Document:

Report and Accounts for Holmes Financing

 Exhibit 10.19 
  
 HOLMES FINANCING (NO. 4) PLC 
  
 REPORT AND ACCOUNTS 
  
 FOR THE YEAR ENDED 31 DECEMBER 2003 
  
 Registered No. 4167953 
  

 HOLMES FINANCING (NO. 4) PLC 
  
 Report of the Directors 
  
 The Directors submit their report together with the accounts for the year to 31 December 2003. 
  
 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 profit of £1,000 (2002:
£Nil) was transferred to reserves. The Directors do not recommend the payment of a dividend (2002: £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 Company has debt securities in issue denominated in US Dollars, Euros and Swiss
Francs. The Board reviews and agrees policies for managing this risk. 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
	 	 
	 R Wise
	 	 (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 jointly 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. M. McDermott is also
a Director of 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 2 

 HOLMES FINANCING (NO. 4) PLC 
  
 Report of the Directors (continued) 
  
 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 2003. 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. Going concern 
  
 The Directors confirm
that they are satisfied that Holmes Financing (No.4) plc has adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt a going concern basis in preparing the financial statements.

  
 7. Auditors 
  
 On 1 August 2003, Deloitte & Touche, the Company’s auditors transferred their
business to Deloitte & Touche LLP, a limited liability partnership incorporated under the Limited Liability Partnerships Act 2000. The Company’s consent has been given to treating the appointment of Deloitte & Touche as extending to
Deloitte & Touche LLP with effect from 1 August 2003 under the provisions of section 26(5) of the Companies Act 1989. A resolution to re-appoint Deloitte & Touche LLP as the Company’s auditor was passed at the Annual General Meeting on
24th June 2003. 
  
 By order of the Board 
  
  
 /s/    CHERYL SAMUELS 
 For and behalf of 
 Abbey National Secretariat Services Limited, Secretary 
  
 22 June 2004. 
  
 Registered Office: 
 Abbey National House 
 2 Triton Square 
 Regent’s Place 
 London 
 NW1 3AN 
  

 Page 3 

 HOLMES FINANCING (NO. 4) PLC 
  
 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF 
 HOLMES FINANCING (NO. 4) PLC 
  
 We have
audited the financial statements of Holmes Financing (No. 4) plc for the year ended 31 December 2003 which comprise the profit and loss account, the balance sheet 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 2003 and of its profit for the year then ended and have been properly prepared in accordance with the Companies Act 1985. 
  
 Deloitte & Touche LLP 
  
 Chartered Accountants and Registered Auditors 
 London, England 
  
 25 June 2004. 
  

 Page 4 

 HOLMES FINANCING (NO. 4) PLC 
  
 Profit and Loss Account 
 For the year
ended 31 December 2003 
  

									
	 	  	Note

	  	2003

	 	 	2002

	 
	 	  	 	  	£’000	 	 	£’000	 
	 Interest receivable
	  	2	  	112,433	 	 	121,279	 
	 Interest payable
	  	3	  	(112,432	)	 	(121,279	)
	 	  	 	  	
	
	 	
	

	 Net interest income
	  	 	  	1	 	 	—  	 
	 	  	 	  	
	
	 	
	

	 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
	  	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 5 

 HOLMES FINANCING (NO. 4) PLC 
  
 Balance Sheet 
 As at 31 December 2003

  

									
	 	  	Note

	  	2003

	 	 	2002

	 
	 	  	 	  	£’000	 	 	£’000	 
	 FIXED ASSETS
	  	 	  	 	 	 	 	 
	 Loans to group undertaking
	  	6	  	2,525,750	 	 	2,717,000	 
				
	 CURRENT ASSETS
	  	 	  	 	 	 	 	 
	 Debtors
	  	7	  	22,125	 	 	25,131	 
	 Cash at bank and in hand
	  	8	  	203,749	 	 	140,911	 
	 	  	 	  	
	
	 	
	

	 	  	 	  	225,874	 	 	166,042	 
				
	 CREDITORS - amounts falling due within one year
	  	9	  	(225,823	)	 	(165,992	)
	 	  	 	  	
	
	 	
	

	 NET CURRENT ASSETS
	  	 	  	51	 	 	50	 
	 	  	 	  	
	
	 	
	

	 TOTAL ASSETS LESS CURRENT LIABILITIES
	  	 	  	2,525,801	 	 	2,717,050	 
				
	 CREDITORS - amounts falling due after more than one year
	  	10	  	(2,525,750	)	 	(2,717,000	)
	 	  	 	  	
	
	 	
	

	 NET ASSETS
	  	 	  	51	 	 	50	 
	 	  	 	  	
	
	 	
	

	 CAPITAL AND RESERVES
	  	 	  	 	 	 	 	 
				
	 Called-up share capital
	  	13	  	50	 	 	50	 
	 Profit and loss account
	  	 	  	1	 	 	—  	 
	 	  	 	  	
	
	 	
	

	 EQUITY SHAREHOLDERS’ FUNDS
	  	14	  	51	 	 	50	 
	 	  	 	  	
	
	 	
	

  
 The financial statements on pages 4
to 12 were approved by the Board of Directors on 22 June 2004. 
  
 Signed on
behalf of the Board of Directors 
 /s/    Martin McDermott 
  
  
 Director. 
  

 Page 6 

 HOLMES FINANCING (NO. 4) PLC 
  
 Notes to the Accounts for the year ended 31 December 2003 
  

	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 recognised on an accruals basis. 

  

	(2)	Loans to group undertakings held as fixed assets are stated at cost less provision for any impairment. 

  

	(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”. 

  

	(6)	Debt Securities in Issue are stated at net proceeds. 

  

	2.	Interest Receivable 

  

					
	 	  	2003

	  	2002

	 	  	£’000	  	£’000
	 Interest receivable on loans to Group undertakings (note 6)
	  	109,953	  	121,279
	 Interest receivable on collaterised cash (note 8)
	  	2,480	  	—  
	 	  	
	  	

	 	  	112,433	  	121,279
	 	  	
	  	

	

	3.	Interest Payable 

  
  

					
	 	  	2003

	  	2002

	 	  	£’000	  	£’000
	 Interest payable on debt securities in issue (note 11)
	  	109,952	  	121,279
	 Interest payable on collaterised cash
	  	2,480	  	—  
	 	  	
	  	

	 	  	112,432	  	121,279
	 	  	
	  	

  

	4.	Operating Profit on Ordinary Activities before Taxation 

  
 The Company has no employees (2002: None) other than its directors. 
  
 No emoluments were paid to the Directors by the Company during the current year (2002: £Nil). 
  
 All administrative expenses, including auditors’ remuneration, in the
current and prior year were paid for, and borne, by Holmes Funding Limited, a fellow subsidiary undertaking. Because of this, no expenses are shown in the Company. 
  

 Page 7 

 HOLMES FINANCING (NO. 4) PLC 
  
 Notes to the Accounts for the year ended 31 December 2003 (continued) 
  
 5. Tax on Profit on Ordinary Activities 
  

					
	 	  	2003

	  	2002

	 	  	 £’000
	  	£’000
	 UK corporation tax at 0% (2002: 10%)
	  	—  	  	—  
	 	  	
	  	

  
 The company qualifies
for the starting companies’ rate of corporation tax of nil. 
  
 6.
Loans to Group Undertaking 
  

					
	 	  	2003

	  	2002

	 	  	£’000	  	 £’000

	 Repayable:
	  	 	  	 
	 In more than two years but not more than five years
	  	490,000	  	—  
	 In more than five years
	  	2,035,750	  	2,717,000
	 	  	
	  	

	 	  	2,525,750	  	2,717,000
	 	  	
	  	

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

					
	 	  	2003

	  	2002

	 	  	£’000	  	£’000
	 Amounts due from group undertaking
	  	1	  	62
	 Called up share capital not paid - due from parent undertaking
	  	37	  	37
	 Accrued interest receivable
	  	22,087	  	25,032
	 	  	
	  	

	 	  	22,125	  	25,131
	 	  	
	  	

  
 8. Cash at Bank and in Hand

  
 The Company holds deposits at banks, which pay interest
based on LIBOR. 
  
 Swap counterparties are subject to a cash
collateralisation agreement whereby dependent on the credit rating of the counterparty an amount may be payable by the counterparty to the Company. This amount is included in cash at bank and in hand, and within creditors: amounts falling due within
one year. It is repayable when the swap agreements mature, or if earlier when the credit rating of the counterparty improves. 
  
 At 31 December 2003 an amount of £203,736,381 (2002: £140,899,000) was held which related to cash received under cash collateralisation
agreements. The amount was held on deposit at Federal Funds with an effective interest rate to match the interest payable to the swap counterparty. 
  

 Page 8 

 HOLMES FINANCING (NO. 4) PLC 
  

	Notes	to the Accounts for the year ended 31 December 2003 (continued) 

  
 9. Creditors : amounts falling due within one year 
  

					
	 	  	2003

	  	2002

	 	  	£’000	  	£’000
	 Corporation tax
	  	—  	  	—  
	 Other creditors
	  	—  	  	61
	 Amounts due in respect of collateralised cash received
	  	203,736	  	140,899
	 Accrued interest payable
	  	22,087	  	25,032
	 	  	
	  	

	 	  	225,823	  	165,992
	 	  	
	  	

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

					
	 	  	2003

	  	2002

	 	  	 £’000
	  	£’000
	 Debt securities in issue (note 11)
	  	2,525,750	  	2,717,000
	 	  	
	  	

  
 11. Debt Securities in Issue

  

					
	 	  	2003

	  	2002

	 	  	£’000	  	 £’000

	 Series 1 Class A Floating Rate Notes 2015
	  	573,750	  	765,000
	 Series 1 Class B Floating Rate Notes 2040
	  	26,500	  	26,500
	 Series 1 Class C Floating Rate Notes 2040
	  	39,500	  	39,500
	 Series 2 Class A Fixed/Floating Rate Notes 2008
	  	490,000	  	490,000
	 Series 2 Class B Floating Rate Notes 2040
	  	22,000	  	22,000
	 Series 2 Class C Floating Rate Notes 2040
	  	33,000	  	33,000
	 Series 3 Class A1 Floating Rate Notes 2040
	  	550,000	  	550,000
	 Series 3 Class A2 Floating Rate Notes 2040
	  	300,000	  	300,000
	 Series 3 Class B Floating Rate Notes 2040
	  	25,000	  	25,000
	 Series 3 Class C Floating Rate Notes 2040
	  	36,000	  	36,000
	 Series 3 Class D1 Floating Rate Notes 2040
	  	30,000	  	30,000
	 Series 3 Class D2 Floating Rate Notes 2040
	  	16,500	  	16,500
	 Series 3 Class D3 Floating Rate Notes 2040
	  	3,500	  	3,500
	 Series 4 Class A Floating Rate Notes 2040
	  	350,000	  	350,000
	 Series 4 Class A Floating Rate Notes 2040
	  	11,000	  	11,000
	 Series 4 Class C Floating Rate Notes 2040
	  	19,000	  	19,000
	 	  	
	  	

	 	  	2,525,750	  	2,717,000
	 	  	
	  	

  
 The notes are
denominated in the following currencies: 
  

					
	 UK Sterling
	  	610,000	  	610,000
	 US Dollars
	  	1,004,250	  	1,195,500
	 Euros
	  	561,500	  	561,500
	 Swiss Francs
	  	350,000	  	350,000
	 	  	
	  	

	 	  	2,525,750	  	2,717,000
	 	  	
	  	

  
 Foreign currency notes
are converted at the rate of exchange in the applicable hedging currency swap. 
  

 Page 9 

 HOLMES FINANCING (NO. 4) PLC 
  
 Notes to the Accounts for the year ended 31 December 2003 (continued) 
  
 11. Debt Securities in Issue (continued) 
  
 All the Class A Notes (irrespective of series) will rank pari passu and rateably without any preference or priority except, until enforcement of
the security for the Notes, as to payments of principal in respect of which the Class A1 Notes will rank in priority to the Class A2 Notes and the Class A3 Notes, and the Class A2 Notes will rank in priority to the Class A3 Notes. 
  
 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 one-month US Dollar LIBOR, three-month Sterling and US Dollar LIBOR and three-month EURIBOR, except for the Series 2 Class A notes, on which interest is paid at a fixed rate until July 2006, after which it is paid at variable rates based on the
three-month EURIBOR and the Series 4 Class A notes, on which interest is paid at a fixed rate until October 2006, after which it is paid at variable rates based on the three-month CHF LIBOR. 
  
 The Company’s obligations to note holders, 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. 
  
 The estimated fair values of the notes, based on the mid-market price on 31 December, are as follows: 
  

					
	 	  	2003

	  	2002

	 	  	 £’000
	  	£’000
	 Series 1 Class A Floating Rate Notes 2015
	  	573,791	  	651,579
	 Series 1 Class B Floating Rate Notes 2040
	  	26,498	  	22,627
	 Series 1 Class C Floating Rate Notes 2040
	  	39,531	  	33,177
	 Series 2 Class A Floating Rate Notes 2008
	  	522,811	  	545,181
	 Series 2 Class B Floating Rate Notes 2040
	  	21,972	  	23,267
	 Series 2 Class C Floating Rate Notes 2040
	  	33,081	  	35,064
	 Series 3 Class A1 Floating Rate Notes 2040
	  	550,544	  	549,984
	 Series 3 Class A2 Floating Rate Notes 2040
	  	300,455	  	254,567
	 Series 3 Class B Floating Rate Notes 2040
	  	25,025	  	21,353
	 Series 3 Class C Floating Rate Notes 2040
	  	36,180	  	29,500
	 Series 3 Class D1 Floating Rate Notes 2040
	  	30,000	  	29,700
	 Series 3 Class D2 Floating Rate Notes 2040
	  	16,500	  	17,390
	 Series 3 Class D3 Floating Rate Notes 2040
	  	3,500	  	3,103
	 Series 4 Class A Floating Rate Notes 2040
	  	367,500	  	388,170
	 Series 4 Class A Floating Rate Notes 2040
	  	11,002	  	11,045
	 Series 4 Class C Floating Rate Notes 2040
	  	19,111	  	19,093
	 	  	
	  	

	 	  	2,577,501	  	2,634,800
	 	  	
	  	

  
 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: 
  

 Page 10 

 HOLMES FINANCING (NO. 4) PLC 
  
 Notes to the Accounts for the year ended 31 December 2003 (continued) 
  
 12 (a) Maturity profile of financial liabilities 
  

							
	 	  	 Debt
 securities
 in issue

	  	 Other
 liabilities

	  	 Total
 liabilities

	 	  	£’000	  	£’000	  	£’000
	 2003
	  	 	  	 	  	 
				
	 Within one year or less or on demand
	  	—  	  	225,823	  	225,823
	 More than one year but not more than two years
	  	—  	  	—  	  	—  
	 More than two years but not more than five years
	  	490,000	  	—  	  	490,000
	 More than five years
	  	2,035,750	  	—  	  	2,035,750
	 	  	
	  	
	  	

	 	  	2,525,750	  	225,823	  	2,751,573
	 	  	
	  	
	  	

	 2002
	  	 	  	 	  	 
				
	 Within one year or less or on demand
	  	—  	  	165,992	  	165,992
	 More than one year but not more than two years
	  	—  	  	—  	  	—  
	 More than two years but not more than five years
	  	—  	  	—  	  	—  
	 More than five years
	  	2,717,000	  	—  	  	2,717,000
	 	  	
	  	
	  	

	 	  	2,717,000	  	165,992	  	2,882,992
	 	  	
	  	
	  	

  
 There are no material
undrawn committed borrowing facilities. 
  
 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: 
  

									
	 	  	Total

	  	Floating
rate

	  	Non-interest
bearing

	  	Weighted
average
years until
maturity*

	 	  	£’000	  	£’000	  	£’000	  	Years
	 2003
	  	 	  	 	  	 	  	 
					
	 Assets:
	  	 	  	 	  	 	  	 
	 Sterling
	  	2,751,624	  	2,729,499	  	22,125	  	0.1
	 	  	
	  	
	  	
	  	

	 Liabilities:
	  	 	  	 	  	 	  	 
	 Sterling
	  	2,751,573	  	2,729,486	  	22,087	  	0.1
	 	  	
	  	
	  	
	  	

	 2002
	  	 	  	 	  	 	  	 
					
	 Assets:
	  	 	  	 	  	 	  	 
	 Sterling
	  	2,883,042	  	2,857,911	  	25,131	  	0.1
	 	  	
	  	
	  	
	  	

	 Liabilities:
	  	 	  	 	  	 	  	 
	 Sterling
	  	2,882,992	  	2,857,899	  	25,093	  	0.1
	 	  	
	  	
	  	
	  	

	*	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. 
  

 Page 11 

 HOLMES FINANCING (NO. 4) PLC 
  
 Notes to the Accounts for the year ended 31 December 2003 (continued) 
  
 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 rom their carrying amounts. 
  
 The estimated fair value of the cross currency swaps entered into by the Company as at 31 December 2003 was a liability of £177,193,990 (2002: a
liability of £128,511,545). The estimated fair value of the interest rate swap entered into by the Company as at 31 December 2003 was an asset of £110,403,157 (2002 : an asset of £63,051,088). 
  

	`	The cross currency swaps mature between June 2008 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 2003 or 31 December 2002. 
  
 13. Share Capital 
  

					
	 	  	2003

	  	2002

	 	  	 £’000
	  	 £’000

	 Authorised:
	  	 	  	 
	 100,000 Ordinary shares of £1 each
	  	100	  	100
	 	  	
	  	

	 Allotted and called up:
	  	 	  	 
	 50,000 Ordinary shares of £1 each
	  	50	  	50
	 	  	
	  	

  
 49,998 ordinary
shares are partly paid to 25 pence. Two subscriber shares are fully paid. 
  
 14. Reconciliation of Movements in Shareholders’ Funds 
  

					
	 	  	2003

	  	2002

	 	  	£’000	  	 £’000

	 Opening shareholders’ funds
	  	50	  	50
	 Retained profit/result for the year
	  	1	  	—  
	 	  	
	  	

	 Closing shareholders’ funds
	  	51	  	50
	 	  	
	  	

  

 Page 12 

 HOLMES FINANCING (NO. 4) PLC 
  
 Notes to the Accounts for the year ended 31 December 2003 (continued) 
  
 15. Capital Commitments and Contingent Liabilities 
  
 There were no outstanding capital commitments or contingent liabilities at 31 December 2003 and 2002. 
  
 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. 4) plc. The total amount paid relating to the
Company in the period ended 31 December 2002, by the group, was £15,000 (2002: £15,000). 
  
 17. Parent and Controlling Party 
  
 The immediate parent of the Company is Holmes Holdings Limited, a company incorporated in Great Britain and registered in England and Wales, which prepares the only accounts into which the Company is consolidated. SPV
Management Limited, a company incorporated in Great Britain and 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 13Report and Accounts for Holmes Funding Limited

 Exhibit 10.20 
  
 HOLMES FUNDING LIMITED 
  
 REPORT AND ACCOUNTS 
  
 FOR THE YEAR ENDED 31 DECEMBER 2003 
  
 Registered No. 3982428 

 HOLMES FUNDING LIMITED 
  

Report of the Directors 
  
 The Directors submit their report together with the accounts for the year to 31 December 2003. 
  
 1. Principal activity for the year 
  
 The principal activity of the Company is to acquire an interest in a portfolio of mortgage loans and enter into financial arrangements with other group companies in that
connection. No future changes 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, Scotland 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 £2.4 billion on 26 March. This purchase was financed by a loan from Holmes Financing (No. 7) plc. Holmes Trustees Limited and Holmes Financing (No. 7) plc are both
group undertakings. 
  
 2. Results and Dividends 
  
 The results for the year are set out on page 4. The loss of £5,011,000 (2002 –
loss of £8,272,000) will be transferred from reserves. The Directors do not recommend the payment of a dividend (2002: £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

	 R.Wise (resigned on 23 May 2003)

	 D.Green (appointed on 23 May 2003)

	 SPV Management Limited

  
 At the year-end and the previous
year-end, Holmes Holdings Limited held one share in the Company. Holmes Holdings Limited and M McDermott jointly held the other share. 
  
 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. M. McDermott is also a Director of 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 2 

 HOLMES FUNDING LIMITED 
  

Report of the Directors (continued) 
  
 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 2003. 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. Going concern 
  
 The Directors confirm
that they are satisfied that Holmes Funding Limited has adequate resources to continue in business for the foreseeable future. For this reason, they continue to adopt a going concern basis in preparing the financial statements. 
  
 6. Auditors 
  
 On 1 August 2003, Deloitte & Touche, the Company’s auditors transferred their business to Deloitte & Touche LLP, a limited
liability partnership incorporated under the Limited Liability Partnerships Act 2000. The Company’s consent has been given to treating the appointment of Deloitte & Touche as extending to Deloitte & Touche LLP with effect from 1 August
2003 under the provisions of section 26(5) of the Companies Act 1989. 
  
 The
Company has elected to dispense with the obligation to appoint auditors annually and, accordingly, Deloitte & Touche LLP will be the auditors of the company for the forthcoming financial year under the provisions of section 386(2) of the
Companies Act 1985. 
  
 By order of the Board

  
 /s/ Cheryl Samuels 
  
 For and behalf of 
 Abbey National Secretariat Services Limited, Secretary 
  
 25 June 2004 
  
 Registered Office: 
 Abbey National House 
 2 Triton Square, 
 Regent’s Place, 
 London, 
 NW1 3AN. 
  

 Page 3 

 HOLMES FUNDING 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 2003 which comprise the profit and loss
account, the balance sheet and the related notes 1 to 16. 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. 
  
 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 2003 and of its loss for the year then ended and have been properly prepared in accordance with the Companies Act 1985. 
  

Deloitte & Touche LLP 
 Chartered Accountants and Registered
Auditors 
 London, England 
  
 25 June 2004 
  

 Page 4 

 HOLMES FUNDING LIMITED 
  

Profit and Loss Account 
 For the year ended 31 December 2003

  

									
	 	  	Note

	  	2003
£’000

	 	 	2002
£’000

	 
	 Interest receivable and similar income
	  	2	  	650,204	 	 	578,768	 
	 Interest payable
	  	3	  	(599,306	)	 	(526,854	)
	 	  	 	  	
	
	 	
	

	 Net interest income
	  	 	  	50,898	 	 	51,914	 
				
	 Administrative expenses
	  	 	  	(50,440	)	 	(52,081	)
	 Provision against investment in Trust property
	  	6	  	(7,618	)	 	(11,644	)
	 	  	 	  	
	
	 	
	

	 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
	  	4	  	(7,160	)	 	(11,811	)
				
	 Tax on loss on ordinary activities
	  	1, 5	  	2,149	 	 	3,539	 
	 	  	 	  	
	
	 	
	

	 LOSS ON ORDINARY ACTIVITIES AFTER TAXATION AND RETAINED LOSS FOR THE YEAR
	  	13	  	(5,011	)	 	(8,272	)
	 	  	 	  	
	
	 	
	

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

 Page 5 

 HOLMES FUNDING LIMITED 
  

Balance Sheet 
 As at 31 December 2003 
  

									
	 	  	Note

	  	 2003
 £’000

	 	 	 2002
 £’000

	 
	 FIXED ASSETS
	  	 	  	 	 	 	 	 
	 Beneficial interest in mortgage portfolio
	  	6	  	13,341,978	 	 	13,679,484	 
				
	 CURRENT ASSETS
	  	 	  	 	 	 	 	 
	 Debtors
	  	7	  	24,751	 	 	28,599	 
	 Deferred taxation asset
	  	1, 9	  	6,618	 	 	4,449	 
	 Cash at bank and in hand
	  	8	  	1,200,597	 	 	1,202,356	 
	 	  	 	  	
	
	 	
	

	 	  	 	  	1,231,966	 	 	1,235,404	 
				
	 CREDITORS - amounts falling due within one year
	  	10	  	(743,837	)	 	(1,166,612	)
	 	  	 	  	
	
	 	
	

	 NET CURRENT ASSETS
	  	 	  	488,129	 	 	68,792	 
	 	  	 	  	
	
	 	
	

	 TOTAL ASSETS LESS CURRENT LIABILITIES
	  	 	  	13,830,107	 	 	13,748,276	 
	 	  	 	  	
	
	 	
	

	 CREDITORS - amounts falling due after more than one year
	  	11	  	(13,845,377	)	 	(13,758,535	)
	 	  	 	  	
	
	 	
	

	 NET LIABILITIES
	  	 	  	(15,270	)	 	(10,259	)
	 	  	 	  	
	
	 	
	

	 CAPITAL AND RESERVES
	  	 	  	 	 	 	 	 
				
	 Called-up share capital
	  	12	  	—  	 	 	—  	 
	 Profit and loss account
	  	 	  	(15,270	)	 	(10,259	)
	 	  	 	  	
	
	 	
	

	 EQUITY SHAREHOLDERS’ DEFICIT
	  	13	  	(15,270	)	 	(10,259	)
	 	  	 	  	
	
	 	
	

  
 The financial statements on page 4 to
11 were approved by the Board of Directors on 25 June 2004. 
  
 Signed on behalf
of the Board of Directors 
  
 /s/ Martin McDermott 
  
 Director 
  

 Page 6 

 HOLMES FUNDING LIMITED 
  

Notes to the Accounts for the year ended 31 December 2003 
  

	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 recognised 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 that 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 to date, however 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)	Deferred taxation is provided on all timing differences that have not reversed before the balance sheet date at the rate of tax expected to apply when those timing differences will
reverse. Deferred tax assets are recognised to the extent that they are regarded as recoverable. 

  

	(9)	Costs relating to the acquisition of the trust asset are deferred and charged over the period in which interest is earned on the asset. 

  

	2.	Interest Receivable and Similar Income 

  

							
	 	  	 2003
 £’000

	 	 	 2002
 £’000

	 
	 Income from beneficial interest in mortgage portfolio
	  	708,024	 	 	648,054	 
	 Expense from derivatives used to hedge beneficial interest in mortgage portfolio
	  	(91,841	)	 	(93,842	)
	 Bank interest receivable
	  	34,021	 	 	24,556	 
	 	  	
	
	 	
	

	 	  	650,204	 	 	578,768	 
	 	  	
	
	 	
	

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

 Page 7 

 HOLMES FUNDING LIMITED 
  

Notes to the Accounts for the year ended 31 December 2003 (continued) 
  

	3.	Interest Payable 

  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 Interest payable on loans from group undertakings
	  	596,486	  	524,200
	 Interest payable on start-up loans
	  	2,820	  	2,654
	 	  	
	  	

	 	  	599,306	  	526,854
	 	  	
	  	

  

	4.	Loss on Ordinary Activities before Taxation 

  
 Loss on ordinary activities before taxation is stated after charging: 
  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 Auditors’ remuneration - audit fees
	  	107	  	23
	 	  	
	  	

	

 The Company has no employees (2002: none) other than its directors. 
  
 No emoluments were paid to the Directors by the Company during the year
(2002: £nil). 
  

	5.	Tax on Loss on Ordinary Activities 

  

							
	 	  	 2003
 £’000

	 	 	 2002
 £’000

	 
	 UK corporation tax for the year at 28% (2002: 28%)
	  	20	 	 	27	 
	 Adjustments in respect of prior years
	  	—  	 	 	7	 
	 Deferred taxation
	  	(2,169	)	 	(3,573	)
	 	  	
	
	 	
	

	 Tax receivable
	  	(2,149	)	 	(3,539	)
	 	  	
	
	 	
	

  
 The company pays
corporation tax at 30% with marginal relief. 
  
 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 30% rate of corporation tax in the UK. The differences are explained below: 
  
 The corporation tax charge is made up as follows: 
  

							
	 	  	 2003
 £’000

	 	 	 2002
 £’000

	 
	 Loss on ordinary activities before tax
	  	(7,160	)	 	(11,811	)
	 	  	
	
	 	
	

	 Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 30%
	  	(2,148	)	 	(3,543	)
			
	 Effects of:
	  	 	 	 	 	 
	 Non tax-deductable general provisions
	  	2,169	 	 	3,573	 
	 Benefit of small companies corporation tax rate
	  	(1	)	 	(3	)
	 Adjustments to tax charge in respect of previous periods
	  	—  	 	 	7	 
	 	  	
	
	 	
	

	 	  	20	 	 	34	 
	 	  	
	
	 	
	

  

 Page 8 

 HOLMES FUNDING LIMITED 
  

Notes to the Accounts for the year ended 31 December 2003 (continued) 
  

	6.	Beneficial interest in mortgage portfolio 

  

							
	 	  	 2003
 £’000

	 	 	 2002
 £’000

	 
	 Cost:
	  	 	 	 	 	 
	 At 1 January
	  	13,694,537	 	 	11,973,516	 
	 Additions
	  	2,403,550	 	 	3,999,221	 
	 Capital repayments
	  	(2,733,372	)	 	(2,278,200	)
	 	  	
	
	 	
	

	 At 31 December
	  	13,364,715	 	 	13,694,537	 
	 	  	
	
	 	
	

	 Provisions:
	  	 	 	 	 	 
	 At 1 January
	  	 	 	 	 	 
	 General
	  	14,831	 	 	2,921	 
	 Specific
	  	222	 	 	605	 
	 	  	
	
	 	
	

	 	  	15,053	 	 	3,526	 
	 Transfer from profit and loss account
	  	7,618	 	 	11,644	 
	 Irrecoverable amounts written back / (off)
	  	66	 	 	(117	)
	 	  	
	
	 	
	

	 At 31 December
	  	22,737	 	 	15,053	 
	 	  	
	
	 	
	

	 Being:
	  	 	 	 	 	 
	 General
	  	22,061	 	 	14,831	 
	 Specific
	  	676	 	 	222	 
	 	  	
	
	 	
	

	 	  	22,737	 	 	15,053	 
	 	  	
	
	 	
	

	 Net book value:
	  	 	 	 	 	 
	 At 31 December
	  	13,341,978	 	 	13,679,484	 
	 	  	
	
	 	
	

	 Repayable:
	  	 	 	 	 	 
	 On demand or at short notice
	  	29,808	 	 	6,395	 
	 In not more than three months
	  	36,913	 	 	60,767	 
	 In more than three months but not more than one year
	  	219,416	 	 	187,805	 
	 In more than one year but not more than five years
	  	1,319,525	 	 	1,131,596	 
	 In more than five years
	  	11,759,053	 	 	12,307,974	 
	 	  	
	
	 	
	

	 At 31 December 2003
	  	13,364,715	 	 	13,694,537	 
	 	  	
	
	 	
	

	 Fixed rate
	  	2,380,538	 	 	3,674,765	 
	 Variable rate
	  	10,984,177	 	 	10,019,772	 
	 Less: provisions (see note 4)
	  	(22,737	)	 	(15,053	)
	 	  	
	
	 	
	

	 	  	13,341,978	 	 	13,679,484	 
	 	  	
	
	 	
	

  
 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
one tranche. The mortgage loans are secured on residential property in England and Wales. At 31 December 2003 the total mortgage assets held on trust for the beneficiaries amounted to £23,162,383,000 (2002 - £23,104,300,000). 

 

 Page 9 

 HOLMES FUNDING LIMITED 
  

Notes to the Accounts for the year ended 31 December 2003 (continued) 
  

	7.	Debtors 

  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 Other debtors
	  	24,751	  	28,599
	 	  	
	  	

	 Total
	  	24,751	  	28,599
	 	  	
	  	

  

	8.	Cash at bank and in hand 

  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 Guaranteed Investment Contract
	  	1,182,231	  	1,202,356
	 Share of Trust cash
	  	18,366	  	—  
	 	  	
	  	

	 Total
	  	1,200,597	  	1,202,356
	 	  	
	  	

  
 The Guaranteed
Investment Contract pays interest based on LIBOR. 
  

	9.	Deferred taxation asset 

  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 As at 1 January
	  	4,449	  	876
	 Transfer to profit and loss account
	  	2,169	  	3,573
	 	  	
	  	

	 As at 31 December
	  	6,618	  	4,449
	 	  	
	  	

	 Provided on:
	  	 	  	 
	 General provision against beneficial interest in mortgage portfolio
	  	6,618	  	4,449
	 	  	
	  	

  
 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 profits against which the future reversal of the general provision can be deducted. 
  

	10.	Creditors: amounts falling due within one year 

  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 Loans from group undertakings
	  	482,320	  	961,292
	 Amounts due to group undertakings
	  	129,940	  	178,889
	 Corporation tax
	  	20	  	28
	 Other creditors
	  	120,787	  	20,907
	 Accrued interest payable
	  	10,770	  	5,496
	 	  	
	  	

	 Total
	  	743,837	  	1,166,612
	 	  	
	  	

  

 Page 10 

 HOLMES FUNDING LIMITED 
  

Notes to the Accounts for the year ended 31 December 2003 (continued) 
  

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

  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 Loans from group undertakings
	  	13,627,717	  	13,593,987
	 Start-up loans
	  	74,546	  	62,450
	 Other creditors
	  	143,114	  	102,098
	 	  	
	  	

	 Total
	  	13,845,377	  	13,758,535
	 	  	
	  	

	 The amounts are repayable as follows:
	  	 	  	 
			
	 Due 2 – 5 years
	  	4,566,917	  	3,447,498
	 Due over 5 years
	  	9,278,460	  	10,311,037
	 	  	
	  	

	 Total
	  	13,845,377	  	13,758,535
	 	  	
	  	

  
 Interest payable on
the loans from group undertakings and the start-up loans is based on LIBOR. 
  
 Amounts due over 5 years are paid in order of priority when cash is available after other commitments have been fulfilled. 
  

	12.	Share Capital 

  

					
	 	  	 2003
 £’000

	  	 2002
 £’000

	 Authorised:
	  	 	  	 
	 100 Ordinary shares of £1 each
	  	—  	  	—  
	 	  	
	  	

	 Called up, allotted and fully paid:
	  	 	  	 
	 2 Ordinary shares of £1 each
	  	—  	  	—  
	 	  	
	  	

  

	13.	Reconciliation of Movements in Shareholders’ Deficit 

  

				
	 	  	 2003
 £’000

	 
	 Opening shareholders’ deficit
	  	(10,259	)
	 Retained loss for the year
	  	(5,011	)
	 	  	
	

	 Closing shareholders’ deficit
	  	(15,270	)
	 	  	
	

  

	14.	Capital Commitments and Contingent Liabilities 

  
 There were no outstanding capital commitments or contingent liabilities at 31 December 2003 (2002 - £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. 
  

 Page 11 

 HOLMES FUNDING LIMITED 
  

Notes to the Accounts for the year ended 31 December 2003 (continued) 
  

	16.	Parent and Controlling Party 

  
 The immediate parent of the Company is Holmes Holdings Limited, a company incorporated in Great Britain and registered in England and Wales, which
prepares the only accounts into which the Company is consolidated. 
  
 SPV Management Limited, a company incorporated in Great Britain and registered in England and Wales, holds all of the shares in the Company (one jointly with M McDermott as nominee) as trustee under a discretionary charitable trust dated 17
February 1999 for the benefit of nurses employed in the UK and for charities. 
  
 The administration, operations, accounting and financial reporting functions of the Company are performed by Abbey National plc, which is incorporated in Great Britain. During the year, 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 12

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