The Housing Finance Corporation Limited (THFC) was incorporated in Great Britain in 1987, with limited liability under the Industrial and Provident Societies Acts 1965 to 2002. Its principal objective is to lend money to registered social landlords. It has established a number of wholly owned subsidiaries to cater for the varying interests of stockholders and bank lenders in different forms of financial instrument and the reports and accounts for all companies within the THFC group (the Group) are available separately on request from T.H.F.C. (Services) Limited, 21 Ironmonger Lane, London EC2V 8EY.

The consolidated operating surplus before taxation for the year ended 31 March 2003 was £60,000 (2002 - £573,000).

Under its rules, THFC cannot ‘trade for profit’. It is, however, the intention of the Directors that it will continue to make operating surpluses each year. Any such surpluses may not be distributed either directly or indirectly to shareholders and are accumulated as reserves to act as an additional protection for investors. On a winding up of THFC the reserves must be passed back to borrowers from THFC in a manner and an allocation to be determined by the Board of THFC.

The reserves, plus the £1.7 million deferred tax provision, are held as cash deposits. Investment strategy remains broadly unchanged from prior
accounting periods.

THFC makes no political donations.

Details of Directors, their service periods for the year and Shareholders of THFC are set out in the table below. The biographies of the current Directors appear here.

Piers Williamson joined the Boards of THFC and its subsidiaries on 20 January 2003.

One third of the Directors are required under THFC’s rules to retire each year in rotation and may offer themselves for re-election.

Accordingly, at the forthcoming Annual General Meeting, Peter Cooke and Jim Coulter are retiring. Jim Coulter and Piers Williamson are offering themselves for re-election, Dr Norman Perry is offering himself for election at the forthcoming Annual General Meeting to the place being vacated by Peter Cooke.

David Creed relinquished the duties of chief executive on 1 October 2002 and Piers Williamson was appointed to that position on the same day. The Chief Executive has defined powers of authority and responsibilities which are delegated to him by the Board of THFC.

Virginia Pearson resigned as Company Secretary on 9 August 2002. She was succeeded on the same day by Mr Peter Gibbs who was employed by THFC as a temporary consultant from 1 August 2002 to 15 November 2002. On 15 November 2002 Colin Burke succeeded him as Company Secretary. The Company Secretary is responsible for ensuring Board procedures are followed.

The Directors’ remuneration is established by the Board in the light of periodic advice from financial advisers. None of the current Directors receives pension benefits, bonuses or benefits in kind with the exception of the Chief Executive who is paid a salary, pension benefits and certain other employee benefits in accordance with guidelines determined by the Board. During the year Piers Williamson, who was the highest paid Director, was paid a total salary in respect of his employment as Deputy Chief Executive and later as Chief Executive of £99,216 and benefits worth £5,273. The Chairman, during his period as acting chief executive, was paid £57,600 and received benefits of £929 in addition to his annual fees as Chairman.

The Chairman’s fees were £21,548 and each non-executive Director received fees of £13,468. Jim Coulter’s remuneration was remitted to his employer.

The Directors as set out above (all of whom are non-executive with the exception of the Chief Executive) comprise the Board of THFC and its subsidiaries, with the exception of T.H.F.C. (Capital) PLC which has an additional Director, John Shinton of the Royal Bank of Canada. Peter Cooke is nominated by The Housing Corporation and Jim Coulter represents the National Housing Federation. The Board is responsible for the overall direction and strategy of THFC and its subsidiaries, establishing an adequate control framework within which the executive can operate effectively, monitoring performance, ensuring adequate resources are available and taking all borrowing and lending decisions.

The Board meets a minimum of five times per year to conduct its regular business with further meetings as required to approve and execute all new loan transactions. The Board has established two sub-committees:

Nominations and personnel committee
Considers potential nominees to the Board and personnel matters including recommendations to the Board on executive remuneration and appointments. Comprises David Creed (chairman), Peter Cooke and Jim Coulter.

Audit committee
Reviews internal controls, financial reporting, annual financial statements, the performance and recommendations of external auditors and compliance with laws and regulations. It considers financial and operational risks as a precursor to these matters being reviewed by the full Board at its scheduled meetings. Members comprise Michael Boohan (chairman), Peter Cooke and Sadru Visram. David Creed, Piers Williamson and senior members of staff attend when required.

There are no other permanent committees of the Board and all matters reviewed in committee are reserved for decisions to be considered by the full Board. Matters of Board governance are considered by the full Board. Directors are entitled to take independent professional advice.

The Board is responsible for the Group’s system of internal control and for the regular review of its effectiveness. It should be recognised that the internal control system has been designed to manage rather than eliminate the specific business risks faced by the Group and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board discharges its responsibilities for internal control through the following key procedures:

• the establishment of an organisational structure with clearly defined levels of authority and division of responsibility;
  
  
• a comprehensive system of reporting, budgeting and planning against which performance is monitored;
  
  
• the formulation of policies and of approval procedures in key areas such as loan administration and treasury operations.

Key business risks, and their likelihood and potential impact, have been considered by the Board during the year and appropriate controls and mitigating action implemented. All loans to borrowers are matched in terms of their maturity, interest and repayment profile to the equivalent bond issue or bank loans. Therefore primary operating risks relate to the credit monitoring of borrowers, the completion of appropriate loan security, timely collection of all payments due and the achievement of a secure return on investment income. Quarterly reports on these areas are made to the Board.

The Board has decided that the establishment of a separate internal audit function would not be appropriate for an organisation with a total staff complement of nine. The Directors considered a report on the adequacy of internal controls during the period to 23 June 2003 and no significant weaknesses have been identified which resulted in material loss or require disclosure.

After making enquiries, the Directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that THFC has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements.

The Industrial and Provident Societies Acts 1965 to 2002 requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of THFC and the Group and of the profit or loss of THFC and the Group for that period. In preparing those financial statements the Directors are required to:

• select suitable accounting policies and then apply them consistently;
  
  
• state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the financial statements;
  
  
• make judgements and estimates that are reasonable and prudent; and
  
  
• prepare the financial statements on the going concern basis unless it is not appropriate to presume that THFC will continue in business.

The Group’s financial statements are published on THFC’s website (www.thfcorp.com) and the Directors are responsible for the maintenance and integrity of that website. However there is currently uncertainty regarding the legal requirements in publishing information on websites, compounded because information published on the internet is accessible in many countries with different legal requirements relating to the preparation and dissemination of financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of THFC and the Group and to enable them to ensure that the financial statements comply with the Industrial and Provident Societies Acts 1965 to 2002 and with the Companies Act 1985. They are also responsible for the safeguarding of the assets of THFC and the Group and hence for taking reasonable steps for the prevention of fraud and other irregularities.

On 1 January 2003 PricewaterhouseCoopers, auditors to the Group, transferred its entire business to PricewaterhouseCoopers LLP, a limited liability partnership incorporated under the Limited Liability Partnerships Act 2000. The Directors consented to treating the appointment of PricewaterhouseCoopers as extending to PricewaterhouseCoopers LLP with effect from 1 January 2003.

PricewaterhouseCoopers LLP have been engaged by the Board as auditors of all Group companies, and a resolution for their reappointment will be proposed at the Annual General Meeting.

By order of the Board

Colin Burke
Company Secretary

The Housing Finance Corporation Limited
23rd June 2003