<PAGE>

                                                                   Exhibit 10.20

                          HOLMES FINANCING (NO. 3) PLC
             (A wholly owned subsidiary of Holmes Holdings Limited)

                               REPORT AND ACCOUNTS

                       FOR THE YEAR ENDED 31 DECEMBER 2002

                             Registered No. 4154576

<PAGE>

HOLMES FINANCING (NO.3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

Report of the Directors

The Directors submit their report together with the accounts for the year to 31
December 2002.

1. Principal activity and review of the year

The principal activity of the Company is to issue asset backed notes and enter
into all financial arrangements in that connection. No future changes in
activity are envisaged.

2. Results and Dividend

The results for the year are set out on page 4. The was no profit during the
year (2001: profit(Pound)1,000) to be transferred to reserves. The Directors do
not recommend the payment of a dividend (2001: nil).

3. Financial Instruments

The Company's financial instruments, other than derivatives, comprise loans to
group undertakings, borrowings, cash and liquid resources, and various items,
such as debtors and creditors that arise directly from its operations. The main
purpose of these financial instruments is to raise finance for the Company's
operations.

The Company also enters into derivatives transactions (principally cross
currency swaps). The purpose of such transactions is to manage the currency
risks arising from the Company's operations and its sources of finance.

It is, and has been throughout the year under review, the Company's policy that
no trading in financial instruments shall be undertaken.

The main risk arising from the Company's financial instruments is currency risk.
The Board reviews and agrees policies for managing this risk and they are
summarised below.

Currency risk

The Company has debt securities in issue denominated in US Dollars and Euros.
The Company's policy is to eliminate all exposures arising from movements in
exchange rates by the use of cross currency swaps to hedge payments of interest
and principal on the securities. All other assets, liabilities and transactions
are denominated in Sterling.

4. Directors and their interests

The Directors who served throughout the year, except as noted below were:

M McDermott
M A Parsons                    (resigned 6 August 2002)
R Wise                         (appointed 6 August 2002, resigned 23 May 2003)
D Green                        (appointed 23 May 2003)
SPV Management Limited

At the year end and the previous year end, Holmes Holdings Limited and M.
McDermott held one share in the Company. SPV Management Ltd and M. McDermott
held one share in the holding company, Holmes Holdings Limited, at the year end.
The other share in Holmes Holdings Limited was held by SPV Management Limited.
None of the other Directors had a beneficial interest in the shares of the
Company, or of the holding company, Holmes Holdings Limited, at the year end.

                                     Page 1

<PAGE>

HOLMES FINANCING (NO.3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

5. Directors' Responsibility in respect of the Preparation of Accounts

The Directors are required by United Kingdom company law to prepare accounts for
each financial year that give a true and fair view of the state of affairs of
the Company as at the end of the financial year, and of the profit or loss for
that year.

The Directors confirm that suitable accounting policies have been used and
applied consistently and reasonable and prudent judgements and estimates have
been made in the preparation of the accounts for the year ended 31 December
2002. The Directors also confirm that applicable accounting standards have been
followed and that the statements have been prepared on the going concern basis.

The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for the Company's system of
internal control, for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.

6. Auditors

During the year the Directors re-appointed Deloitte & Touche as auditors of the
Company.




By order of the Board


/s/ Natalie Weedon
------------------

For and behalf of
Abbey National Secretariat Services Limited, Secretary


24 June 2003.




Registered Office:
Abbey National House
2 Triton Square
Regent's Place
London
NW1 3AN

                                     Page 2

<PAGE>

HOLMES FINANCING (NO.3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF HOLMES FINANCING (NO. 3) PLC

We have audited the financial statements of Holmes Financing (No. 3) plc for the
year ended 31 December 2002 which comprise the profit and loss account, the
balance sheet, the statement of accounting policies and the related notes 1 to
17. These financial statements have been prepared under the accounting policies
set out therein.

Respective responsibilities of directors and auditors

As described in the statement of directors' responsibilities, the company's
directors are responsible for the preparation of the financial statements in
accordance with applicable United Kingdom law and accounting standards. Our
responsibility is to audit the financial statements in accordance with relevant
United Kingdom legal and regulatory requirements and auditing standards, and the
Listing Rules of the Financial Services Authority.

We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report if, in our opinion, the directors' report is not consistent
with the financial statements, if the company has not kept proper accounting
records, if we have not received all the information and explanations we require
for our audit, or if information specified by law regarding directors'
remuneration and transactions with the company is not disclosed.

We read the directors' report for the above year and consider the implications
for our report if we become aware of any apparent misstatements.

Basis of audit opinion

We conducted our audit in accordance with United Kingdom auditing standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements. It also includes an assessment of the significant estimates and
judgements made by the directors in the preparation of the financial statements
and of whether the accounting policies are appropriate to the company's
circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 31 December 2002 and of its result for the year
then ended and have been properly prepared in accordance with the Companies Act
1985.




Deloitte & Touche
Chartered Accountants and Registered Auditors
London, England

25 June 2003.

                                     Page 3

<PAGE>

HOLMES FINANCING (NO.3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

Profit and Loss Account
For the year ended 31 December 2002

                                                          2002           2001
                                             Note (Pounds)'000   (Pounds)'000
                                                  ------------   ------------
                                                                  (11 months)

Interest receivable                           2         93,433         68,479
Interest payable                              3        (93,433)       (68,478)
                                                  ------------   ------------

Net interest income                                          -              1

Other operating income                                       -            573
Administrative expenses                                      -           (573)

                                                  ------------   ------------
OPERATING PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION                               4              -              1

Tax on profit on ordinary activities          5              -              -

                                                  ------------   ------------
PROFIT ON ORDINARY ACTIVITIES AFTER
TAXATION AND RETAINED FOR THE YEAR/PERIOD    14              -              1
                                                  ============   ============






There are no recognised gains or losses in the year other than the profit for
the year and therefore no statement of total recognised gains and losses is
required.

There is no difference between the profit on ordinary activities before taxation
and the retained profit for the year stated above and their historical cost
equivalents.

All transactions are derived from continuing operations within the United
Kingdom.

                                     Page 4

<PAGE>

HOLMES FINANCING (NO.3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

Balance Sheet
As at 31 December 2002

<TABLE>
<CAPTION>
                                                                                        2002                 2001
                                                                     Note        (Pound)'000          (Pound)'000
                                                                                 -----------          -----------
<S>                                                                  <C>     <C>                   <C>
FIXED ASSETS
Loans to group undertaking                                            6            2,167,000            2,167,000

CURRENT ASSETS
Debtors                                                               7               19,375               21,581
Cash at bank and in hand                                              8                    6                   13
                                                                             ---------------       --------------
                                                                                      19,381               21,594

CREDITORS - amounts falling due within one year                       9              (19,330)             (21,543)

                                                                             ---------------       --------------
NET CURRENT ASSETS                                                                        51                   51
                                                                             ---------------       --------------

TOTAL ASSETS LESS CURRENT LIABILITIES                                              2,167,051            2,167,051

CREDITORS - amounts falling due after more than one year

                                                                      10          (2,167,000)          (2,167,000)
                                                                             ---------------       --------------
NET ASSETS                                                                                51                   51
                                                                             ===============       ==============

CAPITAL AND RESERVES

Called-up share capital                                               13                  50                   50
Profit and loss account                                                                    1                    1

                                                                             ---------------       --------------
EQUITY SHAREHOLDERS' FUNDS                                            14                  51                   51
                                                                             ===============       ==============
</TABLE>

The financial statements on page 4 to 11 were approved by the Board of
Directors on 23 June 2003.

Signed on behalf of the Board of Directors


/s/ Martin McDermott
--------------------

Director.

                                  Page 5

<PAGE>

HOLMES FINANCING (NO.3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

Notes to the Accounts for the year ended 31 December 2002

1.  Accounting Policies

    Basis of Accounting
    The financial statements are prepared under the historical cost convention
    and in accordance with applicable United Kingdom law and accounting
    standards. The particular accounting policies adopted are described below.

(1) Interest receivable is calculated on an accruals basis.
(2) Loans to group undertakings held as fixed assets are stated at cost less
    provisions for any impairments.
(3) Transactions are undertaken in derivative financial instruments,
    "derivatives", which include cross currency swaps. Derivatives are entered
    into for the purpose of eliminating risk from potential movements in foreign
    exchange rates inherent in the Company's non-trading assets and liabilities.
    Non-trading assets and liabilities are those intended for use on a
    continuing basis in the activities of the Company. A derivative is
    designated as non-trading where there is an offset between the effects of
    potential movements in market rates of the derivative and the designated
    asset or liability being hedged. Non-trading derivatives are reviewed
    regularly for their effectiveness as hedges. Non-trading derivatives are
    accounted for on an accruals basis, consistent with the asset or liability
    being hedged. Income and expense on non-trading derivatives are recognised
    as they accrue over the life of the instruments as an adjustment to interest
    receivable or payable.
(4) Income and expenses arising in foreign currencies are translated at the
    average rates of exchange over the accounting year unless they are hedged in
    which case the relevant hedge rate is applied. Assets and liabilities
    denominated in foreign currencies are translated into sterling at the
    contracted hedge rate.
(5) The Company is a wholly owned subsidiary of Holmes Holdings Limited, a
    Company incorporated in Great Britain. Accordingly the Company is not
    required to produce a cash flow statement as prescribed in paragraph 5 (a)
    of FRS 1 (revised 1996), "Cash flow statements".

2.  Interest Receivable

    Interest receivable derives from loans made to group undertakings (see note
    6).

3.  Interest Payable

    Interest is payable on debt securities in issue (see note 11).

4.  Operating Profit on Ordinary Activities before Taxation

    Operating profit on ordinary activities before taxation is stated after
    charging:

<TABLE>
<CAPTION>
                                                                       2002                 2001
                                                                (Pound)'000          (Pound)'000
                                                                                     (11 months)
     <S>                                                        <C>                 <C>
     Audit fees                                                            -                  14
                                                                ============        ============

     Administration charges - SPV Management Limited                       -                   6
                                                                ============        ============
</TABLE>

    The Company has no employees (2001: nil). No emoluments were paid to the
    Directors by the Company during the current year (2001 : (Pound)nil). All
    administrative expenses are paid for, and borne, by Holmes Funding Limited,
    a fellow subsidiary undertaking. Because of this, no expenses are shown in
    the Company.

                                     Page 6

<PAGE>

HOLMES FINANCIANG (NO.3) plc
(A wholly owned subsidiary of Holmes Holdings Limited)


Notes to the Accounts for the year ended 31 December 2002 (continued)

5. Tax on Profit on Ordinary Activities

<TABLE>
<CAPTION>
                                                                                    2002            2001
                                                                                (Pounds)'000     (Pounds)'000
<S>                                                                             <C>              <C>
                                                                                                   (11 months)
      UK corporation tax at 10%  (2001: 20%)                                               -                -
                                                                                ============     ============
</TABLE>

6. Loans to Group Undertaking

<TABLE>
<CAPTION>
                                                                                    2002            2001
                                                                                (Pounds)'000     (Pounds)'000
<S>                                                                             <C>              <C>
      Repayable:
      In more than one year but not more than five years                           1,500,000          750,000
      In more than five years                                                        667,000        1,417,000
                                                                                ------------     ------------
                                                                                   2,167,000        2,167,000
                                                                                ============     ============

     The loans are all denominated in Sterling and are at variable rates of
     interest, based on LIBOR for three-month sterling deposits.
</TABLE>

7. Debtors

<TABLE>
<CAPTION>
                                                                                     2002           2001
                                                                                (Pounds)'000     (Pounds)'000
<S>                                                                             <C>              <C>
      Amounts due from group undertaking                                                  68               46
      Called up share capital not paid - due from parent undertaking                      37               37
      Accrued interest receivable on loans to group undertaking                       19,270           21,498
                                                                                ------------     ------------
                                                                                      19,375           21,581
                                                                                ============     ============
</TABLE>

8. Cash at Bank and in Hand

     The Company holds deposits at banks which pay interest based on LIBOR.

9. Creditors : amounts falling due within one year

<TABLE>
<CAPTION>
                                                                                    2002            2001
                                                                                (Pounds)'000     (Pounds)'000
<S>                                                                             <C>              <C>
      Corporation tax                                                                      -                -
      Other creditors                                                                     60               46
      Accrued interest payable                                                        19,270           21,497
                                                                                ------------     ------------
                                                                                      19,330           21,543
                                                                                ============     ============
</TABLE>

                                     Page 7

<PAGE>

HOLMES FINANCIANG (NO.3) plc
(A wholly owned subsidiary of Holmes Holdings Limited)


Notes to the Accounts for the year ended 31 December 2002 (continued)


10. Creditors : amounts falling due after more than one year

<TABLE>
<CAPTION>
                                                                                    2002            2001
                                                                                (Pounds)'000     (Pounds)'000
      <S>                                                                       <C>              <C>
      Debt securities in issue (note 11)                                           2,167,000        2,167,000
                                                                                ============     ============
</TABLE>

11.  Debt Securities in Issue

<TABLE>
<CAPTION>
                                                                                    2002            2001
                                                                                (Pounds)'000     (Pounds)'000
      <S>                                                                       <C>              <C>
      Series 1 Class A Floating Rate Notes 2005                                      750,000          750,000
      Series 1 Class B Floating Rate Notes 2040                                       23,000           23,000
      Series 1 Class C Floating Rate Notes 2040                                       37,500           37,500
      Series 2 Class A Floating Rate Notes 2007                                      750,000          750,000
      Series 2 Class B Floating Rate Notes 2040                                       23,000           23,000
      Series 2 Class C Floating Rate Notes 2040                                       37,500           37,500
      Series 3 Class A Floating Rate Notes 2040                                      500,000          500,000
      Series 3 Class B Floating Rate Notes 2040                                       15,000           15,000
      Series 3 Class C Floating Rate Notes 2040                                       31,000           31,000
                                                                                ------------     ------------
                                                                                   2,167,000        2,167,000
                                                                                ============     ============

     The notes are denominated in the following currencies:

<CAPTION>
                                                                                    2002            2001
                                                                                (Pounds)'000     (Pounds)'000
      <S>                                                                       <C>              <C>
      US Dollars                                                                   1,621,000        1,621,000
      Euro                                                                           546,000          546,000
                                                                                 -----------     ------------
                                                                                   2,167,000        2,167,000
                                                                                 ===========     ============
</TABLE>

     Foreign currency notes are converted at the swap rate.

     Payments in respect of the Class B and C Notes will only be made if, and to
     the extent that, there are sufficient funds after paying or providing for
     certain liabilities, including liabilities in respect of the Class A Notes.
     The Class B Notes rank after the Class A Notes in point of security but
     before the Class C Notes.

     Interest is payable on the notes at variable rates based on the three-month
     US Dollar LIBOR and three-month EURIBOR.

     The Company's obligations to noteholders, and to other secured creditors,
     are secured under a deed of charge which grants security over all of its
     assets in favour of the security trustee. The principal assets of the
     Company are loans made to Holmes Funding Limited, a group company, whose
     obligations in respect of these loans, are secured under a deed of charge
     which grants security over all of its assets, primarily comprising shares
     in a portfolio of residential mortgage loans, in favour of the security
     trustee. The security trustee holds this security for the benefit of all
     secured creditors of Holmes Funding Limited, including the Company.

                                     Page 8

<PAGE>

HOLMES FINANCING (NO. 3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

Notes to the Accounts for the year ended 31 December 2002 (continued)

11. Debt Securities in Issue (continued)

    The estimated fair values of the notes, based on the mid-market price on 31
December, are as follows:

<TABLE>
<CAPTION>
                                                                             2002                2001
                                                                      (Pound)'000         (Pound)'000
      <S>                                                       <C>                   <C>
      Series 1 Class A Floating Rate Notes 2005                           657,481              744,825
      Series 1 Class B Floating Rate Notes 2040                            20,157               22,841
      Series 1 Class C Floating Rate Notes 2040                            32,641               37,500
      Series 2 Class A Floating Rate Notes 2007                           657,479              744,600
      Series 2 Class B Floating Rate Notes 2040                            20,140               22,825
      Series 2 Class C Floating Rate Notes 2040                            32,224               37,500
      Series 3 Class A Floating Rate Notes 2040                           524,167              500,170
      Series 3 Class B Floating Rate Notes 2040                            15,606               14,977
      Series 3 Class C Floating Rate Notes 2040                            32,643               30,780
                                                                -----------------     ----------------
                                                                        1,992,538            2,156,018
                                                                =================     ================
</TABLE>

12. Financial Instruments

    The Company's policies as regards derivatives and financial instruments are
    set out in the Report of the Directors on page 1 and the accounting policies
    on page 6. The Company does not trade in financial instruments. The
    following disclosures are made in respect of financial instruments. Short
    term debtors and creditors are included in all of the following disclosures.

12  (a) Maturity profile of financial liabilities

<TABLE>
<CAPTION>
                                                                             Debt
                                                                       securities                Other              Total
                                                                         in issue          liabilities        liabilities
    2002                                                              (Pound)'000          (Pound)'000        (Pound)'000
    <S>                                                         <C>                   <C>                 <C>
    Within one year or less or on demand                                        -               19,330             19,330
    More than one year but not more than two years                              -                    -                  -
    More than two years but not more than five years                    1,500,000                    -          1,500,000
    More than five years                                                  667,000                    -            667,000
                                                                -----------------     ----------------    ---------------
                                                                        2,167,000               19,330          2,186,330
                                                                =================     ================    ===============

<CAPTION>
                                                                             Debt
                                                                       securities                Other              Total
                                                                         in issue          liabilities        liabilities
    2001                                                              (Pound)'000          (Pound)'000        (Pound)'000
    <S>                                                         <C>                   <C>                 <C>
    Within one year or less or on demand                                        -               21,543             21,543
    More than one year but not more than two years                              -                    -                  -
    More than two years but not more than five years                      750,000                    -            750,000
    More than five years                                                1,417,000                    -          1,417,000
                                                                -----------------     ----------------    ---------------
                                                                        2,167,000               21,543          2,188,543
                                                                =================     ================    ===============
</TABLE>

    There are no material undrawn committed borrowing facilities.

                                     Page 9

<PAGE>

HOLMES FINANCING (NO. 3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

Notes to the Accounts for the year ended 31 December 2002 (continued)

12 (b) Interest rate profile of financial assets and liabilities

    After taking into account the cross currency swaps entered into by the
    Company, the interest rate profile of the Company's financial assets and
    liabilities was:

<TABLE>
<CAPTION>
                                                                                                       Weighted
                                                                                       Non-        average year
                                                               Floating            interest               until
      2002                                   Total                 rate             bearing           maturity*
                                       (Pound)'000          (Pound)'000         (Pound)'000               Years
                                  <S>                 <C>                 <C>                  <C>
      Assets:
      Sterling                           2,186,381            2,167,006              19,375                 0.1
                                  ================    =================   =================    ================

      Liabilities:
      Sterling                           2,186,330            2,167,000              19,330                 0.1
                                  ================    =================   =================    ================


                                                                                                       Weighted
                                                                                       Non-             average
                                                               Floating            interest          year until
      2001                                   Total                 rate             bearing           maturity*
                                       (Pound)'000          (Pound)'000         (Pound)'000               Years

      Assets:
      Sterling                           2,188,594            2,167,013              21,581                 0.1
                                  ================    =================   =================    ================

      Liabilities:
      Sterling                           2,188,543            2,167,000              21,543                 0.1
                                  ================    =================   =================    ================
</TABLE>

    * for non-interest bearing assets/liabilities only.

    Benchmark rates for determining interest payments for the floating rate
    assets and liabilities are given in the note to the accounts relevant to the
    financial instrument type.

12 (c) Fair values of financial assets and liabilities

    The fair value of debt securities in issue is disclosed in note 11 to the
    accounts. Fair value disclosures are not provided for loans to group
    undertakings as there is no liquid and active market for such instruments.
    The estimated fair values of other assets and liabilities on the balance
    sheet are not materially different from their carrying amounts.

    The estimated fair value of the cross currency swaps entered into by the
    Company as at 31 December 2002 was a liability of (Pound)180,968,941
    ((Pound)61,916,998 at 31 December 2001). The cross currency swaps mature
    between January 2005 and July 2040. The fair value of the instruments will
    largely be recognised after the end of the next financial year.

12 (d) Currency profile

    Taking into account the effect of derivative instruments, the Company did
    not have a material financial exposure to foreign exchange gains or losses
    on monetary assets and monetary liabilities denominated in foreign
    currencies at 31 December 2002.

                                     Page 10

<PAGE>

HOLMES FINANCING (NO. 3) PLC
(A wholly owned subsidiary of Holmes Holdings Limited)

Notes to the Accounts for the year ended 31 December 2002 (continued)

13. Share Capital

                                                         2002               2001
                                                  (Pound)'000        (Pound)'000
       Authorised:
       100,000 Ordinary shares of(Pound)1 each            100                100
                                                  ===========        ===========

       Allotted and called up:
       50,000 Ordinary shares of(Pound)1 each              50                 50
                                                  ===========        ===========

    49,998 ordinary shares are partly paid to 25 pence. 2 subscriber shares are
    fully paid.


14. Reconciliation of Movements in Shareholders' Funds

                                                         2002               2001
                                                  (Pound)'000        (Pound)'000

       Retained profit  for the year / period               -                  1
       Ordinary share capital issued                        -                 50
       Opening shareholders' funds                         51                  -
                                                  -----------        -----------
       Closing shareholders' funds                         51                 51
                                                  ===========        ===========


15. Capital Commitments and Contingent Liabilities

    There were no outstanding capital commitments or contingent liabilities at
    31 December 2002 (2001 - (Pound)nil).

16. Related Party Transactions

    The Company has taken advantage of the exemption covered by paragraph 3 (c)
    of FRS 8, "Related party disclosures", not to disclose transactions with
    entities that are part of the Holmes Group.

    The group remunerates SPV Management Limited for administration services
    provided to Holmes Financing (No. 3) plc. The total amount paid relating to
    the Company in the period ended 31 December 2002, by the group, was
    (Pound)15,000 ((Pound)6,000 in period ended 31 December 2001).

17. Parent and Controlling Party

    The immediate parent of the Company is Holmes Holdings Limited, a company
    registered in England and Wales, which prepares the only accounts into which
    the Company is consolidated. SPV Management Limited, a company registered in
    England and Wales, holds all of the beneficial interest in the issued shares
    of Holmes Holdings Limited on a discretionary trust for persons employed as
    nurses in the United Kingdom and for charitable purposes.

    The administration, operations, accounting and financial reporting functions
    of the Company are performed by Abbey National plc, which is incorporated in
    Great Britain.

                                    Page 11