Event" and "Regulatory Event" will have a substantially similar definition to those defined above in the Definitions of the Terms and Conditions of the NCIs (see Terms and Conditions of the NCIs Interpretation and Definitions Definitions above). "Tax Event" means that, on or after the Issue Date of the NCIs, National receives an opinion from a reputable legal counsel or other tax adviser in Australia, the United States, the United Kingdom or New 68

70 Zealand or any other jurisdiction (each a "Relevant Jurisdiction"), experienced in such matters that there is more than an insubstantial risk that, as a result of a 'Fax Law Change: (a) there is a requirement to gross-up any Dividend on the Preference Shares; or (b) National would be exposed to more than a de minimis amount of other taxes, assessments or other governmental charges in connection with the Preference Shares. "Tax Law Change" will have a substantially identical definition to that set out under the Terms and Conditions of NC's Interpretation and Definitions Definitions above. The Redemption Price payable on each Preference Share redeemed will equal the Redemption Price that would have been payable on the redemption of the corresponding NCI (see Terms and Conditions of the NCIs Redemption--Redemption Price above). Voting and Other Rights Voting Generally, the Preference Shareholders will not be entitled to vote at a general meeting of National. However, they may vote together with holders of ordinary shares in National: on any resolution to wind up National, or during the winding up of National; on any resolution to reduce National's share capital (except a reduction of capital in accordance with the Preference Share Terms); on any resolution to approve the terms of a buy-back agreement (except a buy-back in accordance with the Preference Share Terms); on any resolution that National dispose of all of its business, property and undertaking; and during a Special Voting Period (as defined below), with respect to all matters on which the holders of ordinary shares are entitled to vote, other than on a resolution to approve a Redemption. They may also vote as a class on any resolution to vary the rights attaching to Preference Shares. In any such case Preference Shareholders will have one vote per Preference Share. "Special Voting Period" means the period from (and including): (a) any Dividend Payment Date on which National does not pay in full the Dividends calculated in respect of the Preference Shares for the immediately preceding Dividend Period; or (b) the 22nd Business Day after the Conversion Event occurs if the Conversion Event occurred as a result of non-payment of a Distribution on the NCIs unless prior to such date National has paid in full an Optional Dividend, in each case to (but not including) the first Dividend Payment Date after that date on which National has paid an Optional Dividend in accordance with the provisions of Preference Share Terms or has paid in full the Dividends scheduled to be payable on the Preference Shares during a period of 12 consecutive calendar months. The Preference Share Terms provide that a Preference Shareholder has no right to apply for National to be wound up, or placed in administration, or to cause a receiver, or a receiver and manager, to be appointed in respect of National merely on the grounds that National does not pay a Dividend when scheduled under the Preference Shares. Restrictions on Ownership and Transfer The acquisition of shares in Australian public companies listed on the Australian Stock Exchange ("ASX") is regulated by detailed and comprehensive legislation and the rules of the ASX. Legislation also affects the offer of shares for sale in certain circumstances. One of the most common manners in which a controlling shareholding is acquired in an Australian listed company is by a takeover bid. The form and content of the bid documentation is regulated by law. Australian takeover law purports to have extra-territorial force. Australian law may therefore apply to a transaction outside Australia with respect to a non-australian company if the transaction affects the control of voting power in an Australian publicly listed company. 69

71 Australian law also regulates the acquisition of shares in Australian corporations by foreign persons under the Foreign Acquisitions and Takeovers Act 1975 ("Takeovers Act"). The Takeovers Act empowers the Australian Treasurer to prohibit a proposed acquisition of shares in an Australian corporation where the result of the acquisition will be that a foreign person (together with its associates) would have an interest of not less than 15% of the issued shares of a corporation, or two or more foreign persons (together with their associates) would in aggregate have an interest in 40% of the issued shares of the corporation that has total assets valued at A$50,000,000 or more, such as National. In addition, the Takeovers Act requires foreign persons who propose to make such acquisitions to first notify the Australian Treasurer of their intention to do so. Failure to notify the Treasurer of a proposed acquisition is an offence under the Takeovers Act. Where such an acquisition has already occurred without notice having been given, the Australian Treasurer has the power to order a person that acquired the shares to dispose of them. The concepts of acquisition, interest, associate and foreign person are very widely defined in the Takeovers Act and investors should seek their own advice on the application of the Takeovers Act to them. Australian law also regulates acquisitions of shares in Australian companies which would have the effect, or be likely to have the effect, of substantially lessening competition in a market in Australia, or in a state or territory thereof, under the Trade Practices Act Investors should seek their own advice on the application of the Trade Practices Act There are also restrictions placed upon shareholdings in Australian banks generally under the Financial (Shareholdings) Act 1998 (the "FSSA"). Under the FSSA, the Australian Treasurer's prior approval is required before any person may acquire shares in an authorised deposit-taking institution, of which National is one, in Australia where the acquisition would take that person's stake in that institution to more than 15% (see Description of National Major Shareholders above). A person's stake relates to the direct control interest of that person or its associates in the shares of a company. The concepts of "stake", "direct control interests", "voting power", "associates" and "shares" are broadly defined in the FSSA and investors should seek their own advice on the application of the FSSA. Takeover and Substantial Shareholder Provisions Generally, the Corporations Act prohibits a person from acquiring a "relevant interest" in the voting shares in a listed company (such as National) if that person's or someone else's "voting power" in the company increases from 20%, or from a starting point that is above 20% and below 90%, unless those shares are acquired in a manner specifically permitted under an exception. The exceptions in the Corporations Act are limited and include, for example, an acquisition previously consented to by the shareholders of the company, or an acquisition made under a court-approved scheme. Generally, the concept of a voting share does not include certain types of preference shares with limited voting rights. However, because Preference Shareholders have been conferred a right to vote following the failure to pay a Dividend (see Summary of Principal Documents Terms of the Preference Shares Voting and Other Rights Voting above), the Preference Shares will be treated as voting shares under the Corporations Act. Therefore any person considering the acquisition of the NCIs should consider the effect on their or someone else's "voting power" which will arise upon the issue to them of Preference Shares following the Conversion Event and should seek appropriate advice in the context of the regulatory thresholds summarized under this section. The concepts of "relevant interest", and "associates" and "acquire" are very broadly defined and investors should seek their own advice on the application of the Corporations Act. In very general terms: a person's voting power ("voting power") equals the total number of votes attached to the voting shares in which the person and their associates have a relevant interest ("relevant interest") (which is basically where they hold, or have or control the exercise, of the right or power to vote or dispose of the shares), expressed as a percentage of all the voting shares in the company, but there are additional inclusions and certain exceptions; a person acquires ("acquires") shares in a company if, as a direct or indirect result of a transaction in relation to securities of any body corporate, that person acquires a relevant interest in those shares and, as a result of extensive tracing provisions concerning relevant interest, a person may be taken to have acquired National's shares for example as a result of the purchase of securities in another body corporate if that body corporate holds, or acquires, a relevant interest in National's shares; and an associate ("associate") (the "second person") of the primary person is widely defined in Division 2 of Part 1.2 of the Corporations Act and includes, among others, a body corporate the primary person 70

72 controls, a body corporate that controls the primary person, or a body corporate that is controlled by an entity that controls the primary person as well as persons acting, or agreeing or proposing to agree to act in concert in relation to the listed company's affairs. The Corporations Act also obliges persons who begin to have, or cease to have a substantial holding in a listed company (being a relevant interest of that person, or their associates, in 5% or more of the voting shares of the company), or whose substantial holding moved at least 1%, to give notice to the company and to the ASX of their substantial shareholdings and such movements. Amendments and Modifications The Preference Share Terms and the rights attaching to the Preference Shares may be amended or modified with the sanction of a Special Resolution passed at a meeting of the Preference Shareholders. The Preference Share Terms can also be amended or modified with the prior written approval of APRA (if required) but without the consent of Preference Shareholders in certain circumstances (which substantially mirror the circumstances in which the NCI Terms may be amended or modified without the consent of NCI Holders (see Description of the Issuer Issuer LLC Agreement Amendment and Modification above)). The rights attaching to the Preference Shares will not be deemed to be varied by the creation or issue of any further preference shares ranking equal with, junior to, or senior to, the Preference Shares and the creation of such preference shares will be expressly permitted by the Preference Share Terms. Liquidation In the event of the dissolution, liquidation, termination or winding up of National, whether voluntary or involuntary, the Preference Shares will rank: senior to the claims of the ordinary shares of National and pan passu with the claims of the holders of the classes of preference shares of National with the same ranking identifying number as provided in National's constitution; and junior to all depositors and other creditors, other than creditors whose claims are expressed to rank pan passu with the Preference Shares. No Set-Off or Offsetting Rights A Preference Shareholder has no right to set off any amounts owing by it to National against any claims owing to it by National. The Preference Shareholder also has no offsetting rights or claims on National if National does not pay a Dividend when scheduled under the Preference Shares. Governing Law The Preference Share Terms and the Preference Shares will be governed by, and construed in accordance with, the laws of the State of Victoria. Terms of the Deed of Covenant General In order to give effect to the terms of the NCIs, National, National LLC 1 and the Issuer have entered into a deed of covenant (the "Deed of Covenant") under which the parties have agreed to give certain undertakings on the terms set out in the Deed of Covenant. Undertakings by National National undertakes to the Issuer and National LLC 1 (each a "Relevant Party") (among other things) to: to meet the expenses of each Relevant Party; pay, subject to the tests and conditions set out in the Subordinated Debenture Terms (see Summary of Principal Documents Terms of the Subordinated Debentures Interest above), each other Relevant Party for any Additional Amounts it is required to pay in accordance with the terms of the relevant Component Instrument; indemnify each Relevant Party for any liabilities incurred in relation to the Capital Instrument; 71

73 comply with National's obligations with respect to distribution restrictions in the case of non-payment on the NCIs (see Terms and Conditions of the NCIs Distributions Restrictions in the case of non-payment above); provide a copy of certain notices given under the Convertible Debentures to each Relevant Party; comply with all other things which are specified in the Component Instruments to be done or not done by National; and to do all other things which are necessary to be done by National to enable the Relevant Party to comply with its obligations under the Component Instruments to which it is a party. National's role under the Deed of Covenant Notwithstanding the provisions described above: National's obligations to the Relevant Parties in connection with the Deed of Covenant are not and should not be construed as a guarantee by National of any obligations of a Relevant Party in relation to any Component Instrument or that any payment scheduled to be made under a Component Instrument will be made; and the Deed of Covenant does not confer on any NCI Holder a right to take action against any National Entity to enforce payment of any amounts payable by that entity under the Deed of Covenant or to claim damages for breach of any obligation under the Deed of Covenant. Governing Law The Deed of Covenant will be governed by, and construed in accordance with, English law. 72

74 USE OF PROCEEDS The proceeds of issue of the NCIs will be used by the Issuer to purchase the LLC Notes and the Convertible Debentures from the Initial Subscriber. Prior to that, the Initial Subscriber will have subscribed for the LLC Notes and the Convertible Debentures and will have received from National Head Office the Assignment Payment. National LLC 1 will use the proceeds from the sale of the LLC Notes to subscribe for the Subordinated Debentures issued by National New York Branch. The proceeds of issue of the Subordinated Debentures will be used by National New York Branch for its general business purposes including the lending of the proceeds to branches or entities within the National Group or the acquisition of debt securities issued by entities within the National Group. 73

75 TAXATION This section summarises the principal United States and Australian taxation consequences and certain EU taxation consequences arising from the acquisition, holding and disposal of NCIs by NCI Holders who hold their NCIs on capital account for tax purposes. The summary is based on tax law and practice in force as at the date of this Prospectus, unless otherwise indicated. It is of a general nature only and is neither exhaustive nor definitive and it does not purport to be a complete analysis of all of the tax considerations relating to the NCIs or the Preference Shares (if issued). The summary does not apply to NCI Holders who hold NCIs on revenue account, as trading stock or as part of a securities trading business and may not apply to certain other classes of persons. It is not intended to be advice and should not be relied upon as such. Prospective holders of NCIs should seek independent taxation advice having regard to their own particular circumstances before making a decision to invest in NCIs. Certain United States Federal Income Tax Consequences to Non-U.S. Holders This section summarises the material U.S. federal income tax consequences of the acquisition, ownership and disposition of the National Capital Instruments (NCIs) by a non-u.s. holder (as defined below). It applies to an NCI Holder only if the NCI Holder acquires the NCIs in this offering and holds the NCIs as capital assets for tax purposes. This section is based on the Internal Revenue Code of 1986, as amended (the "Code"), its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. This section does not address any aspects of state, local, foreign or other tax laws. To ensure compliance with IRS Circular 230 disclosure requirements imposed by the IRS, the Issuer informs each NCI Holder that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code and (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed. A NCI Holder is a "non-u.s. holder" if the NCI Holder is a beneficial owner of NCIs and is not: (i) a citizen or resident of the United States for U.S. federal income tax purposes, (ii) a corporation or a partnership (including an entity treated as a corporation or a partnership for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income tax regardless of its source, or (iv) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person. Special rules may apply to certain non-u.s. holders, such as "controlled foreign corporations," "passive foreign investment companies," foreign partnerships, foreign estates or foreign trusts having a beneficiary that is a U.S. person, corporations that accumulate earnings to avoid U.S. federal income tax, persons that actually or constructively own 10% or more of the voting stock of National, and persons that are subject to special treatment under the Code. These persons should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them. Classification of Subordinated Debentures and the NCIs Although there is no statutory, judicial or administrative authority that directly addresses the US federal income tax treatment of an issuance of securities similar to the Subordinated Debentures and the NCIs, the Subordinated Debentures and the NCIs should be treated as equity of National for US federal income tax purposes. National, National LLC 1, the Issuer and the holders of the NCIs (by acquiring NCIs in this offering) will agree to treat the Subordinated Debentures and the NCIs as equity of National for such purposes and the discussion below assumes that the Subordinated Debentures and NCIs will be so treated. 74

76 US federal income tax and withholding tax on NCIs Subject to the discussion of backup withholding below, a non-u.s. holder will not be subject to U.S. federal income tax, including withholding tax, on any income in respect of the NCIs, or on any gain realised by the non-u.s. holder on the sale or exchange of NCIs unless (i) such income or gain is effectively connected with the conduct of a trade or business by the non-u.s. holder in the United States or (ii) in the case of gain realised by an individual non-u.s. holder, the non-u.s. holder is present in the United States for 183 days or more in the taxable year and certain other conditions are met. Information reporting and backup withholding may apply to payments made on and proceeds from the sale of the NCIs unless the non-u.s. holder complies with applicable certification procedures to establish that it is not a U.S. person for U.S. federal income tax purposes. Certain Australian Tax Consequences General The discussion below outlines certain Australian taxation consequences of the acquisition, ownership and disposition of a beneficial interest in NCIs and Preference Shares (if issued upon the occurrence of a Conversion Event). The discussion is based upon laws, regulations, rulings and judicial decisions now in effect and is subject to future change. This discussion is intended only as a descriptive summary and does not purport to be a complete technical analysis or to list all potential Australian tax consequences. It is not intended to be advice and should not be relied upon as such. This summary assumes that the holder of a beneficial interest in NCIs and Preference Shares (where issued) (a) will not be a "resident" of Australia for Australian income tax purposes; and (b) will not hold the beneficial interest in NCIs or Preference Shares as part of a business carried on by that holder at or through a permanent establishment in Australia ("Non-resident Holder"). Persons considering the purchase of a beneficial interest in NCIs should consult their own tax advisors concerning the application of Australia's tax laws to their particular situations as well as any consequences of the acquisition, ownership and disposition of a beneficial interest in NCIs or the Preference Shares under the laws of any other taxing jurisdiction. NCIs Status of the Issuer The Issuer, a limited liability company formed under the laws of Delaware in the United States, will not be treated as a resident of Australia for Australian income tax purposes. Distributions on NCIs Non-resident Holders will only be subject to Australian income tax on so much of their income as has an Australian source. Distributions on the NCIs would be regarded as having a foreign source. Accordingly, Distributions on the NCIs will not be subject to Australian income tax in the hands of Non-resident Holders, either by withholding or otherwise. Disposal; redemption or conversion of NCIs Under current law, non-residents may be subject to Australian capital gains tax on the disposal of certain types of assets having the necessary connection with Australia. A beneficial interest in NCIs would not have the necessary connection with Australia. Accordingly, Non-resident Holders should not be subject to Australian capital gains tax on the disposal, redemption or conversion of a beneficial interest in NCIs. Preference Shares Dividends paid on the Preference Shares Dividends paid by National on the Preference Shares may be either franked or unfranked. Broadly, to the extent to which those dividends are paid out of profits which have been subject to Australian corporate income tax, they will be franked dividends. Fully franked dividends paid to a Non-resident Holder will be exempt from Australian dividend withholding tax. Unfranked or partially franked dividends will be subject to Australian dividend withholding tax at a rate of 30% to the extent to which the dividend is unfranked, 75