ADVANTA MORTGAGE LOAN TRUST 1996-3
8-K, 1996-09-20
ASSET-BACKED SECURITIES
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<PAGE>

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                      SECURITIES AND EXCHANGE COMMISSION
                                       
                            Washington, D.C. 20549
                                       
                                   Form 8-K
                                       
                                CURRENT REPORT
                                       
                    Pursuant to Section 13 or 15(d) of the
                        Securities Exchange Act of 1934
                                       
                                       
      Date of Report (Date of earliest event reported) September 11, 1996
                                       
   Advanta Mortgage Conduit Services, Inc. (as sponsor under the Pooling and
Servicing Agreement, dated as of September 1, 1996, providing for the issuance
                        of Advanta Mortgage Loan Trust)


                      Advanta Mortgage Loan Trust 1996-3
            (Exact name of registrant as specified in its charter)
                                       

<TABLE>
<S>                                                     <C>                          <C>
                      New York                                  33-99510                    Application Pending
- --------------------------------------------------      ----------------------      ----------------------------------
           (State or Other Jurisdiction of                  (Commission File                  (I.R.S. Employer
                   Incorporation)                                Number)                    Identification No.)


            c/o Advanta Mortgage Conduit                                                           92127
                   Services, Inc.                                                   ----------------------------------
              Attention: Milton Riseman
              16875 West Bernardo Drive                                                          (Zip Code)
                San Diego, California
      (Address of Principal Executive Offices)
</TABLE>

       Registrant's telephone number, including area code (619) 674-1800


- --------------------------------------------------------------------------------


<PAGE>

Item 5.  Other Events

                  The financial statements of Financial Guaranty Insurance
Company as of December 31, 1995 and 1994 that are included in the Form 8-K have
been audited by KPMG Peat Marwick LLP.  The consent of KPMG Peat Marwick LLP to
the inclusion of their audit report on such financial statements in this Form
8-K and to being named as "Experts" in the Prospectus Supplement for the Advanta
Mortgage Loan Trust 1996-3 is attached hereto as Exhibit 23.1.

                  The financial statements of Financial Guaranty Insurance
Company as of December 31, 1995 and 1994 are attached hereto as Exhibit 99.1. 
The unaudited financial statements of Financial Guaranty Insurance Company as of
June 30, 1996 are attached hereto as Exhibit 99.2.

Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.

                  (a)      Not applicable

                  (b)      Not applicable.


                  (c)      Exhibits

                           Exhibit No.

                           23.1             Consent of KPMG Peat Marwick LLP

                           99.1             Audited Financial Statements of 
                                            FGIC as of December, 1995 and
                                            December 1994.

                           99.2             Unaudited Financial Statements of 
                                            FGIC as of June 30, 1996.

<PAGE>


                                  SIGNATURES


                  Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.


                                                     ADVANTA MORTGAGE LOAN


                                                     By:/s/ Mark Casale
                                                        -----------------------
                                                     Name:    Mark Casale
                                                     Title: Vice-President


Dated:  September 16, 1996
 
 

<PAGE>

                                       
                                 EXHIBIT INDEX



Exhibit No.                Description                                 Page No.

         23.1              Consent of KPMG Peat Marwick LLP                5

         99.1              Audited Financial Statements of
                           FGIC as of December, 1995 and
                           December, 1994                                  6

         99.2              Unaudited Financial Statements
                           of FGIC as of June 30, 1996.                    15




<PAGE>
                                                        EXHIBIT 23.1 


                         CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Financial Guaranty Insurance Company:

     We consent to the use of our report dated January 19, 1996 on the financial
statements for Financial Guaranty Insurance Company as of December 31, 1995 and
1994, and for each of the years in the three-year period ended December 31, 1995
included in the Form 8-K of Advanta Mortgage Conduit Services, Inc., and to the
reference to our firm under the heading "Experts" in the Prospectus Supplement.

     Our report refers to changes, in 1993, in accounting methods for
multiple-year retrospectively rated reinsurance contracts and for the adoption
of the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities.



                                                       /s/ KPMG Peat Marwick LLP



New York, New York
September 16, 1996



Financial Guaranty Insurance
Company                                                           Balance Sheets

<TABLE>
<CAPTION>
($ in Thousands, except per share amounts)

                                                                           December 31,                 December 31,
Assets                                                                         1995                         1994
                                                                           ------------                 ------------
<S>                                                                        <C>                          <C>
Fixed maturity securities available-for-sale
  (amortized cost of $2,043,453 in 1995 and $1,954,177 in 1994)             $2,141,584                  $1,889,910
Short-term investments, at cost, which approximates market                      91,032                      75,674
Cash                                                                               199                       1,766
Accrued investment income                                                       37,347                      40,637
Reinsurance recoverable                                                          7,672                      14,472
Prepaid reinsurance premiums                                                   162,087                     164,668
Deferred policy acquisition costs                                               94,868                      90,928
Property and equipment, net of accumulated depreciation
($12,861 in 1995 and $10,512 in 1994)                                            6,314                       7,912
Receivable for securities sold                                                  26,572                           -
Prepaid expenses and other assets                                               12,627                      12,243
                                                                            ----------                  ----------
       Total assets                                                         $2,580,302                  $2,298,210
                                                                            ==========                  ==========

Liabilities and Stockholder's Equity

Liabilities:

Unearned premiums                                                          $   727,535                  $  757,425
Loss and loss adjustment expenses                                               77,808                      98,746
Ceded reinsurance balances payable                                               1,942                       2,258
Accounts payable and accrued expenses                                           32,811                      28,489
Payable to Parent                                                                1,647                      18,600
Current federal income taxes payable                                            51,296                      82,123
Deferred federal income taxes                                                   99,171                      22,640
Payable for securities purchased                                                40,211                       8,206
                                                                            ----------                  ----------
       Total liabilities                                                     1,032,421                   1,018,487
                                                                            ----------                  ----------

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                                                     334,011                     334,011
Net unrealized gains (losses) on fixed maturity securities available-
  for-sale, net of tax                                                          63,785                     (41,773)
Foreign currency translation adjustment                                         (1,499)                     (1,221)
Retained earnings                                                            1,136,584                     973,706
                                                                            ----------                  ----------


       Total stockholder's equity                                            1,547,881                   1,279,723
                                                                            ----------                  ----------

       Total liabilities and stockholder's equity                           $2,580,302                  $2,298,210
                                                                            ==========                  ==========
</TABLE>
            See accompanying notes to financial statements.

                                  -2-

<PAGE>






Financial Guaranty Insurance
Company                                                     Statements of Income


<TABLE>
<CAPTION>
($ in Thousands)


                                                              For the Year Ended December 31,


                                                               1995         1994        1993
                                                               ----         ----        ----
<S>                                                        <C>          <C>          <C> 
Revenues:

Gross premiums written                                     $  97,288    $ 161,940    $ 291,052
Ceded premiums                                               (19,319)     (46,477)     (49,914)
                                                           ---------    ---------    ---------

  Net premiums written                                        77,969      115,463      241,138
Decrease (increase) in net unearned premiums                  27,309       53,364      (74,902)
                                                           ---------    ---------    ---------

  Net premiums earned                                        105,278      168,827      166,236
Net investment income                                        120,398      109,828       99,920

Net realized gains                                            30,762        5,898       35,439
                                                           ---------    ---------    ---------

  Total revenues                                             256,438      284,553      301,595
                                                           ---------    ---------    ---------

Expenses:

Loss and loss adjustment expenses                             (8,426)       3,646       42,894
Policy acquisition costs                                      13,072       15,060       19,592
(Increase) decrease in deferred policy acquisition costs      (3,940)       3,709        2,658
Other underwriting expenses                                   19,100       21,182       21,878
                                                           ---------    ---------    ---------

  Total expenses                                              19,806       43,597       87,022
                                                           ---------    ---------    ---------

Income before provision for Federal income taxes             236,632      240,956      214,573
                                                           ---------    ---------    ---------


Federal income tax expense (benefit):
  Current                                                     28,913       43,484       59,505
  Deferred                                                    19,841        7,741       (7,284)
                                                           ---------    ---------    ---------

  Total Federal income tax expense                            48,754       51,225       52,221
                                                           ---------    ---------    ---------

  Net income before cumulative effect of
  change in accounting principle                             187,878      189,731      162,352
                                                           ---------    ---------    ---------

  Net cumulative effect of change in
  accounting principle                                          --           --          3,008
                                                           ---------    ---------    ---------
  Net income                                               $ 187,878    $ 189,731    $ 165,360
                                                           =========    =========    =========
</TABLE>


                See accompanying notes to financial statements.

                                                            -3-

<PAGE>









Financial Guaranty Insurance
Company                                                 Statements of Cash Flows


<TABLE>
<CAPTION>
 ($ in Thousands)

                                                                        For the Year Ended December 31,
                                                                      1995            1994          1993
                                                                      ----            ----          ----
<S>                                                              <C>            <C>            <C>
Operating Activities:

Net income                                                       $   187,878    $   189,731    $   165,360


  Adjustments to reconcile net income
    to net cash provided by operating activities:
  Cumulative effect of change in accounting principle, net of           --             --           (3,008)
tax
  Change in unearned premiums                                        (29,890)       (45,927)        90,429
  Change in loss and loss adjustment expense reserves                (20,938)         2,648         51,264
  Depreciation of property and equipment                               2,348          2,689          2,012
  Change in reinsurance receivable                                     6,800           (304)        (9,040)
  Change in prepaid reinsurance premiums                               2,581         (7,437)       (15,527)
  Change in foreign currency translation adjustment                     (427)         1,607         (1,029)
  Policy acquisition costs deferred                                  (16,219)       (18,306)       (19,592)
  Amortization of deferred policy acquisition costs                   12,279         22,015         22,250
  Change in accrued investment income, and prepaid
      expenses and other assets                                        2,906         (5,150)        (9,048)
  Change in other liabilities                                        (12,946)         2,577          7,035
  Change in deferred income taxes                                     19,841          7,741         (7,284)
  Amortization of fixed maturity securities                            1,922          5,112          8,976
  Change in current income taxes payable                             (30,827)        33,391         30,089
  Net realized gains on investments                                  (30,762)        (5,898)       (35,439)
                                                                 -----------    -----------    -----------
Net cash provided by operating activities                             94,546        184,489        277,448
                                                                 -----------    -----------    -----------

Investing Activities:

Sales and maturities of fixed maturity securities                    836,103        550,534        789,036
Purchases of fixed maturity securities                              (891,108)      (721,908)    (1,090,550)

Purchases, sales and maturities of short-term investments, net       (15,358)       (11,486)         4,164
Purchases of property and equipment, net                                (750)        (1,290)          (985)
                                                                 -----------    -----------    -----------

Net cash used in investing activities                                (71,113)      (184,150)      (298,335)
                                                                 -----------    -----------    -----------
Financing Activities:

Dividends paid                                                       (25,000)             -              -
Capital contribution                                                       -              -         21,872
                                                                 -----------    -----------    -----------
Net cash provided by financing activities                            (25,000)             -         21,872
                                                                 -----------    -----------    -----------
(Decrease) Increase in cash                                           (1,567)           339            985
Cash at beginning of year                                              1,766          1,427            442
                                                                 -----------    -----------    -----------
Cash at end of year                                              $       199    $     1,766    $     1,427
                                                                 ===========    ===========    ===========
</TABLE>


            See accompanying notes to financial statements.

                                  -5-

<PAGE>






Financial Guaranty Insurance
Company                                              Statements of Stockholder's
Equity

<TABLE>
<CAPTION>
($ in Thousands)


                                                                                     Net Unrealized
                                                                                    Gains (Losses) on
                                                                   Additional         Fixed Maturity           Foreign
                                                       Common       Paid-in        Securities Available-      Currency   Retained
                                                       Stock        Capital        For-Sale, Net of Tax      Adjustment  Earnings
                                                       -----        -------        --------------------      ----------  --------
<S>                                                    <C>          <C>            <C>                       <C>         <C> 
Balance, January 1, 1993                               $2,500       $324,639            $7,267                $(1,597)   $618,615
Net income                                                  -              -                 -                      -     165,360
Capital contribution                                        -         21,872                 -                      -           -
Adjustment to common stock par value                   12,500        (12,500)                -                      -           -
Unrealized gains on fixed maturity securities
  previously held at market, net of tax of ($713)           -              -            (1,325)                     -           -
Implementation of change in accounting for
  adoption of SFAS 115, net of tax of $45,643               -              -            84,766                      -           -
Foreign currency translation adjustment                     -              -                 -                   (668)          -
                                                       -------       --------          -------                -------  ----------
Balance, December 31, 1993                              15,000        334,011           90,708                 (2,265)    783,975
Net income                                                  -              -                 -                      -     189,731
Unrealized losses on fixed maturity securities
  available-for-sale, net of tax of ($71,336)               -              -          (132,481)                     -           -
Foreign currency translation adjustment                     -              -                 -                  1,044           -
                                                       -------       --------          -------                -------  ----------
Balance, December 31, 1994                              15,000        334,011          (41,773)                (1,221)    973,706
Net income                                                  -              -                 -                      -     187,878
Dividend paid                                               -              -                 -                      -     (25,000)
Unrealized gains on fixed maturity securities
  available for sale, net of tax of $56,839                 -              -           105,558                      -           -
Foreign currency translation adjustment                     -              -                 -                   (278)          -
                                                       -------       --------          -------                -------  ----------
Balance, December 31, 1995                             $15,000       $334,011          $63,785                $(1,499) $1,136,584
                                                       =======       ========          =======                =======  ==========
</TABLE>
   See accompanying notes to financial statements.

                         -4-

<PAGE>







Financial Guaranty Insurance
Company                                            Notes to Financial Statements


(1)     Business

        Financial Guaranty Insurance Company (the "Company"), a wholly-owned
        insurance subsidiary of FGIC Corporation (the "Parent"), provides
        financial guaranty insurance on newly issued municipal bonds and
        municipal bonds trading in the secondary market, the latter including
        bonds held by unit investment trusts and mutual funds. The Company also
        insures structured debt issues outside the municipal market.
        Approximately 88% of the business written since inception by the Company
        has been municipal bond insurance.

        The Company insures only those securities that, in its judgment, are of
        investment grade quality. Municipal bond insurance written by the
        Company insures the full and timely payment of principal and interest
        when due on scheduled maturity, sinking fund or other mandatory
        redemption and interest payment dates to the holders of municipal
        securities. The Company's insurance policies do not provide for
        accelerated payment of the principal of, or interest on, the bond
        insured in the case of a payment default. If the issuer of a
        Company-insured bond defaults on its obligation to pay debt service, the
        Company will make scheduled interest and principal payments as due and
        is subrogated to the rights of bondholders to the extent of payments
        made by it.

        The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates and
        assumptions that effect the reported amounts of assets and liabilities
        and disclosure of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.

(2)     Significant Accounting Policies

        The accompanying financial statements have been prepared on the basis of
        generally accepted accounting principles ("GAAP") which differ in
        certain respects from the accounting practices prescribed or permitted
        by regulatory authorities (see Note 3). The prior years financial
        statements have been reclassified to conform to the 1995 presentation.
        Significant accounting policies are as follows:

        Investments


        As of December 31, 1993, the Company adopted Statement of Financial
        Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
        Investments in Debt and Equity Securities." The Statement defines three
        categories for classification of debt securities and the related
        accounting treatment for each respective category. The Company has
        determined that its fixed maturity securities portfolio should be
        classified as available-for-sale. Under SFAS 115, securities held as
        available-for-sale are recorded at fair value and unrealized holding
        gains/losses are recorded as a separate component of stockholder's
        equity, 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
        terms of the securities. Realized gains or losses on the sale of
        investments are determined on the basis of specific identification.



                                       -6-
<PAGE>

Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)

        Premium Revenue Recognition


        Premiums are earned over the period at risk in proportion to the amount
        of coverage provided which, for financial guaranty insurance policies,
        generally declines according to predetermined schedules.

        When unscheduled refundings of municipal bonds occur, the related
        unearned premiums, net of premium credits allowed against the premiums
        charged for insurance of refunding issues and applicable acquisition
        costs, are earned immediately. Unearned premiums represent the portion
        of premiums written related to coverage yet to be provided on policies
        in force.

        Policy Acquisition Costs

        Policy acquisition costs include only those expenses that relate
        directly to premium production. Such costs include compensation of
        employees involved in underwriting, marketing and policy issuance
        functions, rating agency fees, state premium taxes and certain other
        underwriting expenses, offset by ceding commission income on premiums
        ceded to reinsurers (see Note 6). Net acquisition costs are deferred and
        amortized over the period in which the related premiums are earned.
        Anticipated loss and loss adjustment expenses are considered in
        determining the recoverability of acquisition costs.

        Loss and Loss Adjustment Expenses

        Provision for loss and loss adjustment expenses is made in an amount

        equal to the present value of unpaid principal and interest and other
        payments due under insured risks at the balance sheet date for which, in
        management's judgment, the likelihood of default is probable. Such
        reserves amounted to $77.8 million and $98.7 million at December 31,
        1995 and 1994, respectively. As of December 31, 1995 and 1994, such
        reserves included $28.8 million and $71.0 million, respectively,
        established based on an evaluation of the insured portfolio in light of
        current economic conditions and other relevant factors. Loss and loss
        adjustment expenses include amounts discounted at an interest rate of
        5.5% in 1995 and 7.8% in 1994. The reserve for loss and loss adjustment
        expenses is necessarily based upon estimates, however, in management s
        opinion the reserves for loss and loss adjustment expenses is adequate.
        However, actual results will likely differ from those estimates.

        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 (losses) on fixed maturity securities available-for-sale, premium
        revenue recognition, deferred acquisition costs and deferred
        compensation. 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 3). The amounts deducted must
        be included in taxable income upon their release from the reserves or
        upon earlier release of such amounts from such reserves to cover excess
        losses as permitted by insurance regulators. 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.

                                      -7-




<PAGE>




Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)



        Property and Equipment

        Property and equipment consists of furniture, fixtures, equipment and
        leasehold improvements which are recorded at cost and are charged to
        income over their estimated service lives. Office furniture and
        equipment 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.

        Foreign Currency Translation

        The Company has established foreign branches in France and the United
        Kingdom and determined that the functional currencies of these branches
        are 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, 1995 and 1994 and revenues and
        expenses are translated at average monthly exchange rates. The
        cumulative translation loss at December 31, 1995 and 1994 was $1.5
        million and $1.2 million, respectively, net of tax, and is reported as a
        separate component of stockholder's equity.

(3)     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 state insurance regulatory authorities. The following are
        the significant ways in which statutory-basis accounting practices
        differ from GAAP:

           (a) premiums are earned in proportion to the reduction of the related
               risk rather than in proportion to the coverage provided;
           (b) policy acquisition costs are charged to current operations as
               incurred rather than as related premiums are earned;
           (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 non-admitted assets are charged
               directly against surplus but are reflected as assets under GAAP,
               if recoverable;
           (e) federal income taxes are only provided with respect to
               taxable income for which income taxes are currently payable,
               while under GAAP taxes are also provided for differences between
               the financial reporting and the tax bases of assets and
               liabilities;
           (f) purchases of tax and loss bonds are reflected as admitted
               assets, while under GAAP they are recorded as federal income tax
               payments; and
           (g) all fixed income investments are carried at amortized cost
               rather than at fair value for securities classified as
               available-for-sale under GAAP.



                                       -8-

<PAGE>






Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)

(4)     Investments

        Investments in fixed maturity securities carried at fair value of $3.2
        million and $3.0 million as of December 31, 1995 and 1994, respectively,
        were on deposit with various regulatory authorities as required by law.

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

<TABLE>
<CAPTION>
                                                                  Gross             Gross
                                                                Unrealized        Unrealized
                                               Amortized         Holding           Holding         Fair
        1995                                      Cost            Gains             Losses        Value
        ----                                      ----            -----             ------        -----
<S>                                           <C>              <C>                <C>         <C>  
        U.S. Treasury securities and
         obligations of U.S. government
         corporations and agencies            $    71,182     $    1,696                -     $    72,878
        Obligations of states and political
         subdivisions                           1,942,001         98,458           $1,625       2,038,834
        Debt securities issued by foreign
         governments                               30,270            152              550          29,872
                                               ----------       --------           ------      ----------
        Investments available-for-sale          2,043,453        100,306            2,175       2,141,584

        Short-term investments                     91,032              -                -          91,032
                                               ----------       --------           ------      ----------

        Total                                  $2,134,485       $100,306           $2,175      $2,232,616
                                               ==========       ========           ======      ==========
</TABLE>

        The amortized cost and fair values of short-term investments and of
        investments in fixed maturity securities available-for-sale at December
        31, 1995, 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>
                                                        Amortized           Fair
         1995                                              Cost            Value
         ----                                              ----            -----
<S>                                                  <C>            <C> 
         Due in one year or less                     $     99,894   $     99,984
         Due after one year through five years            137,977        141,235
         Due after five years through ten years           287,441        300,560
         Due after ten years through twenty years       1,406,219      1,476,261
         Due after twenty years                           202,954        214,576
                                                       ----------     ----------
         Total                                         $2,134,485     $2,232,616
                                                       ==========     ==========
</TABLE>





                                                                          -10-
<PAGE>






Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)

<TABLE>
<CAPTION>
                                                              Gross        Gross
                                                            Unrealized   Unrealized
                                               Amortized     Holding      Holding        Fair
        1994                                      Cost        Gains        Losses        Value
        ----                                   ---------    ----------   ----------      -----
<S>                                            <C>          <C>          <C>          <C> 
        U.S. Treasury securities and
        obligations of U.S. government
        corporations and agencies             $   10,945   $        8   $     (519)   $   10,434

        Obligations of states and political
        subdivisions                           1,839,566       25,809      (85,200)    1,780,175

        Debt securities issued by foreign
        governments                              103,666          400       (4,765)       99,301
                                              ----------   ----------   ----------    ----------
        Investments available-for-sale         1,954,177       26,217      (90,484)    1,889,910

        Short-term investments                    75,674           --           --        75,674
                                              ----------   ----------   ----------    ----------

        Total                                 $2,029,851   $  226,217   $  (90,484)   $1,965,584
                                              ==========   ==========   ==========    ==========
</TABLE>

        In 1995, 1994 and 1993, proceeds from sales of investments in fixed
        maturity securities available-for-sale carried at fair value were $836.1
        million, $550.5 million, and $789.0 million, respectively. For 1995,
        1994 and 1993 gross gains of $36.3 million, $18.2 million and $36.1
        million respectively, and gross losses of $5.5 million, $12.3 million
        and $1.0 million respectively, were realized on such sales.

        Net investment income of the Company is derived from the following
        sources (in thousands):

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                           -----------------------
                                                   1995             1994           1993
                                                   ----             ----           ----
<S>                                               <C>             <C>            <C> 
        Income from fixed maturity securities     $112,684        $108,519       $ 97,121
        Income from short-term investments           8,450           2,479          3,914
                                                   -------         -------        -------
        Total investment income                    121,134         110,998        101,035

        Investment expenses                            736           1,170          1,115
                                                   -------         -------        -------
        Net investment income                     $120,398        $109,828       $ 99,920
                                                  ========        ========       ========
</TABLE>
        As of December 31, 1995, the Company did not have more than 10% of its
        investment portfolio concentrated in a single issuer or industry.

                                                                          -11-

<PAGE>






Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)


(5)     Income Taxes

        The Company files a federal tax return as part of the consolidated
        return of General Electric Capital Corporation ("GE Capital"). Under a
        tax sharing agreement with GE Capital, taxes are allocated to the
        Company and the Parent based upon their respective contributions to
        consolidated net income. The Company's effective federal corporate tax

        rate (20.6 percent in 1995, 21.3 percent in 1994 and 24.3 percent in
        1993) is less than the corporate tax rate on ordinary income of 35
        percent in 1995, 1994 and 1993.

        Federal income tax expense (benefit) relating to operations of the
        Company for 1995, 1994 and 1993 is comprised of the following (in
        thousands):


                                          Year Ended December 31,
                                          -----------------------
                                         1995        1994    1993
                                         ----        ----    ----
        Current tax expense            $28,913     $43,484  $59,505
        Deferred tax expense            19,841       7,741   (7,284)
                                       -------     -------  -------
        Federal income tax expense     $48,754     $51,225  $52,221
                                       =======     =======  =======

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

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                          ---------------------------
                                                          1995      1994         1993
                                                          ----      ----         ----
<S>                                                    <C>          <C>        <C>  
        Income taxes computed on income
           before provision for federal
           income taxes, at the statutory rate         $ 82,821    $ 84,334    $ 75,101

        Tax effect of:
          Tax-exempt interest                           (30,630)    (30,089)    (27,185)
          Other, net                                     (3,437)     (3,020)      4,305
                                                       --------    --------    --------
        Provision for income taxes                     $ 48,754    $ 51,225    $ 52,221
                                                       ========    ========    ========
</TABLE>



                                      -12-

<PAGE>






Financial Guaranty Insurance

Company                                Notes to Financial Statements (Continued)



        The tax effects of temporary differences that give rise to significant
        portions of the deferred tax liabilities at December 31, 1995 and 1994
        are presented below (in thousands):

<TABLE>
<CAPTION>
                                                                        1995              1994
                                                                        ----              ----
<S>                                                                  <C>               <C>
        Deferred tax assets:
           Unrealized losses on fixed maturity
           securities, available-for-sale                                   -           $22,493
           Loss reserves                                               $8,382            16,136
           Deferred compensation                                        5,735             9,685
           Tax over book capital gains                                  1,069               365
           Other                                                        3,248             3,760
                                                                      -------            ------
        Total gross deferred tax assets                                18,434            52,439
                                                                      -------            ------

        Deferred tax liabilities:
           Unrealized gains on fixed maturity
           securities, available-for-sale                              34,346                 -
           Deferred acquisition costs                                  33,204            31,825
           Premium revenue recognition                                 32,791            24,674
           Rate differential on tax and loss bonds                      9,454             9,454
           Other                                                        7,810             9,126

        Total gross deferred tax liabilities                          117,605            75,079
                                                                      -------            ------
        Net deferred tax liability                                   $ 99,171           $22,640
                                                                      =======            ======
</TABLE>

        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, 1995 and 1994. The
        company anticipates that the related deferred tax asset will be
        realized.

        Total federal income tax payments during 1995, 1994 and 1993 were $59.8
        million, $10.1 million, and $29.4 million, respectively.

                                      -13-

<PAGE>
Financial Guaranty Insurance

Company                                Notes to Financial Statements (Continued)


(6)     Reinsurance

        The Company reinsures portions of its risk with other insurance
        companies through quota share reinsurance treaties and, where warranted,
        on a facultative basis. This process serves to limit the Company's
        exposure on risks underwritten. In the event that any or all of the
        reinsuring companies were unable to meet their obligations, the Company
        would be liable for such defaulted amounts. The Company evaluates the
        financial condition of its reinsurers and monitors concentrations of
        credit risk arising from activities or economic characteristics of the
        reinsurers to minimize its exposure to significant losses from reinsurer
        insolvencies. The Company holds collateral under reinsurance agreements
        in the form of letters of credit and trust agreements in various amounts
        with various reinsurers totaling $33.7 million that can be drawn on in
        the event of default.

        Effective January 1, 1993, the Company adopted the Emerging Issues Task
        Force Issue 93-6, "Accounting for Multiple-Year Retrospectively-Rated
        Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"). EITF 93-6
        requires that an asset be recognized by a ceding company to the extent a
        payment would be received from the reinsurer based on the contract's
        experience to date, regardless of the outcome of future events. To
        reflect the adoption of EITF 93-6 in the accompanying financial
        statements, an initial adjustment of $4.6 million, before applicable
        income taxes, has been reflected in the 1993 income statement.

        Net premiums earned are presented net of ceded earned premiums of $21.9
        million, $39.0 million and $34.4 million for the years ended December
        31, 1995, 1994 and 1993, respectively. Loss and loss adjustment expenses
        incurred are presented net of ceded losses of $1.1 million, $0.3 million
        and $9.1 million for the years ended December 31, 1995, 1994 and 1993,
        respectively.

                                      -14-

<PAGE>






Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)



(7)     Loss and Loss Adjustment Expenses

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


                                             Year Ended December 31,
                                          ----------------------------
                                          1995        1994        1993
                                          ----        ----        ----

        Balance at January 1,          $ 98,746    $ 96,098    $ 44,834

          Less reinsurance recoverable   14,472      14,168       5,128
                                       --------    --------    --------
        Net balance at January 1,        84,274      81,930      39,706

        Incurred related to:
        Current year                     26,681      15,133          --
        Prior years                      (1,207)       (437)       (756)
        Portfolio reserves              (33,900)    (11,050)     43,650
                                       --------    --------    --------
        Total Incurred                   (8,426)      3,646      42,894
                                       --------    --------    --------
        Paid related to:
        Current year                       (197)       (382)         --
        Prior years                      (5,515)       (920)       (670)
                                       --------    --------    --------
        Total Paid                       (5,712)     (1,302)       (670)
                                       --------    --------    --------
        Net balance at December 31,      70,136      84,274      81,930
          Plus reinsurance recoverable    7,672      14,472      14,168
                                       --------    --------    --------
        Balance at December 31,        $ 77,808    $ 98,746    $ 96,098
                                       ========    ========    ========


        The changes in incurred portfolio reserves principally relate to
        business written in prior years. The changes are based upon an
        evaluation of the insured portfolio in light of current economic
        conditions and other relevant factors.


                                      -15-

<PAGE>

Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)


(8)     Related Party Transactions

        The Company has various agreements with subsidiaries of General Electric
        Company ("GE") and GE Capital. These business transactions include
        appraisal fees and due diligence costs associated with underwriting
        structured finance mortgage-backed security business; payroll and office
        expenses incurred by the Company's international branch offices but
        processed by a GE subsidiary; investment fees pertaining to the

        management of the Company's investment portfolio; and telecommunication
        service charges. Approximately $3.2 million, $3.2 million and $1.0
        million in expenses were incurred in 1995, 1994 and 1993, respectively,
        related to such transactions.

        The Company also insured certain non-municipal issues with GE Capital
        involvement as sponsor of the insured securitization and/or servicer of
        the underlying assets. For some of these issues, GE Capital also
        provides first loss protection in the event of default. Gross premiums
        written on these issues amounted to $1.3 million in 1995, $2.5 million
        in 1994, and $3.3 million in 1993.

        The Company insures bond issues and securities in trusts that were
        sponsored by affiliates of GE (approximately 1 percent of gross premiums
        written in 1995 and 1994 and 2 percent in 1993).


(9)     Compensation Plans

        Officers and other key employees of the Company participate in the
        Parent's incentive compensation, deferred compensation and profit
        sharing plans. Expenses incurred by the Company under compensation plans
        and bonuses amounted to $7.5 million, $12.2 million and $16.7 million in
        1995, 1994 and 1993, respectively, before deduction for related tax
        benefits.

(10)    Dividends

        Under New York insurance law, the Company may pay a dividend 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 $2.1 million in 1995 and 1994, and (b)
        dividends may not exceed the lesser of 10 percent of its surplus or 100
        percent of adjusted net investment income, as defined by New York
        insurance law, for the 12 month period ending on the preceding December
        31, without the prior approval of the Superintendent of the New York
        State Insurance Department. At December 31, 1995 and 1994, the amount of
        the Company's surplus available for dividends was approximately $100.2
        million and $89.3 million, respectively.

        During 1995, the company paid dividends of $25 million. No dividends
        were paid during 1994 or 1993.

                                      -16-

<PAGE>






Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)



(11)    Financial Instruments

        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 is estimated using quoted market prices for
        similar securities. Fair value disclosure for fixed maturity securities
        is included in the balance sheets and in Note 4.

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

        Cash, Receivable for Securities Sold, 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, 1995 and 1994 are as follows (in thousands):

                                          1995                     1994
                                          ----                     ----
                                  Carrying      Fair       Carrying       Fair
                                   amount      Value        amount        Value
                                   ------      -----        ------        -----
Financial Assets

Cash
On hand and in demand accounts $      199   $      199   $    1,766   $    1,766
Short-term investments             91,032       91,032       75,674       75,674
Fixed maturity securities       2,141,584    2,141,584    1,889,910    1,889,910


        Financial Guaranties: The carrying value of the Company's financial
        guaranties is represented by the unearned premium reserve, net of
        deferred acquisition costs, and loss and loss adjustment expense
        reserves. Estimated fair values of these guaranties are based on amounts
        currently charged to enter into similar agreements (net of applicable
        ceding commissions), discounted cash flows considering contractual
        revenues to be received adjusted for expected prepayments, the present
        value of future obligations and estimated losses, and current interest
        rates. The estimated fair values of such financial guaranties range
        between $412.8 million and $456.2 million compared to a carrying value
        of $540.6 million as of December 31, 1995 and between $518.1 million and
        $565.9 million compared to a carrying value of $585.1 million as of
        December 31, 1994.

                                      -17-


<PAGE>
Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)



        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 overcollateralization.

        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 guarantee 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.

        As of December 31, 1995, the Company's total insured principal exposure
        to credit loss in the event of default by bond issuers was $98.7
        billion, net of reinsurance of $20.7 billion. The Company's insured
        portfolio as of December 31, 1995 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, 1995, the composition of principal exposure by type
        of issue, net of reinsurance, was as follows (in millions):

                                                      Net
                                                   Principal
                                                  Outstanding
                                                  -----------
Municipal:
  General obligation                             $  43,308.2
  Special revenue                                   38,137.9
  Industrial revenue                                 2,480.0
  Non-municipal                                     14,734.2
                                                 -----------
Total                                            $  98,660.3
                                                 ===========



                                      -18-

<PAGE>
Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)


        The Company is authorized to do business in 50 states, the District of
Columbia, and in the United Kingdom and France. Principal exposure outstanding
at December 31, 1995 by state, net of reinsurance, was as follows (in millions):

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

        California                                               $ 10,440.2
        Florida                                                     8,869.3
        Pennsylvania                                                8,653.4
        New York                                                    7,706.7
        Illinois                                                    5,697.5
        Texas                                                       5,478.7
        New Jersey                                                  4,181.9
        Michigan                                                    3,385.9
        Arizona                                                     2,776.9
        Ohio                                                        2,327.7
                                                                 ----------
        Sub-total                                                  59,518.2
        Other states and International                             39,142.1
                                                                 ----------
        Total                                                     $98,660.3
                                                                 ==========


(12)    Commitments

        Total rent expense was $2.2 million, $2.6 million and $2.4 million in
        1995, 1994 and 1993, respectively. For each of the next five years and
        in the aggregate as of December 31, 1995, the minimum future rental
        payments under noncancellable operating leases having remaining terms in
        excess of one year approximate (in thousands):

        Year                                                             Amount
        ----                                                             ------ 
        1996                                                            $  2,297
        1997                                                               2,909
        1998                                                               2,909
        1999                                                               2,909
        2000                                                               2,909
        Subsequent to 2000                                                 2,911
                                                                        --------
        Total minimum future rental payments                            $ 16,844
                                                                        ========


                                      -19-

<PAGE>


FINANCIAL GUARANTY INSURANCE COMPANY


Audited Financial Statements


December 31, 1995






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

<PAGE>






Financial Guaranty Insurance
Company                                Notes to Financial Statements (Continued)


The following is a reconciliation of net income and stockholder's equity
presented on a GAAP basis to the corresponding amounts reported on a
statutory-basis for the periods indicated below (in thousands):

<TABLE>
<CAPTION>
                                                                                       Years Ended December 31,

                                                               1995                        1994                     1993
                                                      -----------------------      ---------------------    ----------------------  
                                                        Net     Stockholder's        Net    Stockholder's     Net     Stockholder's
                                                      Income        Equity         Income       Equity      Income        Equity
                                                      ------    -------------      ------       ------      ------        ------

<S>                                              <C>            <C>            <C>          <C>          <C>          <C>     
GAAP basis amount                                $   187,878    $ 1,547,881    $   189,731  $ 1,279,723  $   165,360  $ 1,221,429


Premium revenue recognition                          (22,555)      (166,927)        (4,970)    (144,372)     (16,054)    (139,401)

Deferral of acquisition costs                         (3,940)       (94,868)         3,709      (90,928)       2,658      (94,637)

Contingency reserve                                     --         (386,564)          --       (328,073)        --       (252,542)

Non-admitted assets                                     --           (5,731)          --         (7,566)        --         (8,951)

Case basis loss reserves                               4,048            (52)        (3,340)      (4,100)       1,626         (759)

Portfolio loss reserves                              (22,100)        24,000        (11,050)      46,100       43,650       57,150

Deferral of income taxes (benefits)                   19,842         64,825          7,741       45,134       (7,284)      35,209

Unrealized gains (losses) on fixed maturity
securities held at fair value, net of tax               --          (63,785)          --         41,773         --        (90,708)

Recognition of profit commission                       3,096         (5,744)        (2,410)      (8,840)      (4,811)      (4,811)

Provision for unauthorized reinsurance                  --             --             --           (266)        --           --

Contingency reserve tax deduction (see Note 2)          --           78,196           --         55,496         --         45,402

Allocation of tax benefits due to
Parent's net operating loss to the
Company (see Note 5)                                     637         10,290            (63)       9,653         --          9,716
                                                 -----------    -----------    -----------  -----------  -----------  -----------
Statutory-basis amount                           $   166,906    $ 1,001,521    $   179,348  $   893,734  $   185,145  $   777,097
                                                 ===========    ===========    ===========  ===========  ===========  ===========
</TABLE>
                                      -9-



<PAGE>

                                                        EXHIBIT 99.2




<PAGE>

FINANCIAL GUARANTY INSURANCE COMPANY
================================================================================


Unaudited Interim Financial Statements


June 30, 1996



Balance Sheets                                                       1
Statements of Income                                                 2
Statements of Cash Flows.                                            3
Notes to Unaudited Interim Financial Statements.                     4



<PAGE>

Financial Guaranty Insurance
Company                                                           Balance Sheets
================================================================================

($ in Thousands)

<TABLE>
<CAPTION>
                                                                                       June 30,              December 31,
                                                                                         1996                       1995
                                                                                   ----------------         -------------------
                                                                                      (Unaudited)
<S>                                                                                <C>                      <C>
Assets
Fixed maturity securities, available for sale, at fair value
(amortized cost of $2,066,231 in 1996 and $2,043,453 in 1995)                           $2,057,812                  $2,141,584
Short-term investments, at cost, which approximates market                                 133,832                      91,032
Cash                                                                                         1,294                         199
Accrued investment income                                                                   37,753                      37,347
Reinsurance receivable                                                                       7,358                       7,672
Deferred policy acquisition costs                                                           93,100                      94,868
Property, plant and equipment net of
   accumulated depreciation of $14,094 in
   1996 and $12,861 in 1995                                                                  5,573                       6,314
Prepaid reinsurance premiums                                                               156,055                     162,088
Prepaid expenses and other assets                                                           50,908                      39,198
                                                                                    ---------------             ---------------

            Total assets                                                                $2,543,685                  $2,580,302
                                                                                    ===============             ===============

Liabilities and Stockholder's Equity

Liabilities:

Unearned premiums                                                                          698,149                     727,535
Losses and loss adjustment expenses                                                         71,034                      77,808
Ceded reinsurance payable                                                                    2,777                       1,942
Accounts payable and accrued expenses                                                       38,035                      32,811
Due to parent                                                                                  267                       1,647
Current federal income taxes payable                                                        67,077                      51,296
Deferred federal income taxes payable                                                       63,850                      99,171
Payable for securities purchased                                                            32,186                      40,211
                                                                                    ---------------             ---------------
            Total liabilities                                                              973,375                   1,032,421
                                                                                    ---------------             ---------------
                                                                                    
Stockholder's Equity:

Common stock, par value $1,500 per share at June 30,
  1996 and at December 31, 1995: 10,000 shares authorized,

  issued and outstanding                                                                    15,000                      15,000
Additional paid-in capital                                                                 334,011                     334,011
Net unrealized  (losses) gains on fixed maturity securities available
   for sale, net of tax                                                                     (5,472)                     63,785
Foreign currency translation adjustment                                                     (2,296)                     (1,499)
Retained earnings                                                                        1,229,067                   1,136,584
                                                                                    ---------------             ---------------
            Total stockholder's equity                                                   1,570,310                   1,547,881
                                                                                    ---------------             ---------------

            Total liabilities and stockholder's equity                                  $2,543,685                  $2,580,302
                                                                                    ===============             ===============
</TABLE>

            See accompanying notes to interim financial statements
                                      -1-

<PAGE>

Financial Guaranty Insurance
Company                                                     Statements Of Income
================================================================================
 
($ in Thousands)

<TABLE>
<CAPTION>
                                                                                              Six Months Ended June 30,
                                                                                            1996                        1995
                                                                                       --------------                ------------
                                                                                                    (Unaudited)
<S>                                                                                    <C>                           <C>
Revenues:

    Gross premiums written                                                                $  45,481                    $  42,773
    Ceded premiums                                                                           (6,643)                      (5,965)
                                                                                       --------------                ------------

    Net premiums written                                                                     38,838                       36,808
    Decrease in net unearned premiums                                                        23,353                       18,136
                                                                                       --------------                ------------

    Net premiums earned                                                                      62,191                       54,944
    Net investment income                                                                    61,513                       59,327
    Net realized gains                                                                        8,348                       17,446
                                                                                       --------------                ------------

        Total revenues                                                                      132,052                      131,717
                                                                                       --------------                ------------

Expenses:

    Losses and loss adjustment expenses                                                      (2,702)                         815
    Policy acquisition costs                                                                  9,637                        5,308
    Other underwriting expenses                                                               7,561                        8,662
                                                                                       --------------                ------------

        Total expenses                                                                       14,496                       14,785
                                                                                       --------------                ------------

        Income before provision for federal income taxes                                    117,556                      116,932

    Provision for federal income taxes                                                       25,071                       25,066
                                                                                       --------------                ------------

         Net income                                                                       $  92,485                     $ 91,866
                                                                                       ==============                ============
</TABLE>
 
            See accompanying notes to interim financial statements
                                      -2-

<PAGE>

Financial Guaranty Insurance
Company                                                  Statements Of Cash Flow
================================================================================
 
 
($ in Thousands)
<TABLE>
<CAPTION>
                                                                                                Six Months Ended June 30,
                                                                                            1996                         1995
                                                                                       ------------                  ------------
                                                                                                       (Unaudited)
<S>                                                                                   <C>                           <C> 
Operating activities:
 
           Net income                                                                   $  92,485                      $  91,866
               Adjustments to reconcile net income to net
                 cash provided by operating activities:
               Provision for deferred income taxes                                          2,400                         11,991
               Amortization of fixed maturity securities                                      398                          1,096
               Policy acquisition costs deferred                                           (8,565)                       (10,254)
               Amortization of deferred policy acquisition costs                           10,333                          5,308
               Depreciation of fixed assets                                                 1,233                          1,167
               Change in reinsurance receivable                                               314                          4,569
               Change in prepaid reinsurance premiums                                       6,033                          5,877
               Foreign currency translation adjustment                                     (1,226)                           972
               Change in accrued investment income, prepaid
                  expenses and other assets                                               (12,116)                        (3,483)
               Change in unearned premiums                                                (29,386)                       (24,013)
               Change in losses and loss adjustment expense reserves                       (6,774)                        (4,617)
               Change in other liabilities                                                  4,678                        (11,076)
               Change in current income taxes payable                                      15,781                         (9,625)
               Net realized gains on investments                                           (8,348)                       (17,446)
                                                                                       ------------                  ------------

           Net cash provided by operating activities                                       67,240                         42,332
                                                                                       ------------                  ------------

           Investing activities:

           Sales or maturities of fixed maturity securities                               406,676                        478,328
           Purchases of fixed maturity securities                                        (429,529)                      (413,181)
           Sales or maturities (purchases) of short-term investments, net                 (42,800)                      (102,414)
           Purchases of property and equipment, net                                          (492)                          (354)
                                                                                       ------------                  ------------

           Net cash used for investing activities                                         (66,145)                       (37,621)
                                                                                       ------------                  ------------

           Increase (decrease) in cash                                                      1,095                          4,711
           Cash at beginning of period                                                        199                          1,766
                                                                                       ------------                  ------------


           Cash at end of period                                                       $    1,294                     $      477
                                                                                       ============                  ============
</TABLE>

            See accompanying notes to interim financial statements
                                      -3-

<PAGE>

Financial Guaranty Insurance
Company                                            Notes to Financial Statements
================================================================================

June 30, 1996 and 1995
(Unaudited)


              (1) Basis of Presentation

                  The interim financial statements of Financial Guaranty
                  Insurance Company (the Company) in this report reflect all
                  adjustments necessary, in the opinion of management, for a
                  fair statement of (a) results of operations for the six months
                  ended June 30, 1996 and 1995, (b) the financial position at
                  June 30, 1996 and December 31, 1995, and (c) cash flows for
                  the six months ended June 30, 1996 and 1995.

                  These interim financial statements should be read in
                  conjunction with the financial statements and related notes
                  included in the 1995 audited financial statements.  The 1995
                  financial statements have been reclassified to conform to the
                  1996 presentation.

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles ("GAAP") requires
                  management to make estimates and assumptions that effect the
                  reported amounts of assets and liabilities and disclosure of
                  contingent assets and liabilities at the date of the financial
                  statements and the reported amounts of revenues and expenses
                  during the reporting period.  Actual results could differ from
                  those estimates.

              (2) 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 state insurance regulatory
                  authorities.  The following are the significant ways in which
                  statutory basis accounting practices differ from GAAP:

                  (a)    premiums are earned in proportion to the reduction of
                         the related risk rather than in proportion to the
                         coverage provided;
                  (b)    policy acquisition costs are charged to current
                         operations as incurred rather than as related premiums
                         are earned;
                  (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 "non-admitted assets" are
                         charged directly against surplus but are reflected as
                         assets under GAAP, if recoverable;
                  (e)    federal income taxes are only provided with respect to
                         taxable income for which income taxes are currently
                         payable, while under GAAP taxes are also provided for
                         differences between the financial reporting and tax
                         bases of assets and liabilities;
                  (f)    purchases of tax and loss bonds are reflected as
                         admitted assets, while under GAAP they are recorded as
                         federal income tax payments; and
                  (g)    all fixed income investments are carried at amortized
                         cost, rather than at fair value for securities
                         classified as "Available for Sale" under GAAP.


                                     -4 -

<PAGE>

Financial Guaranty Insurance
Company                                            Notes to Financial Statements
================================================================================

The following is a reconciliation of the net income and stockholder's equity of
Financial Guaranty prepared on a GAAP basis to the corresponding amounts
reported on a statutory basis for the periods indicated below: 
<TABLE>
<CAPTION>                                           Six Months Ended June 30,
                                    ----------------------------------------------------------
                                               1996                          1995
                                    ---------------------------    ---------------------------
                                         Net      Stockholder's        Net       Stockholder's
                                       Income        Equity          Income         Equity  
                                    -----------   -------------   -----------   --------------
<S>                                 <C>            <C>            <C>           
<C>
GAAP basis amount                   $    92,485    $ 1,570,310    $    91,866    $ 1,441,820
                              

Premium revenue recognition              (4,061)      (170,988)        (9,905)      (154,322)

Deferral of acquisition costs             1,768        (93,100)        (4,946)       (95,874)

Contingency reserve                          --       (415,603)            --       (357,817)

Non-admitted assets                          --         (4,837)            --         (6,579)

Case-basis losses incurred
  and salvage recoverable
                                         (3,394)        (3,446)         6,631          2,531

Portfolio loss reserves                      --         24,000        (10,900)        35,200

Deferral of income tax                    2,400         66,796         11,991         57,466

Unrealized gains on fixed
  maturity securities held at
  fair value, net of taxes                   --          5,472             --        (27,827)

Profit commission                         1,273         (4,471)         4,909         (3,931)

Contingency reserve tax deduction            --         85,176             --         78,196

Provision for unauthorized
  reinsurance                                --             --             --           (266)

Allocation of tax benefits due to
  Parent's net operating loss to
  the Company                                (4)        10,287            244          9,898
                                    -----------   -------------   -----------   --------------


Statutory basis amount              $    90,467    $ 1,069,596    $    89,845    $   978,495
                                    -----------   -------------   -----------   --------------
                                    -----------   -------------   -----------   --------------

</TABLE>


                                      -5-

<PAGE>


Financial Guaranty Insurance
Company                                            Notes to Financial Statements
================================================================================


June 30, 1996 and 1995
(Unaudited)

              (3) Dividends

                  Under New York Insurance Law, the Company may pay a dividend 
                  only from earned surplus subject to the following limitations:

                  o      Statutory surplus after dividends may not be less 
                         than the minimum required paid-in capital, which was 
                         $2,100,000 in 1996.
                  o      Dividends may not exceed the lesser of 10 percent of 
                         its surplus or 100 percent of adjusted net investment 
                         income, as defined therein, for the twelve month 
                         period ending on the preceding December 31, without 
                         the prior approval of the Superintendent of the New
                         York State Insurance Department.

                  The amount of the Company's surplus available for dividends 
                  during 1996 is approximately $106.2 million.

              (4) Income Taxes

                  The Company's effective Federal corporate tax rate (21.3
                  percent and 21.4 percent for the six months ended June 30,
                  1996 and 1995, respectively) is less than the statutory
                  corporate tax rate (35 percent in 1996 and 1995) on ordinary
                  income due to permanent differences between financial and
                  taxable income, principally tax-exempt interest.

              (5) Reinsurance

                  In accordance with Statement of Financial Accounting Standards
                  No. 113  ("SFAS 113"), "Accounting and Reporting for
                  Reinsurance of Short-Duration and Long-Duration Contracts",
                  adopted in 1993, the Company reports assets and liabilities
                  relating to reinsured contracts gross of the effects of
                  reinsurance.  Net premiums earned are shown net of premiums
                  ceded of $12.7 million and $11.6 million, respectively, for
                  the six months ended June 30, 1996 and 1995.

                                     - 6 -


<PAGE>


                                       
                                   EXHIBIT A
                                       
                        Approved Financial Information
                             As of March 31, 1996


As of March 31, 1996, December 31, 1995 and 1994 the Certificate Insurer had
written directly or assumed through reinsurance, guaranties of approximately
$185.1 billion, $180.0 billion and $160.2 billion par value of securities,
respectively (of which approximately 87 percent, 88 percent and 89 percent
constituted guaranties of municipal bonds), for which it had collected gross
premiums of approximately $1.97 billion, $1.95 billion and $1.78 billion,
respectively.  As of March 31, 1996, the Certificate Insurer had reinsured
approximately 18 percent of the risks it had written, 41 percent through quota
share reinsurance and 59 percent through facultative arrangements.

Capitalization

The following table sets forth the capitalization of the Certificate Insurer as
of December 31, 1994, December 31, 1995 and March 31, 1996, respectively, on the
basis of generally accepted accounting principles.  No material adverse change
in the capitalization of the Certificate Insurer has occurred since March 31,
1996.

<TABLE>
<CAPTION>

                                                        December 31,              December 31,           March 31,
                                                           1994                       1995                 1996
                                                       (in millions)             (in Millions)         (in Millions)
                                                       ------------              ----------------      -------------
<S>                                                    <C>                       <C>                   <C>
Unearned Premiums                                             $757                       $728                  $709
Other Liabilities                                              261                        304                   289
Stockholder's Equity
     Common Stock                                               15                         15                    15
     Additional Paid-in Capital                                334                        334                   334
     Unrealized gains (losses)                                 (42)                        64                    22
     Foreign currency translation
       adjustment                                               (1)                        (2)                   (2)
     Retained Earnings                                         974                      1,137                 1,185
                                                       ------------              ----------------      -------------

Total Stockholder's Equity                                   1,280                      1,548                 1,554
                                                       ------------              ----------------      -------------

Total Liabilities and
  Stockholder's Equity                                      $2,298                     $2,580                $2,552
                                                       ------------              ----------------      -------------
                                                       ------------              ----------------      -------------

</TABLE>


For further financial information concerning the Certificate Insurer, see the
audited financial statements of the Certificate Insurer included as Appendix A.

Copies of the Certificate Insurer's quarterly and annual statutory statements
filed by the Certificate Insurer with the New York Insurance Department are
available upon request to Financial Guaranty Insurance Company, 115 Broadway,
New York, New York  10006, Attention:  Corporate Communications Department.  The
Certificate Insurer's telephone number is (212) 312-3000.

The Certificate Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus or any information or disclosure contained
herein, or omitted herefrom, other than with respect to the accuracy of
information regarding the Certificate Insurer and the Certificate Insurance
Policy set forth under the headings "The Certificate Insurance Policy" and "The
Certificate Insurer" and in Appendix A and Appendix B.

<PAGE>

                                       
                                   EXHIBIT A
                                       
                        Approved Financial Information
                              As of June 30, 1996


As of June 30, 1996, December 31, 1995 and 1994 the Certificate Insurer had
written directly or assumed through reinsurance, guaranties of approximately
$190.7 billion, $180.0 billion and $160.2 billion par value of securities,
respectively (of which approximately 87 percent, 88 percent and 89 percent
constituted guaranties of municipal bonds), for which it had collected gross
premiums of approximately $1.99 billion, $1.95 billion and $1.78 billion,
respectively.  As of June 30, 1996, the Certificate Insurer had reinsured
approximately 18 percent of the risks it had written, 36 percent through quota
share reinsurance and 64 percent through facultative arrangements.

Capitalization

The following table sets forth the capitalization of the Certificate Insurer as
of December 31, 1994, December 31, 1995 and June 30, 1996, respectively, on the
basis of generally accepted accounting principles.  No material adverse change
in the capitalization of the Certificate Insurer has occurred since June 30,
1996.
 
<TABLE>
<CAPTION>
(Unaudited)
                                                        December 31,              December 31,            June 30,
                                                              1994                    1995                   1996
                                                       (in millions)             (in Millions)         (in Millions)
                                                       -------------             ------------          -------------
<S>                                                    <C>                       <C>                   <C>
Unearned Premiums                                             $757                       $728                  $698
Other Liabilities                                              261                        304                   276
Stockholder's Equity
     Common Stock                                               15                         15                    15
     Additional Paid-in Capital                                334                        334                   334
     Unrealized gains (losses)                                 (42)                        64                    (6)
     Foreign currency translation
       adjustment                                               (1)                        (2)                   (2)
     Retained Earnings                                         974                      1,137                 1,229
                                                       -------------             ------------          -------------
Total Stockholder's Equity                                   1,280                      1,548                 1,570
                                                       -------------             ------------          -------------
Total Liabilities and
  Stockholder's Equity                                      $2,298                     $2,580                $2,544
                                                       -------------             ------------          -------------
                                                       -------------             ------------          -------------

</TABLE>


For further financial information concerning the Certificate Insurer, see the
audited financial statements of the Certificate Insurer included as Appendix A
and the unaudited interim financial statements of the Certificate Insurer
Included as Appendix B.

Copies of the Certificate Insurer's quarterly and annual statutory statements
filed by the Certificate Insurer with the New York Insurance Department are
available upon request to Financial Guaranty Insurance Company, 115 Broadway,
New York, New York  10006, Attention:  Corporate Communications Department.  The
Certificate Insurer's telephone number is (212) 312-3000.

The Certificate Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus or any information or disclosure contained
herein, or omitted herefrom, other than with respect to the accuracy of
information regarding the Certificate Insurer and the Certificate Insurance
Policy set forth under the headings "The Certificate Insurance Policy" and "The
Certificate Insurer" and in Appendix A and Appendix B.



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