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



<PAGE>


FINANCIAL STATEMENTS

Financial Guaranty Insurance Company

December 31, 2003
with Report of Independent Auditors


<PAGE>


<TABLE>
<CAPTION>


                                   Financial Guaranty Insurance Company

                                           Financial Statements


                                             December 31, 2003




                                                 Contents

<S>                                                                                                     <C>
Report of Independent Auditors.......................................................................    1

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


</TABLE>


<PAGE>





                        Report of Independent Auditors

The Board of Directors and Stockholder
Financial Guaranty Insurance Company

We have audited the accompanying balance sheet of Financial Guaranty Insurance
Company (the "Company") as of December 31, 2003, and the related statements of
income, stockholder's equity and cash flows for 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 audit. The financial statements of the Company for the
years ended December 31, 2002 and 2001 were audited by other auditors whose
report dated February 14, 2003 expressed an unqualified opinion on those
statements.

We conducted our audit in accordance with auditing standards generally
accepted in the 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. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Financial Guaranty Insurance
Company as of December 31, 2003, and the results of its operations and its
cash flows for the periods from December 18, 2003 through December 31, 2003
and from January 1, 2003 through December 17, 2003 in conformity with
accounting principles generally accepted in the United States.

                                                      /s/ Ernst & Young LLP

New York, New York
February 20, 2004


                                                                             1
<PAGE>


<TABLE>
<CAPTION>


                                      Financial Guaranty Insurance Company

                                                 Balance Sheets

                                (Dollars in thousands, except per share amounts)

                                                                               Successor        Predecessor
                                                                               ---------        -----------
                                                                                       December 31
                                                                                  2003              2002
                                                                            -----------------------------------
<S>                                                                           <C>               <C>
Assets
Fixed maturity securities, at fair value (amortized cost of
   $2,688,459 in 2003 and $2,744,614 in 2002)                                  $  2,691,922      $ 2,825,472
Short-term investments, at cost, which approximates fair value                       14,377           43,144
                                                                            -----------------------------------
Total investments                                                                 2,706,299        2,868,616

Cash                                                                                 78,645            7,260
Accrued investment income                                                            32,803           33,077
Receivable for securities sold                                                          170              991
Reinsurance recoverable                                                               8,065            8,371
Other reinsurance receivable                                                          5,295                -
Prepaid reinsurance premiums                                                        123,768          129,958
Deferred policy acquisition costs                                                     2,921           71,350
Receivable from related party                                                         9,759                -
Property and equipment, net of accumulated depreciation
   of $8,266 in 2002)                                                                     -              375
Prepaid expenses and other assets                                                     6,058            7,799
Federal income taxes receivable                                                         126                -
                                                                            -----------------------------------
Total assets                                                                   $  2,973,909      $ 3,127,797
                                                                            ===================================

Liabilities and stockholder's equity
Liabilities:
   Unearned premiums                                                           $    918,882      $   683,532
   Loss and loss adjustment expenses                                                 40,467           47,868
   Ceded reinsurance balances payable                                                   114            2,239
   Accounts payable and accrued expenses                                             19,238           11,858
   Obligations under capital lease                                                    6,982
   Payable for securities purchased                                                       -            5,333
   Current federal income taxes payable                                                   -           97,477
   Deferred federal income tax liability                                             18,862           90,595
                                                                            -----------------------------------
Total liabilities                                                                 1,004,545          938,902

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                                                     1,857,772          383,511
   Accumulated other comprehensive income, net of tax                                 2,059           49,499
   Retained earnings                                                                 94,533        1,740,885
                                                                            -----------------------------------
Total stockholder's equity                                                        1,969,364        2,188,895
                                                                            -----------------------------------
Total liabilities and stockholder's equity                                     $  2,973,909      $ 3,127,797
                                                                            ===================================

         See accompanying notes to financial statements.

</TABLE>


                                                                             2
<PAGE>


<TABLE>
<CAPTION>

                                    Financial Guaranty Insurance Company

                                            Statements of Income

                                           (Dollars in thousands)


                                           Successor                         Predecessor
                                       ----------------  ---------------------------------------------------
                                         Period from       Period from
                                           December          January
                                           18, 2003          1, 2003
                                           through           through            Year ended December 31
                                           December          December     ----------------------------------
                                           31, 2003          17, 2003           2002              2001
                                       ---------------------------------------------------------------------
<S>                                       <C>               <C>            <C>                <C>
Revenues:
   Gross premiums written                  $ 12,213          $  248,112     $  232,579         $  154,672
   Reassumed ceded premiums                   6,300              14,300          2,600              3,200
   Ceded premiums written                       (39)            (14,852)       (29,202)           (21,965)
                                       ---------------------------------------------------------------------
   Net premiums written                      18,743             247,560        205,977            135,862

   Increase in net unearned premiums         (9,892)           (105,811)       (71,080)           (33,380)
                                       ---------------------------------------------------------------------
Net premiums earned                           8,582             141,749        134,897            102,482

Net investment income                         4,269             112,619        119,595            124,992
Net realized gains                                -              31,506         68,546             77,043
Other income                                     44                 580          5,309              1,896
                                       ---------------------------------------------------------------------
Total revenues                               12,895             286,454        328,347            306,413

Expenses:
   Loss and loss adjustments expenses           236              (6,757)           501              1,752
   Underwriting expenses                      7,622              55,780         34,092             27,097
   Policy acquisition costs deferred         (2,931)            (23,641)       (14,911)           (11,742)
   Amortization of deferred policy
     acquisition costs                           10              15,563         15,261              8,472
                                       ---------------------------------------------------------------------
Total expenses                                4,937              40,944         34,943             25,579

Income before income taxes                    7,958             245,509        293,404            280,834

Income tax expense (benefit):
   Current                                    1,191              55,722         87,203             63,011
   Deferred                                     573              (1,612)       (11,385)             2,555
                                       ---------------------------------------------------------------------
Income tax expense                            1,764              54,160         75,818             65,566
                                       ---------------------------------------------------------------------

Income before extraordinary item              6,194             191,349        217,586            215,268
Extraordinary gain                           13,852                   -              -                  -
                                       ---------------------------------------------------------------------
Net income                                 $ 20,046          $  191,349     $  217,586         $  215,268
                                       =====================================================================


         See accompanying notes to financial statements.

</TABLE>


                                                                             3
<PAGE>


<TABLE>
<CAPTION>


                                                Financial Guaranty Insurance Company

                                                 Statements of Stockholder's Equity

                                                       (Dollars in thousands)

                                                                                                          Accumulated Other
                                                                                          Additional        Comprehensive
                                                                        Common             Paid-in          Income (Loss),
                                                                         Stock             Capital            Net of Tax
                                                                  ---------------------------------------------------------
<S>                                                                     <C>             <C>                  <C>
Predecessor
Balance at January 1, 2001                                               15,000          $    383,511         $ 23,120
   Net income                                                                 -                     -                -
   Other comprehensive loss:
     Change in fixed maturity securities available-for-sale                   -                     -          (36,940)
     Change in foreign currency translation adjustment                        -                     -           (1,112)

Total comprehensive income                                                    -                     -                -
Dividend declared                                                             -                     -                -
                                                                  ---------------------------------------------------------
Balance at December 31, 2001                                             15,000               383,511          (14,932)
   Net income                                                                 -                     -                -
   Other comprehensive income (loss):
     Change in fixed maturity securities available-for-sale                   -                     -           67,113
     Change in foreign currency translation adjustment                        -                     -           (2,682)

Total comprehensive income                                                    -                     -                -
Dividend declared                                                             -                     -                -
                                                                  ---------------------------------------------------------
Balance at December 31, 2002                                             15,000               383,511           49,499
   Net income                                                                 -                     -                -
   Other comprehensive income (loss):
     Change in fixed maturity securities available-for-sale                   -                     -             (424)
     Change in foreign currency translation adjustment                        -                     -            4,267

Total comprehensive income                                                    -                     -                -
Dividend declared                                                             -                     -                -
                                                                  ---------------------------------------------------------
Balance at December 17, 2003                                             15,000               383,511           53,342

Successor
   Purchase accounting adjustments                                            -             1,474,261          (53,342)
   Net income                                                                 -                     -                -
   Other comprehensive income:
     Change in fixed maturity securities available for sale                   -                     -            2,059
Total comprehensive income                                                    -                     -                -
                                                                  ---------------------------------------------------------
Balance at December 31, 2003                                            $15,000          $  1,857,772         $  2,059
                                                                  =========================================================

[TABLE CONTINUED]

<CAPTION>



                                                                          Retained
                                                                          Earnings            Total
                                                                  -----------------------------------------
<S>                                                                    <C>                <C>
Predecessor
Balance at January 1, 2001                                              $ 1,608,031        $  2,029,662
   Net income                                                               215,268             215,268
   Other comprehensive loss:
     Change in fixed maturity securities available-for-sale                       -             (36,940)
     Change in foreign currency translation adjustment                            -              (1,112)
                                                                                        -------------------
Total comprehensive income                                                        -             177,216
Dividend declared                                                          (200,000)           (200,000)
                                                                  -----------------------------------------
Balance at December 31, 2001                                              1,623,299           2,006,878
   Net income                                                               217,586             217,586
   Other comprehensive income (loss):
     Change in fixed maturity securities available-for-sale                       -              67,113
     Change in foreign currency translation adjustment                            -              (2,682)
                                                                                        -------------------
Total comprehensive income                                                        -             282,017
Dividend declared                                                          (100,000)           (100,000)
                                                                  -----------------------------------------
Balance at December 31, 2002                                              1,740,885           2,188,895
   Net income                                                               191,349             191,349
   Other comprehensive income (loss):
     Change in fixed maturity securities available-for-sale                       -                (424)
     Change in foreign currency translation adjustment                            -               4,267
                                                                                        -------------------
Total comprehensive income                                                        -             195,192
Dividend declared                                                          (284,300)           (284,300)
                                                                  -----------------------------------------
Balance at December 17, 2003                                              1,647,934           2,099,787

Successor
   Purchase accounting adjustments                                       (1,573,447)           (152,528)
   Net income                                                                20,046              20,046
   Other comprehensive income:
     Change in fixed maturity securities available for sale                       -               2,059
Total comprehensive income                                                        -              22,105
                                                                  -----------------------------------------
Balance at December 31, 2003                                            $    94,533        $  1,969,364
                                                                  =========================================

</TABLE>

         See accompanying notes to financial statements.


                                                                             4
<PAGE>


<TABLE>
<CAPTION>

                                           Financial Guaranty Insurance Company

                                                 Statements of Cash Flows

                                                  (Dollars in thousands)

                                                        Successor                         Predecessor
                                                    ----------------  ----------------------------------------------------
                                                      Period from       Period from
                                                        December          January
                                                        18, 2003          1, 2003
                                                        through           through            Year ended December 31
                                                        December          December     -----------------------------------
                                                        31, 2003          17, 2003           2002              2001
                                                    ----------------------------------------------------------------------
<S>                                                    <C>               <C>            <C>                <C>
                                                    ----------------------------------------------------------------------
Operating activities
Net income                                              $ 20,046          $191,349       $217,586             $215,268
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Extraordinary gain                                  (13,852)                -             -                    -
     Amortization of deferred policy acquisition costs        10            15,563        15,261                8,472
     Policy acquisition costs deferred                    (2,931)          (23,641)      (14,911)             (11,742)
     Net realized gains on investments                         -           (31,506)      (68,546)             (77,043)
     Change in unearned premiums                           2,460            86,250        70,741               31,406
     Change in loss and loss adjustment expenses             210            (7,644)         (987)               2,148
     Depreciation of property and equipment                                                   53                  198
     Change in reinsurance recoverable                      (104)              410         1,269                 (684)
     Change in prepaid reinsurance premiums                7,432            19,725           340                1,973
     Other reinsurance receivable                         (5,295)                -             -                    -
     Change in federal income taxes receivable              (172)           (2,407)            -                    -
     Change in receivable from affiliate                     (76)           (9,811)            -                    -
     Change in accrued investment income, and
     payable, prepaid expenses and other assets           (5,039)            6,292         2,769                5,949
     Change in ceded reinsurance balances and
       accounts payable and accrued expenses               6,485             1,804                              4,014
     Deferred federal income tax liability                   573            (1,612)      (11,385)               2,555
     Amortization of fixed maturity securities               693            21,129        12,081                5,320
     Change in current federal income taxes payable            -           (97,477)        9,748               10,637
                                                    ----------------------------------------------------------------------
Net cash provided by operating activities                 10,440           168,446       228,152              198,471
                                                    ----------------------------------------------------------------------

Investing activities
Sales and maturities of fixed maturity securities          1,780         1,023,378     2,155,864            2,106,761
Purchases of fixed maturity securities                         -          (877,340)   (2,478,839)          (1,989,270)
Purchases, sales, and maturities of short-term
   investments, net                                      (12,736)           41,504       212,127             (131,339)
Receivable for securities sold                               538               283          (991)                   -
Payable for securities purchased                               -            (5,333)       (9,334)              14,667
                                                    ----------------------------------------------------------------------
Net cash (used in) provided by investing activities      (10,418)          187,217      (121,173)                 819
                                                    ----------------------------------------------------------------------

Financing activities
Dividends paid                                                 -          (284,300)     (100,000)            (200,000)
                                                    ----------------------------------------------------------------------
Net cash used in financing activities                          -          (284,300)     (100,000)            (200,000)
                                                    ----------------------------------------------------------------------

Net increase (decrease) in cash                               22            71,363         6,979                 (710)
Cash at beginning of year                                 78,623             7,260           281                  991
                                                    ----------------------------------------------------------------------
Cash at end of year                                     $ 78,645          $ 78,623       $ 7,260              $   281
                                                    ======================================================================

         See accompanying notes to financial statements.

</TABLE>

1. Business and Organization


                                                                             5
<PAGE>


Financial Guaranty Insurance Company (the "Company") is an wholly-owned
subsidiary of FGIC Corporation (the "Parent"). The Parent was a wholly-owned
subsidiary of General Electric Capital Corporation ("GE Capital"). The Company
provides financial guaranty insurance 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. ("Moody's"), "AAA"
by Standard & Poor's Rating Services, a division of The McGraw-Hill Companies,
Inc. ("S&P"), and "AAA" by Fitch Ratings, Inc. ("Fitch"). The Company is
licensed to engage in financial guaranty insurance in all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico and, through a branch,
in the United Kingdom.

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 (the
"Transaction") of FGIC Corporation from a subsidiary of GE Capital in a
transaction valued at approximately $2,200,000. At the closing of the
Transaction, the Investor Group, acting through an affiliate, paid GE Capital
a cash purchase price of approximately $1,600,000, which was funded by equity
investments by the Investor Group and borrowings of approximately $227,300
under a bridge loan facility within an affiliate of Bank of America
Corporation. The bridge loan originally was to mature on December 16, 2004;
however, the bridge loan was repaid with the proceeds of the Senior Notes
issued on January 12, 2004 (see Note 15). In addition, FGIC Corporation paid
GE Capital approximately $284,300 in pre-closing dividends and GE Capital
retained 2,346 shares of Convertible Preferred Stock (the "Senior Preferred
Shares") with an aggregate liquidation preference of $234,600 and
approximately 5% of FGIC Corporation's common stock. PMI is the largest
stockholder of FGIC Corporation, owning approximately 42% of its common stock
at December 31, 2003. Blackstone, Cypress and CIVC own approximately 23%, 23%
and 7% of FGIC Corporation's common stock, respectively, at December 31, 2003.


                                      6
<PAGE>


2. Basis of Presentation

The preparation of 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 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 Department of Insurance (the "Department") (see Note
4).

3. Summary of Significant Accounting Policies

The Company's significant accounting policies are as follows:

a. Investments

The Company classifies all of its fixed maturity securities as
available-for-sale, which is recorded on the trade date at fair value.
Unrealized gains and losses are recorded as a separate component of
accumulated other comprehensive income, net of applicable income taxes.
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 which 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. 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 based on total exposure outstanding at any
point in time. Installment premiums are collected periodically and premiums
are reflected in income pro rata over the period covered by the premium
payment. Unearned premiums represent the portion of premiums received that is


                                      7
<PAGE>


3. Summary of Significant Accounting Policies (continued)

applicable to future periods on policies in force. When an obligation insured
by the Company has been 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 repaid or fully defeased prior
to stated maturing. Ceded premiums are earned in a manner consistent with the
underlying policies.

c. Policy Acquisition Costs

Policy acquisition costs include only those expenses that relate directly to
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 and maintenance costs and net investment income are
considered in determining the recoverability of acquisition costs.

d. Loss and Loss Adjustment Expenses

Provision for loss and loss adjustment expenses includes principal and
interest and other payments due under insured risks at the balance sheet date
for which, in management's judgment, the likelihood of future loss is probable
and for which the expected losses can be reasonably estimated. Case reserves
are established for the net present value of estimated losses on particular
insured obligations. These reserves represent an estimate of the present value
of the anticipated shortfall, net of reinsurance, 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. As
of December 31, 2003 and 2002, discounted case-basis loss and loss adjustment
expense reserves were $18,900 and $21,500, respectively. Loss and loss
adjustment expenses included amounts discounted at an approximate interest
rate of 4.4% in 2003 and 3.4% in 2002. The amount of the discount at December
31, 2003 and 2002 was $3,400 and $4,000, respectively. The discount rate used
is based upon the risk-free rate for the average maturity of the applicable
bond sector.


                                      8
<PAGE>


3. Summary of Significant Accounting Policies (continued)

In addition to case reserves, the Company establishes reserves to cover those
impaired credits on its credit watch list. These reserves are designed to
recognize the potential for claims on credits that have migrated to an
impaired level where there is an increased probability of default, but that
are not presently or imminently in payment default. The methodology for
establishing and calculating the watch list reserve relies on a categorization
and assessment of the probability of default, and loss severity given default,
of the impaired credits on the list. The reserve applies to the group of
credits at various stages of impairment, not each individual credit, as is the
situation in a case basis reserve. The watch list reserve is adjusted as
necessary to reflect changes in the loss expectation inherent in the group of
impaired credits. As of December 31, 2003, such reserves were $21,600. Prior
to the Transaction, the Company established similar reserves based upon an
evaluation of the insured portfolio in light of current economic conditions
and other relevant factors. As of December 31, 2002, such reserves were
$26,400.

The reserve for loss and loss adjustment expenses is based upon estimates and,
in management's opinion, the reserves for loss and loss adjustment expenses
are adequate. However, actual results will likely differ from those estimates.

e. 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. These temporary differences relate principally to unrealized gains and
losses on available-for-sale fixed maturity securities, premium revenue
recognition, deferred acquisition costs, discount on loss and loss adjustment
reserves and certain loss reserves, alternative minimum tax (AMT) credit carry
forwards and profit commission. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those 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 that includes the enactment date.

Financial guaranty insurance companies are permitted to deduct from taxable
income, subject to certain limitations, amounts added to statutory contingency
reserves (see Note 4). The amounts deducted must be included in taxable income
upon their release from the reserves. The amounts deducted are allowed as
deductions from taxable income only to the extent that U.S. Government
non-interest bearing tax and loss bonds are purchased and held in an amount
equal to the tax benefit attributable to such deductions.


                                      9
<PAGE>


3. Summary of Significant Accounting Policies (continued)

f. Property and Equipment

Property and equipment consists of office furniture, fixtures, computer
equipment and software and leasehold improvements, which 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 life 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.

g. Goodwill

Effective January 1, 2002, the FGIC Corporation adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS
142"). Under SFAS No. 142, goodwill is no longer amortized but rather is
tested for impairment at least annually.

In accounting for the acquisition of FGIC Corporation by the Investor Group in
2003, the Company has applied purchase accounting as prescribed by Statement
of Financial accounting Standards No. 141 Business Combinations ("SFAS 141")
and Securities and Exchange Commission Staff Accounting Bulletin 54. Under
this accounting method, the purchase price has been pushed down into the
accompanying 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, the remaining negative goodwill of
$13,852 was recorded as an extraordinary gain in the consolidated statement of
income. In 1989, when FGIC Corporation was acquired by GE Capital, FGIC
Corporation did not push down the purchase price and related goodwill to the
Company.

As a result of the purchase accounting effective on December 18, 2003, the
basis of the assets and liabilities has changed, which necessitates the
presentation of Predecessor Company and the Successor Company columns in the
Consolidated Balance Sheet, Statements of Income, Shareholders' Equity and
Cash Flows.


                                      10
<PAGE>


3. Summary of Significant Accounting Policies (continued)

h. Foreign Currency Translation

The Company has an established foreign branch in the United Kingdom and
exposure in France and determined that the functional currencies of these
branches are their local currencies. Accordingly, the assets and liabilities
of these foreign branches are translated into U.S. dollars at the rates of
exchange existing at December 31, 2003 and 2002 and revenues and expenses are
translated at average monthly exchange rates. The cumulative translation gain
(loss) at December 31, 2003 and 2002 was $0 and $(2,729), respectively, net of
tax expense (benefit) of $0 and $(1,470), respectively, and is reported as a
separate component of accumulated other comprehensive income in the statement
of stockholders' equity.

i. New Accounting Pronouncements

In January 2003, the FASB issued Financial Interpretation Number 46,
Consolidation of Variable Interest Entities ("FIN 46"), which the Company
adopted on July 1, 2003. FIN 46's consolidation criteria are based upon
analysis of risks and rewards, not control, and represent a significant and
complex modification of previous accounting principles. FIN 46 represents an
accounting change not a change in the underlying economics associated with the
transactions, which may be affected by the Interpretation. FIN 46 clarifies
the consolidation criteria for certain entities in which equity investors do
not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN 46
requires variable interest entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risk among parties
involved. Variable interest entities that effectively disperse risks will not
be consolidated. FIN 46 requires disclosures for entities that have either a
primary or significant variable interest in a variable interest entity.

As a part of its structured finance business, the Company insures debt
obligations or certificates issued by special purposes entities. At December
31, 2003, the Company had $1,021,000 of gross principal outstanding related to
insurance contracts issued to commercial paper conduits--variable interest
entities under FIN 46--which the Company does not believe requires
consolidation but which requires disclosure. With respect to the remainder of
the municipal finance and structured finance transactions insured, the Company
has evaluated the transactions, and does not believe any such transactions
require consolidation or disclosure under FIN 46.


                                      11
<PAGE>


4. Statutory Accounting Practices

The financial statements are prepared on the basis of GAAP, which differs in
certain respects from accounting practices prescribed or permitted by the
Department. The National Association of Insurance Commissioners ("NAIC")
approved the codification project ("Codification") effective January 1, 2001
and the Department adopted certain but not all provisions of Codification.

The following are the significant differences between the Company's
statutory-basis accounting practices and GAAP:

 (a) premiums are earned directly in proportion to the scheduled principal and
     interest payments rather than in proportion to the total exposure
     outstanding at any point in time under GAAP;

 (b) policy acquisition costs are charged to current operations as incurred
     rather than as related premiums are earned under GAAP;

 (c) a contingency reserve is computed on the basis of statutory requirements
     for the security of all policyholders, regardless of whether loss
     contingencies actually exist, whereas under GAAP, a reserve is
     established based on an ultimate estimate of exposure;

 (d) certain assets designated as nonadmitted assets are charged directly
     against surplus but are reflected as assets under GAAP, if recoverable;

 (e) deferred tax assets are limited to 1) the amount of federal income taxes
     paid in prior years that can be recovered through loss carry backs for
     existing temporary differences that reverse by the end of the subsequent
     calendar year, plus 2) the lesser of the remaining gross deferred tax
     assets expected to be realized within one year of the balance sheet date
     or 10% of capital and surplus excluding any net deferred tax assets, EDP
     equipment and operating software and any net positive goodwill, plus 3)
     the amount of remaining gross deferred tax assets that can be offset
     against existing gross deferred tax liabilities. The remaining deferred
     tax assets are non-admitted. Deferred taxes do not include amounts for
     state income taxes. Under GAAP, state income taxes are included in the
     computation of deferred taxes, a deferred tax asset is recorded for the
     amount of gross deferred tax assets expected to be realized in future
     years, and a valuation allowance is established for deferred tax assets
     not realizable.


                                      12
<PAGE>


4.     Statutory Accounting Practices (continued)

 (f) purchases of tax and loss bonds are reflected as admitted assets; while
     under GAAP they are recorded as federal income tax payments;

 (g) all fixed income investments are carried at amortized cost rather than at
     fair value for securities classified as available-for-sale under GAAP;

 (h) profit commissions are recognized as received while under GAAP
     management's best estimate of the Company's ultimate recoverable is
     accrued; and

 (i) case reserves are discounted at the average investment portfolio yield
     for statutory purposes and at the risk-free rate under GAAP.

Statutory-basis surplus of the Company at December 31, 2003 and 2002 was
$1,153,500 and $977,573, respectively. Statutory-basis net income (loss) for
the period from December 18, 2003 through December 31, 2003, from January 1,
2003 through December 17, 2003 and for the years ended December 31, 2002 and
2001 was ($1,669), $180,091, $205,476 and $206,893, respectively.

5. Investments

Investments in fixed maturity securities carried at fair value of $3,900 as of
December 31, 2003 and 2002 were on deposit with various regulatory authorities
as required by law.

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


<TABLE>
<CAPTION>

                                                                    Successor
                                       --------------------------------------------------------------------
                                                             Gross            Gross
                                                          Unrealized       Unrealized
                                        Amortized Cost       Gains           Losses          Fair Value
                                       --------------------------------------------------------------------
<S>                                      <C>                 <C>             <C>             <C>
At December 31, 2003:
   Obligations of states and
     political subdivisions              $  2,363,870        $ 3,098         $   538         $ 2,366,430
   Asset and mortgage backed                  245,394            630             394             245,630
   U.S. Treasury securities and
     obligations of U.S. Government
     corporations and agencies                  4,280              -              35               4,245
   Debt securities issued by foreign
     governments                               44,405            737               -              45,142
Preferred stock                                30,510             14              49              30,475
                                       --------------------------------------------------------------------
Total                                    $  2,688,459        $ 4,479         $ 1,016         $ 2,691,922
                                       ====================================================================
</TABLE>


                                      13
<PAGE>


5. Investments (continued)

<TABLE>
<CAPTION>

                                                                   Predecessor
                                       --------------------------------------------------------------------
                                                             Gross            Gross
                                          Amortized       Unrealized        Unrealized
                                             Cost            Gains            Losses         Fair Value
                                       --------------------------------------------------------------------
<S>                                      <C>              <C>              <C>             <C>
At December 31, 2002:
   Obligations of states and
     political subdivisions              $  2,141,391      $  73,155        $  4,586        $  2,209,960
   Asset and mortgage backed                  525,607         10,900              63             536,444
   U.S. Treasury securities and
     obligations of U.S. Government
     corporations and agencies                  3,365            833               -               4,198
   Debt securities issued by foreign
     governments                               43,653          1,127               -              44,780
Preferred stock                                30,598              7             515              30,090
                                       --------------------------------------------------------------------
Total                                    $  2,744,614      $  86,022        $  5,164        $  2,825,472
                                       ====================================================================

</TABLE>

The following table shows gross unrealized losses and 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, 2003:

<TABLE>
<CAPTION>

                                                                       Successor
                                     ------------------------------------------------------------------------------
                                        Less Than 12 Months        12 Months or More               Total
                                     ------------------------------------------------------------------------------
                                      Fair Value   Unrealized   Fair Value   Unrealized    Fair Value  Unrealized
                                                     Losses                    Losses                    Losses
                                     ------------------------------------------------------------------------------
<S>                                   <C>           <C>           <C>          <C>        <C>            <C>
Obligations of states and political
   subdivisions                        $  786,381    $   538       $ -          $  -       $   786,381    $   538
Asset and mortgage backed                 209,032        394         -             -           209,032        294
U.S. Treasury securities and
   obligations of U.S. government
   corporations and agencies                4,245         35         -             -             4,245         35
Preferred stock                            13,450         49         -             -            13,450         49
                                     ------------------------------------------------------------------------------
Total temporarily impaired
   securities                         $ 1,013,108    $ 1,016       $ -          $  -       $ 1,013,108    $ 1,016
                                     ==============================================================================

</TABLE>


                                      14
<PAGE>


5. Investments (continued)

The amortized cost and fair values of investments in fixed maturity
securities, available-for-sale at December 31, 2003, by contractual maturity
date, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

<TABLE>
<CAPTION>

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

<S>                                                          <C>                     <C>
Due one year later or less                                    $         19,538        $          19,803
Due after one year through five years                                   53,164                   53,539
Due after five years through ten years                               1,050,670                1,052,355
After ten years                                                      1,565,087                1,566,225
                                                           -------------------------------------------------
Total                                                         $      2,688,459        $       2,691,922
                                                           =================================================

</TABLE>

For the period from December 18, 2003 through December 31, 2003, January 1,
2003 through December 17, 2003 and the years ended December 31, 2002 and 2001,
proceeds from sales of available-for-sale securities were $1,780, $1,023,378,
$2,155,829, and $2,106,761, respectively. For the period from January 1, 2003
through December 17, 2003 and the years ended December 31, 2002 and 2001,
gross gains of $31,700, $68,600 and $78,400 respectively, and gross losses of
$200, $100 and $1,400, respectively, were realized on such sales.

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

<TABLE>
<CAPTION>

                                                     Successor                               Predecessor
                                               ------------------   -------------------------------------------------------------
                                                   Period from           Period from
                                                    December               January
                                                    18, 2003               1, 2003                      Year ended
                                                     through               through                     December 31
                                                    December               December        -------------------------------------
                                                     31, 2003               17, 2003             2002               2001
                                               ----------------------------------------------------------------------------------

<S>                                               <C>                 <C>                    <C>             <C>
Income from fixed maturity securities              $       4,294       $        111,075       $   113,108     $       120,162
Income from short-term investments                            12                  2,326             7,485               5,838
                                               ----------------------------------------------------------------------------------
Total investment income                                    4,306                113,401           120,593             126,000
Investment expenses                                          (37)                  (782)             (998)             (1,008)
                                               ----------------------------------------------------------------------------------
Net investment income                              $       4,269       $        112,619       $   119,595     $       124,992
                                               ==================================================================================

</TABLE>


                                      15
<PAGE>


5. Investments (continued)

As of December 31, 2003, 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                                         $    258,356
Florida                                               222,205
Texas                                                 212,768
New Jersey                                            164,427
Illinois                                              142,017
California                                            128,059
Michigan                                              107,879
Pennsylvania                                          100,434
Maryland                                               98,411
Ohio                                                   80,416
                                         ----------------------------
                                                    1,514,972
All other states                                      871,259
All other investments                                 320,068
                                         ----------------------------
                                                 $  2,706,299
                                         ============================

6. Income Taxes

For the period ending on the closing date of the Transaction, the Company
files its federal tax return as part of the consolidated return of GE Capital.
Under the tax sharing agreement with GE Capital, tax is allocated to the
Company based upon its respective contributions to consolidated net income.
For the period subsequent to the closing date of the sale transaction, the
Company will become eligible to file its own consolidated federal return.


                                      16
<PAGE>


6. Income Taxes (continued)

The Company's effective federal income tax rate is less than the corporate tax
rate on ordinary income of 35%, primarily due to tax-exempt interest on
municipal investments.

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

<TABLE>
<CAPTION>

                                                   Successor                                   Predecessor
                                             ------------------------------------------------------------------------------------
                                                  Period from              Period from
                                                  December 18,           January 1, 2003
                                                  2003 through               through                   Year ended December 31
                                                    December                 December          ----------------------------------
                                                    31, 2003                 17, 2003                2002                2001
                                             ------------------------------------------------------------------------------------
<S>                                             <C>                    <C>                       <C>               <C>
    Income taxes computed on income before       $         2,785        $         85,928          $    102,691      $     98,292
      provision for Federal income taxes,
      at the statutory rate
    Tax effect of:
       Tax-exempt interest                                  (979)                (26,112)              (26,788)          (32,730)
       Other, net                                            (42)                 (7,548)                  (85)                4
                                             ------------------------------------------------------------------------------------
    Provision for income taxes                   $         1,764        $         54,160          $     75,818      $     65,566
                                             ====================================================================================

</TABLE>



                                      17
<PAGE>


6. Income Taxes (continued)

The tax effects of temporary differences that give rise to significant
portions of the net deferred tax liability at December 31, 2003 and 2002 are
presented below:

<TABLE>
<CAPTION>

                                                                        Successor              Predecessor
                                                                           2003                   2002
                                                                   -----------------------------------------------
<S>                                                                   <C>                <C>
Deferred tax assets:
   Loss and loss adjustment expense reserves                           $      6,026       $             7,495
   AMT credit carryforward                                                      276                         -
   Property and equipment                                                         -                       656
   Foreign currency                                                               -                     1,470
   Deferred compensation                                                        221                       319
   Premium revenue recognition                                                1,129                         -
   Capital lease                                                              2,444                         -
   Net operating loss                                                         4,690                         -
   Other                                                                        426                       934
                                                                   -----------------------------------------------
Total gross deferred tax assets                                              15,212                    10,874
                                                                   -----------------------------------------------

Deferred tax liabilities:
   Unrealized gains on fixed maturity securities,
     available-for-sale                                                      29,462                    28,123
   Deferred acquisition costs                                                 1,022                    24,973
   Premium revenue recognition                                                    -                    45,640
   Profit commission                                                          2,108                     2,671
   Foreign currency                                                             916                         -
   Other                                                                        566                        62
                                                                   -----------------------------------------------
Total gross deferred tax liabilities                                         34,074                   101,469
                                                                   -----------------------------------------------
Net deferred tax liability                                             $     18,862       $            90,595
                                                                   ===============================================

</TABLE>

The Company's net operating loss carry forwards of $13,400 expire in 2023.
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, 2003 and 2002.


                                      18
<PAGE>


6. Income Taxes (continued)

Total federal income tax payments during the period from December 18, 2003
through December 31, 2003, from January 1, 2003 through December 17, 2003 and
for the years ended December 31, 2002 and 2001 were $0, $156,800, $77,500 and
$38,300, respectively.

7. 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 insured 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 to cover
costs of producing business.

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 reduce capital needs.
The Company currently arranges reinsurance on only a facultative (transaction
by transaction) basis. Prior to 2003, the Company also had treaty reinsurance
agreements that provided coverage for a specified portion of the exposure
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 in cases where reinsurers fail to
perform their obligations under the various reinsurance agreements. 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 significant ratings downgrade of
the reinsurer or the occurrence of certain other special cancellation events.
In certain of these cases, the Company also has the right to impose additional
ceding commissions.

In recent years, a number of the Company's reinsurers have been downgraded by
the rating agencies, thereby reducing the financial benefits of using
reinsurance under the rating agency capital adequacy models because the
Company must allocate additional capital to the related reinsured exposure.
The Company still receives statutory credit for this reinsurance. In
connection with such a downgrade, the Company reassumed $6,300, $14,300,
$2,600 and $3,200, of ceded premiums for the period from December 18, 2003
through December 31, 2003, from January 1, 2003 through December 17, 2003 and
for the years ended December 31, 2002 and 2001, respectively, from the
reinsurers.


                                      19
<PAGE>


7. Reinsurance (continued)

The Company holds collateral under reinsurance agreements in the form of
letters of credit and trust agreements in various amounts with various
reinsurers totaling $53,200 at December 31, 2003 that can be drawn on in the
event of default by the reinsurer.

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 through              through                 Year ended December 31
                                                     December                December        -------------------------------------
                                                     31, 2003                17, 2003               2002               2001
                                             -------------------------------------------------------------------------------------

<S>                                              <C>                      <C>                  <C>                <C>
   Net premiums earned                            $         1,236          $      20,300        $      27,000      $    20,600
   Loss and loss adjustment expenses              $             -          $       1,700        $         800      $       700

</TABLE>

                     8. Loss and Loss Adjustment Expenses

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

<TABLE>
<CAPTION>

                                                    Successor                                  Predecessor
                                       --------------------------   --------------------------------------------------------------
                                                   Period from             Period from
                                                   December 18,          January 1, 2003
                                                   2003 through              through                 Year ended December 31
                                                     December                December        -------------------------------------
                                                     31, 2003                17, 2003               2002               2001
                                       -------------------------------------------------------------------------------------------

<S>                                       <C>                        <C>                  <C>                  <C>

    Balance at beginning of period          $      40,224             $       47,868       $         48,855    $         46,707
    Less reinsurance recoverable                   (8,085)                    (8,371)                (9,640)             (8,956)
                                       -------------------------------------------------------------------------------------------
    Net balance                                    32,166                     39,497                 39,215              37,751
                                       -------------------------------------------------------------------------------------------
    Incurred related to:
      Current period                                    -                      5,000                  5,074                   -
      Prior periods                                   236                     (8,337)                 3,127               1,752
      Watchlist reserves                                -                     (3,420)                (7,700)                  -
                                       -------------------------------------------------------------------------------------------
    Total incurred                                    236                     (6,757)                   501               1,752
                                       -------------------------------------------------------------------------------------------

    Paid related to:
      Current period                                    -                          -                      -                   -
      Prior periods                                     -                       (574)                  (219)               (288)
                                       -------------------------------------------------------------------------------------------
    Total paid                                          -                       (574)                  (219)               (288)
                                       -------------------------------------------------------------------------------------------

    Net balance                                    32,402                     32,166                 39,497               39,215
    Plus reinsurance recoverable                    8,065                      8,085                  8,371                9,640
                                       -------------------------------------------------------------------------------------------
    Balance at end of period                $      40,467             $       40,204       $         47,868    $          48,855
                                       ===========================================================================================

</TABLE>


                                      20
<PAGE>


               8. Loss and Loss Adjustment Expenses (continued)

During the period from January 1, 2003 through December 17, 2003, the overall
decrease in case reserves was driven by a reduction in reserves previously
established on several structured finance transactions of one particular
issuer. Certain transactions related to the issuer were identified as
potential problem credits in 2001 and 2000 and case reserves were established
during those years. In 2002, there was further adverse development on such
transactions and a determination was made by management that several other
transactions related to that issuer also required case reserves.

9. Related Party Transactions

The Company had various agreements with subsidiaries of General Electric
Company and GE Capital. These business transactions included certain payroll
and office expenses, investment fees pertaining to the management of the
Company's investment portfolio and telecommunication service charges.
Approximately $1,600, $2,200 and $1,200 in expenses were incurred in the
period from January 1, 2003 through December 17, 2003 and for the years ended
December 31, 2002 and 2001, respectively, related to such transactions and are
reflected in the accompanying consolidated financial statements.

As part of the Transaction, the Company entered into a transitional services
agreement with GE Capital to provide certain administrative and support
services in exchange for certain scheduled fees during the 12 months following
the date of the agreement. Investment management services continue to be
provided by GE Capital. The Company plans to transfer investment management
services by the end of the first quarter of 2004 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
13).


                                      21
<PAGE>


9. Related Party Transactions (continued)

In connection with the Transaction, the Company entered into the $300,000 Soft
Capital Facility with GE Capital as lender and administrative agent. The Soft
Capital Facility, which replaced the capital support facility that the Company
previously had with GE Capital, has an initial term of eight years. The
commitment of GE Capital or any other lender which GE Capital may syndicate to
under the Soft Capital Facility can be extended for one-year terms at the
request of the Company and with the consent of such lender. During the term of
the Soft Capital Facility, the Company may borrow thereunder if the cumulative
losses (net of reinsurance and net of recoveries) it incurs with regard to its
public finance insured portfolio exceed certain predetermined amounts, which
amount initially is the greater of $500,000 and 3.6% of the Company's average
annual debt service on its public finance insured portfolio and escalates each
year during the term of the Soft Capital Facility. The amount that the Company
may borrow at any given time cannot exceed the lesser of such excess
cumulative loss and the unutilized commitments of the lender under the Soft
Capital Facility. Any repayment of amounts drawn under the Soft Capital
Facility is limited primarily to the amount of any recoveries of losses
related to policy obligations in the covered public finance insured portfolio.
No amounts are currently outstanding under this facility. The Soft Capital
Facility replaced a prior agreement with GE Capital which was cancelled on the
date of the Transaction. Under the terms of an agreement dated May 14, 1993
and renewed through December 17, 2003, GE Capital had agreed to purchase
common shares up to an aggregate fair value of $300,000 in the event that a
rating downgrade of the Company and its subsidiary, FGIC, are imminent. In
exchange for this commitment, the Company paid an annual commitment fee of
0.60% of the then outstanding commitment at each quarter end.

As part of the Transaction, GE Capital and the Company entered into a
reimbursement agreement, which covers losses incurred in excess of $5,000
related to several structured finance transactions of one particular issuer.
The agreement is subject to a maximum of $25,000.

The Company also insured certain nonmunicipal 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 $20 for the period from January 1, 2003 through December
18, 2003, $50 in 2002 and $100 in 2001. As of December 31, 2003, par
outstanding on these deals before reinsurance was $35,000.


                                      22
<PAGE>


9. Related Party Transactions (continued)

The Company insures bond issues and securities in trusts that were sponsored
by affiliates of GE (approximately 1% of gross premiums written) in 2003, 2002
and 2001.

As of December 31, 2003, receivable from related parties of $9,759 are due
from GE Capital and its affiliates for prepaid taxes.

10. Compensation Plans

Officers and other key employees of the Company participate in the incentive
compensation and deferred compensation plans. Expenses incurred by the Company
under compensation plans and bonuses amounted to $3,996, $10,087, $3,800 and
$2,700 for the period from December 18, 2003 through December 31, 2003, the
period from January 1, 2003 through December 17, 2003 and the years ended
December 31, 2002 and 2001, respectively and are reflected in the accompanying
financial statements. The increase in 2003 is driven by transaction related
costs which include retention bonuses and sign-on bonuses to new hires
post-acquisition.

11. Dividends

Under New York insurance law, the Company may pay a dividend to FGIC
Corporation only from earned surplus subject to the following limitations: (a)
statutory surplus after such dividend may not be less than the minimum
required paid-in capital, which was $72,500 in 2003 and 2002, and (b)
dividends may not exceed the lesser of 10% of its 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. In connection with
the Transaction, FGIC Corporation agreed that no dividends will be paid by the
Company until December 18, 2005, without prior approval of the New York State
Insurance Department.

During the period from January 1, 2003 through December 17, 2003 and for the
years ended December 31, 2002 and 2001, the Company declared and paid
dividends to FGIC Corporation of $284,300, $100,000 and $200,000,
respectively. The $284,300 and $200,000 in dividends declared in 2003 and
2001, respectively, were approved by the New York State Superintendent of
Insurance as extraordinary dividends.


                                      23
<PAGE>


                           12. Financial Instruments

   (a)  Fair Value of Financial Instruments
        The following methods and assumptions were used by the Company in
        estimating 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 are 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, 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, 2003 and 2002 are as follows:


<TABLE>
<CAPTION>

                                                        Successor                         Predecessor
                                                          2003                               2002
                                           -----------------------------------------------------------------------
                                               Carrying            Fair           Carrying            Fair
                                                Amount            Value            Amount             Value
                                           -----------------------------------------------------------------------
<S>                                         <C>              <C>               <C>               <C>
Financial assets:
   Cash:
    On hand and in-demand accounts           $      85,628    $      85,628     $       7,260     $       7,260
    Short-term investments                          14,377           14,377            43,144            43,144
    Fixed maturity securities                    2,691,922        2,691,922         2,825,472         2,825,472

</TABLE>


                                      24
<PAGE>


                     12. Financial Instruments (continued)

              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
              is $830,881 compared to a carrying value of $824,595 as of
              December 31, 2003 and is $581,764 compared to a carrying value
              of $521,721 as of December 31, 2002.

              As of December 31, 2003 and 2002, the net present value of
              future installment premiums was $111,200 and $100,200,
              respectively, discounted at 5% at December 31, 2003 and 2002.

   (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
        for 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 insured by a party of acceptable credit
        quality obligated to make payment prior to any payment by the Company.
        The types and extent of collateral pledged varies, but may include
        residential and commercial mortgages, corporate debt, government debt
        and consumer receivables.


                                      25
<PAGE>


                     12. Financial Instruments (continued)

     As of December 31, 2003, the Company's total insured principal exposure
     to credit loss in the event of default by bond issues was $206,745,000,
     net of reinsurance of $27,359,000. The Company's insured portfolio as of
     December 31, 2003 was broadly diversified by geography and bond market
     sector with no single debt issuer representing more than 1% of the
     Company's principal exposure outstanding, net of reinsurance.


As of December 31, 2003, the composition of principal exposure by type of
issue, net of reinsurance, was as follows:

                                                    Successor
                                           -----------------------------
                                                  Net Principal
                                                   Outstanding
                                           -----------------------------
Municipal:
  General obligation                          $        103,236,000
  Special revenue                                       85,696,000
  Industrial revenue                                       397,000
  Nonmunicipal                                          17,416,000
                                           -----------------------------
Total                                         $        206,745,000
                                           =============================

As of December 31, 2003, the composition of principal exposure ceded to
reinsurers was as follows:

                                                    Successor
                                           ----------------------------
                                                 Ceded Principal
                                                   Outstanding
                                           ----------------------------
Reinsurer:
  Ace Guaranty Inc.                           $          9,755,000
  Radian Reinsurance Company                             6,742,000
  American Re-Insurance Company                          2,876,000
  RAM Reinsurance Company                                2,443,000
  Other                                                  5,543,000
                                           ----------------------------
Total                                         $         27,359,000
                                           ============================

     THE COMPANY DID NOT HAVE RECOVERABLES IN EXCESS OF 3% OF EQUITY FROM
                            ANY SINGLE REINSURER.


                                      26
<PAGE>


                     12. Financial Instruments (continued)

The Company's gross and net exposure outstanding, which includes principal and
interest, was $392,200,000 and $343,400,000, respectively, as of December 31,
2003.

The Company is authorized to do business in 50 states, the District of
Columbia, and in the United Kingdom. Principal exposure outstanding at
December 31, 2003 by state, net of reinsurance, was as follows:

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

           California                            $       24,821,600
           New York                                      18,630,900
           Pennsylvania                                  15,992,600
           Florida                                       14,975,600
           Illinois                                      13,933,900
           Texas                                         10,556,500
           New Jersey                                     9,428,500
           Michigan                                       7,834,900
           Ohio                                           5,945,700
           Washington                                     5,928,100
                                              --------------------------
           Subtotal                                     128,048,300
           Other states                                  64,480,100
           Mortgage and asset backed                     14,047,800
           International                                    168,600
                                              --------------------------
           Total                                 $      206,744,800
                                              ==========================


                                      27
<PAGE>


                                13. Commitments

The Company leases office space under an operating lease agreement. Rent
expense under the operating lease for the period from December 18, 2003
through December 31, 2003, from January 1, 2003 through December 17, 2003 and
for the years ended December 31, 2002 and 2001 was $90, $3,210, $4,300 and
$2,200, respectively.

                                                        Amount
                                                   ---------------
Year:
   2004                                               $  1,910
   2005                                                  1,983
   2006                                                  2,085
   2007                                                  2,085
   2008                                                  1,216
                                                   ---------------
Total minimum future rental payments                  $  9,279
                                                   ===============

In connection with the transaction, the Company entered into a capital lease
with a related party, covering leasehold improvements and computer equipment
to be used at its home office. 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:

                                                             Successor
                                                        ---------------------
                                                               Amount
                                                        ---------------------
Year ending December 31:
   2004                                                          $1,750
   2005                                                           1,646
   2006                                                           1,570
   2007                                                           1,545
   2008                                                           1,390
Thereafter                                                          265
                                                        ---------------------
Total                                                             8,166
Less: interest                                                    1,184
                                                        ---------------------
Present value of minimum lease payments                          $6,982
                                                        =====================


                                      28
<PAGE>


14. Comprehensive Income

Accumulated other comprehensive income (loss) of the Company consists of net
unrealized gains on investment securities and foreign currency transaction
adjustments.

The components of other comprehensive income for the period from December 18,
2003 through December 31, 2003, period from January 1, 2003 through December
17, 2003 and the years ended December 31, 2002 and 2001 or as follows:

<TABLE>
<CAPTION>

                                                                                               Successor
                                                                       ----------------------------------------------------------
                                                                                      Period from December 18, 2003
                                                                                        though December 31, 2003
                                                                       ----------------------------------------------------------
                                                                              Before                                 Net of
                                                                               Tax                                    Tax
                                                                              Amount             Tax                 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
Foreign currency translation adjustment                                           -                   -                   -
                                                                       ----------------------------------------------------------
Total other comprehensive income                                         $    3,168            $ (1,109)           $  2,059
                                                                       ==========================================================

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

Unrealized holding gains arising during the period                       $   30,853            $ (10,799)         $   20,054
Less reclassification adjustment for gains realized in net income           (31,506)              11,027             (20,479)
                                                                       ----------------------------------------------------------
Unrealized gains 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>


                                      29
<PAGE>


14. Comprehensive Income (continued)

<TABLE>
<CAPTION>

                                                                                              Predecessor
                                                                       ----------------------------------------------------------
                                                                                                 2002
                                                                       ----------------------------------------------------------
                                                                              Before                                 Net of
                                                                               Tax                                    Tax
                                                                              Amount                Tax              Amount
                                                                       ----------------------------------------------------------

<S>                                                                     <C>                  <C>                 <C>
Unrealized holding gains arising during the period                       $  171,797           $  (60,129)         $  111,668
Less reclassification adjustment for gains realized in net income           (68,546)              23,991             (44,555)
                                                                       ----------------------------------------------------------
Unrealized gains on investments                                             103,251              (36,138)             67,113
Foreign currency translation adjustment                                      (4,127)               1,445              (2,682)
                                                                       ----------------------------------------------------------
Total other comprehensive income                                         $   99,124           $  (34,723)         $   64,431
                                                                       ==========================================================

                                                                                              Predecessor
                                                                       ----------------------------------------------------------
                                                                                                 2001
                                                                       ----------------------------------------------------------
                                                                              Before                Tax              Net of
                                                                               Tax                                    Tax
                                                                              Amount                                 Amount
                                                                       ----------------------------------------------------------

Unrealized holding gains arising during the period                       $   20,213           $    (7,075)        $   13,138
Less reclassification adjustment for gains realized in net income           (77,043)               26,965            (50,078)
                                                                       ----------------------------------------------------------
Unrealized losses on investments                                            (56,830)               19,890            (36,940)
Foreign currency translation adjustment                                      (1,711)                  599             (1,112)
                                                                       ----------------------------------------------------------
Total other comprehensive loss                                           $  (58,541)          $    20,489         $  (38,952)
                                                                       ==========================================================


</TABLE>


                                      30