## **UNITEDSTATES**

## **SECURITIESAND EXCHANGE COMMISSION**

## **Washington, D.C. 20549**

## ** **

**Form 10-K**

 
| **(Mark  One)** |
|-----------------|
| ** **      |
| ý          | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|            |   |   |
|            |   | **For the  fiscal year ended December 31, 2005** |
| ** **      |
| **or**          |
| ** **      |
| o               | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|            |   |   |
|            |   | **For the  transition period from                 to                 ** |

 

**Commission file number: 000-19889**

 

**South Hertfordshire United Kingdom Fund, Ltd.**

(Exact name of registrant as specified in itscharter)

 
| **Colorado**                                                    | ** ** | **84-1145140**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or Other Jurisdiction of

Incorporation or Organization) |       | (I.R.S. Employer  Identification No.) |

 

**ntl House, Bartley Wood Business Park, Hook,**

**Hampshire, RG27 9UP, England**

**+44 1256 752000**

(Address and Telephone Number of Principal

Executive Offices)

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Securities registered pursuant to Section 12(b) ofthe Act:

**None**

** **

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Securities Registered Pursuant to Section 12(g) ofthe Act:

**Limited Partnership Interests**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct.  Yes  o    No  ý

 

Indicate by check mark if the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o    No  ý

 

Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  ý    No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of the Form 10-K orany amendment to this Form 10-K.  ý

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, or a non-acceleratedfiler.  See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

 
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer ý |
|---------------------------|--------|---------------------|--------|------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act).  Yes  o    No  ý

 

The aggregate market value of the registrant’s limited partnershipinterests held by non-affiliates as of June 30, 2005, based on a price perlimited partnership interest of $91.18, which was the weighted average price atwhich limited partnership interests were transferred during the second fiscalquarter, was $5,191,333.

 

As of March 24, 2006, there were 56,935 limited partnershipinterests of the Registrant outstanding. There is no established public marketfor the Registrant’s limited partnership interests.

 

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**DOCUMENTS INCORPORATED BY REFERENCE**

 

**None**

 

 

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**TABLE OF CONTENTS**

 
| **PART I**                                                               |                                                                                            |       |
|-------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|------------|
| ** **                                                                    |                                                                                            |       |
| Item 1.                                                                       | Business                                                                                        |       |
| Item 2.                                                                       | Properties                                                                                      |       |
| Item 3.                                                                       | Legal Proceedings                                                                               |       |
| Item 4.                                                                       | Submission of Matters to a Vote of Security  Holders                                            |       |
| **PART II**                                                              |                                                                                            |       |
| Item 5.                                                                       | Market for Registrant’s Common Equity and  Related Stockholder Matters                     |       |
| Item 6.                                                                       | Selected Financial Data                                                                         |       |
| Item 7.                                                                       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations     |       |
| Item 7A.                                                                      | Quantitative and Qualitative Disclosures  about Market Risk                                     |       |
| Item 8.                                                                       | Financial Statements and Supplementary Data                                                     |       |
| Item 9.                                                                       | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure           |       |
| Item 9A.                                                                      | Controls and Procedures                                                                         |       |
| Item 9B.                                                                      | Other Information                                                                               |       |
| **PART III**                                                             | ** **                                                                                      | ** ** |
| Item 10.                                                                      | Directors and Executive Officers of the  Registrant                                             |       |
| Item 11.                                                                      | Executive Compensation                                                                          |       |
| Item 12.                                                                      | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters |       |
| Item 13.                                                                      | Certain Relationships and Related Transactions                                                  |       |
| Item 14.                                                                      | Principal Accountant Fees and Services                                                          |       |
| **PART IV**                                                              |                                                                                            |       |
| Item 15.                                                                      | Exhibits and Financial Statement Schedules                                                      |       |
|                                                                          |                                                                                            |       |
| SIGNATURES                                                                    |                                                                                            |       |
|                                                                          |                                                                                            |       |
| Index to Consolidated Financial Statements  and Financial Statement Schedules |                                                                                            |

 

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**SafeHarbor Statement under the Private Securities Litigation Reform Act of****1995:**

 

Various statements contained in this documentconstitute “forward-looking statements” as that term is defined under thePrivate Securities Litigation Reform Act of 1995. Words like “believe,” “anticipate,”“should,” “intend,” “plan,” “will,” “expects,” “estimates,” “projects,” “positioned,”“strategy,” and similar expressions identify these forward-looking statements,which involve known and unknown risks, uncertainties and other factors that maycause our actual results, performance or achievements or industry results to bematerially different from those contemplated, projected, forecasted, estimatedor budgeted whether expressed or implied, by these forward-looking statements.These factors include those set forth under the caption “Risk Factors” in the Form 10-Kfiled on March 1, 2006 by NTL Incorporated, (now known as NTL HoldingsInc.) such as:

 

•                  Thefailure to obtain and retain expected synergies from the merger between NTL Incorporatedand Telewest Global, Inc. or Telewest;

 

•                  Ratesof success in executing, managing and integrating key acquisitions, includingthe merger between NTL and Telewest;

 

•                  Theability to achieve business plans for the combined NTL/Telewest group;

 

•                  NTLIncorporated’s (formerly known as Telewest Global, Inc.) or NTL’s ability tomanage and maintain key customer relationships;

 

•                  NTL’sability to fund debt service obligations through operating cash flow;

 

•                  NTL’sability to obtain additional financing in the future and react to competitiveand technological changes;

 

•                  NTL’sability to comply with restrictive covenants in its indebtedness agreements;

 

•                  NTL’sability to control customer churn;

 

•                  NTL’sability to compete with a range of other communications and content providers;

 

•                  Theeffect of technological changes on NTL’s businesses;

 

•                  Thefunctionality or market acceptance of new products that NTL may introduce;

 

•                  Possiblelosses in revenues due to systems failures;

 

**•**                  NTL’s ability to maintain and upgradeits networks in a cost-effective and timely manner;

 

•                  NTL’sreliance on single-source suppliers for some equipment and software;

 

•                  NTL’sability to provide attractive programming at a reasonable cost; and

 

•                  Theextent to which NTL’s future earnings will be sufficient to cover its fixed charges.

 

We assume no obligation to update theforward-looking statements contained herein to reflect actual results, changesin assumptions or changes in factors affecting these statements.

 

4

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**PART I**

 

**NTL CORPORATE STRUCTURE**

 

**HistoricalStructure**

 

We are a Colorado limited partnership that was formed in December 1991pursuant to the public offering of our limited partnership interests for thepurpose of acquiring one or more cable television/telephone systems in the U.K.Upon acquisition of our system, our primary investment objective was to obtaincapital appreciation in the value of our investment in the system over the termsuch investment is held by us.

 

We hold 66.7% of the shares of NTL (South Hertfordshire) Limited, orNTL South Herts, which is principally engaged in the development, construction,management and operation of broadband communications networks for telephone,cable television and internet services in the U.K. As a result of our ownershipof 66.7% of the shares of NTL South Herts, for accounting purposes we haveconsolidated the results of NTL South Herts with our results. NTL indirectlyholds the remaining 33.3% of the shares of NTL South Herts. We are reliant onthe support of NTL, the indirect parent company of NTL Fawnspring Limited, ourGeneral Partner, to continue our operations as a going concern.

 

The General Partner may, pursuant to our Partnership Agreement, provideconsulting services to us or delegate the performance of such consultingservices to NTL or other affiliates. The General Partner purchased one of ourpartnership interests by contributing $1,000 to our capital.

 

On January 10, 2003, NTL emerged fromreorganization under Chapter 11 of the U.S. Bankruptcy Code. Pursuant to theplan of reorganization, which we refer to as the Plan, NTL’s former parent, NTLEurope, Inc, or NTL Europe, and its subsidiaries and affiliates, were splitinto two separate groups, with NTL and NTL Europe each emerging as independentpublic companies. NTL was renamed “NTL Incorporated” and became the holdingcompany for the former NTL group’s principal U.K. and Ireland assets and theultimate parent company of our General Partner. NTL Europe became the holdingcompany for the former NTL group’s continental European and various otherassets. All of the outstanding securities of NTL’s former parent and some ofits subsidiaries, including NTL, were cancelled. NTL issued shares of itscommon stock and Series A warrants, and NTL Europe issued shares of itscommon stock and preferred stock, to various former creditors and stockholders.As a result, NTL and we are no longer affiliated with NTL Europe, which hassince changed its name to PTV Inc., or PTV.

 

EffectiveMarch 3, 2006, pursuant to the Amended and Restated Agreement and Plan ofMerger, dated as of December 14, 2005, as amended by Amendment No.1 thereto,among Telewest Global, Inc., NTL Incorporated, Neptune Bridge Borrower LLC,and, for certain limited purposes set forth therein, Merger Sub Inc., a Delawarecorporation and wholly owned subsidiary of Old NTL, Neptune Bridge Borrower LLCwas merged with and into NTL Incorporated, which was renamed “NTL HoldingsInc.” in the merger, continuing as the surviving corporation and as a whollyowned subsidiary of Telewest Global, Inc. Immediately following the Merger, thename of the registrant was changed from “Telewest Global, Inc.” to “NTLIncorporated.”

 

5

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**SummaryCorporate Structure**

 

The following chart shows on a condensed basis the corporate structureof NTL and its relationship to us as of December 31, 2005. The chart doesnot show NTL’s operating or other intermediate companies.

 

 

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*                                         NTLFawnspring Limited, an indirect wholly-owned subsidiary of NTL and our GeneralPartner.

 

**                                  NTL (SouthHertfordshire) Limited, or NTL South Herts, our 66.7% subsidiary of which NTLowns 33.3%.

 

6

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**Exchange rates**

 

The following table sets forth, for theperiods indicated, the high, low, period average and period end noon buyingrate in the City of New York for cable transfers as certified for customspurposes by the Federal Reserve Bank of New York expressed as U.S. dollars per£1.00. The noon buying rate of the pound sterling on March 24, 2006 was$1.7427 per £1.00.

 
| **Year Ended December 31,**   | ** ** | **Period End** | ** ** | **Average(1)** | ** ** | **High**   | ** ** | **Low**    | ** ** |
|------------------------------------|------------|----------------|------------|----------------|------------|------------|------------|------------|------------|
| ** **                         | ** ** | ** **     | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2003                               |       | 1.78           |       | 1.64           |       | 1.78       |       | 1.55       |       |
| 2004                               |       | 1.92           |       | 1.84           |       | 1.95       |       | 1.75       |       |
| 2005                               |       | 1.72           |       | 1.81           |       | 1.93       |       | 1.71       |       |
| 2006 (through March 24, 2006) |       | 1.74           |       | 1.74           |       | 1.79       |       | 1.73       |       |

 

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(1)              The average rate isthe average of the noon buying rates on the last day of each month during therelevant period.

 

The above rates may differ from the actualrates used in the preparation of the consolidated financial statements andother financial information appearing in this annual report on Form 10-K.Our inclusion of these exchange rates is not meant to suggest that the poundsterling amounts actually represent these U.S. dollar amounts or that theseamounts could have been converted into U.S. dollars at any particular rate, ifat all.

 

Unless weotherwise indicate, all U.S. dollar amounts as of December 31, 2005 aretranslated to U.S. dollars at an exchange rate of $1.7188 to £1.00, and allamounts disclosed for the year ended December 31, 2005 are based on anaverage exchange rate of $1.82 to £1.00. All amounts disclosed as of December 31,2004 are based on an exchange rate of $1.9160 to £1.00, and all amountsdisclosed for the year ended December 31, 2004 are based on an averageexchange rate of $1.8326 to £1.00. All amounts disclosed as of December 31,2003 are based on an exchange rate of $1.7842 to £1.00, and all amountsdisclosed for the year ended December 31, 2003 are based on an averageexchange rate of $1.6348 to £1.00. U.S. dollar amounts for any individualquarter are determined by multiplying the pound sterling financial result forthe period from January 1 to the end of the current quarter by the averageexchange rate for the same period and subtracting from this total the U.S.dollar converted financial result for the period from January 1 to the endof the previous quarter of that fiscal year as computed above. The variationamong the exchange rates for 2005, 2004 and 2003 has impacted the dollar comparisonssignificantly.

 

7

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**Item 1.    Business**

 

**About SouthHertfordshire U.K. Fund, Ltd**

** **

We are a Colorado limited partnership that was formed in December 1991pursuant to the public offering of our limited partnership interests for thepurpose of acquiring one or more cable television/telephone systems in theUnited Kingdom, or U.K. Upon acquisition of our system, our primary investmentobjective was to obtain capital appreciation in the value of our investment inthe system over the term such investment is held by us.

 

We hold 66.7% of the shares of NTL (South Hertfordshire) Limited, orNTL South Herts, which is principally engaged in the development, construction,management and operation of broadband communications networks for telephone,cable television and internet services in the U.K. As a result of our ownershipof 66.7% of the shares of NTL South Herts, for accounting purposes we haveconsolidated the results of NTL South Herts with our results. NTL indirectlyholds the remaining 33.3% of the shares of NTL South Herts. We are reliant onthe support of NTL, the ultimate parent company of the General Partner, tocontinue our operations as a going concern.

 

We, as well as NTL, file annual, quarterly, and current reports withthe SEC. You may read and copy any materials we or NTL files with the SEC atthe SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C.20549. You may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330.  Youmay also access electronically the information we file with the SEC via itswebsite, located at http://www.sec.gov.

 

**About NTLSouth Herts**

 

***Franchise Area***

 

The South Hertfordshire franchise area comprises the three administrativeareas of Three Rivers, Watford and Hertsmere. The franchise area coverscommuter suburbs of London, and many people who reside in the franchise areause the available fast rail and motorway services to travel to work in centralLondon. South Hertfordshire has benefited from the completion in 1986 of theM25 London Motorway, which makes commuting from the franchise area to otherareas in or near London more convenient. An M1 motorway link exists to giveLondon-bound commuters direct access from Watford to the London highway system.The M1 link is half a mile from our headend. There are approximately 95,000homes in the franchise area, of which approximately 94,000 are passed by ourcable television/telephone network. Construction in the franchise area issubstantially complete.

 

***Operations***

 

Construction of a cable television-only network in the SouthHertfordshire franchise area commenced in early 1991 and, integrated cabletelevision/telephone network architecture was developed for this franchise inlate 1991. As of December 31, 2005, approximately 94,000 of the totalhomes in this area had been passed. Cable television services commenced in April 1992and telephone services commenced in February 1993, following completion ofthe installation of a telephone switch. In January 2000, NTL commenced therollout of digital cable television services within the South Herts franchiseand in 2001 commenced broadband internet access services. As of December 31,2005, NTL South Herts serviced 21,709 digital cable customers, 31,927residential telephone customers and 20,078 broadband customers, representing atotal of 36,975 customers with a penetration level of 39.2%.

 

Management control is exercised by NTL Fawnspring Limited, a U.K.corporation, which is a wholly owned indirect subsidiary of NTL and is ourGeneral Partner, although management control is delegated to other affiliatedcompanies of NTL. Our business is managed by NTL Group Limited, or NTLG, asubsidiary of NTL, from its headquarters in Hook, Hampshire. NTL and we believethat management of our business as an integral part of the larger NTL groupreaps the benefits of synergy and maximizes returns. NTLG performs a variety ofmanagement functions and procures services on our behalf. Pursuant to an agreementwith NTLG, we have the legal right to offset amounts receivable from NTLGagainst amounts payable to NTLG. Consequently, the net balance payable to NTLis disclosed under accounts payable to affiliates and related parties in theaccompanying financial statements.

 

Our operations are fully integrated into the operations of NTL.Accordingly, the following business description describes NTL’s operations ofwhich we comprise a part.

 

8

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**NTL’sBusiness**

 

On March 3, 2006 NTL (Old NTL) merged into a subsidiary ofTelewest Global, Inc., pursuant to which the two businesses have combined,creating the UK’s second largest communications company. Immediately followingthe merger, Telewest Global, Inc. changed its name to NTL Incorporated(New NTL).

 

Following the merger, which was effective onMarch 3, 2006, NTL’s stockholders owned approximately 75% and Teleweststockholders approximately 25% of the combined company on a fully dilutedbasis. Following the merger, NTL, which has changed its name to NTL HoldingsInc. is wholly owned by New NTL. NTL’s common stock, which traded on NASDAQunder the symbol “NTLI,” was delisted. Telewest’s ticker symbol was changed to“NTLI.”

 

Further details relating to the merger arecontained in NTL’s Form 8-K, which was filed on March 3, 2006.

 

NTL was incorporated in 1993 as a Delawarecorporation. New NTL was incorporated in 2003 as a Delaware corporation. NewNTL’s principal executive offices are located at 909 Third Avenue,Suite 2863, New York, New York 10022, United States, and NTL’s telephonenumber is (212) 906-8440. New NTL’s U.K. headquarters are located outsideof London, England in Hook, Hampshire, United Kingdom. New NTL’s website is *www.ntl.com* and the investor relations section of theirwebsite can be accessed under the heading “Investors” where New NTL makesavailable free of charge annual reports on Form 10-K, quarterly reports onForm 10-Q, current reports on Form 8-K, and any amendments thereto,as soon as reasonably practical after they are filed with the SEC.

 

The following description relates toTelewest’s business prior to its merger with NTL.

 

Telewest is a leading broadbandcommunications and media group in the U.K., providing:

 

•                  television, telephone and internet access servicesto residential customers in the U.K.;

 

•                  voice, data and managed solutions services forbusinesses in the U.K.;

 

•                  basic television channels and related services tothe U.K. multi-channel broadcasting market; and

 

•                  a wide variety of consumer products by means ofauction-based televised shopping programs.

 

Telewest’s television and communicationsservices are delivered through its wholly owned broadband, local accesscommunications network, passing approximately 4.7 million homes in theU.K. Telewest’s networks consist of local distribution networks, a “nationalnetwork” and an internet protocol, or IP, services platform and providehigh-speed interconnection and two-way interactivity with directly connectedresidential and business customers. Like NTL, Telewest offers the “triple play”of internet, telephone and television services to its residential customers.

 

Telewest’s television channels, auction-basedshopping programs and related services are provided through its wholly ownedsubsidiaries, Flextech Limited, or Flextech, and sit-up Limited, or sit-up.Flextech has ten genre-based entertainment channels, four of which aremulti-phased versions of its other channels. Flextech also owns a 50% interestin the companies that comprise the UKTV Group, a series of joint ventures withBBC Worldwide Limited, or BBC Worldwide. Together Flextech and the UKTV Groupare the largest supplier of basic channels to the U.K. pay-television market.sit-up provides a wide-variety of consumer products through three interactiveauction-based television channels: price drop TV, bid tv and speed auction tv.

 

The following description relates to NTL’sbusiness prior to its merger with Telewest.

 

NTL is one of the leading communications andcontent distribution companies in the U.K., providing internet access,telephone and television services to 3.3 million residential customers,including 1.8 million broadband customers. NTL also provide internet andtelephone services to its residential customers who are not connected to itscable network via access to other companies’ telecommunications networks andvia an internet service provider operated by its subsidiary, Virgin NetLimited. NTL offers what it refers to as a “triple play” bundle of internet,telephone and television services through competitively priced bundledpackages. NTL also provides a range of voice services to businesses and publicsector organizations, as well as a variety of data communications solutionsfrom high speed internet access to fully managed business communicationsnetworks and communication transport services.

 

NTL’s services are delivered through itswholly owned local access communications network passing approximately7.7 million homes in the U.K. The design and capability of NTL’s network providesit with the ability to offer “triple play” bundled services to residentialcustomers and a broad portfolio of reliable, competitive communicationssolutions to business customers.

 

9

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NTL provided services to customers throughtwo sales channels: Consumer and Business.

 

**Consumer**

 

NTL provides broadband and dial-up internet,telephone and television services to residential customers in the U.K.

 

NTL’s services to residential customers aredistributed principally via its wholly-owned, local access communicationsnetwork to an addressable market of approximately 7.7 million homes in theU.K. The network covers parts of many major metropolitan areas in the U.K., andincludes England, Wales and Scotland. In addition, NTL provides services toresidential customers not connected to its network via access to othertelecommunications networks and via an ISP, virgin.net, operated through itssubsidiary Virgin Net Limited.

 

NTL’s wholly-owned, local access communicationsnetwork provides it with several competitive advantages in its industry:

 

•                  it provides real two-way interactivity withresidential customers who are connected to the network;

 

•                  it enables NTL to provide true “triple play” bundledservices of internet, telephone and television services to residentialcustomers in its franchise areas without relying on another service provider ornetwork; and

 

•                  the connection of customers to its networks is bymeans of a twin cable, consisting of both coaxial and twisted copper pairelements enabling NTL to deliver broadband and high-speed services over eachtype of cable to customers. NTL’s length of copper pairs is generally muchshorter than its principal telephone competitor, allowing potentially higherspeed services to be utilized in the future.

 

In contrast:

 

•                  direct to home satellite service providers do nothave the capacity to offer two-way interactivity except by adding a phone lineor other cable facility; and

 

•                  telephone service providers today have only alimited capacity to provide video over existing digital subscriber lines, orDSL, technology.

 

NTL’s packaging and pricing are designed toencourage its residential customers to use multiple bundled services like dualtelephone and broadband internet access, dual telephone and dial-up internetaccess, dual telephone and television, or triple telephone, television andinternet access. For example, NTL’s Family Pack bundle offers over 100television channels and a telephone line rental. In addition, NTL’s “valuepacks” offer discounts to subscribers taking two or more products.

 

NTL believes that it is well-positioned inits service areas to use bundling to increase its customer base, reduce itscustomer churn rate and increase its profitability. As of December 31,2005, approximately two thirds of its residential customers received multipleservices from NTL. NTL refers to each service it provides as a revenuegenerating unit, or RGU, and, as of December 31, 2005, each of its on-netcustomers represented on average approximately two revenue generating units.For example, if NTL provided one customer with broadband internet and telephoneservices, this customer would represent two RGUs. NTL’s “triple play” customerbase has been increasing as a percentage of its total residential customers. Atthe end of the fourth quarter of 2004, 24.0% of NTL’s on-net customers weretriple play customers, and as of December 31, 2005, 29.3% of NTL’s on-netcustomers were triple play.

 

 

10

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In its service areas, NTL is the primaryservice provider that provides the full range of services that NTL offers,although competition in each of these services individually is significant andsome of the other service providers have substantial resources. See “—Competition.”

 

The table below shows other typical serviceproviders who offer their services in NTL’s areas:

 
| ** **         | ** ** | ** ** | ** ** | **BT**  | ** ** | **BSkyB** | ** ** | **Broadband  Resellers** | ** ** | **Telephone  Resellers** | ** ** | **Freeview** | ** ** | **Home  Choice** | ** ** | **TUTV** | ** ** |
|--------------------|------------|------------|------------|---------|------------|-----------|------------|--------------------------|------------|--------------------------|------------|--------------|------------|------------------|------------|----------|------------|
| ** **         | ** ** | **NTL**    | ** ** | **(1)** | ** ** | **(1)**   | ** ** | **(2)**                  | ** ** | **(3)**                  | ** ** | **(4)**      | ** ** | **(5)**          | ** ** | **(6)**  | ** ** |
| Telephone          |       | ü     |       | ü  |       | ×    |       | ×                   |       | ü                   |       | ×       |       | ü           |       | ×   |       |
| Broadband Internet |       | ü     |       | ü  |       | ×    |       | ü                   |       | ü                   |       | ×       |       | ü           |       | ×   |       |
| Dial Up            |       | ü     |       | ü  |       | ×    |       | ü                   |       | ü                   |       | ×       |       | ×           |       | ×   |       |
| Television         |       | ü     |       | ×  |       | ü    |       | ×                   |       | ×                   |       | ü       |       | ü           |       | ü   |       |
| Bundled services   |       | ü     |       | ×  |       | ×    |       | ×                   |       | ×                   |       | ×       |       | ü           |       | ×   |       |

 

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ü     = service available

×      =service not available

 

(1)          AlthoughBT Group plc, referred to as BT, and British Sky Broadcasting Group plc,referred to as BSkyB, co-market each other’s telephone and television services,customer and technical support remains distinct and customers are required toretain and pay for the different services separately. BSkyB also offers a CPSservice through Sky Talk.

 

(2)          Forexample, Wanadoo.

 

(3)          Forexample, Alpha Telecom, Tesco and Carphone Warehouse’s Talk Talk.

 

(4)          Freeviewrefers to a free-to-air digital television service offered by a consortium.Freeview provides digital television services through a Freeview-enabledset-top box or a television with a digital tuner, with no subscription fees forbasic service of about 35 channels. For a subscription fee, some additionalchannels are available.

 

(5)          HomeChoice is the brand name for Video Networks Ltd., whose services are availableonly in parts of the London metropolitan area.

 

(6)          TUTVrefers to Top Up TV, a company offering approximately eleven pay TV channels availableto subscribers who otherwise receive Freeview and have purchased TUTV software.

 

*InternetServices*

 

NTL offers several different packages ofbroadband and dial-up internet services with different features, speeds andpricing. NTL provides broadband and dial-up internet services to customerswithin reach of its access network, by direct connection to its network. NTLalso provides broadband and dial-up internet services to customers not withinreach of its access network by providing a connection to its network via BT’slocal access network. NTL is the largest direct provider of residentialbroadband services in the U.K. Broadband provides users with a high-speedalways-connected internet service. Users connect their home computers to NTL’sbroadband network via high-speed cable modem. NTL offers broadband services atvarying speeds: currently 1Mb, 2Mb and 10Mb.

 

11

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*virgin.net*

 

Through NTL’s Virgin Net Limited subsidiary,NTL provide internet services to residential customers who live inside oroutside NTL’s service areas. Virgin Net offers both broadband and dial-upinternet services. Various price and feature packages are available includingmetered and unmetered dial-up, and broadband ranging from 512Kb to 2Mb.Services up to 8Mb are planned for 2006. NTL has a license from VirginEnterprises Limited to use the Virgin name and logo in connection with theactivities of virgin.net. As of December 31, 2005, NTL had approximately481,000 residential customers using virgin.net, including approximately 166,500broadband customers.

 

*Features and Content*

 

Some features and content are provided freeto all subscribers to NTL’s internet services, e.g. email, newsgroups andNetGuard, NTL’s internet security package. NetGuard provides PC anti-virus anda number of security tools including pop-up blocker, form filler and privacymanager.

 

Other features and content are provided on asubscription basis, or free to higher tier subscribers e.g. Broadband Plus,which is offered free to higher tier broadband subscribers and, for anadditional monthly fee, to lower tier broadband subscribers. Broadband Plusgives residential customers access to premium subscription content, such asonline gaming, educational, music and other entertainment content.

 

*Internet Market Growth*

 

Broadband is a dynamic and growing industry.NTL intends to continue to maximize its share of this market by leveraging thecompetitive advantages of its network to create broadband propositions that aresuperior in speed, value and features.

 

NTL has experienced substantial growth in itsbroadband customer base since 2002. For example, as of the close of 2002, NTLhad 517,000 broadband customers. At the end of 2003, NTL had 949,200 broadbandcustomers, at the end of 2004 NTL had 1,330,300 broadband customers and at theend of 2005, NTL had 1,823,900 broadband customers. This represents an averagegrowth rate over this period of over 53.6%, including the 62,000 broadbandcustomers already with virgin.net at the time of its acquisition by NTL in2004, and over 52.0% excluding those customers.

 

*Telephone*

 

NTL provides local, national andinternational telephone services to its residential customers. NTL tiers itsproduct offering with attractive pricing that includes “Talk Plans” that enablecustomers to make unlimited local and national calls for a fixed monthly fee inaddition to the standard line rental. NTL provides telephone services to itsresidential customers who are within reach of NTL’s access network by directconnection to its network and also via BT’s local access network to customersoff NTL’s network, a process known as indirect access. NTL also providesnational and international directory inquiry services. As of December 31,2005, NTL provided telephone services to approximately 2.6 million residentialcustomers.

 

*Cable Television*

 

NTL offers a wide range of digital and analogtelevision services to its customers. NTL’s digital services include access toover 130 channels, advanced interactive features and a range of premium andpay-per-view services. NTL’s analog service packages offer up to 45 channelsincluding premium and/or pay-per-view services. In addition to offering all ofthe popular basic and premium channels available on BSkyB’s satellite platform,NTL also offers to its digital customers, through its joint venture with asubsidiary of Telewest Global, Inc., or Telewest, a cable-only movie,sport and special events pay-per-view television service called “Front Row.”Front Row provides NTL’s customers with similar access to films and special payper view events as BSkyB’s “Sky Box Office”.

 

NTL’s network technology enables asignificant range of digital interactive services to be delivered by making useof the always-connected broadband connection from a customer’s home to thenetwork, known as the always-on return path. Examples of interactive servicesinclude games, television email and access to news, entertainment andinformation services from an on-screen menu. Interactive services also includeenhanced television functionality utilizing the “red button” for BBC and othercommercial broadcasters. “Red button” functionality in the U.K. permitstelevision viewers to press a red button on their remote control handset toreceive additional interactive services including multiple broadcasts. Forexample, during last year’s live Wimbledon tennis broadcast on BBC, a viewercould press the red button and receive a choice of multiple live tennis matchesto watch, with the ability to switch back and forth between one match andseveral others.

 

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As of December 31, 2005, NTL provided cable television services toapproximately 1.9 million residential customers, of which approximately1.4 million received its DTV service and approximately 0.5 millionreceived its ATV service.

 

*Video on Demand*

 

In January 2005, NTL launched its Videoon Demand, or VOD, DTV service. This new service, called ntl On Demand, isbeing rolled out regionally to NTL’s DTV customers throughout the U.K. As of December 31,2005 over 500,000 existing customers were able to receive the VOD service.

 

ntl On Demand is a significant enhancement tothe existing ntl DTV service, offering viewers choice over and above scheduledprogramming. The VOD movie service, provided by FilmFlex, a joint venturecompany between Sony, Disney and the On Demand Group, offers hundreds of films,including many of the latest blockbusters and classics. The VOD serviceprovides access to hundreds of hours of additional programming, includingadvertising-free children’s programs, a “Pick of the Week” option showing aselection of top shows from the previous seven days, and a music video jukeboxservice.

 

Companies who have already agreed to provideVOD content include the BBC, Nickelodeon, Jetix, Warner Music, EntertainmentRights, VPL, The Walt Disney Company, Hollywood Pictures, Touchstone Pictures,Miramax Film Corporation, Buena Vista International, Inc., Sony PicturesEntertainment, Sony Pictures Classics, Columbia Pictures, TriStar, Pathé, IconFilms and Playboy TV. Additional partners are expected to join the service asit develops.

 

ntl On Demand offers DVD-style featuresincluding freeze frame, fast-forward and rewind, and programs are available for24 hours after purchase. These features provide a customer with fullcontrol over the content and timing of their television viewing. There is alsoan increasing amount of free content available to view at any time. Currentfilms appear on television first through VOD, up to nine months beforescheduled TV movie channels. To help customers choose which film to watch, filmtrailers can be viewed before purchasing.

 

As soon as this service goes live in each ofNTL’s regions, it is available to all of NTL’s DTV customers. No new equipment,installation or additional subscription is required. ntl On Demand appearswithin the existing Electronic Programming Guide and customers can purchasefilms and television programs whenever they choose via the remote control.

 

*Sales and Marketing*

 

NTL uses a variety of advertising andmarketing channels to sell its services to residential customers, including itsdedicated door-to-door sales force and its telephone sales team. These channelsare supported by direct marketing initiatives and national and regional pressadvertising.

 

NTL uses its residential customer database toidentify the profiles of its customers so that it can design offers to matchthe needs of its customers. NTL’s offers encourage customers to purchase newservices and upgrades to existing services.

 

*Customer Service*

 

Improving its customer service has continuedto be a central focus for NTL during 2005. NTL now operates its customerservice operations from three main custom-built centers based in the U.K. atGlasgow, Swansea and Manchester. These sites are virtualized, which means thatcalls come in to one access point and are distributed automatically to thefirst available agent in Glasgow, Swansea or Manchester. This allows real-timecall routing between each center, depending on call volumes. A separate serviceperformance team ensures peak call times are resourced properly. NTL usesvarious tools and processes to ensure that it matches its customers’ calls tothe right service center staff and to meet peak demand. NTL’s employees aregraded in terms of their expertise in specific call types, which allows thecall routing to be linked to skill types of employees, ensuring customers areserviced by experts within their field of enquiry.

 

In addition, NTL has two specialist teamsbased in Manchester and Swansea, which deal in high-level fault diagnostics.These teams are staffed by employees trained in on-line diagnosis of faults forNTL’s products. NTL also employs approximately 587 service technicians whoserole involves visiting customers who have registered a fault which cannot berectified remotely. This team is tasked to restore service within10 hours. During 2005, over 75% of faults were restored within the10 hour window and a total of 92% within 24 hours. NTL constantlymonitors its network to ensure that it detects and repairs network outagespromptly, and to enable early communication with its customers.

 

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NTL’s customer service operation has over1,600 staff handling over 24 million calls per year. The average call isanswered within 187 seconds, with 34% of calls answered within 30 seconds.However, disruptions in service or other special situations can result inincreases in call volumes and waiting times.

 

Since the 2004 call centre consolidationprogramme and the cessation of billing migration work there have beenimprovements in service levels, customer advocacy and churn. Customer researchshows all aspects of service have improved with overall satisfaction of theContact Centers having increased from 48% to 53% across 2005 and helped driveoverall advocacy to 55%. This is further supported by the customer advocacy forthose customers that have had a reason to call NTL. This advocacy measure hasincreased 11% year-on-year to 52% and is reflected in the likelihood ofcustomers to purchase a new product with us (Customer Satisfaction and Advocacymeasure) to 37% from a low in the year of 28%. Correspondingly controllablecustomer churn (excluding movers) has dropped to below 3% annualized with “servicerelated churn” at 0.7% annualized.

 

***Business***

 

NTL provides voice, data and internet retailand wholesale services to a broad range of commercial and public sectororganizations.

 

NTL believes that it benefits from both costand performance competitive advantages from its network, in terms of its reach,bandwidth and performance, over that of its competitors, who largely depend onthe BT local access network for the end connection to customers.  NTL’s network infrastructure passes within200 meters of more than 600,000 business premises in the U.K.

 

NTL derives approximately 40% of its retailbusiness revenue from the public sector, particularly local government and thehealth and education markets. Where NTL’s network overlaps with the communitiesserved by these organizations, NTL leverages its competitive advantage throughcost of delivery or network performance. NTL also leverages its competitiveadvantage in the commercial markets around regional businesses.

 

NTL generally divides its business customersby market segment into wholesale and retail. Retail customers are dividedfurther into three categories based on revenues generated or expected from thatcustomer:

 

•                  *Tier 1* — customer generating revenue of more than £100,000per year;

 

•                  *Tier 2* —  customergenerating revenue of between £25,000 and £100,000 per year; and

 

•                  *Tier 3* — customer generating revenue of less than £25,000per year.

 

This tiering of existing retail customers hasenabled NTL to develop cost-effective account management, business developmentand customer service processes appropriate to levels of customer revenues.  Revenue from business retail customers forthe year ended December 31, 2005 was £250.0 million, distributedacross these Tiers, with 20% in Tier 3, 9% in Tier 2 and 71% in Tier 1.

 

Revenue from business wholesale customers was£177.6 million for the year ended December 31, 2005.

 

***Services***

 

***Voice Services***

 

*Business Exchange Lines*

 

NTL’s business exchange lines provide itsbusiness customers with analog telephone services that connect to customertelephone handsets or private automatic branch exchanges, or PABXs. Revenuesfor this service are derived from service installation, line rental and usagecharges.

 

*Business Line ISDN 30*

 

NTL’s Business Line ISDN 30 service delivers30 digital exchange lines over a single physical access link. The exchangelines may be used for voice or data applications or a mix of both. The numberof digital exchange lines is sized to a customer’s needs. Revenues for thisservice are derived from service installation, line rental and usage charges.

 

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*Centrex*

 

NTL’s single and multi-site Centrex solutionsprovide customers with the facilities of a PABX without the need to invest inthe provision and maintenance of a local PABX. Telephone calls between userswithin a building or in different buildings are handled through NTL’s networkbut appear to the user to be transferred through a local PABX. Revenues forthis service are derived from installation, equipment rental, line rental andcall charges.

 

*Non-Geographic Numbers*

 

NTL provides a range of freecall,non-geographic and premium rate number services for tele-business, includingadvice lines, call centers and telemarketing applications. Revenues for theseservices are derived from service installation, line rental, usage charges andrevenue share with the tele-business line operator.

 

***Data Services***

 

*Leased Lines*

 

NTL’s leased line services provide high-qualitydedicated connections between two customer locations. Customers use leasedlines for voice, data and video applications, and for forming the basis ofprivate networks. Service speeds are available at 2Mb/s, 10Mb/s, 34Mb/s,45Mb/s, 100Mb/s and 155Mb/s. Revenues for this service are derived from serviceinstallation and recurring rental charges based on distance.

 

*Ethernet Services*

 

NTL provides point-to-point, point tomulti-point and virtual private network capability, at 10 Mb/s, 100 Mb/s and 1Gb/s bandwidth. Increasingly, customers use Ethernet as a means of achievinglocal area network, or LAN, performance over their Wide Area Networks; NTLprovides users with the benefit of a dedicated private network at a lower cost.Revenues for this service are derived from installation, access circuit rentaland virtual connection rental charges.

 

*Structured Cabling/LAN Solutions*

 

NTL provides in-building structured cablingservices which include design, installation and project management of cableinstallations and upgrades. Revenues for this service are determined on aproject-by-project basis.

 

***Internet***

 

*Internet Access—Cable Modem/ADSL*

 

NTL provides internet services across theU.K., with access by means of cable modem in areas served by its network or bymeans of asymmetric digital subscriber line, or ADSL, elsewhere. This allowsNTL to provide services across the SME market and ubiquitous national accessfor larger enterprises.

 

*High Speed Dedicated Internet Access*

 

NTL provides high speed dedicated internetaccess from 2 Mb/s up to 45 Mb/s to organizations that support web servicesfrom their own locations as well as organizations that have heavy demands foraccess to the internet. Because NTL owns its network, it can providecompetitively-priced internet access at higher speeds. NTL’s pricing is basedon installation charges and recurring rental charges that vary based on thespeed of access.

 

***NTL’s Network***

 

NTL’s business is underpinned by significantinvestment in its network infrastructure. This consists of a national corebackbone network and a high capacity two-way local broadband network in the UK.The entire network was designed for large scale, high-speed telecommunicationstraffic from its inception. NTL’s core network infrastructure transports its voice,internet, data and digital television platforms, whilst its access networksdeliver these services directly to its customers.

 

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NTL’s broadband communications network in theU.K. currently passes approximately 7.7 million homes in its regional franchiseareas. NTL’s cables also pass a significant number of businesses in theseareas. NTL’s service areas include parts of many of the major metropolitanareas in the U.K., including London, Manchester, Leeds, Southampton,Portsmouth, Brighton, Derby, Teesside, Cambridge, Oxford, Reading, Nottingham,Leicester, Coventry, Glasgow, Belfast, Cardiff and Swansea. NTL has the largestservice area of any cable operator in the U.K. in terms of homes passed.

 

The core network has a fiber backbone that isapproximately 11,000 kilometers long. This includes over 8,400 kilometers whichare owned and operated by NTL and approximately 2,600 kilometers which areleased fiber from other network owners. Over 100 switches direct telephonetraffic around the core and local networks. In addition, NTL has more than 500hub sites, points of presence, repeater nodes or other types of network site,and facilities at over 150 radio sites.

 

NTL’s local access networks deliver internet,telephone and digital and analog television services to its customers’ homesand businesses. NTL’s access network is comprised of two networks together.First, to provide television services and high-speed broadband internet access,its local fiber network is connected to a customer’s premises via highcapacity, two-way, coaxial cables. Second, NTL uses Time Division Multiplex(TDM) technology over the fiber network to provide telephone services. This isthen connected to a customer’s premises via a relatively short length twistedcopper-pair. Additionally, the copper-pair cables are capable of hostingdigital subscriber line (DSL) services (NTL intend to pilot this service in2006). Shorter lengths of copper provide a structural advantage in delivering veryhigh-speed data services (for example 20Mbps ADSL2+ services).

 

NTL has a variety of alternative methods toconnect its national telecommunications network over the “last mile” to thepremises of those customers which are located outside of NTL’s cabled areas.NTL:

 

•                  obtainspermits to construct telecommunications networks and build-out its network toreach its customers. Although this is often the most costly means of reaching acustomer, the expense can be justified in the case of larger customers or wherea significant level of traffic is obtained from a customer; and

 

•                  leasescircuits and DSL connections on the local networks of other service providersto connect to the customers’ premises. Although this may reduce the operatingmargin on a particular account, it requires significantly less capitalexpenditure than a direct connection and can often be put into place relativelyquickly and can be replaced with a direct connection at a later date if trafficvolumes justify doing so.

 

Nationally, approximately 85% of the homespassed by NTL’s network can receive all of its broadband, digital televisionand telephone services. NTL cannot however currently provide all three of themain services on some older parts of the network. In 2005, NTL continued a networkupgrade program targeting approximately half a million homes in the Londonarea, where there is older, less robust cable network. Approximately 230,000 ofthe London homes were upgraded during 2005, compared to 102,000 in 2004; thesehomes can now be offered broadband, interactive digital television andtelephone services. This program is scheduled to be completed in 2006 with theupgrade of approximately 200,000 homes.

 

Once the London upgrade program is completed,approximately 88% of the homes passed by NTL’s network nationally will be ableto receive all of its broadband, interactive digital television and telephoneservices.

 

***Information Technology***

 

NTL outsources the management of the primaryelements of its information technology systems to various suppliers. Thesesuppliers include IBM, pursuant to an agreement which terminates in 2013 or, ifNTL pays a termination fee, on or after May 23, 2006. NTL retains controlof its information technology activities that are fundamental to NTL’s competitiveadvantage and key to the development of its intellectual property. The servicesIBM provides include:

 

•                  managementof NTL’s Wintel and mid-range information technology equipment;

 

•                  softwareapplication development;

 

•                  softwareapplication maintenance and support;

 

•                  end-userhelp desk services; and

 

•                  end-userdesk top and laptop computing support.

 

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**Competition**

 

***Consumer***

*** ***

NTL believes that it has a competitiveadvantage in the U.K. residential market because it offers integratedcommunications services including high-speed broadband internet, telephone andtelevision services. NTL offers most of its products on a stand-alone basis oras part of bundled packages designed to encourage customers to subscribe tomultiple services. There is only one other significant cable service providerin the U.K., Telewest, which has different service areas than NTL. NTL hasmerged with Telewest, effective March 3, 2006. NTL offers internet andtelephone services nationally. Television services are offered on NTL’s networkin its service areas only.

 

*Internet*

 

NTL provides broadband and dial-up internetservices to customers within reach of NTL’s access network, by directconnection to its network. NTL also provides broadband and dial-up internetservices to customers not within reach of NTL’s access network by providing aconnection to NTL’s network via BT’s local access network. NTL’s internetservices compete with BT, which provides broadband and dial-up internet accessservices over its own network. NTL also competes with ISPs, including Wanadoo(rebranding as Orange in 2006), AOL and Tiscali which do not own an accessnetwork infrastructure but offer internet access services by providing accessto BT’s network.

 

Additionally, NTL competes with an increasingnumber of companies who deploy their own network access equipment in BTexchanges. These companies are known as Local Loop Unbundlers (LLU), forexample Easynet (recently acquired by BSkyB) and Bulldog (part of Cable &Wireless). BT and third-party service providers use DSL technologies which,like NTL’s network, permit internet access to be provided at substantiallygreater speeds than conventional dial-up access. NTL anticipate that BT, aswell as NTL’s other major competitors, will increase their access speeds during2006 to as much as 24Mb.

 

NTL operates in a highly competitivemarketplace which is reflected in the increasing pressures NTL sees on pricingand speeds. Additionally NTL sees an increasing number of new entrantsaggressively moving into the market during 2006 (e.g. Carphone Warehouse, BSkyBand Be) as LLU begins to gain traction in the UK. Also, third generation (or3G) mobile technology or other wireless technologies (like Wi-Max) may subjectNTL to increased competition over time in the provision of broadband services.

 

*Telephone*

 

NTL provides fixed line telephone services tocustomers who are within reach of NTL’s network by direct connection to itsnetwork and, like NTL’s internet services, to customers off NTL’s network viaBT’s local access network. This process is known as indirect access. NTLcompetes primarily with BT in providing telephone services to residentialcustomers in the U.K. BT occupies an established market position and hassubstantial resources. NTL also competes with other telecommunicationscompanies that provide indirect access telephone services, including One.Tel,Carphone Warehouse under the brand name Talk Talk, Caudwell Group under thebrand name Homecall, and Tesco.

 

Previously, when providing indirect accessservices, calls were routed onto another operator’s network by customersdialing additional digits before entering the primary telephone number or via adialer box that had to be provided to each customer. Calls can now be routeddirectly within a BT switch, through a method known as carrier pre-selection.Carrier pre-selection dispenses with the need to dial additional digits or usea dialer box, creating a simpler connection process for the customer. Carrierpre-selection is encouraging new companies to provide indirect access telephoneservices, increasing the pressure on NTL’s telephone services.

 

NTL also competes with mobile telephonenetworks that may threaten the competitive position of its networks byproviding a substitute to fixed line telephone services. Mobile telephoneservices also contribute to the downward price pressure in fixed line telephoneservices. However, NTL expects that any decrease in demand for fixed linetelephone services as a result of competition from mobile telephone networksmay be at least partially offset by increased demand for its wholesale servicesto mobile telecommunications operators.

 

On December 5, 2005, NTL confirmed thatit had approached Virgin Mobile about a potential offer to combine itself withVirgin Mobile, and that NTL had engaged in discussions with Virgin Enterprisesto extend its existing license for use of the Virgin name in the internetservices area also to cover telephone (as well as television and mobile telephoneservices). On January 16, 2006, NTL and the independent directors ofVirgin Mobile confirmed discussions to enable a cash offer, with sharealternative offers, to be made by NTL or 

 

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one or more of NTL’s subsidiaries to acquire 100% of the shares ofVirgin Mobile. However, no assurances can be made that an offer will be made,of the terms on which any offer may be made, or whether any transaction will becompleted.

 

*Television*

 

NTL competes primarily with BSkyB inproviding pay DTV to residential customers in the U.K. BSkyB is the onlypay-satellite television platform and has high market share of the UK paytelevision market. BSkyB owns the UK rights to various sports and movieprogramming content which it has used to create some of the most popularpremium pay TV channels in the U.K. BSkyB is therefore both NTL’s principalcompetitor in the pay-television market, and a critical supplier of content toNTL. The Office of Fair Trading, a U.K. regulatory agency which we refer to asthe OFT, has previously determined that BSkyB is dominant in the wholesalesupply of channels carrying certain premium sports content and premium movies.Subject to a continuing finding of dominance, this should prevent BSkyB from abusingits market position in relation to the supply of these channels to NTL. Even soNTL believes that the current pricing for this content is not favorable to itand should be improved. NTL has an agreement in place with BSkyB for theirbasic service. NTL currently trade on BSkyB’s rate card terms and pricing fortheir premium service. Residential customers may also receive digitalterrestrial television, or DTT. Digital signals are delivered to customer homesthrough a conventional television aerial and a separately purchased set top boxor an integrated digital television set.

 

The free-to-air DTT service in the U.K. isbranded Freeview. This service is provided by a consortium of BSkyB, NationalGrid Wireless and the BBC and offers customers a limited range of televisionchannels, which include the traditional analog channels. Customers do not pay amonthly subscription fee for basic Freeview service but must acquire afreeview-enabled set top box or a television with a digital tuner. PresentlyFreeview does not offer several of the most popular pay television channels,such as Sky Sports, Sky Movies and MTV.

 

Top Up TV offers a pay television serviceoffering staggered times approximately eleven pay television channels for afixed fee to subscribers who otherwise receive freeview and have purchased TopUp TV software. Currently a limited number of residential customers can receiveDTV over BT’s ADSL lines. Video Networks Limited, under the brand nameHomechoice, supplies this service, including video on demand, to customers inparts of the London metropolitan area, and Kingston Interactive Televisionsupplies to customers in one region in England.

 

Following NTL’s merger with Telewest, noother competitors are able to offer the full range of services NTL provides.Some new competitors are using DSL technology to offer a comparable “tripleplay.” For example, Homechoice, provides bundled services to approximately30,000 customers, according to Homechoice. However, the offerings of both ofthese companies are on a significantly smaller scale than NTL’s.

 

Pay television and pay-per-view servicesoffered by NTL compete to varying degrees with other communications andentertainment media, including home video, video games and DVDs. NTL areintroducing video on demand services which may compete in the future withprogramming provided by video on demand services offered by other parties andmay compete against other video formats.

 

Telecommunications is a constantly evolvingindustry and NTL expects that there will continue to be many advances incommunications technology and in content. These advances, together with changesin consumer behavior, and in the regulatory and competitive environments, meanthat it will be difficult to predict how NTL’s operations and businesses willbe affected in the future.

 

The U.K. government has stated that it willterminate ATV transmission by 2012. Consumers wishing to receive televisionservices will have to convert to DTV, currently available via digitalsatellite, DTT, DSL or cable. However, when ATV transmission is terminated theterrestrial DTV signal and network may be increased. This will enableterrestrial DTV to be made available to customers’ homes that cannot currentlyreceive it. Some customers may wish to subscribe for free DTT, via Freeview,rather than pay for DTV.

 

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*Business*

 

NTL faces a wide range of competitors in theU.K. market. The nature of this competition varies depending on geography,service offerings and size of the marketable area. Only BT and Telewest haveboth extensive local access networks and a national backbone network. However,as Telewest’s local networks do not overlap with NTL’s networks, NTL does notcompete with Telewest to any material extent. BT is a major competitor inalmost all of NTL’s opportunities. Cable and Wireless plc, or C&W, and itsrecently acquired subsidiary Energis own national backbone networks and theytend to focus on the large enterprise and corporate markets. However, thesecompanies do not own local networks to any material extent and rely onwholesale arrangements to supply their customers.

 

Colt Telecom Group plc has an extensivenetwork particularly in London and also focuses on large enterprise andcorporate accounts. Thus Group plc has its network in Scotland, principally inEdinburgh and Glasgow, and United Utilities plc has its network in Manchester.NTL faces these competitors on a local basis mainly in the medium to large endof the SME (small and medium size enterprises) market and in the market forlarger corporate accounts and public sector organizations. In addition, forvoice services NTL competes with a number of resellers who purchase wholesaleminutes from BT and others and competes aggressively in the retail market.

 

Although many customers have a dual suppliersourcing policy, competition remains based on price and quality of service. NTLexpects price competition to intensify as existing and other new entrantscompete aggressively. Most of these competitors have substantial resources andNTL cannot assure you that these or other competitors will not expand theirbusinesses in its existing markets or that NTL will be able to continue tocompete successfully with these competitors in the business telecommunicationsmarket.

 

**BT and C&W are NTL’s principal competitors in NTL’swholesale services markets. Competition is based on the price, range andquality of services. BT has a local access network across the U.K. that puts BTin a strong competitive position. Competition is most intense on keycity-to-city routes where new entrants have increased the number of suppliersand had a significant negative impact on prices. Where opportunities are moreclosely aligned to the geographic areas NTL serves, the number of itscompetitors is reduced.**

 

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**Government Regulation**

 

***Regulation in the European Union (EU)***

 

The European Parliament and Commissionregulate our principal business activities through Directives and various otherregulatory instruments.

 

In particular, in February 2002, theEuropean Commission adopted a package of new Directives which, together, setout a new framework for the regulation of electronic communications networksand services throughout the EU. This new framework consisted of fourDirectives, namely:

 

•                  Directive 2002/21 on a common regulatory frameworkfor electronic communications networks and services (the Framework Directive)

 

•                  Directive 2002/20 on the authorization of electroniccommunications networks and services (the Authorization Directive)

 

•                  Directive 2002/19 on access to and interconnectionof electronic communications networks and associated facilities (the Access andInterconnection Directive), and

 

•                  Directive 2002/22 on universal service and usersrights relating to electronic communications networks and services (theUniversal Service Directive).

 

This package of Directives was supplemented,subsequently, by the Communications and Privacy Directive which dealt, amongother things, with data protection issues in relation to the provision ofelectronic communications services.

 

The U.K. Government incorporated theseDirectives into its national laws under the Communications Act 2003, which cameinto effect on July 25, 2003, and the Communications Privacy Regulations,which came into effect on December 11, 2003.

 

During 2006, the European Commission will beconducting a review of these Directives (the 2006 Review) to assess theircontinuing suitability and efficacy and whether any amendments are necessary.It is not possible, at this stage, to express any opinion as to the likelyoutcomes of this review.

 

In addition, the European Parliament andCommission are currently carrying out a review of the Television WithoutFrontiers Directive. This Directive, which was originally adopted in 1989, hasbeen a cornerstone of EU audiovisual media policy. It requires the MemberStates of the EU, among other things, to set certain minimum standards forbroadcasting and controls on the amount and content of advertising. TheDirective also requires Member States to take active measures to ensure thatbroadcasters under their jurisdiction support the European film and TVproduction industry. This requirement is achieved, in large part, through theimposition of a European content quota under which broadcasters must reserve amajority of their transmission time for European works.

 

In December 2005, the EuropeanCommission published proposed amendments to the Directive which are designed toupdate the Directive in the light of technological and market developments. Themain proposal is that on-demand services, which the European Commission referto as “non-linear services”, should be brought within the scope of theDirective and should be made subject to some of its requirements. Inparticular, there is a proposal that on-demand service providers such asourselves should be required, where practicable and by appropriate means, topromote production of and access to European works. The Commission cites contentquotas and investment levies as examples of how this might be achieved.

 

Debate on the proposed amendments willcontinue throughout 2006 and, in particular, the proposals will be debated inthe European Parliament within this period. It is not possible, at this stage,to predict the outcome with certainty but there is a risk that our on-demandservices will become more heavily regulated as a result and that we may berequired to take steps, similar to those which already apply to traditionallinear broadcasters, to support European film and TV production.

 

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***Regulation in the U.K.***

*** ***

We are subject to regulation under theCommunications Act 2003, the Broadcasting Acts 1990 and 1996 and other U.K.statutes and subordinate legislation.

 

The Communications Act 2003 established a newregulatory authority, the Office of Communications (Ofcom), as the singleregulatory authority for the entire communications sector. Ofcom replaced anumber of sectoral regulatory authorities such as the Office ofTelecommunications (Oftel) and the Independent Television Commission (ITC).

 

Under the Communications Act 2003,communications providers, such as ourselves, are no longer required to holdindividual licenses in order to provide electronic communications networks andservices, although certain licenses are required (see below under Cable TVregulation) in order to own or operate TV channels or to provide certainfacilities such as electronic programme guides on the cable TV platform. Evenso, all communications providers are subject to a set of basic conditionsimposed by Ofcom, which are known as the General Conditions of Entitlement. Anybreach of these conditions could lead to the imposition of fines by Ofcom and,ultimately, to the suspension or revocation of a company’s right to provideelectronic communications networks and services.

 

*The General Conditions of Entitlement and SMPconditions*

 

Full details of the General Conditions ofEntitlement are available on Ofcom’s website (www.ofcom.org.uk). Some of therequirements under the General Conditions of Entitlement with which we mustcomply include:

 

•                  a requirement to negotiate interconnectionarrangements with other network providers

 

•                  a requirement to ensure that any end-user can accessthe emergency services

 

•                  a requirement to offer outbound number portabilityto customers wishing to switch to another network provider and to supportinbound number portability where we acquire a customer from another networkprovider

 

•                  a requirement to ensure that any end-user can accessa directory enquiry service

 

•                  a requirement to publish up-to-date price and tariffinformation

 

•                  a requirement to provide itemized billing on requestfrom each customer.

 

Our entitlement to provide electroniccommunications networks and services extends throughout the UK and is notconstrained in time.

 

Under current arrangements, any company,including ourselves, providing an electronic communications network or serviceis liable to pay annual administrative fees to Ofcom if its turnover in thesecond calendar year before the charging year in question was £5 millionor more. These fees are calculated at a rate set by Ofcom each year and areapplied to relevant turnover bands.

 

In addition to the General Conditions ofEntitlement, Ofcom is under an obligation to impose further conditions onproviders of electronic communications networks or services who havesignificant market power (SMP) in identified markets. In regulatory terms, SMPequates to the competition law concept of dominance. The new EU regulatoryframework, adopted in 2002, required Ofcom to carry out a number of initialmarket reviews to establish which providers held SMP in these markets, andshould therefore be subject to further conditions, and to keep these marketsand any other relevant markets identified by Ofcom under regular review. Thishas resulted in British Telecommunications plc (BT) being found to have SMP ina substantial number of markets. As a result, BT has been made subject to furtherregulatory requirements in both wholesale and retail markets.

 

All fixed operators, including ourselves,have been found to possess SMP in relation to the termination of calls on theirown networks. This has resulted in the imposition of a requirement on all fixedoperators to provide access to their networks on fair and reasonable terms forterminating calls, with additional requirements being imposed on BT andKingston Communications. This apart, we have not been found to possess SMP inany of the other voice, data or Internet markets in which we operate.

 

21

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*The Strategic Review of Telecommunications*

 

Following the passing of the CommunicationsAct 2003, Ofcom announced that one of its first tasks would be to carry out astrategic review of telecommunications in the UK (TSR).

 

The TSR commenced in April 2004 with theobservation from Ofcom that, despite almost twenty years of telecommunicationsliberalization in the UK, BT remained dominant in almost all telecommunicationsmarkets. Ofcom’s preliminary assessment was that although the trueinfrastructure competition offered by the cable industry was highly desirableand had resulted in substantial consumer benefits, it did not represent asufficient competitive constraint on BT. Similarly, the intensity ofcompetition to BT based on access by third party service providers to the BTnetwork via wholesale products, was insufficient. Ofcom felt, therefore, thatit should seek to increase competitive intensity by improving third partyaccess to the BT network.

 

Having reached this conclusion, Ofcom hasdeveloped a concept known as “equivalence”. Broadly, this concept has beendefined as enabling BT’s competitors to gain access to BT’s networkinfrastructure on exactly the same (i.e. equivalent) terms as BT itself enjoys.

 

At the conclusion of the TSR, BT offered andOfcom accepted a number of undertakings to put the concept of equivalence intopractice in its dealings with competitors. This will be achieved primarilythrough the creation of a new division within BT called “openreach” which willmanage and sell network services to competitors and the rest of BT on the sameterms and conditions (including prices) and in accordance with the sameprocesses. By giving these undertakings, BT avoided a reference by Ofcom to theUK competition authorities.

 

The outcome of the TSR is expected to createfurther commercial opportunities for new entrants in markets across thecommunications sector and therefore to meet Ofcom’s objective of increasingcompetitive intensity.

 

*Universal Service*

 

The concept of universal service is designedto ensure that basic fixed-line telecommunications services are available at anaffordable price to all citizens across the EU. The scope of universal serviceobligations is defined by the Universal Service Directive (see above underRegulation in the European Union) and is transposed into U.K. regulation by theUniversal Service Order. This Order has been implemented by Ofcom which has imposeda number of specific universal service requirements on BT and KingstonCommunications, both of which have been designated by Ofcom as universalservice providers.

 

The European Commission is expected to reviewthe future scope of universal service obligations as part of the 2006 Review(see above under Regulation in the European Union). This review is likely toconsider, among other things, whether universal service should extend to theprovision of broadband internet connectivity and whether there is scope in thefuture for making use of mobile technologies in the provision of some aspectsof universal service. We would be impacted by any future decision to require usto provide or to contribute to the funding of universal service in the U.K.

 

*Electronic Communications Code*

 

Under the Telecommunications Act 1984, whichwas largely replaced by the Communications Act 2003, licensed publictelecommunications operators were eligible for enhanced legal powers under theelectronic communications code annexed to the Telecommunications Act 1984, orCode Powers. Code Powers are of particular benefit to those who construct andmaintain networks because they give enhanced legal rights of access to privateland, exemption from some requirements of general planning law and the right toinstall equipment in the public highway.

 

The Communications Act 2003 retained thebroad structure of Code Powers. Any operator which possessed Code Powers underthe previous licensing regime automatically retained those powers under the CommunicationsAct regime. Any operator wishing to obtain new Code Powers must now apply toOfcom. NTL’s subsidiaries that provide electronic communications networks andservices, ntl Group Limited and ntl National Networks Limited, both have CodePowers.

 

Although Code Powers give operators the rightto install equipment in public highways, each operator is required to certifyto Ofcom each year that it has sufficient and acceptable financial security inplace to cover the costs which could be incurred by local councils or roadauthorities if they were required to remove equipment or restore the publicroads following the insolvency of that operator. This security is commonlydescribed as *“funds for liabilities.”* Ofcomhas indicated that it will generally require an operator to provide board-levelcertification of third party security for this purpose.

 

22

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*Cable TV regulation*

 

Although NTL are no longer required to holdindividual licenses to provide electronic communications networks and services,NTL are still required to hold individual licenses under the Broadcasting Acts1990 and 1996 for any television channels which it owns or operates and for theprovision of certain other services (e.g. electronic programme guides) on ourcable TV platform.

 

NTL therefore holds a number of TelevisionLicensable Content Service Licenses (TLCS licenses) under the Broadcasting Act1990 for the provision of promotional channels and for the provision of ourelectronic programme guide.

 

TLCS licenses are granted and administered byOfcom. The licenses require that each licensed service complies with a numberof Ofcom codes, including the recently published Broadcasting Code, and withall directions issued by Ofcom. Breach of any of the terms of a TLCS licensemay result in the imposition of fines on the license holder and, ultimately, tothe license being revoked.

 

Holders of TLCS licenses are required to payan annual fee to Ofcom. The fees are related to the revenue-earning capacity ofeach television service and are based on a percentage, set by Ofcom, ofrevenues from advertising, sponsorship, subscriptions and interactive services,with special rules applying to shopping channels.

 

*U.K. competition law*

 

The Competition Act 1998, which came intoforce in March 2000, introduced a prohibition on the abuse of a dominantmarket position and a prohibition on anti-competitive agreements, modeled onArticles 81 and 82 of the Treaty of Rome. The Act also introduced third partyrights, stronger investigative and enforcement powers and the ability for thecompetition authorities to issue interim measures. The new enforcement powersinclude the ability to impose fines of up to 10% of worldwide turnover. TheCompetition Act is enforced by the Office of Fair Trading (OFT) and givesconcurrent investigative and enforcement powers in matters concerningcommunications to Ofcom.

 

The U.K.’s competition law framework wasfurther strengthened by the competition provisions of the Enterprise Act 2002,which came into force in June 2003. Under these provisions, among otherthings, decisions on mergers are now made by the independent competitionauthorities, using competition-based tests, rather than by the U.K. Government.

 

NTL’s merger with Telewest Global, Inc wascleared by the OFT on December 30, 2005. The OFT’s detailed decision inthis case was published on January 10, 2006. The time for any third partyappeal of this decision has expired.

 

Under other provisions of the Enterprise Act,individuals who cause, encourage, participate in or, in some cases, even thosewho have knowledge of, the making of agreements between competitors which aredesigned to fix prices, share markets, limit supply or production or rig bidsin the U.K., can be prosecuted and punished with unlimited fines andimprisonment for up to five years. The courts may also order thedisqualification for up to fifteen years of directors whose companies havecommitted a breach of U.K. or EU competition law.

 

**Seasonality**

 

Some revenue streams are subject to seasonalfactors. For example, telephone usage revenue by customers and businesses tendsto be slightly lower during summer holiday months. NTL’s customer churn ratesinclude persons who disconnect service because of moves, resulting in aseasonal increase in its churn rates during the summer months when higherlevels of U.K. house moves occur and students leave their accommodationsbetween school years.

 

**Research and Development**

 

NTL’s research and development activitiesinvolve the analysis of technological developments affecting its cabletelevision, telephone and telecommunications business, the evaluation ofexisting services and sales and marketing techniques and the development of newservices and techniques.

 

23

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**Patents, Trademarks, Copyrights and Licenses**

 

NTL does not have any material patents orcopyrights nor does it believe that patents play a material role in itsbusiness. NTL owns and has the right to use registered trademarks, which insome cases are, and in others may be, of material importance to its business,including the “ntl:” logo. NTL uses the Virgin.net name and logo in connectionwith the activities of its virgin.net ISP under license from Virgin EnterprisesLimited.

 

**Employees**

 

As the management of our business isperformed by NTL, we do not have any employees on our payroll. At December 31,2005, NTL had 9,820 employees, 8,896 of whom were permanent and 924 of whomwere temporary or contract. NTL believes that its relationship with itsemployees is generally good.

 

**Item 1BUnresolved Staff Comments**

 

None.

 

**Item 2. Properties**

 

We do not own or lease any properties. NTL South Herts owns a freeholdproperty at 9 Greycaine Road, Watford for use as offices and to house networkequipment.

 

**Item 3.Legal Proceedings**

 

We are from time to time subject to legal proceedings and claims thatarise in the ordinary course of our business. In the opinion of the management,the amount of ultimate liability with respect to these actions will notmaterially affect our financial position, results of operations or liquidity.

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

There were no matters that were submitted to a vote of the holders ofour limited partnership interests during the quarter ended December 31,2005.

 

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**PART II**

 

**Item 5. Market for Registrant’s Common Equity and Related Stockholder****Matters**

 

While our interests are publicly held, there is no established publictrading market for the limited partnership interests, and it is not expectedthat such a market will develop in the future. As of March 24, 2006, theapproximate number of holders of our limited partnership interests was 5,204.

 

**Item 6. Selected Financial Data**

 

The following table sets forth certain financial data for the yearsended December 31, 2005, 2004, 2003, 2002, and 2001. This informationshould be read in conjunction with the consolidated financial statements andnotes and the information contained in our Management Discussion and Analysisappearing elsewhere in this Annual Report. Historical results are notnecessarily indicative of future results.

 
| ** **                                    | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **2005**                    | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income  Statement Data:**                   |       |                        |       |   |   |   |   |   |   |   |   |
| Revenue                                       |       | $                           | 38,740,331 |   | $ | 38,042,360 |   | $ | 32,772,962 |   | $ | 29,552,065 |   | $ | 28,354,653 |   |
| Cost of goods sold                            |       | (10,430,813                 | )          | (11,550,360 | ) | (10,662,169 | ) | (10,772,887 | ) | (12,277,725 | ) |
| Selling, general and administrative  expenses |       | (92,063                     | )          | (103,018 | ) | (130,840 | ) | (167,225 | ) | (277,224 | ) |
| Management fees and allocated overhead from   |       |                        |       |   |   |   |   |   |   |   |   |
| General Partner                               |       | (17,063,743                 | )          | (14,321,728 | ) | (13,544,514 | ) | (12,035,660 | ) | (11,901,237 | ) |
| Other charges                                 |       | (653,559                    | )          | (602,691 | ) | (220,329 | ) | (1,488,502 | ) | (2,307,942 | ) |
| Depreciation                                  |       | (5,882,179                  | )          | (6,621,976 | ) | (7,460,577 | ) | (7,595,523 | ) | (14,629,055 | ) |
| Operating income (loss)                       |       | 4,617,974                   |       | 4,842,587 |   | 754,533 |   | (2,507,732 | ) | (13,038,530 | ) |
| Interest expense                              |       | (2,957,398                  | )          | (2,203,792 | ) | (1,922,710 | ) | (1,587,925 | ) | (1,577,428 | ) |
| Exchange gains (losses)                       |       | 219,959                     |       | (143,217 | ) | (179,033 | ) | (162,100 | ) | 23,590 |   |
| Income (loss) before minority interest        |       | 1,880,535                   |       | 2,495,578 |   | (1,347,210 | ) | (4,257,757 | ) | (14,592,368 | ) |
| Minority interest expense                     |       | (654,656                    | )          | (94,898 | ) | — |   | 768,837 |   | 4,723,504 |   |
| Net income (loss)                             |       | $                           | 1,225,879  |   | $ | 2,400,680 |   | $ | (1,347,210 | ) | $ | (3,488,920 | ) | $ | (9,868,864 | ) |
|                                          |       |                        |       |   |   |   |   |   |   |   |   |
| Net income (loss) per Limited                 |       |                        |       |   |   |   |   |   |   |   |   |
| Partnership Unit                              |       | $                           | 21.32      |   | $ | 41.74 |   | $ | (23.43 | ) | $ | (60.67 | ) | $ | (171.60 | ) |
| Average number of Limited                     |       |                        |       |   |   |   |   |   |   |   |   |
| Partnership Units outstanding                 |       | 56,935                      |       | 56,935 |   | 56,935 |   | 56,935 |   | 56,935 |   |

 
| ** **                                         | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **2005**               | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| **Balance Sheet Data:**                            | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total assets                                       |       | $                      | 63,195,826 |   | $ | 62,528,387 |   | $ | 61,450,329 |   | $ | 58,973,664 |   | $ | 59,167,848 |   |
| Accounts payable to affiliates and related parties |       | 64,324,939             |       | 65,398,192 |   | 66,757,685 |   | 62,691,338 |   | 58,599,365 |   |
| Long-term debt                                     |       | —                 |       | — |   | — |   | — |   | — |   |
| General Partner’s deficit                     |       | (501,583               | )          | (513,842 | ) | (537,849 | ) | (524,377 | ) | (489,488 | ) |
| Limited Partners’ (deficit) capital           |       | (656,602               | )          | (1,870,222 | ) | (4,246,895 | ) | (2,913,157 | ) | 540,874 |   |
| Minority interest                                  |       | 707,259                |       | 99,216 |   | — |   | — |   | 739,160 |   |
|                                                    |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 7. Management’s Discussion and Analysis of Financial Condition andResults****of Operations**

 

###### **Overview**

###### ** **

We are a Colorado limited partnership that was formed in December 1991pursuant to the public offering of our limited partnership interests for thepurpose of acquiring one or more cable television/telephone systems in the U.K.Upon acquisition of our system, our primary investment objective was to obtaincapital appreciation in the value of our investment in the system over the termsuch investment is held by us.

 

We hold 66.7% of the shares of NTL South Herts, which is principallyengaged in the development, construction, management and operation of broadbandcommunications networks for telephone, cable television and internet servicesin the U.K.. As a result of our ownership of 66.7% of the shares of NTL SouthHerts, for accounting purposes we have consolidated the results of NTL SouthHerts with our results. NTL indirectly holds the remaining 33.3% of the sharesof NTL South Herts. We are reliant on the support of NTL, the ultimate parent companyof the General Partner, to continue our operations as a going concern.

 

We derive our revenue principally from monthly fees and usage charges.Our packaging of services and pricing are designed to encourage our customersto use multiple services like dual telephone and broadband, dual telephone andtelevision or triple telephone, television and internet access.

 

The principal components of our expenses include payroll and otheremployee related costs; interconnection costs paid to other carriers related totelephone services; television programming costs; marketing and selling costs;repairs and maintenance; facility related costs, like rent, utilities andrates; and allowances for doubtful accounts. Our expenses include certain costs that are charged by a subsidiary ofNTL for the provision of network services and support, the use of NTL’snational backbone telephone network for carriage of our telephone traffic, aswell as the provision of technical infrastructure and network capacity by NTLfor our subscription internet access service and digital television services,the provision of corporate services, including finance, legal, human resourcesand facility services, and for the provision of IT services, including our useof the related IT equipment.

 

***Factorsaffecting our business***

 

Our residential customers account for themajority of our total revenue. The number of customers, the number and types ofservices that each customer uses and the prices we charge for these servicesdrive our revenue. Our profit is driven by the relative margins on the types ofservices we provide to customers. For example, broadband internet is moreprofitable than ATV. Our packaging of services and our pricing are designed toencourage our customers to use multiple services like dual telephone andbroadband. Factors affecting our profitability include customer churn, averagerevenue per user, or ARPU, and competition.

 

*Selected Operating Data*

 

We set forth in the following table certaindata concerning our franchise at December 31, 2005 and 2004:

 
| ** **                         | ** ** | **December 31  2005** | ** ** | **December 31  2004** | ** ** |
|------------------------------------|------------|----------------------------|------------|----------------------------|------------|
|                               |       |                       |       |                       |       |
| Homes passed (1)                   |       | 94,350                     |       | 93,063                     |       |
| Homes marketable (2)               |       | 94,350                     |       | 93,063                     |       |
| Total customers                    |       | 36,975                     |       | 35,643                     |       |
| Digital cable subscribers          |       | 21,709                     |       | 22,000                     |       |
| Analog cable subscribers           |       | 2,332                      |       | 3,137                      |       |
| Broadband Internet subscribers     |       | 20,078                     |       | 15,275                     |       |
| Telephony subscribers              |       | 31,927                     |       | 31,296                     |       |
| Penetration (homes marketable) (3) |       | 39.0                       | %          | 38.0                       | %          |
| Churn (4)                          |       | 1.0                        | %          | 1.3                        | %          |

 

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(1)     Homespassed is the number of homes that have had ducting buried outside.

 

(2)     Homesmarketable refers to the number of homes within our service area that canpotentially be served by our network with minimal connection costs.

 

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(3)     Penetrationrate measures the number of subscribers for our services divided by the numberof marketable homes that our services pass.

 

(4)     Customerchurn is calculated by taking the total disconnects during the month anddividing them by the average number of customers during the month.  Average monthly churn during the quarter isthe average of the three monthly churn calculations within the quarter.

 

*Customer Churn.*  Customer churn is a measure of the number ofcustomers who stop using our services. An increase in our customer churn canlead to increased costs and reduced revenue. We continue to focus on improvingour customer service and enhancing and expanding our service offerings toexisting customers in an effort to manage our customer churn rate. Although ourability to reduce our customer churn rate beyond a base level is limited byfactors like customers moving outside our network service area, in particularduring the summer season, managing our customer churn rate is a significantcomponent of our business plan. Our customer churn rate may increase if we areunable to deliver our services over our network without interruption or if wefail to match offerings by our competitors.

 

*Competition.*  Our ability to acquire and retain customersand increase revenue depends on our competitive strength. There is significantcompetition in our markets, including through other broadband serviceproviders, telephone services offered by BT, alternative internet accessservices, like DSL, which is offered by BT, digital satellite services offeredby BSkyB and digital terrestrial television offered by Freeview. If competitiveforces prevent us from charging the prices for these services that we plan tocharge, or if our competition is able to attract our customers or potentialcustomers we are targeting, our results of operations will be adverselyaffected.

 

***Capital Expenditures.***  Our business requires substantial capitalexpenditures on a continuing basis for various purposes, including expanding,maintaining and upgrading our network, investing in new customer acquisitions,and offering new services. If we do not continue to invest in our network, ourability to retain and acquire customers may be hindered. Therefore, ourliquidity and the availability of cash to fund capital projects are importantdrivers of our revenue. When our liquidity is restricted, so is our ability tomeet our capital expenditure requirements. We believe that our cash fromoperations and cash from NTL will be sufficient for our cash requirements in2006. The merger transaction between NTL and Telewest has been financed with anew stock issuance, cash on hand and new financings.

 

***Currency Movements.***  Because revenue and expenses from ourprincipal operations are denominated primarily in pounds sterling but we reportour financial results in U.S. dollars, our financial results are impacted bycurrency fluctuations, which are unrelated to our underlying results ofoperations.

 

***Seasonality.***  Some revenue streams are subject to seasonalfactors. For example, telephone usage revenue by customers and businesses tendsto be slightly lower during summer holiday months. Our customer churn ratesinclude persons who disconnect service because of moves, resulting in aseasonal increase in our churn rates during the summer months when higherlevels of U.K. house moves occur and students leave their accommodationsbetween school years.

 

***Integrationof Billing Systems.*** NTL’s historical growth throughacquisitions resulted in it inheriting numerous billing systems, which had manydifferences in functionality, resulting in inefficiencies in its customerservice processes. NTL has consolidated the number of billing systems for itsresidential customers from eleven at the beginning of 2003 to three currently.NTL continues to evaluate how many billing systems it will utilize forresidential and business customers, taking into account the prospects forimproved efficiencies and better customer service as well as the potential fordisruption in the business from additional migration of data. Accordingly, thetiming and extent of further integration efforts remain under review and arelikely to be influenced by the merger with Telewest.

 

***Call Center Consolidation.***On April 7, 2004, NTL announced the consolidation over the next 18 monthsof its 13 U.K. customer service call centers into three equipped to handleanticipated expansion of its customer base. Following an internal review, threespecialist call centers have been retained and developed and are supported byfour sales and customer support sites, located throughout the U.K. NTL’s callcentre consolidation was completed as of December 31, 2005 at a cost of$43.1 million.

 

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**Critical Accounting Policies**

 

Our consolidated financial statements andrelated financial information are based on the application of accountingprinciples generally accepted in the United States, or GAAP. GAAP requires theuse of estimates, assumptions, judgments and subjective interpretations ofaccounting principles that have an impact on the assets, liabilities, revenueand expense amounts reported, as well as disclosures about contingencies, risksand financial condition. The following critical accounting policies have thepotential to have a more significant impact on our financial statements. Animpact could occur because of the significance of the financial statement itemto which these policies relate, or because these policies require more judgmentand estimation than other matters owing to the uncertainty related tomeasuring, at a specific point in time, transactions that are continuous innature.

 

These policies may need to be revised in thefuture in the event that changes to our business occur.

 

***Foreign Currency Translation:***

 

Our functional currency is the poundsterling, while our reporting currency is the U.S. dollar. The assets andliabilities of our U.K. subsidiary have been translated using the exchange ratein effect at the balance sheet date and revenue and expenses have beentranslated at the weighted average rates for the respective years. Exchangegains and losses on translation of our net equity investments in oursubsidiaries are reported as a separate component of accumulated other comprehensiveincome (loss) in partners’ capital (deficit). Foreign currency transactiongains and losses are recorded in the statements of operations.

 

***Fixed Assets:***

 

•             Fixedassets, net, totaled $63.2 million and $62.5 million, in 2005 and 2004respectively. Fixed assets, net are stated at cost less accumulateddepreciation.

 

•             Thecost of fixed assets includes amounts capitalized for labor and overheadexpended in connection with the design and installation of our operatingnetwork equipment and facilities. Costs associated with initial customerinstallations, additions of network equipment necessary to enable advancedservices, acquisition of additional fixed assets and replacement of existingfixed assets are capitalized. The costs of reconnecting the same service to apreviously installed premise are charged to expense in the period incurred.Costs for repairs and maintenance are charged to expense as incurred.

 

•             Weassign fixed assets useful lives that impact the annual depreciation expense.The assignment of useful lives involves significant judgments and the use ofestimates. Our managers use their experience and expertise in applyingjudgments about appropriate estimates. Changes in technology or changes inintended use of these assets may cause the estimated useful life to change,resulting in higher or lower depreciation charges or asset impairment charges.

 

***Revenue:***

 

We recognize revenue only when it is realizedor realizable and earned. We recognize revenue when all of the following arepresent:

 

•     persuasiveevidence of an arrangement exists between us and our customers;

 

•     deliveryhas occurred or the services have been rendered;

 

•     theprice for the service is fixed or determinable; and

 

•     collectibilityis reasonably assured.

 

Revenue is invoiced and recorded as part of aperiodic billing cycle, and is recognized as the services are provided. At theend of each period, adjustments are recorded to defer revenue relating toservices billed in advance and to accrue for earned but unbilled services.

 

•             *Telephone, cable television and internet revenues* arerecognized as the services are provided to customers.

 

•             *Bundled services revenue* is recognized at the time theservices are provided to the customer or the performance of all of the serviceshave been completed. We apply the provisions of EITF No. 00-21 *Accounting for Revenue Arrangements with Multiple Deliverables*to assess whether the components of the bundled services should be recognizedseparately.

 

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•             *Installation revenue* is recognized by applying theprovisions of FASB Statement No. 51 *Financial Reporting byCable Television Companies* in relation to connection and activationfees for cable television, as well as telephone and internet services, on thebasis that we market and maintain a unified fiber network through which weprovide all of these services. Installation revenue is recognized at the time the installation has beencompleted to the extent that such revenue is less than direct selling costs.Installation revenue in excess of direct selling costs is deferred andamortized over the expected life of the customer’s connection.

 

•             *Rental revenue* in respect of line rentals and rental ofequipment provided to customers is recognized on a straight-line basis over theterm of the rental agreement.

 

***Other Policies:***

 

•             Asubsidiary of NTL provides infrastructure and management support services tous. The related charges represent our portion of costs incurred by thesubsidiary of NTL for the benefit of all U.K. operations within NTL. Thecharges are made on the basis of an allocation formula appropriate to eachcategory of charge.

 

•             Wemaintain allowances for doubtful accounts and other receivables to reflectestimated losses resulting from the potential inability of our customers tomake payments. These allowances are estimated based on the current aging ofreceivables, prior collection experience and future expectations of conditionsthat might impact the collectibility. If the financial condition of ourcustomers were to deteriorate resulting in impairment in their ability to makepayments, additions to the allowances may be required.

 

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**Results ofOperations**

 

***Years ended December 31, 2005 and 2004***

 

We present below summarized consolidated financial information for theyears ended December 31, 2005 and 2004:

 
| ** **                                    | ** ** | **Year ended December 31,** | ** ** | **Increase (decrease)** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------|------------|------------------------------|------------|
| ** **                                    | ** ** | **2005**                                   | ** ** | **2004**                     | ** ** | **$** | ** ** | **%** | ** ** |
|                                          |       |                                       |       |                         |       |   |   |   |   |
| Revenue                                       |       | $                                          | 38,740,331 |                         | $          | 38,042,360 |   | $ | 697,971 |   | 1.8 |   |
| Cost of goods sold                            |       | (10,430,813                                | )          | (11,550,360                  | )          | (1,119,547 | ) | (9.7 | ) |
| Selling, general and administrative  expenses |       | (92,063                                    | )          | (103,018                     | )          | (10,955 | ) | (10.6 | ) |
| Management fees and allocated overhead        |       | (17,063,743                                | )          | (14,321,728                  | )          | 2,742,015 |   | 19.1 |   |
| Other charges                                 |       | (653,559                                   | )          | (602,691                     | )          | 50,868 |   | 8.4 |   |
| Depreciation                                  |       | (5,882,179                                 | )          | (6,621,976                   | )          | (739,797 | ) | (11.2 | ) |
| Operating income                              |       | 4,617,974                                  |       | 4,842,587                    |       | (224,613 | ) | (4.6 | ) |
| Interest expense                              |       | (2,957,398                                 | )          | (2,203,792                   | )          | 753,606 |   | 34.2 |   |
| Foreign exchange gains (losses)               |       | 219,959                                    |       | (143,217                     | )          | (363,176 | ) | — |   |
| Net income before minority interests          |       | 1,880,535                                  |       | 2,495,578                    |       | (615,043 | ) | 24.6 |   |
| Minority interest expense                     |       | (654,656                                   | )          | (94,898                      | )          | (559,758 | ) | — |   |
| Net income                                    |       | $                                          | 1,225,879  |                         | $          | 2,400,680 |   | $ | (1,174,801 | ) | 48.9 |   |

 

*Revenue*

 

For the year ended December 31, 2005,revenue increased by 1.8% to $38.7 million from $38.0 million in 2004 andrevenue expressed in pounds sterling increased by 2.5% to £21.3 million in 2005from £20.8 million in 2004. We have increased our revenue primarily due to the increasein the number of broadband customers served by the South Herts System. At December 31,2005, we served 20,078 broadband customers compared with 15,275 at December 31,2004.

 

*Expenses*

 

*Costs of goods sold. *For the year ended December 31,2005, costs of goods sold decreased by 9.7% to $10.4 million from $11.6 millionin 2004 and cost of goods sold expressed in pounds sterling decreased by 9.1%to £5.7 million in 2005 from £6.3 million in 2004. Costs of goods sold as apercentage of revenue declined to 26.9% for the year ended December 31,2005, from 30.4% for 2004 primarily because revenue growth was focused onhigher-margin services and customers, particularly consumer broadband internetservices.

 

*Selling, general and administrativeexpenses. *Forthe year ended December 31, 2005, selling, general and administrativeexpenses decreased by 10.6% to $92,063 from $103,018 in 2004. We have madesavings in selling, general and administrative costs through negotiatedreductions in investor relations’ costs.

 

*Management fees and allocated overhead. *For the year ended December 31,2005, management fees and allocated overhead increased by 19.1% to $17.1million from $14.3 million in 2004. Management fees and allocated overheadexpressed in pounds sterling increased by 20.0% to £9.4 million in 2005 from£7.8 million in 2004. The business of NTL South Herts is managed as an integralpart of NTL. The combined costs of managing the larger group are allocated toeach entity with the NTL group, including NTL South Herts, on a consistent andproportional basis according to the level of trading in that entity. TheGeneral Partner considers this to be a fair and reasonable method as managementas an integral part of a larger group to reap benefits of synergy maximizesreturns.  The increase in the amountscharged to us resulted primarily from the increase in the allocable cost basebut more specifically from increases in network repair and maintenance, marketingand communications costs together with increased allowances for doubtfulaccounts offset by reduced levels of set-top box repair and recycling costs andlower employee costs through involuntary employee terminations at the end of2004.

 

30

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*Other charges. *For the year ended December 31,2005, other charges increased to $653,559 from $602,691 in 2004, which includerestructuring costs allocated to us by a subsidiary of NTL in respect of leaseexit costs in connection with properties that have been vacated and foremployee severance and related costs in connection with the call centerconsolidation program.  Charges allocatedto us by a subsidiary of NTL are made on the basis of an allocation formulaappropriate to each category of charge that is based on management’s judgmentof a reasonable methodology given the facts and circumstances.  Other charges in the year ended December 31,2004 relate to NTL’s call center consolidation program.

 

*Depreciation expense*

 

For the year ended December 31, 2005,depreciation expense decreased to $5.9 million from $6.6 million in 2004.Certain assets have become fully depreciated in the year.

 

*Interestexpense*

* *

Two changes to the interest expense chargingpolicies were implemented, as permitted by the Partnership Agreement, in thefourth quarter of 2005.  EffectiveOctober 1, 2005, interest is charged on the full amount of non-permanent loansprovided to us by our affiliates, rather than just the proportion thereofrelating to unpaid management fees paid on our behalf by an affiliate of theGeneral Partner.  Also effective October1, 2005, we are charged our allocation of the bank fees and deferred financingcosts relating to NTL’s senior credit facilities.  

 

For the year ended December 31, 2005,interest expense increased to $3.0 million from $2.2 million in 2004.  The increase in interest expense is primarilyowing to the increase in the amount of non-permanent loans on which interest ischarged and of allocated bank fees and deferred financing costs in the fourthquarter.  In the fourth quarter of 2005,the impact of the change in the amount of non-permanent loans on which interestis charged was $359,805 and the impact of the allocation of bank fees anddeferred financing costs was $268,295, for a combined impact of $628,100.  This increase is offset by favorable exchangerate movements and a lower effective average interest rate for NTL’s cost offinancing.

 

*Exchange gains/(losses)*

 

For the year ended December 31, 2005,foreign currency exchange gains were $219,959 as compared with a loss of$143,217 for 2004.  The change inexchange gains/losses is primarily attributable to fluctuations in thevaluation of the U.S. dollar on certain of our assets and transactions, whichare denominated in pounds sterling.  Ourresults of operations will continue to be affected by foreign exchange ratefluctuations.

 

*Minority interest*

 

In 2005, we recorded a minority interest of$654,656. We record a charge for the minority interest in NTL South Herts whenthe assets of NTL South Herts exceed its liabilities. Until the quarter ended December 31,2004, the losses of NTL South Herts applicable to the minority interestexceeded the minority interest in the equity capital of NTL South Herts.  In accordance with Accounting Research Bulletin51, or ARB 51, paragraph 15, such excess and further losses applicable to theminority interest have been charged against the majority interest, as there isno obligation on the part of the minority interest to make good such losses.The minority interests charge for the year ended December 31, 2004 was$94,898, which represented 33.33% of the net assets as at that date.

 

*Net income*

 

For the year ended December 31,2005, net income was $1.2 million as compared with $2.4 million in 2004 dueprimarily to the increase in the minority interest expense together with theincrease in interest expense as described above.

 

31

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***Years Ended December 31, 2004 and 2003***

 

We present below summarized consolidated financial information for theyears ended December 31, 2004 and 2003:

 
| ** **                                   | ** ** | **Year ended December 31,** | ** ** | **Increase (decrease)** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|-------------------------|------------|
| ** **                                   | ** ** | **2004**                         | ** ** | **2003**                | ** ** | **$** | ** ** | **%** | ** ** |
|                                         |       |                             |       |                    |       |   |   |   |   |
| Revenues                                     |       | $                                | 38,042,360 |                    | $          | 32,772,962 |   | 5,269,398 |   | 16.1 | % |
| Cost of goods sold                           |       | (11,550,360                      | )          | (10,662,169             | )          | 888,191 |   | 8.3 | % |
| Selling, general and administrative expenses |       | (103,018                         | )          | (130,840                | )          | (27,822 | ) | (21.3 | )% |
| Management fees and allocated overhead       |       | (14,321,728                      | )          | (13,544,514             | )          | 777,214 |   | 5.7 | % |
| Other charges                                |       | (602,691                         | )          | (220,329                | )          | 382,362 |   | 173.5 | % |
| Depreciation                                 |       | (6,621,976                       | )          | (7,460,577              | )          | (838,601 | ) | (11.2 | )% |
| Operating income (loss)                      |       | 4,842,587                        |       | 754,533                 |       | 4,088,054 |   | 541.8 | % |
| Interest expense                             |       | (2,203,792                       | )          | (1,824,622              | )          | 379,170 |   | 20.8 | % |
| Other interest                               |       | —                           |       | (98,088                 | )          | (98,088 | ) | (100.0 | )% |
| Foreign exchange losses                      |       | (143,217                         | )          | (179,033                | )          | (35,816 | ) | (20.0 | )% |
| Net income (loss) before minority interests  |       | 2,495,578                        |       | (1,347,210              | )          | (3,842,788 | ) | 285.2 | % |
| Minority interests                           |       | (94,898                          | )          | —                  |       | (94,898 | ) | — |   |
| Net income (loss)                            |       | $                                | 2,400,680  |                    | $          | (1,347,210 | ) | (3,747,890 | ) | 278.2 | % |

 

*Revenue*

 

For the year ended December 31, 2004, revenue increased by 16.1%to $38.0 million from $32.8 million in 2003 and revenue expressed in poundssterling increased by 3.5% to £20.8 million in 2004 from £20.0 million in 2003.We have increased our revenue through price rises and more broadband customersserved by the South Herts System. At December 31, 2004, we served 15,275broadband customers compared with 10,850 at December 31, 2003.

 

*Expenses*

 

*Costs of goods sold. *For the year ended December 31,2004, costs of goods sold increased by 8.3% to $11.6 million from $10.7 millionin 2003 but cost of goods sold expressed in pounds sterling decreased by 3.4%to £6.3 million in 2004 from £6.5 million in 2003.  Costs of goods sold as a percentage ofrevenue declined to 30.4% for the year ended December 31, 2004, from 32.5%for 2003 primarily because revenue growth was focused on higher-margin servicesand customers, particularly consumer broadband internet services.

 

*Selling, general and administrative expenses. *For the year ended December 31,2004, selling, general and administrative expenses decreased by 21.3% to$103,018 from $130,840 in 2003.  We havemade savings in selling, general and administrative costs through negotiatedreductions in investor relations’ costs.

 

*Management fees and allocated overhead. *For the year ended December 31,2004, management fees and allocated overhead increased by 5.7% to $14.3 millionfrom $13.5 million in 2003 but management fees and allocated overhead expressedin pounds sterling decreased by 5.7% to £7.8 million in 2004 from £8.3 millionin 2003. The business of NTL South Herts is managed as an integral part of NTL.The combined costs of managing the larger group are allocated to each entitywith the NTL group, including NTL South Herts, on a consistent and proportionalbasis according to the level of trading in that entity. The General Partnerconsiders this to be a fair and reasonable method as management as an integralpart of a larger group to reap benefits of synergy maximizes returns.  The decrease in the amounts charged to usresulted from decreases in the cost of NTL’s outsourced information technologyservices, savings in property and related facility costs, and reductions inemployee costs and other cost efficiencies that have been largely offset byhigher sales and marketing costs and involuntary employee termination costsfollowing further business rationalizations by NTL in the fourth quarter of2004.

 

*Other charges. *For the year ended December 31,2004, other charges increased to $602,691 from $220,329 in 2003.  Other charges include restructuring costsallocated to us by a subsidiary of NTL. These costs are for employee severanceand related costs.  Charges allocated tous by a subsidiary of NTL are made on the basis of an allocation formulaappropriate to each category of charge that is based on management’s judgmentof a reasonable methodology given the facts and circumstances. Other charges in2004 relate to NTL’s call center consolidation program.

 

32

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*Depreciation expense*

 

For the year ended December 31, 2004, depreciation expensedecreased to $6.6 million from $7.5 million in 2003. During 2004, we evaluatedthe remaining useful economic lives of our fixed assets.  As of January 1, 2004, we adopted newuseful economic lives. The change in lives reduced the depreciation charge by$0.7 million for the year ended December 31, 2004.

 

*Interest expense*

 

For the year ended December 31, 2004,interest expense increased to $2.2 million from $1.8 million in 2003. We incurinterest on management fees paid on our behalf by the General Partner. Theincrease in interest expense is owing to the higher level of these unpaidmanagement fees as well as foreign exchange movements.

 

We paid no cash interest for the years ended December 31,2004 and 2003.

 

*Foreign exchange losses*

 

For the year ended December 31, 2004,foreign currency exchange losses were $143,217 as compared with $179,033 for2003.  The change in exchange losses isprimarily attributable to fluctuations in the valuation of the U.S. dollar oncertain of our assets and transactions, which are denominated in poundssterling. Our results of operations will continue to be affected by foreignexchange rate fluctuations.

 

*Minority Interest*

 

 In2004, we recorded a minority interest of $94,898. We record a charge for theminority interest in NTL South Herts when the assets of NTL South Herts exceedsits liabilities. Until the quarter ended December 31, 2004, NTL SouthHerts’ liabilities exceeded its assets and consequently, we had not recognizedthe resulting minority interest asset since such an asset would not berecoverable. Under U.K. law, the shareholders of a U.K. limited company areprotected from the company’s liabilities. The minority interests charge for the year ended December 31, 2004represented 33.33% of the net assets as at that date.

 

*Net Income (loss)*

 

For the year ended December 31, 2004,net income was $2.4 million as compared with a net (loss) of $1.3 million in2003. This change was primarily a result of the improvement in our operatingperformance.

 

**Statement of Cash Flows**

 

***Years Ended December 31, 2005 and 2004***

 

For the year ended December 31, 2005,cash provided by operating activities increased to $13.2 million from $3.3million in 2004.

 

For the year ended December 31, 2005,purchase of fixed assets increased to $13.4 million from $3.3 million in 2004.Expressed in pounds sterling, the purchase of fixed assets increased to £7.3million from £1.8 million in 2004. Purchase of fixed assets relate primarily tothe transfer of Network assets from an affiliate amounting to $11.6 milliontogether with $1.8 million fixed asset additions through customerinstallations, particularly broadband. The asset transfer from the affiliatewas effective December 31, 2005, consequently there was no impact on thedepreciation charge for the year.

 

***Years Ended December 31, 2004 and 2003***

 

For the year ended December 31, 2004,cash provided by operating activities increased to $3.3 million from $1.5million in 2003, owing to the improvement in our operating performance.

 

For the year ended December 31, 2004,purchase of fixed assets increased to $3.3 million from $1.5 million in 2003.Expressed in pounds sterling, the purchase of fixed assets increased to £1.8million from £0.9 million in 2003. Purchase of fixed assets relate primarily tocustomer installations, particularly broadband.

 

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**Liquidity and Capital Resources**

 

##### ***Outstandingindebtedness***

##### *** ***

We have no financing independent of NTL.  We are reliant upon the support of NTL tocontinue our operations. As of December 31, 2005 we had consolidatedcurrent liabilities of $64.3 million due to NTL Group companies compared with$65.4 million as of December 31, 2004.

 

Historically, our source of cash had been the net proceeds of ourofferings of limited partnership interests and our principal uses of cash havebeen capital contributions to NTL South Herts in order to fund ourproportionate share of the construction costs of the South Herts System.

 

Accordingly, until such time as NTL South Herts begins to pay dividendson its ordinary shares (which is not expected in the foreseeable future) wewill be required to fund our administrative expenses by additional issuances oflimited partnership interests or from borrowings. It is unlikely that we willbe able to sell debt or equity securities in the public markets at least in theshort term or to obtain financing from commercial banks. Accordingly, we aredependent on NTL for funds to cover operating expenses, and will continue to bedependent upon NTL to meet our liquidity requirements for the foreseeablefuture.  We expect that cash from ouroperations in 2006 will be utilized fully for the purchase of fixed assetsincluding connecting new customers to our networks.

 

***Telewest financing***

 

NTL obtained a total of £5.1 billion in financing to effect the mergerwith Telewest and pay the related fees, costs and expenses in connectiontherewith, to repay in full NTL’s existing senior credit facilities, repay infull the existing senior and second lien credit facilities of Telewest and tofinance the ongoing working capital needs and general corporate requirements ofthe combined company and its subsidiaries after the merger.

 

**Off -Balance Sheet Transactions**

 

We have no off–balance sheet transactions as of December 31, 2005.

 

###### **Contractual Obligationsand Commercial Commitments**

###### ** **

We have no significant contractual obligations and commercialcommitments as of December 31, 2005.

 

**Item 7A.  Quantitative andQualitative Disclosures about Market Risk**

 

The functional currency of NTL South Herts is pounds sterling and allrevenue and substantially all costs are incurred in pounds sterling. We reportin U.S. dollars. Therefore, we are exposed to fluctuations in the poundsterling to U.S. dollar exchange rate.

 

The aggregate potential loss from a hypothetical one-percent fall inthe pound sterling / U.S. dollar exchange rate is $19,640 for the year ended December 31,2005.

 

We have no debt other than amounts due to affiliates. As of December 31,2005, we had approximately $64.3 million in amounts due to NTL. Interest onamounts due to affiliates is at a variable rate based on the average rateincurred by NTL. Therefore we are exposed to changes in NTL’s borrowing rate.The aggregate potential loss from a hypothetical one-percentage point increasein the interest rate is approximately $530,000 for the year ended December 31,2005.

 

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**Item 8. Financial Statements and Supplementary Data**

 

Our consolidated financial statements, the notes thereto and the reportof the independent auditors are on pages F-1 to F-13 of this annual reportand are incorporated by reference. The following is a summary of the quarterlyresults of operations for the years ended December 31, 2005 and 2004.

 
| ** **                              | ** ** | **2005**               | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **Three Months Ended** | ** ** |
| ** **                              | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                              | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                |       | $                      | 10,247,295 |   | $ | 9,974,629 |   | $ | 9,543,147 |   | $ | 8,975,260 |   |
| Operating income                        |       | 1,469,018              |       | 994,361 |   | 1,470,718 |   | 683,877 |   |
| Income before minority interest         |       | 913,996                |       | 517,914 |   | 927,601 |   | (478,976 | ) |
| Minority interest                       |       | (319,979               | )          | (162,724 | ) | (325,757 | ) | 153,804 |   |
| Net income                              |       | 594,017                |       | 355,190 |   | 601,844 |   | (325,172 | ) |
| Net income per limited partnership unit |       | 10.33                  |       | 6.18 |   | 10.47 |   | (5.65 | ) |
|                                         |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                              | ** ** | **2004**               | ** ** |
|-----------------------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **Three Months Ended** | ** ** |
| ** **                              | ** ** | **March 31**      | ** ** | **June 30** | ** ** | **September 30** | ** ** | **December 31** | ** ** |
| ** **                              | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                |       | $                      | 9,358,412  |   | $ | 9,206,782 |   | $ | 9,539,081 |   | $ | 9,938,085 |   |
| Operating income                        |       | 1,191,736              |       | 1,001,281 |   | 1,377,008 |   | 1,272,562 |   |
| Income before minority interest         |       | 593,267                |       | 491,858 |   | 828,265 |   | 582,188 |   |
| Minority interest                       |       | —                 |       | — |   | — |   | (94,898 | ) |
| Net Income                              |       | 593,267                |       | 491,858 |   | 828,265 |   | 487,290 |   |
| Net Income per limited partnership unit |       | 10.32                  |       | 8.55 |   | 14.40 |   | 8.47 |   |
|                                         |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

**Item 9. Changes in and Disagreements with Accountants on Accounting and****Financial Disclosure**

 

Not applicable.

 

**Item 9A. Controls and Procedures**

 

(a) *Disclosure Controls and Procedures*.Our management, with the participation of the Chief Executive Officer and ChiefFinancial Officer of NTL*, has evaluated the effectiveness of our disclosurecontrols and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended, or theExchange Act) as of the end of the period covered by this report. Based on suchevaluation, NTL’s Chief Executive Officer and Chief Financial Officer haveconcluded that, as of the end of such period, these controls and procedures areeffective to ensure that information required to be disclosed by the registrantin the reports the registrant files or submits under the Exchange Act isrecorded, processed, summarized, and reported within the time periods specifiedin the SEC’s rules and forms. These disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by the registrant in the reports that itfiles or submits is accumulated and communicated to the registrant’smanagement, including NTL’s chief executive officer and chief financialofficer, as appropriate to allow timely decisions regarding requireddisclosure.

 

We are not an accelerated filer, as defined in Rule 12b-2 of theExchange Act.  As a result, we arerequired to comply with the requirements of Section 404 of theSarbanes-Oxley Act, as adopted by the SEC, for fiscal years ending on or after July 15,2007.  We therefore expect to file ourfirst internal control report certification and related attestation report whenfiling an Annual Report on Form 10-K for the year ending December 31,2007.

 

(b)  *Changes inInternal Controls*. There have been no changes in our internalcontrols over financial reporting during the quarter ended December 31,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting covered by this Report.

 

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*                 The Partnershiphas no Chief Executive Officer or Chief Financial Officer. Robert Mackenzie andRobert Gale are Directors of ntl Directors Limited, which is a corporatedirector of NTL Fawnspring Limited, the general partner of the Partnership.

 

**Item 9B.Other Information**

 

None. 

 

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**PART III**

** **

**Item 10. Directors and Executive Officers of the Registrant**

 

We have no officers or directors. Certain information concerningdirectors and executive officers of our General Partner is set forth below.

** **
| **Name**         | ** ** | **Age** | ** ** | **Title**              |
|------------------|------------|---------|------------|------------------------|
| Robert Mackenzie |       | 43      |       | Director and Secretary |
| Robert Gale      |       | 45      |       | Director               |

 

*Robert Mackenzie*

 

Mr. Mackenzie, age 43, has been theSecretary and Director of our General Partner since May 30, 2000 and isNTL’s Group Legal Director. He joined International CableTel Incorporated in1993, to establish the legal department in the U.K. and act as CompanySecretary for the newly formed CableTel, subsequently renamed NTL. From 1988 to1993, Mr. Mackenzie worked for Theodore Goddard as a Solicitor in theCorporate Finance department advising public and private companies on corporatefinance, takeovers, domestic and international mergers and acquisitions. He wasadditionally seconded to corporate brokers Phoenix Securities Ltd. as Mergers &Acquisition Manager. Previously he worked for Mischon de Reya, handling High Courtcommercial litigation. He was admitted as a Solicitor in 1987, and graduated inlaw from King’s College, University of London. His Law Society Finals weretaken at College of Law, London.

 

*Robert Gale*

 

Mr. Gale, age 45, is the vice president—controller of NTL. He hasheld this position since June 17, 2003. Mr. Gale joined NTL in May 2000from Cable & Wireless Communications plc, where he was head of financefor the ConsumerCo business acquired by NTL. In October 2000, he wasappointed as group director of financial control for NTL’s UK operations. Hehad joined Cable & Wireless in January 1998. From 1995 to 1997, Mr. Galewas chief financial officer of ComTel, a cable operator subsequently acquiredby NTL. Between 1989 and 1995, Mr. Gale was group financial controller atTVS Entertainment PLC, a UK television broadcaster and program producer. Mr. Galeis a chartered accountant and worked for KPMG at its London office between 1981and 1989.

 

We have no Audit Committee. The AuditCommittee of the board of directors of NTL reviews, acts on and reports to theboard of directors of NTL with respect to various auditing and accountingmatters. In this capacity, the audit committee acts on our behalf asnecessary.  The current members of theAudit Committee are Charles K. Gallagher, who is its chairman and who the boardof directors has determined to be an audit committee financial expert, DavidElstein, George R. Zoffinger and Jeffrey D. Benjamin. The members of the AuditCommittee are independent within the meaning of the Nasdaq National Marketslisting standards currently applicable to NTL.

 

As we have no officers, directors, oremployees, we have not adopted a code of ethics.  However, NTL has adopted a code of ethics forits senior executive and financial officers, which old NTL filed as exhibit14.1 to its 2003 Form 10-K. NTL’s code of ethics establishes policies topromote honest and ethical conduct and to deter wrongdoing, including policiesgoverning actual or apparent conflicts of interest, compliance with laws andprompt internal reporting for violations.

 

**Item 11. Executive Compensation**

 

We have no employees; however, various personnel are required tooperate our network. Personnel are employed by NTL and its affiliates and,pursuant to the terms of our Partnership Agreement, NTL and its affiliatescharge the cost of such employment to us as a direct reimbursement item. SeeItem 13, “Certain Relationships and Related Transactions” for a description ofthe relationship between us and NTL.

 

**Item 12. Security Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters**

 

Our General Partner purchased one of our partnership interests bycontributing $1,000 to our capital.

 

No person or entity known to us owns more than 5% of our limitedpartnership interests. No directors or executive officers of our GeneralPartner beneficially own any of our limited partnership interests.

 

36

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**Item 13. Certain Relationships and Related Transactions**

 

Our General Partner and its affiliates engage in certain transactionswith us as contemplated by our Partnership Agreement and as disclosed in theprospectuses for our public offerings. Our General Partner believes that theterms of such transactions, which are subject to our Partnership Agreement, aregenerally as favorable as those that we could have obtained from unaffiliatedparties. This determination has been made by our General Partner in good faith,but none of the terms were or will be negotiated at arm’s-length and there canbe no assurance that the terms of such transactions have been or will be asfavorable as those that we could have obtained from unaffiliated parties.

 

An affiliate of our General Partner is entitled to be paid a consultingfee by NTL South Herts. During the construction phases of the cabletelevision/telephone system, this consulting fee was 2% of construction costs.After completion of construction of each portion of the system, the consultingfee for the completed portion is 5% of gross revenue, excluding revenue fromthe sale of cable television/telephone systems. Consulting fees paid or payableby us for the year ended December 31, 2005 totaled $1,937,016.

 

Our General Partner and its affiliates are entitled to reimbursementfrom NTL South Herts for direct and indirect expenses allocable to theoperation of its network and from us for direct and indirect expenses allocableto our operation, which include but are not limited to rent, supplies,telephone, travel and salaries of any full or part time employees.

 

Our General Partner and its affiliates may make advances to, and defercollection of fees and allocated expenses owed by, us, although they are notrequired to do so. We will be charged interest on such advances and deferred amounts.Interest charges incurred by us for the year ended December 31, 2005amounted to $145,205.

 

**Item 14. Principal Accountant Fees and Services**

 

Ernst & Young LLP are our principalaccountants. We are not billed directly by Ernst & Young for services,but are allocated a proportion of the fees charged to NTL by Ernst &Young. We provide in the table below an analysis of the fees charged to NTL byErnst & Young and allocated to us in the each of the two years ended December 31,2005 and 2004.

 
| ** **         | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|----------------------------------|------------|
| ** **         | ** ** | **2005**                         | ** ** | **2004** | ** ** |
|               |       |                             |       |   |   |
| Audit fees         |       | $                                | 68,005     |   | $ | 82,360 |   |
| Audit-Related fees |       | 833                              |       | 6,160 |   |
| Tax fees           |       | 40,390                           |       | 69,510 |   |
| All other fees     |       | —                           |       | — |   |
|               |       | $                                | 109,228    |   | $ | 158,030 |   |

 

*Audit fees*. Auditfees represent the aggregate services provided to us by Ernst & Youngfor professional services rendered for the audit of our annual financialstatements and review of financial statements included in our Form 10-K,including accounting consultations on matters addressed during the audit andinterim reviews. These fees also include services that are provided inconnection with our statutory and regulatory filings.

 

*Audit-Related fees*.Audit-Related fees represent the aggregate fees charged for assurance andrelated services by Ernst & Young that are related to the audit orreview of our financial statements, including other accounting consultations.Audit-Related services include advice relating to the Sarbanes-Oxley Act of2002 including advice on reporting on internal controls under Section 404.

 

*Tax fees*. Tax feesrepresent the aggregate fees charged for professional services rendered byErnst & Young for tax compliance, tax advice and tax planning. Taxservices included compliance work regarding the preparation and filing of ourU.S. and U.K. tax returns.

 

*All other fees*.  All other fees represent the aggregate feescharged for other products and services provided by Ernst & Young.

 

37

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**Audit Committee’s pre-approval policies andprocedures**

 

We have no Audit Committee. The AuditCommittee of the board of directors of NTL reviews, acts on and reports to theboard of directors of NTL with respect to various auditing and accountingmatters. In this capacity, the audit committee acts on our behalf as necessary.  The current members of the Audit Committeeare Charles K. Gallagher, who is its chairman and who the board of directorshas determined to be an audit committee financial expert, David Elstein, GeorgeR. Zoffinger and Jeffrey D. Benjamin. The members of the Audit Committee areindependent within the meaning of the Nasdaq National Markets listing standardscurrently applicable to NTL.

 

NTL’s Audit Committee’s policy onpre-approval requirements for audit and other services provided to NTL and usby Ernst & Young is as follows:

 

•                  Annually,NTL’s Audit Committee agrees the terms, including fees, of the engagement forthe services to be provided by Ernst & Young as part of the recurringannual audit.

 

•                  Quarterly,NTL’s Audit Committee pre-approves the Audit-Related fees, Tax fees and Otherfees for services to be provided by Ernst & Young to us in respect ofservices that are either a continuation of services already pre-approved, orservices which are expected to commence during the following three months. Theselimits represent amounts that may not be exceeded without approval by the AuditCommittee.

 

•                  Betweenmeetings, the Chairman of the Audit Committee has delegated authority toapprove services on an ad-hoc basis to meet specific needs up to £100,000 perengagement.

 

38

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**PART IV**

 

**Item 15. Exhibits and Financial Statement Schedules**

 

(a)                                  (1) *Financial Statements—*See list of Financial Statements on page F-1.

 

(2) *Financial StatementSchedules—*See list of Financial Statement Schedules on page F-1.

 

(3) *Exhibits—*See Exhibit Indexbelow.

 

**EXHIBIT INDEX**

 
| **Exhibit****No.** |   | ** **                                                                                                                                                                                                                                                                     |
|--------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                |   | Certificate  of Limited Partnership dated December 31, 1991 (Incorporated by  reference to Exhibit 3.1 to the Registrant’s Form 10-K for the year  ended December 31, 1994, filed on March 31, 1995, File  No. 000-19889)                   |
|               |   |                                                                                                                                                                                                                                                                           |
| 3.2                |   | Amendment to  the Certificate of Limited Partnership dated January 31, 1995  (Incorporated by reference to Exhibit 3.2 to the Registrant’s  Form 10-K for the year ended December 31, 1994, filed on  March 31, 1995, File No. 000-19889)   |
|               |   |                                                                                                                                                                                                                                                                           |
| 4.1                |   | Limited  Partnership Agreement dated December 31, 1991 (Incorporated by reference  to the Registrant’s Post-Effective Amendment No. 2 to Form S-1,  filed on May 6, 1993, File No. 33-48400)                                                     |
|               |   |                                                                                                                                                                                                                                                                           |
| 4.2                |   | Amendment  No. 1 to Limited Partnership Agreement dated October 20, 1992  (Incorporated by reference to Exhibit 4.2 to the Registrant’s  Form 10-K for the year ended December 31, 1994, filed on  March 31, 1995, File No. 000-19889) |
|               |   |                                                                                                                                                                                                                                                                           |
| 21.1*              |   | List of Subsidiaries  of South Hertfordshire United Kingdom Fund, Ltd.                                                                                                                                                                                                         |
|               |   |                                                                                                                                                                                                                                                                           |
| 31.1*              |   | Certification  of Chief Executive Officer, pursuant to Rule 13(a)-14(a) and  Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended,  or Exchange Act                                                                                           |
|               |   |                                                                                                                                                                                                                                                                           |
| 31.2*              |   | Certification  of Chief Financial Officer, pursuant to Rule 13(a)-14(a) and  Rule 15d-14(a) of the Exchange Act                                                                                                                                            |
|               |   |                                                                                                                                                                                                                                                                           |
| 32.1*              |   | Certification  of Chief Executive Officer and Chief Financial Officer, pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of  the Sarbanes-Oxley Act of 2002                                                                               |

 

----

*              Filed herewith.

 

39

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
|   | SOUTH  HERTFORDSHIRE UNITED |
|--------|-----------------------------|
|   | KINGDOM FUND,  LTD.         |
|   |                        | a Colorado  limited partnership |
|   |                        |   |
|   | By:                         | NTL Fawnspring  Limited, |
|   |                        | its General  Partner |
|   |                        |   |
|   | By:                         | /s/ ROBERT  MACKENZIE |   |
|   |                        | Robert Mackenzie |
|   |                        | Director of ntl  Directors Limited |
|   |                        | Corporate  Director of NTL Fawnspring Limited, |
|   |                        | the General  Partner of South Hertfordshire |
|   |                        | United Kingdom  Fund, Ltd. |

 

Dated:  March 30, 2006

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.

 
| **Name**              | ** **        | **Title**                                                                                       | ** **                                                                                      | **Date** |
|-----------------------|-------------------|-------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|----------|
| /s/ ROBERT  MACKENZIE |              |                                                                                            | Director of  ntl Directors Limited Corporate Director of                                        |     | March 30,  2006 |
|                  | Robert  Mackenzie |                                                                                            | NTL  Fawnspring Limited, the General Partner of South Hertfordshire United Kingdom  Fund, Ltd.* |     |   |
|                  |              |                                                                                            |                                                                                            |     |
| /s/ ROBERT  GALE      |              |                                                                                            | Director of  ntl Directors Limited Corporate Director of                                        |     | March 30,  2006 |
| Robert Gale           |              | NTL  Fawnspring Limited, the General Partner of South Hertfordshire United Kingdom  Fund, Ltd.* |                                                                                            |     |
|                       |                   |                                                                                                 |                                                                                                 |          |  |  |  |

 

----

*            The Partnership has no Chief ExecutiveOfficer or Chief Financial Officer. Robert Mackenzie and Robert Gale are directors of ntl Directors Limited,which is a corporate director of Fawnspring Limited, the general partner of thePartnership.

 

40

----

 

**FORM 10K - ITEM 15(a) (1)**

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

 

**CONSOLIDATED FINANCIAL STATEMENTS**

**As of December 31, 2005, and 2004**

**and for the Years Ended December 31,2005, 2004, and 2003**

 

The followingconsolidated financial statements of South Hertfordshire United Kingdom Fund,Ltd. are included in Item 8:

 

**INDEX**

 
|                                                          | **Page** |
|---------------------------------------------------------------|----------|
| Report of Independent Registered Public  Accounting Firm      | F-2      |
| Consolidated Balance Sheets                                   | F-3      |
| Consolidated Statements of Operations                         | F-4      |
| Consolidated Statements of Comprehensive  Loss                | F-5      |
| Consolidated Statements of Partners’  Capital /(Deficit) | F-6      |
| Consolidated Statements of Cash Flows                         | F-7      |
| Notes to Consolidated Financial Statements                    | F-8      |

 

F-1

----

 

Report of Independent Registered Public Accounting Firm

 

The Partners

South Hertfordshire United KingdomFund, Ltd.

 

Wehave audited the accompanying consolidated balance sheets of SouthHertfordshire United Kingdom Fund, Ltd. (a Colorado limited partnership) as ofDecember 31, 2005 and 2004, and the related consolidated statements ofoperations, comprehensive income (loss), partners’ capital (deficit) and cashflows for each of the three years in the period ended December 31, 2005. Thesefinancial statements are the responsibility of the General Partner’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States).  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting.Our audit included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectivenessof the Company’s internal control over financial reporting. Accordingly, weexpress no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of South HertfordshireUnited Kingdom Fund, Ltd. at December 31, 2005 and 2004, and the consolidatedresults of its operations and its cash flows for each of the three years in theperiod ended December 31, 2005, in conformity with U.S. generally acceptedaccounting principles.

 

 

Ernst& Young LLP

London,EnglandMarch 28, 2006

 

F-2

----

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                |       |                        |       |                        |       |
| Fixed assets, net                                                                                         |       | $                           | 63,195,826 |                        | $          | 62,528,387 |   |
|                                                                                                      |       |                        |       |                        |       |
| **Total assets**                                                                                          |       | $                           | 63,195,826 |                        | $          | 62,528,387 |   |
|                                                                                                      |       |                        |       |                        |       |
| **Liabilities and Partners’ Deficit**                                                                |       |                        |       |                        |       |
| Current liabilities                                                                                       |       |                        |       |                        |       |
| Accounts payable to affiliates and related  parties                                                       |       | $                           | 64,324,939 |                        | $          | 65,398,192 |   |
| Total liabilities                                                                                         |       | 64,324,939                  |       | 65,398,192                  |       |
|                                                                                                      |       |                        |       |                        |       |
| **Minority interest**                                                                                     |       |                        |       |                        |       |
| Minority interest                                                                                         |       | 707,259                     |       | 99,216                      |       |
|                                                                                                      |       |                        |       |                        |       |
| **Partners’ Capital (Deficit)**                                                                      |       |                        |       |                        |       |
| General Partner                                                                                           |       |                        |       |                        |       |
| Contributed capital                                                                                       |       | 1,000                       |       | 1,000                       |       |
| Accumulated deficit                                                                                       |       | (502,583                    | )          | (514,842                    | )          |
|                                                                                                      |       | (501,583                    | )          | (513,842                    | )          |
| Limited Partners                                                                                          |       |                        |       |                        |       |
| Contributed capital, net (56,935 units  outstanding at December 31, 2005 and December 31, 2004) |       | 48,817,997                  |       | 48,817,997                  |       |
| Accumulated deficit                                                                                       |       | (49,474,599                 | )          | (50,688,219                 | )          |
|                                                                                                      |       | (656,602                    | )          | (1,870,222                  | )          |
| Accumulated comprehensive loss                                                                            |       | (678,187                    | )          | (584,957                    | )          |
| Total Partners’ deficit                                                                              |       | (1,836,372                  | )          | (2,969,021                  | )          |
|                                                                                                      |       |                        |       |                        |       |
| **Total liabilities and Partners’ deficit**                                                          |       | $                           | 63,195,826 |                        | $          | 62,528,387 |   |

 

The accompanying notes

are an integral part of these consolidatedfinancial statements.

 

F-3

----

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                                            | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                            | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                  |       |                             |       |   |   |   |   |
| **Revenues**                                                          |       | $                                | 38,740,331 |   | $ | 38,042,360 |   | $ | 32,772,962 |   |
|                                                                  |       |                             |       |   |   |   |   |
| **Costs and expenses**                                                |       |                             |       |   |   |   |   |
| Cost of goods sold (exclusive of depreciation shown separately below) |       | (10,430,813                      | )          | (11,550,360 | ) | (10,662,169 | ) |
| Selling, general and administrative expenses                          |       | (92,063                          | )          | (103,018 | ) | (130,840 | ) |
| Management fees and allocated overhead from the General Partner       |       | (17,063,743                      | )          | (14,321,728 | ) | (13,544,514 | ) |
| Other charges                                                         |       | (653,559                         | )          | (602,691 | ) | (220,329 | ) |
| Depreciation                                                          |       | (5,882,179                       | )          | (6,621,976 | ) | (7,460,577 | ) |
|                                                                  |       |                             |       |   |   |   |   |
| **Operating income**                                                  |       | 4,617,974                        |       | 4,842,587 |   | 754,533 |   |
|                                                                  |       |                             |       |   |   |   |   |
| **Other expenses**                                                    |       |                             |       |   |   |   |   |
| Interest payable to general partner and affiliates                    |       | (2,957,398                       | )          | (2,203,792 | ) | (1,824,622 | ) |
| Other interest charges                                                |       | —                           |       | — |   | (98,088 | ) |
| Exchange gains (losses)                                               |       | 219,959                          |       | (143,217 | ) | (179,033 | ) |
|                                                                  |       |                             |       |   |   |   |   |
| **Income (loss) before minority interest**                            |       | 1,880,535                        |       | 2,495,578 |   | (1,347,210 | ) |
| Minority interest                                                     |       | (654,656                         | )          | (94,898 | ) | — |   |
|                                                                  |       |                             |       |   |   |   |   |
| **Net income (loss)**                                                 |       | $                                | 1,225,879  |   | $ | 2,400,680 |   | $ |  (1,347,210 | ) |
|                                                                  |       |                             |       |   |   |   |   |
| **Allocation of net income (loss)**                                   |       |                             |       |   |   |   |   |
| General Partner                                                       |       | $                                | 12,259     |   | $ | 24,007 |   | $ |  (13,472 | ) |
| Limited Partners                                                      |       | 1,213,620                        |       | 2,376,673 |   | (1,333,738 | ) |
| **Net income (loss)**                                                 |       | $                                | 1,225,879  |   | $ | 2,400,680 |   | $ |  (1,347,210 | ) |
|                                                                  |       |                             |       |   |   |   |   |
| **Net income (loss) per Limited Partnership unit**                    |       | $                                | 21.32      |   | $ | 41.74 |   | $ |  (23.43 | ) |
|                                                                  |       |                             |       |   |   |   |   |
| **Average number of Limited Partnership units outstanding**           |       | 56,935                           |       | 56,935 |   | 56,935 |   |

 

The accompanying notes

are an integral part of these consolidatedfinancial statements.

 

F-4

----

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**

 
| ** **                               | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                     |       |                             |       |   |   |   |   |
| Net income (loss)                        |       | $                                | 1,225,879  |   | $ | 2,400,680 |   | $ | (1,347,210 | ) |
| Foreign currency translation adjustments |       | (93,230                          | )          | (62,345 | ) | (242,472 | ) |
|                                     |       |                             |       |   |   |   |   |
| Comprehensive income (loss)              |       | $                                | 1,132,649  |   | $ | 2,338,335 |   | $ | (1,589,682 | ) |

 

The accompanying notes

are an integral part of these consolidatedfinancial statements.

 

F-5

----

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)**

 
| ** **                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                           |       |                             |       |   |   |   |   |
| General Partner:               |       |                             |       |   |   |   |   |
| Balance, beginning of year     |       | $                                | (513,842   | ) | $ | (537,849 | ) | $ | (524,377 | ) |
| Net income (loss) for the year |       | 12,259                           |       | 24,007 |   | (13,472 | ) |
| Balance, end of the year       |       | $                                | (501,583   | ) | $ | (513,842 | ) | $ | (537,849 | ) |
|                           |       |                             |       |   |   |   |   |
| Limited Partners:              |       |                             |       |   |   |   |   |
| Balance, beginning of year     |       | $                                | (1,870,222 | ) | $ | (4,246,895 | ) | $ | (2,913,157 | ) |
| Net income (loss) for the year |       | 1,213,620                        |       | 2,376,673 |   | (1,333,738 | ) |
| Balance, end of the year       |       | $                                | (656,602   | ) | $ | (1,870,222 | ) | $ | (4,246,895 | ) |
|                           |       |                             |       |   |   |   |   |
| Accumulated comprehensive loss |       | (678,187                         | )          | (584,957 | ) | (522,612 | ) |
| Total Partners’ deficit   |       | $                                | (1,836,372 | ) | $ | (2,969,021 | ) | $ | (5,307,356 | ) |

 

The accompanying notes

are an integral part of these consolidatedfinancial statements.

 

F-6

----

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                         | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **2005**                         | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                               |       |                             |       |   |   |   |   |
| **Cash  flows from operating activities**                                          |       |                             |       |   |   |   |   |
| Net income (loss)                                                                  |       | $                                | 1,225,879  |   | $ | 2,400,680 |   | $ | (1,347,210 | ) |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                             |       |   |   |   |   |
| Exchange gains (losses)                                                            |       | 219,959                          |       | (143,217 | ) | (179,033 | ) |
| Minority interest expense                                                          |       | 654,656                          |       | 94,898 |   | — |   |
| Depreciation                                                                       |       | 5,882,179                        |       | 6,621,976 |   | 7,460,577 |   |
| Change in operating assets and liabilities:                                        |       |                             |       |   |   |   |   |
| Decrease in other assets                                                           |       |                             |       | — |   | 98,088 |   |
| Increase (decrease) in accounts payable to  affiliates and related parties         |       | 5,375,946                        |       | (12,317,456 | ) | (7,552,428 | ) |
| **Net cash  provided by operating activities**                                     |       | 13,358,619                       |       | (3,343,119 | ) | (1,520,006 | ) |
|                                                                               |       |                             |       |   |   |   |   |
| **Cash  flows from investing activities**                                          |       |                             |       |   |   |   |   |
| Purchase of fixed assets                                                           |       | (13,358,619                      | )          | (3,343,119 | ) | (1,520,006 | ) |
| **Net cash  used in investing activities**                                         |       | (13,358,619                      | )          | (3,343,119 | ) | (1,520,006 | ) |
|                                                                               |       |                             |       |   |   |   |   |
| **Cash  flows from financing activities**                                          |       |                             |       |   |   |   |   |
| **Net cash  used in financing activities**                                         |       | —                           |       | — |   | — |   |
|                                                                               |       |                             |       |   |   |   |   |
| Increase (decrease) in cash and cash  equivalents                                  |       |                             |       | — |   | — |   |
| Cash and cash equivalents., beginning of  year                                     |       |                             |       | — |   | — |   |
| Cash and cash equivalents, end of year                                             |       | —                           |       | — |   | — |   |
|                                                                                    |            |                                  |            |  |  |  |  |  |  |  |

 

The accompanying notes

are an integral part of these consolidated financialstatements.

 

F-7

----

 

**SOUTH HERTFORDSHIRE UNITED KINGDOM FUND, LTD.**

**(A Limited Partnership)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.  ORGANIZATION AND PARTNERS’ INTERESTS**

 

###### ***Formationand Business***

###### ** **

South Hertfordshire United Kingdom Fund, Ltd. (the “Partnership”), aColorado limited partnership, was formed on December 23, 1991, in connectionwith a public offering of its limited partnership interests. The Partnershipwas formed to acquire, construct, develop, own and operate cabletelevision/telephone systems in the U.K. NTL Fawnspring Limited, a U.K.corporation, a subsidiary of NTL Incorporated, or NTL, is the general partner(the “General Partner”) of the Partnership.

 

The General Partner has the authority to manage the business,properties and activities of the Partnership. This includes the ability tooperate and maintain cable television and telephone properties, and to purchaseor lease property at the expense of the Partnership, the ability to make onbehalf of the Partnership all payments required of the Partnership for alldirect and indirect costs incurred in the conduct of its business, the abilityto borrow money in the name of the Partnership, and the obligation to maintainaccurate financial records and to prepare and file the reports required underapplicable regulations.

 

###### ***ContributedCapital***

###### ** **

The capitalization of the Partnership is set forth in the accompanyingConsolidated Statements of Partners’ Capital (Deficit). No existing partner isobligated to make any additional contributions to partnership capital.

 

The General Partner purchased its interest in the Partnership bycontributing $1,000 to partnership capital.

 

Profits, losses and distributions of the Partnership are currentlyallocated 99% to the limited partners and 1% to the General Partner until thelimited partners have received distributions equal to 100% of their capitalcontributions plus an annual return thereon of 12%, cumulative andnon-compounded. Thereafter, profits and distributions will generally beallocated 75% to the limited partners and 25% to the General Partner. Interestincome earned prior to the formation of the Partnership was allocated 100% tothe limited partners.

 

The profits allocated to the limited partners and General Partner isthe net profit or loss rather than the comprehensive income. The net profit orloss does not take account of any foreign currency translation adjustments, asthese are unrealized. The net profit or loss per limited partner unit is calculatedafter allocating 1% of the net profit or loss to the General Partner. For theyear ended December 31, 2005 the income per limited partner unit amountedto $21.32.

 

##### ***NTL (SouthHertfordshire) Limited***

##### *** ***

NTL (South Hertfordshire) Limited (“NTL South Herts”) is a U.K.corporation originally owned by Jones Global Funds, Inc. (the previousgeneral partner) and Jones Cable Group, Ltd., an affiliate of the previousgeneral partner. NTL South Herts is the holder of a franchise to own andoperate a cable television/telephone system in the South Hertfordshirefranchise area, located adjacent to the northwest perimeter of Greater London,England (the “South Herts System”).

 

NTL South Herts is owned 66.7% by the Partnership and 33.3% by NTL. NTLalso owns the General Partner. The General Partner provides consulting servicesto the Partnership and may delegate some or all of the consulting services toNTL or to other affiliates.

 

F-8

----

 

**2.  SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

***Basis of Presentation***

 

The accompanying consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States.

 

***Use of Estimates***

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Such estimates andassumptions impact, among others, the following: the amount charged to NTLSouth Herts by a subsidiary of NTL for infrastructure and management supportservices, the amount to be paid to terminate certain agreements included inrestructuring costs, the amount to be paid for other liabilities, estimatedcosts for interconnection, estimates related to the amount of costs to becapitalized in connection with the construction and installation of NTL SouthHerts’ network. Actual results could differ from those estimates.

 

***Principles of Consolidation***

 

The consolidated financial statements includethe accounts of the Partnership, and its subsidiary. Significant intercompanyaccounts and transactions have been eliminated in consolidation.

 

***Foreign Currency Translation***

 

The functional currency of the Partnership’s principal operatingsubsidiary is the pound sterling, while the Partnership’s reporting currency isthe U.S. dollar. The assets and liabilities of the Partnership’s U.K.subsidiary have been translated using the exchange rates in effect at thebalance sheet dates, and revenue and expenses are translated at the averagerates for the respective years. Exchange gains and losses on translation of thePartnership’s net equity investment in the subsidiary is reported as a separatecomponent of accumulated other comprehensive income (loss) in the statement ofpartners’ capital (deficit). Foreign currency transaction gains and losses arerecorded in the statements of operations.

 

***Current Assets andLiabilities***

*** ***

Since May 2000, the current assets and liabilities of NTL SouthHerts have been managed by NTL. Books and records related to accountsreceivable, accounts payable and deferred revenue are maintained by NTL.Pursuant to the arrangement between NTL and NTL South Herts contained in the letterof appointment and agreement, NTL South Herts has the legal right to offsetamounts receivable from NTL against amounts payable to NTL. Consequently, thenet balance payable by NTL South Herts to NTL is disclosed under accountspayable to affiliates and related parties in the accompanying financialstatements. Effective from June 2000, the bank accounts maintained by NTLSouth Herts were closed and a bank account maintained by NTL is used for cashtransactions. Accordingly the net result from cash transactions is alsoincluded in accounts payable to affiliates and related parties.

 

F-9

----

 

***Fixed Assets***

 

Fixed assets, net are stated at cost lessaccumulated depreciation.

 

The cost of fixed assets includes amountscapitalized for labor and overhead expended in connection with the design andinstallation of the NTL South Herts’ operating network equipment andfacilities. Costs associated with initial customer installations, additions ofnetwork equipment necessary to enable enhanced services, acquisition ofadditional fixed assets and replacement of existing fixed assets arecapitalized. The costs of reconnecting the same service to a previouslyinstalled premise are charged to expense in the period incurred. Costs forrepairs and maintenance are charged to expense as incurred.

 

Depreciation is provided on fixed assets at rates that are intended towrite off the cost of the assets over their estimated useful lives. Effect isgiven to commercial and technical obsolescence. Depreciation is provided on astraight-line basis over 5-30 years for the cable network and other electronicequipment, 30 years for buildings and 3-12 years for office and otherequipment. Depreciation of the capitalized construction costs begins from thetime of receiving the first revenue from subscribers. Repairs and maintenancecosts are charged to expense when incurred.

 

The assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. If thesum of the expected future undiscounted cash flows is less than the carryingamount of the asset, a loss is recognized for the difference between the fairvalue and the carrying amount of the asset. The fair value of the asset is determinedby the higher of the discounted cash flows and the net realizable value uponsale.

 

***Restructuring Costs***

 

As of January 1, 2003, we adopted FASBStatement No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities,* or FAS 146, and recognizea liability for costs associated with restructuring activities when theliability is incurred. The adoption of FAS 146 did not have a significanteffect on our results of operations, financial condition or cash flows.

 

Prior to 2003, we recognized a liability forcosts associated with restructuring activities at the time a commitment torestructure was given, in accordance with EITF 94-3, *Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in arestructuring).* Liabilities for costs associated with restructuringactivities initiated prior to January 1, 2003 continue to be accounted forunder EITF 94-3.

 

***Revenue Recognition***

*** ***

The Partnership recognizes revenue only whenit is realized or realizable and earned. The Partnership recognizes revenuewhen all of the following are present:

 

•     persuasiveevidence of an arrangement exists between us and our customers;

•     deliveryhas occurred or the services have been rendered;

•     theprice for the service is fixed or determinable; and

•     collectibilityis reasonably assured.

 

Revenues are invoiced and recorded as part ofa periodic billing cycle, and are recognized as the services are provided. Atthe end of each period, adjustments are recorded to defer revenue relating toservices billed in advance and to accrue for earned but unbilled services.

 

F-10

----

 

•             *Telephone, cable television and internet revenues* arerecognized as the services are provided to customers.

 

•             *Bundled services revenue* is recognized at the time theservices are provided to the customer or the performance of all of the serviceshave been completed. The Partnership applies the provisions of EITF No. 00-21,*Accounting for Revenue Arrangements with MultipleDeliverables* to assess whether the components of the bundledservices should be recognized separately.

 

•             *Installation revenue* is recognized by applying theprovisions of FASB Statement No. 51, *Financial Reporting by CableTelevision Companies* in relation to connection and activation feesfor cable television, as well as telephone and internet services, on the basisthat we market and maintain a unified fiber network through which we provideall of these services.  Installationrevenue is recognized at the time the installation has been completed to theextent that those fees are less than direct selling costs. Installation fees inexcess of direct selling costs are deferred and amortized over the expectedlife of the customer’s connection.

 

•             *Rental revenue* in respect of line rentals and rental ofequipment provided to customers is recognized on a straight-line basis over theterm of the rental agreement.

 

***Advertising Costs***

*** ***

Advertising costs are expensed as incurred. Advertising costs allocatedto NTL South Herts were $1,020,654, $807,228 and $551,581 in 2005, 2004 and2003, respectively.

 

**3.  RECENTACCOUNTING PRONOUNCEMENTS**

 

In June 2005,the FASB issued FSP FAS 143-1, *Accounting for ElectronicEquipment Waste Obligations,* (FSP 143-1). The FASB issued the FSP toaddress the accounting for certain obligations associated with the WasteElectrical and Electronic Equipment Directive adopted by the European Union(EU). FSP 143-1 requires that the commercial user should apply the provisionsof FASB Statement No. 143 and the related FASB Interpretation No. 47 to certainobligations associated with historical waste (as defined by the Directive),since this type of obligation is an asset retirement obligation. The FSP iseffective for the later of the first reporting period ending after June 8, 2005or the Directive’s adoption into law by the applicable EU-member country. As atDecember 31, 2005, the UK had not adopted the law. Management intends toevaluate the impact of this law on the Company’s results of operations orfinancial position as and when legislation is adopted in the UK.

 

**4.  TRANSACTIONSWITH THE GENERAL PARTNER AND AFFILIATED ENTITIES**

 

##### ***Consulting andManagement Fees***

##### *** ***

An affiliate of the General Partner is entitled to be paid a consultingfee by NTL South Herts. During the construction phases of the South HertsSystem, this consulting fee was 2% of construction costs. Since completion ofconstruction of each portion of the system, the consulting fee for thecompleted portion has been 5% of the gross revenue, excluding revenue from thesale of cable television/telephone systems. The consulting fee is calculatedand payable monthly. Consulting fees paid or payable by NTL South Herts for theyears ended December 31, 2005, 2004 and 2003 were $1,937,016, $1,902,118and $1,638,649, respectively. These amounts were expensed in the ConsolidatedStatements of Operations each year.

 

***Distribution Ratios and Reimbursement***

 

Any Partnership distributions made from cash flow (defined as cashreceipts derived from routine operations, less debt principal and interestpayments and cash expenses) are allocated 99% to the limited partners and 1% tothe General Partner. Any distributions other than interest income on limitedpartner subscriptions earned prior to the acquisition of the Partnership’sfirst cable television system or from cash flow, such as from the sale orrefinancing of a system or upon dissolution of the Partnership, will be made asfollows: 99% to the limited partners and 1% to the General Partner until anynegative balances in the limited partners’ capital accounts are reduced tozero; 100% to the General Partner until any negative balance in its capitalaccount is reduced to zero; 99% to the limited partners and 1% to the GeneralPartner until the balance in the limited partners’ capital accounts is equal totheir adjusted capital contribution plus a 12% return; 100% to the GeneralPartner until the balance in its capital account is equal to its adjustedcapital contribution, and any remaining income or gain shall be allocated 75%to the limited partners and 25% to the General Partner.

 

The General Partner and its affiliates are entitled to reimbursementfrom NTL South Herts for direct and indirect expenses allocable to the operationof the South Herts System, and from the Partnership for direct and indirectexpenses allocable to the operation of the Partnership which include but arenot limited to, rent, supplies, telephone, travel and salaries of any full orpart-time employees. The General Partner believes that the methodology used inallocating these expenses is fair and reasonable. During the years ended December 31,2005, 2004 and 2003, reimbursement made by NTL South Herts and the partnershipto the General Partner or its affiliates for any allocable direct and indirectexpenses totaled $15,126,727, $12,419,610 and $12,126,194, respectively.

 

F-11

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The General Partner and its affiliates may make advances to, and defercollection of fees and allocated expenses owed by, the Partnership, althoughthey are not required to do so.  ThePartnership is charged interest on such advances and deferred amounts at a rateequal to the General Partner’s or certain affiliates’ effective average cost ofdebt financing from unaffiliated entities, which does not differ from theirweighted average cost of debt financing. For the years ended December 31, 2005, 2004 and 2003, aggregatedinterest, bank fees and finance charges relating to non-permanent loans of$2,812,193, $2,039,277 and $1,686,284, respectively, was charged by affiliatesof the General Partner, and interest on advances of $145,205, $164,515 and$138,338, respectively, was charged by an affiliate of the General Partner.  

 

The General Partner and its affiliates are entitled to recover intereston the full amount of non-permanent loans they provide to the Partnership orNTL South Herts and the portion of bank fees and deferred financing costsrelating to NTL’s senior credit facilities allocable to the Partnership or NTLSouth Herts.  They have elected torecover these amounts commencing in the fourth quarter of 2005.  The impact of the change in amount of non-permanentloans on which interest is charged was $359,805 and the impact of theallocation of bank fees and deferred financing costs was $268,295 for a totalimpact of $628,100 which is included in the amount of aggregate interest, bankfees and finance charges above.

 

**5.  OTHERCHARGES**

 

Other charges in the year ended December 31, 2005 of $0.7 millionmainly relate to changes in cash flow estimates with respect to lease exitcosts in connection with properties that have been vacated.  Other charges of $0.6 million in 2004 relateto NTL’s announcement to consolidate call centers.  On April 7, 2004, NTL announced theconsolidation over the next 18 months of its 13 UK customer service callcenters into three equipped to handle anticipated expansion of its customerbase.  Following an internal review, threespecialist call centers were retained and are supported by four sales andcustomer support sites, located throughout the UK. As part of theconsolidation, NTL made additional investments in technology and training inorder to streamline processes and generate efficiencies. This program wascompleted as of December 31, 2005 at a total cost to NTL of $43.1 million.

 

Other charges in the year ended December 31, 2003, relate to theNTL’s announcements that it was taking additional actions to reorganize,re-size and reduce operating costs and create greater efficiency in variousareas. The charge allocated to NTL South Herts in 2003 includes employeeseverance and related costs of $0.2 million.

 

**6.  FIXEDASSETS**

 

Fixed assets consist of:

 
| ** **                                   | ** ** | **Estimated**    | ** ** | **December 31,** | ** **  |
|----------------------------------------------|------------|------------------|------------|-----------------------|-------------|
| ** **                                   | ** ** | **useful lives** | ** ** | **2005**              | ** **  | **2004** | ** ** |
|                                         |       |             |       |                  |        |   |   |
| Cable Network and other electrical equipment |       | 5-30 years       |       | $                     | 174,966,272 |   | $ | 147,762,516 |   |
| Building and other equipment                 |       | 3-30 years       |       | 7,397,187             |        | 8,152,597 |   |
|                                         |       |             |       | 182,363,459           |        | 155,915,113 |   |
| Accumulated depreciation                     |       |             |       | (119,167,633          | )           | (93,386,726 | ) |
|                                         |       |             |       | $                     | 63,195,826  |   | $ | 62,528,387 |   |

 

For the year ended December 31, 2005, purchase of fixed assetstotalled $13.4 million relating primarily to the transfer of Network assetsfrom an affiliate amounting to $11.6 million together with $1.8 million fixedasset additions through customer installations, particularly broadband. Theasset transfer from the affiliate was effective December 31, 2005,consequently there was no impact on the depreciation charge for the year.

 

**7.  FINANCING**

 

The Partnership and NTL South Herts have no indebtedness other thanwith NTL, accordingly the Partnership and NTL South Herts are reliant upon thesupport of NTL to continue their operations as a going concern.

 

F-12

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**8.  INCOMETAXES**

 

Income taxes have not been recorded in the accompanying consolidatedfinancial statements because net income and losses of the Partnership accruedirectly to the partners, and its U.K. subsidiary, NTL South Herts, has netoperating losses which offset taxable income arising in the year. ThePartnership’s tax returns, the qualification of the Partnership as such for taxpurposes, and the amount of distributable Partnership income or loss aresubject to examination by Federal and state taxing authorities. If suchexaminations result in changes with respect to the Partnership’s qualificationas such, or in changes with respect to the Partnership’s recorded income orloss, the tax liability of the general and limited partners would likely bechanged accordingly.

 

The tax basis in the Partnership’s assets and liabilities isapproximately $8 million higher than its book basis in its assets andliabilities for financial reporting purposes.

 

U.K. profits (comprising income and gains) of NTL South Herts will besubject to U.K. corporation tax. However, corporations are able to carryforward losses from operations to be offset against subsequent profits of thesame operations.

 

Deferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax purposes.Significant components of deferred tax liabilities and assets related to NTLSouth Herts are as follows:

 
| ** **                      | ** ** | **December 31,** | ** ** |
|---------------------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **2005**              | ** ** | **2004** | ** ** |
| Deferred tax liabilities:       |       |                  |       |   |   |
| Depreciation                    |       | $                     | —     |   | $ | — |   |
| Total deferred tax liabilities  |       | —                |       | — |   |
| Deferred tax assets:            |       |                  |       |   |   |
| Depreciation                    |       | 5,225,464             |       | 2,034,210 |   |
| Net operating loss carryforward |       | 8,139,647             |       | 6,141,321 |   |
| Total deferred tax assets       |       | 13,365,110            |       | 8,175,531 |   |
| Valuation allowance             |       | (13,365,110           | )     | (8,175,531 | ) |
| Net deferred tax assets         |       | —                |       | — |   |
| Net deferred tax liabilities    |       | $                     | —     |   | $ | — |   |

 

At December 31, 2005 NTL South Herts has U.K. net operating losscarry forwards of approximately $27.1 million. The U.K. net operating losscarry forwards are available for utilization in future years and do not expire.Management has established a valuation allowance against the net operating losscarry forwards on the basis that it was not more likely than not that suchassets would be realized in the future.

 

F-13

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