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HIGHLIGHTS OF THE YEAR WHO WE ARE WHERE WE ARE CHAIRMAN'S STATEMENT FINANCIAL HIGHLIGHTS BUILDING A PREMIER INTERNATIONAL SAVINGS AND WEALTH MANAGEMENT BUSINESS CHIEF EXECUTIVE'S REVIEW STRATEGY PRIORITIES STRONG BRANDS WORLDWIDE GROUP FINANCE DIRECTOR'S REPORT BOARD OF DIRECTORS CORPORATE RESPONSIBILITY FINANCIAL INFORMATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Accounting policies 2 Foreign currencies 3 Segment information 4 Operating profit adjusting items 5 Income tax expense 6 Minority interests - Income statement 7 Earnings and earnings per share 8 Investment return (non-banking) 9 Banking interest and similar income 10 Banking trading, investment and similar income 11 Fee and commission income, and income from service activities 12 Finance costs 13 Banking interest payable and similar expense 14 Fee and commission expense, and other acquisition costs 15 Other operating and administrative expenses 16 Acquisition of subsidiaries 17 Goodwill and other intangible assets 18 Property, plant and equipment 19 Investment property 20 Operating lease arrangements 21 Deferred tax assets and liabilities 22 Investments in associated undertakings 23 Deferred acquisition costs 24 Long-term and general business policyholder liabilities 25 Loans and advances 26 Investments and securities 27 Other assets 28 Derivative financial instruments - assets and liabilities 29 Hedge accounting 30 Fair values of financial assets and liabilities 31 Analysis of movements in impairment account 32 Group balance sheet - categories of financial instruments 33 Discontinued operations, assets and liabilities held-for-sale 34 Borrowed funds 35 Provisions 36 Deferred revenue 37 Other liabilities 38 Amounts owed to bank depositors 39 Equity 40 Minority interests - balance sheet 41 Post employment benefits 42 Share-based payments 43 Dividends 44 Contingent liabilities 45 Commitments 46 Related parties 47 Principal subsidiaries and Group enterprises 48 Financial risk 49 Insurance risk 50 Reclassifications

FINANCIAL STATEMENTS OF THE COMPANY NOTES TO THE COMPANY FINANCIAL STATEMENTS EUROPEAN EMBEDDED VALUE BASIS SUPPLEMENTARY INFORMATION NOTES TO THE EUROPEAN EMBEDDED VALUE BASIS SHAREHOLDER INFORMATION

Notes to the consolidated financial statements

For the year ended 31 December 2007

12 Finance costs

			£m
	Note	Year ended 31 December 2007	Year ended 31 December 2006 Restated
Interest payable on borrowed funds		86	78
Senior debt and term loans		25	44
Subordinated debt		60	36
Other		1	(2)

Fair value gains and losses on borrowed funds		(37)	8
Borrowed funds		(29)	(7)
Derivative instruments		(8)	15

Foreign currency gains and losses on borrowed funds		-	-
Reserve movements relating to debt and derivative instruments		1	5
Total finance costs excluding banking activities		50	91

Finance costs from banking activities	13	68	71

Total interest expense included above for liabilities not at fair value through profit or loss		29	51

The fair value gains and losses shown above are analysed according to their IAS 39 categorisations as follows:

Held for trading (including derivatives)		(8)	16
Designated at fair value through profit or loss		(29)	(7)
		(37)	9
Realised fair value gains and losses included in the above		-	-

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