CAPMAC HOLDINGS INC, 10-Q, 1996-08-13

CAPMAC HOLDINGS INC
10-Q, 1996-08-13
SURETY INSURANCE

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-14096

CapMAC Holdings Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation)

885 Third Avenue
New York, New York 10022
(Address of principal executive offices)
13-3670828
(IRS employer identification no.)
(212) 755-1155
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

As of July 31, 1996, 16,083,696 shares (net of treasury shares) of
Common Stock, par value $0.01 per share of the Registrant were outstanding.

Page 1 of 27 Pages
Index to Exhibits on Page 19

<PAGE>

CapMAC Holdings Inc. and Subsidiaries

INDEX

PART I FINANCIAL INFORMATION PAGE

Item 1. Consolidated Financial Statements

Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 4

Consolidated Statements of Income - three months ended
and six months ended June 30, 1996 and June 30, 1995 5

Consolidated Statements of Stockholders' Equity - six months
ended June 30, 1996 6

Consolidated Statements of Cash Flows - six months
ended June 30, 1996 and June 30, 1995 7

Notes to Consolidated Financial Statements 8

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9

PART II OTHER INFORMATION, AS APPLICABLE

Item 4 Submission of Matters to a Vote of Security Holders 16

Item 6. Exhibits and Reports on Form 8-K 17

SIGNATURES 18

INDEX TO EXHIBITS 19

Part 1 - Financial Information

Item 1 - Financial Statements of CapMAC Holdings Inc. and Subsidiaries.

<PAGE>

CapMAC HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1996

(Unaudited)

<PAGE>

CapMAC Holdings Inc. And Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)

ASSETS
<TABLE>
<CAPTION>

June 30,1996 December 31,1995
(Unaudited)
<S> <C> <C>
Investments:
Bonds at fair value (amortized cost $282,241 at June 30, 1996 and
$210,651 at December 31, 1995) ................................................. $ 280,706 215,706
Short-term investments (at amortized cost which approximates fair
value) ......................................................................... 37,009 82,019
Investment in affiliates ....................................................... 34,815 32,033
Total investments ........................................................... 352,530 329,758
----------------------------
Cash ........................................................................... 959 1,033
Accrued investment income ...................................................... 3,715 3,136
Deferred acquisition costs ..................................................... 39,904 35,162
Premiums receivable ............................................................ 3,232 3,540
Prepaid reinsurance ............................................................ 16,175 13,171
Other assets ................................................................... 6,928 5,473
Total assets ................................................................ $ 423,443 391,273
============================
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Unearned premiums .............................................................. $ 56,743 45,767
Reserve for losses and loss adjustment expenses ................................ 8,369 6,548
Ceded reinsurance .............................................................. 2,395 2,469
Accounts payable and other accrued expenses .................................... 15,959 11,367
Senior notes ................................................................... 15,000 15,000
Current income taxes ........................................................... 6,110 3,264
Deferred income taxes .......................................................... 9,177 10,776
Total liabilities ........................................................... 113,753 95,191
----------------------------
Minority Interest .............................................................. 21,241 19,563
----------------------------
Stockholders' Equity:
Preferred stock - $0.01 par value per share; 20,000,000 shares are
authorized; none outstanding at June 30, 1996 and December 31, 1995 ............ -- --
Common stock - $0.01 par value per share;50,000,000 shares are authorized;
15,966,487 and 15,966,032 shares issued June 30, 1996, and December 31, 1995;
15,966,450 and 15,965,995 shares
outstanding at June 30, 1996, and December 31, 1995 ............................ 160 160
Additional paid-in capital ..................................................... 223,245 223,400
Unrealized (depreciation) appreciation on investments, net of tax .............. (3,619) 2,443
Retained earnings .............................................................. 74,625 57,029
Unallocated ESOP shares ........................................................ (5,961) (6,497)
Cumulative translation adjustment, net of tax .................................. (1) (16)
----------------------------
Total stockholders' equity .................................................. 288,449 276,519
----------------------------
Total liabilities, minority interest, and stockholders' equity .............. $ 423,443 391,273
============================
</TABLE>

See accompanying notes to consolidated financial statements.

4
<PAGE>
CapMAC Holdings Inc. And Subsidiaries
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Direct premiums written .......................................... $ 18,622 16,000 32,777 32,838
Assumed premiums written .......................................... 150 669 1,024 823
Ceded premiums written ............................................ (5,103) (2,553) (7,013) (5,646)
--------
Net premiums written ........................................... 13,669 14,116 26,788 28,015
Increase in unearned premiums ..................................... (3,681) (6,813) (7,972) (13,611)
--------
Net premiums earned ............................................ 9,988 7,303 18,816 14,404
Advisory and other fees ........................................... 5,705 2,869 15,577 5,155
Net investment income ............................................. 3,808 3,088 7,919 5,899
Net realized capital gains ........................................ 19 145 168 154
Other income ...................................................... 51 -- 107 --
--------
Total revenues ................................................. 19,571 13,405 42,587 25,612
--------
Expenses:
Losses and loss adjustment expenses ............................... 1,109 762 2,184 1,458
Underwriting and operating expenses ............................... 4,277 4,585 9,115 8,665
Policy acquisition costs .......................................... 2,059 1,734 4,123 3,459
Interest expense .................................................. 301 301 602 602
--------
Total expenses ................................................. 7,746 7,382 16,024 14,184
--------
Income before income taxes and
minority interest .............................................. 11,825 6,023 26,563 11,428
--------
Income Taxes:
Current income tax ................................................ 3,220 1,150 7,119 2,174
Deferred income tax ............................................... 667 393 1,654 934
Total income taxes ............................................. 3,887 1,543 8,773 3,108
--------
Income before minority interest ................................ 7,938 4,480 17,790 8,320
--------
Minority interest .............................................. 397 -- 445 --
--------
NET INCOME .....................................................$ 8,335 4,480 18,235 8,320
========
Primary earnings per share ........................................$ 0.47 0.33 1.04 0.62
Fully diluted earnings per share ..................................$ 0.47 0.33 1.02 0.62
========
</TABLE>

See accompanying notes to consolidated financial statements.

5
<PAGE>
CapMAC Holdings Inc. And Subsidiaries
Consolidated Statements of Stock Holders Equity
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>

Six Months Ended
June 30, 1996

<S> <C>
Common stock:
Balance at beginning of period .................................................................... $ 160
---------
Balance at end of period ....................................................................... 160
---------

Additional paid-in capital:
Balance at beginning of period .................................................................... 223,400
Other, net ........................................................................................ (155)
---------
Balance at end of period ....................................................................... 223,245
---------

Unrealized (depreciation) appreciation on investments, net of tax:
Balance at beginning of period .................................................................... 2,443
Unrealized depreciation on investments ............................................................ (6,062)
Balance at end of period ....................................................................... (3,619)
---------

Retained earnings:
Balance at beginning of period .................................................................... 57,029
Net income ........................................................................................ 18,235
Dividends paid .................................................................................... (639)
Balance at end of period ....................................................................... 74,625
---------

Unallocated ESOP shares:
Balance at beginning of period .................................................................... (6,497)
Allocation of ESOP shares ......................................................................... 536
Balance at end of period ....................................................................... (5,961)
---------

Cumulative translation adjustment, net of tax:
Balance at beginning of period .................................................................... (16)
Translation adjustment ............................................................................ 15
---------
Balance at end of period ....................................................................... (1)
---------
$ 288,449
Total stockholders' equity
=========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CapMAC Holdings Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>

Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 18,235 8,320
---------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Reserve for losses and loss adjustment expenses ............................. 1,821 1,458
Unearned premiums ........................................................... 10,977 15,463
Deferred acquisition costs .................................................. (4,742) (5,428)
Premiums receivable ......................................................... 308 (3,603)
Accrued investment income ................................................... (579) (290)
Income taxes payable ........................................................ 4,500 (497)
Net realized capital gains .................................................. (168) (154)
Accounts payable and other accrued expenses ................................. 4,591 6,355
Prepaid reinsurance ......................................................... (3,004) (2,534)
Other, net .................................................................. (4,405) (371)
Total adjustments ..................................................... 9,299 10,399
---------
Net cash provided by operating activities ................................... 27,534 18,719
Cash flows from investing activities:
Cash flows from investing activities:
Purchases of investments ....................................................... (142,196) (69,491)
Purchases of investments in affiliates ......................................... (3,333) --
Proceeds from sale of investments .............................................. 19,875 7,829
Proceeds from maturities of investments ........................................ 96,181 42,054
Net cash used in investing activities ....................................... (29,473) (19,608)
---------
Cash flows from financing activities: Cash flows from financing activities:
Allocation of ESOP ............................................................. 536 561
Minority interest capital contribution to CapMAC Asia .......................... 2,123 --
Dividends paid ................................................................. (639) --
Other, net ..................................................................... (155) --
Net cash provided by financing activities ................................... 1,865 561
---------
Net decrease in cash
Net increase (decrease) in cash ................................................ (74) (328)
Cash balance at beginning of period ............................................ 1,033 883
Cash balance at end of period ............................................... $ 959 555
=========
Supplemental disclosures of cash flow information:
Income taxes paid .............................................................. $ 4,161 3,413
Interest paid .................................................................. $ 564 564
Tax and loss bonds purchased ................................................... $ 112 18
=========
</TABLE>

See accompanying notes to consolidated financial statements.

7
<PAGE>

CapMAC Holdings Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 1996

1. Organization and Ownership
CapMAC Holdings Inc. ("Holdings" or the "Company"), a Delaware
corporation, is the sole stockholder of Capital Markets Assurance
Corporation and CapMAC Financial Services, Inc.("CFS").CapMAC Financial
Services (Europe) Ltd. is a subsidiary of CFS. The Company is also a
lead investor in CapMAC Asia Ltd.

Holdings provides financial guaranty insurance, principally of
asset-backed obligations, through CapMAC. CapMAC's claims paying
ability is rated triple-A by Moody's Investor Service, Inc., Standard &
Poor's Ratings Services, Duff and Phelps Credit Rating Co. and Nippon
Investors Service, Inc., a Japanese rating agency. Holdings also
provides advisory and structuring services in connection with
asset-backed financings, through CFS. On December 19, 1995 Holdings
sold 2,500,000 new shares of its common stock in an initial public
offering.

2. Basis of Presentation
The Company's consolidated unaudited interim financial statements have
been prepared on the basis of generally accepted accounting principles
and, in the opinion of management, reflect all adjustments necessary
for a fair presentation of the Company's financial condition, results
of operations and cash flows for the periods presented. The results of
operations for the six months ended June 30, 1996 may not be indicative
of the results that may be expected for the full year ending December
31, 1996. These consolidated financial statements and notes should be
read in conjunction with the financial statements and notes included in
the audited financial statements of CapMAC Holdings Inc. and its
subsidiaries contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, which was filed with the Securities
and Exchange Commission on March 31, 1996.

3. Reclassifications
Certain prior period balances have been reclassified to conform to the
current period presentation.

4. Subsequent Events
On July 5, 1996, Holdings completed a secondary public offering by some
of its stockholders of 3,737,500 shares of common stock at an offering
price of $28. The Company did not receive any proceeds from the
offering.

<PAGE>

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

CapMAC Holdings Inc. ("Holdings" or the "Company"), a Delaware corporation, is
the sole stockholder of Capital Markets Assurance Corporation ("CapMAC"), and
CapMAC Financial Services, Inc. ("CFS"). CapMAC Financial Services (Europe)
Limited ("CFS (Europe)") is a subsidiary of CFS. The company is also a lead
investor in CapMAC Asia Ltd. ("CapMAC Asia").

Results of Operations

Quarter Ended June 30, 1996 versus Quarter Ended June 30, 1995

The Company reported record net income of $8.3 million, a 86% increase over net
income of $4.5 million reported during the second quarter of 1995. Primary
earnings per share and earnings per share on a fully diluted basis were $0.47
during the second quarter of 1996, a 42% increase over $0.33 during the same
period in 1995.

Total revenues during the second quarter of 1996 were $19.6 million, an increase
of 46% from $13.4 million during the second quarter of 1995. This increase was
primarily due to higher advisory and other fees and an increase in premiums
earned.

For the second quarter of 1996, gross premiums written were $18.8 million, an
increase of 13% from $16.7 million for the same period in 1995. The amount of
premiums ceded to reinsurers increased from $2.6 million during the second
quarter of 1995 to $5.1 million in the second quarter of 1996. Net premiums
earned were $10.0 million for the second quarter of 1996, an increase of 37%
from $7.3 million for the corresponding period in 1995.

CapMAC collects premiums primarily on an installment basis over the term of the
insurance policy and, to a lesser extent, on a one-time, up-front basis at the
time the insurance policy is issued. Due to the annuity nature of premium
income, CapMAC has an embedded future revenue stream which will be collected and
recognized over the term of the book of business, not only in the year the
business is written. CapMAC reflects a relatively small portion of the expected
future revenue on the business written in the current period as premium earnings
in the same period. The total estimated present value of future revenues ("PFR")
includes premiums (net of ceded premiums) and ceding commission income
contractually due to or to be earned by CapMAC in the future under outstanding
policies.

Business originated or renewed in the second quarter of 1996 was estimated to
generate $25.5 million of PFR, an increase of 122% over the same period in 1995.
Correspondingly, the amount of guarantees issued (gross par written) increased
from $1.3 billion in the second quarter of 1995 to $4.6 billion in the second
quarter of 1996, representing an increase of 259%. At June 30, 1996, CapMAC had
541 policies outstanding which are expected to generate $180.5 million of PFR,
up approximately 16% from $155.4 million at December 31, 1995 relating to 476
policies outstanding at such date. The discount rate used for purposes of the
PFR calculation was 7% for the second quarters of 1996 and 1995. Unearned
premiums, representing premiums collected but not yet earned, increased by $11.0
million from December 31, 1995 to a total of $56.7 million at June 30, 1996.

<PAGE>

At June 30, 1996, net par insured and outstanding was $16.3 billion, up 29% from
$12.6 billion at December 31, 1995. The remaining weighted average life of the
insured portfolio was estimated to be 6.7 years at June 30, 1996 and 6.0 years
at December 31, 1995.

Advisory and other fees increased 99% from $2.9 million in the second quarter of
1995 to $5.7 million in the second quarter of 1996. The increase in advisory
fees received by CFS related to the closing of transactions which involved
significant advisory and structuring services provided by CFS. Because advisory
fees are generally earned upon the closing of certain transactions, the timing
of transactions generating fees as well as the amount of such fees may result in
significant fluctuations in revenues attributable to such fees from period to
period.

Net investment income was $3.8 million in the second quarter of 1996 and $3.1
million for the corresponding period in 1995. Excluding the effect of the loss
reported by an affiliate of $0.6 million ($0.2 million net of minority
interest), net investment income was $4.5 million for the quarter ended June 30,
1996. Average assets available for investment increased from $226.0 million
during the second quarter of 1995 to $314.3 million during the second quarter of
1996. The increase was primarily due to investing the proceeds of the initial
public offering of the Company's common stock completed in December 1995 as well
as the private placement of the Company's common stock to Centre Reinsurance
Limited concurrent with the public offering and to ORIX USA Corporation in July
1995. The average annualized pre-tax yield on the investment portfolio increased
from 5.6% in the second quarter of 1995 to 5.7% in the second quarter of 1996.
The average after-tax yield on the investment portfolio decreased from 4.7% in
the second quarter of 1995 to 4.6% in the second quarter of 1996. Net realized
capital gains in the second quarter of 1996 were $0.1 million lower than the
same period in 1995. The amount of tax-exempt securities held in the Company's
investment portfolio decreased from 62% at June 30, 1995 to 59% at June 30,
1996.

Total expenses were $7.7 million in the second quarter of 1996, an increase of
5% from $7.4 million in the second quarter of 1995. Total expenses included
additions to the reserve for losses and loss adjustment expenses, underwriting
and operating expenses, policy acquisition costs, and interest expense.

CapMAC maintains a reserve for losses and loss adjustment expenses which
consists of a Supplemental Loss Reserve ("SLR") and, if appropriate, a case
basis loss reserve for expected levels of defaults resulting from credit
failures on currently insured issues. The SLR is based on estimates of the
portion of earned premiums required to cover claims on those currently insured
issues. A case basis loss reserve is established for insured obligations when,
in the judgment of management, a default in the timely payment of debt service
is imminent. For defaults considered temporary, a case basis loss reserve is
established in an amount equal to the present value of the anticipated defaulted
debt service payments over the expected period of default. If the default is
judged not to be temporary, the present value of all remaining defaulted debt
service payments is recorded as a case basis loss reserve. Anticipated salvage
recoveries are considered in establishing case basis loss reserves when such
amounts are reasonably estimable. Corresponding to the growth in the insured
portfolio, the losses and loss adjustment expenses were $1.1 million in the
second quarter of 1996 compared to $0.8 million in the second quarter of 1995.
At June 30, 1996, CapMAC had a net case basis loss reserve of $295,000 as a
result of CapMAC's first claim in 1995.

Underwriting and operating expenses were $4.3 million in the second quarter of
1996, a 7% decrease from $4.6 million in the second quarter of 1995.
Underwriting and operating expenses consisted of gross underwriting and
operating expenses, reduced by the deferral to future periods of certain costs
related to

<PAGE>

CapMAC's acquisition of new business and ceding commission income. Gross
underwriting and operating expenses were $8.7 million and $9.1 million in the
second quarter of 1996 and 1995, respectively. The decrease in underwriting and
operating expenses was due to higher ceding commission income partially offset
by increased compensation costs. Staff and benefit-related expenses, including
the discretionary bonuses to employees, constituted approximately 75% of gross
underwriting and operating expenses in the second quarter of 1996 compared to
64% in the second quarter of 1995. The Company maintains a discretionary bonus
plan under which annual bonuses are awarded to employees. For the second quarter
of 1996 and 1995, $2.4 million and $1.9 million were accrued, respectively, for
payment of bonuses under such plan. Underwriting and operating expenses deferred
by CapMAC were $4.4 million and $4.5 million in the second quarter of 1996 and
1995, respectively.

Policy acquisition costs represent the amortization of deferred acquisition
costs, which are those expenses incurred by CapMAC in acquiring new business.
The increase in policy acquisition costs from $1.7 million in the second quarter
of 1995 to $2.1 million in the second quarter of 1996 relates to the increase in
premiums earned in the corresponding periods. Interest expense related to the
senior debt was $0.6 million in the second quarter of 1996 and 1995. In the
second quarter of 1996 and 1995, the Company had net tax expense of $3.9 million
and $1.5 million, respectively. The Company's effective tax rate was 32.9% and
25.6% for the second quarter of 1996 and 1995, respectively. The effective tax
rates during these periods were lower than the statutory tax rate of 35% in 1996
and 1995 primarily due to tax-exempt interest income. For the second quarter of
1996, tax-exempt interest income of $2.4 million represented 21% of earnings
before taxes ("EBT") compared to $2.0 million which represented 34% of EBT in
the second quarter of the prior year.

Results of Operations

Six Months Ended June 30, 1996 versus Six Months Ended June 30, 1995

The Company reported record net income of $18.2 million, a 119% increase over
net income of $8.3 million reported during the first six months of 1995. Primary
earnings per share were $1.04 during the first six months of 1996, a 68%
increase over $0.62 during the first six months of 1995. Earnings per share on a
fully diluted basis were $1.02 during the first six months of 1996, a 65%
increase over $0.62 during the first six months of 1995.

Total revenues during the first six months of 1996 were $42.6 million, an
increase of 66% as compared to $25.6 million during the first six months of
1995. This increase was primarily due to higher advisory fees, premiums earned
and net investment income.

For the first six months of 1996, gross premiums written were $33.8 million as
compared to $33.7 million for the same period in 1995. Gross premiums written
were marginally higher due to a lower volume of secondary market transactions
which typically collect premiums in a single payment on the policy inception
date. However, the amount of premiums ceded to reinsurers increased from $5.6
million during the first six months of 1995 to $7.0 million in the first six
months of 1996. On January 1, 1996, CapMAC reassumed the liability for all
policies previously reinsured by Winterthur Swiss Insurance Company
("Winterthur"). As a result, CapMAC reassumed approximately $1.4 billion of
principal insured by Winterthur as of December 31, 1995. In connection with this
reassumption of liability, Winterthur commuted unearned premiums, net of ceding
commission and federal excise tax of $2.0 million. Net premiums earned were
$18.8 million for the first six months of 1996, an increase of 31% from $14.4
million for the corresponding period in 1995.

<PAGE>

Business originated or renewed in the first six months of 1996 was estimated to
generate $38.6 million of PFR, an increase of 37% over the same period in 1995.
Correspondingly, the amount of guarantees issued (gross par written) increased
from $4.1 billion in the first six months of 1995 to $5.9 billion in the first
six months of 1996, representing an increase of 46%.

Advisory fees increased 202% from $5.2 million in the first six months of 1995
to $15.6 million in the first six months of 1996. The increase in advisory fees
received by CFS related to the closing of transactions which involved advisory
and structuring services provided by CFS. Because advisory fees are generally
earned upon the closing of certain transactions, the timing of transactions
generating fees as well as the amount of such fees may result in significant
fluctuations in revenues attributable to such fees from period to period.

Net investment income was $7.9 million in the first six months of 1996 and $5.9
million for the corresponding period in 1995. Average assets available for
investment increased from $221.0 million at June 30, 1995 to $307.1 million at
June 30, 1996. The increase was primarily due to investing the proceeds of the
initial public offering of the Company's common stock completed in December 1995
as well as the private placement of the Company's common stock to Centre
Reinsurance Limited concurrent with the public offering and to ORIX USA
Corporation in July 1995. The average annualized pre-tax yield on the investment
portfolio increased from 5.4% in the first six months of 1995 to 5.6% in the
first six months of 1996. The average after-tax yield on the investment
portfolio increased from 4.5% in the first six months of 1995 to 4.6% in the
first six months of 1996. Net realized capital gains in the first half of 1996
and 1995 were $0.1 million.

Total expenses were $16.0 million in the first six months of 1996, an increase
of 13% from $14.2 million in the first six months of 1995. Total expenses
included additions to the reserve for losses and loss adjustment expenses,
underwriting and operating expenses, policy acquisition costs, and interest
expense.

Corresponding to the growth in the insured portfolio, the losses and loss
adjustment expenses were $2.2 million in the first six months of 1996 compared
to $1.5 million in the first six months of 1995.

Underwriting and operating expenses were $9.1 million in the first six months of
1996, a 5% increase from $8.7 million in the first six months of 1995.
Underwriting and operating expenses consisted of gross underwriting and
operating expenses, reduced by the deferral to future periods of certain costs
related to CapMAC's acquisition of new business and ceding commission income.
Gross underwriting and operating expenses were $18.0 million and $17.6 million
in the first six months of 1996 and 1995, respectively. The increase in
underwriting and operating expenses was due to increased compensation costs and
other operating costs. Staff and benefit-related expenses, including the
discretionary bonuses to employees, constituted approximately 74% of gross
underwriting and operating expenses in the first six months of 1996 compared to
66% in the first six months of 1995. The Company maintains a discretionary bonus
plan under which annual bonuses are awarded to employees. As of June 30, 1996
and 1995, $3.7 million and $4.9 million were accrued, respectively, for payment
of bonuses under such plan. Underwriting and operating expenses deferred by
CapMAC were $8.9 million in the first six months of 1996 and 1995.

<PAGE>

million in the first half of 1995 to $4.1 million in the first half of 1996
relates to the increase in premiums earned in the corresponding periods.
Interest expense related to the senior debt was $0.6 million in the first six
months of 1996 and 1995. In the first six months of 1996 and 1995, the Company
had net tax expense of $8.8 million and $3.1 million, respectively. The
Company's effective tax rate was 33.0% and 27.2% for the first six months of
1996 and 1995, respectively. The effective tax rates during these periods were
lower than the statutory tax rate of 35% in 1996 and 1995 primarily due to
tax-exempt interest income. As of June 30, 1996, tax-exempt interest income of
$4.7 million represented 18% of EBT compared to $3.7 million which represented
33% of EBT in the first six months of the prior year.

Liquidity and Capital Resources

The Company and Holdings. The operations of the Company are conducted primarily
through CapMAC and CFS, wholly owned subsidiaries of Holdings. The liquidity of
Holdings both on a short-term (less than twelve months) and long-term (twelve
months or longer) basis is dependent on several factors including borrowings,
equity issuances and dividends from CFS and CapMAC. Holdings requires liquidity
for payment of dividends to shareholders, investment in international business
ventures and debt service. Additionally, Holdings is required to purchase common
stock in three derivatives products subsidiaries of the Mutual Life Assurance
Company of Canada (such subsidiaries, the "TMG Group") for approximately $13
million no later than February 27, 2000, and it has agreed to invest an
additional amount of $6 million in CapMAC Asia, if requested by the board of
directors of CapMAC Asia. Currently, no dividends are expected to be received by
Holdings from CapMAC.

Management believes that the Company's operating liquidity needs, both on a
short-term basis and long-term basis, can be funded exclusively from its
operating cash flow. The Company has a number of sources of liquidity which it
expects to have available to pay claims on a short- and long-term basis: the
cash flow from its written premiums, advisory fees collected, its investment
portfolio and the earnings thereon, its bank line of credit, its reinsurance
arrangements with third-party reinsurers, the capital markets and, under certain
circumstances, realizations from collateral underlying its insured transactions.

The Company has no material commitments for capital expenditures, although it
has the strategic alliance investment commitments referred to above. The total
liquidity resources of the Company represented by its investment income, its
premium and advisory fees collections and its liquidity arrangements are, in
management's opinion, adequate to meet the Company's cash needs.

CapMAC. CapMAC's primary sources of funds are from premiums received and
earnings from its investment portfolio. Currently CapMAC's primary use of funds
is to pay operating expenses. In the event of a default by an issuer of an
insured obligation and upon exhaustion of other liquidity sources in the
transaction, such as the cash flow from the collateral underlying such
obligations, funds from CapMAC's investment portfolio may be required to satisfy
claims. CapMAC generally insures asset-backed transactions which have been
structured to address liquidity risks through, among other measures, the
addition of other liquidity sources, such as banks, to transactions. The
insurance policies issued by CapMAC provide, in general, that payment of
principal, interest and other amounts insured by CapMAC may not be accelerated
by the holder of the obligation but are paid by CapMAC in accordance with the
obligation's original payment schedule or, at CapMAC's option, on an accelerated
basis. These policy provisions prohibiting acceleration of certain claims are
mandatory under Article 69 of the New York Insurance Law and serve to reduce
CapMAC's liquidity requirements.

<PAGE>

The Company has a conservative investment strategy of investing in U.S.
government and agency obligations and securities that are rated "A" or better by
the major rating agencies. The Company has readily marketable, high quality,
fixed income securities and short-term investments in its investment portfolio.
The average contractual maturity of securities within the investment portfolio
was 5.8 years and 4.7 years at June 30, 1996 and December 31, 1995,
respectively. The average duration of the investment portfolio at June 30, 1996
and December 31, 1995 was 4.3 years and 3.5 years, respectively. At June 30,
1996, the amortized cost of the Company's investment portfolio was approximately
$319.3 million (fair value of $317.7 million). The Company manages its
investments with the objectives of preserving its capital and claims-paying
ability, maintaining a high level of liquidity, minimizing taxes and, within
these constraints, optimizing long-term total return.

CapMAC has available a $100 million, standby corporate liquidity facility
presently scheduled to terminate in June 1998 which, if necessary, is available
(subject to satisfaction of customary drawing conditions) to provide funds for
any claim payments under its policies. Such drawing conditions include a
requirement that CapMAC maintain at least $140 million of "Tangible Net Worth,"
which is defined as the difference between the market value of CapMAC's
portfolio of marketable securities plus the amount of its cash on hand and the
total liabilities and reserves of CapMAC determined in accordance with GAAP,
excluding any loans made under the liquidity facility. As of June 30, 1996,
CapMAC's Tangible Net Worth was $223.5 million. The liquidity facility is
provided by a consortium of banks headed by Bank of Montreal, as agent, which is
rated A1+ and P1 by Standard & Poor's Ratings Services (S&P) and Moody's
Investors Service, Inc., respectively. As of June 30, 1996, CapMAC has not
borrowed under this corporate liquidity facility. It is anticipated that the
liquidity facility will be increased to $110 million and the expiration date
will be extended to June, 1999.

Reinsurance arrangements provide a further source of liquidity to CapMAC. CapMAC
actively pursues reinsurance as a means of diversifying and reducing risk,
enhancing return on capital and adding underwriting capacity. In addition to its
facultative and treaty reinsurance agreements, CapMAC has a "stop-loss"
reinsurance treaty with Mitsui Marine and Fire Insurance Co., Ltd. which
indemnifies CapMAC for up to $50 million of incurred losses above $100 million.

Effective April 1, 1994, CapMAC and Luxembourg European Reinsurance LURECO S.A.
("Lureco"), entered into a Per Annum Aggregate Reinsurance Treaty (the "Lureco
Treaty") pursuant to which Lureco reinsures CapMAC for certain losses and
related expenses, including all amounts which have been incurred by CapMAC for
anticipated settlement of claims regardless of whether such amounts have been
paid by CapMAC. The Lureco Treaty provides that the annual reinsurance premium
payable by CapMAC to Lureco, after deduction of the reinsurer's fee payable to
Lureco, be deposited in a trust account (the "Lureco Trust Account") to be
applied by CapMAC, at its option, to offset losses and loss expenses incurred by
CapMAC in connection with incurred claims. Amounts on deposit in the Lureco
Trust Account which have not been applied against claims are contractually due
to CapMAC at the termination of the treaty. The agreement is renewable annually
at CapMAC's option, subject to certain conditions. The agreement was renewed for
the 1996 policy year and provides $7 million of loss coverage in excess of the
premium deposit amount of $5.0 million retained in the Lureco Trust Account.
Additional coverage is provided for losses incurred in excess of 200% of the net
premiums earned up to $4 million for any one agreement year. In September 1995,
claims incurred of approximately $2.5 million on an insurance policy were
applied against the Lureco Trust Account. At June 30, 1996, the majority of
CapMAC's reinsurance capacity was held by reinsurers who were rated AA or better
by S&P.

<PAGE>

CapMAC monitors the creditworthiness of all of its reinsurers on a regular
basis.

At June 30, 1996, CapMAC had statutory qualified capital, which consisted of
statutory capital, unassigned surplus and contingency reserves, of $250 million
up from $240 million at December 31, 1995. CapMAC's policyholders' leverage
ratio, which is measured by the ratio of net principal and interest insured to
statutory qualified capital, was 63 to 1 at December 31, 1995 and 79 to 1 at
June 30, 1996. These ratios were within aggregate limits permissible under New
York State Financial Guaranty Law. CapMAC's claims-paying resources as defined
by the Company (which includes statutory qualified capital, PFR and stop-loss
reinsurance) stood at $480.7 million and $445.3 million at June 30, 1996 and
December 31, 1995, respectively.

CapMAC Financial Services. The primary sources of funds for CFS are payments by
CapMAC under a service agreement between CFS and CapMAC (the "CFS Servicing
Agreement") and the collection of advisory fees for providing advisory and
structuring services to third parties. In addition, both CFS and CFS (Europe)
generate earnings from their respective investment portfolios. At June 30, 1996,
the amortized cost and fair value of the consolidated CFS portfolio was $10.3
million. The entire portfolio was highly liquid with maturities of less than one
year. The primary use of the funds of CFS is to pay its operating expenses. All
of the Company's personnel are employed by CFS. Under the CFS Servicing
Agreement, CFS allocates expenses to CapMAC for services provided to CapMAC. It
is intended that a portion of CFS' funds be used to pay dividends to Holdings in
order that Holdings will have funds available to pay dividends and satisfy its
obligations.

<PAGE>

PART II - OTHER INFORMATION

Items 1, 2, 3, and 5 are omitted either because the answer inapplicable or
because the answer to such questions is negative.

Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------

The following matters were voted upon at the Annual Meeting of Stockholders of
the Company held on May 29, 1996, and received the votes set forth below:

Proposal 1

The following directors were elected to serve on the Company's Board of
Directors for the terms indicated:

Terms Expiring in 1997 Number of Votes Cast
For Withheld
Stephen L. Green 12,333,552 95,551
George M. Jenkins 12,333,552 95,551
Robert Model 12,333,552 95,551
Doren W. Russler 12,333,552 95,551
John T. Shea 12,333,552 95,551
Richard C. Yancey 12,333,552 95,551

Terms Expiring in 1998 Number of Votes Cast
For Withheld
Todd G. Cole 12,333,552 95,551
Charles P. Durkin, Jr. 12,333,552 95,551
David D. Elliman 12,333,552 95,551
James H. Laird 12,333,552 95,551
Leif H. Olsen 12,333,552 95,551
Homer Mck. Rees 12,333,552 95,551

Terms Expiring in 1999 Number of Votes Cast
For Withheld
Bryan A. Bowers 12,333,552 95,551
John B. Caouette 12,333,552 95,551
Michael J. Horgan 12,333,552 95,551
Dr. Rosita Leong, M.D. 12,333,552 95,551
Arthur S. Penn 12,333,552 95,551
Akira Seko 12,333,552 95,551

<PAGE>

Proposal 2

The proposal to ratify the selection of KPMG Peat Marwick LLP as independent
auditors of the Company and its subsidiaries for 1996 was adopted, with
12,425,103 votes in favor, 1,100 votes against and 2,900 votes abstaining.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits
10.23 Promissory Note of John B. Caouette dated April 24, 1996.*

10.25 Amendment No. 3, dated November 27, 1995, to Stockholder
Agreement dated as of June 9, 1992.*

10.36 Promissory Note of Ram D. Wertheim dated May 13, 1996.*

10.37 Promissory Note of Paul V. Palmer dated May 13, 1996.*

11. Computation of Earnings Per Share Assuming Full Dilution

27. Financial Data Schedule

99. Additional Exhibits - Capital Markets Assurance
Corporation Financial Statements

(b) Reports on Form 8-K - No Reports on Form 8-K were filed in this
quarter.

* Previously filed as an exhibit, under the same exhibit number, to the
Company's Registration Statement on Form S-1 (Reg. No. 333-05211), as such
Registration Statement has been amended, and incorporated herein by reference.

<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 thereunto duly authorized.

CapMAC Holdings Inc.
Registrant

Date: August 13, 1996 /s/ Paul V. Palmer
Paul V. Palmer
Managing Director and
Chief Financial Officer

Date: August 13, 1996 /s/ Gerard Edward Murray
Gerard Edward Murray
Vice President and
Controller
(Principal Accounting Officer)

<PAGE>

Exhibit Index

Page Number
in Sequential
Exhibit No. Exhibit Number Copy

10.23 Promissory Note of John B. Caouette dated April 24, 1996.*

10.25 Amendment No. 3, dated November 27, 1995, to Stockholder
Agreement dated as of June 9, 1992.*

10.36 Promissory Note of Ram D. Wertheim dated May 13, 1996.*

10.37 Promissory Note of Paul V. Palmer dated May 13, 1996.*

11. Computation of Earnings Per Share Assuming Full Dilution 20

27. Financial Data Schedule 21

99. Capital Markets Assurance Corporation Financial Statements 22

<TABLE>

CapMAC Holdings Inc. and Subsidiaries
Statement Re Computation of Per Share Earnings

(Dollars in thousands, except Per Share Amounts)

Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
-------------------- ------------------
Modified Treasury Stock Method E.P.S. - Primary

<S> <C> <C> <C> <C>
Net Income ........................................................ $ 8,335 4,481 $ 18,235 8,323
Savings (Expense) on Debt Prepayment .............................. 0 (29) 0 88
Compensation Expense .............................................. 0 43 0 86
Interest Earned on Investments .................................... 0 8 0 4
------- ------- -------- -------
Adjusted Net Income ............................................... 8,335 4,503 18,235 8,501
- ------------------------------------------------------------------- ------- ------- -------- -------
Average number of common shares outstanding ....................... 15,509 11,777 15,499 11,759
Incremental Common Shares ......................................... 2,159 1,964 2,115 1,964
Fully Diluted number of Shares .................................... 17,668 13,741 17,614 13,723
Earnings per share assuming full dilution ......................... $ 0.47 0.33 $ 1.04 0.62
- ------------------------------------------------------------------- ------- ------- -------- -------
</TABLE>

As of June 30, 1996 approximately 4,530,400 stock options and warrants had been
granted and were outstanding. Based upon various exercise prices, the total
consideration for the common stock equivalents will be approximately $62.8
million. Using the Modified Treasury Stock method, it is assumed that the
proceeds from the exercised common stock equivalents would be used to purchase
up to 20% of the outstanding shares using an average market value of $26.02 per
share for six months ended June 30, 1996. The dilution would be the equivalent
of approximately 2,115,400 shares.

<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
extracted from CapMAC Holdings Inc. and Subsidiaries Consolidated Balance Sheets
for the six months ending June 30, 1996 and the consolidated statements of
income, stockholders' equity and cash flows, for the quarter then ended and the
notes thereto and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000889906
<NAME> CapMAC Holdings, Inc.
<MULTIPLIER> 1000
<CURRENCY> US Dollars

<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 317715
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 352530
<CASH> 959
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 39904
<TOTAL-ASSETS> 423443
<POLICY-LOSSES> 8369
<UNEARNED-PREMIUMS> 56743
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 15000
0
0
<COMMON> 160
<OTHER-SE> 288289
<TOTAL-LIABILITY-AND-EQUITY> 423443
18816
<INVESTMENT-INCOME> 7919
<INVESTMENT-GAINS> 168
<OTHER-INCOME> 15684
<BENEFITS> 2184
<UNDERWRITING-AMORTIZATION> 4123
<UNDERWRITING-OTHER> 9115
<INCOME-PRETAX> 26563
<INCOME-TAX> 8773
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18235
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.02
<RESERVE-OPEN> 6548
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 8369
<CUMULATIVE-DEFICIENCY> 0

</TABLE>

CAPITAL MARKETS ASSURANCE CORPORATION

FINANCIAL STATEMENTS

JUNE 30, 1996

(Unaudited)

<PAGE>

Capital Markets Assurance Corporation
Balance Sheets
(Dollars in thousands)

<TABLE>
ASSETS
<CAPTION>

June 30,1996 December 31,1995
(Unaudited)

<S> <C> <C> <C>
Investments:
Bonds at fair value (amortized cost $282,241 at June 30,
1996 and $210,651 at December 31, 1995) ........................................ $ 280,706 215,706
Short-term investments (at amortized cost which
approximates fair value) ....................................................... 15,664 68,646
-------
Total investments ........................................................... 296,370 284,352
-------
Cash ........................................................................... 459 344
Accrued investment income ...................................................... 3,715 3,136
Deferred acquisition costs ..................................................... 39,904 35,162
Premiums receivable ............................................................ 3,232 3,540
Prepaid reinsurance ............................................................ 16,175 13,171
Other assets ................................................................... 3,537 3,428
-------
Total assets ................................................................ $ 363,392 343,133
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
=======
Liabilities:
Unearned premiums .............................................................. $ 56,743 45,767
Reserve for losses and loss adjustment expenses ................................ 8,369 6,548
Ceded reinsurance .............................................................. 2,395 2,469
Accounts payable and other accrued expenses .................................... 9,582 10,844
Current income taxes ........................................................... 278 136
Deferred income taxes .......................................................... 12,145 11,303
-------
Total liabilities ........................................................... 89,512 77,067
-------
Stockholder's Equity:
Common stock ................................................................... 15,000 15,000
Additional paid-in capital ..................................................... 208,475 205,808
Unrealized (depreciation) appreciation on investments,
net of tax ..................................................................... (998) 3,286
Retained earnings .............................................................. 51,403 41,972
-------
Total stockholder's equity .................................................. 273,880 266,066
-------
Total liabilities and stockholder's equity .................................. $ 363,392 343,133
=======
</TABLE>

See accompanying notes to financial statements.

<PAGE>

Capital Markets Assurance Corporation
Statements of Income
(Unaudited)
(Dollars in thousands)

Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995

<S> <C> <C> <C> <C>
Revenues:
Direct premiums written ........................................... $ 18,622 16,000 32,777 32,838
Assumed premiums written .......................................... 150 669 1,024 823
Ceded premiums written ............................................ (5,103) (2,553) (7,013) (5,646)
-------
Net premiums written ........................................... 13,669 14,116 26,788 28,015
Increase in unearned premiums ..................................... (3,681) (6,813) (7,972) (13,611)
-------
Net premiums earned ............................................ 9,988 7,303 18,816 14,404
Net investment income ............................................. 4,112 2,956 7,989 5,593
Net realized capital gains ........................................ 19 20 168 85
Other income ...................................................... 25 12 79 24
-------
Total revenues ................................................. 14,144 10,291 27,052 20,106
-------

Expenses:
Losses and loss adjustment expenses ............................... 1,109 762 2,184 1,458
Underwriting and operating expenses ............................... 3,385 3,638 7,362 7,376
Policy acquisition costs .......................................... 2,059 1,734 4,123 3,459
-------
Total expenses ................................................. 6,553 6,134 13,669 12,293
-------
Income before income taxes ..................................... 7,591 4,157 13,383 7,813
-------

Income Taxes:
Current federal income tax ........................................ 1,316 344 1,981 664
Deferred federal income tax ....................................... 1,148 457 1,971 976
-------
Total income taxes ............................................. 2,464 801 3,952 1,640
-------

NET INCOME ..................................................... $ 5,127 3,356 9,431 6,173
=======
</TABLE>

See accompanying notes to financial statements.

<PAGE>

Capital Markets Assurance Corporation
Statement of Stockholder's Equity
(Unaudited)
(Dollars in thousands)

Six Months Ended
June 30, 1996

<S> <C>
Common stock:
Balance at beginning of period .................................................................... $ 15,000
---------
Balance at end of period ....................................................................... 15,000
---------

Additional paid-in capital:
Balance at beginning of period .................................................................... 205,808
Capital contribution .............................................................................. 2,667
---------
Balance at end of period ....................................................................... 208,475

Unrealized (depreciation) appreciation on investments, net of tax:
Balance at beginning of period .................................................................... 3,286
Unrealized depreciation on investments ............................................................ (4,284)
---------
Balance at end of period ....................................................................... (998)
---------

Retained earnings:
Balance at beginning of period .................................................................... 41,972
Net income ........................................................................................ 9,431
---------
Balance at end of period ....................................................................... 51,403
---------

Total stockholder's equity ..................................................................... $ 273,880
=========

</TABLE>

See accompanying notes to financial statements.

<PAGE>

Capital Markets Assurance Corporation
Statements of Cash Flows
(Unaudited)
(Dollars in thousands)

Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995

<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................... $ 9,431 6,173
-------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Reserve for losses and loss adjustment expenses ........................... 1,821 1,458
Unearned premiums ......................................................... 10,977 15,463
Deferred acquisition costs ................................................ (4,742) (5,428)
Premiums receivable ....................................................... 308 (3,603)
Accrued investment income ................................................. (579) (290)
Income taxes payable ...................................................... 2,113 1,123
Net realized capital gains ................................................ (168) (85)
Accounts payable and other accrued expenses ............................... 2,581 6,408
Prepaid reinsurance ....................................................... (3,004) (1,852)
Other, net ................................................................ (183) 692
-------
Total adjustments ................................................... 9,124 13,886
-------
Net cash provided by operating activities ................................ 18,555 20,059
-------
Cash flows from investing activities:
Purchases of investments ..................................................... (121,115) (53,597)
Proceeds from sale of investments ............................................ 19,875 7,829
Proceeds from maturities of investments ...................................... 82,800 25,874
-------
Net cash used in investing activities ..................................... (18,440) (19,894)
-------
Net increase in cash ......................................................... 115 165
Cash balance at beginning of period .......................................... 344 85
-------
Cash balance at end of period ............................................. $ 459 250
=======
Supplemental disclosures of cash flow information:
Income taxes paid ............................................................ $ 1,725 150
Tax and loss bonds purchased ................................................. $ 112 18
=======
</TABLE>

See accompanying notes to financial statements.

<PAGE>

Capital Markets Assurance Corporation
Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Capital Markets Assurance Corporation
Notes to Unaudited Financial Statements
June 30, 1996

1. Background
Capital Markets Assurance Corporation ("CapMAC") is a New
York-domiciled monoline stock insurance company which engages only in
the business of financial guaranty and surety insurance. CapMAC is a
wholly-owned subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is
licensed in all 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate, municipal and other financial
obligations in the U.S. and international capital markets. CapMAC also
provides financial guaranty reinsurance for structured asset-backed,
corporate, municipal and other financial obligations written by other
major insurance companies.

CapMAC's claims-paying ability is rated triple-A by Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Duff & Phelps Credit
Rating Co., and Nippon Investors Service, Inc., a Japanese rating
agency. Such ratings reflect only the views of the respective rating
agencies, are not recommendations to buy, sell or hold securities and
are subject to revision or withdrawal at any time by such rating
agencies.

2. Basis of Presentation
CapMAC's unaudited interim financial statements have been prepared on
the basis of generally accepted accounting principles and, in the
opinion of management, reflect all adjustments necessary for a fair
presentation of the CapMAC's financial condition, results of operations
and cash flows for the periods presented. The results of operations for
the six months ended June 30, 1996 may not be indicative of the results
that may be expected for the full year ending December 31, 1996. These
financial statements and notes should be read in conjunction with the
financial statements and notes included in the audited financial
statements of CapMAC as of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995.

3. Reclassifications
Certain prior period balances have been reclassified to conform to the
current period presentation.