Document:

<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<PAGE>

                                                                   Exhibit 10.21

                             HOLMES FUNDING LIMITED
             (A wholly owned subsidiary of Holmes Holdings Limited)

                               REPORT AND ACCOUNTS

                       FOR THE YEAR ENDED 31 DECEMBER 2002

                             Registered No. 3982428

<PAGE>

HOLMES FUNDING LIMITED
(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 acquire an interest in a portfolio
of mortgage loans and enter all financial arrangements in that connection. No
future changes in activity are envisaged.

The Company invests in beneficial interests in the assets of Holmes Trustees
Limited ("the Trust"), which assets comprise mortgage loans secured on
residential property in England and Wales. The Company receives a share of
income from the Trust in proportion to its share of the total mortgage assets of
the Trust.

During the year the Company purchased a further beneficial interest in the
assets of the Trust of (pound)4.0 billion on 7 November. This purchase was
financed by a loan from Holmes Financing (No. 6) plc. Holmes Trustees Limited
and Holmes Financing (No. 6) plc are both group undertakings.

2. Results and Dividend

The results for the year are set out on page 4. The loss of (pound)8,272,000
(2001 as restated - loss of (pound)600,000) will be transferred from reserves.
The Directors do not recommend the payment of a dividend (2001: (pound)nil). The
loss in the year has arisen as a result of the charge for provisions made
against the Company's investment. On the release or utilisation of this
provision in future years, the Directors anticipate that the Company will make a
profit.

3. 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)
SPV Management Limited

At the year end and the previous year end, Holmes Holdings Limited held one
share in the Company. The other share was held by Holmes Holdings Limited and
Martin McDermott. 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 FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

4. 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 and for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other
irregularities.

5. Auditors

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

By order of the Board

/s/ Richard Wise
-----------------------

For and behalf of
The Board of Directors,
R. Wise, Director.

28  February 2003.

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

                                     Page 2

<PAGE>

HOLMES FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF HOLMES FUNDING LIMITED

We have audited the financial statements of Holmes Funding Ltd for the year
ended 31 December 2002 which comprise the profit and loss account, the balance
sheet, the statement of total recognised gains and losses, the statement of
accounting policies and the related notes 1 to 16. These financial statements
have been prepared under the accounting policies set out therein.

This report is made solely to the company's members, as a body, in accordance
with section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the company's members those matters we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.

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.

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 loss 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

28 February 2003

                                     Page 3

<PAGE>

HOLMES FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

Profit and Loss Account
For the year ended 31 December 2002

<TABLE>
<CAPTION>
                                                                          2001
                                                           2002       (as restated)
                                                 Note   (pound)'000   (pound)'000
                                                 ----   -----------   -------------
<S>                                               <C>    <C>            <C>
Interest receivable and similar income              2     578,768        468,551
Interest payable                                    3    (526,854)      (416,721)
                                                         --------       --------
Net interest income                                        51,914         51,830

Administrative expenses                                   (52,081)       (51,221)
Provision against investment in Trust property      6     (11,644)        (1,475)
                                                         --------       --------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION         4     (11,811)          (866)

Tax on loss on ordinary activities                1,5       3,539            266
                                                         --------       --------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION
AND RETAINED LOSS FOR THE YEAR                     13      (8,272)          (600)
                                                         ========       ========
</TABLE>

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

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

Statement of total recognised gains and losses
For the year ended 31 December 2002

<TABLE>
<CAPTION>
                                                                            2001
                                                            2002       (as restated)
                                                         (pound)'000    (pound)'000
                                                         -----------   -------------
<S>                                                        <C>              <C>
Retained loss for the year                                 (8,272)          (600)

                                                           ------           ----
Total recognised gains and losses relating to the year     (8,272)          (600)
                                                                            ====

Prior year adjustment (as explained in note 1)                876
                                                           ------
TOTAL GAINS AND LOSSES RECOGNISED SINCE LAST ANNUAL
REPORT AND ACCOUNTS                                        (7,396)
                                                           ======
</TABLE>

                                     Page 4

<PAGE>

HOLMES FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

Balance Sheet
As at 31 December 2002

<TABLE>
<CAPTION>
                                                                                    2001
                                                                      2002      (as restated)
                                                           Note   (pound)'000    (pound)'000
                                                           ----   -----------   -------------
<S>                                                         <C>   <C>            <C>
FIXED ASSETS
Beneficial interest in mortgage portfolio                     6    13,679,484     11,969,990

CURRENT ASSETS
Debtors                                                       7        28,599         43,666
Deferred taxation asset                                     1,9         4,449            876
Cash at bank and in hand                                      8     1,202,356        250,770
                                                                  -----------    -----------
                                                                    1,235,404        295,312

CREDITORS - amounts falling due within one year              10    (1,166,612)      (834,539)

                                                                  -----------    -----------
NET CURRENT ASSETS /(LIABILITIES)                                      68,792       (539,227)
                                                                  -----------    -----------

                                                                  -----------    -----------
TOTAL ASSETS LESS CURRENT LIABILITIES                              13,748,276     11,430,763
                                                                  -----------    -----------

CREDITORS - amounts falling due after more than one year     11   (13,758,535)   (11,432,750)

                                                                  -----------    -----------
NET LIABILITIES                                                       (10,259)        (1,987)
                                                                  ===========    ===========

CAPITAL AND RESERVES

Called-up share capital                                      12            --             --
Profit and loss account                                               (10,259)        (1,987)

                                                                  -----------    -----------
EQUITY SHAREHOLDERS' DEFICIT                                 13       (10,259)        (1,987)
                                                                  ===========    ===========
</TABLE>

The financial statements on page 4 to 10 were approved by the Board of Directors
on 28 February 2003.

Signed on behalf of the Board of Directors by R. Wise,

/s/ Richard Wise
----------------
Director.

                                     Page 5

<PAGE>

HOLMES FUNDING LIMITED
(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)  Investments held as fixed assets are stated at cost less provision for any
     impairment.
(3)  Specific provisions are made against loans and advances which comprise the
     trust property in which the Company has a beneficial interest, when, as a
     result of regular appraisals of the assets, it is considered that recovery
     is doubtful. A general provision is made against loans and advances to
     cover bad and doubtful debts which have not been separately identified but
     which are known from experience to be present in any portfolio of loans and
     advances. The specific and general provisions are deducted from loans and
     advances. Provisions made during the year, less amounts released and
     recoveries of amounts written off in previous years, are charged to the
     profit and loss account.
(4)  Deferred consideration is payable to the originator of the loans and
     advances to customers, which is based upon the profitability of the company
     before the charge for the general provision for bad and doubtful debts.
     This has resulted in a loss after tax for the year to 31 December 2002. The
     directors anticipate that the company will make a profit over the life of
     the mortgage portfolio.
(5)  Value added tax is not recoverable by the Company and is included with its
     related cost.
(6)  Transactions are undertaken in derivative financial instruments,
     "derivatives", which include interest rate swaps. Derivatives are entered
     into for the purpose of eliminating risk from potential movements in
     interest 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.
(7)  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".
(8)  During the year, the Company adopted the provisions of Financial Reporting
     Standard ("FRS") 19 "Deferred tax". The effect of this was to change the
     accounting policy to full provision of deferred tax for temporary
     differences arising. The relevant numbers for 2001 have also been restated
     to show the effect of adopting FRS 19 on that year.

     The financial effect of this adoption was a decrease in loss for the year
     of (pound)3,573,000 (2001: (pound)278,000), and recognition of a deferred
     tax asset, and corresponding increase in retained reserves, of
     (pound)4,449,000 (2001: (pound)876,000). (pound)598,000 of deferred tax
     asset, and corresponding tax credit in the profit and loss account, related
     to the year 2000, and hence resulted in a change of reserves brought
     forward at 1 January 2001. This can be seen in note 13 to these accounts.

2.   Interest Receivable and Similar Income

<TABLE>
<CAPTION>
                                                                  2002         2001
                                                             (pound)'000   (pound)'000
                                                             -----------   -----------
<S>                                                            <C>           <C>
     Income from beneficial interest in mortgage portfolio     648,054       494,578
     Expense from derivatives used to hedge beneficial
        interest in mortgage portfolio                         (93,842)      (32,097)
     Bank interest receivable                                   24,556         6,070
                                                               -------       -------
                                                               578,768       468,551
                                                               =======       =======
</TABLE>

     The mortgage portfolio is held on trust by Holmes Trustees Limited, a group
     undertaking.

                                     Page 6

<PAGE>

HOLMES FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

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

3.   Interest Payable

<TABLE>
<CAPTION>
                                                             2002          2001
                                                         (pound)'000   (pound)'000
                                                         -----------   -----------
<S>                                                        <C>           <C>
     Interest payable on loans from group undertakings     524,200       414,322
     Interest payable on start-up loans                      2,654         2,399
                                                           -------       -------
     Total                                                 526,854       416,721
                                                           =======       =======
</TABLE>
<TABLE>
4.   Loss on Ordinary Activities before Taxation

     Loss on ordinary activities before taxation is stated after charging:
<S>                                                        <C>           <C>
                                                             2002          2001
                                                         (pound)'000   (pound)'000
                                                         -----------   -----------
     Audit fees                                                 23           116
                                                               ===           ===

     The Company has no employees. No emoluments were paid to the Directors by
     the Company during the year (2001:(pound)nil).

5.   Tax on Loss on Ordinary Activities
</TABLE>
<TABLE>
<CAPTION>
                                                                            2001
                                                              2002      (as restated)
                                                          (pound)'000    (pound)'000
                                                          -----------   -------------
<S>                                                         <C>             <C>
     UK corporation tax for the year at 28% (2001: 25%)         27            12
     Adjustments in respect of prior years                       7            --
     Deferred taxation                                      (3,573)         (278)

                                                            ------          ----
                                                            (3,539)         (266)
                                                            ======          ====
</TABLE>

     The tax charge in the year arises due to the disallowable general provision
     on the Trust mortgage income.

     The tax assessed for the year is higher than the standard rate of
     corporation tax in the UK (30 per cent). The differences are explained
     below:

     The corporation tax charge is made up as follows:

<TABLE>
<CAPTION>
                                                                            2001
                                                              2002       (as restated)
                                                           (pound)'000   (pound)'000
                                                           -----------   -------------
<S>                                                          <C>             <C>
     Loss on ordinary activities before tax                  (11,811)        (866)
                                                             =======         ====

     Loss on ordinary activities  multiplied by standard
        rate of corporation tax in the UK of 30%              (3,543)        (260)

     Effects of:
     Non tax-deductable general provisions                     3,573          278
     Benefit of small companies corporation tax rate              (3)          (6)
     Adjustments to tax charge in respect of previous
        periods                                                    7           --
                                                             -------         ----
                                                                  34           12
                                                             =======         ====
</TABLE>

                                     Page 7

<PAGE>

HOLMES FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

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

6.   Beneficial interest in mortgage portfolio

                                                2002          2001
                                             (pound)'000   (pound)'000
                                             -----------   -----------
     Cost:
     At 1 January                            11,973,516      4,660,516
     Additions                                3,999,221      7,313,000
     Capital repayments                      (2,278,200)            --
                                             ----------     ----------
     At 31 December                          13,694,537     11,973,516
                                             ==========     ==========

     Provisions:
     At 1 January
        General                                   2,921          1,993
        Specific                                    605             58
                                             ----------     ----------
                                                  3,526          2,051
     Transfer from profit and loss account       11,644          1,475
     Irrecoverable amounts written off             (117)            --
                                             ----------     ----------
     At 31 December                              15,053          3,526
                                             ==========     ==========

        Being:
        General                                  14,831          2,921
        Specific                                    222            605
                                             ----------     ----------
                                                 15,053          3,526
                                             ==========     ==========

     Net book value:
     At 31 December                          13,679,484     11,969,990
                                             ==========     ==========

     The mortgage portfolio in which the Company holds a beneficial interest is
     held on trust for the Company and the originator of the mortgage loans by
     Holmes Trustees Limited, a group undertaking. During the year the company
     increased its interest in the trust property in three tranches. The
     mortgage loans are secured on residential property in England and Wales. At
     31 December 2002 the total mortgage assets held on trust for the
     beneficiaries amounted to (pound)23,104,300,000 (2001 -
     (pound)17,513,308,000).

7.   Debtors

                                                2002          2001
                                             (pound)'000   (pound)'000
                                             -----------   -----------
     Accrued  income  from  beneficial
        interest in mortgage portfolio             --        16,267
     Other debtors                             28,599        27,399
                                               ------        ------
     Total                                     28,599        43,666
                                               ======        ======

     The accrued income is receivable from a group undertaking.

8.   Cash at bank and in hand

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

                                     Page 8

<PAGE>

HOLMES FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

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

9.   Deferred taxation asset

                                                2002           2001
                                             (pound)'000   (pound)'000
                                             -----------   -----------
     As at 1 January                             876           598
     Transfer to profit and loss account       3,573           278

                                               -----           ---
     As at 31 December                         4,449           876
                                               =====           ===

     Provided on:
     ------------

                                                2002           2001
                                             (pound)'000   (pound)'000
                                             -----------   -----------

     General provision against beneficial
        interest in mortgage portfolio          4,449          876
                                                =====          ===

     The deferred tax asset has been recognised under FRS 19 (Deferred tax)
     since it is considered more likely than not that there will be sufficient
     future chargeable profits against which the future reversal of the general
     provision can be deducted.

10. Creditors : amounts falling due within one year

                                                 2002          2001
                                             (pound)'000   (pound)'000
                                             -----------   ------------
     Loans from group undertakings              961,292      704,000
     Amounts due to group undertakings          178,889      111,522
     Corporation tax                                 28           16
     Other creditors                             20,907       16,160
     Accrued interest payable                     5,496        2,841
                                              ---------      -------
     Total                                    1,166,612      834,539
                                              =========      =======

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

                                                 2002          2001
                                             (pound)'000   (pound)'000
                                             -----------   ------------
     Loans from group undertakings            13,593,987    11,319,516
     Start-up loans                               62,450        56,350
     Other creditors                             102,098        56,884
                                              ----------    ----------
     Total                                    13,758,535    11,432,750
                                              ==========    ==========

     The amounts are repayable as follows:-

                                                 2002          2001
                                             (pound)'000   (pound)'000
                                             -----------   ------------
     Due 2 - 5 years                           3,447,498     2,750,500
     Due over 5 years                         10,311,037     8,682,250
                                              ----------    ----------
     Total                                    13,758,535    11,432,750
                                              ==========    ==========

Interest payable on the loans from group undertakings and the start-up loans is
based on the LIBOR.

Amounts due over 5 years are paid when cash is available after other commitments
have been fulfilled, in order of priority.

                                     Page 9

<PAGE>

HOLMES FUNDING LIMITED
(A wholly owned subsidiary of Holmes Holdings Limited)

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

12.  Share Capital

                                                      2002          2001
                                                   (pound)'000   (pound)'000
                                                   -----------   -----------
      Authorised:
      100 Ordinary shares of (pound)1 each                --           --
                                                         ===          ===

      Called up, allotted and fully paid:
      2 Ordinary shares of (pound)1 each                  --           --
                                                         ===          ===

13.  Reconciliation of Movements in Shareholders' Funds

                                                                     2001
                                                      2002       (as restated)
                                                   (pound)'000   (pound)'000
                                                   -----------   ------------

     Opening shareholders' deficit as previously
        stated                                        (2,863)       (1,985)
     Prior year adjustment                               876           598
                                                     -------        ------
     Opening shareholders' deficit as restated        (1,987)       (1,387)

     Retained loss for the year                       (8,272)         (600)
                                                     -------        ------
     Closing shareholders' deficit                   (10,259)       (1,987)
                                                     =======        ======

     The opening shareholders' deficit as at 1 January 2001 has been restated
     for the deferred tax asset recognised under the change of accounting policy
     for the adoption of FRS 19 (Deferred tax).

14.  Capital Commitments and Contingent Liabilities

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

15. 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.

16. 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. During 2002, Abbey National plc has
     delegated administration and servicing functions in respect of the loans on
     behalf of the mortgages' trustee and the beneficiaries to a service
     provider.

                                    Page 10

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