BOWNE OF LONDON 03/09/2000 15:41 NO MARKS NEXT PCN: 003.00.00.00 -- Page/graphics valid (03/09/2000 15:41) U41639 002.00.00.00 63 PRELIMINARY OFFERING CIRCULAR DATED FEBRUARY 23, 2000 Bank of Scotland Capital Funding L.P. £250,000,000 8.117% Non-cumulative Perpetual Preferred Securities, Class A and £150,000,000 7.754% Non-cumulative Perpetual Preferred Securities, Class B each having the bene®t of a subordinated guarantee of The Governor and Company of the Bank of Scotland (established by an Act of the Parliament of Scotland in 1695) Issue price: £1,000 per Class A Preferred Security (equal to 100% of its liquidation preference) Issue price: £1,000 per Class B Preferred Security (equal to 100% of its liquidation preference) The £250,000,000 8.117% Non-cumulative Perpetual Preferred Securities, Class A (the ``Class A Preferred Securities'') and the £150,000,000 7.754% Non-cumulative Perpetual Preferred Securities, Class B (the ``Class B Preferred Securities'' and, together with the Class A Preferred horities. Any investment in Bank of Scotland Capital Funding L.P. must be horities. Any investment Securities, the ``Preferred Securities'') each with a liquidation preference of £1,000 (the ``Liquidation Preference''), comprising limited partnership ent in the offering circular in its ®nal form and should not be relied upon by and should not be relied in its ®nal form ent in the offering circular interests in Bank of Scotland Capital Funding L.P. (the ``Issuer''), are proposed to be in issue on March 14, 2000 (the ``Issue Date''). The Preferred Preferred Securities (as de®ned herein) or any interests referred to herein. The to herein. referred or any interests Securities (as de®ned herein) Preferred Securities will entitle holders to receive non-cumulative preferential cash distributions (``Distributions'') in arrear on May 31 and November 30 in each year, subject to certain conditions described herein. From (and including) the Issue Date to (but excluding) May 31, 2010 in the case of the Class A Preferred Securities, or May 31, 2021 in the case of the Class B Preferred Securities, Distributions will be at a ®xed rate per annum of 8.117% of the Liquidation Preference in the case of the Class A Preferred Securities, or 7.754% of the Liquidation Preference in the case of the Class B Preferred Securities. From (and including) May 31, 2010 in the case of the Class A Preferred Securities, or May 31, 2021 in the case of the Class B Preferred Securities, Distributions will be at a rate calculated as the sum of the Reference Rate and a Margin (each as de®ned herein). See ``Description of the Preferred Securities Ð Distributions''. Investors should be aware that the Issuer is a Jersey limited partnership and is not a legal entity separate from its partners. All obligations of the Issuer to make payment in respect of the Preferred Securities are guaranteed on a subordinated basis pursuant to a guarantee dated March 14, 2000 (the ``Guarantee'') given by the Governor and Company of the Bank of Scotland (``Bank of Scotland'' or the ``Bank''). See ``Description of the Guarantee''. The Preferred Securities are perpetual securities and not subject to any mandatory redemption provisions. The Preferred Securities may be redeemed, at the option of Bank of Scotland Capital Funding (Jersey) Limited, as general partner of the Issuer (the ``General Partner''), on May 31, 2010 or on each ®fth anniversary thereafter, in the case of the Class A Preferred Securities, or on May 31, 2021 or on each ®fth anniversary thereafter in the case of the Class B Preferred Securities, in whole, but not in part, at an amount equal to the Optional Redemption Price, subject to satisfaction of the Redemption Conditions (each as de®ned herein). The Preferred Securities are also redeemable, subject to satisfaction of certain conditions, in whole but not in part, at any time following the occurrence of a Tax Event or a Regulatory Event (each as de®ned herein). Under existing requirements, neither the Issuer nor the Bank nor any of its subsidiaries may redeem or purchase any Preferred Securities unless the Financial Services Authority, or any successor organisation thereto, (the ``FSA'') in the United Kingdom has given its prior written consent. See ``Description of the Preferred Securities Ð Redemption and Purchase''. In the event of the dissolution or winding-up of the Issuer, holders of Preferred Securities will be entitled, subject to satisfaction of certain conditions, to receive a Liquidating Distribution (as de®ned herein). See ``Description of the Preferred Securities Ð Liquidating Distributions''. Upon the occurrence of a Substitution Event (as de®ned herein), the Preferred Securities will, subject as provided herein, be substituted by the Substitute Stock (as de®ned herein). See ``Description of the Preferred Securities Ð Substitution by Substitute Stock''. The Preferred Securities are expected to be assigned on issue a rating of BBB+ by Standard and Poor's Rating Services, a division of The McGraw Hill Companies, Inc. (``Standard and Poor's'') and ``a1'' by Moody's Investors Service, Inc (``Moody's''). 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. Application has been made to list the Class A Preferred Securities and the Class B Preferred Securities on the Luxembourg Stock Exchange. See ``Investment Considerations'' for a discussion of certain factors that should be considered by prospective investors. The Preferred Securities have not been registered under the Securities Act (as de®ned herein) or any U.S. State securities laws and, subject to certain exceptions, may not be offered or sold within the United States except to quali®ed institutional buyers in accordance with Rule 144A under the Securities Act (``Rule 144A''). For a description of restrictions on resales or transfers, see ``Notice to Investors''. The Preferred Securities sold in the United States pursuant to Rule 144A will be represented by a single global certi®cate for each class in registered form (the ``Restricted Global Certi®cates''). The Preferred Securities sold outside the United States pursuant to Regulation S under the Securities Act (``Regulation S'') will be represented by a single global certi®cate for each class in registered form (the ``Regulation S Global Certi®cates'' and, together with the Restricted Global Certi®cates, the ``Global Certi®cates''). The Global Certi®cates will be registered in the name of a nominee of, and will be deposited with a common depositary for, Morgan Guaranty Trust Company of New York, Brussels of®ce, as operator of the Euroclear System (``Euroclear'') and Clearstream Banking, sociÂetÂe anonyme (``Clearstream, Luxembourg'') on or around the Issue Date. CREDIT SUISSE FIRST BOSTON MORGAN STANLEY DEAN WITTER LEHMAN BROTHERS This offering circular does not constitute or contain any offer to sell or invitation to subscribe or make commitments for any commitments for to subscribe or make does not constitute or contain any offer to sell invitation This offering circular information contained in this offering circular is preliminary and is subject to correction, completion, modi®cation and amendm and is subject to correction, is preliminary contained in this offering circular information aut regulatory by relevant The issue of this document on behalf any person has not been approved any purpose. any person for solely on the basis of the ®nal offering circular and not on this document. solely on the basis of ®nal offering circular Dated: March 10, 2000 BOWNE OF LONDON 03/08/2000 16:29 NO MARKS NEXT PCN: 004.00.00.00 -- Page is valid, no graphics U41639 003.00.00.00 20 Each of the General Partner (in relation to itself, the Issuer and the Preferred Securities only) and the Bank con®rms, after having made all reasonable enquiries, that this Offering Circular contains all information with regard to the Issuer, the Group (as de®ned herein) and the Preferred Securities which is material in the context of the issue of the Preferred Securities, that the information contained in this Offering Circular is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this Offering Circular are honestly held and that there are no other facts the omission of which makes this Offering Circular as a whole or any such information or the expression of any such opinions or intentions misleading. Each of the General Partner and the Bank accepts responsibility accordingly. No person has been authorised to give any information or to make any representation not contained in this document and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer, the General Partner, the Bank or the Managers (as de®ned herein). Neither the delivery of this document nor any subscription, sale or purchase made in connection herewith shall, in any circumstances, create any implication that there has been no change in the affairs of the Issuer, the General Partner, the Bank or the Group since the date hereof. Prospective investors should inform themselves as to the legal requirements and tax consequences within the countries of their residence and domicile for the acquisition, holding or disposal by them of Preferred Securities and any foreign exchange restrictions that might be relevant to them. This Offering Circular does not constitute an offer of or an invitation by or on behalf of the Issuer or any of its partners, the Bank or the Managers to subscribe for or purchase any of the Preferred Securities. Investors should satisfy themselves that they understand all the risks associated with making investments in the Preferred Securities.