Exhibit 99.3
                                 ------------


<PAGE>


CONSOLIDATED FINANCIAL STATEMENTS
Financial Guaranty Insurance Company and Subsidiaries
December 31, 2005
with Report of Independent Auditors


<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

                       Consolidated Financial Statements


                               December 31, 2005




                                   Contents

Report of Registered Public Accounting Firm...............................    1

Consolidated Balance Sheets...............................................    2
Consolidated Statements of Income.........................................    3
Consolidated Statements of Stockholder's Equity...........................    4
Consolidated Statements of Cash Flows.....................................    5
Notes to Consolidated Financial Statements................................    6


<PAGE>


            Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder
Financial Guaranty Insurance Company

We have audited the accompanying consolidated balance sheets of Financial
Guaranty Insurance Company and Subsidiaries (the "Company") as of December 31,
2005 and 2004, and the related consolidated statements of income,
stockholder's equity and cash flows for the years ended December 31, 2005 and
2004 and the periods from December 18, 2003 through December 31, 2003 and from
January 1, 2003 through December 17, 2003. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as
of December 31, 2005 and 2004, and the consolidated results of their
operations and their cash flows for the years ended December 31, 2005 and 2004
and the periods from December 18, 2003 through December 31, 2003 and from
January 1, 2003 through December 17, 2003, in conformity with U.S. generally
accepted accounting principles.


                                                         /s/ Ernst & Young LLP


New York, New York
January 23, 2006


                                                                             1
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

                          Consolidated Balance Sheets

               (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                   December 31
                                                                             2005               2004
                                                                      --------------------------------------
Assets
<S>                                                                         <C>                <C>
Fixed maturity securities, at fair value (amortized cost of
   $3,277,291 in 2005 and $2,921,320 in 2004)                            $  3,258,738       $  2,938,856
Short-term investments                                                        159,334            140,473
                                                                      --------------------------------------
Total investments                                                           3,418,072          3,079,329

Cash and cash equivalents                                                      45,077             69,292
Accrued investment income                                                      42,576             36,580
Reinsurance recoverable on losses                                               3,271              3,054
Prepaid reinsurance premiums                                                  110,636            109,292
Deferred policy acquisition costs                                              63,330             33,835
Receivable from related parties                                                 9,539                802
Property and equipment, net of accumulated depreciation
   of $885 in 2005 and $164 in 2004                                             3,092              2,408
Prepaid expenses and other assets                                              10,354              7,826
Federal income taxes receivable                                                 2,158                  -
                                                                      --------------------------------------
Total assets                                                             $  3,708,105       $  3,342,418
                                                                      ======================================

Liabilities and stockholder's equity
Liabilities:
   Unearned premiums                                                     $  1,201,163       $  1,043,334
   Loss and loss adjustment expenses                                           54,812             39,181
   Ceded reinsurance balances payable                                           1,615              3,826
   Accounts payable, accrued expenses and other liabilities                    36,359             22,874
   Payable for securities purchased                                                 -              5,715
   Capital lease obligations                                                    4,262              6,446
   Federal income taxes payable                                                     -              4,401
   Deferred income taxes                                                       42,463             38,765
                                                                      --------------------------------------
Total liabilities                                                           1,340,674          1,164,542
                                                                      --------------------------------------

Stockholder's equity:
   Common stock, par value $1,500 per share; 10,000 shares
     authorized, issued and outstanding                                        15,000             15,000
   Additional paid-in capital                                               1,894,983          1,882,772
   Accumulated other comprehensive (loss) income, net of tax                  (13,597)            15,485
   Retained earnings                                                          471,045            264,619
                                                                      --------------------------------------
Total stockholder's equity                                                  2,367,431          2,177,876
                                                                      --------------------------------------
Total liabilities and stockholder's equity                               $  3,708,105       $  3,342,418
                                                                      ======================================

See accompanying notes to consolidated financial statements.
</TABLE>


                                                                             2
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

                       Consolidated Statements of Income

                            (Dollars in thousands)

<TABLE>
<CAPTION>

                                                              Successor                        Predecessor
                                        ---------------------------------------------------------------------
                                                                              Period from      Period from
                                                                             December 18,      January 1,
                                                                                 2003             2003
                                           Year ended        Year ended    through December      through
                                          December 31,      December 31,          31,         December 17,
                                              2005              2004             2003             2003
                                        ---------------------------------------------------------------------
Revenues:
<S>                                         <C>               <C>              <C>              <C>
   Gross premiums written                   $ 410,202         $  323,575       $ 12,213         $   248,112
   Reassumed ceded premiums                         -              4,959          6,300              14,300
   Ceded premiums written                     (29,148)           (14,656)           (39)            (14,852)
                                        ---------------------------------------------------------------------
   Net premiums written                       381,054            313,878         18,474             247,560
   Increase in net unearned premiums         (156,485)          (138,929)        (9,892)           (105,811)
                                        ---------------------------------------------------------------------
Net premiums earned                           224,569            174,949          8,582             141,749

Net investment income                         117,072             97,709          4,269             112,619
Net realized gains                                101                559              -              31,506
Net mark-to-market losses on credit
   derivative contracts                          (167)                 -              -                   -
Other income                                      762                736             44                 580
                                        ---------------------------------------------------------------------
Total revenues                                342,337            273,953         12,895             286,454

Expenses:
   Loss and loss adjustment expenses           18,506              5,922            236              (6,757)
   Underwriting expenses                       82,064             73,426          7,622              54,481
   Policy acquisition costs deferred          (38,069)           (32,952)        (2,931)            (23,641)
   Amortization of deferred policy
     acquisition costs                          8,302              2,038             10              15,563
                                        ---------------------------------------------------------------------
Total expenses                                 70,803             48,434          4,937              39,646
                                        ---------------------------------------------------------------------

Income before income tax expense
   (benefit)                                  271,534            225,519          7,958             246,808

Income tax expense (benefit):
   Current                                     32,370             42,510          1,191              57,071
   Deferred                                    32,738             12,923            573              (1,612)
                                        ---------------------------------------------------------------------
Total income tax expense                       65,108             55,433          1,764              55,459
                                        ---------------------------------------------------------------------
Income before extraordinary item              206,426            170,086          6,194             191,349
Extraordinary gain                                  -                  -         13,852                   -
                                        ---------------------------------------------------------------------
Net income                                  $ 206,426         $  170,086       $ 20,046         $   191,349
                                        =====================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


                                                                             3
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

                Consolidated Statements of Stockholder's Equity

                            (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                      Accumulated Other
                                                                          Additional      Comprehensive
                                                                Common       Paid-in     (Loss) Income,       Retained
                                                                 Stock       Capital         Net of Tax       Earnings        Total
                                                         ---------------------------------------------------------------------------
Predecessor
<S>                                                           <C>         <C>                <C>          <C>          <C>
Balance at January 1, 2003                                    $ 15,000    $  383,511         $  49,499    $ 1,740,885  $  2,188,895
Net income                                                           -             -                 -        191,349       191,349
Other comprehensive income (loss):
   Change in fixed maturities available-for-sale                     -             -              (424)             -          (424)
   Change in foreign currency translation adjustment                 -             -             4,267              -         4,267
                                                                                                                       -------------
Total comprehensive income                                                                                                  195,192
Dividends declared                                                   -             -                 -       (284,300)     (284,300)
                                                         ---------------------------------------------------------------------------
Balance at December 17, 2003                                    15,000       383,511            53,342      1,647,934     2,099,787
Successor
Purchase accounting adjustments                                      -     1,474,261           (53,342)    (1,573,447)     (152,528)
Net income                                                           -             -                 -         20,046        20,046
Other comprehensive income:
   Change in fixed maturities available-for-sale                     -             -             2,059              -         2,059
                                                                                                                       -------------
Total comprehensive income                                                                                                   22,105
Balance at December 31, 2003                                    15,000     1,857,772             2,059         94,533     1,969,364
                                                         ---------------------------------------------------------------------------
Net income                                                           -           -                   -        170,086       170,086
Other comprehensive income:
   Change in fixed maturities available-for-sale                     -           -               9,340             -          9,340
   Change in foreign currency translation adjustment                 -           -               4,086             -          4,086
                                                                                                                       -------------
Total comprehensive income                                                                                                  183,512
Capital contribution                                                 -        25,000                 -             -         25,000
                                                         ---------------------------------------------------------------------------
Balance at December 31, 2004                                    15,000     1,882,772            15,485        264,619     2,177,876
Net income                                                           -           -                   -        206,426       206,426
Other comprehensive loss:
   Change in fixed maturities available-for-sale                     -           -             (23,550)            -        (23,550)
   Change in foreign currency translation adjustment                 -           -              (5,532)            -         (5,532)
                                                                                                                       -------------
Total comprehensive income                                                                                                  177,344
Capital contribution                                                 -        12,211                 -             -         12,211
                                                         ---------------------------------------------------------------------------
Balance at December 31, 2005                                  $ 15,000    $1,894,983         $ (13,597)   $   471,045  $  2,367,431
                                                         ===========================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                                                             4
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

                     Consolidated Statements of Cash Flows

                            (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                         Successor                      Predecessor
                                                      ----------------------------------------------------------------

                                                                                        Period from     Period from
                                                                                       December 18,     January 1,
                                                                                           2003            2003
                                                        Year ended      Year ended        through         through
                                                       December 31,    December 31,    December 31,    December 17,
                                                           2005            2004            2003            2003
                                                      ----------------------------------------------------------------
Operating activities
<S>                                                     <C>             <C>              <C>            <C>
Net income                                              $  206,426      $  170,086       $  20,046      $  191,349
Adjustments to reconcile net income to net cash
  provided by operating activities:
     Extraordinary gain                                                          -         (13,852)              -
     Amortization of deferred policy acquisition
      costs                                                  8,574           2,038              10          15,563
     Policy acquisition costs deferred                     (38,069)        (32,952)         (2,931)        (23,641)
     Depreciation of property and equipment                    721             164               -              22
     Amortization of fixed maturity securities              31,504          37,013             693          21,129
     Amortization of short-term investments                    481              29
     Net realized gains on investments                        (101)           (559)              -         (31,506)
     Change in accrued investment income and
      prepaid expenses and other assets                     (8,504)         (5,545)         (5,065)          6,292
     Change in net mark-to-market losses on
      credit derivative contracts                              167               -               -               -
     Change in federal income taxes receivable                   -             126            (172)         (2,407)
     Change in reinsurance recoverable on losses              (217)          5,011            (104)            410
     Change in prepaid reinsurance premiums                 (1,344)         14,476           7,432          19,725
     Changes in other reinsurance receivables                    -           5,295          (5,295)              -
     Change in receivable from related parties              (8,737)          8,957             (76)         (9,811)
     Change in unearned premiums                           157,829         124,452           2,460          86,250
     Change in loss and loss adjustment expenses            15,631          (1,286)            236          (7,644)
     Change in ceded reinsurance balances payable
      and accounts payable and accrued expenses              8,923           7,348           6,485           1,804
     Change in current federal income taxes
      payable                                               (6,559)          4,401               -         (97,477)
     Change in deferred federal income taxes                19,252          12,923             573          (1,612)
                                                      ----------------------------------------------------------------
Net cash provided by operating activities                  385,977         351,977          10,440         168,446
                                                      ----------------------------------------------------------------

Investing activities
Sales and maturities of fixed maturity securities          122,638         284,227           1,780       1,028,103
Purchases of fixed maturity securities                    (520,089)       (546,028)              -        (877,340)
Purchases, sales and maturities of short-term
  investments, net                                         (19,342)       (126,125)        (12,736)         41,504
Receivable for securities sold                                 (20)            170             538             283
Payable for securities purchased                            (5,715)          5,715               -          (5,333)
Purchase of fixed assets                                    (1,405)         (2,572)              -               -
                                                      ----------------------------------------------------------------
Net cash (used in) provided by investing                  (423,933)       (384,613)        (10,418)        187,217
  activities
                                                      ----------------------------------------------------------------

Financing activities
Capital contribution                                        12,211          25,000               -               -
Dividends paid to common stockholders                            -               -               -        (284,300)
                                                      ----------------------------------------------------------------
Net cash provided by (used in) financing                    12,211          25,000               -        (284,300)
activities
                                                      ----------------------------------------------------------------
Effect of exchange rate changes on cash                      1,530          (1,717)              -               -
                                                      ----------------------------------------------------------------
Net (decrease) increase in cash and cash                   (24,215)         (9,353)             22          71,363
equivalents
Cash and cash equivalents at beginning of period            69,292          78,645          78,623           7,260
                                                      ----------------------------------------------------------------
Cash and cash equivalents at end of period              $   45,077      $   69,292       $  78,645      $   78,623
                                                      ================================================================

Supplemental disclosure of cash flow information
Income taxes paid                                       $   49,613      $   40,890       $       -      $  156,800
                                                      ================================================================
</TABLE>


See accompanying notes to consolidated financial statements.


                                                                             5
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

                  Notes to Consolidated Financial Statements

                               December 31, 2005
               (Dollars in thousands, except per share amounts)


1. Business and Organization

Financial Guaranty Insurance Company (the "Company") is a wholly owned
subsidiary of FGIC Corporation ("FGIC Corp."). The Company provides financial
guaranty insurance and other forms of credit enhancement for public finance
and structured finance obligations. The Company began insuring public finance
obligations in 1984 and structured finance obligations in 1988. The Company's
financial strength is rated "Aaa" by Moody's Investors Service, Inc., "AAA" by
Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
Inc., and "AAA" by Fitch Ratings, Inc. The Company is licensed to engage in
writing financial guaranty insurance in all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and,
through a branch, in the United Kingdom. In addition, a United Kingdom
subsidiary of the Company is authorized to write financial guaranty business
in the United Kingdom and has passport rights to write business in other
European Union member countries. FGIC Corp. and the Company have formed
subsidiaries to facilitate geographic and business expansion.

On December 18, 2003, an investor group consisting of The PMI Group, Inc.
("PMI"), affiliates of the Blackstone Group L.P. ("Blackstone"), affiliates of
the Cypress Group L.L.C. ("Cypress") and affiliates of CIVC Partners L.P.
("CIVC"), collectively, the "Investor Group", completed the acquisition of
FGIC Corp. from a subsidiary of General Electric Capital Corporation ("GE
Capital") in a transaction valued at approximately $2,200,000 (the
"Transaction"). GE Capital retained 2,346 shares of FGIC Corp. Senior
Preferred Mandatorily Convertible Modified Preferred Stock ("Senior Preferred
Shares") with an aggregate liquidation preference of $234,600, and
approximately 5% of FGIC Corp.'s outstanding common stock. PMI is the largest
stockholder of FGIC Corp., owning approximately 42% of its common stock at
December 31, 2005 and 2004. Blackstone, Cypress and CIVC own approximately
23%, 23% and 7% of FGIC Corp.'s common stock, respectively, at December 31,
2005 and 2004.

2. Basis of Presentation

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances have been eliminated
in consolidation.


                                                                             6
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


2. Basis of Presentation (continued)

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States ("GAAP")
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and the accompanying notes.
Actual results could differ from those estimates.

The accompanying financial statements have been prepared on the basis of GAAP,
which differs in certain respects from the accounting practices prescribed or
permitted by the New York State Insurance Department (see Note 4). Certain
2004 and 2003 information has been reclassified to conform to the 2005
presentation.

3. Summary of Significant Accounting Policies

The Company's significant accounting policies are as follows:

a. Investments

All the Company's fixed maturity securities are classified as
available-for-sale and are recorded on the trade date at fair value.
Unrealized gains and losses are recorded as a separate component of
accumulated other comprehensive (loss) income, net of applicable income taxes,
in the consolidated statements of stockholders' equity. Short-term investments
are carried at cost, which approximates fair value.

Bond discounts and premiums are amortized over the remaining term of the
securities. Realized gains or losses on the sale of investments are determined
based on the specific identification method.

Securities that have been determined to be other than temporarily impaired are
reduced to realizable value, establishing a new cost basis, with a charge to
realized loss at such date.

b. Cash and Cash Equivalents

The Company considers all bank deposits, highly liquid securities and
certificates of deposit with maturities of three months or less at the date of
purchase to be cash equivalents. These cash equivalents are carried at cost,
which approximates fair value.


                                                                             7
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

c. Premium Revenue Recognition

Premiums are received either up-front or over time on an installment basis.
The premium collection method is determined at the time the policy is issued.
Up-front premiums are paid in full at the inception of the policy and are
earned over the period of risk in proportion to the total amount of principal
and interest amortized in the period as a proportion of the original principal
and interest outstanding. Installment premiums are collected periodically and
are reflected in income pro-rata over the period covered by the premium
payment, including premiums received on credit default swaps (see Note 6).
Unearned premiums represent the portion of premiums received applicable to
future periods on insurance policies in force. When an obligation insured by
the Company is refunded prior to the end of the expected policy coverage
period, any remaining unearned premium is recognized at that time. A refunding
occurs when an insured obligation is called or legally defeased prior to
stated maturity. Premiums earned on advanced refundings were $54,795, $42,695,
$5,013 and $39,858 for the years ended December 31, 2005 and 2004 and the
periods from December 18, 2003 through December 31, 2003 and January 1, 2003
through December 17, 2003, respectively.

Ceded premiums are recognized in a manner consistent with the premium earned
on the underlying policies.

d. Policy Acquisition Costs

Policy acquisition costs include only those expenses that relate directly to
and vary with premium production. Such costs include compensation of employees
involved in marketing, underwriting and policy issuance functions, rating
agency fees, state premium taxes and certain other expenses. In determining
policy acquisition costs, the Company must estimate and allocate the
percentage of its costs and expenses that are attributable to premium
production, rather than to other activities. Policy acquisition costs, net of
ceding commission income on premiums ceded to reinsurers, are deferred and
amortized over the period in which the related premiums are earned.
Anticipated loss and loss adjustment expenses, future maintenance costs on the
in-force business and net investment income are considered in determining the
recoverability of acquisition costs.


                                                                             8
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

e. Loss and Loss Adjustment Expenses

Provision for loss and loss adjustment expenses fall into two categories: case
reserves and watchlist reserves. Case reserves are established for the value
of estimated losses on particular insured obligations that are presently or
likely to be in payment default and for which future loss is probable and can
be reasonably estimated. These reserves represent an estimate of the present
value of the anticipated shortfall between (1) payments on insured obligations
plus anticipated loss adjustment expenses and (2) anticipated cash flow from,
and proceeds to be received on, sales of any collateral supporting the
obligation and/or other anticipated recoveries. The discount rate used in
calculating the net present value of estimated losses is based upon the
risk-free rate for the time period of the anticipated shortfall. As of
December 31, 2005 and 2004, discounted case-basis loss and loss adjustment
expense reserves totaled $33,328 and $15,700, respectively. Loss and loss
adjustment expenses included amounts discounted at an approximate interest
rate of 4.5% in 2005 and 2004. The amount of the discount at December 31, 2005
and 2004 was $15,015 and $2,500, respectively.

The Company establishes watchlist reserves to recognize the potential for
claims against the Company on insured obligations that are not presently in
payment default, but which have migrated to an impaired level, where there is
a substantially increased probability of default. These reserves reflect an
estimate of probable loss given evidence of impairment, and a reasonable
estimate of the amount of loss given default. The methodology for establishing
and calculating the watchlist reserve relies on a categorization and
assessment of the probability of default, and loss severity in the event of
default, of the specifically identified impaired obligations on the watchlist
based on historical trends and other factors. The watchlist reserve is
adjusted as necessary to reflect changes in the loss expectation inherent in
the group of impaired credits. As of December 31, 2005 and 2004, such reserves
were $21,484 and $23,500, respectively.

The reserve for loss and loss adjustment expenses is reviewed regularly and
updated based on claim payments and the results of ongoing surveillance. The
Company conducts ongoing insured portfolio surveillance to identify all
impaired obligations and thereby provide a materially complete recognition of
losses for each accounting period. The reserves are necessarily based upon
estimates and subjective judgments about the outcome of future events, and
actual results will likely differ from these estimates.


                                                                             9
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

Reinsurance recoverable on losses is calculated in a manner consistent with
the calculation loss and loss adjustment expenses.

f. Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.

Deferred tax assets and liabilities are measured using statutory tax rates
expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period in which a change occurs.

The Company is a financial guaranty insurance writer and is permitted a tax
deduction, subject to certain limitations under Section 832(e) of the Internal
Revenue Code, for amounts required to be set aside in statutory contingency
reserves by state law or regulation. The deduction is allowed only to the
extent the Company purchases U.S. Government non-interest bearing tax and loss
bonds in an amount equal to the tax benefit attributable to such deductions.
Purchases of tax and loss bonds are recorded as a reduction of current tax
expense. For the years ended December 31, 2005 and 2004, the Company purchased
$13,565 and $10,810, respectively, of tax and loss bonds. For the period from
January 1, 2003 through December 17, 2003, there were no tax and loss bonds
purchased and $102,540 of tax and loss bonds were redeemed.

g. Property and Equipment

Property and equipment consists of office furniture, fixtures, computer
equipment and software and leasehold improvements that are reported at cost
less accumulated depreciation. Office furniture and fixtures are depreciated
straight-line over five years. Leasehold improvements are amortized over their
estimated service lives or over the life of the lease, whichever is shorter.
Computer equipment and software are depreciated over three years. Maintenance
and repairs are charged to expense as incurred.


                                                                            10
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

h. Goodwill

In accounting for the Transaction in 2003, the Company applied purchase
accounting, as prescribed by Statement of Financial Accounting Standards
("SFAS") No. 141, Business Combinations ("SFAS 141") and Securities and
Exchange Commission Staff Accounting Bulletin 54. Under these accounting
methods, the purchase price was pushed down into the accompanying consolidated
financial statements, with the difference between the purchase price and the
sum of the fair value of tangible and identifiable intangible assets acquired
less liabilities assumed resulting in negative goodwill of $27,300 at December
18, 2003. In accordance with SFAS 141, the Company reduced the value assigned
to non-financial assets, and the remaining negative goodwill of $13,852 was
recorded as an extraordinary gain in the consolidated statement of income.

As a result of the purchase accounting, effective December 18, 2003, the basis
of the Company's assets and liabilities changed, necessitating the
presentation of Predecessor Company and Successor Company columns in the
consolidated statements of income, stockholder's equity and cash flows.

i. Foreign Currency Translation

The Company has an established foreign branch and three subsidiaries in the
United Kingdom and insured exposure from a former branch in France. The
Company has determined that the functional currencies of these operations are
their local currencies. Accordingly, the assets and liabilities of these
operations are translated into U.S. dollars at the rates of exchange at
December 31, 2005 and 2004, and revenues and expenses are translated at
average monthly exchange rates. The cumulative translation (loss) gain at
December 31, 2005 and 2004 was $(1,446) and $4,086, respectively, net of tax
benefit (expense) of $723 and $(2,200), respectively, and is reported as a
separate component of accumulated other comprehensive income in the
consolidated statements of stockholder's equity.


                                                                            11
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

j. Stock Compensation Plan

The Company has an incentive stock plan that provides for stock-based
compensation, including stock options, restricted stock awards and restricted
stock units of FGIC Corp. Stock options are granted for a fixed number of
shares with an exercise price equal to or greater than the fair value of the
shares at the date of the grant. Restricted stock awards and restricted stock
units are valued at the fair value of the stock on the grant date, with no
cost to the grantee. FGIC Corp. accounts for stock-based compensation using
the intrinsic value method under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and, accordingly, if the exercise
price is equal to the fair value of the shares at the date of the grant, no
compensation expense related to stock options is allocated to the Company by
FGIC Corp. For grants to employees of the Company of restricted stock and
restricted stock units, unearned compensation, equivalent to the fair value of
the shares at the date of grant, is allocated to the Company. The Company has
adopted the disclosure-only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), as amended.

Had FGIC Corp. determined compensation expense for stock options granted to
employees and management based on the fair value of the options at the grant
dates consistent with the method of accounting under SFAS 123, the Company's
estimated pro forma net income would have been as follows:

<TABLE>
<CAPTION>

                                                                                           Period from
                                                                                          December 18,
                                                         Year ended        Year ended     2003 through
                                                       December 31,      December 31,     December 31,
                                                               2005              2004             2003
                                                  -----------------------------------------------------

<S>                                                    <C>               <C>                   <C>
Reported net income                                    $    206,426      $    170,086          $20,046
Add: Allocated stock-based compensation
   related to restricted stock units, net of
   tax included in reported net income                           29                49                -
Less: Allocated total stock-based compensation
   determined under the fair value method for
   all awards, net of tax                                   (2,138)           (1,249)             (40)
                                                  -----------------------------------------------------
Pro forma net income                                   $    204,317      $    168,886      $  20,006
                                                  =====================================================
</TABLE>

There were no stock options prior to December 18, 2003.


                                                                            12
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

k. Variable Interest Entities

Financial Interpretation No. 46, Consolidation of Variable Interest Entities
("FIN 46-R") provides accounting and disclosure rules for determining whether
certain entities should be consolidated in the Company's consolidated
financial statements. An entity is subject to FIN 46-R, and is called a
Variable Interest Entity ("VIE"), if it has (i) equity that is insufficient to
permit the entity to finance its activities without additional subordinated
financial support or (ii) equity investors that cannot make significant
decisions about the entity's operations or that do not absorb the majority of
expected losses or receive the majority of expected residual returns of the
entity. A VIE is consolidated by its primary beneficiary, which is the party
that has a majority of the expected losses or a majority of the expected
residual returns of the VIE, or both. FIN 46-R requires disclosures for
companies that have either a primary or significant variable interest in a
VIE. All other entities not considered VIEs are evaluated for consolidation
under SFAS No. 94, Consolidation of all Majority-Owned Subsidiaries.

As part of its structured finance business, the Company insures debt
obligations or certificates issued by special purpose entities. The Company
has evaluated the transactions, and does not believe any such transactions
require consolidation or disclosure under FIN 46-R.

During 2004, FGIC arranged the issuance of contingent preferred trust
securities by a group of special purpose trusts. These trusts are considered
VIEs under FIN 46-R. However, the Company is not considered a primary
beneficiary and therefore is not required to consolidate the trusts (see Note
16).

l. Derivatives

The Financial Accounting Standards Board ("FASB") issued and subsequently
amended SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). Under SFAS 133, as amended, all derivative
instruments are recognized on the consolidated balance sheet at their fair
value, and changes in fair value are recognized immediately in earnings unless
the derivatives qualify as hedges.


                                                                            13
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

In 2005, the Company sold credit default swaps ("CDS") to certain buyers of
credit protection. It considers these agreements to be a normal extension of
its financial guaranty insurance business, although they are considered
derivatives for accounting purposes. These agreements are recorded at fair
value. Changes in fair value are recorded in net mark-to-market gains (losses)
on credit derivative instruments in the consolidated statements of income and
in other assets or other liabilities in the consolidated balance sheets. The
Company uses dealer-quoted market values, when available, to determine fair
value. If market prices are not available, management uses internally
developed estimates of fair value.

m. New Accounting Pronouncements

On December 16, 2004, FASB issued SFAS 123(R) which requires all share-based
payments to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values. Following
the effective date, pro forma disclosure is no longer an alternative. In April
2005, the SEC announced the adoption of a rule allowing public companies to
defer the adoption of SFAS 123(R) until the beginning of their fiscal years
beginning after June 15, 2005. Non-public entities will be required to adopt
the provisions of the new standard in fiscal years beginning after December
15, 2005.

Under SFAS 123(R), the Company must determine the transition method to be used
at the date of adoption, the appropriate fair value model to be used for
valuing share-based payments and the amortization method for compensation
cost. The transition methods include retroactive and prospective adoption
options. Under the retroactive option, prior periods may be restated either as
of the beginning of the year of adoption or for all periods presented. The
prospective method requires that compensation expense be recorded for all
outstanding share-based awards for which the requisite service has not yet
been rendered. The retroactive method would record compensation for all
unvested stock options and restricted stock beginning with the first period
restated. The Company anticipates adopting the prospective method and expects
that the adoption of SFAS 123(R) will have an impact similar to the current
pro forma disclosure for existing options under SFAS 123(R). In addition, the
Company does not expect that the expense associated with future grants
(assuming grant levels consistent with 2005) derived from the fair value model
selected will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.


                                                                            14
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


3. Summary of Significant Accounting Policies (continued)

n. Review of Financial Guaranty Industry Accounting Practices

The FASB staff is considering whether additional accounting guidance is
necessary to address loss reserving and certain other practices in the
financial guaranty industry. SFAS No. 60, Accounting and Reporting by
Insurance Enterprises, was developed prior to the emergence of the financial
guaranty industry. As it does not specifically address financial guaranty
contracts, there has been diversity in the accounting for these contracts. In
2005, the FASB added a project to consider accounting by insurers for
financial guaranty insurance. The objective of the project is to develop an
accounting model for financial guaranty contracts issued by insurance
companies that are not accounted for as derivative contracts under SFAS 133. A
financial guaranty contract guarantees the holder of a financial obligation
the full and timely payment of principal and interest when due and is
typically issued in conjunction with municipal bond offerings and certain
structured finance transactions. The goal of this project is to develop a
single model for all industry participants to apply.

The FASB is expected to meet in 2006 to consider the accounting model for
issuers of financial guaranty insurance. Proposed and final pronouncements are
expected to be issued in 2006. When the FASB reaches a conclusion on this
issue, the Company, along with other companies in the financial guaranty
industry, may be required to change certain aspects of accounting for loss
reserves, premium income and deferred acquisition costs. It is not possible to
predict the impact the FASB's review may have on the Company's accounting
practices.

4. Statutory Accounting Practices

Statutory-basis surplus of the Company at December 31, 2005 and 2004 was
$1,162,904 and $1,172,600, respectively. Statutory-basis net income (loss) for
the years ended December 31, 2005 and 2004 and for the periods from December
18, 2003 through December 31, 2003, and January 1, 2003 through December 17,
2003 was $192,009, $144,100, $(1,669), and $180,091, respectively.


                                                                            15
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


5. Investments

The amortized cost and fair values of investments in fixed maturity securities
and short-term investments classified as available-for-sale are as follows:

<TABLE>
<CAPTION>

                                                            Gross           Gross
                                          Amortized      Unrealized      Unrealized
                                            Cost            Gains          Losses        Fair Value
                                       ---------------------------------------------------------------
At December 31, 2005
<S>                                      <C>              <C>             <C>            <C>
 Obligations of states and political
   subdivisions                          $ 2,777,807      $  12,718       $  26,410      $ 2,764,115
 Asset- and mortgage-backed securities       209,148            135           3,490          205,793
 U.S. Treasury securities and
   obligations of U.S. government
   corporations and agencies                 148,785          1,387           2,036          148,136
 Corporate bonds                              91,422            501           1,486           90,437
 Debt securities issued by foreign
   governments                                30,930            345               5           31,270
 Preferred stock                              19,199            427             639           18,987
                                       ---------------------------------------------------------------
 Total fixed maturity securities           3,277,291         15,513          34,066        3,258,738
 Short-term investments                      159,334              -               -          159,334
                                       ---------------------------------------------------------------
 Total investments                       $ 3,436,625      $  15,513       $  34,066      $ 3,418,072
                                       ===============================================================


                                                            Gross           Gross
                                          Amortized      Unrealized      Unrealized
                                            Cost            Gains          Losses        Fair Value
                                       ---------------------------------------------------------------
At December 31, 2004
 Obligations of states and political
   subdivisions                          $ 2,461,087      $  19,569       $   3,090      $ 2,477,566
 Asset- and mortgage-backed securities       214,895          1,267             695          215,467
 U.S. Treasury securities and
   obligations of U.S. Government
   corporations and agencies                 131,771            559             943          131,387
 Corporate bonds                              54,655            663             236           55,082
 Debt securities issued by foreign
   governments                                39,713            176              21           39,868
 Preferred stock                              19,199            311              24           19,486
                                       ---------------------------------------------------------------
 Total fixed maturities                    2,921,320         22,545           5,009        2,938,856
 Short-term investments                      140,473              -               -          140,473
                                       ---------------------------------------------------------------
 Total investments                       $ 3,061,793      $  22,545       $   5,009      $ 3,079,329
                                       ===============================================================
</TABLE>


                                                                            16
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


5. Investments (continued)

The following table shows gross unrealized losses and the fair value of fixed
maturity securities, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at
December 31, 2005:

<TABLE>
<CAPTION>

                                     Less Than 12 Months       12 Months or More             Total
                                   -------------------------------------------------------------------------
                                       Fair     Unrealized     Fair     Unrealized      Fair     Unrealized
                                      Value       Losses      Value       Losses       Value       Losses
                                   -------------------------------------------------------------------------
<S>                                 <C>            <C>       <C>         <C>         <C>           <C>
Obligations of states and           $1,622,119     $16,646   $463,156    $ 9,764     $2,085,275    $26,410
   political subdivisions
Asset- and mortgage-backed
   securities                          133,196       1,839     56,824      1,651        190,020      3,490
U.S. Treasury securities and
   obligations of U.S. government
   corporations and agencies            47,872         520     76,380      1,516        124,252      2,036
Other                                   42,379         690     28,026        801         70,405      1,491
Preferred stock                         12,860         639          -          -         12,860        639
                                   -------------------------------------------------------------------------
Total temporarily impaired          $1,858,426     $20,334   $624,386    $13,732     $2,482,812    $34,066
   securities
                                   =========================================================================
</TABLE>

The unrealized losses in the Company's investments were caused by interest
rate increases. The Company evaluated the credit ratings of these securities
and noted no deterioration. Because the decline in market value is
attributable to changes in interest rates and not credit quality and because
the Company has the ability and intent to hold these investments until a
recovery of fair value, which may be maturity, the Company did not consider
these investments to be other than temporarily impaired at December 31, 2005.

Investments in fixed maturity securities carried at fair value of $4,625 and
$4,049 as of December 31, 2005 and 2004, respectively, were on deposit with
various regulatory authorities as required by law.


                                                                            17
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


5. Investments (continued)

The amortized cost and fair values of investments in fixed maturity
securities, available-for-sale at December 31, 2005, are shown below by
contractual maturity date. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

                                             Amortized             Fair
                                               Cost                Value
                                         ---------------------------------------

Due one year later or less                 $       77,668      $       77,071
Due after one year through five years             472,292             463,162
Due after five years through ten years          1,463,806           1,448,990
After ten years                                 1,263,525           1,269,515
                                         ---------------------------------------
Total                                      $    3,277,291      $    3,258,738
                                         =======================================

For the years ended December 31, 2005 and 2004 and for the periods from
December 18, 2003 through December 31, 2003 and January 1, 2003 through
December 17, 2003, proceeds from sales of available-for-sale securities were
$31,380, $178,030, $0, and $855,761 respectively. For the years ended December
31, 2005 and 2004 and for the periods from December 18, 2003 through December
31, 2003 and January 1, 2003 through December 17, 2003, gross gains of $185,
$1,900, $0, and $31,700, respectively, and gross losses of $84, $1,300, $0,
and $200, respectively, were realized on such sales.

Net investment income of the Company was derived from the following sources:

<TABLE>
<CAPTION>

                                                                    Successor                        Predecessor
                                              ---------------------------------------------------------------------
                                                                                    Period from      Period from
                                                                                     December          January
                                                                                     18, 2003          1, 2003
                                                  Year ended       Year ended    through December      through
                                                 December 31,     December 31,          31,         December 17,
                                                     2005             2004             2003             2003
                                              ---------------------------------------------------------------------

<S>                                             <C>                   <C>            <C>              <C>
   Income from fixed maturity securities        $    112,616          $  97,720      $  4,294         $   111,075
   Income from short-term investments                  6,801              1,450            12               2,326
                                              ---------------------------------------------------------------------
   Total investment income                           119,417             99,170         4,306             113,401
   Investment expenses                                (2,345)            (1,461)          (37)               (782)
                                              ---------------------------------------------------------------------
   Net investment income                        $    117,072          $  97,709      $  4,269         $   112,619
                                              =====================================================================
</TABLE>


                                                                            18
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


5. Investments (continued)

As of December 31, 2005, the Company did not have more than 3% of its
investment portfolio concentrated in a single issuer or industry; however, the
Company had the following investment concentrations by state:
                                               Fair Value
                                           -------------------

New York                                     $      302,290
Florida                                             220,150
Texas                                               217,145
New Jersey                                          193,315
Massachusetts                                       169,635
Illinois                                            155,922
California                                          139,742
Michigan                                            113,040
                                           -------------------
                                                  1,511,239

All other states                                  1,326,785
All other investments                               580,048
                                           -------------------
Total investments                            $    3,418,072
                                           ===================

6. Derivative Instruments

The Company provides CDSs to certain buyers of credit protection by entering
into contracts that reference collateralized debt obligations from cash and
synthetic structures backed by pools of corporate, consumer or structured
finance debt. It also offers credit protection on other public finance and
structured finance obligations in CDS form. The Company considers these
agreements to be a normal extension of its financial guaranty insurance
business, although they are considered derivatives for accounting purposes.
These agreements are recorded at fair value. The Company believes that the
most meaningful presentation of the financial statement impact of these
derivatives is to reflect premiums as installments are received, and to record
losses and loss adjustment expenses and changes in fair value as incurred. The
Company recorded $3,036 of net earned premium, $0 in losses and loss
adjustment expenses, and net mark-to-market losses of $167 in changes in fair
value under these agreements for the year ended December 31, 2005.


                                                                            19
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


6. Derivative Instruments (continued)

The gains or losses recognized by recording these contracts at fair value are
determined each quarter based on quoted market prices, if available. If quoted
market prices are not available, the determination of fair value is based on
internally developed estimates. Management applies judgments to estimate fair
value which are based on changes in expected loss of the underlying assets as
well as changes in current market prices for similar products.

Consideration is given to current market spreads and on evaluation of the
current performance of the assets. The Company does not believe that the fair
value adjustments are an indication of potential claims under the Company's
guarantees. The inception-to-date net mark-to-market loss on the CDS portfolio
was $167 at December 31, 2005 and was recorded in other liabilities.

7. Income Taxes

For periods subsequent to the closing date of the Transaction, the Company
files its own consolidated federal income tax returns with FGIC Corp. The
method of allocation between FGIC Corp. and its subsidiaries is determined
under a tax sharing agreement approved by FGIC Corp.'s Board of Directors and
the New York State Insurance Department, and is based upon a separate return
calculation. For periods ended on or prior to December 18, 2003, the Company
filed its federal income tax return as part of the consolidated return of GE
Capital. Under a tax sharing agreement with GE Capital, tax was allocated to
the Company based upon its contributions to GE Capital's consolidated net
income.


                                                                            20
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


7. Income Taxes (continued)

The following is a reconciliation of federal income taxes computed at the
statutory income tax rate and the provision for federal income taxes:

<TABLE>
<CAPTION>

                                                               Successor                              Predecessor
                                      -------------------------------------------------------------------------------
                                                                                     Period from         Period from
                                                                                    December 18,          January 1,
                                                                                            2003                2003
                                               Year ended          Year ended            through             through
                                             December 31,        December 31,       December 31,        December 17,
                                                     2005                2004               2003                2003
                                      -------------------------------------------------------------------------------
<S>                                            <C>                 <C>                  <C>               <C>
   Income taxes computed on income             $   95,037          $   78,932           $ 2,785           $  86,383
     before provision for Federal
     income taxes, at the statutory
     income tax rate
   State and local income taxes, net
     of Federal income taxes                          453                 479                  -                 844
   Tax effect of:
      Tax-exempt interest                        (31,072)            (28,015)              (979)            (26,112)
      Prior period adjustment                           -                   -                  -             (4,978)
      Other, net                                      690               4,037               (42)               (678)
                                      -------------------------------------------------------------------------------
   Provision for income taxes                  $   65,108          $   55,433           $ 1,764           $  55,459
                                      ===============================================================================
</TABLE>


                                                                            21
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


7. Income Taxes (continued)

The tax effects of temporary differences that give rise to significant
portions of the net deferred tax liability at December 31, 2005 and 2004 are
presented below:

<TABLE>
<CAPTION>

                                                                2005           2004
                                                           -------------------------------
  Deferred tax assets:
<S>                                                              <C>            <C>
     Tax and loss bonds                                          $24,375        $10,810
     Loss and loss adjustment expense reserves                     6,180          7,472
     AMT credit carryforward                                       7,140          8,107
     Property and equipment                                           83             55
     Deferred compensation                                         1,483            623
     Capital lease                                                 2,483          2,539
     Net operating loss on foreign subsidiaries                    2,948              -
     Other                                                           266            233
                                                           -------------------------------
  Total gross deferred tax assets                                 44,958         29,839
                                                           -------------------------------

  Deferred tax liabilities:
     Contingency reserves                                         42,656         18,917
     Unrealized gains on fixed maturity securities,
       available-for-sale                                         12,883         29,156
     Deferred acquisition costs                                   19,639         11,842
     Premium revenue recognition                                  10,359          3,076
     Profit commission                                             1,435          2,343
     Foreign currency                                                194          3,117
     Other                                                           255            153
                                                           -------------------------------
  Total gross deferred tax liabilities                            87,421         68,604
                                                           -------------------------------
  Net deferred tax liability                                     $42,463        $38,765
                                                           ===============================
</TABLE>

The net operating losses on foreign subsidiaries of $10,863 as of December 31,
2005 were generated by FGIC Corp.'s United Kingdom subsidiaries. The United
Kingdom does not allow net operating losses to be carried back, but does
permit them to be carried forward indefinitely. Based upon the level of
historical taxable income, projections of future taxable income over the
periods in which the deferred tax assets are deductible and the estimated
reversal of future taxable temporary differences, the Company believes it is
more likely than not that it will realize the benefits of these deductible
differences and has not established a valuation allowance at December 31, 2005
and 2004.

In the opinion of management, an adequate provision has been made for any
additional taxes that may become due pending any future examinations by tax
authorities.


                                                                            22
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


8. Reinsurance

Reinsurance is the commitment by one insurance company (the reinsurer) to
reimburse another insurance company (the ceding company) for a specified
portion of the insurance risks under policies issued by the ceding company in
consideration for a portion of the related premiums received. The ceding
company typically will receive a ceding commission from the reinsurer.

The Company uses reinsurance to increase its capacity to write insurance for
obligations of large, frequent issuers, to meet internal, rating agency or
regulatory single risk limits, to diversify risk, and to manage rating agency
and regulatory capital requirements. The Company currently arranges
reinsurance primarily on a facultative (transaction-by-transaction) basis.
Prior to 2003, the Company also had treaty reinsurance agreements, primarily
for the public finance business, that provided coverage for a specified
portion of the insured risk under all qualifying policies issued during the
term of the treaty.

The Company seeks to place reinsurance with financially strong reinsurance
companies since, as a primary insurer, the Company is required to fulfill all
its obligations to policyholders even where a reinsurer fails to perform its
obligations under the applicable reinsurance agreement. The Company regularly
monitors the financial condition of its reinsurers. Under most of the
Company's reinsurance agreements, the Company has the right to reassume all
the exposure ceded to a reinsurer (and receive all the remaining unearned
premiums ceded) in the event of a ratings downgrade of the reinsurer or the
occurrence of certain other events. In certain of these cases, the Company
also has the right to impose additional ceding commissions.

In recent years, some of the Company's reinsurers were downgraded by the
rating agencies, thereby reducing the financial benefits of using reinsurance
under rating agency capital adequacy models, because the Company must allocate
additional capital to the related reinsured exposure. However, the Company
still receives regulatory credit for this reinsurance. In connection with such
a downgrade, the Company reassumed $0, $4,959, $6,300, and $14,300 of ceded
premiums for the years ended December 31, 2005 and 2004, and the periods from
December 18, 2003 through December 31, 2003, and January 1, 2003 through
December 17, 2003, respectively, from the reinsurers.

Under certain reinsurance agreements, the Company holds collateral in the form
of letters of credit and trust agreements. Such collateral totaled $62,394 at
December 31, 2005, and can be drawn on in the event of default by the
reinsurer.


                                                                            23
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


8. Reinsurance (continued)

The effect of reinsurance on the balances recorded in the consolidated
statements of income is as follows:

<TABLE>
<CAPTION>

                                                           Successor                         Predecessor
                                     ---------------------------------------------------------------------
                                                                              Period from     Period from
                                                                             December 18,      January 1,
                                                                                     2003            2003
                                            Year ended       Year ended           through         through
                                          December 31,     December 31,      December 31,    December 17,
                                                  2005             2004              2003            2003
                                     ---------------------------------------------------------------------

<S>                                            <C>              <C>                <C>            <C>
Net premiums earned                            $25,921          $24,173            $1,236         $20,300
Loss and loss adjustment expenses                (416)          (4,759)                 -           1,700

9. Loss and Loss Adjustment Expenses

Activity in the reserve for loss and loss adjustment expenses is summarized as
follows:

                                                           Successor                         Predecessor
                                     ---------------------------------------------------------------------
                                                                              Period from     Period from
                                                                             December 18,      January 1,
                                                                                     2003            2003
                                            Year ended       Year ended           through         through
                                          December 31,     December 31,      December 31,    December 17,
                                                  2005             2004              2003            2003
                                     ---------------------------------------------------------------------

Balance at beginning of period                 $39,181          $40,467           $40,224         $47,868
Less reinsurance recoverable                   (3,054)          (8,065)           (8,058)         (8,371)
                                     ---------------------------------------------------------------------
Net balance                                     36,127           32,402            32,166          39,497
                                     ---------------------------------------------------------------------
Incurred related to:
  Current period                                23,985           11,756                 -          20,843
  Prior periods                                (5,479)          (5,834)               236        (27,600)
                                     ---------------------------------------------------------------------
Total incurred                                  18,506            5,922               236         (6,757)
                                     ---------------------------------------------------------------------

Paid related to:
  Current period                               (1,993)                -                 -               -
  Prior periods                                (1,099)          (2,197)                 -           (574)
                                     ---------------------------------------------------------------------
Total paid                                     (3,092)          (2,197)                 -           (574)
                                     ---------------------------------------------------------------------

Net balance                                     51,541           36,127            32,402          32,166
Plus reinsurance recoverable                     3,271            3,054             8,065           8,058
                                     ---------------------------------------------------------------------
Balance at end of period                       $54,812          $39,181           $40,467         $40,224
                                     =====================================================================
</TABLE>


                                                                            24
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


9. Loss and Loss Adjustment Expenses (continued)

During the year ended December 31, 2005, the increase in incurred expense was
primarily related to issuers impacted by Hurricane Katrina. Case reserves and
credit watchlist reserves at December 31, 2005 include $8,511 and $13,322,
respectively, of estimated losses related to obligations impacted by Hurricane
Katrina (see Note 10).

During the year ended December 31, 2004, the increase in incurred expense
related to several structured finance transactions of one particular issuer.

During the period from January 1, 2003 through December 17, 2003, the overall
decrease in incurred expense was driven by a reduction in reserves previously
established on several structured finance transactions of one particular
issuer. In addition, prior to the closing of the Transaction, rather than
watchlist reserves, the Company established portfolio reserves based upon the
aggregate average net par outstanding of the Company's insured mortgage-backed
securities portfolio.

10. Hurricane Katrina

At December 31, 2005, the Company insured public finance obligations with a
net par in force ("NPIF") of approximately $4,011,871 in locations impacted by
Hurricane Katrina. Approximately $2,023,315 of these obligations relate to
locations designated by the U.S. Federal Emergency Management Administration
("FEMA") as eligible for both public and individual assistance ("FEMA-dual
designated locations"); the remainder, or $1,988,556, of these obligations
relate to locations designated by FEMA as eligible for individual assistance
only. The Company believes that insured obligations in FEMA-dual designated
locations are more likely to be impaired than obligations eligible for
individual assistance only. Consequently, since the occurrence of Hurricane
Katrina, the Company has focused its portfolio surveillance efforts related to
Hurricane Katrina on evaluating its insured public finance obligations in the
FEMA-dual designated locations. These FEMA-dual designated locations consist
primarily of counties and parishes in Alabama, Mississippi and Louisiana.


                                                                            25
<PAGE>


10. Hurricane Katrina (continued)

As a result of this evaluation, the Company placed insured public finance
obligations with an NPIF totaling $979,153 on its credit watchlist of which
reserves were recorded on obligations with an NPIF of $585,303. These
obligations relate to locations in the Parish of Orleans (in which New Orleans
is located) and the immediately surrounding parishes. At December 31, 2005,
the Company recorded case reserves of $8,511, watchlist reserves of $13,322
and estimated reinsurance recoverables of $1,740 related to insured public
finance obligations placed on the credit watchlist. The case reserves of
$8,511 relate to an investor-owned utility, for which the Company has insured
public finance obligations with an NPIF of $75,000, that has entered into
bankruptcy proceedings. The watchlist reserves of $13,322 were based on
management's assessment that the associated insured public finance obligations
have experienced impairment due to diminished revenue sources. The NPIF for
the insured public finance obligations for which watchlist reserves of $13,322
have been established totals $510,303. The $510,303 (a subset of the $979,153)
is supported by the revenue sources below:

                                             Net Par
       Revenue Source                       in Force
-------------------------------------- --------------------

General obligation                          $  90,079
Hotel tax                                     165,000
Sales tax                                     117,141
Municipal utility                             119,657
Public higher education                        18,426
                                       --------------------
Total                                        $510,303
                                       ====================

Given the unprecedented nature of the events and magnitude of damage in the
affected areas, the loss reserves were necessarily based upon estimates and
subjective judgments about the outcome of future events, including without
limitation the amount and timing of any future federal and state aid. The loss
reserves will likely be adjusted as additional information becomes available,
and such adjustments may have a material impact on future results of
operations. However, the Company believes that the losses ultimately incurred
as result of Hurricane Katrina will not have a material impact on the
Company's consolidated financial position.


                                                                            26
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


10. Hurricane Katrina (continued)

For the year ended December 31, 2005, the Company paid claims totaling $5,910
related to insured public finance obligations impacted by Hurricane Katrina.
During 2005, the Company subsequently received reimbursements of $4,855 for
these claims payments.

The Company's structured finance insured portfolio was not significantly
impacted by Hurricane Katrina, reflecting the geographic diversification of
the credits comprising the insured structured finance obligations.

11. Related Party Transactions

Prior to the Transaction, the Company had various service agreements with
subsidiaries of General Electric Company and GE Capital. These agreements
provided for the payment by the Company of certain payroll and office
expenses, investment fees pertaining to the management of the Company's
investment portfolio and telecommunication service charges. In addition, as
part of the Transaction, the Company entered into a transitional services
agreement under which GE Capital continued to provide certain administrative
and support services, in exchange for certain scheduled fees during the 12
months following the date of the agreement. Approximately $0, $179, $0 and
$1,600 in expenses were incurred during the years ended December 31, 2005 and
2004 and for the periods from December 18, 2003 through December 31, 2003 and
January 1, 2003 through December 17, 2003, respectively, related to such
agreements and are reflected in the accompanying consolidated financial
statements.

At the end of the first quarter of 2004, the Company transferred investment
management services from GE Capital to Blackrock Financial Management, Inc.
and Wellington Management Company, LLP.

In connection with the Transaction, the Company entered into a capital lease
agreement with a subsidiary of GE Capital. The lease agreement covers
leasehold improvements made to the Company's headquarters as well as furniture
and fixtures, computer hardware and software used by the Company (see Note
17).


                                                                            27
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


11. Related Party Transactions (continued)

In connection with the Transaction, FGIC entered into a $300,000 soft capital
facility, with GE Capital as lender and administrative agent. The soft capital
facility, which replaced the capital support facility that FGIC previously had
with GE Capital, had an initial term of eight years. FGIC paid GE Capital
$1,132 and $70 under this agreement for the year ended December 31, 2004 and
the period from December 18, 2003 through December 31, 2003, respectively.
This agreement was terminated by FGIC in July 2004 and was replaced by a new
soft capital facility (see Note 15).

The Company also insures certain non-municipal issues with GE Capital
involvement as sponsor of the insured securitization and/or servicer of the
underlying assets. For some of these issues, GE Capital also provides first
loss protection in the event of default. Gross premiums written on these
issues amounted to $3, $6, $0 and $20 for the year ended December 31, 2005 and
2004 and for the periods from December 18, 2003 through December 31, 2003 and
January 1, 2003 through December 17, 2003, respectively. As of December 31,
2005, par outstanding on these deals before reinsurance was $6,142. Issues
sponsored by affiliates of GE accounted for approximately 1% of gross premiums
written in 2003.

During 2005 FGIC, in the normal course of operations, entered into reinsurance
transactions with PMI-affiliated companies. Ceded premiums were $582 for the
year ended December 31, 2005 and accounts payable due to PMI were $102 at
December 31, 2005.

As of December 31, 2005 and 2004, there were no receivables due from GE
Capital.

During 2005 and 2004, the Company allocated certain overhead costs to FGIC
Corp. which amounted to $540 and $317, respectively.


                                                                            28
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


12. Compensation Plans

All employees of the Company participate in an incentive compensation plan. In
addition, the Company offers a deferred compensation plan for eligible
employees. Expenses incurred by the Company under compensation plans amounted
to $21,824, $15,493, $3,996, and $10,087 for the years ended December 31, 2005
and 2004 and for the periods from December 18, 2003 through December 31, 2003
and January 1, 2003 through December 17, 2003, respectively, and are reflected
in the accompanying consolidated financial statements. During 2005 and 2004,
compensation increased primarily due to an increase in employee headcount. For
2003, compensation for certain employees was part of an allocation of expenses
of affiliates and was therefore recorded as an allocated expense rather than
compensation expense. In 2005 and 2004, these expenses were directly recorded
by the Company. In 2003, compensation levels were driven in part by
Transaction-related costs, including retention bonuses and sign-on bonuses to
new hires post-acquisition.

Commencing effective January 1, 2004, the Company has offered a defined
contribution savings plan under Section 401(k) of the Internal Revenue Code.
This plan covers substantially all employees who meet minimum age and service
requirements and allows participants to defer a portion of their annual
compensation on a pre-tax basis (for 2005, up to $14 for employees under age
50, plus an additional "catch up" contribution of up to $4 for employees 50
and older). The Company may also make discretionary contributions to the plan
on behalf of employees. The Company contributed $3,429 and $2,532 to the plan
on behalf of employees for the years ended December 31, 2005 and 2004,
respectively.

13. Dividends

Under New York insurance law, the Company may pay dividends to FGIC Corp. only
from earned surplus, subject to the following limitations: (a) statutory
surplus after any dividend may not be less than the minimum required paid-in
capital, which was $72,500 in 2005, 2004 and 2003, and (b) dividends may not
exceed the lesser of 10% of the Company's surplus or 100% of adjusted net
investment income, as defined by New York insurance law, for the twelve-month
period ended on the preceding December 31, without the prior approval of the
New York State Superintendent of Insurance.


                                                                            29
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


13. Dividends (continued)

During the years ended December 31, 2005 and 2004 and for the period from
December 18, 2003 through December 31, 2003, the Company did not declare and
pay dividends. During the period from January 1, 2003 through December 17,
2003, the Company declared and paid dividends to FGIC Corp. of $284,300. These
dividends were approved by the New York State Superintendent of Insurance.

14. Revolving Credit Facility

During December 2005, FGIC Corp. and the Company entered into a $250,000
senior unsecured revolving credit facility that matures on December 11, 2010.
The facility is provided by a syndicate of banks and other financial
institutions led by JPMorgan Chase, as administrative agent and sole lead
arranger. In connection with the facility, $150 in syndication costs was
prepaid and will be amortized into income over the term of the facility. The
facility replaced a similar one-year facility that matured in December 2005.
No draws have been made under either facility.

15. Preferred Trust Securities

On July 19, 2004, the Company closed a $300,000 facility, consisting of Money
Market Committed Preferred Custodial Trust Securities ("CPS Securities"). This
facility replaced a $300,000 "Soft Capital" facility previously provided by GE
Capital. Under the new facility, each of six separate newly organized Delaware
trusts (the "Trusts"), issues $50,000 in perpetual CPS Securities on a rolling
28-day auction rate basis. Proceeds from these securities are invested in high
quality, short-term securities and are held in the respective Trusts. Each
Trust is solely responsible for its obligations and has been established for
the purpose of entering into a put agreement with the Company, which obligates
the Trusts, at the Company's discretion, to purchase perpetual Preferred Stock
of the Company. In this way, the program provides capital support to the
Company by allowing it to obtain immediate access to new capital at its sole
discretion at any time through the exercise of the put options. In connection
with the establishment of the Trusts, the Company incurred $4,638 of expenses
which is included in other operating expenses for the year ended December 31,
2004. The Company recorded expenses for the right to put its shares to the
Trusts of $1,806 and $905 for the years ended December 31, 2005 and 2004,
respectively.


                                                                            30
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


16. Financial Instruments

 (a)  Fair Value of Financial Instruments

      The following methods and assumptions were used by the Company in
      estimating the fair values of financial instruments:

      Fixed Maturity Securities: Fair values for fixed maturity securities are
      based on quoted market prices, if available. If a quoted market price is
      not available, fair values are estimated using quoted market prices for
      similar securities. Fair value disclosure for fixed maturity securities
      is included in the consolidated balance sheets and in Note 5.

      Short-Term Investments: Short-term investments are carried at cost,
      which approximates fair value.

      Cash and Cash Equivalents, Accrued Investment Income, Prepaid Expenses
      and Other Assets, Receivable from Related Parties, Ceded Reinsurance
      Balances Payable, Accounts Payable and Accrued Expenses and Payable for
      Securities Purchased: The carrying amounts of these items approximate
      their fair values.

      The estimated fair values of the Company's financial instruments at
      December 31, 2005 and 2004 were as follows:

<TABLE>
<CAPTION>

                                                       2005                         2004
                                           -------------------------------------------------------
                                              Carrying       Fair        Carrying        Fair
                                               Amount        Value        Amount         Value
                                           -------------------------------------------------------
         Financial assets:
            Cash on hand and in-demand
            <S>                             <C>           <C>           <C>           <C>
              accounts                      $    45,077   $   45,077    $    69,292   $   69,292
            Short-term investments              159,334      159,334        140,473      140,473
            Fixed maturity securities         3,258,738    3,258,738      2,938,856    2,938,856
</TABLE>

      Financial Guaranties: The carrying value of the Company's financial
      guaranties is represented by the unearned premium reserve, net of
      deferred acquisition costs, loss and loss adjustment expense reserves
      and prepaid reinsurance premiums. Estimated fair values of these
      guaranties are based on an estimate of the balance that is necessary to
      bring the future returns for the Company's embedded book of business to
      a market return. The estimated fair values of such financial guaranties
      was $1,098,165 compared to a carrying value of $1,099,045 as of December
      31, 2005, and is $965,992 compared to a carrying value of $936,334 as of
      December 31, 2004.


                                                                            31
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


16. Financial Instruments (continued)

      As of December 31, 2005 and 2004, the net present value of future
      installment premiums was approximately $393,000 and $192,000,
      respectively, both discounted at 5%.

      Derivatives: For fair value adjustments on derivatives, the carrying
      amount represents fair value. The Company uses quoted market prices when
      available, but if quoted market prices are not available, management
      uses internally developed estimates.

(b)   Concentrations of Credit Risk

      The Company considers its role in providing insurance to be credit
      enhancement rather than credit substitution. The Company insures only
      those securities that, in its judgment, are of investment grade quality.
      The Company has established and maintains its own underwriting standards
      that are based on those aspects of credit that the Company deems
      important for the particular category of obligations considered for
      insurance. Credit criteria include economic and social trends, debt
      management, financial management and legal and administrative factors,
      the adequacy of anticipated cash flows, including the historical and
      expected performance of assets pledged to secure payment of securities
      under varying economic scenarios, and underlying levels of protection
      such as insurance or over-collateralization.

      In connection with underwriting new issues, the Company sometimes
      requires, as a condition to insuring an issue, that collateral be
      pledged or, in some instances, that a third-party guaranty be provided
      for a term of the obligation issued by a party of acceptable credit
      quality obligated to make payment prior to any payment by the Company.
      The types and extent of collateral varies, but may include residential
      and commercial mortgages, corporate debt, government debt and consumer
      receivables.

      As of December 31, 2005, the Company's total outstanding principal
      insured was $275,327,000, net of reinsurance of $22,711,000. The
      Company's insured portfolio as of December 31, 2005 was broadly
      diversified by geographic and bond market sector, with no single obligor
      representing more than 1% of the Company's insured principal
      outstanding, net of reinsurance. The insured portfolio includes exposure
      under credit derivatives. The par written for credit derivatives was
      $15,640,000 at December 31, 2005.


                                                                            32
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


16. Financial Instruments (continued)

      As of December 31, 2005, the composition of principal insured by type of
      issue, net of reinsurance, was as follows:

                                                          Net Principal
                                                           Outstanding
                                                      ----------------------
            Municipal:
              Tax supported                              $    134,762,000
              Water and sewer                                  34,859,000
              Healthcare                                        4,216,000
              Transportation                                   24,956,000
              Education                                         9,939,000
              Housing                                           1,234,000
              Other                                             5,153,000
            Non-municipal and international                    60,208,000
                                                      ----------------------
            Total                                        $    275,327,000
                                                      ======================

      As of December 31, 2005, the composition of principal insured ceded to
      reinsurers was as follows:

                                                         Ceded Principal
                                                           Outstanding
                                                      -----------------------
          Reinsurer:
            Radian Reinsurance Company                   $      7,808,000
            Ace Guaranty Inc.                                   6,367,000
            American Re-Insurance Company                       2,231,000
            RAM Reinsurance Company                             2,024,000
            Other                                               4,281,000
                                                      -----------------------
          Total                                          $     22,711,000
                                                      =======================

      The Company did not have recoverables in excess of 3% of stockholders'
      equity from any single reinsurer.

      The Company's insured gross and net principal and interest outstanding
      was $472,161,000 and $433,587,000, respectively, as of December 31,
      2005.


                                                                            33
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


16. Financial Instruments (continued)

      FGIC is authorized to do business in 50 states, the District of
      Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands and
      in the United Kingdom. Principal insured outstanding at December 31,
      2005 by state, net of reinsurance, was as follows:

                                                     Net Principal
                                                      Outstanding
                                                 ----------------------

          California                               $     32,882,000
          New York                                       21,265,000
          Pennsylvania                                   15,952,000
          Florida                                        15,483,000
          Illinois                                       13,049,000
          Texas                                          12,223,000
          New Jersey                                     10,883,000
          Michigan                                        8,311,000
          Ohio                                            6,903,000
          Washington                                      6,359,000
                                                 ----------------------
                                                        143,310,000

          All other states                               71,809,000
          Mortgage and asset-backed                      54,262,000
          International                                   5,946,000
                                                 ----------------------
          Total                                    $    275,327,000
                                                 ======================


                                                                            34
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


17. Commitments

The Company leases office space and equipment under operating lease agreements
in the United States and the United Kingdom. Rent expense under operating
leases for the years ended December 31, 2005 and 2004 and for the period from
December 18, 2003 through December 31, 2003 and January 1, 2003 through
December 17, 2003 was $3,631, $3,070, $90, and $3,210, respectively. Future
payments associated with these leases are as follows:

                                               Operating Lease
                                                  Commitment
                                                    Amount
                                          -----------------------
Year:
   2006                                           $  3,141
   2007                                              3,119
   2008                                              1,968
   2009                                                412
   2010                                                412
   2011 and thereafter                               1,496
                                          -----------------------
Total minimum future rental payments               $10,548
                                          =======================

In connection with the Transaction, the Company entered into a capital lease
with a related party (an affiliate of GE Capital), covering leasehold
improvements and computer equipment to be used at its headquarters. At the
lease termination date of June 30, 2009, the Company will own the leased
equipment. Future payments associated with this lease are as follows:

                                               Operating Lease
                                                  Commitment
                                                    Amount
                                          -----------------------
Year ending December 31:
   2006                                             $1,570
   2007                                              1,545
   2008                                              1,391
   2009                                                265
                                          -----------------------
Total                                                4,771
Less interest                                          509
                                          -----------------------
Present value of minimum lease payments             $4,262
                                          =======================


                                                                            35
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


18. Comprehensive Income

Accumulated other comprehensive (loss) income of the Company consists of net
unrealized gains on investment securities, foreign currency translation
adjustments, and a cash flow hedge. The components of other comprehensive
income for the years ended December 31, 2005 and 2004 and for the periods from
December 18, 2003 through December 31, 2003, and January 1, 2003 through
December 17, 2003 are as follows:

<TABLE>
<CAPTION>

                                                                        Year ended December 31, 2005
                                                                  ------------------------------------------
                                                                     Before                      Net of
                                                                      Tax                          Tax
                                                                     Amount         Tax          Amount
                                                                  ------------------------------------------

<S>                                                                 <C>           <C>            <C>
Unrealized holding losses arising during the year                   $  (36,050)   $  12,566      $ (23,484)
Less reclassification adjustment for gains realized
   in net income                                                          (101)          35            (66)
                                                                  ------------------------------------------
Unrealized losses on investments                                       (36,151)      12,601        (23,550)
Foreign currency translation adjustment                                 (8,454)       2,922         (5,532)
                                                                  ------------------------------------------
Total other comprehensive loss                                      $  (44,605)   $  15,523      $ (29,082)
                                                                  ==========================================


                                                                        Year ended December 31, 2004
                                                                  ------------------------------------------
                                                                     Before         Tax          Net of
                                                                      Tax                          Tax
                                                                     Amount                      Amount
                                                                  ------------------------------------------

Unrealized holding gains arising during the year                    $  14,928     $  (5,225)     $   9,703
Less reclassification adjustment for gains realized
   in net income                                                         (559)          196           (363)
                                                                  ------------------------------------------
Unrealized gains on investments                                        14,369        (5,029)         9,340
Foreign currency translation adjustment                                 6,286        (2,200)         4,086
                                                                  ------------------------------------------
Total other comprehensive income                                    $  20,655     $  (7,229)     $  13,426
                                                                  ==========================================
</TABLE>


                                                                            36
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


18. Comprehensive Income (continued)

<TABLE>
<CAPTION>

                                                                    Period from December 18, 2003 through
                                                                              December 31, 2003
                                                                  ------------------------------------------
                                                                     Before         Tax          Net of
                                                                      Tax                          Tax
                                                                     Amount                      Amount
                                                                  ------------------------------------------

<S>                                                                    <C>          <C>            <C>
Unrealized holding gains arising during the period                     $3,168       $(1,109)       $2,059
Less reclassification adjustment for gains realized
   in net income                                                            -             -             -
                                                                  ------------------------------------------
Unrealized gains on investments                                         3,168        (1,109)        2,059
                                                                  ------------------------------------------
Total other comprehensive income                                       $3,168       $(1,109)       $2,059
                                                                  ==========================================


                                                                         Period from January 1, 2003
                                                                          through December 17, 2003
                                                                  ------------------------------------------
                                                                     Before         Tax          Net of
                                                                      Tax                          Tax
                                                                     Amount                      Amount
                                                                  ------------------------------------------

Unrealized holding gains arising during the period                 $   30,853    $  (10,798)    $   20,055
Less reclassification adjustment for gains realized
   in net income                                                      (31,506)       11,027        (20,479)
Unrealized losses on investments                                         (653)          229           (424)
Foreign currency translation adjustment                                 6,565        (2,298)         4,267
                                                                  ------------------------------------------
Total other comprehensive income                                   $    5,912    $   (2,069)    $    3,843
                                                                  ==========================================
</TABLE>


                                                                            37
<PAGE>


             Financial Guaranty Insurance Company and Subsidiaries

            Notes to Consolidated Financial Statements (continued)


               (Dollars in thousands, except per share amounts)


19. Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>

                                                        Three months ended                    Year ended
                                     -------------------------------------------------------
                                        March 31,      June 30,   September 30, December 31, December 31,
                                          2005           2005          2005         2005         2005
                                     ----------------------------------------------------------------------

<S>                                      <C>           <C>            <C>          <C>          <C>
Gross premiums written                   $84,404       $131,335       $96,787      $97,676      $410,202
Net premiums written                      82,609        113,305        92,331       92,809       381,054
Net premiums earned                       52,633         61,907        54,794       55,235       224,569
Net investment income and net
realized gains                            27,558         28,389        30,117       31,109       117,173
Other income (expense)                       426             90           402         (323)          595
Total revenues                            80,617         90,386        85,313       86,021       342,337
Losses and loss adjustment expenses       (2,611)        (3,066)       20,693        3,490        18,506
Income before taxes                       71,100         81,377        48,783       70,274       271,534
Net income                                53,306         59,992        39,407       53,721       206,426

                                                        Three months ended                    Year ended
                                     -------------------------------------------------------
                                        March 31,      June 30,   September 30, December 31, December 31,
                                          2004           2004          2004         2004         2004
                                     ----------------------------------------------------------------------

Gross premiums written                   $56,395       $106,457       $87,869      $72,854      $323,575
Net premiums written                      53,649        105,645        87,072       67,512       313,878
Net premiums earned                       31,202         53,151        49,760       40,836       174,949
Net investment income and net
realized gains                            24,198         22,611        24,466       26,993        98,268
Other income (expense)                       317            240           117           62           736
Total revenues                            55,717         76,002        74,343       67,891       273,953
Losses and loss adjustment expenses          664         (1,070)        6,725         (397)        5,922
Income before taxes                       48,208         64,839        56,713       55,759       225,519
Net income                                38,304         48,393        41,954       41,435       170,086
</TABLE>


                                                                            38