CAPMAC HOLDINGS INC, S-1/A, 1996-06-12

CAPMAC HOLDINGS INC
S-1/A, 1996-06-12
SURETY INSURANCE

Previous: MRV COMMUNICATIONS INC, DEF 14A, 1996-06-12

Next: GREEN TREE FINANCIAL CORP, 424B3, 1996-06-12

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1996

REGISTRATION NO. 333-05211

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------

AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------

CAPMAC HOLDINGS INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 6749 13-3670828
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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

885 THIRD AVENUE, 14TH FLOOR
NEW YORK, NEW YORK 10022
(212) 755-1155
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-------------------

RAM D. WERTHEIM, ESQ.
MANAGING DIRECTOR, GENERAL
COUNSEL AND SECRETARY
CAPMAC HOLDINGS INC.
885 THIRD AVENUE, 14TH FLOOR
NEW YORK, NEW YORK 10022
(212) 755-1155
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------

COPIES TO:

<TABLE>
<S> <C>
WILSON S. NEELY, ESQ. ROBERT USADI, ESQ.
SIMPSON THACHER & BARTLETT CAHILL GORDON & REINDEL
425 LEXINGTON AVENUE 80 PINE STREET
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10005
(212) 455-2000 (212) 701-3000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
-------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CAPMAC HOLDINGS INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE><CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION OR LOCATION

<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus

2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
of Prospectus

3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial
Information; The Company (Ratio of
Earnings to Fixed Charges Not Applicable)

4. Use of Proceeds............................ Use of Proceeds

5. Determination of Offering Price............ Not Applicable

6. Dilution................................... Not Applicable

7. Selling Security Holders................... Principal and Selling Stockholders

8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting

9. Description of Securities to be
Registered................................. Description of Capital Stock

10. Interests of Named Experts and Counsel..... Experts

11. Information with Respect to the
Registrant................................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization; Use of
Proceeds; Price Range of Common Stock and
Dividends; The Company; Selected
Historical Consolidated Financial
Information; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Industry Overview;
Business; Insurance Regulatory Matters;
Accounting; Indebtedness; Management;
Principal and Selling Stockholders;
Certain Relationships and Related
Transactions; Description of Capital
Stock; Shares Eligible for Future Sale;
Financial Statements

12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Undertakings
</TABLE>
<PAGE>

SUBJECT TO COMPLETION, DATED JUNE 12, 1996

3,000,000 SHARES
[LOGO] CAPMAC HOLDINGS INC.

COMMON STOCK

The 3,000,000 shares of common stock, par value $0.01 per share (the "Common
Stock") of CapMAC Holdings Inc. ("Holdings") offered hereby (the "Offering") are
being offered by the Selling Stockholders. See "Principal and Selling
Stockholders." Holdings will not receive any of the proceeds from the Offering.

The Common Stock is listed on the New York Stock Exchange under the symbol
"KAP." On June 11, 1996, the closing sales price of the Common Stock as reported
on the New York Stock Exchange was $28 per share. See "Price Range of Common
Stock and Dividends."

FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 12-16.
-------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

<TABLE><CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS* STOCKHOLDERS
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total+............................................... $ $ $
</TABLE>

- ------------
* The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."

+ The Selling Stockholders have granted to the Underwriters a 30-day option to
purchase up to 450,000 additional shares of Common Stock on the same terms
per share solely to cover over-allotments, if any. If such option is
exercised in full, the total price to public will be $ , the total
underwriting discounts and commissions will be $ and the total
proceeds to the Selling Stockholders will be $ . See
"Underwriting."

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

The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that delivery of certificates therefor
will be made at the offices of Dillon, Read & Co. Inc., New York, New York, on
or about , 1996. The Underwriters include:

DILLON, READ & CO. INC.
ALEX. BROWN & SONS
INCORPORATED
GOLDMAN, SACHS & CO.

The date of this Prospectus is , 1996.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

NEITHER THE COMPANY NOR ANY UNDERWRITER HAS TAKEN OR WILL TAKE ANY ACTION IN
ANY JURISDICTION OTHER THAN THE UNITED STATES THAT WOULD PERMIT A PUBLIC
OFFERING OF THE COMMON STOCK OR THE POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED.
PERSONS WHO COME TO POSSESS THIS PROSPECTUS ARE REQUIRED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO
THE OFFERING OF THE COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.

THE NEW YORK INSURANCE LAW PROVIDES THAT NO PERSON, OTHER THAN AN AUTHORIZED
INSURER, MAY ACQUIRE CONTROL OF THE COMPANY AND THUS INDIRECT CONTROL OF CAPITAL
MARKETS ASSURANCE CORPORATION, OR ANY OTHER NEW YORK-DOMICILED INSURANCE
SUBSIDIARY OF THE COMPANY, UNLESS IT HAS GIVEN PRIOR WRITTEN NOTICE TO CAPITAL
MARKETS ASSURANCE CORPORATION AND ANY SUCH SUBSIDIARY AND RECEIVED THE PRIOR
APPROVAL OF THE SUPERINTENDENT OF INSURANCE OF THE STATE OF NEW YORK. ANY
PURCHASER OF 10% OR MORE OF THE OUTSTANDING SHARES OF THE COMMON STOCK OF THE
COMPANY WOULD BE PRESUMED TO HAVE ACQUIRED SUCH CONTROL UNLESS THE
SUPERINTENDENT OF INSURANCE, UPON APPLICATION, DETERMINES OTHERWISE.

THE NEW YORK STATE INSURANCE DEPARTMENT RECOGNIZES ONLY STATUTORY ACCOUNTING
PRACTICES FOR DETERMINING AND REPORTING THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF AN INSURANCE COMPANY, FOR DETERMINING ITS SOLVENCY UNDER THE NEW
YORK INSURANCE LAW, AND FOR DETERMINING WHETHER ITS FINANCIAL CONDITION WARRANTS
THE PAYMENT OF A DIVIDEND TO ITS SHAREHOLDERS. NO CONSIDERATION IS GIVEN BY THE
DEPARTMENT TO FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES IN MAKING SUCH DETERMINATIONS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF
INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT.

2
<PAGE>
ADDITIONAL INFORMATION

The Company will furnish its shareholders with annual reports containing
audited financial statements for each fiscal year and, upon request, with
quarterly reports containing unaudited summary financial information for each of
the first three quarters of each fiscal year.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Stock being offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain items of which are
contained in schedules and exhibits to the Registration Statement as permitted
by the rules and regulations of the Commission. The Company is also subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and in accordance therewith files periodic reports and
other information with the Commission. The Registration Statement, as well as
such reports and other information, may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission at Seven
World Trade Center, 13th Floor, New York, New York 10048 and at Northwestern
Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the aforementioned material can also be inspected
at the offices of the New York Stock Exchange, Inc. ("NYSE"), 20 Broad Street,
New York, New York 10005.

3
<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the
detailed information and financial statements contained elsewhere in this
Prospectus. Prospective purchasers of the Common Stock should carefully read
this entire Prospectus and should consider, among other things, the matters set
forth under "Risk Factors." All financial information in this Prospectus is
presented in accordance with generally accepted accounting principles ("GAAP"),
unless otherwise noted. See "Glossary of Insurance Terms" for definitions of
certain terms used in this Prospectus. Unless the context otherwise requires,
references to "CapMAC" mean Capital Markets Assurance Corporation, references to
"CFS" mean CapMAC Financial Services, Inc. and its wholly owned subsidiary,
CapMAC Financial Services (Europe) Ltd., references to "Holdings" mean CapMAC
Holdings Inc. and references to "the Company" mean Holdings and its consolidated
subsidiaries, including CapMAC, CFS and CapMAC Asia Ltd. ("CapMAC Asia").

THE COMPANY

The Company provides financial guaranty insurance, principally of
asset-backed obligations, through its wholly owned subsidiary CapMAC; advisory
and structuring services in connection with asset-backed financings, through its
wholly owned subsidiary CFS; and access to funding for its customers through
securitization funding vehicles. The Company was established in 1987 as a
subsidiary of Citicorp and was acquired from Citicorp (the "Acquisition") in
1992 by the Company's management and a group of institutional and other
investors.

On December 19, 1995 the Company completed an initial public offering of its
Common Stock (the "IPO") in which it sold 2,500,000 shares and certain selling
shareholders sold 1,766,437 shares. Contemporaneously with the IPO, the Company
sold 500,000 shares of Common Stock to Centre Reinsurance Limited ("Centre Re"),
a wholly owned indirect subsidiary of The Zurich Insurance Company. The net
proceeds to the Company of the IPO and the sale of shares to Centre Re, after
commissions and fees, were $54.7 million, of which approximately $50 million was
contributed to CapMAC to support planned growth. The balance was retained by
Holdings for general purposes, including investments in international business
ventures and strategic alliances.

CapMAC, a New York financial guaranty insurance company, is a leading
insurer of asset-backed obligations in both the domestic and international
capital markets. As of March 31, 1996, obligations backed by consumer, trade and
corporate receivables and other taxable obligations constituted approximately
95% of CapMAC's insured portfolio. CapMAC's claims-paying ability is rated
triple-A by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), Duff &
Phelps Credit Rating Co. ("DCR") and Nippon Investors Service, Inc., a Japanese
rating agency.

The Company's total revenue for the three month period ended March 31, 1996
was $23.2 million, a 90% increase from $12.2 million in the same period of 1995,
with net income of $9.9 million, a 158% increase from $3.8 million in the three
month period ended March 31, 1995. The significant increase in revenues and net
income for the three month period ended March 31, 1996 was primarily due to the
payment to CFS of advisory fees with respect to the closing of certain
transactions. Such fees may fluctuate significantly from period to period. See
"Risk Factors--Market and Other Factors." Total revenue in 1995 was $62.6
million, a 41% increase from $44.6 million in 1994, with net income of $23.5
million, a 37.9% increase from $17.1 million in 1994. The Company's total assets
have grown from $184.7 million at December 31, 1992 to $406.1 million at March
31, 1996. From its inception through March 31, 1996, CapMAC has issued
guarantees with respect to $61.1 billion principal amount of securities.

4
<PAGE>
offer its customers, regardless of whether those solutions require the issuance
by CapMAC of a financial guaranty policy. The Company has historically been an
innovator in the financial guaranty market for asset-backed obligations,
utilizing the insurance policies issued by CapMAC to enable customers holding
diverse pools of assets to obtain low-cost funding. In addition to the corporate
and consumer assets which have been widely securitized in recent years, CapMAC's
insurance policies have guaranteed obligations backed by, among other things,
delinquent tax receivables, premium receivables of property/casualty insurance
companies, healthcare receivables, recreational vehicle and boat loans and
student loans originated by banks. In order to generate repeat business and thus
a significant flow of steady revenues and profits, the Company intends to
concentrate on building long-term relationships with certain targeted customers.
The Company will continue to pursue opportunities that provide superior returns
rather than those that merely increase market share or business volume.

The Company believes the asset-backed securities market will continue to
grow both domestically and internationally in future years because
securitization benefits both issuers and investors. Issuers will continue to
take advantage of asset-backed issuance because securitization provides funding
flexibility and increases asset diversification and, for certain financial
institutions, facilitates compliance with regulatory capital requirements.
Investors will continue to be attracted to asset-backed securities because they
represent high-quality investments that provide an attractive risk/reward
profile and protection from event and corporate credit risk. This growth in the
asset-backed securities market is expected to fuel an increased demand for
financial guaranty insurance because fixed income investors are expected to
continue to demand the enhanced credit quality and potential for liquidity
provided by financial guaranty insurance, particularly in connection with new
applications of securitization.

The asset-backed obligations insured by CapMAC are generally issued in
structured transactions and are backed by pools of assets such as consumer or
trade receivables, securities, residential mortgage loans or other assets having
an ascertainable cash flow. Financial guaranty insurance written by CapMAC
guarantees payment, when due, of scheduled payments on an issuer's obligation.
In the case of a payment default on an insured obligation, CapMAC is generally
required to pay the principal, interest or other amounts due in accordance with
the obligation's original payment schedule or, at its option, to pay such
amounts on an accelerated basis. CapMAC underwrites insurance policies by
applying a "zero loss" standard, meaning that risks are insured only if there is
an expectation at the time a policy is issued, based on the Company's
underwriting criteria at such time, that there will be no loss during the term
of the policy. CapMAC's underwriting criteria require that asset-backed
transactions insured by CapMAC be structured to provide protection to CapMAC
through excess collateral, cash reserve accounts, third party credit support and
other appropriate mechanisms designed to cover expected credit losses, even
under adverse scenarios. However, there can be no assurance that losses for
CapMAC's account will not occur in its insured portfolio, and such losses may
have a material adverse effect on the Company.

5
<PAGE>
In recognition of the increasing potential for securitization in certain
foreign markets, the Company has selectively expanded its activities in Europe
and Asia. The percentage of revenues from international sources was
approximately 29.8% and 46.7%, for 1995 and the three month period ended March
31, 1996, respectively. The significant increase in the percentage of revenues
from international sources for the first quarter of 1996 is primarily due to the
payment of advisory fees from certain large international transactions which
closed during such period. Such percentage will fluctuate from period to period
to the extent that advisory fees are a significant portion of international
revenue. See "Risk Factors--Market and Other Factors." Since the inception of
European operations in 1990, the principal amount of obligations supported by
CapMAC's policies in Europe has increased to $13.9 billion.

Given the growing importance and growth prospects of Asia's economies, the
Company has undertaken a number of initiatives to expand in that region. By
entering into alliances with local entities, the Company intends to become a
leading participant in the emerging Asian securitization business, while
limiting the capital investment required and the business risks incurred. In
Japan, the Company has entered into a strategic alliance with Mitsui Marine and
Fire Insurance Co., Ltd. ("Mitsui Marine"). The 1995 cooperation agreement among
CapMAC, CFS and Mitsui Marine is designed to establish, among other things, the
joint pursuit of financial guaranty business with respect to obligations that
are backed by assets originated in Japan or that are issued by Japanese
entities. The Company is a minority shareholder in a corporation in Indonesia
established to develop securitization for obligations that are backed by assets
originated in Indonesia or that are issued by Indonesian entities. In addition,
the Company initiated the formation of Asia Credit Services (Private) Ltd ("Asia
Services"), a new financial guaranty company located in Singapore, which will
provide guarantees of debt securities in the Asian emerging markets and advisory
and structuring services in connection with Asian securitization transactions.
The Company has made an investment in and provides technical advice and
assistance to Asia Services and its wholly owned subsidiary, Asian
Securitization & Infrastructure Assurance (Private) Ltd ("ASIA Ltd").

The Company derives its revenue primarily from net premiums earned on
insurance policies written by CapMAC, advisory and structuring fees earned by
CFS and income earned on investments. CFS earns fees in connection with
providing advisory and structuring services to clients who may also be
purchasers of CapMAC's insurance policies. Premiums for financial guaranty
insurance policies written by CapMAC on asset-backed obligations are generally
payable on an installment basis over the life of the policy. Accordingly,
CapMAC's existing in force insurance policies provide it with an identifiable
source of future revenues. At March 31, 1996, the total estimated present value
of future revenues ("PFR"), consisting of premiums (net of ceded premiums) and
ceding commission income contractually due to or to be earned by CapMAC in the
future under outstanding policies, was estimated to be $168.3 million. See "Risk
Factors--Realization of PFR" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General."

In managing its investment portfolio, the Company places a high priority on
credit quality and liquidity. The Company's current investment policy permits
investment only in U.S. Government and agency obligations, fixed income
securities rated "A" or better and short-term investments rated A1+/P1 or higher
by the major U.S. rating agencies. At March 31, 1996, 72.4% of the Company's
investment portfolio consisted of fixed income securities rated AAA or the
equivalent or obligations issued by the U.S. Government or its agencies or
instrumentalities. The Company's investment portfolio had an average credit
quality rating of at least AA as of March 31, 1996.

Citicorp (through its subsidiary, Citibank (New York State)) established the
predecessor to Holdings ("Original Holdings") in 1987 to focus primarily on the
taxable structured asset-backed market. Through the Company's Employee Stock
Ownership Plan (the "ESOP", see "Management-- Employee Benefit Plans"), stock
option plans, and direct equity investments, management and employees own
approximately 16.6% of Holdings' Common Stock on a fully diluted basis. Upon
consummation of the Offering, the other original investors in the Acquisition
will own at least 43.1% of Holdings' Common Stock on a fully diluted basis
(40.9% if the Underwriters' over-allotment option is exercised in full). Those
original investors owning 5% or more of Holdings' Common Stock are named in
"Principal and Selling Stockholders." See also "Risk Factors--Control by
Original Stockholders."

6
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by
Selling Stockholders......... 3,000,000 shares

Common Stock outstanding(1).. 15,505,603 shares

Dividend Policy.............. Holdings currently has a policy of paying quarterly cash
dividends of $0.02 per share on each share of Holdings'
Common Stock, subject to declaration by Holdings' Board of
Directors and certain contractual and regulatory
constraints. See "Risk Factors-- Holding Company Structure"
and "Dividend Policy."

NYSE Symbol.................. KAP

Use of Proceeds.............. Holdings will not receive any proceeds from the Offering.
</TABLE>

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

(1) As of April 30, 1996. Excludes 2,301,213 shares issuable upon exercise of
certain outstanding stock options at a weighted average exercise price of
$15.42 per share, 2,230,024 shares issuable upon exercise of warrants at an
exercise price of $13.33 per warrant and 460,392 unallocated ESOP shares.

7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following tables present summary consolidated financial data derived
from the consolidated financial statements of Holdings and Original Holdings and
the related notes thereto for each of the periods indicated. The summary
historical information as of and for the year ended December 31, 1991, pro forma
information for the year ended December 31, 1992, selected historical
information for the three months ended March 31, 1995, and March 31, 1996, the
adjusted book value per share, the Net Statutory P&I amounts and the
policyholders' leverage ratio are unaudited. Although the financial statements
for the year ended December 31, 1991 for Original Holdings are unaudited, the
financial statements of CapMAC during that period have been audited. Certain
amounts, ratios and statistics in the Company's financial statements relate
solely to CapMAC and consequently, certain items of revenue and expense such as
premium and loss information and selected financial statistics for the audited
periods are directly related to CapMAC and have been audited. This information
should be read in conjunction with the consolidated financial statements of the
Company and the related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

The summary historical consolidated and pro forma financial statements were
prepared in accordance with GAAP and include the accounts of Holdings and its
consolidated subsidiaries, including CapMAC, CFS and CapMAC Asia. The selected
financial statistics were prepared in accordance with GAAP or SAP, as indicated.
All significant intercompany transactions have been eliminated in consolidation.

8
<PAGE>
<TABLE><CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------------------------------
HOLDINGS
PRO FORMA(1) ORIGINAL
HOLDINGS FOR ACQUISITION HOLDINGS
------------------------------------------------- --------------- --------
1996 1995 1995 1994 1993 1992 1991
------- ------- --------- ------- ------- --------------- --------
(UNAUDITED) (AUDITED) (UNAUDITED)
----------------- ----------------------------- --------------------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross premiums written.......... $15,029 $16,992 $ 57,476 $44,662 $24,894 $17,607 $ 18,077
Net premiums written............ 13,119 13,899 41,484 33,593 21,308 13,359 13,807
Net premiums earned............. 8,828 7,101 29,242 23,103 17,483 12,222 12,088
Advisory fees................... 9,549 2,024 15,470 10,723 4,722 1,130 2,370
Net realized gains (losses)..... 149 9 1,351 (117) 1,490 176 2,918
Net investment income........... 4,111 2,811 12,843 10,316 10,205 10,045 17,040
Total revenues.................. 23,247 12,207 62,632 44,551 34,547 24,254 34,418
Total expenses.................. 8,509 6,802 27,968 19,693 16,508 14,168 27,086
Income before income taxes...... 14,738 5,405 34,664 24,858 18,039 10,086 7,332
Net income...................... 9,900 3,840 23,528 17,066 12,469 7,853 6,983
Primary earnings per share(2)... 0.57 0.28 1.73 1.23 0.96 0.62(2) --
Fully diluted earnings per
share(2)........................ 0.57 0.28 1.65 1.23 0.96 0.62(2) --
SELECTED FINANCIAL STATISTICS
- --GAAP BASIS(3):
Loss ratio...................... 12.2% 9.8% 10.7% 6.2% 5.2% 7.2% 7.7%
Expense ratio................... 68.4 76.9 71.9 70.8 80.8 96.1 98.2
Combined ratio.................. 80.6 86.7 82.6 77.0 86.0 103.3 105.9
- --SAP BASIS (3):
Loss ratio...................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expense ratio................... 64.3 71.0 77.1 81.8 112.2 141.9 116.5
Combined ratio.................. 64.3 71.0 77.1 81.8 112.2 141.9 116.5

<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------------------------------------------------------------------------------
ORIGINAL
HOLDINGS HOLDINGS
----------------------------------------------------------------------------------- -----------
1996 1995 (7) 1994 1993 1992(8) 1991
----------- ------------------- ----------- ----------- ------------------- -----------
(UNAUDITED) (AUDITED) (UNAUDITED)
----------- --------------------------------------------------------------------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total investments(4)... $ 344,629 $ 329,758 $ 202,637 $ 190,428 $ 172,474 $ 251,588
Total assets........... 406,118 391,273 244,404 212,992 184,693 283,458
Unearned premiums...... 50,266 45,767 25,905 10,062 6,038 4,900
Long term debt......... 15,000 15,000 15,000 15,000 15,000 115,000
Total liabilities...... 103,022 95,191 63,743 41,564 29,983 195,895
Stockholders' equity... 281,698 276,519 180,661 171,428 154,710 87,563
Book value per share... 18.18 17.86 15.38 14.72 13.34 --
Shares
outstanding(5)......... 15,498,889 15,478,729 11,745,186 11,646,290 11,599,935 --
SELECTED FINANCIAL
STATISTICS (3):
Net Statutory P&I...... $16,808,000 $ 15,138,000 $10,838,000 $ 6,846,000 $ 4,933,000 $ 4,424,000
Qualified Statutory
Capital ............... $ 245,413 $ 239,927 $ 170,477 $ 167,825 $ 163,087 $ 242,131
Policyholders' leverage
ratio.................. 68:1 63:1 64:1 41:1 30:1 18:1
OTHER DATA:
Adjusted book value per
share(6)............... $ 23.66 $ 21.91 $ 19.50 $ 17.48 $ 15.82 --
</TABLE>

(Footnotes on following page)

9
<PAGE>
(Footnotes for preceding page)

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

(1) The following table presents the statements of income for (i) the six-month
period ended June 30, 1992 for Original Holdings prior to the Acquisition;
(ii) the six-month period ended December 31, 1992 for Holdings after the
Acquisition and (iii) the condensed pro forma income statement for the year
ended December 31, 1992 assuming that the Acquisition had occurred on
January 1, 1992. The pro forma information reflects adjustments relating to
(a) lower investment income due to the reduction in the investment portfolio
as a result of the Distribution made in connection with the Acquisition; (b)
higher benefits expense due to establishment of the ESOP; (c) lower policy
acquisition costs due to the assumed write-off of deferred acquisition costs
at January 1, 1992 and (d) lower interest expense due to recapitalization.
The pro forma information does not purport to represent what the results of
operations would actually have been if the Acquisition had occurred on
January 1, 1992 or to be indicative of the future results of operations of
Holdings.
<TABLE><CAPTION>
HOLDINGS
PRO FORMA
ORIGINAL HOLDINGS HOLDINGS FOR ACQUISITION
JANUARY 1- JULY 1- ACQUISITION YEAR ENDED
JUNE 30, 1992 DECEMBER 31, 1992 ADJUSTMENTS DECEMBER 31, 1992
----------------- ----------------- ----------- -----------------
(UNAUDITED) (AUDITED) (UNAUDITED) (UNAUDITED)
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Net premiums earned......... $ 5,969 $ 6,253 $-- $12,222
Net investment income....... 7,519 4,823 (2,297) 10,045
Net realized gains.......... -- 176 -- 176
Other income................ 415 1,020 376 1,811
-------- -------- ----------- --------
Total revenues........ 13,903 12,272 (1,921) 24,254
-------- -------- ----------- --------
EXPENSES:
Losses and loss adjustment
expenses.................... 460 422 -- 882
Underwriting and operating
expenses.................... 4,979 6,154 596 11,729
Policy acquisition costs.... 2,911 143 (2,686) 368
Interest expense............ 6,425 439 (5,676) 1,189
-------- -------- ----------- --------
Total expenses........ 14,775 7,158 (7,765) 14,168
-------- -------- ----------- --------
Income before income
taxes....................... (872) 5,114 5,844 10,086
-------- -------- ----------- --------
Income taxes.......... 1,691 1,148 2,776 2,233
-------- -------- ----------- --------
Net Income............ $ 819 $ 3,966 $ 3,068 $ 7,853
-------- -------- ----------- --------
-------- -------- ----------- --------
</TABLE>

(2) Earnings per share ("EPS") has been computed using the modified treasury
stock method and the market value of the shares has been determined by an
independent consulting firm in connection with an annual valuation conducted
for the ESOP, except for the market values subsequent to the IPO, which are
based on quoted trading prices on the New York Stock Exchange. EPS for the
six-month period ended December 31, 1992 was $0.62.

(3) These ratios and statistics relate solely to CapMAC. The GAAP loss ratio is
losses and loss adjustment expenses incurred (inclusive of additions to the
Supplemental Loss Reserve) divided by net premiums earned. The SAP loss
ratio is losses and loss adjustment expenses incurred (exclusive of
additions to the Supplemental Loss Reserve) divided by net premiums earned.
The GAAP expense ratio is underwriting and operating expenses and policy
acquisition costs, divided by net premiums earned. The SAP expense ratio is
SAP underwriting and operating expenses, divided by net premiums written.
The combined ratio on both a GAAP and SAP basis is the sum of the applicable
loss and expense ratios.

(Footnotes continued on following page)

10
<PAGE>
(Footnotes continued from preceding page)

(4) The Company changed its method of accounting for investments to adopt 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," on December 31, 1993.

(5) Shares outstanding do not include the common stock equivalents (i.e.,
warrants, stock options and unallocated ESOP shares).

(6) Adjusted book value per share is not based on GAAP and is not a substitute
for GAAP book value per share of Common Stock. Due to the PFR embedded in
CapMAC's existing book of business, the book value per share has been
adjusted to present additional information concerning the value of CapMAC.
The adjusted book value is determined by adding to the GAAP book value the
PFR per share reduced by the deferred acquisition costs net of the related
tax effects. However, PFR is not earned until subsequent periods, and the
amount actually realized may be less than the amount estimated. See "Risk
Factors--Realization of PFR." For a discussion of how PFR is computed see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- General."

(7) On December 19, 1995 the Company completed an IPO in which it sold 2,500,000
shares and certain selling shareholders sold 1,766,437 shares.
Contemporaneously with the IPO, the Company sold 500,000 shares of Common
Stock to Centre Reinsurance Limited ("Centre Re"), a wholly owned indirect
subsidiary of The Zurich Insurance Company. The net proceeds to the Company
of the IPO and the sale of shares to Centre Re, after commissions and fees,
were $54.7 million, of which approximately $50 million was contributed to
CapMAC to support planned growth. The balance was retained by Holdings for
general purposes, including investments in international business ventures
and strategic alliances.

(8) In connection with the Acquisition, CapMAC made a special distribution (the
"Distribution") to Holdings in an aggregate amount that caused the total of
CapMAC's statutory capital and surplus to decline to approximately $150
million. Holdings applied substantially all of the proceeds of the
Distribution to repay the debt owed to Citicorp that was incurred in
connection with the initial capitalization of CapMAC. The Acquisition,
including the Distribution, was approved by the New York State Insurance
Department, and CapMAC's triple-A claims-paying ability rating was
reaffirmed by Moody's, S&P and DCR in connection with the Acquisition. The
Acquisition was recorded using the "purchase method" of accounting, which
requires the assets and liabilities to be recorded at fair market value. As
a result, the investment portfolio was marked to market. In addition, the
excess of fair value of the assets and liabilities over the purchase price
was offset against Original Holdings' intangible assets and deferred
acquisition costs ("DAC").

11
<PAGE>
RISK FACTORS

Certain statements contained in "Prospectus Summary" and "The Company" such
as statements concerning the Company's objectives and the future growth of the
asset-backed securities market, certain statements in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" such as
statements concerning PFR and sources of present and future liquidity, and
certain statements contained in "Business" such as statements concerning
estimated terms to maturity of insured obligations and adequacy of loss
reserves, and other statements contained herein regarding matters that are not
historical facts are forward-looking statements (as such term is defined in the
Securities Act); and because such statements involve risks and uncertainties,
actual results may differ materially from those expressed or implied by such
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed below. Prospective purchasers of the
Common Stock should consider carefully the following specific information,
together with the other information set forth in this Prospectus, before
purchasing any shares of Common Stock offered hereby.

CLAIMS-PAYING ABILITY RATING

As is customary in the financial guaranty insurance industry, the rating
agencies perform periodic assessments of CapMAC to confirm that it continues to
meet the criteria established by such agencies for maintaining its triple-A
claims-paying ability ratings. Such assessments focus on the insurer's
underwriting policies and procedures and the quality of the obligations insured.
Such ratings should not, however, be construed by prospective investors as an
indication of the suitability or quality of an investment in the Company's
Common Stock. Moreover, although CapMAC intends to comply with the requirements
of such rating agencies to maintain such ratings, no assurance can be given that
these requirements will not change or that, even if CapMAC complies with these
requirements, one or more of such rating agencies will not reduce or withdraw
their claims-paying ability ratings of CapMAC in the future. CapMAC's ability to
attract new business and to compete with other triple-A rated financial
guarantors, and its results of operations and financial condition, would be
materially adversely affected by any reduction in its ratings. See
"Business--Rating Agencies."

COMPETITION

The businesses engaged in by the Company are highly competitive. CapMAC
faces competition from a number of providers of credit enhancement, as well as
competition from alternative executions of transactions which do not employ
third-party credit enhancement. CapMAC competes with other financial guaranty
insurance companies on the basis of a number of factors, primary among which are
evaluations of claims-paying ability by the major rating agencies, pricing,
financial strength, reputation, service and capacity to underwrite large single
risks. In addition, CapMAC competes with other providers of third-party credit
enhancement, such as banks, and with alternative executions which do not employ
third-party credit enhancement. In terms of statutory surplus plus contingency
reserves, CapMAC is smaller than the other major financial guaranty insurers.
Furthermore, although CapMAC is one of the leading writers of non-municipal
financial guaranty insurance, there can be no assurance that insurers primarily
engaged in the mature municipal financial guaranty business will not more
aggressively pursue the non-municipal financial guaranty business and that
CapMAC will not thereby lose its market share position. To the extent that there
is no increase in the dollar volume of obligations that require guaranties,
increased competition, either in terms of price or new providers of credit
enhancement, would likely have an adverse effect on the Company's business. See
"Business-- Competition."

12
<PAGE>
MARKET AND OTHER FACTORS

The demand for financial guaranty insurance depends upon many factors, some
of which are beyond the control of CapMAC. Additionally, the demand for the
advisory services rendered by CFS is highly dependent upon the number and nature
of transactions done by CapMAC. Further, the advisory fees generated by such
services are generally earned when a transaction closes; consequently the timing
of such transactions and the amount of the related fees can result in
significant fluctuations in revenues attributable to such fees from period to
period.

While all the major financial guaranty insurers have triple-A claims-paying
ability ratings from the major rating agencies, investors may from time to time
distinguish among financial guarantors on the basis of various factors,
including size, insured portfolio concentration and financial performance. These
distinctions may result in differentials in trading levels for securities
insured by particular financial guarantors which, in turn, may provide a
competitive advantage to those financial guarantors with better trading
characteristics. Conversely, various investors may, due to regulatory or
internal guidelines, lack additional capacity to purchase securities insured by
certain financial guarantors, which may provide a competitive advantage to
guarantors with fewer insured obligations outstanding.

Prevailing interest rate levels affect demand for financial guaranty
insurance to the extent that lower interest rates are accompanied by narrower
spreads between insured and uninsured obligations. The purchase of insurance
during periods of relatively narrower interest rate spreads will generally
provide lower cost savings to the issuer than during periods of relatively wider
spreads. These lower cost savings generally are accompanied by a corresponding
decrease in demand for financial guaranty insurance.

The perceived financial strength of financial guaranty insurers also affects
demand for financial guaranty insurance. Should a major financial guaranty
insurer, or the industry generally, have its claims-paying ability rating
lowered, or suffer for some other reason a deterioration in investors'
confidence, demand for financial guaranty insurance may be reduced or eliminated
entirely.

Premium rates are affected by factors such as the insurer's appraisal of the
insured credit, the spread between interest rates prevailing on insured and
uninsured obligations and capital charges associated with these exposures as
determined by the rating agencies and regulators, as well as competition for
such business among financial guaranty insurance providers and other forms of
credit enhancement. Lower interest rates generally result in lower premium
amounts to the extent that premium amounts are based on the total dollar amount
of principal, interest and other amounts insured. In management's view, the
current low interest rate environment has not resulted in a decrease in the
demand for financial guaranty insurance, but the lower spread between insured
and uninsured obligations has in certain cases resulted in lower premium rates
for financial guaranties, primarily in the consumer segment of the market, which
includes securitizations of home equity loans, automobile loans and credit card
receivables.

REGULATION

The financial guaranty insurance industry has historically been and will
continue to be subject to the direct and indirect effects of governmental
regulation, including changes in tax laws and legal precedents affecting
asset-backed and municipal obligations. No assurance can be given that future
legislative, regulatory or judicial changes will not adversely affect CapMAC's
business. See "Insurance Regulatory Matters" for a description of current
insurance regulations affecting CapMAC.

ADEQUACY OF LOSS RESERVES

The financial guaranties issued by CapMAC insure the financial performance
of the obligations guaranteed over an extended period of time, in some cases
over 30 years, under policies that CapMAC

13
<PAGE>
cannot cancel. In general, CapMAC recognizes premium revenue over the life of
the insured obligation in proportion to its exposure to loss. Case basis
reserves for such financial guaranties are recorded when a payment default has
occurred or, in management's judgment, is imminent and such default will
ultimately result in a loss. As a result of the lack of statistical loss data
due to the low level of losses in CapMAC's financial guaranty business and in
the financial guaranty industry in general, particularly in the structured
asset-backed area, the Company does not use traditional actuarial approaches to
determine its loss reserves. Instead, a Supplemental Loss Reserve is established
in an amount deemed adequate to cover the expected levels of losses and loss
adjustment expense. Management's evaluation of the need for a Supplemental Loss
Reserve and case basis reserves at any point in time is directly related to its
monitoring of the insured portfolio for credit deterioration. The size of the
Supplemental Loss Reserve is determined by a formula, the components of which
are reviewed annually and which is based on a rating agency study of bond
default frequency and severity factors and on capital charges established by
S&P. Management believes that the current level of reserves is adequate to cover
the estimated liability for claims and the related adjustment expenses with
respect to financial guaranties issued by CapMAC. The establishment of the
appropriate level of loss reserves is an inherently uncertain process involving
numerous estimates and subjective judgments by management, and therefore there
can be no assurance that losses in CapMAC's insured portfolio will not exceed
the loss reserves. At March 31, 1996, CapMAC had a Supplemental Loss Reserve of
$7.0 million and net case basis loss reserves of $0.3 million. Losses from
future defaults, depending on their magnitude, could have a material adverse
effect on the results of operations and financial condition of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General" and "Business--Loss Reserves."

REALIZATION OF PFR

Due to the annuity nature of premium income, the Company has an embedded
future revenue stream, the estimated present value of which is referred to as
PFR. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--General." The amount of PFR actually realized by the
Company could be reduced in the future due to factors such as early termination
of insurance contracts, accelerated prepayments of underlying obligations or
lower than anticipated utilization of insured structured programs, such as
commercial paper conduits. Although increases in PFR due to renewals of existing
insurance contracts historically have been greater than reductions in PFR due to
factors such as those described above, there can be no assurance that future
circumstances might not cause a net reduction in PFR, resulting in lower
revenues.

HOLDING COMPANY STRUCTURE; DIVIDEND LIMITATIONS

Holdings was formed as a holding company in connection with the Acquisition
and does not have any material assets other than its interests in the common
stock of CapMAC and CFS and certain other investments. While Holdings has paid
quarterly dividends on its Common Stock of $.02 per share since the IPO, because
the operations of Holdings are conducted primarily through CapMAC and CFS, its
ability to continue to pay dividends on the Common Stock will be dependent upon
the earnings and cash flow of such subsidiaries and their ability to pay cash
dividends to Holdings. As of March 31, 1996, approximately $18.6 million was
legally available for the payment of dividends by CFS and its subsidiary CFS
(Europe). Although the Company receives an increasing proportion of its income
from advisory and structuring fees earned by CFS, the Company's earnings and
cash flow are expected to continue to be primarily attributable to CapMAC. Due
to legal restrictions under New York insurance laws, CapMAC is currently unable
to pay dividends, and its ability to pay dividends in subsequent periods will be
dependent upon its future financial performance. Accordingly, to the extent
funds are not available from other sources, Holdings will be dependent upon
dividends from CFS to enable it to pay dividends on the Common Stock and meet
its other obligations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

14
<PAGE>
Although the Company expects that CFS will be able to continue to pay dividends
to Holdings in an amount sufficient to enable Holdings to continue to pay such
dividends and meet its other obligations, no assurance can be given that this
will be the case. CFS earns advisory and structuring fees generally for advisory
and structuring services it renders in connection with transactions guaranteed
by CapMAC, and the amount and frequency of such fees may be adversely affected
by changes in the number and types of transactions guaranteed by CapMAC. While
Holdings currently intends to continue paying quarterly cash dividends to its
stockholders, its ability to do so is subject to authorization by Holdings'
Board of Directors, certain contractual restrictions under a Note Purchase
Agreement and regulatory constraints. See "Dividend Policy," "Insurance
Regulatory Matters--Dividend Restrictions" and "Indebtedness."

REINSURANCE

CapMAC's ability to maintain reinsurance capacity is important to its
business. In order to comply with regulatory, rating agency or internal single
risk retention limits for transactions of significant size, CapMAC needs access
to sufficient reinsurance capacity to underwrite large transactions. If CapMAC
were to become unable to obtain sufficient reinsurance, this could have an
adverse impact on its ability to issue policies for large transactions. See
"Business--Reinsurance." The Company remains liable for insurance ceded to
reinsurers to the extent such reinsurers are unable to meet their obligations.

CONTROL BY ORIGINAL STOCKHOLDERS

Upon completion of the Offering, the stockholders that held shares prior to
the IPO, which include ORIX USA Corporation and Centre Re (the "Original
Stockholders"), will own in the aggregate at least 64.6% of the outstanding
Common Stock of the Company assuming exercise of the outstanding stock options
and warrants (and 62.4% of the outstanding Common Stock if the Underwriters
exercise their over-allotment option in full). Consequently, the Original
Stockholders through their Common Stock holdings and through representation on
the current Board of Directors, which includes a number of nominees designated
by the Original Stockholders, may exercise significant influence over the
policies and direction of the Company. See "Management--Biographies" and
"Certain Relationships and Related Transactions."

MAJOR BUSINESS RELATIONSHIP

The Company was established in 1987 as a subsidiary of Citicorp. Although
Citicorp has no equity interest or other investment in the Company, Citicorp
remains a major referral source of business to the Company. This includes both
business where Citicorp or its affiliates are principals and business in which
Citicorp or its affiliates are acting as arrangers of funding facilities that
require credit enhancement, which is provided by CapMAC. During 1993, 1994 and
1995, approximately 12.8%, 14.3% and 11.7%, respectively, of the Company's total
revenue resulted from transactions referred to the Company by Citicorp or its
affiliates. Michael J. Horgan, a senior executive of Citibank, N.A., is a
director of Holdings.

ANTI-TAKEOVER PROVISIONS

Holdings' Certificate of Incorporation and Bylaws contain special notice and
other provisions the effect of which could be to discourage non-negotiated
takeover attempts, which takeovers some stockholders might otherwise deem to be
in their interests. Furthermore, as a Delaware corporation the Company is
subject to certain provisions of Delaware corporation law which may also
discourage or make more difficult a takeover attempt. See "Description of
Capital Stock--Certain Certificate of Incorporation, Bylaw and Statutory
Provisions Affecting Stockholders." Given the importance of CapMAC's triple-A
ratings to the Company's business, as a practical matter, a change of control
would

15
<PAGE>
require confirmation in advance from the rating agencies that such transaction
would not result in a downgrading of the claims-paying ability rating assigned
to CapMAC.

The insurance laws of New York provide that no person, other than an
authorized insurer, may acquire control of the Company and thus indirect control
of CapMAC, or any other New York-domiciled insurance subsidiary of the Company,
unless it has given prior written notice to CapMAC and any such subsidiary and
received the prior approval of the Superintendent of Insurance of the State of
New York. Furthermore, any purchaser of 10% or more of the outstanding shares of
Holdings' Common Stock would be presumed to have acquired such control unless
the Superintendent of Insurance determined otherwise. Therefore, any takeover of
the Company effectively requires regulatory approval. See "Insurance Regulatory
Matters--Insurance Holding Company Laws." This regulatory restriction may
effectively reduce the probability of a takeover without the cooperation of
management. In addition, the significant Common Stock holdings of the ESOP and
management may also deter takeovers.

SHARES ELIGIBLE FOR FUTURE SALE

Holdings will have 20,497,232 shares of Common Stock outstanding on a
fully-diluted basis after the Offering, of which Original Stockholders of
Holdings will own at least 13,249,205 shares purchased prior to the IPO (the
"Restricted Shares"), constituting 64.6% of the Common Stock outstanding on a
fully diluted basis after the Offering (62.4% if the over-allotment option is
exercised in full). The Restricted Shares may not be sold unless they are
registered under the Securities Act or are sold under an exemption from
registration, such as the exemption provided by Rule 144 under the Securities
Act. Subject to the arrangements described in the following paragraph, the
Restricted Shares may be sold in accordance with the volume and manner-of-sale
limitations of Rule 144, so long as such shares are held by affiliates of
Holdings, and may be sold without restrictions if the holders are not affiliates
and such shares have been held for the three year holding period required by
Rule 144(k). In addition, under a Stockholders' Agreement, the Original
Stockholders have certain "piggyback" rights to require Holdings to register
under the Securities Act all or a portion of their Restricted Shares in
connection with a registration of Common Stock effected by Holdings. See
"Certain Relationships and Related Transactions--Stockholders' Agreement,"
"--Orix Investment" and "--Centre Re Investment."

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital at that time through the sale of
additional equity securities. See "Shares Eligible for Future Sale."

16
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Company's Common Stock is listed on the NYSE under the symbol KAP. The
following table sets forth for the periods indicated the high and low closing
sale prices of the Company's Common Stock as reported on the NYSE Composite Tape
through June 11, 1996 and the cash dividends paid per share of Common Stock for
the periods indicated:

<TABLE><CAPTION>
DIVIDENDS
HIGH LOW PAID
------------- ------------- ---------
<S> <C> <C> <C>
Year ended December 31, 1995
Fourth Quarter (commencing December 14)........ $ 25 1/8 $ 21 3/8 $--
Year ending December 31, 1996
First Quarter.................................. 25 1/2 22 ] 0.02
Second Quarter (through June 11, 1996)......... 29 7/8 23 5/8 0.02
</TABLE>

On June 11, 1996, the closing sales price for the Company's Common Stock as
reported on the NYSE Composite Tape was $28.00. On June 7, 1996, there were
approximately 152 holders of record of the Common Stock.

DIVIDEND POLICY

The Board of Directors of Holdings has established a policy of declaring
quarterly dividends at the rate of $0.02 per share ($0.08 annually) on the
Common Stock. The amount of dividends payable in the future will be reviewed
periodically by the Board of Directors in light of the Company's earnings,
financial condition and capital and other cash requirements. It is the policy of
the Board of Directors that the Company retain an adequate portion of its
earnings to support the growth of its business, and there is no requirement or
assurance that dividends will be paid. See "Risk Factors--Holding Company
Structure; Dividend Limitations," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources,"
"Insurance Regulation--Dividend Restrictions" and "Indebtedness."

Holdings will ordinarily be required to withhold United States federal
income taxes in the amount of 30% of any dividends paid to non-United States
shareholders not otherwise subject to United States federal income taxation,
unless a tax treaty between the United States and the country of the
shareholder's residence provides for withholding at a reduced rate. See "Certain
United States Tax Considerations."

17
<PAGE>
CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996. This table should be read in conjunction with the
Company's financial statements, including the notes thereto, included elsewhere
in this Prospectus.

<TABLE><CAPTION>
MARCH 31, 1996
--------------
($ IN
THOUSANDS)
<S> <C>
Long-term debt............................................................... $ 15,000
--------------
Stockholders' equity:
Preferred Stock, $0.01 par value; 20,000,000 shares authorized; none issued
and outstanding............................................................ --
Common Stock, $0.01 par value; 50,000,000 shares authorized, 15,965,995
shares outstanding(1)...................................................... 160
Additional paid in capital................................................... 223,400
Unrealized depreciation on investments, net of tax........................... (2,244)
Retained earnings............................................................ 66,610
Unallocated ESOP shares...................................................... (6,227)
Cumulative translation adjustment, net of tax................................ (1)
--------------
Total stockholders' equity................................................. $281,698
--------------
Total capitalization..................................................... $296,698
--------------
--------------
</TABLE>

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

(1) Excludes 2,106,213 shares of Common Stock issuable upon exercise of certain
outstanding stock options at a weighted average exercise price of $14.58 per
share and 2,230,024 shares issuable upon exercise of warrants at an exercise
price of $13.33 per warrant and includes unallocated ESOP shares.

USE OF PROCEEDS

All the shares of Common Stock offered hereby are being sold by the Selling
Stockholders and, accordingly, the Company will not receive any proceeds from
the Offering.

18
<PAGE>
THE COMPANY

The Company provides financial guaranty insurance, principally of
asset-backed obligations, through its wholly owned subsidiary CapMAC; advisory
and structuring services in connection with asset-backed financings, through its
wholly owned subsidiary CFS; and access to funding for its customers through
securitization funding vehicles. The Company was established in 1987 as a
subsidiary of Citicorp and was acquired from Citicorp in 1992 by the Company's
management and a group of institutional and other investors.

On December 19, 1995 the Company completed an initial public offering of its
Common Stock (the "IPO") in which it sold 2,500,000 shares and certain selling
shareholders sold 1,766,437 shares. Contemporaneously with the IPO, the Company
sold 500,000 shares of Common Stock to Centre Reinsurance Limited ("Centre Re"),
a wholly owned indirect subsidiary of The Zurich Insurance Company. The net
proceeds to the Company of the IPO and the sale of shares to Centre Re, after
commissions and fees, were $54.7 million, of which approximately $50 million was
contributed to CapMAC to support planned growth. The balance was retained by
Holdings for general corporate purposes, including investments in international
business ventures and strategic alliances.

CapMAC, a New York financial guaranty insurance company, is a leading
insurer of asset-backed obligations in both the domestic and international
capital markets. As of March 31, 1996, obligations backed by consumer, trade and
corporate receivables and other taxable obligations constituted approximately
95% of CapMAC's insured portfolio. CapMAC's claims-paying ability is rated
triple-A by Moody's, S&P, DCR and Nippon Investors Service, Inc. CapMAC is
licensed in 50 states in addition to the District of Columbia, the Commonwealth
of Puerto Rico and the territory of Guam.

The Company's objective is to expand its leadership position in the
asset-backed securities market as a credit enhancer and as a provider of
innovative solutions for the credit risk management, funding, accounting and
regulatory issues facing financial institutions and other customers. As part of
its growth strategy, the Company intends to apply its expertise in credit risk
management to new products and markets and to emphasize the development of
customized funding options and enhancements that it can offer its customers,
regardless of whether those solutions require the issuance by CapMAC of a
financial guaranty policy. The Company has historically been an innovator in the
financial guaranty market for asset-backed obligations, utilizing the insurance
policies issued by CapMAC to enable customers holding diverse pools of assets to
obtain low-cost funding. In addition to the corporate and consumer assets which
have been widely securitized in recent years, CapMAC's insurance policies have
guaranteed obligations backed by, among other things, delinquent tax
receivables, premium receivables of property/casualty insurance companies,
healthcare receivables, recreational vehicle and boat loans and student loans
originated by banks. In order to generate repeat business and thus a significant
flow of steady revenues and profits, the Company intends to concentrate on
building long term relationships with certain targeted customers. The Company
will continue to pursue opportunities that provide superior returns rather than
those that merely increase market share or business volume. In particular,

19
<PAGE>
the Company believes that its most frequent and profitable customers, who will
require the Company's services on a regular basis, will be major international
banks, life insurance companies, money management firms and investment banks.

The asset-backed obligations insured by CapMAC are generally issued in
structured transactions and are backed by pools of assets such as consumer or
trade receivables, securities, residential mortgage loans, or other assets
having an ascertainable cash flow. Financial guaranty insurance written by
CapMAC guarantees payment, when due, of scheduled payments on an issuer's
obligations. In the case of a payment default on an insured obligation, CapMAC
is generally required to pay the principal, interest or other amounts due in
accordance with the obligation's original payment schedule or, at its option, to
pay such amounts on an accelerated basis. CapMAC underwrites insurance policies
by applying a "zero loss" standard, meaning that risks are insured only if there
is an expectation at the time a policy is issued based on the Company's
underwriting criteria at such time, that there will be no loss during the term
of the policy. CapMAC's underwriting criteria require that asset-backed
transactions insured by CapMAC be structured to provide protection to CapMAC
through excess collateral, cash reserve accounts, third party credit support and
other appropriate mechanisms designed to cover expected credit losses, even
under adverse scenarios. However, there can be no assurance that losses for
CapMAC's account will not occur in its insured portfolio, and such losses may
have a material adverse effect on the Company.

Holdings has entered into a strategic alliance with The Mutual Life
Assurance Company of Canada and three of its derivatives products subsidiaries
(such subsidiaries, the "TMG Group"). TMG Group provides a broad range of
derivative products, with a special emphasis on "municipal derivatives,"
including investment agreements and long dated interest rate swaps. In addition,
TMG Group provides interest rate swaps and currency swaps. Since the obligations
of the TMG Group under its

20
<PAGE>
derivative transactions are guaranteed by The Mutual Life Assurance Company of
Canada, TMG Group is rated AA by S&P and Aa3 by Moody's. It is intended that the
relationship with TMG Group will facilitate the hedging of risks inherent within
particular structured transactions insured by CapMAC and help CapMAC better
evaluate such risks. See "Business--Derivatives."

In recognition of the increasing potential for securitization in certain
foreign markets, the Company has selectively expanded its activities in Europe
and Asia. The percentage of revenues from international sources was
approximately 29.8% and 46.7% for 1995 and for the three month period ended
March 31, 1996, respectively. The significant increase in percentage of revenues
from international sources for the first quarter of 1996 is primarily due to the
payment of advisory fees from certain large international transactions which
closed during such period. Such percentage will fluctuate from period to period
to the extent that advisory fees are a significant portion of international
revenues. See "Risk Factors--Market and Other Factors." Since the inception of
European operations in 1990, the principal amount of obligations supported by
CapMAC's policies in Europe has increased to $13.9 billion. In addition, given
the growing importance and growth prospects of Asia's economies, the Company has
undertaken a number of initiatives to expand in that region. By entering into
alliances with local entities, the Company intends to become a leading
participant in the emerging Asian securitization business, while limiting the
capital investment required and the business risks incurred. In Japan, the
Company has entered into a strategic alliance with Mitsui Marine, one of the
major property and casualty insurance companies in Japan with a triple-A rating
from both S&P and Moody's. The 1995 cooperation agreement among CapMAC, CFS and
Mitsui Marine is designed to establish, among other things, the joint pursuit of
financial guaranty business with respect to obligations that are backed by
assets originated in Japan or that are issued by Japanese entities. In
Indonesia, the Company is a minority shareholder in P.T. Citimas Capital (Pte)
Ltd. ("CMCI"), a corporation established to develop securitization for
obligations that are backed by assets originated in Indonesia or that are issued
by Indonesian entities. Additionally, CFS has agreed to provide technical and
advisory assistance to CMCI. The Company initiated the formation of Asia
Services and ASIA Ltd, located in Singapore, which provide guarantees of debt
securities in the Asian emerging markets and advisory and structuring services
in connection with Asian securitization transactions. The Company has made an
investment in Asia Services and, through seconded personnel located in Singapore
and its offices in New York, provides technical advice and assistance to both
Asia Services and ASIA Ltd. See "Business-- International Operations."

The Company derives its revenue primarily from net premiums earned on
insurance policies written by CapMAC, advisory and structuring fees earned by
CFS and income earned on investments. CFS earns fees in connection with
providing advisory and structuring services to clients who may also be
purchasers of CapMAC's insurance policies. Premiums for financial guaranty
insurance policies written by CapMAC on asset-backed obligations are generally
payable on an installment basis over the life of the policy. Accordingly, the
premiums from CapMAC's existing in force insurance policies provide it with an
identifiable source of future revenues. At March 31, 1996, the total estimated
present value of future revenues ("PFR"), consisting of premiums (net of ceded
premiums) and ceding commission income contractually due to or to be earned by
CapMAC in the future under outstanding policies, was estimated to be $168.3
million. See "Risk Factors--Realization of PFR" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General."

In managing its investment portfolio, the Company places a high priority on
credit quality and liquidity. The Company's current investment policy generally
permits investment only in U.S. Government and agency obligations, fixed income
securities rated "A" or better and short-term investments rated A1/P1 or higher
by the major U.S. rating agencies. A security whose rating falls below "A"
subsequent to purchase may continue to be held in the investment portfolio
provided that no more than 40% of the portfolio is rated "A" or lower. At March
31, 1996, 72.4% of the Company's investment portfolio consisted of fixed income
securities rated triple-A or the equivalent or obligations issued by the

21
<PAGE>
U.S. Government or its agencies or instrumentalities. The Company's investment
portfolio had an average credit quality rating of at least "AA" or the
equivalent as of March 31, 1996.

Citicorp established the predecessor to Holdings ("Original Holdings") in
1987 to focus primarily on the taxable structured asset-backed market. As a
result of the implementation of the new Bank for International Settlements
("BIS") risk-based capital guidelines shortly thereafter, Citicorp directed
CapMAC to slow its new business growth substantially as a way of mitigating the
need for regulatory capital under the BIS guidelines and started the process of
arranging for the sale of Original Holdings, resulting in the June 25, 1992
Acquisition. In the Acquisition, Original Holdings was merged into CapMAC
Acquisition Corp., and CapMAC Acquisition Corp. changed its name to CapMAC
Holdings Inc. Since Citicorp's sale of CapMAC in 1992, the investor group in
Holdings has remained substantially the same. Through the Company's ESOP, stock
option plans and direct equity investments, management and employees own
approximately 16.6% of Holdings' Common Stock on a fully diluted basis. Upon
consummation of the Offering, the other original investors in the Acquisition
will own at least 43.1% of Holdings' Common Stock on a fully diluted basis
(40.9% if the Underwriters' over-allotment option is exercised in full). Those
original investors owning 5% or more of Holdings' Common Stock are named in
"Principal and Selling Stockholders." See also "Risk Factors--Control by
Original Stockholders."

The principal executive offices of the Company are located at 885 Third
Avenue, 14th Floor, New York, New York 10022. The telephone number is (212)
755-1155.

22
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following tables present selected consolidated financial data derived
from the consolidated financial statements of Original Holdings and Holdings and
the related notes thereto for each of the periods indicated. The selected
historical information as of and for the year ended December 31, 1991, pro forma
information for the year ended December 31, 1992, selected historical
information for the three months ended March 31, 1995 and March 31, 1996, the
adjusted book value per share, and the Net Statutory P&I amounts and the
policyholders' leverage ratio are unaudited. Although the financial statements
for the year ended December 31, 1991 for Original Holdings are unaudited, the
financial statements of CapMAC during that period have been audited. Certain
amounts, ratios and statistics in the Company's financial statements relate
solely to CapMAC and consequently, certain items of revenue and expense such as
premium and loss information and selected financial statistics for the audited
periods are directly related to CapMAC and have been audited. This information
should be read in conjunction with the consolidated financial statements of the
Company and the related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

The selected historical consolidated and pro forma financial statements were
prepared in accordance with GAAP and include the accounts of Holdings and its
consolidated subsidiaries, including CapMAC, CFS and CapMAC Asia. The selected
financial statistics were prepared in accordance with GAAP or SAP, as indicated.
All significant intercompany transactions have been eliminated in consolidation.

23
<PAGE>
<TABLE><CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ----------------------------------------------------------
HOLDINGS
PRO FORMA(1) ORIGINAL
HOLDINGS FOR ACQUISITION HOLDINGS
------------------------------------------------- --------------- --------
1996 1995 1995 1994 1993 1992 1991
------- ------- --------- ------- ------- --------------- --------
(UNAUDITED) (AUDITED) (UNAUDITED)
----------------- ----------------------------- --------------------------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Gross premiums written........ $15,029 $16,992 $ 57,476 $44,662 $24,894 $17,607 $ 18,077
Net premiums written.......... 13,119 13,899 41,484 33,593 21,308 13,359 13,807
Net premiums earned........... 8,828 7,101 29,242 23,103 17,483 12,222 12,088
Advisory fees................. 9,549 2,024 15,470 10,723 4,722 1,130 2,370
Net realized gains (losses)... 149 9 1,351 (117) 1,490 176 2,918
Net investment income......... 4,111 2,811 12,843 10,316 10,205 10,045 17,040
Total revenues................ 23,247 12,207 62,632 44,551 34,547 24,254 34,418
Total expenses................ 8,509 6,802 27,968 19,693 16,508 14,168 27,086
Income before income taxes.... 14,738 5,405 34,664 24,858 18,039 10,086 7,332
Net income.................... 9,900 3,840 23,528 17,066 12,469 7,853 6,983
Primary earnings per
share(2)...................... 0.57 0.28 1.73 1.23 0.96 0.62(2) --
Fully diluted earnings
per share (2)............... 0.57 0.28 1.65 1.23 0.96 0.62(2) --
SELECTED FINANCIAL STATISTICS
- --GAAP BASIS(3):
Loss ratio.................... 12.2% 9.8% 10.7% 6.2% 5.2% 7.2% 7.7%
Expense ratio................. 68.4 76.9 71.9 70.8 80.8 96.1 98.2
Combined ratio................ 80.6 86.7 82.6 77.0 86.0 103.3 105.9
- --SAP BASIS (3):
Loss ratio.................... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Expense ratio................. 64.3 71.0 77.1 81.8 112.2 141.9 116.5
Combined ratio................ 64.3 71.0 77.1 81.8 112.2 141.9 116.5

<CAPTION>
MARCH 31, DECEMBER 31,
----------- -------------------------------------------------------------------
ORIGINAL
HOLDINGS HOLDINGS
------------------------------------------------------------------- -----------
1996 1995(7) 1994 1993 1992(8) 1991
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (AUDITED) (UNAUDITED)
----------- ----------------------------------------------------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total
investments(4)...... $ 344,629 $ 329,758 $ 202,637 $ 190,428 $ 172,474 $ 251,588
Total assets........ 406,118 391,273 244,404 212,992 184,693 283,458
Unearned premiums... 50,266 45,767 25,905 10,062 6,038 4,900
Long term debt...... 15,000 15,000 15,000 15,000 15,000 115,000
Total liabilities... 103,022 95,191 63,743 41,564 29,983 195,895
Stockholders'
equity.............. 281,698 276,519 180,661 171,428 154,710 87,563
Book value per
share............... 18.18 17.86 15.38 14.72 13.34 --
Shares
outstanding(5)...... 15,498,889 15,478,729 11,745,186 11,646,290 11,599,935 --
SELECTED FINANCIAL
STATISTICS (3):
Net Statutory P&I... $16,808,000 $15,138,000 $10,838,000 $ 6,846,000 $ 4,933,000 $ 4,424,000
Qualified Statutory
Capital ............ $ 245,413 $ 239,927 $ 170,477 $ 167,825 $ 163,087 $ 242,131
Policyholders'
leverage ratio...... 68:1 63:1 64:1 41:1 30:1 18:1
OTHER DATA:
Adjusted book value
per share(6)........ $ 23.66 $ 21.91 $ 19.50 $ 17.48 $ 15.82 --
</TABLE>

24
<PAGE>
- ------------

(2) Earnings per share ("EPS") has been computed using the modified treasury
stock method and the market value of the shares has been determined by an
independent consulting firm in connection with an annual valuation conducted
for the ESOP, except for the market values subsequent to the IPO which are
based on quoted trading prices on the New York Stock Exchange. EPS for the
six-month period ended December 31, 1992 was $0.62.

(Footnotes continued on following page)

25
<PAGE>
(Footnotes continued from preceding page)

(5) Shares outstanding do not include the common stock equivalents (i.e.,
warrants, stock options and unallocated ESOP shares).

(7) On December 19, 1995 the Company completed an IPO in which it sold 2,500,000
shares and certain selling shareholders sold 1,766,437 shares.
Contemporaneously with the IPO, the company sold 500,000 shares of Common
Stock to Centre Reinsurance Limited ("Centre Re"), a wholly owned indirect
subsididary of The Zurich Insurance Company. The net proceeds to the Company
of the IPO and the sale of shares to Centre Re, after commissions and fees,
were $54.7 million, of which approximately $50 million was contributed to
CapMAC to support planned growth. The balance was retained by Holdings for
general purposes, including investments in which international business
ventures and strategic alliances.

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

Holdings was previously called CapMAC Acquisition Corp. and is the successor
by merger to Original Holdings. Original Holdings was established in 1987 as a
wholly owned subsidiary of Citicorp. On June 25, 1992, Citicorp sold Original
Holdings to CapMAC Acquisition Corp., a newly formed corporation owned by a
group of institutional investors including certain CapMAC management and
employees. The aggregate purchase price of Original Holdings was based on the
total consolidated stockholders' equity as of June 25, 1992 as defined by the
purchase agreement for the Acquisition. On June 26, 1992, Original Holdings was
merged into CapMAC Acquisition Corp., and changed its name to CapMAC Holdings
Inc. Holdings, a Delaware corporation, is the sole stockholder of CapMAC and
CFS.

A significant portion of the Company's revenues for each period has been
attributable to a small number of originators and other customers. However,
there is fluctuation in the identity of these customers from year to year and
the effect of a loss of one or more of these customers would be mitigated by the
embedded nature of future premium revenue. Due in part to its historical
relationship to the Company, Citicorp and its affiliates, through referrals or
otherwise, have consistently accounted for more than 10% of the Company's
revenues. See "Risk Factors--Major Business Relationship."

Premiums. Premiums that are payable monthly to CapMAC are reflected in
income when due, net of amounts payable to reinsurers. Premiums that are payable
quarterly, semi-annually or annually are reflected in income, net of amounts
payable to reinsurers, on an equal monthly basis over the corresponding policy
term. Premiums that are collected as a single premium at the inception of the
policy and have a term longer than one year are earned, net of amounts payable
to reinsurers, by allocating premium to each bond maturity based on the
principal amount and earning it straight-line over the term of each bond
maturity.

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. PFR is not a GAAP
measure. The determination of the amount of PFR for a given policy is based
primarily on the premium rate specified for such policy, the contractual term of
the policy and the expected outstanding amount of the obligations insured under
such policy discounted to present value at an assumed discount rate. The
discount rate used for purposes of the PFR calculation is substantially
equivalent to the pre-tax yield on the Company's investment portfolio adjusted
to reflect the tax benefit applicable to the interest earned on the tax-exempt
securities in the Company's investment portfolio. The discount rate is adjusted
annually to reflect changes in the interest rate environment, as reflected in
the Company's yield on its investment portfolio. The expected term of an
insurance policy is based on the contractual term of the policy without giving
effect to any potential renewals or early terminations of the policy. For
amortizing obligations, the expected outstanding amount of the insured
obligations is

27
<PAGE>

based on the initial outstanding amount of such obligations reduced over time by
any scheduled payments and expected prepayments of the insured obligation. The
expected outstanding amount of insured obligations backed by revolving pools of
receivables, which are primarily commercial paper programs, is based on
indications of expected usage from the ultimate borrower. Once it is determined
that a transaction has terminated or will terminate, or that no premiums will be
received due to an elimination of any future projected exposure, all future
revenues relating to such transaction are removed from the PFR calculation.
Conversely, if a transaction is renewed for a certain period of time, the
incremental additional projected revenue is included in the PFR calculation
based on the extended contractual term of the policy. In the event of a loss on
a policy where the premium is payable in installments, the present value of the
expected loss will be accrued for on the financial statements in accordance with
GAAP, and there may be a resulting reduction in PFR. The Company believes that
the PFR provides useful information in evaluating its business growth during a
given period. However, the actual amount of future revenue may differ from the
estimates due to various factors such as early termination, renewal of insurance
contracts, changes in projected rates at which insured obligations are repaid,
or variations in the utilization of insured structured programs. See "Risk
Factors--Realization of PFR."

Advisory Fees. Advisory fees received by CFS or CapMAC Financial Services
(Europe) Ltd. ("CFS (Europe)") are generally earned when a transaction closes;
consequently the timing of such transactions can result in significant
fluctuations in revenues attributable to such fees from period to period. Such
amounts are non-refundable and are paid for services provided prior to the close
of a transaction.

Investment Income. All of the Company's investment portfolio has been
classified as "available-for-sale" in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115 "Accounting for Certain Investments in
Debt and Equity Securities." Available-for-sale securities are recorded at fair
value, which is based upon quoted market prices. Unrealized gains and losses,
net of the related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of stockholders' equity
until realized.

Deferred Acquisition Costs. Certain costs incurred by CapMAC that vary with
and are primarily related to the production of new business are deferred in
accordance with GAAP. These costs include direct and indirect expenses related
to underwriting, marketing and policy issuance, rating agency fees and premium
taxes. Deferred acquisition costs ("DAC") are amortized over the period in
proportion to the related premium earnings.

Reserve for Losses and Loss Adjustment Expenses. CapMAC maintains a reserve
for losses and loss adjustment expenses which consists of a Supplemental Loss
Reserve and, if appropriate, a case basis reserve for expected levels of
defaults resulting from credit failures on currently insured issues. The
Supplemental Loss Reserve is based on estimates of the portion of earned
premiums required to cover those claims. 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.

RESULTS OF OPERATIONS

Presented below are selected financial and statistical data for 1993, 1994
and 1995 and for the three months ended March 31, 1995 and 1996.

28
<PAGE>
SELECTED STATISTICS
($ IN THOUSANDS)

<TABLE><CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Gross premiums written...................... $15,029 $16,992 $57,476 $44,662 $24,894
Period to period change................. (12%) -- 29% 79% --
Net premiums earned......................... 8,828 7,101 29,242 23,103 17,483
Period to period change................. 24% -- 27% 32% --
Advisory fees............................... 9,549 2,024 15,470 10,723 4,722
Period to period change................. 372% -- 44% 127% --
Total revenues.............................. 23,247 12,207 62,632 44,551 34,547
Period to period change................. 90% -- 41% 29% --
Net income.................................. 9,900 3,840 23,528 17,066 12,469
Period to period change................. 158% -- 38% 37% --
PFR written(1).............................. 13,114 16,723 89,585 50,921 38,152
Period to period change................. (22%) -- 76% 33% --
Amount of guarantees issued ($ in
millions)................................... 1,330 2,771 16,945 9,572 5,041
Period to period change................. (52%) -- 77% 90% --

<CAPTION>
AS OF
MARCH 31, AS OF DECEMBER 31,
--------- ------------------------------
1996 1995 1994 1993
--------- -------- ------- -------
<S> <C> <C> <C> <C>
PFR outstanding..................................... $ 168,266 $155,411 $98,059 $64,028
Period to period change......................... 8% 58% 53% --
Net par outstanding ($ in millions)................. 14,019 12,628 9,397 5,606
Period to period change......................... 11% 34% 68% --
</TABLE>

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

(1) A portion of the PFR written for a given period, as reflected above, is
included in net premiums earned for such period.

Quarter Ended March 31, 1996 versus Quarter Ended March 31, 1995

The Company reported record net income of $9.9 million, a 158% increase over
net income of $3.8 million reported during the first quarter of 1995. Primary
earnings per share and earnings per share on a fully diluted basis were $0.57
during the first quarter of 1996, a 104% increase over $0.28 during the first
quarter of 1995.

Total revenues during the first quarter of 1996 were $23.2 million, an
increase of 90% from $12.2 million during the first quarter of 1995. This
increase was primarily due to higher advisory fees, premiums earned and net
investment income.

For the first quarter of 1996, gross premiums written were $15.0 million, a
decrease of 12% from $17.0 million for the same period in 1995. The decrease in
gross premiums written was the result of a lower volume of secondary market
transactions which typically collect premiums in a single payment on the policy
inception date. Offsetting the decrease in gross premiums written was a decrease
in premiums ceded to reinsurers from $3.1 million during the first quarter of
1995 to $1.9 million in the first quarter 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 returned to
CapMAC the corresponding unearned premiums, net of ceding commission and federal
excise tax, of $2.0 million. Net premiums earned were $8.8 million for the first
quarter of 1996, an increase of 24% from $7.1 million for the corresponding
period in 1995.

Business originated or renewed in the first quarter of 1996 was estimated to
generate $13.1 million of PFR, a decrease of 22% over the same period in 1995.
Correspondingly, the amount of guarantees

29
<PAGE>
issued (gross par written) decreased from $2.8 billion in the first quarter of
1995 to $1.3 billion in the first quarter of 1996, representing a decrease of
52%. The amount of guarantees issued in the first quarter of 1995 resulted from
CapMAC insuring several conduits and one large consumer receivable transaction
during such period. At March 31, 1996, CapMAC had 493 policies outstanding which
are expected to generate $168.3 million of PFR, up approximately 8% from $155.4
million at December 31, 1995 relating to 476 policies outstanding at such date.

At March 31, 1996, Net Par insured and outstanding was $14.0 billion, up 11%
from $12.6 billion at December 31, 1995. Unearned premiums representing premiums
collected but not yet earned increased by $4.5 million from December 31, 1995 to
a total of $50.3 million at March 31, 1996. The remaining weighted average life
of the insured portfolio was estimated to be 6.3 years at March 31, 1996 and 6.0
years at December 31, 1995.

Advisory fees increased 372% from $2.0 million in the first quarter of 1995
to $9.5 million in the first quarter of 1996. The increase in advisory fees
received by CFS related to the closing of certain 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.

Other income increased $0.3 million from $0.3 million in the first quarter
of 1995 to $0.6 million in the first quarter of 1996.

Net investment income was $4.2 million in the first quarter of 1996 and $2.8
million for the corresponding period in 1995. Average assets available for
investment increased from $216.1 million at March 31, 1995 to $301.0 million at
March 31, 1996. The increase was primarily due to the investment of the proceeds
of (i) the initial public offering of the Company's Common Stock completed in
December 1995, (ii) the private placement of the Company's Common Stock to
Centre Reinsurance Limited concurrent with the public offering and (iii) the
private placement of the Company's Common Stock to ORIX USA Corporation in July
1995. The average annualized pre-tax yield on the investment portfolio increased
from 5.3% in the first quarter of 1995 to 5.6% in the first quarter of 1996. The
average annualized after-tax yield on the investment portfolio increased from
4.4% in the first quarter of 1995 to 4.5% in the first quarter of 1996. Net
realized capital gains in the first quarter of 1996 were $0.1 million higher
than in the same period in 1995. The amount of tax-exempt securities held in the
Company's investment portfolio decreased slightly from 60% at March 31, 1995 to
59% at March 31, 1996. The average duration of the Company's investment
portfolio was 3.9 years and 4.3 years at March 31, 1996 and March 31, 1995,
respectively.

Total expenses were $8.5 million in the first quarter of 1996, an increase
of 25% from $6.8 million in the first 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.

Corresponding to the growth in the insured portfolio, the losses and loss
adjustment expenses were $1.1 million in the first quarter of 1996 compared to
$0.7 million in the first quarter of 1995. At March 31, 1996, the Company had a
net case basis loss reserve of $295,000, which resulted from CapMAC's first
claim on a financial guaranty policy which occurred in 1995. See --"Year Ended
December 31, 1995 versus Year Ended December 31, 1994."

Underwriting and operating expenses were $5.1 million in the first quarter
of 1996, a 24% increase from $4.1 million in the first 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 CapMAC's acquisition of new business and ceding commission income.
Gross underwriting and operating expenses were $9.5 million and $8.5 million in
the first quarter of 1996 and 1995, respectively. The increase in underwriting
and operating expenses was due to increased compensation costs and other

30
<PAGE>
operating costs. Staff and benefit-related expenses, including discretionary
bonuses to employees, constituted approximately 71% of gross underwriting and
operating expenses in the first quarter of 1996 compared to 69% in the first
quarter of 1995. The Company maintains a discretionary bonus plan under which
annual bonuses are awarded to employees. As of March 31, 1996 and March 31,
1995, $2.5 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 for each of the first quarter of 1996 and 1995.

Policy acquisition costs represent the amortization of DAC. The increase in
policy acquisition costs from $1.7 million in the first quarter of 1995 to $2.1
million in the first quarter of 1996 relates to the increase in premiums earned
in the corresponding periods. Interest expense related to the senior debt was
$0.3 million in the first quarter of 1996 and 1995. In the first quarter of 1996
and 1995, the Company had net tax expense of $4.9 million and $1.6 million,
respectively. The Company's effective tax rate was 33.2% and 29.0% for the first
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. As of March 31, 1996, tax-exempt interest
income of $2.3 million represented 16% of earnings before taxes ("EBT") compared
to $1.7 million which represented 31% of EBT in the first quarter of the prior
year.

Year Ended December 31, 1995 Versus Year Ended December 31, 1994

The Company continued to demonstrate a pattern of strong growth in 1995. The
Company reported net income of $23.5 million or $1.73 per share during 1995, a
38% increase over net income of $17.1 million or $1.23 per share reported in
1994. Primary earnings per share and earnings per share on a fully diluted basis
were $1.73 and $1.65, respectively, in 1995, a 41% and 34% increase,
respectively, over primary earnings per share and earnings per share on a fully
diluted basis of $1.23 in 1994.

Total revenues in 1995 were $62.6 million, an increase of 41% from $44.6
million in 1994. This increase was primarily due to higher premiums earned and
advisory fees.

In 1995, gross premiums written were a record $57.5 million, an increase of
29% from $44.7 million for the same period in 1994. Net premiums earned were
$29.2 million in 1995, an increase of 27% from $23.1 million in 1994. In 1995
and 1994, premiums collected on an installment basis constituted 91% and 96%,
respectively, of net premiums earned.

Business originated and renewed in 1995 was estimated to generate $89.5
million of PFR, an increase of $38.6 million, or 76%, over the same period in
1994. Correspondingly, the amount of guarantees issued (gross par written)
increased from $9.6 billion in 1994 to $16.9 billion in 1995, representing an
increase of 77%. At December 31, 1995, CapMAC had 476 policies outstanding which
are expected to generate $155.4 million of PFR, up approximately 58% from $98.1
million at December 31, 1994 which related to 358 policies outstanding at such
date.

At December 31, 1995, Net Par insured and outstanding was $12.6 billion, up
34% from $9.4 billion at December 31, 1994. Unearned premiums, representing
premiums collected but not yet earned, increased by $19.9 million from December
31, 1994 to a total of $45.8 million at December 31, 1995. The remaining
weighted average life of the insured portfolio was estimated to be 6.0 years at
December 31, 1995 and 5.0 years at December 31, 1994.

Advisory fees increased 44% from $10.7 million in 1994 to $15.5 million in
1995. The increase in advisory fees received by CFS related to the closing of
several transactions which involved extensive advisory and structuring services
provided by CFS.

Other income increased $3.2 million from $0.5 million in 1994 to $3.7
million in 1995. The increase was primarily due to the Company's sale without
recourse in 1995 of its interest in potential future cash flows from certain
transactions included in its insured portfolio for a net amount of $2.2 million.

31
<PAGE>
Net investment income was $12.8 million in 1995 and $10.3 million in 1994.
Average assets available for investment increased from $198.0 million in 1994 to
$238.4 million in 1995. The increase was primarily due to investment of the
proceeds of the IPO and the private placements of stock to ORIX and Centre Re.
The average annualized pre-tax yield on the investment portfolio increased from
5.3% in 1994 to 5.5% in 1995 due to a higher interest rate environment. The
average after-tax yield on the investment portfolio increased from 4.3% in 1994
to 4.5% in 1995. Net realized capital gains in 1995 were $1.5 million higher
than in 1994. The amount of tax-exempt securities held in the Company's
investment portfolio decreased from 61% at December 31, 1994 to 57% at December
31, 1995. The average duration of the Company's investment portfolio was 3.5
years and 4.7 years at December 31, 1995 and December 31, 1994, respectively.

Total expenses were $28.0 million in 1995, an increase of 42% from $19.7
million in 1994. Total expenses included additions to the reserve for losses and
loss adjustment expenses, underwriting and operating expenses, policy
acquisition costs, and interest expense.

In September 1995, CapMAC incurred its first claim on a financial guaranty
policy. Based on its current estimate, the Company expects the aggregate amount
of the claim and related loss adjustment expenses with respect to such policy
not to exceed $2.7 million, although no assurance can be given that such claims
and related expenses will not exceed that amount. Such amount was covered
through a recovery under a quota share reinsurance agreement of $0.2 million and
a reduction in the Supplemental Loss Reserve of $2.5 million. The portion of the
claim and related expenses not covered under the quota share agreement is being
funded through payments to CapMAC from the Lureco Trust Account.
(See--"Business--Reinsurance" for a discussion of the Lureco Trust Account.) At
December 31, 1995, the Company had a net case basis loss reserve of $0.6
million. Corresponding to the growth in the insured portfolio, the losses and
loss adjustment expenses were $3.1 million in 1995 compared to $1.4 million in
1994.

Underwriting and operating expenses were $16.4 million in 1995, a 31%
increase from $12.5 million in 1994. 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 $33.9 million and $26.7 million in 1995 and 1994, respectively. The
increase in underwriting and operating expenses was due to increased
compensation costs and other operating costs offset by increased ceding
commission income. Staff and benefit-related expenses, including for payment of
discretionary bonuses to employees, constituted approximately 73% of gross
underwriting and operating expenses in 1995 compared to 69% in 1994. The Company
maintains a discretionary bonus plan under which aggregate annual bonuses of
$7.8 million and $5.3 million were awarded to employees in 1995 and 1994,
respectively. Underwriting and operating expenses deferred by CapMAC were $14.1
million and $17.5 million in 1995 and 1994, respectively.

Policy acquisition costs represent the amortization of DAC. The increase in
policy acquisition costs from $4.5 million in 1994 to $7.2 million in 1995
relates to the increase in premiums earned in the corresponding periods. In 1995
and 1994, the Company had net tax expense of $11.1 million and $7.8 million,
respectively. Interest expense related to the senior debt was $1.2 million in
1995 and 1994. The Company's effective tax rate was 32.0% and 31.4% for 1995 and
1994, respectively. The effective tax rates during these periods were lower than
the statutory tax rate of 35% in 1995 and 34% in 1994 primarily due to
tax-exempt interest income. As of December 31, 1995, tax-exempt interest income
of $7.8 million represented 22.5% of EBT compared to $5.7 million which
represented 22.9% of EBT in the prior year.

Year Ended December 31, 1994 versus Year Ended December 31, 1993

The Company continued to demonstrate a pattern of strong growth in 1994.
This growth was evidenced by an increase of 37% in net income to $17.1 million
from $12.5 million in 1993. Excluding

32
<PAGE>
capital gains and losses realized, net income increased by 50% from $11.5
million in 1993 to $17.1 million in 1994. Primary earnings per share and
earnings per share on a fully diluted basis were $1.23 in 1994, a 28% increase
over $0.96 in 1993. The increased earnings were attributable to higher premiums
earned and advisory fees, partially offset by increased underwriting and
operating expenses, increased policy acquisition costs and an increase in the
Supplemental Loss Reserve.

Total revenues in 1994 were $44.6 million, an increase of 29% from $34.5
million in 1993. This increase was primarily due to higher premiums earned and
advisory fees, partially offset by lower net realized capital gains.

In 1994, gross premiums written were at a record high of $44.7 million,
$19.8 million or 79% higher than in 1993. Net premiums earned were $23.1 million
in 1994, $5.6 million or 32% higher than in 1993. In 1994 and 1993, premiums
collected on an installment basis constituted 96% and 91%, respectively, of net
premiums earned.

During 1994, the Company's enhancement of structured finance transactions
grew at a strong pace. The Company continued to focus on high value-added
transactions where it could apply its specialized structuring and underwriting
expertise. In 1994, CapMAC insured 192 transactions (including renewal of
policies previously issued), a 63% increase over 1993. Correspondingly, the
amount of guaranties issued, in terms of Gross Par, increased by 90% from $5.0
billion in 1993 to $9.6 billion in 1994. At the end of 1994, the Company had 358
transactions insured and outstanding which were expected to generate over $98.1
million of PFR, up 53% from approximately $64.0 million at December 31, 1993.
Business originated or renewed in 1994 was expected to generate $50.9 million of
PFR, an increase of $12.8 million or 33% over the prior year. Unearned premium,
representing premiums collected but not yet earned, increased by $15.8 million
from December 31, 1993 to a total of $25.9 million at December 31, 1994. The
remaining weighted average life of the insured portfolio was estimated to be 5.0
years at December 31, 1994 and 4.8 years at December 31, 1993.

Advisory fees increased 127% from $4.7 million in 1993 to $10.7 million in
1994. The increase in advisory fees received by CFS related to the closing of
several transactions which involved providing extensive advisory and structuring
services.

Net investment income was $10.3 million in 1994 and $10.2 million in 1993.
Average assets available for investment increased from $178.7 million in 1993 to
$198.0 million in 1994. Offsetting this increase was a decline in the average
pre-tax yield on the investment portfolio from approximately 5.8% in 1993 to
5.3% in 1994. The decrease in the yield was primarily due to a decline in the
dividend income received from mutual funds. Excluding dividend income, average
pre-tax yield increased from 5.6% in 1993 to 5.8% in 1994. The average after-tax
yield on the investment portfolio declined from 4.5% in 1993 to 4.3% in 1994.
Net realized capital gains (losses) in 1994 were ($0.1) million and $1.5 million
in 1993. The amount of tax-exempt securities held in the Company's investment
portfolio increased from 44% at December 31, 1993 to 61% at December 31, 1994.
The average duration of the Company's investment portfolio was 4.7 years at
December 31, 1994.

Total expenses were $19.7 million in 1994, an increase of 19% from $16.5
million in 1993. 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 increase in the premiums earned from the insured
portfolio, the Supplemental Loss Reserve increased by $1.4 million in 1994 to
$5.2 million.

Underwriting and operating expenses were $12.5 million in 1994, a 7%
increase from $11.7 million in 1993. Underwriting and operating expenses
consisted of gross underwriting and operating expenses, reduced by the deferral
to future periods of certain costs incurred by CapMAC related to the acquisition
of new business and by ceding commission income. Gross underwriting and
operating expenses were $26.7 million in 1994, up 10% from $24.2 million in
1993. The increases in underwriting and operating expenses were due to higher
compensation costs and other operating costs, offset by increased ceding

33
<PAGE>
commission income. Staff and benefit-related expenses, including for payment of
discretionary bonuses to employees, constituted approximately 69% and 63% of
gross underwriting and operating expenses in 1994 and 1993, respectively. The
Company maintains a discretionary bonus plan under which aggregate annual
bonuses of $5.3 million and $3.5 million were awarded to employees in 1994 and
1993, respectively. Underwriting and operating expenses deferred by CapMAC were
$14.2 million in 1994 and $12.5 million in 1993.

Policy acquisition costs represent the amortization of DAC. The increase in
policy acquisition costs from $2.7 million in 1993 to $4.5 million in 1994
relates to the increase in premiums earned in the corresponding years.

Interest expense related to the senior debt was $1.2 million in both 1994
and 1993. In 1994 and 1993, the Company had a net tax expense of $7.8 million
and $5.6 million, respectively. The Company's effective tax rate was 31.4% in
1994 and 30.9% in 1993, respectively. The effective tax rates during these
periods were lower than the statutory tax rate of 34% primarily due to
tax-exempt interest income. In 1994, tax-exempt interest income of $5.7 million
represented 22.9% of EBT compared to $3.4 million which represented 18.8% of EBT
in 1993.

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 basis (twelve months or longer) will be 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. See
"Business--International Operations," "Indebtedness" and "Dividend Policy."
Additionally, Holdings is required to purchase common stock in TMG Group for
approximately $13 million no later than February 27, 2000. See
"Business--Derivative Products." In addition, Holdings has agreed to invest,
subject to the satisfaction of certain conditions, up to an additional $5.8
million in CapMAC Asia for the purpose of funding an investment in Asia
Services. See "Business-- International Operations." Currently, no near-term
dividends are expected to be received by Holdings from CapMAC. See "Risk
Factors--Holding Company Structure; Dividend Limitations."

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

34
<PAGE>
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.

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 6.3 years and 4.7 years at March 31, 1996 and December 31, 1995,
respectively. The average duration of the investment portfolio at March 31, 1996
and December 31, 1995 was 3.9 years and 3.5 years, respectively. At March 31,
1996, the amortized cost of the Company's investment portfolio was approximately
$309.3 million (fair value of $309.6 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 the return on its investment portfolio.

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 March 31, 1996,
CapMAC's Tangible Net Worth was $222.1 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 S&P and Moody's, respectively. As of March 31, 1996, CapMAC
has not borrowed under this corporate liquidity facility.

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 which indemnifies CapMAC for a specified amount of losses
incurred above a certain amount. At March 31, 1996, the majority of CapMAC's
reinsurance capacity was held by reinsurers who were rated AA or better by S&P.
CapMAC monitors the creditworthiness of all of its reinsurers on a regular
basis. See "Business--Reinsurance."

At March 31, 1996, December 31, 1995 and December 31, 1994, CapMAC had
statutory qualified capital, which consisted of statutory capital, unassigned
surplus and contingency reserves, of $245 million, $240 million and $170
million, respectively. CapMAC's policyholders' leverage ratio, which is measured
by the ratio of net principal and interest insured to statutory qualified
capital was 68 to 1 at March 31, 1996, 63 to 1 at December 31, 1995 and 64 to 1
at December 31, 1994. These ratios were within aggregate limits permissible
under New York State Financial Guaranty Law. See "Business-- Insurance
Regulatory Matters." CapMAC's claims-paying resources as defined by the Company
(which includes statutory qualified capital, PFR and stop-loss reinsurance)
stood at $463.7 million at March 31, 1996, $445.3 million at December 31, 1995,
and $318.6 million at December 31, 1994.

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 March 31,
1996, the amortized cost and fair value of the consolidated CFS portfolio was
$14.2 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
the respective companies. 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. See "Dividend Policy."

35
<PAGE>
INDUSTRY OVERVIEW

The securitization market has continued to expand every year since 1987, as
measured both by the aggregate principal amount of asset-backed obligations
issued and the variety of assets which have been securitized. While mortgages,
home equity loans, credit card receivables and auto loans constitute the largest
percentage of assets backing asset-backed securities, the variety of
asset-backed obligations available to investors has continued to expand
dramatically, as corporations, financial institutions and even state and local
governments have sought to access the capital markets by securitizing their
respective assets.

The principles of securitization have been increasingly applied in overseas
markets, although development in particular countries has varied due to the
sophistication of the capital markets and the impact of financial regulatory
requirements, accounting standards and legal systems. Recently, securitization
has been used to finance assets and originators located in Europe, Japan, Hong
Kong, and in various other Asian countries, as well as in South America. It is
anticipated that securitization will continue to expand internationally, albeit
at varying rates in each country.

Asset-backed obligations are typically issued in connection with structured
financings or securitizations, in which the securities being issued are secured
by or payable from a specific pool of assets having an ascertainable cash flow
and held by a special purpose issuing entity. While most asset-backed
obligations are secured by or represent interests in pools of assets, such as
residential and commercial mortgages and credit card and auto loan receivables,
financial guaranty insurance companies have also insured asset-backed
obligations secured by one or a few assets, such as utility mortgage bonds,
project finance bonds and multifamily or commercial real estate.

In general, asset-backed obligations are payable only from cash flow
generated by a pool of assets and take the form of either "pass-through"
obligations, which represent interests in the related assets, or "pay-through"
obligations, which generally are debt obligations which are collateralized by
the related assets. Both types of asset-backed obligations also generally have
the benefit of overcollateralization or one or more forms of credit enhancement
to cover credit risks associated with the related assets.

The following table sets forth certain industry information relating to
selected asset-backed obligations issued for the periods indicated:

NEW U.S. ISSUANCES OF ASSET-BACKED OBLIGATIONS(1)
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
($ IN BILLIONS)
<S> <C> <C> <C> <C> <C>
Credit Cards...................................... $ 21.6 $ 15.8 $ 19.6 $ 31.9 $ 47.0
Auto Loans........................................ 16.9 23.2 24.8 17.5 24.7
Home Equities..................................... 10.2 6.2 7.1 10.1 16.1
Manufactured Housing.............................. 1.3 2.8 2.5 4.3 5.6
Other(2).......................................... 0.8 3.2 5.9 12.0 14.4
------ ------ ------ ------ ------
Public Asset-Backed Insurance..................... 50.8 51.2 59.9 75.8 107.8
Private Asset-Backed Insurance.................... 9.5 11.5 13.1 12.7 17.9
Asset-Backed Commercial Paper..................... 45.0 47.0 58.0 71.0 99.0
------ ------ ------ ------ ------
Total....................................... $105.3 $109.7 $131.0 $159.5 $224.7
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>

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

(1) Source: Various industry participants.

(2) Student loans; recreational vehicle loans; boat loans; unsecured consumer
loans; agricultural equipment loans; loans to small businesses; various
equipment, auto, computer, railcar and aircraft leases; and trade and real
estate tax receivables.

36
<PAGE>

Based on data compiled by the Association of Financial Guaranty Insurors,
the Company wrote approximately 32% of the financial guaranty insurance directly
written (excluding business assumed through reinsurance) by financial guaranty
insurers during 1995 on taxable asset-backed obligations.

The recent rapid growth in the issuance of asset-backed obligations has been
due in part to increased capital requirements of commercial banks and insurance
companies and the contraction of credit extended to corporations. Banks have
responded to increased capital requirements by selling certain of their assets,
such as credit card receivables and automobile loans, in securitized structures
to the financial markets. Moreover, many corporations have found securitization
of their assets to be a funding alternative less costly than traditional forms
of borrowing.

Asset-backed obligations generally entail two forms of risks: asset risk,
which concerns the amount and quality of asset coverage; and structural risk,
which concerns the extent to which the transaction structure protects the
interests of the investors (and therefore the insurer). In general, the amount
and quality of asset coverage required is determined by the historical
performance of the assets. The future performance of the underlying pool of
assets (for example, loss and delinquency rates, yield and the rate at which
payments are received on the assets) will generally determine whether the amount
of overcollateralization or other credit enhancement ultimately was sufficient
to protect investors (and therefore the insurer) against adverse asset
performance. The ability of the servicer of the assets to properly service and
collect the underlying assets often is a factor in determining future asset
performance.

Structural risks addressed by asset-backed transactions include bankruptcy
and tax risks. Asset-backed structures are usually designed to protect the
investors (and therefore the insurer) from the bankruptcy or insolvency of the
entity that originated the underlying assets as well as from the bankruptcy or
insolvency of the servicer of those assets (which may be receiving the cash
payments from the underlying obligors). Related issues that often raise concerns
are whether the sale of the assets by the originator to the issuer of the
asset-backed obligations would be respected in the event of the bankruptcy or
insolvency of the originator and whether the servicer of the assets may be
permitted or required to delay the remittance to investors of any cash
collections held by it at, or received by it after, the time it becomes subject
to bankruptcy or insolvency proceedings. In addition, because the cash flow
generated by the underlying assets is the primary source for the repayment of
the asset-backed obligations, asset-backed transactions are structured to take
into account the tax status of the issuing entity and the tax characterization
(debt or equity) of the asset-backed obligations which are issued. CapMAC
endeavors to address these risks through its credit underwriting guidelines,
standards and procedures. See "Business--Underwriting Procedures and
Guidelines."

Municipal obligations comprise bonds, notes and other evidences of
indebtedness issued by states and their political subdivisions (such as
counties, cities, or towns), utility districts, public universities and
hospitals, public housing and transportation authorities and other public and
quasi-public entities. Municipal obligations are supported by the issuer's
taxing power in the case of general obligation bonds, or by the issuer's ability
to impose and collect fees and charges for public services or specific projects
in the case of most special revenue bonds. Although insurance of municipal
obligations represents the largest portion of the financial guaranty insurance
business, as of December 31, 1995 it formed only 6.0% of the Net Par insured by
CapMAC. CapMAC's share of the market for the insurance of directly issued
municipal bonds was less than 0.3% in 1995 and 0.9% in 1994.

Financial guaranty insurance generally provides an unconditional and
irrevocable guaranty to the holder of an insured obligation to pay the
principal, interest or other amounts due in accordance with the obligation's
original payment schedule or, at the option of the insurance company, on an
accelerated basis in the event of a payment default on the underlying issued
obligation. The insurer generally has recourse against the issuer and/or any
related collateral for amounts paid under the terms of the policy. Each
subsequent purchaser of the obligation generally receives the benefit of such
guaranty.

37
<PAGE>
Financial guaranty insurance benefits both issuers and investors. The
principal economic value of financial guaranty insurance to an issuer of an
obligation is the savings in interest costs resulting from the difference
between the interest rates on an insured obligation (taking into account
premiums paid for the insurance) and the interest rate on the same obligation on
an uninsured basis. In addition, for complex financings and for obligations of
issuers that are not well known by the investment community, insured obligations
generally receive greater market acceptance than uninsured obligations.
Investors benefit from the greater marketability of the insured obligation and a
reduction in the risks of loss associated with an issuer's default, as well as
greater retention of value of their investment should the issuer experience
adversity. See "Risk Factors--Market and Other Factors" for a discussion of
factors affecting the demand for and supply of financial guaranty insurance.

Financial guaranty insurance in the past was provided by both monoline
insurers, which limit their business to the issuance of financial guaranties,
and multiline insurers, which offer both financial guaranty insurance and other
kinds of property and casualty insurance. As a result of the enactment of
Article 69 of the New York Insurance Law in 1989, multiline insurers, whether or
not organized in New York, are prohibited from writing financial guaranty
insurance on a direct basis in the state, except during a transitional period
which, subject to certain conditions, will expire in May 1997. Multiline
insurers may in the future write such business by establishing monoline
subsidiaries, although, under the New York Insurance Law and rating agency
guidelines for triple-A claims-paying ability ratings, any such subsidiaries
will require significant initial capital and surplus. See
"Business--Competition" and "Industry Overview."

The financial guaranty insurance companies have increasingly sought to
diversify their product base as the market for the traditional provision of
insurance for asset-backed and municipal transactions has become more
competitive. This diversification has been in the form of an expansion of the
core businesses and in the provision of nontraditional new products.

In general, financial guarantors insure a higher proportion of obligations
backed by new asset classes than obligations backed by assets which have been
securitized in large quantities and are therefore familiar to investors. This is
because investors particularly value the additional security provided by a
financial guarantor when the asset securitized is unfamiliar. While CapMAC has
pursued opportunities throughout the securitization market, it has concentrated
particularly on providing guaranties with respect to structures and obligations
backed by assets which are less familiar to investors, and which therefore
command higher fees. Recent examples include securitization of delinquent tax
receivables, recreational vehicle loans, boat loans, student loans, healthcare
receivables and premium payments due to property/casualty insurers.

38
<PAGE>
BUSINESS

OVERVIEW

The Company provides financial guaranty insurance through CapMAC and
advisory and structuring services through CFS, primarily in connection with
transactions in which CapMAC issues guarantees. Historically, the Company has
focused on the higher quality and low risk sectors of the asset-backed market
while participating on a limited basis in selected transactions in the primary
municipal market. As of March 31, 1996, 94.6% of the Net Par consisted of
guaranteed obligations backed by consumer, trade or corporate receivables and
other taxable obligations and 5.4% of the Net Par consisted of municipal and
government obligations.

Until March, 1996, the Company was organized into three primary product
groups--Consumer Structured Finance, Corporate Structured Finance and Municipal
Finance, and three separate geographic groups outside of the United
States--Europe, Asia and Latin America, each of which was headed by a "Product
Manager." In March, 1996, the Company reorganized internally to improve its
ability to deliver credit enhancement and financial structuring expertise to its
clients. The Company is now organized into two separate business units--Credit
Enhancement and Financial Engineering, and four separate business development
units--US/Japan, Europe, Asia and Latin America. The Business Units and the
Business Development Units are supported by four support
units--Finance/Distribution, Research and Development, Risk Management and
Legal/Administration. The Credit Enhancement business unit is intended to cover
the credit enhancement of transactions utilizing more standardized structures
and more traditional assets such as credit card receivables, home equity loans,
auto loans and corporate trade receivables. The Credit Enhancement business unit
also covers the credit enhancement of municipal obligations and utility first
mortgage bonds. The Financial Engineering business unit is intended to cover
transactions involving highly structured and novel solutions to financial,
regulatory or accounting problems of financial institutions or corporations.

Financial guaranty insurance written by CapMAC generally guarantees to the
holder of the guaranteed obligation the timely payment of principal and interest
in accordance with the obligation's original payment schedule. In the case of a
default on the insured obligation, payment under the insurance policy generally
may not be accelerated by the holder without the consent of CapMAC, even though
the underlying obligation may be accelerated.

The structured asset-backed transactions guaranteed by CapMAC include
securities backed by trade and lease receivables, automobile loans, credit card
receivables, home equity loans, recreational vehicle loans, residential
mortgages and, to a limited extent, commercial real estate. CapMAC also insures
securitizations backed by senior bank loans, premium receivables of
property/casualty insurance companies, and obligations of counterparties under
hedging contracts such as interest rate swaps and obligations of special purpose
derivative product subsidiaries of financial institutions.

For primary issues, the Company works with issuers to structure asset-backed
transactions into investment grade obligations which it believes would satisfy
investment grade criteria of the rating agencies before the addition of CapMAC's
guarantee. The Company relies on a diversified pool of underlying assets and
structural and first loss protection to minimize credit and legal risks.
Protection to CapMAC against losses can be provided by excess collateral, cash
reserve accounts, and third party credit support. The amount of such protection
is sized to cover expected credit losses on the underlying collateral pool, even
under adverse scenarios. Consequently, CapMAC insured issues are structured to
meet a "zero-loss" underwriting standard. Unlike underwriting used in connection
with life, property and casualty and other insurance products, where a certain
level of loss is expected for a portfolio of business written, "zero-loss"
underwriting is a method of underwriting in which no losses are expected on the
insurance policy at the time it is issued, based on worst-case assumptions.

39
<PAGE>
The Company also has a secondary market insurance program in which CapMAC
provides guarantees of securities, primarily utility first mortgage bonds and
municipal obligations, that are already issued and trading in the secondary
markets.

CapMAC issues both full and partial guarantees of securities. Full
guarantees provide a guarantee of all payments of principal and interest on the
insured security. Partial guarantees provide a guarantee of payments of
principal and interest on a security up to a specified percentage (less than
100%) of the outstanding principal amount of the security.

Debt obligations insured by CapMAC typically carry a triple-A rating due to
CapMAC's triple-A claims-paying ability ratings. Moody's and S&P generally
review transactions guaranteed by CapMAC before they are closed.

UNDERWRITING PROCEDURES AND GUIDELINES

CapMAC specializes in the credit enhancement of structured asset-backed
obligations. These generally represent a lower risk of loss than the credit
enhancement of obligations which are neither backed by a dedicated pool of
assets nor structured to protect against bankruptcy risks because they: (i)
typically involve a large pool of diverse, high quality assets; (ii) employ
structural protections which segregate the underlying assets from the credit
risk of the seller/servicer; and (iii) have a first loss protection built into
the transaction, the amount of which is based on the historical performance of
the assets and is usually in the form of (a) overcollateralization or cash
collateral/reserves, (b) retention of risk by the seller/servicer or (c)
assumption of risk by a third party other than CapMAC. Structured asset-backed
obligations are typically subject to independent review and oversight by a
variety of third parties (rating agencies, underwriters, reinsurers, liquidity
banks and legal counsel).

CapMAC has developed strict and highly specific underwriting procedures for
the various types of obligations CapMAC insures, consistent with its standard of
"zero-loss" underwriting. The Company's underwriting policies, procedures and
guidelines outline the process for analyzing, approving and monitoring all
prospective and booked transactions. The underwriting policies and procedures
encompass the approval process and the portfolio limits.

Each potential transaction is first assigned to either the Financial
Engineering or Credit Enhancement business unit. Transactions assigned to a
business unit are analyzed and negotiated by a transaction team headed by the
appropriate business manager determined on the basis of the underlying risk
being insured.

A formal written analysis is prepared and is included in the presentation to
CapMAC's Underwriting Committee (the "Underwriting Committee"), which must
approve all transactions other than certain transactions for established
customers or financing programs, which may be approved outside of the
Underwriting Committee by the transaction team leader and at least two members
of the Underwriting Committee. The Underwriting Committee is comprised of ten
senior underwriting officers, including the Chairman/Chief Executive Officer. In
addition to the Underwriting Committee, the Underwriting Committee of CapMAC's
Board of Directors' must approve all transactions which have an aggregate
exposure greater than $250 million or which are certain first-time transactions.
Upon approval by the applicable underwriting committees, the transaction team is
responsible for documenting and closing the transaction.

While the underwriting process necessarily varies depending on the
transaction, all evaluations for structured asset-backed transactions (whether
in the Credit Enhancement or Financial Engineering business unit) generally
include: a review of the transaction structure, an asset analysis, a financial
review of the issuer and/or seller/servicer, on-site due diligence and visits
with management of the seller/servicer.

40
<PAGE>
The transaction team determines the appropriate structure for the obligation
being guaranteed and the assets being securitized, and works closely with
external and/or internal legal counsel to review the structure and to analyze
the legality, perfection of security interests and first loss protection of the
transaction. It also evaluates the seller and the servicer of the assets to
determine their ability to fulfill their obligations, both in general and with
respect to the specific proposed transaction. This analysis focuses both on
quantitative and qualitative elements of the performance of the proposed
seller/servicer.

For structured asset-backed securities, the transaction team performs a
detailed analysis of the receivables, how they were originated, how they have
performed historically, how they are serviced and how the cash is collected by
the servicer. The transaction team analyzes the probable performance of the
assets underlying the obligations applying various factors which may affect
asset performance. For pools of consumer receivables, "stress tests" are run to
determine the asset pool's performance in the event of extreme economic
downturns, volatile interest rate environments, and other significant changes in
variables affecting asset performance. These stress tests are based on those
performed by the rating agencies. CapMAC applies strict potential loss
guidelines generated by these scenarios in structuring acceptable-risk
transactions. For pools of corporate receivables, liquidation analyses are
performed under distress and bankruptcy scenarios.

CapMAC also typically audits the pool of assets before each transaction is
closed, often using external auditors for assistance. For example, in
considering a portfolio of consumer loans, a number of loans is randomly sampled
to assure that all necessary documentation is in place and each loan in the
sample is examined individually to ensure that it was originated and is being
serviced in accordance with the originator's credit criteria. In addition, a
sample of such loans is selected and obligors are contacted to ensure that the
loans exist.

The Company has developed a pricing model that for each transaction takes
into account various factors, such as estimated prepayments on consumer
transactions, and incorporates the level of capital required by insurance
regulators and the rating agencies, the estimated incremental expenses to
underwrite and monitor the transaction, an allocation of general and
administrative expenses, a statistically determined assessment of probable
losses based on industry experience, and the impact of any reinsurance and
taxes. Using this pricing model, the earnings from the transaction and the
transaction's projected return on capital are calculated. The underwriting
memorandum presented to the Underwriting Committee for each transaction is
accompanied by the pricing model's summary of transaction terms and
profitability, which sets forth pricing information and calculations regarding
the projected return on allocated capital, determined independently by a unit
reporting to the Chief Financial Officer of CapMAC.

Each transaction is also reviewed by members of the Risk Management support
unit in the context of CapMAC's existing insured portfolio to ensure compliance
with general guidelines. Regulatory and rating agency guidelines generally limit
the amount of exposure that CapMAC can retain with respect to any transaction
guaranteed, and CapMAC sets internal limits on its exposure, such as limits for
each transaction and the type of assets securitized. CapMAC also actively uses
reinsurance to manage its exposure. See "--Reinsurance."

On occasion, CapMAC reinsures other financial guaranty insurers. CapMAC
provides such reinsurance only on a transaction-by-transaction basis pursuant to
the underwriting standards and procedures utilized in direct writings.

MONITORING PROCEDURES

CapMAC monitors each transaction on an ongoing basis. The responsibility for
monitoring completed transactions rests primarily with the Exposure Management
Group, which reports to the head of the Risk Management support unit. Typically,
an officer from the Exposure Management

41
<PAGE>
Group is assigned to each transaction and is responsible for continuous
monitoring of events and conditions which could affect the transaction until the
end of the term of CapMAC's policy.

Upon closing a transaction, the Exposure Management Group and the
transaction team create a credit file, a document inventory and a schedule of
key dates and prepare a monitoring report which, depending on the nature of the
transaction, may include a monthly servicing report to be completed by the
seller/servicer, an outline of covenants and other performance measurements, and
a schedule of required quarterly and annual financial and other statements. The
monitoring report serves as a form of compliance checklist and assists the
Company in determining that each party is meeting its contractual obligations,
that the portfolio is performing as anticipated, and that there is no potential
or actual deterioration in the credit quality of the issuer, collateral or other
parties to a transaction.

For structured asset-backed transactions, servicer reports provide details
on the status of the receivables pool including outstandings, collections, level
of loss protection (size of overcollateralization or spread account),
delinquencies, dilution, loss-to-liquidation, write-offs and recoveries.

The culmination of the formal and informal monitoring plus periodic reviews
of the asset pools, if appropriate, is a formal "Annual Review" which summarizes
how the transaction has performed since the last review. These reviews are
approved by the designated officer(s) of the Risk Management support unit and
two members of the Underwriting Committee. If the term of a transaction is to be
extended or the amount of the policy increased, then the review is formally
presented and approved by the Underwriting Committee or, under certain limited
circumstances, by the appropriate business manager and two members of the
Underwriting Committee.

If a transaction is not performing according to expectations, or an external
event has occurred which had or may have an adverse effect, the Exposure
Management Group performs an "Event Review." An Event Review identifies the
condition or event giving rise to the Event Review, analyzes its effect on the
transaction, and recommends corrective action or special monitoring.

Changes in condition can range from a deterioration in the asset pool
performance, as measured by delinquencies, losses, and prepayments or by a
change in servicer management ability, such as faulty reports. Additional
reasons for special monitoring include deterioration in the financial condition
of any significant party in the transaction (e.g., seller/servicer, trustee,
third party guarantor, major obligors) and adverse regulatory, political,
economic or environmental events.

Upon completion of an Event Review, the Underwriting Committee approves an
action plan. An action plan, depending on the transaction, may also include
exercising CapMAC's rights under the transaction documentation, which vary but
may include replacing the servicer, liquidating the program or taking other
actions to protect CapMAC's collateral.

Placing a transaction on "special monitoring" does not necessarily imply an
expectation of potential loss, but rather is part of the program of the Risk
Management Unit to identify specific transactions where there is a change from
the initial conditions under which the transaction was underwritten. As of May
31, 1996, CapMAC had five transactions which were subject to special monitoring.

CapMAC has paid claims in connection with one of the transactions subject to
special monitoring in the amount of $2.4 million through May 31, 1996. This was
the first financial guarantee policy in respect of which CapMAC incurred claims.
The aggregate claim and related loss adjustment expenses expected to be made on
the insurance policy in connection with this transaction are estimated to be
$2.7 million, although no assurance can be given that the claims and related
loss adjustment expenses will not exceed this amount. This amount is expected to
be covered through a recovery under a quota share reinsurance agreement of $0.2
million and a reduction in the Supplemental Loss Reserve of $2.5 million. The
portion of such claims and related expenses not covered under the quota share
agreement is being funded through payments to CapMAC from the Lureco Trust
Account. See "Business-- Reinsurance" for a discussion of the Lureco Trust
Account.

42
<PAGE>

In order to assist it in the monitoring of its portfolio, CapMAC has
implemented a proprietary computer system called "CapMASTER," which enables
CapMAC to analyze its total portfolio exposure according to product types,
insurers, geographic concentrations, trustees, transaction structures,
maturities and a variety of other factors. CapMASTER and other production
software applications such as the general ledger and accounts payable are run on
computer hardware located in the data center on CapMAC's premises. Frequent
systems backups are made of all critical data, and the resulting tapes are
stored offsite for contingency purposes.

PORTFOLIO OF INSURED OBLIGATIONS AND POLICYHOLDERS' LEVERAGE RATIO

CapMAC uses several methods to measure and report exposure and business
volume under its financial guaranty policies. One method used to determine
exposure under a policy is the principal amount guaranteed under the policy
("Par"), since CapMAC's liability for principal under the policy is limited to
the face amount of the policy. For example, if CapMAC issues a 10% guarantee on
a $100 million par amount asset-backed security, the Par exposure is $10
million. In addition, for statutory and other purposes, CapMAC measures the
principal plus interest guaranteed under its policies, or statutory principal
and interest ("Statutory P&I"). In the above example, the Statutory P&I is $10
million plus interest based upon the terms of the policy, since that is the
maximum amount of claims that CapMAC will have to pay. For purposes of measuring
certain business volume, CapMAC uses the principal amount of the obligation that
is supported by the CapMAC policy, whether a full or partial guarantee; this is
referred to as "Inforce Par." In the example above, the Inforce Par would be
reported as $100 million.

Reinsurance that meets certain regulatory and rating agency requirements is
used to reduce exposure. CapMAC reports Par and Statutory P&I exposure both
before ("Gross") and after ("Net") giving effect to reinsurance. (See
"--Reinsurance.") The following table shows CapMAC's policies outstanding as of
December 31, 1993, 1994 and 1995 and March 31, 1996.

INSURED PORTFOLIO
POLICIES OUTSTANDING
($ IN MILLIONS)

<TABLE><CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
----------------------------- ---------
1993 1994 1995 1996
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Inforce Par(1)....................................... $14,386 $23,578 $32,278 $31,484
Net Par(2)........................................... 5,606 9,397 12,628 14,019
Net Statutory P&I(3)................................. 6,846 10,838 15,138 16,808
</TABLE>

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

(1) Inforce Par--the full amount of principal, commitment or other obligations
(excluding interest portion) of the securities or obligations in respect of
which an insurance policy or a reinsurance agreement has been issued,
whether or not the full amount is guaranteed by such policy or agreement.

(2) Net Par--the amount of principal or other obligations (excluding interest
portion) guaranteed under an insurance policy or a reinsurance agreement,
net of ceded reinsurance.

(3) Net Statutory P&I--the amount of principal or other obligations and interest
guaranteed under an insurance policy or a reinsurance agreement, net of
ceded reinsurance, determined in accordance with rules and procedures
prescribed or permitted by state insurance regulatory authorities.

Net Par is lower than Inforce Par because exposure is reduced due to ceded
reinsurance and because of the significant portion of partial guarantees issued
by CapMAC. At March 31, 1996, 41% of Inforce Par constituted full (100%)
guarantees and the remaining 59% was associated with partial guarantees. The
following table displays the insured portfolio exposure written for the years
ended December 31, 1993, 1994 and 1995 and the three month periods ended March
31, 1995 and 1996.

43
<PAGE>
INSURED PORTFOLIO
POLICIES WRITTEN
($ IN MILLIONS)

<TABLE><CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Inforce Par...................... $10,399(1) $15,685(2) $27,069(3) $3,060(4) $2,755(5)
Net Par.......................... 4,085 8,186 15,769 2,115 773
Net Statutory P&I................ 4,561 8,871 17,040 2,806 1,075
</TABLE>

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

(1) Inforce Par written in 1993 included the issuance of a partial guarantee on
a large asset-backed commercial paper conduit. By excluding this conduit,
Inforce Par written would have been $8.4 billion.

(2) Inforce Par written in 1994 included the issuance of partial guarantees on
two large asset-backed commercial paper conduits. If these conduits were
excluded, Inforce Par written would have been $11.5 billion.

(3) Inforce Par written in 1995 included the issuance of a guarantee with
respect to the assets held by an asset-backed investment vehicle. If the
guarantee relating to this vehicle was excluded, Inforce Par written would
have been $20.9 billion.

(4) Inforce Par written during three months ended March 31, 1995 included the
issuance of a partial guarantee on a large consumer obligation transaction.
By excluding this transaction Inforce Par written would have been $2.1
billion.

(5) Inforce Par written in 1996 included the issuance of a partial guarantee on
a large asset-backed commercial paper conduit. If such guarantee was
excluded, Inforce Par written would have been $1.5 billion.

Management believes CapMAC's insured portfolio is well diversified in terms
of type and size of obligations and geographic concentration.

The Company's management tracks the geographic distribution of its insured
obligations using a methodology developed internally. Management believes that
economic deterioration within one state or region will have less of an impact on
structured obligations backed by diversified pools of assets located in such
state or region and having significant first loss protection than on
non-structured obligations of a single issuer. Furthermore, in the case of
collateral pools backed by corporate obligations, the scope of an originator's
or corporate obligor's business may, if diversified geographically, minimize the
risk due to the economic deterioration in a state or region. Consequently, the
Company's management considers geographic exposure to be less meaningful for
structured obligations than for municipal or other single issuer obligations.

In reporting geographic exposure associated with structured asset-backed
securities, CapMAC looks at the underlying collateral pool. If the pool consists
of corporate obligations with no clear concentration in a particular state or
region, then the transaction will be assigned to a category called "nationally
diversified corporate assets." For collateral pools of consumer obligations, the
transaction will be assigned to a category called "nationally diversified
consumer assets" provided that no more than 20% of the collateral is associated
with a particular state and provided that no more than 40% of the collateral
falls into a particular region of states. If these limitations are exceeded,
then the entire transaction will be assigned to specific states depending on the
distribution of the underlying collateral.

The following table sets forth the geographic distribution of CapMAC's
insured portfolio in terms of Net Par as of December 31, 1993, 1994 and 1995 and
March 31, 1996.

44
<PAGE>
INSURED PORTFOLIO
GEOGRAPHIC DISTRIBUTION(1)
NET PAR OUTSTANDING
($ IN MILLIONS)

<TABLE><CAPTION>
AS OF DECEMBER 31,
------------------------------------------------- AS OF MARCH 31,
STATE/REGION 1993 1994 1995 1996
- ------------------------------ -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nationally Diversified
Consumer Assets............... $ 614 10.9% $1,121 11.9% $ 2,197 17.4% $ 2,591 18.5%
Nationally Diversified
Corporate Assets.............. 1,203 21.5 2,023 21.5 2,064 16.3 2,000 14.3
California.................... 646 11.5 1,019 10.8 1,257 10.0 1,326 9.5
New York...................... 537 9.6 769 8.2 810 6.4 882 6.3
Maryland...................... 251 4.5 326 3.5 356 2.8 378 2.7
Texas......................... 126 2.2 117 1.3 299 2.4 344 2.5
Pennsylvania.................. 129 2.3 276 2.9 301 2.4 326 2.3
New Jersey.................... 154 2.7 223 2.4 236 1.9 303 2.2
Virginia...................... 131 2.3 159 1.7 300 2.4 291 2.1
Florida....................... 170 3.0 203 2.2 285 2.3 284 2.0
Ohio.......................... 83 1.5 199 2.1 154 1.2 155 1.1
Other U.S.(2)................. 1,210 21.7 1,745 18.5 2,568 20.2 2,786 19.7
Europe........................ 346 6.2 923 9.9 1,444 11.4 1,984 14.2
Other Non-U.S................. 6 0.1 294 3.1 357 2.9 369 2.6
------ ----- ------ ----- ------- ----- ------- -----
Total................... $5,606 100.0% $9,397 100.0% $12,628 100.0% $14,019 100.0%
------ ----- ------ ----- ------- ----- ------- -----
------ ----- ------ ----- ------- ----- ------- -----
</TABLE>

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

(1) The geographic information presented above is based on the latest such data
available to CapMAC, which for asset-backed transactions is based on
information received from the seller/servicer and therefore may not
necessarily be the actual distribution as of the above indicated dates.

(2) No state in the "other category" accounts for more than 2% of total Net Par
outstanding.

The table below shows the implied credit quality of CapMAC's insured
portfolio, where credit quality is assessed without giving effect to CapMAC's
insurance policy. Rating assessments are determined based on an assessment from
one of the U.S. rating agencies or by CapMAC's own evaluation where such
assessments have not yet been received. The proposed transaction is then
evaluated thoroughly to ensure that it meets CapMAC's underwriting/credit
standards. Each accepted transaction undergoes continuous review to ensure that
no material changes occur which would affect the quality of the transaction.
(See "--Monitoring Procedures.")

INSURED PORTFOLIO
DISTRIBUTION BY CREDIT QUALITY
NET PAR OUTSTANDING
($ IN MILLIONS)

<TABLE><CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------------
STATE/REGION 1993 1994 1995 1996
- -------------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AAA................. $ 171 3.1% $ 166 1.8% $ 363 2.9% $ 425 3.0%
AA.................. 195 3.5 453 4.8 636 5.0 556 4.0
A................... 1,648 29.4 2,122 22.6 3,145 24.9 3,112 22.2
BBB................. 3,592 64.0 6,640 70.7 8,318 65.9 9,765 69.6
Non-investment
grade............... -- -- 16 0.1 166 1.3 161 1.2
------ ----- ------ ----- ------- ----- ------- -----
Total......... $5,606 100.0% $9,397 100.0% $12,628 100.0% $14,019 100.0%
------ ----- ------ ----- ------- ----- ------- -----
------ ----- ------ ----- ------- ----- ------- -----
</TABLE>

45
<PAGE>
The obligations insured by CapMAC are divided into three general categories:
consumer receivables, trade/corporate receivables and municipal/government
obligations.

Obligations insured by CapMAC and primarily backed by consumer receivables
include pass-through and pay-through securities, commercial paper obligations
and other, more highly structured products. The consumer receivables backing
such obligations include automobile loans and leases, credit card receivables,
home equity loans, recreational vehicle loans, residential mortgage loans,
student loans and other consumer obligations.

Obligations insured by CapMAC and primarily backed by trade/corporate
receivables include obligations collateralized by corporate debt securities,
corporate loans and other corporate receivables and other products underwritten
primarily on the basis of the cash flow or market value of the assets dedicated
to the payment of the insured obligations. These assets include corporate bonds,
trade receivables, equity securities, securities which are backed by senior bank
loans, utility first mortgage bonds and other assets which are neither consumer
receivables nor municipal/government obligations. CapMAC classifies as
trade/corporate receivables insurance issued by it to guarantee counterparty
risk in areas such as interest rate swaps and special purpose derivative
products subsidiaries of financial institutions and insurance issued which
guarantees payment of previously issued bonds at a stated maturity date.

Obligations backed by municipal/government obligations insured by CapMAC
include, with respect to municipal obligations, general obligation bonds,
housing revenue bonds, municipal utility revenue bonds, health care revenue
bonds, transportation revenue bonds, tax-backed revenue and lease bonds and with
respect to government obligations, bonds of public and quasi-public agencies of
the United States and obligations of local and national governments outside of
the United States.

The following table displays the insured portfolio breakdown by type of
underlying obligation insured by CapMAC in terms of Net Par outstanding as of
December 31, 1993, 1994 and 1995 and as of March 31, 1996.

INSURED PORTFOLIO
BY TYPE OF UNDERLYING OBLIGATION
NET PAR OUTSTANDING
($ IN MILLIONS)

<TABLE><CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------------
1993 1994 1995 1996
--------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consumer Receivables....... $2,950 52.6% $4,740 50.4% $ 6,959 55.1% $ 7,650 54.6%
Trade/Corporate
Receivables................ 2,275 40.6 4,039 43.0 4,912 38.9 5,614 40.0
Municipal/Government
Obligations................ 381 6.8 618 6.6 757 6.0 755 5.4
------ ----- ------ ----- ------- ----- ------- -----
Total................ $5,606 100.0% $9,397 100.0% $12,628 100.0% $14,019 100.0%
------ ----- ------ ----- ------- ----- ------- -----
------ ----- ------ ----- ------- ----- ------- -----
</TABLE>

46
<PAGE>
The following table provides a further breakdown by category of asset,
measured by Net Par outstanding as of March 31, 1996.

INSURED PORTFOLIO
BY CATEGORY OF ASSET
NET PAR OUTSTANDING
AS OF MARCH 31, 1996
($ IN MILLIONS)

<TABLE><CAPTION>
CATEGORY OF ASSET NET PAR % ASSET TYPE
<S> <C> <C> <C>
Home Equity Loans and Residential Mortgages................. $ 4,617 32.8% Consumer
International............................................... 2,265 16.2 International
Overcollateralized Corporate Pools.......................... 1,875 13.4 Corporate
Credit Cards................................................ 1,301 9.3 Consumer
Other Consumer.............................................. 1,021 7.3 Consumer
Municipal................................................... 611 4.4 Municipal
Noncollateralized Corporate Obligations..................... 539 3.8 Corporate
Auto Loans.................................................. 526 3.8 Consumer
Utilities................................................... 516 3.7 Corporate
Other Corporate............................................. 397 2.8 Corporate
Recreational Vehicle & Marine............................... 207 1.5 Consumer
Government/Sovereign........................................ 144 1.0 Municipal
------- -----
Total................................................. $14,019 100.0%
------- -----
------- -----
</TABLE>

The table below shows distribution of CapMAC's insured portfolio by size of
transaction insured on a Net Par basis as of March 31, 1996.

INSURED PORTFOLIO
BY SIZE OF TRANSACTION INSURED
NET PAR OUTSTANDING
AS OF MARCH 31, 1996
($ IN MILLIONS)

<TABLE><CAPTION>
NUMBER OF PERCENTAGE PERCENTAGE
TRANSACTIONS OF TOTAL NET PAR OF TOTAL
------------ ---------- ------- ----------
<S> <C> <C> <C> <C>
Greater than $200................................. 15 3.0% $ 5,238 37.4%
$101-$200......................................... 19 3.9 2,673 19.1
$51-$100.......................................... 37 7.5 2,714 19.4
$25-$50........................................... 49 9.9 1,819 13.0
Less than $25..................................... 373 75.7 1,575 11.1
--- ----- ------- -----
Total....................................... 493 100.0% $14,019 100.0%
--- ----- ------- -----
--- ----- ------- -----
</TABLE>

The remaining weighted average life based upon Net Par of CapMAC's insured
portfolio as of March 31, 1996 was approximately 6.3 years, which reflects
CapMAC's focus on asset-backed securities. Financial guarantee insurance
companies which focus on the credit enhancement of municipal obligations have
insured portfolios with a weighted average life that is typically longer than
CapMAC's portfolio. The following table sets forth the estimated terms to
maturity of CapMAC's policies as of December 31, 1993, 1994 and 1995 and as of
March 31, 1996.

47
<PAGE>
INSURED PORTFOLIO
ESTIMATED TERMS TO MATURITY OF INSURED OBLIGATIONS(1)
($ IN MILLIONS)

<TABLE><CAPTION>
AS OF DECEMBER 31,
--------------------------- AS OF
ESTIMATED TERMS TO MATURITY 1993 1994 1995 MARCH 31, 1996
- --------------------------------------------------- ------ ------ ------- --------------
<S> <C> <C> <C> <C>
Due in five years or less.......................... $4,046 $5,861 $ 6,163 $ 7,121
Due after five years through ten years............. 861 1,789 4,067 4,428
Due after ten years through fifteen years.......... 194 948 1,002 1,022
Due after fifteen years through twenty years....... 158 246 384 385
Due after twenty years............................. 347 553 1,012 1,063
------ ------ ------- --------------
Total........................................ $5,606 $9,397 $12,628 $ 14,019
------ ------ ------- --------------
------ ------ ------- --------------
</TABLE>

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

(1) Based on estimates by the issuers of the insured obligations as of the
original issuance dates of such obligations. Actual maturities could differ
from the contractual maturities because borrowers in certain issuances have
the right to call or prepay certain obligations with or without call or
prepayment penalties.

Another important measure of exposure is the "policyholders' leverage
ratio." By convention in the monoline financial guaranty industry, the
policyholders' leverage ratio is calculated by using the ratio of Net Statutory
P&I outstanding to Qualified Statutory Capital. "Qualified Statutory Capital" is
the sum of policyholders' surplus and contingency reserve. As indicated below,
CapMAC's policyholders' leverage ratio has increased significantly since
December 31, 1993, due primarily to the commensurate growth in CapMAC's insured
portfolio.

The following table sets forth CapMAC's policyholders' leverage ratio as of
December 31, 1993, 1994 and 1995 and as of March 31, 1996:

POLICYHOLDERS' LEVERAGE RATIO
($ IN MILLIONS)

<TABLE><CAPTION>
AS OF DECEMBER 31,
---------------------------- AS OF
1993 1994 1995 MARCH 31, 1996
------ ------- ------- --------------
<S> <C> <C> <C> <C>
Net Statutory P&I................................. $6,846 $10,838 $15,138 $ 16,808
Qualified Statutory Capital....................... 168 170 240 245
Policyholders' Leverage Ratio..................... 41:1 64:1 63:1 68:1
</TABLE>

LOSS RESERVES

CapMAC maintains reserves in an amount believed by its management to be
sufficient to pay its estimated ultimate liability for losses and loss
adjustment expenses with respect to obligations it has insured. For a
description of the methodology employed by CapMAC in establishing case basis
reserves and the Supplemental Loss Reserve, see "Accounting--Reserves--Reserves
under GAAP." From CapMAC's commencement of operations in 1987 through March 31,
1996, CapMAC had incurred gross losses and loss adjustment expenses (exclusive
of additions to the Supplemental Loss Reserve) of $2.7 million with respect to
insured obligations, all of which related to a single transaction. Such losses
and expenses were recovered under a quota share reinsurance arrangement of $0.2
million and a reduction in the Supplemental Loss Reserve of $2.5 million. The
portion of the loss not covered under the quota share agreement is being funded
through payments to CapMAC from the Lureco Trust Account.

Because reserves are necessarily based on estimates and because of the
absence of a sufficient number of losses in its financial guaranty insurance
activities and in the financial guaranty insurance industry generally to
establish a meaningful statistical base, there can be no assurance that the case
basis reserves or the Supplemental Loss Reserve will be adequate in light of
subsequent experience with respect to defaults to cover losses in CapMAC's
insured portfolio. Losses from future defaults,

48
<PAGE>
depending on their magnitude, could have a material adverse effect on the
results of operations and financial condition of the Company. See "Risk
Factors--Adequacy of Loss Reserves," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Industry Overview" and
"Accounting--Reserves."

REINSURANCE

Reinsurance is a commitment by one insurance company, the "reinsurer," to
reimburse another insurance company, the "ceding company," for a specified
portion of the insurance risks underwritten by the ceding company on one or more
specified policies in consideration for a portion of the premiums received for
the policy or policies being reinsured. The ceding company generally receives
from the reinsurer a commission based on a percentage of the reinsurance premium
(a "ceding commission") to cover the cost incurred by the ceding company to
generate the business being reinsured. The reinsurance does not relieve the
ceding company from any obligation under the policy reinsured even if the
reinsurer fails to pay the ceding company under the reinsurance agreement.

The Company actively pursues reinsurance as a means of diversifying and
reducing risk, enhancing its return on capital and adding underwriting capacity.
Reinsurance of CapMAC's insured obligations is done both on a facultative
(transaction-by-transaction) and treaty (automatic cession) basis. CapMAC uses
both quota share reinsurance and excess of loss reinsurance. Quota share
reinsurance provides that the reinsurer reimburses the ceding company for a
specified percentage of all losses incurred under the policy reinsured starting
with the first loss incurred. Excess of loss or stop-loss reinsurance provides
that the reinsurer reimburses the ceding company for all or a specified
percentage of losses incurred by the ceding company in excess of a specified
amount of losses.

CapMAC monitors the creditworthiness of all of its reinsurers on a continual
basis. As of March 31, 1996, 97% of CapMAC's reinsurance was ceded to reinsurers
who were rated AA or better by S&P. CapMAC reinsures with two triple-A rated
monoline financial guarantee reinsurance companies in the United States and with
a number of international companies located in Europe and Japan. As of March 31,
1996, 20% of CapMAC's Gross Statutory P&I outstanding was reinsured, of which no
single entity reinsured more than 9% of Gross Statutory P&I outstanding.

In connection with the sale of the Company by Citicorp in June 1992, CapMAC
had entered into a Stop-loss Reinsurance Agreement and a Quota Share Insurance
Agreement with Winterthur Swiss Insurance Company ("Winterthur") pursuant to
which Winterthur had the right to reinsure on a quota share basis 10% of each
policy written by CapMAC. Because Winterthur notified CapMAC that, effective
June 30, 1996, as a result of a strategic decision to stop writing reinsurance
for financial guaranty policies, it was not going to extend these agreements,
CapMAC, effective January 1, 1996, reassumed Winterthur's liability for such
policies under the quota share agreement and exercised its right to terminate
the stop-loss agreement on a "cut-off" basis, under which Winterthur has no
further liability after the termination.

To replace the stop-loss insurance provided by Winterthur, CapMAC entered
into a Stop-loss Reinsurance Agreement with Mitsui Marine and Fire Insurance
Co., Ltd. ("Mitsui Marine") as reinsurer (the "Mitsui Stop-loss Agreement"),
effective December 1, 1995, pursuant to which Mitsui Marine is required to pay
any losses in excess of $100 million in the aggregate incurred by CapMAC during
the term of the Mitsui Stop-loss Agreement on the insurance policies in effect
on December 1, 1995 and written during the one year period thereafter, up to an
aggregate limit of $50 million. The Mitsui Stop-loss Agreement has an initial
term of one year and is subject to automatic one year extensions unless either
party provides the other with 180 days notice that it does not intend to renew
the agreement. The Mitsui Stop-loss Agreement is also subject to early
termination by CapMAC in certain circumstances.

In order to diversify its sources of stop-loss reinsurance, CapMAC is
undertaking to engage additional providers of stop-loss reinsurance on a
renewable basis such that no single stop-loss reinsurer would account for more
than $30 million of the $50 million of stop-loss protection. In this regard,

49
<PAGE>
CapMAC has an agreement in principle with Mitsui Marine whereby, starting no
later than December 1, 1996, Mitsui Marine would provide up to $30 million of
stop-loss protection for losses in excess of $100 million, and such stop-loss
protection would be renewable and otherwise similar to the stop-loss protection
currently provided under the Mitsui Stop-loss Agreement. The additional
providers of stop-loss reinsurance would provide the balance up to $50 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 premium deposit amounts in the Lureco Trust Account have been reflected
as assets by CapMAC during the term of the agreement. Premiums in excess of the
deposit amounts have been recorded as ceded premiums in the statements of
operations. In the 1995 policy year, the agreement provided $5 million of loss
coverage in excess of the premium deposit amount of $4.5 million retained in the
Lureco Trust Account. In September of 1995, claims incurred of approximately
$2.5 million on an insurance policy were applied against the Lureco Trust
Account. In the 1996 policy year, the Lureco Trust Agreement was renewed with a
provision for $7 million of loss coverage in excess of the premium deposit
amount of $5 million. In addition to the loss coverage in excess of premium
deposit amounts, the Lureco Treaty provides additional coverage for losses
incurred in excess of 200% of the net premiums earned up to $4 million for any
one agreement year.

Although the reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders, it is the industry practice of insurers
for financial statement purposes to treat reinsured risks as though they were
risks for which the ceding insurer was only contingently liable. A contingent
liability exists with respect to the aforementioned reinsurance arrangements
which may become a liability of CapMAC in the event the reinsurers are unable to
meet obligations assumed by them under the reinsurance contracts.

CAPMAC FINANCIAL SERVICES

CFS is engaged in the business of providing advisory and structuring
services to third parties in connection with asset securitization transactions.
Clients of CFS generally are clients of CapMAC and include banks, large and
mid-sized corporations, insurance companies and other financial institutions.
CFS provides customers with advice as to the most appropriate structure to use
for a given securitization transaction based on the nature of the assets and
financial objective of the customer. Depending on the structure of the
transaction, CFS will provide advice regarding the most advantageous available
funding mechanism, the hedging of certain risks through third-parties and
liquidity facilities in transactions involving issuance of commercial paper.
CFS' sole role with respect to hedging contracts is to provide advisory
services, and neither CFS nor the Company takes any offsetting position with
respect to any such hedging contracts. CFS also provides clients with guidance
on the review process by the rating agencies with respect to transactions.

The structuring of complex and innovative asset securitization transactions
in which CapMAC participates generally involve advisory and structuring services
for which fees are generally paid upon closing of the transaction. The growth of
this segment of the industry is expected to follow, if not exceed, that of the
overall asset-backed securities market given that clients continue to focus on
seeking customized solutions to their financing problems, regardless of whether
those solutions require the issuance of a financial guaranty insurance policy.
Transactions may involve more than one advisor and

50
<PAGE>
CFS competes with a number of advisors including financial guarantors,
investment banks and advisory boutiques for advisory assignments that typically
culminate in insured funding and/or restructuring solutions. Generally, CFS
receives larger fees in connection with transactions which require an increased
expenditure of time and effort to achieve a satisfactory execution. These
transactions typically involve unfamiliar assets or structures. Advisory fees
received by CFS increased from $10.7 million for the year ended December 31,
1994 to $15.5 million for the year ended December 31, 1995 and from $2.0 million
for the three months ended March 31, 1995 to $9.5 million for the three months
ended March 31, 1996.

CFS is a wholly owned subsidiary of Holdings and was incorporated in
Delaware in 1992 in connection with the Acquisition. CFS was created to provide
various services to CapMAC and to engage in other activities in support of
CapMAC's business. At the time of the Acquisition, the CFS Servicing Agreement
detailing the terms and conditions of the services to be provided by CFS for
CapMAC was executed and approved by the Insurance Department of the State of New
York. Under the CFS Servicing Agreement, CFS bills CapMAC at cost for providing
administrative services to CapMAC, including activities related to underwriting,
reinsurance, accounting, data processing and other services.

INVESTMENT PORTFOLIO

The Company invests in high quality, intermediate-term taxable and
tax-exempt securities to obtain an optimal portfolio mix of liquidity, quality,
maturity and earnings. CapMAC has a conservative investment strategy of limiting
investment to government obligations and securities that are rated A or better
and short-term investments rated A1+/P1 or higher by the major U.S. rating
agencies. Any investment in a security rated below A requires special approval.
If a security's rating falls below A subsequent to purchase, a case-by-case
determination is made as to whether the security should be sold. Under CapMAC's
investment guidelines the amount of securities rated single-A or lower is
restricted to 40% of the total portfolio, with the remainder comprised of
double-A and triple-A rated securities, and U.S. Government and federal agency
securities. Currently, CapMAC's investment guidelines do not allow investments
in equity securities, securities issued by affiliates and securities that CapMAC
insures, without prior approval of the Investment Committee of the Board of
Directors. The Company's investment portfolio has an average credit quality of
at least AA as of March 31, 1996. The Company's investment portfolio is managed
by the firm of Standish, Ayer & Wood, Inc.

As of March 31, 1996, the carrying value of the Company's investments was
$309.6 million. The investment portfolio consisted of marketable, investment
grade and fixed income securities. Based upon their respective estimated fair
values at March 31, 1996, approximately 60.4% of the Company's investments were
in obligations of states, municipalities and political subdivisions, 34.3% in
U.S. Treasury obligations and mortgage-backed securities of U.S. government
corporations and agencies, and 5.3% in corporate and asset-backed securities. As
of March 31, 1996, all of the Company's investments were classified as
available-for-sale securities.

51
<PAGE>
The following tables set forth certain information concerning the investment
portfolio of the Company:

INVESTMENT PORTFOLIO
DISTRIBUTION BY CREDIT RATINGS
AS OF MARCH 31, 1996
($ IN THOUSANDS)

<TABLE><CAPTION>
ESTIMATED PERCENTAGE
FAIR VALUE OF TOTAL
---------- ----------
<S> <C> <C>
U.S. Treasury obligations and mortgage-backed securities of U.S.
government instrumentalities and agencies (1).......................... $ 106,258 34.3%
AAA.................................................................... 117,876 38.1
AA..................................................................... 39,210 12.7
A...................................................................... 46,262 14.9
---------- -----
Total............................................................ $ 309,606 100.0%
---------- -----
---------- -----
</TABLE>

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

(1) Mortgage-backed securities consist entirely of Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA), Federal
Home Loan Mortgage Corporation (FHLMC) and other federal agency securities.

INVESTMENT PORTFOLIO
BY TYPE OF SECURITIES
AS OF MARCH 31, 1996
($ IN THOUSANDS)

<TABLE><CAPTION>
WEIGHTED
ESTIMATED AVERAGE
INVESTMENT CATEGORY AMORTIZED COST FAIR VALUE YIELD
- ---------------------------------------------------------- -------------- ---------- --------
<S> <C> <C> <C>
U.S. Treasury obligations................................. $ 4,130 $ 4,157 6.1%
Mortgage-backed securities of U.S. government
instrumentalities and agencies............................ 65,747 64,429 6.4
Obligations of states, municipalities and political
subdivisions.............................................. 185,267 186,925 5.4
Corporate and asset-backed securities..................... 3,730 3,715 6.7
-------------- ---------- ---
Total long-term investments......................... 258,874 259,226 5.7
Short term investments.................................... 50,380 50,380 5.2
-------------- ---------- ---
Total............................................... $309,254 $ 309,606 5.6%
-------------- ---------- ---
-------------- ---------- ---
</TABLE>

52
<PAGE>
DISTRIBUTION OF INVESTMENTS BY MATURITY
AS OF MARCH 31, 1996
($ IN THOUSANDS)

<TABLE><CAPTION>
ESTIMATED
MATURITY AMORTIZED COST FAIR VALUE
- ------------------------------------------------------------------- -------------- ----------
<S> <C> <C>
Due in one year or less(1)......................................... $ 50,380 $ 50,380
Due after one year through five years.............................. 46,055 46,764
Due after five years through ten years............................. 109,225 110,021
Due after ten years................................................ 37,847 38,012
-------------- ----------
Sub-total.................................................... $243,507 $ 245,177
Mortgage-backed securities......................................... 65,747 64,429
-------------- ----------
Total (2).................................................... $309,254 $ 309,606
-------------- ----------
-------------- ----------
</TABLE>

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

(1) Includes short-term mortgage backed securities in the amount of $37.7
million.

(2) The average contractual maturity of the Company's investment portfolio was
approximately 6.3 years.

FUNDING VEHICLES

In order to be able to offer its customers a variety of funding options in
addition to credit enhancement, the Company, together with two investment banks,
participated in the formation of Triple-A One Funding Corporation, Triple-A One
Plus Funding Corporation and Hemispheres Funding Corporation. Triple-A One
Funding Corporation and Triple-A One Plus Funding Corporation (collectively,
"Triple-A One Funding") are third party owned and managed special purpose
conduits that issue asset-backed commercial paper, and Hemispheres Funding
Corporation ("Hemispheres") is a third party owned and managed special purpose
conduit that issues asset-backed medium term notes. Neither the Company nor any
of its subsidiaries or affiliates controls, has an ownership interest in, or
appoints any of the officers or directors of, Triple-A One Funding or
Hemispheres and, except for liabilities under CapMAC's insurance policies issued
in connection with Triple-A One Funding and Hemispheres, the Company has no
financial liabilities or commitments to Triple-A One Funding or Hemispheres.
Each of these conduits provides multiple sellers/borrowers with access to the
commercial paper and medium term note markets on better terms than they could
obtain by issuing securities directly. The Company provides administrative and
referral services to these conduits, and CapMAC guarantees the underlying
asset-backed transactions. In general, customers of the Company transfer or
pledge receivables to the conduits in exchange for funds which are raised either
by the sale of commercial paper (in the case of Triple-A One Funding) or medium
term notes (in the case of Hemispheres). Typically, payment of principal and
interest on the obligations issued by the conduits is dependent on the
performance of the underlying assets, as supported by one or more guarantees
issued by CapMAC. As of March 31, 1996, the aggregate principal amount of
commitments issued by Triple-A One Funding was approximately $3.1 billion and
the commercial paper outstanding under such commitments was approximately $1.7
billion, while the total notes issued by Hemispheres amounted to approximately
$1.0 billion. The Company intends to continue to develop additional funding
vehicles so that it can expand the diversity of the product offerings which are
available to its customers.

DERIVATIVE PRODUCTS

Holdings has entered into a strategic alliance with The Mutual Life
Assurance Company of Canada ("MLC"), and three of its derivatives products
subsidiaries (each such subsidiary, a "TMG Subsidiary" and such subsidiaries
collectively, "TMG Group"). TMG Group provides a broad range of

53
<PAGE>

derivative products, with a special emphasis on "municipal derivatives,"
including investment agreements and long dated interest rate swaps. In addition,
TMG Group provides interest rate swaps and currency swaps. Because the
obligations of TMG Group under its derivative transactions are guaranteed by
MLC, TMG Group is rated AA by S&P and Aa3 by Moody's. It is intended that the
relationship with TMG Group will facilitate the hedging of risks inherent within
particular structured transactions insured by CapMAC and help CapMAC better
evaluate such risks.

Holdings has warrants to purchase shares of stock in each TMG Subsidiary for
an aggregate initial exercise price of $10 million. Holdings may exercise its
warrants in whole or in part (subject to a 25% minimum) at any time and is
obligated to exercise such warrants (i) at any time on or after February 27,
2000 if demanded by any TMG Subsidiary, (ii) upon the bankruptcy or insolvency
of any TMG Subsidiary, (iii) upon the occurrence of certain events which
constitute a change in control of the Company or any of its subsidiaries, unless
the Company, after providing advance notice of such change in control, is able
to demonstrate that such change in control will not have a material adverse
effect on the business, results of operation or financial or other condition of
the Company, and (iv) upon the occurrence of certain other events (as described
below) affecting the Company which require the Company after such exercise, as a
holder of the stock of a TMG Subsidiary, to sell such stock to MLC if MLC so
elects.

The events referred to in clause (iv) above include the reduction of
CapMAC's rating below triple-A by either of Moody's or S&P, the breach by the
Company of a material obligation under the subscription and stockholders
agreement among TMG Group, MLC and Holdings (the "TMG Agreement") or the
Company's entering into a business arrangement with a competitor of a TMG
Subsidiary.

In addition, the Company must exercise its warrants if it elects to require
MLC to purchase the Company's equity interest in TMG Group. The Company will
have the option to require MLC to purchase the Company's equity interest if
MLC's rating is reduced below "AA-" by S&P or "A1" by Moody's, either MLC or any
TMG Subsidiary breaches a material obligation under the TMG Agreement or the
warrants, MLC breaches any of its obligations under any agreement to provide
credit support to any TMG Subsidiary, or MLC or any TMG Subsidiary enters into a
business arrangement with a competitor of the Company.

The price at which the warrants are exercised depends on the date of such
exercise, and is increased each month from the initial exercise price of $10
million by an amount equal to the product of the previous month's exercise price
and the sum of one plus a fraction, the numerator of which is the London
interbank offered rate for deposits in U.S. dollars ("LIBOR") as of the most
recent monthly adjustment date and the denominator of which is 12. It is
management's current expectation, although there can be no assurance, that
Holdings will not be required to exercise the warrants until February 27, 2000,
at which time it is estimated (assuming a constant LIBOR rate of 5%) that the
total cost to exercise the warrants will be approximately $13 million.

The Company may require MLC to purchase the shares in the TMG Group held by
it after exercise of the warrants during the six month period beginning on
February 27, 2002. The price to be paid by MLC for such shares would be their
book value, unless MLC demands that they be sold to it for the market value as
determined in an appraisal (in which case the purchase price will be the lower
of book value and the appraised market value). It is management's present
expectation that the Company will exercise its warrants on February 27, 2000,
hold the stock for two years and, depending on management's evaluation of the
value of its investment, sell the shares to MLC during the six-month period
beginning on February 27, 2002.

The TMG Agreement contains covenants restricting the Company's ability to
incur liens on its property, other than certain permitted liens, or incur debt
(other than certain permitted debt) which would result in the Company's total
debt (other than certain permitted debt) to capital ratio exceeding 25%.

54
<PAGE>
INTERNATIONAL OPERATIONS

The Company has expanded its international operations in recent years by
establishing offices in Europe and entering into joint ventures and other
business arrangements in Asia. The aggregate Net Par resulting from
international transactions totaled $2.3 billion as of March 31, 1996, $1.7
billion as of December 31, 1995 and $1.2 billion as of December 31, 1994. An
obligation insured by CapMAC is deemed to involve an "international transaction"
when the assets underlying the insured obligations are primarily located outside
the United States.

Europe

CapMAC established its representative office in London in 1990. The office
presently has a staff of four professionals. Activities in Europe are based out
of the London office. CapMAC transactions which are originated through the
London office are issued insurance policies out of CapMAC's New York
headquarters. CapMAC's representative office in Paris, with two professionals,
works closely with the London office and focuses on those aspects of
transactions which involve assets, investors or clients located in continental
Europe. The Company is in the process of obtaining a license to issue financial
guaranty insurance directly out of a newly established French subsidiary of
CapMAC. A substantial portion of the policies written by such subsidiary would
be reinsured by CapMAC. Upon receipt of requisite licenses, such subsidiary
would be permitted to write financial guaranty insurance in France and in other
countries that are members of the European Economic Community.

Asia

Given the growing importance and growth prospects of Asia's economies, the
Company has undertaken a number of initiatives to expand into Asia. These
initiatives have resulted in separate arrangements with respect to Japan, the
Asian emerging markets and Indonesia. By entering into alliances with local
entities, the Company intends to become a leading participant in the emerging
business of providing financial guaranty insurance in Asia, while minimizing
both the capital investment required and the risk incurred.

In June 1995, CapMAC and CFS entered into a cooperation agreement (the
"Mitsui Cooperation Agreement") with Mitsui Marine regarding the development of
the financial guaranty business in Japan, including the provision of financial
guaranties and other credit enhancements in connection with securities or
obligations that are backed by assets originated in Japan or which are issued by
Japanese entities ("Japanese Obligations"). Mitsui Marine is one of the major
property and casualty insurance companies in Japan and is rated AAA and Aaa by
S&P and Moody's, respectively. The Mitsui Cooperation Agreement requires CFS to
make financial technology available to Mitsui Marine and provides for mutual
business development, reinsurance, business promotion, employee exchanges and
related training, and office sharing. The Mitsui Cooperation Agreement includes
provisions regarding the reinsurance of transactions related to the provision of
credit enhancement for financial obligations offered and sold in Japan and
Japanese financial obligations which are offered and sold outside of Japan. It
also includes provisions regarding treaty reinsurance, facultative reinsurance
and stop-loss reinsurance by Mitsui Marine of obligations which are not related
to Japan and which are primarily insured by CapMAC. See "--Reinsurance."

The Company has agreed that neither it nor any of its controlled affiliates
will enter into any cooperation agreement or similar arrangement with any
Japanese insurance company, other than Mitsui Marine, in respect of the Japanese
market for the financial guaranty business or Japanese-related securities. In
addition, the Mitsui Cooperation Agreement provides that with respect to
Japanese Obligations, subject to certain limited exceptions, Mitsui has the
exclusive right to issue policies within Japan and CapMAC has the right to
reinsure up to 50% of such policies and that CapMAC has the right to issue
policies outside of Japan and Mitsui has the right to reinsure up to 50% of such
policies. The term of the Mitsui Cooperation Agreement is ten years, subject to
automatic

55
<PAGE>
renewals two years prior to the expiration date. The Mitsui Cooperation
Agreement is subject to early termination if Mitsui Marine is unable to obtain
regulatory approval to issue financial guaranty insurance within four years from
the date of the agreement, if the claims paying ability of either of Mitsui
Marine or CapMAC is rated below "AAA," if either party files for bankruptcy or
makes an assignment for the benefit of creditors, or in the event of certain
breaches of terms, provisions and covenants of such agreement.

As part of its strategy to expand into Asia, the Company promoted the
establishment of and, through its affiliate, CapMAC Asia Ltd. ("CapMAC Asia"),
invested $12.3 million in Asia Credit Services (Pte) Ltd ("Asia Services"),
which owns all of the stock of Asian Securitization & Infrastructure Assurance
(Pte) Ltd ("ASIA Ltd."), a new regional financial guaranty company located in
Singapore. The Company committed to invest an additional $5.8 million if
necessary in CapMAC Asia for the purpose of funding an investment in Asia
Services. ASIA Ltd. was formed to provide guarantees of high quality debt
securities in the primary and secondary Asian fixed income capital markets, and
together with Asia Services, to engage in related business activities in the
Asian capital markets and to provide technical advice and assistance in
connection with Asian securitization transactions.

CapMAC Asia is a Bermuda corporation. The Company owns all of the ordinary
shares of CapMAC Asia. CapMAC Asia has issued $34.0 million par value of
preference share, of which the Company has subscribed for $12.3 million,
representing 36% of the outstanding preference shares of CapMAC Asia. The
remaining preference shares of CapMAC Asia are owned by private investors,
including an affiliate of ORIX USA Corporation. The Company anticipates selling
up to $1.0 million par value of the CapMAC Asia preference shares held by it to
a selected group of its employees and directors. See "Certain Relationships and
Related Transactions--ORIX Investment" and "-- CapMAC Asia Investment."

The subscribed capital of Asia Services is $150 million, of which $102
million, or 68.0% of the subscribed capital, has been paid. CapMAC Asia's share
of the paid in capital to date is $34.0 million, of which the Company's share is
approximately $12.3 million. The board of directors of Asia Services has the
right to require all shareholders of Asia Services to put in up to $48 million
of additional capital, if such additional capital is required by ASIA Ltd. to
make payments under any of its guarantees or for any other reason. The total
amount of the Company's additional commitment to invest in CapMAC Asia is $5.8
million (without giving effect to the planned sale to CapMAC employees and
directors of CapMAC Asia preference shares).

In addition to CapMAC Asia, Asia Services is owned by the Asian Development
Bank, Apmac Investment Pte Ltd. (a wholly-owned subsidiary of the Government of
Singapore Investment Corporation Pte Ltd.), the Employees Provident Fund Board
of Malaysia, American International Assurance Co. Ltd., the Korea Long Term
Credit Bank, and two European investment and development companies, Deutsche
Investitions und Entwicklungsgesellschaft GmbH of Germany and the Netherlands
Development Finance Company. By entering into alliances with its investor
partners and acting through Asia Services, the Company intends to become a
leading participant in the emerging Asian capital markets.

CFS has entered into a technical assistance and cooperation agreement,
pursuant to which CFS or its designated affiliate will provide certain
technical, advisory and structuring services to Asia Services and ASIA Ltd. This
agreement also provides, among other things, for certain employee exchanges
between CFS and Asia Services and ASIA Ltd., the right of CapMAC to reinsure
certain transactions entered into by ASIA Ltd. and to participate in ASIA Ltd.'s
treaty reinsurance. The agreement also limits the Company's ability to compete
in Asia directly with Asia Services and ASIA Ltd. As of April 30, 1996, in
connection with the commitment to provide technical assistance, the Company had
seconded three employees to Asia Services and ASIA Ltd.

56
<PAGE>
In consideration for its role in the creation of Asia Services and ASIA Ltd.
and in connection with the technical assistance being provided by CFS, the
Company will have options to purchase for a nominal price shares of Asia
Services representing up to 10% of its paid-in capital, the amount of such
options to be determined based on the internal rate of return to the investors
in Asia Services at the time of public offering or sale of the stock of Asia
Services.

In April 1995, Holdings became a minority shareholder in P.T. Citimas
Capital (Pte) Ltd. ("CMCI"), a corporation established to develop securitization
in Indonesia for obligations that are backed by assets originated in Indonesia
or that are issued by Indonesian entities. CMCI participates as a principal in
the securitization markets in Indonesia, but does not intend to offer financial
guaranty insurance in Indonesia. Simultaneously with the execution of the joint
venture agreement with the other investors in CMCI, CFS entered into a technical
assistance agreement with CMCI to provide technical and advisory assistance to
CMCI, including making employees of the Company available to CMCI on a
short-term basis to provide technical assistance with respect to securitizations
and training CMCI professional staff in New York and elsewhere as agreed upon by
CMCI and CFS. In addition to the receipt by CFS of a fee for its activities,
CapMAC has the right to reinsure transactions which are executed by CMCI and to
provide direct insurance on those transactions which CMCI chooses not to
underwrite. Each of CFS and CMCI have agreed that they will not enter into any
cooperation or arrangement similar to the technical assistance agreement with
any other party with respect to the development of securitization in Indonesia
or the issuance of Indonesian asset-backed securities.

The other investors in CMCI include Citi Growth Funds, L.P., Tyler Inc.,
RHTC (S) Pte Ltd, P.T. Perindustrian Dan Perdagangan Tumbakmas and the
International Finance Corporation.

The Company accounts for Asia Services and CMCI under the equity method of
accounting.

COMPETITION

The Company faces competition from both other providers of third party
credit enhancement and alternatives to third party credit enhancement. Because
the majority of asset-backed (and municipal) obligations are sold without third
party credit enhancement, each transaction proposed to be insured by CapMAC
generally must compete with an alternative structure which does not employ third
party credit enhancement. CapMAC also competes with other monoline primary
financial guaranty insurers. Historically, the primary competitor of CapMAC in
asset-backed obligations has been Financial Security Assurance Inc. Recently,
however, Financial Guaranty Insurance Company, Municipal Bond Investors
Assurance Corporation, and AMBAC Indemnity Corporation, each of which have
traditionally focused on providing guarantees for municipal obligations, have
increased their levels of participation in the asset-backed market, and the
Company expects such competition to continue. The Company expects to face
increased competition in its primary business of providing financial guarantees
with respect to asset-backed obligations both from other monoline primary
financial guaranty insurers and from alternative structures which do not employ
credit enhancement. Competition for the credit enhancement of asset-backed
obligations is also provided by traditional credit enhancers such as mortgage
pool insurers and bank letter of credit providers. CapMAC also competes with
other forms of credit enhancement, including senior/subordinated structures,
cash collateralized issues and the collateral invested amount. See "Risk
Factors--Competition."

Insurance law generally restricts multiline insurance companies, such as the
large property and casualty insurers and life insurance companies, from engaging
in the financial guaranty insurance business on a direct basis other than
through separately capitalized affiliates. Entry requirements include (i)
assembling the group of experts required to operate a financial guaranty
business, (ii) establishing the triple-A claims-paying ability ratings with the
statistical rating agencies, (iii) complying with substantial capital
requirements, (iv) developing name recognition and market acceptance with
issuers, investment bankers and investors and (v) developing an understanding of
financial guaranty

57
<PAGE>
insurance regulatory matters. Multiline insurance companies are not major
participants in the financial guaranty business in the United States.

RATING AGENCIES

Moody's, S&P, DCR and Nippon Investors Service, Inc. periodically review the
business and financial condition of CapMAC and other companies providing
financial guaranty insurance. These rating agency reviews focus on the insurer's
underwriting policies and procedures and the quality of the obligations insured.
The rating agencies frequently perform assessments of the credits insured by
CapMAC to confirm that CapMAC continues to meet the criteria considered
necessary by the particular rating agency to maintain CapMAC's triple-A
claims-paying ability rating. See "--Underwriting Procedures and Guidelines."
CapMAC's ability to engage in business as currently conducted, and its results
of operations and financial condition, would be materially adversely affected by
any reduction in its ratings.

EMPLOYEES

As of May 31, 1996, the Company had 131 full-time employees. None of the
employees are covered by collective bargaining agreements. The Company considers
its employee relations to be good.

LEGAL PROCEEDINGS

There are no material legal proceedings pending against the Company or any
of its affiliates.

PROPERTIES

Holdings, CFS and CapMAC maintain their principal executive offices at 885
Third Avenue, New York, New York 10022. CapMAC also maintains offices in London,
England and Paris, France. The Company does not own any real property.

58
<PAGE>
INSURANCE REGULATORY MATTERS

GENERAL LAW

CapMAC is licensed to engage in insurance business in all 50 states, the
District of Columbia, Puerto Rico and Guam. As a domestic insurer, CapMAC is
subject to the insurance laws of New York, including the New York Insurance Law.
CapMAC is also subject to the insurance laws and regulations of the other states
in which it is licensed to transact an insurance business. These laws and
regulations, as well as the level of supervisory authority that may be exercised
by the various state insurance departments, vary by jurisdiction, but generally
require insurance companies to maintain minimum standards of business conduct
and solvency, to meet certain financial tests, to file certain reports with
regulatory authorities, including information concerning their capital
structure, ownership and financial condition, and to require prior approval of
certain changes in control of domestic insurance companies and their direct and
indirect parents and the payment of certain dividends and distributions. In
addition, these laws and regulations require approval of certain intercorporate
transfers of assets and certain transactions between insurance companies and
their direct and indirect parents and affiliates, and generally require that all
such transactions have terms no less favorable than terms that would result from
transactions between parties negotiating at arm's length. CapMAC is required to
file quarterly and annual SAP financial statements in each jurisdiction in which
it is licensed, and is subject to single and aggregate risk limits and other
statutory restrictions concerning the types and quality of investments and the
filing and use of policy forms and premium rates. In addition, CapMAC's accounts
and operations are subject to periodic examination by the New York
Superintendent of Insurance (the "New York Superintendent") (the last such
examination having been conducted in 1995 for the five years ended December 31,
1993) and other state insurance regulatory authorities. No material deficiencies
were indicated in the report issued in connection with the last examination.

The Company believes that CapMAC is in substantial compliance with insurance
laws and regulations applicable to it.

INSURANCE HOLDING COMPANY LAWS

Holdings and CapMAC are subject to regulation under the insurance holding
company statute of New York (where CapMAC is domiciled) as well as of other
jurisdictions where CapMAC is licensed to conduct an insurance business. The
requirements of holding company statutes vary from jurisdiction to jurisdiction
but generally require insurance holding companies and their insurance
subsidiaries to register and file certain reports describing, among other
information, their capital structure, ownership and financial condition. The
holding company statutes impose standards on certain transactions with related
companies, which require that all transactions be fair and reasonable and that
specified types of transactions and those exceeding specified limits require
prior notice to or approval by insurance regulators.

Under the insurance holding company laws in effect in New York, any
acquisition of control of Holdings, and thereby indirect control of CapMAC,
requires the prior approval of the New York Superintendent. "Control" is defined
as the direct or indirect power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise. Any purchaser of 10% or more of the
outstanding voting securities of a corporation is presumed to have acquired
control of that corporation and its subsidiaries, although the insurance
regulator may find that "control" in fact does or does not exist when a person
owns or controls either a lesser or greater amount of voting securities.

NEW YORK FINANCIAL GUARANTY INSURANCE LAW

In 1989, New York enacted Article 69 ("Article 69") of the New York
Insurance Law, a comprehensive financial guaranty insurance statute, which
governs all financial guaranty insurers

59
<PAGE>
licensed to do business in New York, including CapMAC. This statute limits the
business of financial guaranty insurers to financial guaranty insurance and
related lines (such as credit, surety and residual value insurance).

Article 69 requires that financial guaranty insurers maintain a special SAP
reserve called the "contingency reserve" to protect policyholders against the
effects of adverse economic developments or cycles or other unforeseen
circumstances. Article 69 requires a financial guaranty insurer to provide a
contingency reserve (i) with respect to policies written prior to July 1, 1989
in an amount equal to 50% of earned premiums and (ii) with respect to policies
written on and after July 1, 1989, quarterly on a pro rata basis over a period
of 20 years for municipal bonds and 15 years for all other obligations, in an
amount equal to the greater of 50% of premiums written for the relevant category
of insurance or a percentage of the principal guaranteed, varying from 0.55% to
2.50%, depending upon the type of obligation guaranteed, until the contingency
reserve amount for the category equals the applicable percentage of net unpaid
principal. This reserve must be maintained for the periods specified above,
except that reductions by the insurer may be permitted under specified
circumstances in the event that actual loss experience exceeds certain
thresholds or if the reserve accumulated is deemed excessive in relation to the
insurer's outstanding insured obligations. Financial guaranty insurers are also
required to maintain reserves for losses and loss adjustment expenses on a
case-by-case basis and reserves against unearned premiums.

Article 69 establishes single risk limits for financial guaranty insurers
applicable to all obligations issued by a single entity and backed by a single
revenue source. For example, under the limit applicable to qualifying
asset-backed securities, the lesser of (i) the insured average annual debt
service for a single risk or (ii) the insured unpaid principal (reduced by the
extent to which the unpaid principal of the supporting assets exceeds the
insured unpaid principal) divided by nine, net of qualifying reinsurance and
collateral, may not exceed 10% of the aggregate of the insurer's surplus to
policyholders and contingency reserve, subject to certain conditions. Under the
risk limit applicable to municipal obligations the insured average annual debt
service for a single risk, net of qualifying reinsurance and collateral, may not
exceed 10% of the sum of the insurer's policyholders' surplus and contingency
reserve, and the insured principal, net of qualifying reinsurance and
collateral, may not exceed 75% of the sum of the insurer's policyholders'
surplus and contingency reserve. Single risk limits are also specified for other
categories of insured obligations.

Article 69 also establishes aggregate risk limits on the basis of aggregate
net liability insured as compared to the sum of policyholders' surplus and
contingency reserves. "Aggregate net liability" is defined as outstanding
principal and interest of guarantied obligations insured, net of qualifying
reinsurance and collateral. Under these limits, policyholders' surplus and
contingency reserves must not be less than a percentage of aggregate net
liability equal to the sum of various percentages of aggregate net liability for
various categories of specified obligations. The percentage varies from a low of
0.33% for municipal obligations to 4% for certain non-investment grade
obligations.

Article 69 also requires that CapMAC, as a New York-domiciled insurer,
maintain (a) at least 60% of its required minimum capital or required minimum
policyholders' surplus, whichever is greater, in obligations of the U.S.
government, state governments or their political subdivisions and (b) the
balance of its required minimum capital or required minimum policyholders'
surplus in certain types of mortgage loans.

FINANCIAL GUARANTY INSURANCE REGULATION IN OTHER JURISDICTIONS

CapMAC is subject to laws and regulations of jurisdictions other than the
State of New York concerning the transaction of financial guaranty insurance.
The laws and regulations of these other jurisdictions are generally not more
stringent in any material respect than the New York Insurance Law.

60
<PAGE>
The London office of CapMAC operates as a marketing and sales office with
underwriting activities conducted through the Company's New York office under a
no-action response by the U.K. Department of Trade and Industry to the Company's
filings. The Paris office of CapMAC is presently a representative office and its
activities are limited pending final regulatory authorization.

DIVIDEND RESTRICTIONS

Pursuant to the insurance laws of New York, CapMAC may declare dividends,
subject to any restriction in its articles of incorporation, only out of its
earned surplus. Earned surplus is defined as the portion of policyholders'
surplus that represents the net earnings, gains or profits, after deduction of
all losses, that have not been distributed to the shareholders as dividends, or
transferred to stated capital or capital surplus or applied to other purposes
permitted by law, but does not include unrealized appreciation of assets. The
Offering and the use of proceeds thereof will not affect CapMAC's earned
surplus. CapMAC may not declare or distribute any dividend to shareholders
which, together with all dividends declared or distributed by it during the
preceding 12 months, exceeds the lesser of (i) 10% of policyholders' surplus as
of the date of its last statement on file with the New York Superintendent or
(ii) adjusted net investment income during such period unless, upon prior
application therefor, the New York Superintendent approves a greater dividend
distribution based upon his finding that CapMAC will retain sufficient
policyholders' surplus to support its obligations and writings. "Adjusted net
investment income" is defined as net investment income for the 12 months
immediately preceding the declaration or distribution of the current dividend
increased by the excess, if any, of net investment income over dividends
declared or distributed during the period commencing 36 months prior to the
declaration or distribution of the current dividend and ending 12 months prior
thereto.

Based upon CapMAC's statutory financial statements for the quarter ended
March 31, 1996, under current New York insurance laws, CapMAC is presently
unable to pay any dividends to Holdings without the prior approval of the New
York Superintendent because it has a negative earned surplus under SAP. See
"Accounting--Reserves." Since the IPO, Holdings has paid, and expects to
continue to pay, quarterly dividends at the annual rate of $0.08 per share per
year on the Common Stock (or approximately $1.3 million per year based on the
number of shares currently outstanding) from other sources. See "Dividend
Policy."

61
<PAGE>
ACCOUNTING

GENERAL

The consolidated financial statements of the Company are prepared in
accordance with generally accepted accounting principles ("GAAP"). For reporting
to certain regulatory authorities, the financial statements of CapMAC are
prepared in accordance with statutory accounting practices ("SAP"), which
consist of recording transactions and preparing financial statements in
accordance with the rules and procedures prescribed or permitted by state
regulatory authorities.

REVENUE RECOGNITION

Revenue for the Company consists of (i) premiums earned over the life of
obligations insured by CapMAC, (ii) non-refundable advisory fees earned by CFS
when collected and (iii) investment and other income earned when due.

Premiums that are payable monthly to CapMAC are reflected in income when
due, net of amounts payable to reinsurers. Premiums that are payable quarterly,
semi-annually or annually are reflected in income, net of amounts payable to
reinsurers, on an equal monthly basis over the corresponding policy term.
Premiums that are collected as a single premium at the inception of the policy
and have a term longer than one year ("up-front premiums") are earned, net of
amounts payable to reinsurers, by allocating premium to each bond maturity based
on the principal amount and earning it straight-line over the term of each bond
maturity.

Advisory fees represent fees earned by CFS or CFS (Europe) for providing
advisory and structuring services and are generally earned when a transaction
closes. Such amounts are non-refundable and are for services provided prior to
the close of a transaction.

Dividend and interest income are recognized when earned. Premiums and
discounts are amortized or accreted over the life of the related security as an
adjustment to yield using the effective interest method. Realized gains and
losses are included in earnings and are derived using the FIFO (first-in,
first-out) method for determining the cost of securities sold.

DEFERRED ACQUISITION COSTS

CapMAC defers certain policy acquisition costs in accordance with GAAP which
vary with and are directly related to the production of new business, in order
to match expenses with revenues. These deferred costs are amortized over the
period in which the related premiums are earned. Deferred acquisition costs
comprise those expenses, generally incurred at the commencement of the term of
the insurance policy, that vary with and are primarily related to the production
of new business. These costs include direct and indirect expenses related to
underwriting, marketing and policy issuance, rating agency fees and premium
taxes, offset by reinsurance commissions on up-front premiums ceded to
reinsurers.

RESERVES

Reserves Under GAAP. Under GAAP, CapMAC defers recognition of the premium
received from an up front insurance policy by crediting the premium to its
unearned premiums and amortizing the premium over the life of the underlying
insured obligation. CapMAC's unearned premium reserve, net of reinsurance, as of
March 31, 1996 was $36.9 million.

CapMAC establishes a reserve for losses and loss adjustment expenses which
consists of a Supplemental Loss Reserve and case basis reserves for expected
levels of defaults resulting from credit failures on currently insured issues.
The Supplemental Loss Reserve is based on estimates of the portion

62
<PAGE>
of earned premiums required to cover those claims. The Supplemental Loss Reserve
and net case basis reserves amounted to $7.0 million and $0.3 million,
respectively, at March 31, 1996. A case basis loss reserve is established for
insured obligations when, in the judgement 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.

Reserves Under SAP. CapMAC establishes a reserve for unearned premiums
relating to premiums received from an up-front insurance policy but not earned.
These premiums are earned in accordance with regulatory requirements over the
term of the obligations to which the premiums relate. At March 31, 1996,
CapMAC's SAP reserve for unearned premiums, net of reinsurance, was $38.9
million.

The New York financial guaranty insurance statute applicable to CapMAC
requires that financial guaranty insurers maintain a special SAP reserve called
the "contingency reserve" to protect policyholders against the impact of
excessive losses occurring during adverse economic cycles. See "Insurance
Regulatory Matters--New York Financial Guaranty Insurance Law." The statutory
contingency reserve with respect to CapMAC's insured portfolio has not been
utilized since CapMAC's inception. At March 31, 1996 CapMAC had statutory
contingency reserves totaling $49.5 million.

INDEBTEDNESS

Pursuant to a Note Purchase Agreement dated as of December 15, 1992 (the
"Note Agreement") Holdings issued an aggregate principal amount of $15,000,000
in 7.52% Senior Notes due December 15, 2002 (the "Senior Notes") in a private
placement with institutional investors. The terms of the Senior Notes are as
follows:

Redemption. Holdings may elect to prepay the Senior Notes on any semi-annual
interest payment date, in whole or in part. In the event of prepayment, Holdings
will pay a redemption price equal to the interest accrued to the redemption date
and an amount defined as the greater of (a) $0, if the yield on U.S. Treasury
Notes with a maturity corresponding most closely to the weighted average life of
the principal being prepaid plus fifty basis points (the "Make-Whole Discount
Rate") equals or exceeds 7.52%, or, (b) if the Make-Whole Discount Rate is less
than 7.52%, then (i) the sum of the present values of the then remaining
scheduled payments of principal and interest that would be payable in respect of
such principal amount but for such prepayment or acceleration, minus (ii) such
principal amount and the amount of interest accrued on such principal amount
since the then most nearly preceding scheduled interest payment date; provided,
that in determining such present values, the discount rate will be equal to the
Make-Whole Discount Rate divided by two, with a discount period of six months of
30 days each.

Holdings is required to make annual principal payments in the amount of
$3,750,000 on December 15 of each year beginning December 15, 1999 and ending on
December 15, 2002 plus accrued interest to each date of payment.

Holdings may be required, at the option of any holder of the Senior Notes,
to redeem all (but not part) of such holder's Senior Notes if the rating issued
by either of S&P or Moody's of CapMAC's ability to pay claims has been reduced
below "AA" (in the case of S&P) or "Aa2" (in the case of Moody's) or either of
Moody's or S&P shall no longer rate CapMAC's ability to pay claims.

63
<PAGE>
Restrictions on Dividends and Distributions. Holdings may not declare or pay
any dividend or make any distribution on its capital stock to its shareholders
(other than dividends or distributions payable in capital stock of Holdings
which has a dividend or liquidation preference which is no more favorable to the
holders of such capital stock than the capital stock in respect of which such
dividend or distribution is being made), or purchase or redeem any shares of
Holdings' capital stock if, after giving effect to such dividend or
distribution, the ratio of the Adjusted Unassigned Surplus (as defined in the
Note Agreement) to the Pro Forma Debt Service Payment (as defined in the Note
Agreement) would be less than 100% or a default shall have occurred and be
continuing or Holdings would not be permitted to incur any additional debt
because it would cause a violation of the restrictions on additional
indebtedness specified below. Under the applicable restriction, as of March 31,
1996 Holdings could pay aggregate dividends of $8.7 million.

Debt Service Coverage and Restrictions on Additional Debt. The Note
Agreement prohibits Holdings from allowing the ratio (expressed as a percentage)
of Adjusted Available Unassigned Surplus (as defined in the Note Agreement) to
interest expense, determined in respect of the four fiscal quarters ended of the
last day of the most recent fiscal quarter, to be less than 200%. The Note
Agreement also prohibits Holdings, on any date on or after September 30, 1999,
from allowing the ratio (expressed as a percentage) of Adjusted Available
Unassigned Surplus to the aggregate amount of all principal payments in respect
of indebtedness of Holdings that either became due or were paid during the
period of four fiscal quarters ended on the last day of such fiscal quarter, to
be less than 200%. The Note Agreement does not allow Holdings to incur any
additional Debt (as defined in the Note Agreement) other than unsecured Debt not
in excess of 25% of Total Capitalization (as defined in the Note Agreement), or
to have indebtedness of CapMAC incurred for the purpose of funding claims
payments outstanding on any day unless there was at least a 30 day period during
the preceding 365 days when the amount of Debt of Holdings did not exceed the
25% of Total Capitalization specified above.

As of the date of this Prospectus, Holdings has no outstanding indebtedness
other than the Senior Notes.

64
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of Holdings and their ages and
positions with Holdings are set forth below:

<TABLE><CAPTION>
NAME AGE POSITION OR AFFILIATION
<S> <C> <C>
John B. Caouette............. 51 Chairman of the Board of Directors, President and Chief
Executive Officer
Michael L. Hein.............. 52 Managing Director
C. Jackson Lester............ 46 Managing Director
C. Thomas Meyers............. 58 Managing Director
Maryam H. Muessel............ 38 Managing Director
Jan Nicholson................ 51 Managing Director
Paul V. Palmer............... 46 Managing Director and Chief Financial Officer
Joyce S. Richardson.......... 51 Managing Director
Ram D. Wertheim.............. 42 Managing Director, General Counsel, Secretary and Chief
Administrative Officer
Ruth D. Whaley............... 40 Managing Director and Chief Underwriting Officer
Bryan A. Bowers.............. 43 Director
Todd G. Cole................. 74 Director-Vice Chairman
Charles P. Durkin, Jr........ 57 Director
David D. Elliman............. 44 Director
Stephen L. Green............. 44 Director
Michael J. Horgan............ 64 Director
George Merritt Jenkins....... 43 Director
James H. Laird............... 37 Director
Dr. Rosita Leong, M.D........ 54 Director
Robert Model................. 53 Director
Leif Olsen................... 69 Director
Arthur S. Penn............... 60 Director-Vice Chairman
Homer McK. Rees.............. 65 Director
Doren W. Russler............. 67 Director
Akira Seko................... 51 Director
John T. Shea................. 45 Director
Richard Yancey............... 69 Director
</TABLE>

All of the executive officers of Holdings are also executive officers of
CapMAC. The Board of Directors of Holdings is currently comprised of eighteen
directors. Pursuant to subscription agreements between ORIX and Holdings and
between Centre Re and Holdings, each of ORIX and Centre Re are entitled to
designate one nominee each to Holdings' Board of Directors. See "Certain
Relationships and Related Transactions--ORIX Investment" and "--Centre Re
Investment."

COMPENSATION OF DIRECTORS

As an independent director of Holdings, Messrs. Cole, Horgan, Rees, Russler
and Olsen each receive $10,000 per year and $500 per Board meeting attended.
Each also receives $4,000 per year for service on each committee (other than the
Executive Committee) of the Board on which such director serves. All directors
are entitled to reimbursement of reasonable out-of-pocket expenses incurred in
connection with Board meetings. Directors who are officers of the Company
receive no additional compensation for serving as directors.

65
<PAGE>
BOARD CLASSIFICATION AND COMMITTEES

The Holdings' Board of Directors is divided into three classes, with each
class, after a transitional period, serving for three years, and one class being
elected each year. Holdings' classified Board of Directors could have the effect
of increasing the length of time necessary to change the composition of a
majority of the Board of Directors. The Audit Committee, which is composed
entirely of directors who are not officers or employees of Holdings or any of
its subsidiaries, makes recommendations to the Board of Directors regarding the
independent auditors to be nominated for election by the shareholders, reviews
the independence of such auditors, approves the scope of the annual audit
activities and reviews audit results. Messrs. Russler, Laird and Jenkins are the
members of the Audit Committee. Mr. Russler is the Chairman.

The Compensation Committee, composed entirely of directors who are not
officers or employees of the Company or any of its subsidiaries, has authority
to establish and approve compensation and employee benefit programs for
employees of the Company and its subsidiaries. The Compensation Committee also
reviews and approves the terms and conditions (including price and vesting) of
awards under the Stock Option Plans of the Company. Messrs. Jenkins, Laird,
Horgan, Green and Russler are members of the Compensation Committee. Mr. Laird
is the Chairman.

The Executive Committee has the power to exercise all authority of the Board
of Directors in the management and affairs of Holdings when the Board of
Directors is not in session, subject to certain restrictions. Messrs. Caouette,
Cole, Laird and Penn are members of the Executive Committee. Mr. Caouette is the
Chairman.

The New Business Committee is authorized to approve equity investments,
either through the subscription for shares or other equity interests or through
capital contributions or through similar means, in new business ventures (each a
"New Business Investment") recommended by the Chief Executive Officer of up to
$5,000,000 in the aggregate for all New Business Investments and has the
authority to exercise, subject to applicable provisions of law, all the powers
of the Board of Directors for purposes of approving New Business Investments.
Messrs. Caouette, Elliman, Green, Horgan, Jenkins and Laird are members of the
New Business Committee. Mr. Caouette is the Chairman.

The Board of Directors may from time to time establish other committees to
assist it in the discharge of its responsibilities.

BIOGRAPHIES

The present principal occupations and five-year employment history of each
of the executive officers and directors of Holdings listed above, as well as
other directorships of publicly held corporations currently held by each such
director, are set forth below:

Mr. Caouette is Chairman of the Board of Directors, President and Chief
Executive Officer of Holdings and CapMAC. He has been President and Chief
Executive Officer since Holdings and CapMAC were established in 1987. He has
been a director of CapMAC since 1987 and of Holdings since 1991. He was named
Chairman of CapMAC and Holdings in 1992. From 1982 to 1986, Mr. Caouette was
Senior Vice President and General Manager of the Foreign Exchange and Money
Market Division of the Continental Grain Company. From 1970 through 1982, Mr.
Caouette held a variety of positions at Citicorp, including Vice President and
General Manager in the Swaps and Eurosecurities Department from 1979 to 1982 and
Executive Director of the Asia Pacific Capital Corporation (a joint venture of
Citibank and Fuji Bank) in Hong Kong from 1974 through 1979.

Mr. Hein is Managing Director of Holdings and CapMAC and is currently
responsible for US/Japan business deveopment. From 1989 through March, 1996, Mr.
Hein was head of Corporate Structured Finance. He joined CapMAC in 1988 as
Senior Vice President and was named Managing

66
<PAGE>
Director in 1989. From 1970 to 1987, Mr. Hein served Citicorp in a variety of
positions, including from 1985 to 1987 as Vice President of Citicorp's
investment bank. He currently serves on the Board of Directors of Delta
Government Options Corp., a registered clearing agency.

Mr. Lester is Managing Director of Holdings and CapMAC and is currently
responsible for business development in Europe and Global Project Finance. He is
also President of CFS (Europe) and President of CapMAC Assurance, S.A. Mr.
Lester joined CapMAC in 1988 and was named Managing Director in 1989. From 1981
to 1987, Mr. Lester was in the Special Projects and Project Finance Groups at
Morgan Stanley. Previously, from 1976 to 1981, Mr. Lester was with Citibank in
New York and in the Hong Kong-based Merchant Banking Group.

Mr. Meyers is Managing Director and the head of the Credit Enhancement
business unit of Holdings and CapMAC. Previously he was head of Consumer
Structured Finance from 1989 through March, 1996. Mr. Meyers joined CapMAC in
1987 as Senior Vice President and was named Managing Director in 1989. From 1960
to 1974, Mr. Meyers was employed by General Electric Company and from 1973 to
1987 he held a number of positions at General Electric Capital Corp. in the
consumer lending area, leading to the position of Manager, Financial Operations.

Ms. Muessel is Managing Director of CapMAC and Holdings with responsibility
for the Financial Engineering business unit. She joined CapMAC in 1988 and was
Senior Vice President in the Corporate Structured Finance group until March,
1996. Before joining CapMAC, Ms. Muessel was in the Corporate Finance Group of
Mellon Bank.

Ms. Nicholson is Managing Director of CapMAC and Holdings with
responsibility for new product development. From 1988 through 1990 she was
Managing Director in charge of real estate securitization at CapMAC. In 1990,
Ms. Nicholson left CapMAC to join Citicorp, where she held various positions
including Senior Credit Officer and Department Head of Citicorp Real Estate
before returning to CapMAC in her current position in 1994. From 1976 through
1988, Ms. Nicholson held various positions at Citicorp. Ms. Nicholson serves as
a director of Rubbermaid, Inc. and Ball Corporation.

Mr. Palmer is Managing Director and Chief Financial Officer of Holdings and
CapMAC. He joined CapMAC in 1990, was named Managing Director in 1990 and was
appointed Chief Financial Officer in 1995. From 1988 to 1990, Mr. Palmer was
Head of the Mortgage Department for the North American Investment Bank of
Citicorp. From 1979 to 1988, Mr. Palmer held a number of positions at Goldman,
Sachs & Co. leading to the position of President of Goldman Sachs Real Estate
Funding Corporation.

Mrs. Richardson is Managing Director currently responsible for business
development in Latin America. She has been Managing Director of Holdings and
CapMAC since CapMAC was established in 1987. From 1987 through January, 1996,
Mrs. Richardson was the Chairman of the Underwriting Committee of CapMAC. From
1967 to 1987, Mrs. Richardson held a number of positions at Citibank leading to
the position of Vice President and Senior Credit Officer.

Mr. Wertheim is Managing Director, General Counsel, Secretary and Chief
Administrative Officer of Holdings and CapMAC. He joined CapMAC in 1989 as
Senior Vice President and General Counsel, was named Managing Director in 1994
and was named Chief Administrative Officer in 1995. From 1982 to 1989, Mr.
Wertheim was an associate at Simpson Thacher & Bartlett in New York.

Ms. Whaley has been Managing Director and Chief Underwriting Officer of
CapMAC and Holdings since January, 1996 and head of the Risk Management support
unit since March, 1996. She joined CapMAC in 1988 as a Vice President, becoming
a Senior Vice President in 1994. As Chief Underwriting Officer, Ms. Whaley has
the primary responsibility for underwriting policies and risk

67
<PAGE>
management. Before assuming her current position, her responsibilities included
asset portfolio management and developing CapMAC's risk policies and procedures.
From 1987 to 1988, Ms. Whaley was an assistant vice president at Union Bank of
Switzerland and from 1982 to 1987, she was an assistant vice president in the
Energy Group at Citibank.

Mr. Bowers has served as a director of Holdings since April 1996, when he
was appointed by the Board to fill a newly created position. Mr. Bowers is
currently a Managing Director with Centre Trading Holdings Limited, a wholly
owned indirect subsidiary of The Zurich Insurance Company. From 1990 to 1994,
Mr. Bowers was self-employed and from 1988 to 1990, he was a Vice President with
PaineWebber Inc. Mr. Bowers has been nominated for election to the Board in
accordance with the terms of the Subscription Agreement between the Company and
Centre Reinsurance Limited. See "Certain Relationships and Related
Transactions--Centre Re Investment."

Mr. Cole has served as a director of Holdings and CapMAC since June 1992. He
is the retired Chairman of CIT Financial Corporation. Mr. Cole served as
Managing Director of Simat, Helliesen & Eichner, Inc., an international aviation
consulting firm, from 1992 to 1996. Mr. Cole currently serves as a director of
Delta Life Corporation, Kaiser Ventures, Inc., DR Structured Finance Corp.,
Hawaiian Airlines, Inc., Arrow Air, Inc., and NAC Re Corporation.

Mr. Durkin has served as a director of Holdings and CapMAC since June 1992.
Mr. Durkin joined Dillon Read in 1966 and is currently a Managing Director.
Since November 1984 he has been responsible for the management of Saratoga
Partners, L.P., Saratoga Partners II, L.P. and Saratoga Partners III, L.P.,
which are corporate buyout funds managed by Dillon Read. Mr. Durkin is a
director of Hi-Lo Automotive Inc. and Viking Office Products, Inc.

Mr. Elliman has served as a director of Holdings since July 1995. Mr.
Elliman is the founding principal of the Elmrock Group of companies which
include Elmrock Capital Inc., Elmrock Partners and Stillrock Management, Inc., a
registered investment advisor. Mr. Elliman is the Chief Investment Officer of
the Elmrock Group and is responsible for the asset portfolios of the constituent
companies. In addition, Mr. Elliman serves as a director of Applied Signal
Technology, Inc. Messrs. Elliman and Model are first cousins.

Mr. Green has served as a director of Holdings and CapMAC since June 1992.
Mr. Green joined Canaan Partners in November 1991. Prior to joining Canaan
Partners, he was employed by GE Capital's Corporate Finance Group. Mr. Green is
a director of Chartwell Reinsurance Corporation and Suiza Foods Corporation.

Mr. Horgan has served as a director of Holdings since December 1995 and of
CapMAC since July 1993. Mr. Horgan has been employed by Citibank since 1954 and
is presently Chairman of the Credit Policy Committee of Citicorp and Citibank,
N.A.

Mr. Jenkins has served as a director of Holdings since June 1992. Mr.
Jenkins is a General Partner of Patricof & Co. managed funds and is a Vice
President of Patricof & Co., Ventures, Inc., which provides management services
for private equity investment partnerships. He joined this venture capital firm
in 1987.

Mr. Laird has served as a director of Holdings and CapMAC since June 1992.
Mr. Laird joined Dillon Read in 1991 and is currently a Senior Vice President.
Mr. Laird is involved in the management of Saratoga Partners II, L.P. and
Saratoga Partners III, L.P., corporate buyout funds managed by Dillon Read. From
1987 to 1991 Mr. Laird was with Salomon Brothers Inc, where he specialized in
corporate buyouts, restructurings and mergers. Prior to joining Salomon Brothers
Inc, he was a corporate attorney with Cahill Gordon & Reindel. Mr. Laird is a
director of Cannell Communications, L.P., and U.S.I. Holdings Corp.

68
<PAGE>
Dr. Leong has served as a director of Holdings and CapMAC since June 1992.
Dr. Leong graduated with a degree in medicine from the University of Santo Tomas
in 1963. She specialized in pathology and later became Chief of Pathology at the
Metropolitan Hospital in Manila until 1973. Since 1973, Dr. Leong has been a
private investor.

Mr. Model has served as a director of Holdings and CapMAC since June 1992.
Mr. Model is a private investor with interests in a number of partnerships and
businesses. Mr. Model is also the founder and President of Mooncrest Ranch and
Rocking M Ranch, diversified agricultural operations located in Wyoming. He is
also an owner and officer of a number of special purpose affiliates of Citicorp,
Dow Chemical, Shell Oil, W.R. Grace, Bausch & Lomb and Borden's. Messrs. Elliman
and Model are first cousins.

Mr. Olsen has served as a director of Holdings since December 1995 and of
CapMAC since May 1994. Mr. Olsen is President of Leif H. Olsen Investments,
Inc., an economic consulting and investment management firm in New Canaan,
Connecticut. He is a director of the Interpublic Group of Companies,
Incorporated, a trustee of the Atlantic Mutual Insurance Company and a director
of Lafayette American Bank.

Mr. Penn has served as a director of Holdings since July 1993 and CapMAC
since March 1995. Mr. Penn is President of Elmrock Capital Inc. and a General
Partner of Elmrock Partners, a merchant bank which provides equity capital for
leveraged asset purchases. He is President and one of the founders of Stillrock
Management, Inc., a registered investment advisor. He is also an owner and
officer of a number of special purpose affiliates of Citicorp, Dow Chemical,
Shell Oil, W.R. Grace, Bausch & Lomb and Borden's.

Mr. Rees has served as a director of Holdings since December 1995 and of
CapMAC since January 1993. Mr. Rees is the retired Chairman and Chief Executive
Officer of Prudential Capital Corporation, an investment subsidiary of The
Prudential Insurance Company of America. Mr. Rees is a director of Meridian
Point Realty Trust VIII, a publicly-held REIT headquartered in San Francisco.

Mr. Russler has served as a director of Holdings since December 1995 and of
CapMAC since June 1992. Mr. Russler is the retired Senior Vice President,
Finance and Administration, and Chief Financial Officer of NCR Corporation. Mr.
Russler serves as a trustee for the AAL Mutual Funds, as a director of the AAL
Variable Product Series Fund, Inc., and as a member of the advisory boards of
Saratoga Partners II, L.P. and Saratoga Partners III, L.P.

Mr. Seko has served as a director of Holdings and CapMAC since April 1996,
when he was appointed by the Board to fill the position vacated by the
resignation of Koichiro Muta. Mr. Seko was appointed Chief Executive Officer and
President of ORIX USA Corporation (equipment leasing, asset based lending and
general corporate financing) in April 1996. From 1994 to April 1996, Mr. Seko
was President and Chief Executive Officer of ORIX Real Estate Equities, Inc.,
based in Chicago, and from 1991 to 1994 he was General Manager of the Overseas
Credit Department of ORIX Corporation. From 1970 to 1991, Mr. Seko served in
various capacities for ORIX Corporation and various of its subsidiaries. The
ORIX Corporation is a Japanese leasing company. Mr. Seko's nomination for
election as a director was designated by ORIX USA Corporation under the terms of
the Subscription Agreement between Holdings and ORIX USA Corporation. See
"Certain Relationships and Related Transactions--ORIX Investment."

Mr. Shea has served as a director of Holdings and CapMAC since 1992. Mr.
Shea is responsible for merchant banking and direct equity investments at Saif
Advisors, Inc. which he joined in 1991.

Mr. Yancey has served as a director of Holdings since July 1993. From 1952
to 1992, Mr. Yancey held a variety of positions with Dillon Read, including Vice
President, Managing Director, Director and

69
<PAGE>
Senior Advisor. Mr.Yancey serves on the Board of Directors of The Score Board,
Inc. and Composite Funds Group.

SUMMARY COMPENSATION TABLE

The following sets forth a summary of all compensation paid to the Chief
Executive Officer and the six most highly compensated executive officers (the
"Named Executive Officers") of the Company and its subsidiaries (including
CapMAC) for services rendered in all capacities to the Company and its
subsidiaries for the years ended December 31, 1995 and 1994:

SUMMARY COMPENSATION TABLE

<TABLE><CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
OPTIONS/
ANNUAL COMPENSATION RESTRICTED SAR'S
NAME AND ---------------------------- STOCK (# OF ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) SHARES) COMPENSATION(2)
- ------------------------------- ---- -------- -------- ---------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John B. Caouette............... 1995 $330,000 $500,000 $ 37,808 -- $ 123,335
President and Chief 1994 300,000 330,000 82,411
Executive Officer
Paul V. Palmer................. 1995 $180,000 $200,000 $ 13,800 -- $ 55,478
Managing Director and Chief 1994 165,000 160,000 40,365
Financial Officer
C. Thomas Meyers............... 1995 $180,000 $200,000 $ 21,045 -- $ 55,988
Managing Director 1994 165,000 160,000 40,481
C. Jackson Lester.............. 1995 $180,000 $200,000 $ 18,045 -- $ 55,478
Managing Director 1994 165,000 160,000 39,971
Joyce S. Richardson............ 1995 $180,000 $200,000 $ 19,170 -- $ 55,478
Managing Director 1994 165,000 160,000 39,687
Michael L. Hein................ 1995 $180,000 $200,000 $ 19,170 -- $ 55,732
Managing Director 1994 165,000 160,000 40,225
Ram D. Wertheim................ 1995 $180,000 $200,000 $ 11,925 -- $ 55,478
Managing Director, General 1994 165,000 160,000 35,491
Counsel and Chief
Administrative Officer
</TABLE>

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

(1) Effective with the date of the IPO, the Named Executive Officers each
received restricted stock with a taxable value of $1.00 per share. The
restricted stock vested immediately upon grant, but is limited as to its
transferability within the first two years after the date of grant.
Additionally, when any Named Executive Officer wishes to sell such
restricted stock, the Company has the right of first refusal to purchase the
restricted stock from such officer at the then current fair market value
less $19.00 (the amount determined by subtracting $1.00 from the IPO price
of $20.00). Accordingly, the table above reflects the value per share of the
restricted stock on the date of grant ($20.00) less the price ($19.00) at
which the Company could have repurchased such restricted stock upon transfer
at such date, multiplied by the number of shares granted to the individual.
The holders of the restricted stock are entitled to receive the same amount
of dividends per share as holders of Common Stock which is not restricted
stock. As of the fiscal year ended December 31, 1995, the values of the
restricted stock held by the Named Executive Officers were as follows: John
B. Caouette--$231,574; Paul V. Palmer--$84,525; C. Thomas Meyers--$128,901;
C. Jackson Lester--$110,526; Joyce S. Richardson--$117,416; Michael L.
Hein--$117,416; and Ram D. Wertheim--$73,041. The fiscal year-end value of
the restricted stock was calculated by multiplying (i) the difference
between the fiscal year-end market price per share of the unrestricted
Common

(Footnotes continued on following page)

70
<PAGE>
(Footnotes continued from preceding page)

Stock as quoted on the New York Stock Exchange ("NYSE") (which was $25 1/8)
and $19.00 per share by (ii) the number of shares of the restricted stock
held by the individual at fiscal year-end.

(2) All other compensation includes contributions from the Company to the ESOP,
Supplemental Executive Retirement Plan ("SERP"), and premiums payable for
Split Dollar Life Insurance. The 1995 dollar values of the ESOP and SERP
contributions, and the Split-Dollar Life Insurance premiums, respectively,
are as follows: John B. Caouette--$27,467, $71,868, $24,000; Paul V.
Palmer--$27,467, $18,011, $10,000; C. Thomas Meyers--$27,467, $18,011,
$10,510; C. Jackson Lester--$27,467, $18,011, $10,000; Joyce S.
Richardson--$27,467, $18,011, $10,000; Michael L. Hein--$27,467, $18,011,
$10,254; and Ram D. Wertheim--$27,467, $18,011, $10,000. The 1994 dollar
values of the ESOP and SERP contributions and the Split-Dollar Life
Insurance premiums, respectively, are as follows: John B. Caouette--$18,955,
$39,456, $24,000; Paul V. Palmer-- $18,194, $12,171, $10,000; C. Thomas
Meyers--$18,955, $11,016, $10,510; C. Jackson Lester-- $18,955, $11,016,
$10,000; Joyce S. Richardson--$18,955, $10,732, $10,000; Michael L. Hein--
$18,955, $11,016, $10,254; and Ram D. Wertheim--$18,955, $10,536, $6,000.

AGGREGATED OPTION EXERCISES IN 1995 AND OPTION VALUES AT YEAR-END 1995

None of the Named Executive Officers exercised any options during the fiscal
year ended December 31, 1995. The following table sets forth information with
respect to options held by such officers as of the end of the 1995 fiscal year.

<TABLE><CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE MONEY OPTIONS AT
NAME AT DECEMBER 31, 1995 DECEMBER 31, 1995 (1)
- ----------------------------------------------------- -------------------- -----------------------
<S> <C> <C>
John B. Caouette..................................... 298,319.5 $ 3,518,679
Paul V. Palmer....................................... 246,759.0 $ 2,910,522
C. Thomas Meyers..................................... 151,283.5 $ 1,784,389
C. Jackson Lester.................................... 156,491.5 $ 1,845,817
Joyce S. Richardson.................................. 140,281.5 $ 1,654,620
Michael L. Hein...................................... 134,805.0 $ 1,590,025
Ram D. Wertheim...................................... 114,000.0 $ 1,344,630
</TABLE>

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

(1) All options were granted under the Employee Stock Option Plan adopted by the
Company in June 1992 and vested upon completion of the IPO. Options are
valued based on the fair market value of the Common Stock on December 31,
1995.

EMPLOYMENT AGREEMENTS

All of the Named Executive Officers are parties to employment agreements
dated as of June 25, 1992 with Holdings. Under the agreements, Holdings agrees
to employ these executives in their current titles and with their current
responsibilities, until June 25, 1996 in the case of all executives but Mr.
Caouette. Mr. Caouette's agreement continues until June 25, 1997. In all cases,
after such dates, the agreements are subject to automatic renewals for one-year
terms unless either party has given the other 60 days' prior written notice of
his/her or its election not to extend. This automatic renewal ends on June 25,
1997 for all executives but Mr. Caouette. Mr. Caouette's automatic renewal ends
on June 25, 1999. In the event of death or disability, the executive or his/her
estate or beneficiaries will receive the executive's base salary for 18 months
in the case of disability and for 6 months in the event of death. In addition,
an amount equal to the pro rata portion of the bonus, determined using the
target annual bonus of the executive, shall be paid. The agreement terminates
upon the retirement of the executive. In the event of termination other than
voluntary termination, an involuntary termination with cause, or termination for
disability, death or retirement (as stated above), the above named executive
officers are entitled to receive the higher of (x) the base salary payable to
the executive for the period commencing

71
<PAGE>
on the termination date and ending on the last day of the employment period, (y)
200% of the executive's base salary and (z) the amount payable under the
Company's then applicable severance policy. They are also entitled to
continuation for a period of 12 months of any health or disability coverage
provided by the Company to the executive prior to such termination of
employment. The executive is entitled to an amount equal to the pro rata portion
of the bonus determined using the target annual bonus of the executive.

The employment agreements provide for the following minimum annual salaries,
which are to be reviewed annually and may be increased from time to time but not
decreased by the Compensation Committee: Mr. Caouette $300,000, Mr. Hein
$165,000, Mr. Lester $165,000, Mr. Meyers $165,000, Mr. Palmer $165,000, Mrs.
Richardson $165,000, Mr. Wertheim $165,000. Each of the Named Executive
Officers, other than Mr. Caouette, is entitled to receive an annual bonus
determined by Mr. Caouette and approved by the Compensation Committee. In the
case of Mr. Caouette, his bonus is determined by, and in the sole discretion of,
the Compensation Committee. In addition, each of the Named Executive Officers is
entitled to participate in the Company's ESOP and health and welfare benefit
plans for its employees, to participate in supplemental benefit plans for its
executive officers, to four weeks of paid vacation per year and to reimbursement
for certain expenses.

EMPLOYEE BENEFIT PLANS

Bonuses

The Company has historically paid annual bonuses to all employees. Bonus
amounts are based on year-end results of individual and company performance. For
management employees, individual performance is measured by a variety of
factors. Such factors included financial targets and other quantitative and
qualitative goals. Bonuses are first recommended by the individual manager and
then, approved by a committee comprised of members of the Company's senior
management. The Compensation Committee approves the aggregate amount of bonus
awards, bonus awards to senior managers and individual bonuses payable in excess
of specified thresholds. For non-management employees, bonuses awarded are
determined by the individual manager and are part of the overall bonus pool. The
bonuses paid to each of the Named Executive Officers for 1994 and 1995 are
included in the Summary Compensation Table.

Omnibus Stock Incentive Plan

In the fourth quarter of 1995, before the closing of the IPO, the Company
adopted the 1995 Omnibus Stock Incentive Plan for Employees of the Corporation
and its Subsidiaries (the "Omnibus Plan"), which is a stock plan under which
multiple grant types are available, such as stock options, restricted stock,
stock appreciation rights, other stock-based grants or any combination of the
foregoing. There is one plan document with specific details to be covered in
award agreements. The term of each grant may not exceed ten years with a fixed
number of shares determined at the outset. Key employees of the Company and its
affiliates are eligible. The 1,005,000 shares which had been previously reserved
for options under the 1994 Stock Option Plan (described below) were made
available under the Omnibus Plan. After giving effect to certain grants of stock
options and Restricted Stock under the Omnibus Plan in 1995 and 1996, and
forfeitures, cancellations and expirations of previously granted options,
441,154 shares are reserved and available for future grants. This number may be
increased from time to time to the extent grants under the Omnibus Plan are
forfeited, terminated, canceled or expired unexercised, or to the extent shares
are delivered or withheld to pay the exercise price or satisfy withholding
obligations.

The Omnibus Plan is administered by the Compensation Committee. The
Compensation Committee selects the recipients of grants, the number of shares
subject to each grant and the terms and conditions of such grants and
establishes such conditions as to the manner of exercise of such grants as it

72
<PAGE>
may deem necessary. The Compensation Committee may accelerate the time at which
outstanding grants may be exercised, including upon certain events involving a
change in control of the Company, and has the discretion to provide that
outstanding grants may not be exercised subsequent to a merger, consolidation or
certain other corporate events.

On December 31, 1995, 198,000 stock options were granted pursuant to the
Omnibus Plan. These stock options have an exercise price equal to the IPO price
per share of $20.00 per share. On April 1, 1996, 195,000 stock options were
granted pursuant to the Omnibus Plan. These stock options have an exercise price
equal to the market price on the date of grant of $24.50 per share. The option
grants provide that 50% of the stock options will vest five years after the
grant thereof and 50% will vest six years after the grant thereof. The stock
options are subject to accelerated vesting as follows: (i) when the fair market
value of the Common Stock for a period of five consecutive business days is
equal to a price that is 25% above the exercise price, 25% of the stock options
will vest immediately, (ii) when the fair market value of the Common Stock for a
period of five consecutive business days is equal to a price that is 50% above
the exercise price, another 25% of the stock options will vest immediately and
(iii) when the fair market value of the Common Stock for a period of five
consecutive business days is equal to a price that is 75% above the exercise
price, the remaining 50% of the stock options will vest immediately. As of May
31, 1996, 25% of the stock options granted in 1995 had vested. The stock options
will terminate ten years after grant.

Options granted pursuant to the Omnibus Plan are exercisable, at the
discretion of the Compensation Committee. The Company has filed a Registration
Statement on Form S-8 to permit shares issued upon exercise of stock options
granted or to be granted under the Omnibus Plan to be sold without restrictions.

In connection with the IPO, certain officers of the Company, including the
Named Executive Officers, were given the opportunity to exchange certain
existing restricted stock units held by such persons, which under the terms of
their issuance were convertible into an equal amount of Common Stock of the
Company upon consummation of the IPO, for (i) cash, receipt of which was
deferred, in an amount equal to the product of the IPO price of $20.00 per share
and the number of restricted stock units held by such person and (ii) an
equivalent number of shares of restricted stock (the "Restricted Stock"). The
182,633 shares of Restricted Stock granted under the Omnibus Plan (i) may not be
transferred until the earlier of two years from the date of grant or termination
of the executive's employment with the Company and (ii) are, in the event the
holder wishes to transfer such Restricted Stock, subject to an option of the
Company to purchase such Restricted Stock for an amount equal to the market
price per share on the date of the proposed transfer minus $19.00. Each of the
officers agreed to the terms offered and entered into a Deferred Compensation
and Restricted Stock Agreement with the Company, pursuant to which such officers
accepted receipt of the deferred cash compensation and the newly issued
Restricted Stock, subject to the purchase option of the Company, in lieu of
shares of unrestricted Common Stock to which they otherwise would have been
entitled.

1992 and 1994 Employee Stock Option Plans

In June 1992, the Company adopted the Employee Stock Option Plan (the "1992
Stock Option Plan"), pursuant to which options may be granted to management and
other employees of the Company and certain of its subsidiaries. At the time of
adoption, an aggregate of 1,725,000 shares were available for option grants,
subject to adjustment upon certain changes in the Company's capitalization. Of
this number, 1,713,213 are outstanding. The exercise price with respect to each
share underlying 1,698,213 options is $13.33 and with respect to 15,000 options,
$14.67 per share. All of the options vested upon consummation of the IPO.

In December 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Stock Option Plan"), providing for the issuance of up to 1,200,000 shares,
subject to adjustment upon certain changes

73
<PAGE>
in the Company's capitalization. The Board of Directors approved the issuance of
322,500 shares through September 1995, with 150,000 reserved for employees who
commenced employment after September 1994. 195,000 stock options were granted as
of September 30, 1995 at an exercise price with respect to each share underlying
an option of $20.00 per share. The options vested upon grant. The remaining
options that could have been awarded under the 1994 Stock Option Plan have been
made available under the Omnibus Plan.

In order to exercise stock options issued under the 1992 Stock Option Plan
or the 1994 Stock Option Plan, an employee must enter into a subscription
agreement with Holdings. Pursuant to the terms of the subscription agreement, in
the event that an employee leaves Holdings, whether voluntarily or
involuntarily, Holdings has the right to cancel the options by paying the
employee the difference between the fair market value of the shares and the
exercise price. In addition, in the event an employee is terminated without
cause, including as a result of a change in control, the terminated employee has
the right to require Holdings to purchase any vested options by paying the
difference to the terminated employee between the fair market value of the
shares and the exercise price of the vested options.

The Company has filed a Registration Statement on Form S-8 to permit shares
issued upon exercise of outstanding stock options granted under the 1992 Stock
Option Plan and the 1994 Stock Option Plan to be sold without restrictions.

Retirement Plan

The Company's retirement plan is an ESOP, which Holdings adopted to provide
its employees the opportunity to obtain beneficial interests in the stock of
Holdings through a trust. In 1992, the ESOP Trust purchased 750,000 shares from
Holdings at $13.33 per share of Holdings stock. The ESOP Trust financed its
purchase of common stock with a loan from Holdings in the amount of $10 million.
The Trustee for the ESOP is Marine Midland Bank, N.A.

Each year, as CFS makes a contribution to the ESOP, a corresponding loan
payment is made, and the trust releases shares of stock of the accounts under
the ESOP for the eligible participants. Participants are eligible after one year
of service and age 21. As of March 31, 1996, approximately 283,000 shares were
allocated to the participants.

Supplemental Retirement Plan

Due to compensation limitations and contribution limitations applicable to
qualified plans under the Internal Revenue Code, certain executives receive a
less than pro rata share of the annual ESOP allocation in relation to their
total compensation. The Company has therefore adopted, for such executives, a
Supplemental Executive Retirement Plan (a "SERP"). The SERP is a non-qualified
plan that allows each eligible executive the excess contribution which cannot be
received in the ESOP. This amount is placed into an account and participants may
direct its investment. This amount is placed into an account and invested by the
Company. Through March 31, 1996, approximately fifteen executives, including the
Named Executive Officers, were eligible for the SERP. As of March 31, 1996, $0.4
million has been contributed to the SERP.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Holdings did not have a Compensation Committee until the IPO. The following
directors of CapMAC served on CapMAC's Compensation Committee until the IPO:
Messrs. Angermueller, Jenkins, Laird, Russler and Dr. Leong. Mr. Angermueller is
not a director of Holdings. Upon the formation of the Holdings Compensation
Committee, the members were Messrs. Jenkins, Laird, Russler and Dr. Leong.
Effective January 31, 1996, Dr. Leong resigned from the compensation committee
and Messrs. Horgan and Green became members of the Compensation Committee. None
of the members of the CapMAC Compensation Committee or the Holdings Compensation
Committee was an officer or employee of the Company.

74
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following tables set forth certain information concerning the beneficial
ownership of the Common Stock of the Company at April 30, 1996 and as adjusted
to reflect the sale of the shares offered hereby (based on information received
by the Company to date) by (i) each beneficial owner of more than 5% of the
Common Stock of Holdings, (ii) each director and each Named Executive Officer,
(iii) all directors and executive officers of the Company as a group and (iv)
all other Selling Stockholders. For purposes of these tables, a person or group
of persons is deemed to have "beneficial ownership" of any shares as of a given
date which such person has the right to acquire within 60 days after such date,
but such shares are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person. Shares beneficially owned by the
executive officers include shares allocated to them under the ESOP, any shares
of Common Stock held by them (including Restricted Stock and Common Stock held
in trust) and all outstanding options. In addition, shares beneficially owned by
the persons listed below include shares which may be obtained upon exercise of
Warrants held by such person. The number of shares offered and the number of
shares of Common Stock beneficially owned after the Offering assume that the
over-allotment option is not exercised by the Underwriters.

<TABLE><CAPTION>
SHARES OF COMMON STOCK
SHARES OF COMMON STOCK TO BE BENEFICIALLY
BENEFICIALLY OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- -----------------------
5% SHAREHOLDERS, DIRECTORS, NAMED
EXECUTIVE OFFICERS AND DIRECTORS AND PERCENT NUMBER OF PERCENT
NAMED EXECUTIVE OFFICERS AS A GROUP NUMBER OF CLASS SHARES OFFERED NUMBER OF CLASS
- ---------------------------------------- ----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Dillon, Read & Co. Inc. (1)............. 4,100,362.5 24.5% 1,336,760 2,763,602.5 16.6%
535 Madison Avenue
New York, NY 10022
Saratoga Partners II, L.P. (2).......... 3,444,954 20.7 1,176,206 2,268,748 13.7
535 Madison Avenue
New York, NY 10022
Allstate Insurance Company (3).......... 920,788.5 5.7 -- 920,788.5 5.7
c/o Development Division
Allstate Plaza South 65D
Northbrook, Il 60062
MSW Limited (4)......................... 845,788.5 5.2 290,847 554,941.5 3.4
c/o Saif Advisors, Inc.
9 West 57th Street
New York, NY 10019
Canaan Partners (5)..................... 920,788.5 5.7 314,384 606,404.5 3.8
105 Rowayton Avenue
Rowayton, CT 06853
Option International Limited (6)........ 920,788.5 5.7 314,384 606,404.5 3.8
99 Summer Street
Suite #1530
Boston, MA 02110
Canaan Capital Offshore Limited
Partnership, C.V. (7)................... 822,264 5.1 280,745 541,519 3.4
c/o Canaan Partners
105 Rowayton Avenue
Rowayton, CT 06853
John B. Caouette (8).................... 416,426.3 2.5 -- 416,426.3 2.5
Michael L. Hein (8)..................... 186,050.2 1.2 -- 186,050.2 1.2
C. Jackson Lester (8)................... 202,425.4 1.3 -- 202,425.4 1.3
C. Thomas Meyers (8).................... 206,643.9 1.3 -- 206,643.9 1.3
Paul V. Palmer (8)...................... 306,670.5 2.2 -- 306,670.5 2.2
</TABLE>

(continued on next page)

75
<PAGE>

<TABLE><CAPTION>
SHARES OF COMMON STOCK
SHARES OF COMMON STOCK TO BE BENEFICIALLY
BENEFICIALLY OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- -----------------------
5% SHAREHOLDERS, DIRECTORS, NAMED
EXECUTIVE OFFICERS AND DIRECTORS AND PERCENT NUMBER OF PERCENT
NAMED EXECUTIVE OFFICERS AS A GROUP NUMBER OF CLASS SHARES OFFERED NUMBER OF CLASS
- ---------------------------------------- ----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Joyce S. Richardson (8)................. 192,696.7 1.2% -- 192,696.7 1.2%
Ram D. Wertheim (8)..................... 161,932.5 1.0 -- 161,932.5 1.0
Bryan A. Bowers (9)..................... 500,000 3.1 -- 500,000 3.1
Todd G. Cole............................ 2,000 * -- 2,000 *
Charles P. Durkin, Jr. (10)............. 13,812 * -- 13,812 *
David D. Elliman (11)................... 70,626 * 8,536 62,090 *
Stephen L. Green (12)................... 920,788.5 5.7 314,384 606,404.5 3.8
Michael J. Horgan....................... -- -- -- -- --
George Merritt Jenkins (13)............. 738,933 4.6 251,506 487,427 3.0
James H. Laird (14)..................... 2,763 * -- 2,763 *
Dr. Rosita Leong, M.D................... -- -- -- -- --
Robert Model (15)....................... 293,691 1.8 42,679 251,012 1.6
Leif J. Olsen........................... -- -- -- -- --
Arthur S. Penn (16)..................... 289,978.5 1.8 34,143 255,835.5 1.6
Homer McK. Rees......................... 1,263 * -- 1,263 *
Doren W. Russler........................ -- -- -- -- --
Akira Seko (17)......................... 500,001 3.1 -- 500,001 3.1
John T. Shea (18)....................... 845,788.5 5.2 291,633 554,941.5 3.4
Richard Yancey.......................... 460.5 * -- 460.5 *
Directors and Named Executive Officers
as a group (24 persons)............... 5,617,450.5 31.8 866,563 4,750,887.5 26.9
</TABLE>

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

* Less than one percent

(1) The number of shares owned is based on the Schedule 13G filed by Dillon,
Read Holding Inc. with the Securities and Exchange Commission (the "SEC").
Such number includes the shares held by Saratoga Partners II, L.P., shares
held by certain other investment partnerships managed by Dillon Read and
185,170.5 shares held by individuals for whom Dillon Read serves as
attorney-in fact, including Messrs. Durkin, Laird and Yancey. Such number
also includes 760,627.5 shares that would be received upon exercise of
Warrants.

(2) Includes 638,973 shares that would be received upon exercise of Warrants.

(3) Includes 170,788.5 shares that would be received upon exercise of Warrants.

(4) Includes 170,788.5 shares that would be received upon exercise of Warrants.

(5) Consists of shares held by entities for which Canaan Partners serves as
investment manager, including Canaan Capital Offshore Limited Partnership,
C.V. Includes 170,788.5 shares that would be received upon exercise of
Warrants.

(6) Includes 170,788.5 shares that would be received upon exercise of Warrants.

(7) Includes 152,514 shares that would be received upon exercise of Warrants.

(8) The number of shares for each executive officer includes (i) the number of
shares of Common Stock owned directly by such executive officers; (ii) the
following shares which may be acquired upon the exercise of stock options
which were exercisable as of March 1, 1996: John B. Caouette--298,319.5,
Paul V. Palmer--246,759, C. Thomas Meyers-- 151,283.5, Charles J.
Lester--156,491.5, Joyce S. Richardson--140,281.5, Michael L.
Hein--134,805, and Ram D. Wertheim--114,000; and (iii) the following shares
which may be acquired upon the exercise of stock options which had been
granted as of April 1, 1996 but had not vested as of May 31, 1996: John B.
Caouette--55,000, Paul V. Palmer-- 20,000, C. Thomas Meyers--20,000, C.
Jackson Lester--20,000, Joyce S. Richardson--20,000, Michael L. Hein--
20,000, and Ram D. Wertheim--20,000. The number of shares also includes the
number of shares of Common Stock owned indirectly by such executive
officers through the Company's ESOP through December 31, 1995.

(9) Consists of 500,000 shares owned by Centre Reinsurance Limited. By virtue
of Mr. Bowers position as a Managing Director of Centre Trading Holdings
Limited, he may be deemed to share voting and investment power with respect
to such shares.

(10) Excludes 3,915,282 shares held by entities for which Dillon Read or
affiliated entities serve as investment manager and 171,358.5 shares held
by individuals for whom Dillon Read serves as attorney-in-fact. Mr. Durkin
is a Managing Director of Dillon Read. Includes 2,562 shares that would be
received upon exercise of Warrants.

(Footnotes continued on following page)

76
<PAGE>
(Footnotes continued from preceding page)

(11) Includes 37,500 shares held by the Faith Rockefeller Model Trust, for which
Mr. Elliman is co-trustee. Mr. Elliman may be deemed to share voting and
investment power with respect to such shares.

(12) Consists of shares held by entities for which Canaan Partners serves as
investment manager, including the shares held by Canaan Capital Offshore
Limited Partnership, C.V. Mr. Green is a General Partner of Canaan Partners
and therefore may be deemed to share voting and investment power with
respect to such shares.

(13) Consists of shares held by investment accounts for which Patricof & Co.
serves as investment manager, including 137,058 shares that would be
received upon exercise of Warrants. Mr. Jenkins is a General Partner of
Patricof & Co. and therefore may be deemed to share voting and investment
power with respect to such shares. Mr. Jenkins disclaims beneficial
ownership.

(14) Excludes 3,915,282 shares held by entities for which Dillon Read or
affiliated entities serve as investment manager and 182,407.5 shares held
by individuals for whom Dillon Read serves as attorney-in-fact. Includes
513 shares that would be received upon exercise of Warrants. Mr. Laird is a
Senior Vice President of Dillon Read.

(15) Includes 198,000 shares held by R.J. Mod Limited Partnership, of which Mr.
Model is a General Partner, and 37,500 shares held by the Faith Rockefeller
Model Trust, for which Mr. Model is co-trustee. By virtue of these
positions, Mr. Model may be deemed to share voting and investment power
with respect to such shares.

(16) Includes 198,000 shares held by R.J. Mod Limited Partnership, of which Mr.
Penn is a General Partner. Mr. Penn may be deemed to share voting and
investment power with respect to such shares.

(17) Consists of shares held by ORIX USA Corporation, of which Mr. Seko serves
as President, Chief Executive Officer and as a director. By virtue of these
positions, Mr. Seko may be deemed to share voting and investment power with
respect to such shares. Mr. Seko disclaims beneficial ownership.

(18) Includes 427.5 shares and 170,788.5 shares that would be received upon
exercise of Warrants held by Mr. Shea and MSW Limited, respectively. Mr.
Shea may be deemed to share voting and investment power with respect to
shares beneficially owned by MSW Limited.

77
<PAGE>

<TABLE><CAPTION>
SHARES OF COMMON STOCK
SHARES OF COMMON STOCK TO BE BENEFICIALLY
BENEFICIALLY OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- -----------------------
PERCENT NUMBER OF PERCENT
OTHER SELLING STOCKHOLDERS NUMBER OF CLASS SHARES OFFERED NUMBER OF CLASS
- ---------------------------------------- ----------- -------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
APA Excelsior III, L.P.(1).............. 411,299 2.6% 140,429 270,870 1.7%
APA/Fostin Pennsylvania Venture Capital
Fund(2)................................. 147,326 * 50,301 97,025 *
James H. Bauman(3)...................... 30,223 * 9,039 12,437 *
Bost & Co. as Custodian for Rockefeller
Brother Fund(4)......................... 23,019 * 7,859 15,160 *
Saidye Rosner Bronfman Trust(5)......... 9,206 * 3,144 6,062 *
Canaan Capital Limited Partnership(6)... 98,524 * 33,639 64,885 *
CIN Venture Nominees Ltd.(7)............ 21,215 * 7,243 13,972 *
Citigrowth Fund, L.P.(8)................ 102,473 * 34,987 67,486 *
Concord Partners II, L.P.(9)............ 147,326 * 50,301 97,025 *
Concord Partners Japan Limited(10)...... 36,831 * 12,575 24,256 *
Coutts & Co. (Jersey) Ltd. Custodian for
APA Excelsior III/Offshore, L.P.(11).... 156,792 1.0 53,533 103,259 *
Eastbridge Capital Inc.(12)............. 25,619 * 8,747 16,872 *
Gary H. Eckhardt(13).................... 855 * 292 563 *
Goodnow, Gray & Co.(14)................. 77,500 * 24,348 53,152 *
Heritage Securities Corp.(15)........... 184,158 1.2 62,877 121,281 *
William Horvitz......................... 67,500 * 23,046 44,454 *
The H.R.H. Family Trust(16)............. 18,416 * 6,287 12,129 *
Jennifer U. Johnson(17)................. 6,906 * 2,358 4,548 *
Mohammad W. Khouja(18).................. 2,303 * 674 1,629 *
Belle Kuhn(19).......................... 921 * 314 607 *
David Kuhn(20).......................... 921 * 314 607 *
Judy Kuhn(21)........................... 461 * 157 304 *
Roger Kuhn(22).......................... 921 * 314 607 *
Lexington Partners IV, L.P.(23)......... 1,842 * 630 1,212 *
Lynx Capital, L.P.(24).................. 298,862 1.9 102,040 196,822 1.2
Lynx Overseas Capital, Ltd.(25)......... 21,119 * 7,211 13,908 *
Paul A. Mackin(26)...................... 921 * 68 853 *
David H.McAlpin, Jr..................... 22,500 * 2,561 19,939 *
John Merck Fund(27)..................... 23,019 * 7,859 15,160 *
John H.C. Merck Trust(28)............... 36,833 * 12,575 24,258 *
Mezzanine Equities SDN BHD(29).......... 136,631 * 46,651 89,980 *
William Mina(30)........................ 1,382 * 111 1,271 *
R.J. Mod Limited Partnership(31)........ 198,000 1.2 34,143 163,857 1.0
Faith Rockefeller Model Trust(32)....... 37,500 * 8,536 28,964 *
Alfred A. Moore & Linda M. Post(33)..... 1,382 * 472 910 *
Clement C. Moore II(34)................. 4,604 * 1,572 3,032 *
The Northern Trust Company(35).......... 4,604 * 1,572 3,032 *
Polly & Co. For Greenwich Hospital
Association(36)......................... 4,604 * 1,572 3,032 *
Linda Moore Post(37).................... 2,303 * 786 1,517 *
Linda Moore Post Trust "A"(38).......... 2,303 * 786 1,517 *
</TABLE>

(continued on next page)

78
<PAGE>

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

* Less than one percent

(1) Includes 76,289 shares that would be received upon exercise of Warrants.
(2) Includes 27,326 shares that would be received upon exercise of Warrants.
(3) Includes shares held by Eastbridge Capital Inc. of which Mr. Bauman is
co-president and chief executive officer. Mr. Bauman may be deemed to share
voting and investment power with respect to these shares. Mr. Bauman
disclaims beneficial ownership. Includes 854 shares and 25,619 shares that
would be received upon exercise of Warrants held by Mr. Bauman and
Eastbridge, respectively.
(4) Includes 4,269 shares that would be received upon exercise of Warrants.
(5) Includes 854 shares that would be received upon exercise of Warrants.
(6) Includes 18,275 shares that would be received upon exercise of Warrants.
(7) Includes 3,935 shares that would be received upon exercise of Warrants.
(8) Constitutes 102,473 shares that would be received upon exercise of
Warrants.
(9) Includes 27,326 shares that would be received upon exercise of Warrants.
(10) Includes 6,831 shares that would be received upon exercise of Warrants.
(11) Includes 29,082 shares that would be received upon exercise of Warrants.
(12) Constitutes 25,619 shares that would be received upon exercise of Warrants.
(13) Constitutes 855 shares that would be received upon exercise of Warrants.
(14) Includes 15,486 shares that would be received upon exercise of Warrants.

(Footnotes continued on following page)

79
<PAGE>
(Footnotes continued from preceding page)

(15) Includes 34,158 shares that would be received upon exercise of Warrants.
(16) Includes 3,416 shares that would be received upon exercise of Warrants.
(17) Includes 1,281 shares that would be received upon exercise of Warrants.
(18) Includes 428 shares that would be received upon exercise of Warrants.
(19) Includes 171 shares that would be received upon exercise of Warrants.
(20) Includes 171 shares that would be received upon exercise of Warrants.
(21) Includes 86 shares that would be received upon exercise of Warrants.
(22) Includes 171 shares that would be received upon exercise of Warrants.
(23) Includes 342 shares that would be received upon exercise of Warrants.
(24) Includes 18,662 shares that would be received upon exercise of Warrants.
(25) Includes 1,319 shares that would be received upon exercise of Warrants.
(26) Includes 171 shares that would be received upon exercise of Warrants.
(27) Includes 4,269 shares that would be received upon exercise of Warrants.
(28) Includes 6,833 shares that would be received upon exercise of Warrants.
(29) Constitutes 136,631 shares that would be received upon exercise of
Warrants.
(30) Includes 257 shares that would be received upon exercise of Warrants.
(31) Robert Model, a director of the Company, is a general partner of this
stockholder.
(32) David Elliman and Robert Model, directors of the Company, are co-trustees
of this stockholder.
(33) Includes 257 shares that would be received upon exercise of Warrants.
(34) Includes 854 shares that would be received upon exercise of Warrants.
(35) Includes 854 shares that would be received upon exercise of Warrants.
(36) Includes 854 shares that would be received upon exercise of Warrants.
(37) Includes 428 shares that would be received upon exercise of Warrants.
(38) Includes 428 shares that would be received upon exercise of Warrants.
(39) Includes 513 shares that would be received upon exercise of Warrants.
(40) Includes 1,878 shares that would be received upon exercise of Warrants.
(41) Includes 4,269 shares that would be received upon exercise of Warrants.
(42) Includes 854 shares that would be received upon exercise of Warrants.
(43) Includes 428 shares that would be received upon exercise of Warrants.
(44) Includes 171 shares that would be received upon exercise of Warrants.
(45) Includes 750 shares that would be received upon exercise of Warrants.
(46) Includes 171 shares that would be received upon exercise of Warrants.
(47) Includes 171 shares that would be received upon exercise of Warrants.
(48) Includes 171 shares that would be received upon exercise of Warrants.
(49) Includes 171 shares that would be received upon exercise of Warrants.
(50) Includes 342 shares that would be received upon exercise of Warrants.
(51) Includes 1,281 shares that would be received upon exercise of Warrants.
(52) Includes 4,269 shares that would be received upon exercise of Warrants.
(53) Includes 52,721 shares that would be received upon exercise of Warrants.
(54) Includes 428 shares that would be received upon exercise of Warrants.
(55) Includes 1,538 shares that would be received upon exercise of Warrants.
(56) Includes 428 shares that would be received upon exercise of Warrants.
(57) Includes 854 shares that would be received upon exercise of Warrants.
(58) Includes 1,281 shares that would be received upon exercise of Warrants.

80
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCKHOLDERS' AGREEMENT

Pursuant to a Stockholders' Agreement (the "Stockholders' Agreement"), the
holders of 13,230,795 shares of Common Stock (on a fully diluted basis after
giving effect to the Offering) are entitled to certain rights with respect to
the registration of such shares under the Securities Act. The Stockholders'
Agreement provides that if the Company proposes to register its Common Stock
under the Securities Act (other than a registration statement on Form S-8 or any
similar form), such stockholders have the right ("Piggyback Right") to request
the Company to include in such registration statement shares of Common Stock
(including Common Stock issued upon conversion or exercise of warrants or
options) held by such stockholders or permitted transferees. The underwriters
have the right, subject to certain limitations, to limit the number of such
shares included in such registrations.

The Stockholders' Agreement also provides that in the event any stockholder
(the "Proposed Transferor") subject to the Agreement proposes to transfer (other
than transfers to affiliates or through a registered public offering or under
Rule 144) 5% or more of the then outstanding shares of its Common Stock to a
person (the "Proposed Purchaser"), each other stockholder subject to the
Agreement has the right ("Tag-along Right") to require such Proposed Purchaser
to purchase a specified number of shares from such stockholder with a
corresponding reduction in the number of shares to be purchased from the
Proposed Transferor. The Tag-along Right is only available to stockholders who
were stockholders prior to the IPO and to Centre Re.

These rights shall terminate on December 19, 1998, three years after the
closing date of the IPO.

Pursuant to the Stockholders' Agreement, Dillon, Read & Co. Inc. ("Dillon
Read") received from the Company at the closing of the Acquisition a transaction
fee in the amount of $1.6 million. In addition, pursuant to the Stockholders'
Agreement Dillon Read has received from the Company for each of the four years
following the Acquisition an annual advisory retention fee of $200,000. The
Company's obligation to pay such fee terminated upon the completion of the IPO.

ORIX INVESTMENT

In July 1995, ORIX USA Corporation ("ORIX") acquired 500,001 shares of
Common Stock of the Company at a price of $20 per share, for a total investment
of $10 million. ORIX is a subsidiary of the ORIX Corporation, a Japanese leasing
company with consolidated assets in excess of $49 billion. Pursuant to its
agreement with the Company, for so long as ORIX maintains a certain level of
investment in the Company, ORIX has the right to designate one nominee to the
respective Boards of Directors of Holdings and CapMAC. In the event such
designee is not elected to either such Board, such designee shall have the right
to attend Board meetings in the capacity of an advisory director. ORIX will
continue to have these rights after the Offering. The agreement also provides,
at the request of ORIX, for the training in the monoline financial guarantee
business by CapMAC of up to two ORIX employees at any given time until the year
2005 (subject to extension as agreed upon by Holdings). ORIX is also entitled to
the Piggyback Rights and Tag-along Rights described above. In connection with
the ORIX investment, the Company paid Dillon Read an advisory fee of $500,000.

In connection with ORIX's subscription for shares of Common Stock of
Holdings, an affiliate of ORIX was granted the right to purchase, for an
aggregate sum of $10,000,000, a sufficient amount of shares or other ownership
interests in CapMAC Asia to provide such affiliate with at least a 20% economic
interest in CapMAC Asia. Such affiliate of ORIX has purchased preference shares
for an aggregate price of $6.8 million and has committed to subscribe for
additional preference shares of CapMAC Asia if requested by CapMAC Asia, at an
aggregate price of $3.2 million, representing 20% of the total aggregate
capitalization of CapMAC Asia.

81
<PAGE>
CENTRE RE INVESTMENT

Contemporaneously with the closing of the IPO, the Company sold 500,000
unregistered shares of Common Stock to Centre Reinsurance Limited ("Centre Re"),
a wholly owned indirect subsidiary of The Zurich Insurance Company. Centre Re is
a Bermuda based reinsurance company, which, together with its affiliates,
provides finite risk reinsurance products, insurance and reinsurance derivative
products, traditional reinsurance products, and other insurance and financial
services. Pursuant to its agreement with the Company, for so long as Centre Re
maintains a certain level of investment in the Company, Centre Re has the right
to designate one nominee to the Board. Mr. Bowers, the designated nominee of
Centre Re, was appointed to the Board in April 1996. In the event the Centre Re
nominee is not elected to the Board, such nominee shall have the right to attend
Board meetings in the capacity of an advisory director. Dillon Read received a
placement fee of $250,000 in connection with the sale of shares to Centre Re.

CERTAIN OTHER RELATIONSHIPS AND TRANSACTIONS

In exchange for consulting services provided by Mr. Homer McK. Rees, who is
currently a Director of CapMAC, Mr. Rees received 716 shares of Common Stock in
1994 for services rendered in 1993, and 548 shares of Common Stock in 1995 for
services rendered in 1994.

Messrs. Durkin and Laird, each a Director of the Company, are officers of
Dillon Read, an investment banking firm. In addition, Mr. Yancey is a former
officer of Dillon Read. Dillon Read is a Managing Underwriter of the Offering
and has from time to time provided investment banking and other financial
advisory services to the Company, for which it has received customary fees. See
"--Stockholders' Agreement," "--ORIX Investment," "--Centre Re Investment" and
"Underwriting."

Dillon Read was a managing underwriter in the Company's IPO. The Company
paid a gross underwriting fee of $3,500,000 to Dillon Read and the other
managing underwriters. The net amount received by Dillon Read in connection with
such IPO, including underwriting fees received from the shareholders who sold
shares in the IPO, was $2,584,576.

EXECUTIVE LOAN PROGRAM

CFS has adopted an Executive Loan Program (the "Loan Program") pursuant to
which Named Executive Officers who have not sold any of the Common Stock are
eligible to borrow from the Company one or more loans (each, a "Loan"), up to an
aggregate limit of $250,000 for each of the Named Executive Officers, except Mr.
Caouette, who is permitted to borrow up to $500,000. The purpose of the Loan
Program is to provide liquidity for special needs of the Named Executive
Officers and to alleviate the need to sell Common Stock held by such Named
Executive Officers.

The term of each Loan is at least one year but not more than five years, as
specified by the Named Executive Officer borrowing such Loan. Interest is
payable annually concurrently with the payment of annual bonuses to employees of
the Company and, if no such bonuses are paid in any year, then on the last
business day of such year. The rate of interest is a fixed rate equal to the
greater of (i) the rate at which the Company could have invested its funds in a
taxable fixed income investment having a term equivalent to the term of the
related loan and meeting its investment guidelines and (ii) the Applicable
Federal Rate (i.e., the rate the Company needs to charge in accordance with the
guidelines established by the Internal Revenue Service to avoid the need to
report the payment of any imputed income to the borrower in respect of the
related Loan), in each case, such rate being determined in good faith by the
Company. The principal amount of any Loan becomes payable in full on the earlier
of (i) the maturity date of such Loan and (ii) the date of the borrower's
termination of employment for reasons other than death or disability and (iii)
90 days after the date of the borrower's termination of employment due to

82
<PAGE>
death or disability. "Termination of employment" means any termination of
employment, whether voluntary or involuntary and with or without cause,
including death or permanent disability.

Any Named Executive Officer who elects to borrow under the Loan Program must
sign a promissory note and pledge such borrower's Common Stock to secure any
indebtedness or other payment obligation and to apply the proceeds of the sale
of any of such borrower's Common Stock to repay any outstanding Loans of such
borrower. Loans may be prepaid at any time.

As of May 31, 1996, Mr. Caouette has borrowed $500,000 under the Loan
Program at an interest rate of 6.75%, with a term of 5 years, Mr. Wertheim has
borrowed $250,000 at an interest rate of 6.95%, with a term of 5 years and Mr.
Palmer has borrowed $160,000 at an interest rate of 6.95% with a term of 5
years. The interest rate on each loan is based upon the rate the Company could
have invested its funds on the date such loan was made, which was April 24,
1996, with respect to Mr. Caouette's loan and May 13, 1996, with respect to
Messrs. Wertheim and Palmer's loans.

CAPMAC ASIA

The Company intends to sell to certain of its employees and directors up to
$1.0 million of its preference shares in CapMAC Asia. Each purchaser will commit
to subscribe for additional preference shares pro rata with the Company's
subscription commitment to purchase additional preference shares in CapMAC Asia
in the event CapMAC Asia is required to purchase additional shares in ASIA
Services.

If requested by an employee, the Company will finance the purchase by such
employee of CapMAC Asia shares. Each employee-borrower will choose a term of
borrowing of at least one year but not greater than five years. Interest will be
a fixed rate equal to the greater of (i) the rate at which the Company could
have invested its funds in a taxable fixed income investment having a term
equivalent to the term of the related loan and meeting its investment guidelines
and (ii) the Applicable Federal Rate, in each case, such rate being determined
in good faith by the Company. Loans shall be repayable upon termination of
employment. Employee-borrowers will be required to pledge their CapMAC Asia
preference shares to secure repayment of the loan.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of Holdings consists of 50,000,000 shares of
Common Stock, $0.01 par value per share, of which 15,965,995 shares (including
unallocated ESOP shares) are outstanding, 20,000,000 shares of preferred stock,
$0.01 par value per share (the "Preferred Stock"), none of which is outstanding.
The following description of the capital stock of Holdings, and certain
provisions of Holdings' Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated Bylaws (the "Bylaws")
is a summary of such provisions and is qualified in its entirety by the
provisions of the Certificate of Incorporation and Bylaws. As of June 7, 1996
Holdings' Common Stock was held of record by 152 stockholders.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Certificate of Incorporation
does not provide for cumulative voting for the election of directors. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, and are entitled to receive, pro rata, all assets of the
Company available for

83
<PAGE>
distribution to such holders upon liquidation. Holders of Common Stock have no
preemptive, subscription or redemption rights. All outstanding shares of Common
Stock are fully paid and non-assessable.

WARRANTS TO ACQUIRE COMMON STOCK

Certain existing investors hold Warrants in proportion to the number of
shares of Common Stock purchased by them which are currently exercisable for
2,230,024 shares of Common Stock of the Company at an exercise price of $13.33
per share. See "Principal and Selling Stockholders." The Company is entitled at
any time to repurchase such Warrants at a repurchase price based on the excess
of the fair market value of the Common Stock over the exercise price per
Warrant. Such repurchase price may be paid in cash or in shares of Common Stock
having a fair market value equal to the repurchase price. The Company has no
current plans to repurchase the warrants, although it may exercise its
repurchase option at any time.

PREFERRED STOCK

Pursuant to the Certificate of Incorporation, the Company is authorized to
issue "blank check" Preferred Stock, which may be issued from time to time in
one or more series upon authorization by the Company's Board of Directors. The
Board of Directors, without further approval of the stockholders, is authorized
to fix the dividend rights and terms, conversion rights, voting rights,
redemption rights and terms, liquidation preferences, and any other rights,
preferences, privileges and restrictions applicable to each series of the
Preferred Stock. The issuance of Preferred Stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company, discourage bids for the Company's Common Stock at a
premium or otherwise adversely affect the market price of the Common Stock.

The Company has no current plans to issue any Preferred Stock. The Company
is not aware of any plans by a third party to seek control of the Company.

CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS

Classified Board; Board Vacancies. The Certificate of Incorporation provides
that Holdings' Board of Directors is divided into three classes, with each
class, after a transitional period, serving for three years, and one class being
elected each year. Members of the Board of Directors may be removed only with
cause. A majority of the remaining directors then in office, though less than a
quorum, or the sole remaining director, will be empowered to fill any vacancy on
the Board of Directors. The classification of the Board of Directors may
discourage a third party from making a tender offer or otherwise attempting to
gain control of the Company and may maintain the incumbency of the Board of
Directors. See "Management."

Special Meetings of Stockholders; Stockholder Action by Written Consent. The
Certificate of Incorporation requires that any action required or permitted to
be taken by the Company's stockholders must be effected at a duly called annual
or special meeting of stockholders and may not be effected by consent in
writing. Additionally, the Certificate of Incorporation requires that special
meetings of the stockholders of the Company be called only by a majority of the
Board of Directors and certain officers.

Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before or to nominate directors at any meeting of stockholders must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting, with respect to annual
meetings, and not less than 60 days nor more than 90 days prior to such meeting,
with

84
<PAGE>
respect to special meetings. The Bylaws also specify certain requirements for a
stockholder's notice to be in proper written form. These provisions may preclude
some stockholders from bringing matters before the stockholders or from making
nominations for directors.

Section 203 of Delaware Corporation Law. The Company is subject to the
"business combination" statute of the Delaware General Corporation Law. In
general, such statute prohibits a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless (i) the transaction
is approved by the board of directors prior to the date the interested
stockholder obtained such status, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
"interested stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned by
(a) persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (iii) on or subsequent to such date the "business combination" is
approved by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder." A
"business combination" includes mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.

Limitations on Directors' Liability. Delaware law authorizes corporations to
limit or eliminate the personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors' fiduciary duty of
care. The Certificate of Incorporation limits the liability of the Company's
directors to the Company or its stockholders (in their capacity as directors but
not in their capacity as officers) to the fullest extent permitted by Delaware
law. As a result, directors are not personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit.

This provision in the Certificate of Incorporation may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.

TRANSFER AGENT AND REGISTRAR

Harris Trust and Savings Bank is the Transfer Agent and Registrar for the
Common Stock.

85
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS

The following is a discussion of certain United States federal income and
estate tax consequences of the ownership and disposition of Common Stock
applicable to Non-U.S. Holders of such Common Stock. In general, a "Non-U.S.
Holder" is any owner of Common Stock other than (i) a citizen or resident of the
United States, or certain United States expatriates, (ii) a corporation,
partnership or other entity created or organized in the United States or under
the laws of the United States or of any state, or (iii) an estate or trust whose
income is includible in gross income for United States federal income tax
purposes regardless of its source. The discussion pertains only to Common Stock
held as a "capital asset" as defined in the Internal Revenue Code of 1986, as
amended (the "Code"). The discussion is based on laws, regulations, rulings and
decisions in effect on the date hereof, all of which are subject to change. The
discussion does not address aspects of taxation other than federal income and
estate taxation and does not address all aspects of federal income and estate
taxation. The discussion is for general information only and does not consider
any specific facts or circumstances that may apply to a particular Non-U.S.
Holder. Accordingly, prospective investors are urged to consult their own tax
advisors regarding the United States federal, state, local and non-U.S. tax
consequences of acquiring, holding and disposing of shares of Common Stock.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or such lower rate prescribed by an
applicable tax treaty) unless the dividends are either (i) effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States, or (ii) if a tax treaty applies, attributable to a United States
permanent establishment maintained by the Non-U.S. Holder. Dividends effectively
connected with such trade or business or attributable to such permanent
establishment (provided a tax treaty applies) generally will not be subject to
withholding (if the Non-U.S. Holder files certain forms with the payor of the
dividend) and generally will be subject to United States federal income tax on a
net income basis at the applicable graduated rates. In addition, in the case of
a Non-U.S. Holder that is a corporation, a U.S. branch profits tax may be
imposed on such corporation's effectively connected earnings and profits (as
determined under the Code). The branch profits tax is imposed at a rate of 30%
(or such lower rate prescribed by an applicable tax treaty). To determine the
applicability of a tax treaty providing for a lower rate of withholding,
dividends paid to an address in a foreign country are presumed under the current
interpretation of existing Treasury regulations to be paid to a resident of that
country. Treasury regulations proposed in 1984 which have not been finally
adopted, however, would require Non-U.S. Holders to file certain new forms to
obtain the benefit of any applicable tax treaty providing for a lower rate of
withholding tax on dividends. Such forms would contain the holder's name and
address and an official statement by the competent authority in the foreign
country (as designated in the applicable tax treaty) attesting to the holder's
status as a resident thereof.

SALE OF COMMON STOCK

Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain upon the disposition of his Common Stock unless (i) the
Company is or has been a "U.S. real property holding corporation" for federal
income tax purposes (which the Company does not believe that it is or is likely
to become), (ii) the gain is effectively connected with a trade or business
carried on by the Non-U.S. Holder within the United States or, if a tax treaty
applies, attributable to a permanent establishment maintained by the Non-U.S.
Holder in the United States, or (iii) the Non-U.S. Holder is an individual who
is present in the United States for 183 days or more in the taxable year of the
disposition, and either (a) the Non-U.S. Holder has a tax home (as specially
defined for U.S. federal income tax purposes) in the United States and the gain
from the disposition is not attributable to an office or other fixed place of
business maintained by the Non-U.S. Holder in a foreign country or (b) the gain
from the

86
<PAGE>
disposition is attributable to an office or other fixed place of business
maintained in the United States by the Non-U.S. Holder.

ESTATE TAX

In general, Common Stock owned or treated as owned by an individual Non-U.S.
Holder will be includible in the individual's gross estate for United States
federal estate tax purposes, unless an applicable tax treaty provides otherwise.

BACKUP WITHHOLDING AND INFORMATION REPORTING

The Company must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable tax
treaty. Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides. United States backup withholding
tax (which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish the information required under the
United States information reporting or backup withholding requirements) will
generally not apply to dividends paid on Common Stock to a Non-U.S. Holder at an
address outside the United States.

The payment of proceeds from the disposition of Common Stock by or through a
foreign office of a foreign broker generally will not be subject to backup
withholding or information reporting. Information reporting (but not backup
withholding) will apply, however, to the payment of proceeds from the
disposition of Common Stock by or through the foreign office of (i) a United
States broker, (ii) a broker that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States, or
(iii) a broker that is a "controlled foreign corporation" for United States
federal income tax purposes, unless the broker has documentary evidence in its
records that the owner is a Non-U.S. Holder and certain other conditions are met
or the owner otherwise establishes an exemption. The payment of proceeds from
the disposition of Common Stock by or through a United States office of a broker
will be subject to both backup withholding and information reporting unless the
owner certifies under penalty of perjury that, among other things, it is a
Non-U.S. Holder or otherwise establishes an exemption.

SHARES ELIGIBLE FOR FUTURE SALE

15,965,995 shares of Common Stock are outstanding, including Restricted
Stock and unallocated ESOP shares. Of these shares, the 4,266,437 shares sold in
the IPO and the 3,000,000 shares (3,450,000 if the over-allotment option granted
to the Underwriters is exercised in full) sold in the Offering may be freely
traded without restriction under the Securities Act, except by purchasers in the
IPO and the Offering who may be deemed to be "affiliates" of Holdings, as that
term is defined in Rule 144 under the Securities Act (an "Affiliate").

The remaining 8,699,558 shares of Common Stock, including unallocated ESOP
shares (8,249,558 if the over-allotment option granted to the Underwriters is
exercised in full) were acquired in transactions exempt from registration under
the Securities Act. These shares, as well as any shares purchased in the IPO and
the Offering by an Affiliate, may not be resold unless they are registered under
the Securities Act or are sold pursuant to an applicable exemption from
registration, including an exemption under Rule 144.

87
<PAGE>

The Original Stockholders will have registration rights with respect to
8,699,558 shares of Common Stock held by such shareholders following the closing
of the Offering. See "Certain Relationships and Related
Transactions--Stockholders' Agreement," "--Orix Investment" and "--Centre Re
Investment."

In general, under Rule 144 as currently in effect, if at least two years
have elapsed since the later of the date "restricted shares" (as that term is
defined in Rule 144) were acquired from Holdings or from an Affiliate, the
beneficial holder of such restricted shares (including an Affiliate) is entitled
to sell a number of shares within any three-month period that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the average
weekly reported volume of trading in the Common Stock on the NYSE or reported
through the automated quotation system of a registered securities association
during the four calendar weeks preceding such sale and may sell such shares only
through unsolicited brokers' transactions. Sales under Rule 144 are also subject
to certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning Holdings.
After the Offering, Original Stockholders holding 7,515,660 shares will have
already satisfied the two-year holding period. In addition, Affiliates may sell
shares not constituting restricted securities in accordance with the foregoing
volume limitations and other requirements but without regard to the two-year
holding period.

Under Rule 144(k), if at least three years have elapsed since the later of
the date restricted shares were acquired from Holdings or an Affiliate, a holder
of such restricted shares who is not an Affiliate at the time of the sale and
has not been an Affiliate for at least three months prior to the sale would be
entitled to sell the shares immediately without regard to the volume limitations
and other conditions described above.

Certain officers and employees of the Company have been granted stock
options to acquire shares of Common Stock pursuant to the Company's stock option
plans. Options to purchase an aggregate of 2,301,213 shares of Common Stock have
been granted under the stock option plans. As of May 31, 1996, Holdings has
reserved 441,154 additional unissued shares of Common Stock for future grants
under the stock option plans (which excludes the shares referred to above
issuable upon the exercise of outstanding options). See "Management--Summary
Compensation Table" "--Employee Benefit Plans" and "--Restricted Stock Units."

Holdings has filed a registration statement on Form S-8 under the Securities
Act to register the future issuance by Holdings of 2,737,578 shares of Common
Stock under the stock option plans and resales of certain shares acquired under
such plans. Shares of Common Stock acquired under such plans by non-Affiliates
following the effectiveness of such registration statement may be resold by such
non-Affiliates without restriction under the Securities Act. In addition, shares
acquired under such plans by Affiliates following such effectiveness will be
able to be resold by the holders thereof, subject to the volume limitations set
forth in Rule 144. All such shares shall, in any event, be subject to vesting
and transfer restrictions specified in the agreements evidencing grants under
the plans.

See "Underwriting" for a description of agreements among the Managing
Underwriters, Holdings and the Selling Stockholders concerning restrictions on
the sale of Common Stock.

88
<PAGE>
UNDERWRITING

The names of the Underwriters of the Common Stock offered hereby and the
aggregate number of shares of Common Stock that each has severally agreed to
purchase from the Selling Stockholders, subject to the terms and conditions
specified in the Underwriting Agreement, are as follows:

UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------- ----------------
Dillon, Read & Co. Inc.....................................
Alex. Brown & Sons Incorporated............................
Goldman, Sachs & Co........................................

----------------
Total................................................ 3,000,000
----------------
----------------

The Managing Underwriters are Dillon, Read & Co. Inc. ("Dillon Read"), Alex.
Brown & Sons Incorporated and Goldman, Sachs & Co.

If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.

The Common Stock offered hereby is being initially offered severally by the
Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain dealers. The offering is made
for delivery when, as, and if accepted by the Underwriters and subject to prior
sale and to withdrawal, cancellation or modification of the offer without
notice. The Underwriters reserve the right to reject any order for the purchase
of the shares. After the Offering, the public offering price, the concession and
the reallowance may be changed by the Managing Underwriters.

The Selling Stockholders have granted to the Underwriters an over-allotment
option to purchase up to an aggregate of 450,000 shares of Common Stock. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of the aggregate shares to be purchased as the number of shares to be
purchased by it shown in the above table bears to 3,000,000. The Underwriters
may exercise such option on or before the thirtieth day from the date of the
Underwriting Agreement and only to cover over-allotments made of the shares in
connection with this Offering.

The Company, certain of its officers and directors and the Selling
Stockholders have agreed not to offer, sell, contract to sell, grant any option
to sell, or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or securities convertible into, or exercisable or exchangeable for, any
shares of Common Stock or warrants or other rights to purchase shares of Common
Stock or permit the registration of any shares of Common Stock for a period of
120 days after the date of this Prospectus, without the prior consent of Dillon
Read acting on behalf of the Managing Underwriters, except that without such
consent, (A) the Company may (i) grant options and award restricted stock
pursuant to

89
<PAGE>

the Company's director and employee benefit plans, (ii) issue shares of Common
Stock upon the purchase of the outstanding warrants or the exercise of
outstanding options and (iii) register shares of Common Stock pursuant to this
Offering and pursuant to the Form S-8 described in "Management-- Employee
Benefit Plans," and (B) the Selling Stockholders may sell shares of Common Stock
pursuant to this Offering.

The Company and the Selling Stockholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.

The Company has agreed to pay the Selling Stockholders' expenses related to
the Offering.

See "Principal and Selling Stockholders" and "Certain Relationships and
Related Transactions" for a discussion of certain relationships between the
Company and Dillon Read. Charles P. Durkin, Jr., a Managing Director of Dillon
Read, has been a member of the Board of Directors of each of Holdings and CapMAC
since June 1992. James H. Laird, a Senior Vice President of Dillon Read, has
been a member of the Board of Directors of each of Holdings and CapMAC since
June 1992. Richard Yancey, a former Managing Director of Dillon Read, has been a
member of the Board of Directors of Holdings since June 1992.

Certain of the Underwriters have, from time to time, provided investment
banking and other financial advisory services to the Company, for which they
have received customary fees. See "Certain Relationships and Related
Transactions."

LEGAL MATTERS

Certain legal matters in connection with the Common Stock offered hereby are
being passed upon for the Company and Selling Stockholders by Simpson Thacher &
Bartlett (a partnership which includes professional corporations), New York, New
York and Ram D. Wertheim, Esq., General Counsel to the Company and for the
Underwriters by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York. Mr. Wertheim beneficially owns 161,932.5
shares of Common Stock of Holdings. See "Principal and Selling Stockholders."

EXPERTS

The consolidated financial statements and schedules of the Company as of
December 31, 1995 and 1994 and for each of the years in the three year period
ended December 31, 1995 have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and in the Registration
Statement and upon the authority of said firm as experts in accounting and
auditing. The reports of KPMG Peat Marwick LLP referred to above refer to the
Company's adoption in 1993 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."

90
<PAGE>
GLOSSARY OF INSURANCE TERMS

<TABLE>
<S> <C>
Aggregate net liability........... Outstanding principal and interest of guaranteed
obligations insured, net of qualifying reinsurance.
Assumed premiums.................. Premiums arising from reinsurance agreements under which
one insurer (the reinsurer) accepts a portion of the
risk insured by another insurer (the ceding company).
Ceded premiums.................... Premiums transferred under reinsurance policies in
connection with the transfer by an insurance company
(the ceding company) of a portion of its insured risk to
another insurer (the reinsurer).
Ceding company.................... An insurance company that transfers ("cedes") a portion
of its insured risk to a reinsurer.
Claims-paying resources........... The sum of qualified statutory capital, stop-loss
reinsurance and PFR.
Combined ratio.................... The total of the expense ratio and loss ratio on either
a SAP or GAAP basis, as the case may be.
Contingency reserve............... A reserve used in SAP designed to protect policyholders
against the effect of excessive losses occurring during
adverse economic cycles.
Credit enhancement................ Use of dedicated funds or other assets, such as
overcollateralization or cash collateral, or third party
financial support, such as financial guaranty insurance
or a letter of credit, to upgrade the credit rating of
an obligation.
Credit rating..................... An alphabetic system used by major rating agencies to
categorize the creditworthiness of a specific
obligation. A credit rating of BBB or Baa or better is
considered an investment grade rating, meaning the
obligations have been analyzed and are regarded as
having adequate capacity to provide timely payment of
debt service. A credit rating below BBB or Baa is
considered a speculative grade rating, meaning there is
a higher probability of default. (See "Credit Rating of
Securities and Other Obligations.")
Deferred acquisition costs........ Certain costs incurred, which vary with and are
primarily related to the production of new business,
excluding costs incurred in connection with structuring
deals, and which are deferred (capitalized). These costs
include direct and indirect expenses related to
underwriting, marketing, policy issuance, rating agency
fees and premium taxes. The deferred acquisition costs
are amortized over the period in proportion to the
related premium earnings.
Direct premiums written........... Gross premiums written but not including premiums
assumed through reinsurance.
Excess of loss reinsurance........ A form of non-proportional reinsurance which, subject to
a specified limit, indemnifies the ceding company
against loss in excess of a specified deductible with
respect to claims under a policy.
Expense ratio..................... Underwriting and operating expenses and policy
acquisition costs, divided by net premiums earned, if
determined in accordance with GAAP, or underwriting and
operating expenses divided by net premiums written, if
determined in accordance with SAP.
</TABLE>

91
<PAGE>
<TABLE>
<S> <C>
Financial guaranty................ The promise to make payments to the holder of a
financial obligation in the event the borrower or
underlying obligor fails to do so.
GAAP.............................. Generally Accepted Accounting Principles as defined by
the American Institute of Certified Public Accountants
or the Financial Accounting Standards Board and in other
recognized accounting literature in the United States.
Gross Par......................... The amount of principal or other obligations (excluding
the interest portion) guaranteed under an insurance
policy or a reinsurance agreement.
Gross Statutory P&I............... The amount of principal and interest guaranteed under an
insurance policy or a reinsurance agreement determined
in accordance with rules and procedures prescribed or
permitted by state insurance regulatory authorities.
Gross premiums written............ All premiums arising from policies issued directly by
the insurance company to its policyholders plus premiums
assumed by the insurance company through reinsurance.
Guarantor......................... The entity, such as an insurance company or a bank, that
promises to pay an obligation in the event the obligor
fails to do so.
Inforce Par....................... The full amount of principal, commitment, or other
obligations (excluding the interest portion) of the
securities or obligations in respect of which an
insurance policy or a reinsurance agreement has been
issued, whether or not the full amount is guaranteed by
such policy or agreement.
Issuer............................ A corporation, municipality, trust or other entity that
is the obligor on a debt or pass-through issuance in the
capital markets.
Loss adjustment expense........... All of the costs associated with the settlement or
mitigation of claims, except the claim payment itself.
Loss ratio........................ Losses and loss adjustment expenses incurred divided by
net premiums earned, calculated in accordance with GAAP
or SAP, as the case may be.
Maturity.......................... The date at which an obligation, such as the principal
or final balance of a security, becomes due.
Net Par........................... The amount of principal or other obligations (excluding
interest portion) guaranteed under an insurance policy
or a reinsurance agreement, net of ceded reinsurance.
Net premiums earned............... Premiums earned, net of premiums earned ceded to
reinsurers.
Net premiums written.............. Gross premiums written, net of premiums ceded to
reinsurers.
Net Statutory P&I................. The amount of principal and interest guaranteed under an
insurance policy or a reinsurance agreement, net of
ceded reinsurance, determined in accordance with rules
and procedures prescribed or permitted by state
insurance regulatory authorities.
Obligor........................... The entity required to make payments under a debt, loan
or other financial instrument.
</TABLE>

92
<PAGE>
<TABLE>
<S> <C>
Present value of future revenues
or PFR.......................... Present value calculated from the date the related
policy is issued of future revenue stream, net of
premiums ceded to reinsurers, embedded in a transaction
or a portfolio of transactions guaranteed by an insurer
which is expected to be recognized over the term of the
transaction or the portfolio.
PFR Written....................... Present value of future revenue stream, net of premiums
ceded to reinsurers, embedded in the business written in
a given period, which is expected to be recognized over
the term of the book of business.
Policy acquisition costs.......... All expenses incurred which vary with and are primarily
related to the production of new or renewal business.
Policyholders' leverage ratio..... Net Statutory P&I divided by qualified statutory
capital.
Policyholders' surplus............ The amount remaining after all liabilities, including
loss and contingency reserves, are subtracted from all
assets, applying SAP.
Premiums earned................... The portion of net premiums that is recognized as income
during a given period. The amount of earned premium in a
given period is often determined differently under SAP
and under GAAP.
Qualified statutory capital....... The aggregate of policyholders' surplus and contingency
reserves, calculated in accordance with SAP.
Quota share reinsurance........... A form of proportional reinsurance under which the
ceding insurer transfers to the reinsurer a specified
percentage of each risk within a defined category of
insurance business written by the insurer in return for
a similar percentage of the premium applicable thereto.
This form of reinsurance is also known as pro rata or
proportional reinsurance.
Reinsurance....................... A procedure whereby an insurer transfers ("cedes") to
another insurer a portion of the risk insured and a
portion of the related premiums. Reinsurance can be
effected by a "treaty", where reinsurance automatically
covers a portion of all risks of a defined category,
amount and type, or by "facultative" reinsurance, where
reinsurance is negotiated on a contract-by-contract
basis.
SAP............................... Statutory Accounting Practices consist of recording
transactions and preparing financial statements in
accordance with the rules and procedures prescribed or
permitted by state insurance regulatory authorities.
Supplemental Loss Reserve......... A reserve based on estimates of the portion of premiums
earned required to cover potential future claims on
securities currently insured, determined on a GAAP
basis.
Treaty reinsurance................ Reinsurance written on a treaty basis instead of
facultatively. A reinsurance treaty is a reinsurance
agreement between the ceding company and the reinsurer,
usually for one year or longer, which stipulates the
technical particulars applicable to the reinsurance of
some class or classes of business.
Unearned premiums................. The portion of premiums attributable to the unexpired
period of policies that has been collected by an insurer
but has not yet been recognized as net premiums earned
and accounted for as revenues.
</TABLE>

93
<PAGE>
CREDIT RATINGS OF SECURITIES AND OTHER OBLIGATIONS

Credit ratings are designed to provide a relative measure of the credit
quality of securities and other obligations and as a result have a significant
impact on the trading value of the securities in both the primary and secondary
market. Insured securities or obligations generally carry the same rating as the
claims-paying ability of the insurer. The following descriptions of credit
ratings applicable to securities are taken from more extensive explanations
provided by S&P and Moody's. All securities given a rating of BBB or Baa3 or
better are considered by S&P and Moody's, respectively, to be investment grade.

S&P'S RATING SERVICES

AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB, B, CCC, CC: Debt Rated "BB", "B", "CCC", or "CC" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "CC" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MOODY'S INVESTORS SERVICE, INC.

Aaa: Debt which is rated "Aaa" is judged to be of the best quality. It
carries the smallest degree of investment risk and is generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be anticipated are most unlikely to impair
the fundamentally strong position of such debt.

Aa: Debt which is rated "Aa" is judged to be of high quality by all
standards. Together with the "Aaa" group it comprises what is generally known as
high-grade debt. It is rated lower than the best debt because margins of
protection may not be as large as in Aaa debt or fluctuation in protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa debt.

A: Debt which is rated "A" possesses many favorable investment attributes
and is to be considered as upper medium grade obligation. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

94
<PAGE>
Baa: Debt which is rated "Baa" is considered as a medium grade obligation;
i.e., it is neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such debt lacks outstanding investment characteristics and in
fact has speculative characteristics as well.

Ba: Debt which is rated "Ba" is judged to have speculative elements; its
future cannot be considered as well assured. Often the protection of interest
and principal payment may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes debt in this class.

95
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE><CAPTION>
Audited Consolidated Financial Statements:
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and December 31, 1994............ F-3
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and
1993................................................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995, 1994 and 1993................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993................................................................................. F-6
Notes to Consolidated Financial Statements........................................... F-7

Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995............... F-26
Consolidated Statements of Income for the three months ended March 31, 1996 and March
31, 1995............................................................................. F-27
Consolidated Statement of Stockholders' Equity for the three months ended March 31,
1996................................................................................. F-28
Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and
March 31, 1995....................................................................... F-29
Notes to Unaudited Consolidated Financial Statements................................. F-30
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
CapMAC Holdings Inc.:

We have audited the accompanying consolidated balance sheets of CapMAC
Holdings Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CapMAC
Holdings Inc. and subsidiaries as of December 31, 1995 and 1994 and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.

As discussed in note 2, the Company changed its method of accounting for
investments to adopt 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," at December 31, 1993.

KPMG PEAT MARWICK LLP

New York, New York
January 31, 1996

F-2
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
DECEMBER 31 DECEMBER 31
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
INVESTMENTS:
Bonds at fair value (amortized cost $210,651 at December 31, 1995
and $178,882 at December 31, 1994)............................... $ 215,706 172,016
Short-term investments (at amortized cost which approximates fair
value)............................................................. 82,019 11,225
Mutual funds at fair value (cost $20,897 at December 31, 1994)..... -- 19,396
Investment in affiliates........................................... 32,033 --
----------- ------------
Total investments.............................................. 329,758 202,637
----------- ------------
Cash............................................................... 1,033 883
Accrued investment income.......................................... 3,136 2,746
Deferred acquisition costs......................................... 35,162 24,860
Premiums receivable................................................ 3,540 3,379
Prepaid reinsurance................................................ 13,171 5,551
Other assets....................................................... 5,473 4,348
----------- ------------
TOTAL ASSETS................................................... $ 391,273 244,404
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unearned premiums.................................................. $ 45,767 25,905
Reserve for losses and loss adjustment expenses.................... 6,548 5,191
Ceded reinsurance.................................................. 2,469 1,497
Accounts payable and other accrued expenses........................ 11,367 10,116
Senior notes....................................................... 15,000 15,000
Current income taxes............................................... 3,264 2,591
Deferred income taxes.............................................. 10,776 3,443
----------- ------------
Total liabilities.............................................. 95,191 63,743
----------- ------------
MINORITY INTEREST.................................................. 19,563 --
----------- ------------
STOCKHOLDERS' EQUITY:
Common stock....................................................... 160 123
Additional paid-in capital......................................... 223,400 159,728
Unrealized appreciation (depreciation) on investments, net of
tax................................................................ 2,443 (5,522)
Retained earnings.................................................. 57,029 33,501
Unallocated ESOP shares............................................ (6,497) (7,169)
Cumulative translation adjustment, net of tax...................... (16) --
----------- ------------
Total stockholders' equity..................................... 276,519 180,661
----------- ------------
TOTAL LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS'
EQUITY............................................................. $ 391,273 244,404
----------- ------------
----------- ------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES:
Direct premiums written................... $56,541 43,598 24,491
Assumed premiums written.................. 935 1,064 403
Ceded premiums written.................... (15,992) (11,069) (3,586)
-------- ------- -------
Net premiums written.................... 41,484 33,593 21,308
Increase in unearned premiums............. (12,242) (10,490) (3,825)
-------- ------- -------
Net premiums earned..................... 29,242 23,103 17,483
Advisory fees............................. 15,470 10,723 4,722
Net investment income..................... 12,843 10,316 10,205
Net realized capital gains (losses)....... 1,351 (117) 1,490
Other income.............................. 3,726 526 647
-------- ------- -------
Total revenues.......................... 62,632 44,551 34,547
-------- ------- -------
EXPENSES:
Losses and loss adjustment expenses....... 3,141 1,429 902
Underwriting and operating expenses....... 16,421 12,532 11,740
Policy acquisition costs.................. 7,203 4,529 2,663
Interest expense.......................... 1,203 1,203 1,203
-------- ------- -------
Total expenses.......................... 27,968 19,693 16,508
-------- ------- -------
Income before income taxes and minority
interest.................................. 34,664 24,858 18,039
-------- ------- -------
INCOME TAXES:
Total income taxes...................... 11,108 7,792 5,570
-------- ------- -------
Income before minority interest......... 23,556 17,066 12,469
-------- ------- -------
MINORITY INTEREST......................... (28) -- --
-------- ------- -------
NET INCOME.............................. $23,528 17,066 12,469
-------- ------- -------
-------- ------- -------
Primary earnings per share................ $ 1.73 1.23 0.96
Fully diluted earnings per share.......... $ 1.65 1.23 0.96
-------- ------- -------
-------- ------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of period............ $ 123 123 123
Common stock issued....................... 37 -- --
----------------- -------- --------
Balance at end of period................ 160 123 123
----------------- -------- --------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period............ 159,728 159,718 159,718
Issuance of common stock.................. 63,672 10 --
----------------- -------- --------
Balance at end of period................ 223,400 159,728 159,718
----------------- -------- --------
UNREALIZED (DEPRECIATION) APPRECIATION ON
INVESTMENTS, NET OF TAX:
Balance at beginning of period............ (5,522) 3,629 --
Unrealized appreciation (depreciation) on
investments............................... 7,965 (9,151) 3,629
----------------- -------- --------
Balance at end of period................ 2,443 (5,522) 3,629
----------------- -------- --------
RETAINED EARNINGS:
Balance at beginning of period............ 33,501 16,435 3,966
Net income................................ 23,528 17,066 12,469
----------------- -------- --------
Balance at end of period................ 57,029 33,501 16,435
----------------- -------- --------
UNALLOCATED ESOP SHARES:
Balance at beginning of period............ (7,169) (8,477) (9,097)
Allocation of ESOP shares................. 672 1,308 620
----------------- -------- --------
Balance at end of period................ (6,497) (7,169) (8,477)
----------------- -------- --------
CUMULATIVE TRANSLATION ADJUSTMENT, NET OF
TAX:
Balance at beginning of period............ -- -- --
Translation adjustment.................... (16) -- --
----------------- -------- --------
Balance at end of period................ (16) -- --
----------------- -------- --------
TOTAL STOCKHOLDERS' EQUITY.............. $ 276,519 180,661 171,428
----------------- -------- --------
----------------- -------- --------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 23,528 17,066 12,469
----------------- ------- --------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Reserve for losses and loss adjustment
expenses.................................. 1,357 1,429 902
Unearned premiums....................... 19,862 15,843 4,024
Deferred acquisition costs.............. (10,302) (9,611) (9,815)
Premiums receivable..................... (161) (2,103) (432)
Accrued investment income............... (390) (848) (110)
Income taxes payable.................... 3,858 5,390 3,068
Net realized capital (gains) losses..... (1,351) 117 (1,490)
Accounts payable and other accrued
expenses.................................. 1,251 3,421 1,651
Prepaid reinsurance..................... (7,620) (5,352) (199)
Other, net.............................. (1,694) 558 1,039
----------------- ------- --------
Total adjustments................... 4,810 8,844 (1,362)
----------------- ------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES................................ 28,338 25,910 11,107
----------------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................. (171,940) (88,797) (148,093)
Purchases of investment in affiliates..... (32,016) -- --
Proceeds from sales of investments........ 53,882 42,118 27,854
Proceeds from maturities of investments... 37,980 19,958 108,590
----------------- ------- --------
NET CASH USED BY INVESTING ACTIVITIES... (112,094) (26,721) (11,649)
----------------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Allocation of ESOP shares................. 672 1,308 620
Minority interest capital contribution to
CapMAC Asia............................... 19,535 -- --
Net proceeds from sale of common stock.... 63,699 -- --
----------------- ------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES................................ 83,906 1,308 620
----------------- ------- --------
Net increase in cash...................... 150 497 78
Cash balance at beginning of period....... 883 386 308
----------------- ------- --------
CASH BALANCE AT END OF PERIOD........... $ 1,033 883 386
----------------- ------- --------
----------------- ------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Income taxes paid......................... $ 7,106 2,345 2,535
Interest paid............................. $ 1,128 1,128 1,106
----------------- ------- --------
----------------- ------- --------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994

1) BACKGROUND

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

CapMAC is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance. 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 guarantee
reinsurance for structured asset-backed, corporate, municipal and other
financial obligations written by other major insurance companies.

CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's"), "AAA" by Standard & Poor's Ratings Group ("S&P"), "AAA" by
Duff & Phelps Credit Rating Co. ("Duff & Phelps"), and "AAA" by 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.

CFS and CFS (Europe) receive fees for providing advisory, consulting and
structuring services to third parties. CFS also provides various services,
including underwriting, reinsurance, data processing and other services to
CapMAC, in connection with the operation of CapMAC's insurance business. CapMAC
pays CFS an arm's length fee for providing such services, but not in excess of
CFS' cost for such services.

In December 1995, as part of its strategy to expand into Asia, the Company
purchased 36.3% of CapMAC Asia. CapMAC Asia has a 33.33% investment in Asia
Credit Services (Pte) Ltd ("Asia Services"). Asia Services owns all of the stock
of Asian Securitization & Infrastructure Assurance (Pte) Ltd ("ASIA Ltd"), a new
regional financial guarantee company located in Singapore. ASIA Ltd has been
formed to provide guarantees of high quality debt securities in the primary and
secondary Asian fixed income capital markets, and together with Asia Services,
to engage in related business activities in the Asian capital markets and to
provide technical advice and assistance in connection with Asian securitization
transactions.

On December 19, 1995 Holdings sold 2,500,000 new shares of its common stock
in an initial public offering ("the Offering"). In conjunction with the
Offering, Holdings also sold 500,000 shares to Centre Reinsurance Limited
(Centre Re), a wholly owned subsidiary of The Zurich Insurance Company in a
private placement (see note 16).

In July 1995, the Company sold 500,001 shares of common stock to ORIX USA
Corporation ("ORIX"), a subsidiary of ORIX Corporation, a leading Japanese
leasing company (see note 16).

2) SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies used in the preparation of the accompanying
consolidated financial statements are as follows:

F-7
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
a) Basis of Presentation

The accompanying consolidated financial statements are prepared on the basis
of generally accepted accounting principles ("GAAP") and include the accounts of
Holdings and its wholly owned subsidiaries, principally CapMAC and CFS, and its
investment in CapMAC Asia. The remaining shareholders in CapMAC Asia are
accounted for as minority interest. All significant intercompany transactions
have been eliminated in consolidation.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
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. Management believes the most significant estimates relate to
deferred acquisition costs, reserve for losses and loss adjustment expenses and
disclosures of financial guarantees outstanding. Actual results could differ
from those estimates.

b) Investments

At December 31, 1993, Holdings adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, Holdings can
classify its debt and marketable equity securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which Holdings has the
ability and intent to hold the securities until maturity. All other securities
not included in trading or held-to-maturity are classified as
available-for-sale. As of December 31, 1995 and 1994, all of the Company's
securities have been classified as available-for-sale.

Available-for-sale securities are recorded at fair value. Fair value is
based upon quoted market prices. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer.

A decline in the fair value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.

Short-term investments are those investments having a maturity of less than
one year at purchase date. Short-term investments are carried at amortized cost
which approximates fair value.

Investment in affiliates is accounted for in accordance with the equity
method of accounting. The investment in affiliate consists of the Company's
investment in Asia Services and P.T. Citimas Capital (Pte) Ltd. ("CMCI").

Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses are included in earnings and are derived using the FIFO (first-in,
first-out) method for determining the cost of securities sold.

F-8
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
c) Revenue Recognition

Premiums which are payable monthly to CapMAC are reflected in income when
due, net of amounts payable to reinsurers. Premiums which are payable quarterly,
semi-annually or annually are reflected in income, net of amounts payable to
reinsurers, on an equal monthly basis over the corresponding policy term.
Premiums that are collected as a single premium at the inception of the policy
and have a term longer than one year are earned, net of amounts payable to
reinsurers, by allocating premium to each bond maturity based on the principal
amount and earning it straight-line over the term of each bond maturity. For the
year ended December 31, 1995, 91% of net premiums earned were attributable to
premiums payable in installments and 9% were attributable to premiums collected
on an up-front basis.

Advisory fees received by CFS or CFS (Europe) are generally earned when a
transaction closes. Such amounts are non-refundable and are for services
provided prior to the close of a transaction.

d) Deferred Acquisition Costs

Certain costs incurred by CapMAC, which vary with and are primarily related
to the production of new business, are deferred. These costs include direct and
indirect expenses related to underwriting, marketing and policy issuance, rating
agency fees and premium taxes. The deferred acquisition costs are amortized over
the period in proportion to the related premium earnings. The actual amount of
premium earnings may differ from projections due to various factors such as
renewal or early termination of insurance contracts or different run-off
patterns of exposure resulting in a corresponding change in the amortization
pattern of the deferred acquisition costs.

e) Reserve for Losses and Loss Adjustment Expenses

The reserve for losses and loss adjustment expenses consists of a
Supplemental Loss Reserve ("SLR") and a case basis loss reserve. The SLR is
established based on expected levels of defaults resulting from credit failures
on currently insured issues. This SLR is based on estimates of the portion of
earned premiums required to cover those claims.

A case basis loss reserve is established for insured obligations when, in
the judgement 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.

Management believes that the current level of reserves is adequate to cover
the estimated liability for claims and the related adjustment expenses with
respect to financial guaranties issued by CapMAC. The establishment of the
appropriate level of loss reserves is an inherently uncertain process involving
numerous estimates and subjective judgments by management, and therefore there
can be no assurance that losses in CapMAC's insured portfolio will not exceed
the loss reserves.

F-9
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

2) SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
f) Depreciation

Leasehold improvements, furniture and fixtures are being depreciated over
the lease term or useful life, whichever is shorter, using the straight-line
method.

g) Income Taxes

Deferred income taxes are provided with respect to temporary differences
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.

h) Earnings per share

Earnings per share ("EPS") has been computed using the modified treasury
stock method and the average market value of the shares as determined by an
independent consulting firm in connection with the annual evaluation conducted
for the Employee Stock Ownership Plan ("ESOP") for periods prior to the Offering
and incorporating the closing stock price on December 31, 1995. Total weighted
average number of common stock and common stock equivalents used in calculating
the primary earnings per share, for the years ended December 31, 1995, 1994 and
1993 were approximately 13,636,000, 13,645,000 and 13,414,000, respectively.
Total weighted average number of common stock and common stock equivalents used
in calculating the fully diluted earnings per share, for the years ended
December 31, 1995, 1994 and 1993 were approximately 14,337,000, 13,645,000 and
13,414,000, respectively.

i) Recent Accounting Pronouncement

In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
establishes accounting and reporting standards for stock-based employee
compensation plans. This statement allows companies to choose between the "fair
value based method of accounting" as defined in this statement and the
"intrinsic value based method of accounting" as prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the accounting requirements under
APB 25 must also make pro forma disclosures of net income and, if presented,
earnings per share, as if the fair value based method of accounting had been
applied. SFAS No. 123 is effective for fiscal years beginning after December 15,
1995, though it may be adopted earlier. The Company intends to continue to
follow the accounting guidance provided by APB 25 as permitted and will provide
the necessary disclosure requirements of SFAS No. 123 in its fiscal 1996
consolidated financial statements.

3) INSURED PORTFOLIO

At December 31, 1995 and 1994, the principal amount of financial obligations
insured by CapMAC was $16.9 billion and $11.6 billion, respectively, and net of
reinsurance (net principal outstanding), was $12.6 billion and $9.4 billion,
respectively, with a weighted average life of 6.0 years and 5.0 years,
respectively. CapMAC's insured portfolio was broadly diversified by geographic
distribution and type of insured obligations, with no single insured obligation
in excess of statutory single risk limits, after giving effect to any
reinsurance and collateral, which are a function of CapMAC's statutory

F-10
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

3) INSURED PORTFOLIO--(CONTINUED)
qualified capital (the sum of statutory capital and surplus and mandatory
contingency reserve). At December 31, 1995 and 1994, the statutory qualified
capital was approximately $240 million and $170 million, respectively.
<TABLE><CAPTION>
NET PRINCIPAL OUTSTANDING
---------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ -----------------
TYPE OF OBLIGATIONS INSURED ($ IN MILLIONS) AMOUNT % AMOUNT %
- ------------------------------------------------------ ------- ----- ------ -----
<S> <C> <C> <C> <C>
Consumer receivables.................................. $ 6,959 55.1 $4,740 50.4
Trade and other corporate obligations................. 4,912 38.9 4,039 43.0
Municipal/government obligations...................... 757 6.0 618 6.6
------- ----- ------ -----
TOTAL............................................. $12,628 100.0 $9,397 100.0
------- ----- ------ -----
------- ----- ------ -----
</TABLE>

At December 31, 1995, approximately 85% of CapMAC's insured portfolio was
comprised of structured asset-backed transactions. Under these structures, a
pool of assets covering at least 100% of the principal amount guaranteed under
its insurance contract is sold or pledged to a special purpose bankruptcy remote
entity. CapMAC's primary risk from such insurance contracts is the impairment of
cash flows due to delinquency or loss on the underlying assets. CapMAC,
therefore, evaluates all the factors affecting past and future asset performance
by studying historical data on losses, delinquencies and recoveries of the
underlying assets. Each transaction is reviewed to ensure that an appropriate
legal structure is used to protect against the bankruptcy risk of the originator
of the assets. Along with the legal structure, an additional level of first loss
protection is also created to protect against losses due to credit or dilution.
This first level of loss protection is usually available from reserve funds,
excess cash flows, overcollateralization, or recourse to a third party. The
level of first loss protection depends upon the historical losses and dilution
of the underlying assets, but is typically several times the normal historical
loss experience for the underlying type of assets.

During 1995, the Company sold without recourse its interest in potential
cash flows from transactions included in its insured portfolio and recognized
$2,200,000 of income which has been included in other income in the accompanying
consolidated financial statements.

The following entities each accounted for, through referrals and otherwise,
10% or more of total revenues for each of the periods presented:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------- -------------------- -------------------------------
% OF % OF % OF
NAME REVENUES NAME REVENUES NAME REVENUES
--------- -------- --------- -------- -------------------- --------
<S> <C> <C> <C> <C> <C>
Citicorp 11.7 Citicorp 14.3 Citicorp 12.8
Chemical Bank 11.1
Merrill Lynch & Co. 13.8
</TABLE>

F-11
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

4) INVESTMENTS

At December 31, 1995 and 1994, all of Holdings' investments were classified
as available-for-sale securities. The amortized cost, gross unrealized gains,
gross unrealized losses and estimated fair value for available-for-sale
securities by major security type at December 31, 1995 and 1994 were as follows
($ in thousands):
<TABLE><CAPTION>
DECEMBER 31, 1995
- ---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- --------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury obligations.......................... $ 4,153 55 -- 4,208
Mortgage-backed securities of U.S. government
instrumentalities and agencies..................... 110,104 313 79 110,338
Obligations of states, municipalities and political
subdivisions....................................... 166,010 4,809 82 170,737
Corporate and asset-backed securities.............. 12,403 45 6 12,442
--------- ----- --- ---------
TOTAL.......................................... $ 292,670 5,222 167 297,725
--------- ----- --- ---------
--------- ----- --- ---------
<CAPTION>
DECEMBER 31, 1994
- ---------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- --------------------------------------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury obligations.......................... $ 4,295 -- 153 4,142
Mortgage-backed securities of U.S. government
instrumentalities and agencies..................... 40,973 -- 2,986 37,987
Obligations of states, municipalities and political
subdivisions....................................... 128,856 364 3,994 125,226
Corporate and asset-backed securities.............. 15,983 15 112 15,886
Mutual funds....................................... 20,897 131 1,632 19,396
--------- ----- ----- ---------
TOTAL.......................................... $ 211,004 510 8,877 202,637
--------- ----- ----- ---------
--------- ----- ----- ---------
</TABLE>

The Company's investment in mutual funds in 1994 represents an investment in
an open-end management investment company which invests primarily in
investment-grade fixed-income securities denominated in foreign and United
States currencies, an investment in an open-end management investment company
which invests primarily in United States fixed-income securities and an
investment in a limited partnership which invests in U.S. equity securities on a
long and short basis.

F-12
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

4) INVESTMENTS--(CONTINUED)

The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 by contractual maturity are shown below ($ in
thousands):

DECEMBER 31, 1995
- ------------------------------------------------------
AMORTIZED ESTIMATED
SECURITIES AVAILABLE-FOR-SALE COST FAIR VALUE
- ------------------------------------------------------ --------- ----------
Less than one year to maturity........................ $ 9,466 9,469
One to five years to maturity......................... 37,630 38,553
Five to ten years to maturity......................... 99,567 102,264
Greater than ten years to maturity.................... 35,903 37,101
--------- ----------
Sub-total........................................... 182,566 187,387
Mortgage-backed securities............................ 110,104 110,338
--------- ----------
TOTAL............................................. $ 292,670 297,725
--------- ----------
--------- ----------

Actual maturities may differ from contractual maturities because borrowers
may call or prepay obligations with or without call or prepayment penalties.

Proceeds from sales of investment securities were approximately $54 million,
$42 million and $28 million in 1995, 1994 and 1993, respectively. Gross realized
capital gains of $1,486,000, $781,000 and $1,648,000, and gross realized capital
losses of $135,000, $898,000 and $158,000 were realized on those sales for the
years ended December 31, 1995, 1994 and 1993, respectively.

Investments include bonds having a fair value of approximately $3,985,000
and $3,873,000 (amortized cost of $3,970,000 and $4,011,000) which are on
deposit at December 31, 1995 and 1994, respectively, with state regulators as
required by law.

Investment income is comprised of interest and dividends, net of related
expenses, and is applicable to the following sources:

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
$ IN THOUSANDS DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
- ------------------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Bonds..................................... $11,105 9,193 7,803
Short-term investments.................... 2,088 602 592
Mutual funds (147) 705 1,976
Investment in affiliates.................. 42 -- --
Investment expenses....................... (245) (184) (166)
-------- ------- -------
TOTAL................................. $12,843 10,316 10,205
-------- ------- -------
-------- ------- -------
</TABLE>

The Company purchased, for approximately $11 million, 36.3% of CapMAC Asia.
At December 31, 1995, the minority interest in CapMAC Asia amounted to $19.6
million. CapMAC Asia has a 33.33% investment, $30.7 million, in Asia Services.
Asia Services owns 100% of the stock of ASIA Ltd.

In April 1995, Holdings acquired three million shares of CMCI for three
billion Rupiah, which is equivalent to $1,350,000. CMCI is a corporation
established to develop securitization in Indonesia for obligations that are
backed by assets originated in Indonesia or that are issued by Indonesian
entities. CMCI participates as a principal in the securitization markets in
Indonesia. Simultaneously with the

F-13
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

4) INVESTMENTS--(CONTINUED)
execution of the joint venture agreement with the other investors in CMCI, CFS
entered into a technical assistance agreement with CMCI to provide technical and
advisory assistance to CMCI in exchange for certain fees. Holdings' investment
represents an equity interest of approximately 15% in CMCI. At December 31,
1995, the investment amounted to $1,339,000.

In February 1995, Holdings entered into a strategic alliance with The Mutual
Life Assurance Company of Canada and three of its derivatives products
subsidiaries (such subsidiaries, "TMG Group"). TMG Group provides a broad range
of derivative products, with a special emphasis on "municipal derivatives,"
including investment agreements and long dated interest rate swaps. In addition,
TMG Group provides interest rate swaps and currency swaps. Because the
obligations of TMG Group under its derivative transactions are guaranteed by The
Mutual Life Assurance Company of Canada, TMG Group is rated AA by S&P and Aa3 by
Moody's.

In connection with the strategic alliance, Holdings was issued a warrant to
purchase 17.7% of the common stock of each of the companies in TMG Group at an
aggregate initial purchase price of $10 million, as increased over time under a
LIBOR-based formula. On a monthly basis, the strike price will be adjusted
upwards by a one-month LIBOR rate until the warrants are exercised. To the
extent that Holdings has not exercised this warrant prior to February 27, 2000,
TMG Group may require that Holdings exercise the warrant, at which time Holdings
would be obligated to invest up to approximately $13.0 million in TMG Group,
which amount is based upon assuming a constant LIBOR rate of 5%. The occurrence
of certain other events involving an insolvency of TMG Group or a change of
control of the Company that has a material adverse effect on TMG Group entitles
TMG Group to require Holdings to exercise the warrants prior to February 27,
2000. In the absence of a readily ascertainable fair value, the Company values
the warrants based upon the difference between the exercise price adjusted by
the LIBOR-based formula and the Company's valuation of its percentage share of
ownership of the TMG Group. At December 31, 1995, the estimated decrease in the
fair value of the warrants of $1.3 million was recorded as a reduction in "Other
Assets." The change in fair value, net of tax, amounted to ($849,000) and was
included as a separate component of stockholders' equity in unrealized
depreciation of investments. This value might have been different had a ready
market for the warrants existed.

The change in unrealized appreciation (depreciation) on available-for-sale
securities and warrants is included in a separate component of stockholders'
equity as shown below:

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED
$ IN THOUSANDS DECEMBER 31, 1995 DECEMBER 31, 1994
- ------------------------------------------ ----------------- -----------------
<S> <C> <C>
Balance at beginning of period............ $ (5,522) 3,629
Change in unrealized appreciation
(depreciation)............................ 12,115 (13,865)
Income tax effect......................... (4,150) 4,714
-------- -------
Net change................................ 7,965 (9,151)
-------- -------
BALANCE AT END OF PERIOD.............. $ 2,443 (5,522)
-------- -------
-------- -------
</TABLE>

No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 10% of stockholders' equity as of December
31, 1995.

F-14
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

5) DEFERRED ACQUISITION COSTS

The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
$ IN THOUSANDS DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
- ------------------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Balance at beginning of period............ $24,860 15,249 5,434
Additions................................. 17,505 14,140 12,478
Amortization (policy acquisition costs)... (7,203) (4,529) (2,663)
-------- ------- -------
BALANCE AT END OF PERIOD.............. $35,162 24,860 15,249
-------- ------- -------
-------- ------- -------
</TABLE>

6) EMPLOYEE BENEFITS

On June 25, 1992, CapMAC entered into a Service Agreement with CFS, which
was then a newly formed wholly owned subsidiary of Holdings. Under the Service
Agreement, CFS has agreed to provide various services, including underwriting,
reinsurance, data processing and other services to CapMAC in connection with the
operation of CapMAC's insurance business.

CFS maintains an incentive compensation plan for its employees. The plan is
an annual discretionary bonus award based upon Holdings' and an individual's
performance. CFS also has a health and welfare plan and a 401(k) plan to cover
substantially all of its employees. CapMAC reimburses CFS for all out-of-pocket
expenses incurred by CFS in providing services to CapMAC, including awards given
under the incentive compensation plan and benefits provided under the health and
welfare plan. For the years ended December 31, 1995, 1994 and 1993, the Company
had provided approximately $7,804,000, $5,253,000 and $3,528,000, respectively,
for the annual discretionary bonus plan.

On June 25, 1992, certain officers of CapMAC were granted 182,633 restricted
stock units ("RSU") at $13.33 a share in respect of certain deferred
compensation. On December 7, 1995, the RSU's were converted to cash in the
amount of approximately $3.7 million, and such officers agreed to defer receipt
of such cash amount in exchange for receiving the same number of new shares of
restricted stock (see Omnibus Stock Incentive Plan discussion below) as the
number of RSU's such officers previously held. The cash amount will be held by
Holdings and invested in accordance with certain guidelines. Such amount,
including the investment earnings thereon, will be paid to each officer upon the
occurrence of certain events but no later than December 2000.

The Company has authorized 2,925,000 options under its employee stock option
plans. The Company granted 1,720,211 and 195,000 options under its 1992 Stock
Option Plan and 1994 Stock Option Plan, respectively. The options that were
granted under the 1992 Stock Option Plan at an exercise price of $13.33 and
$14.67 per share vested immediately upon the initial public offering of
Holdings' stock. Stock options granted under the 1994 Stock Option Plan at an
exercise price of $20 per share vest immediately on the date of grant. The term
of the options is seven years. In connection with the public offering, the
remaining 1,005,000 shares that could have been awarded under the 1994 Stock
Option Plan have been made available under the Omnibus Stock Incentive Plan
("Omnibus Plan"). Under the Omnibus Plan the Company has reserved shares for
grants of different types of awards, such as stock options, restricted stock,
stock appreciation rights, other stock-based grants or any combination of the
foregoing. The term of each grant may not exceed ten years with a fixed number
of shares

F-15
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

6) EMPLOYEE BENEFITS--(CONTINUED)
determined at the outset. Key employees of the Company and its affiliates will
be eligible. In December 1995, the Company granted 198,000 stock options at a
strike price of $20 per share, pursuant to the Omnibus Plan. The option grants
provide that 50% of the stock options will vest five years after the grant
thereof and 50% will vest six years after the grant thereof. The stock options
will also be subject to accelerated vesting based upon the market value of the
stock as defined in the Omnibus Plan. The 182,633 shares of restricted stock
described previously have also been granted under the Omnibus Plan. As of
December 31, 1995, a total of 2,106,213 options have been granted, net of
cancellations and excluding the aforementioned shares of restricted stock, under
the plans. The total amount of shares reserved and available for future grants
are 636,154.
<TABLE><CAPTION>
YEAR ENDED
------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF PRICE OF PRICE OF PRICE
OPTIONS OPTIONS PER OPTION OPTIONS PER OPTION OPTIONS PER OPTION
- -------------------------------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period.......................... 1,888,083 $13.33-$20 1,701,603 $13.33 1,703,561 $13.33
Granted......................... 220,500 $20 187,500 $14.67-$20 -- --
Purchased by Company............ (630) $13.33 -- -- (338) $13.33
Forfeited....................... (1,740) $13.33 (1,020) $13.33 (1,620) $13.33
--------- ---------- --------- ---------- --------- ----------
Outstanding at end of period.... 2,106,213 $13.33-$20 1,888,083 $13.33-$20 1,701,603 $13.33
--------- ---------- --------- ---------- --------- ----------
--------- ---------- --------- ---------- --------- ----------
</TABLE>

7) EMPLOYEE STOCK OWNERSHIP PLAN

On June 25, 1992, Holdings adopted an ESOP to provide its employees the
opportunity to obtain beneficial interests in the stock of Holdings through a
trust (the "ESOP Trust"). The ESOP Trust purchased 750,000 shares at $13.33 per
share of Holdings' stock. The ESOP Trust financed its purchase of common stock
with a loan from Holdings in the amount of $10 million. The ESOP loan is
evidenced by a promissory note delivered to Holdings. An amount representing
unearned employee compensation, equivalent in value to the unpaid balance of the
ESOP loan, is recorded as a deduction from stockholders' equity (unallocated
ESOP shares).

CFS is required to make contributions to the ESOP Trust, which enables the
ESOP Trust to service its loan to Holdings. The ESOP expense is calculated using
the shares allocated method. Shares are released for allocation to the
participants and held in trust for the employees based upon the ratio of the
current year's principal and interest payment to the sum of principal and
interest payments estimated over the life of the loan. As of December 31, 1995
approximately 262,800 shares were allocated to the participants. Compensation
expense related to the ESOP was approximately $1,588,000, $1,407,000 and
$933,000 for the years ended December 31, 1995, 1994 and 1993, respectively.

8) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

The reserve for losses and loss adjustment expenses consists of a case basis
loss reserve and the SLR.

F-16
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

8) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES--(CONTINUED)
In 1995 CapMAC incurred its first claim on a financial guarantee policy.
Based on its current estimate, the Company expects the aggregate amount of
claims and related expenses not to exceed $2.7 million, although no assurance
can be given that such claims and related expenses will not exceed that amount.
Such loss amount was covered through a recovery under a quota share reinsurance
agreement of $0.2 million and a reduction in the SLR of $2.5 million. The
portion of such claims and expenses not covered under the quota share agreement
is being funded through payments to CapMAC from the Lureco Trust Account (see
note 13).

The following is a summary of the activity in the case basis loss reserve
account and the components of the liability for losses and loss adjustment
expenses ($ in thousands):

CASE BASIS LOSS RESERVE:
Net balance at January 1, 1995.................................... $ --
------
INCURRED RELATED TO:
Current year.................................................... 2,473
Prior years..................................................... --
------
Total incurred................................................ 2,473
------
PAID INCURRED TO:
Current year.................................................... 1,853
Prior years..................................................... --
------
Total paid.................................................... 1,853
------
Balance at December 31, 1995...................................... 620
------
Reinsurance recoverable........................................... 69
------
Supplemental loss reserve......................................... 5,859
------
TOTAL......................................................... $6,548
------
------

9) SENIOR NOTES

On December 15, 1992, Holdings sold $15,000,000 principal amount of 7.52%
Senior Notes to certain financial institutions. The Senior Notes are due in
equal annual installments of $3,750,000 beginning December 15, 1999 through
December 15, 2002. Interest is payable semiannually on the fifteenth day of June
and December of each year commencing June 15, 1993.

10) INCOME TAXES

Pursuant to a tax sharing agreement with Holdings, CapMAC and CFS file a
consolidated U.S. Federal income tax return. Each company's annual Federal
income tax liability is determined by computing its pro rata share of the
consolidated group Federal income tax liability. CFS (Europe) files a separate
income tax return with the U.K. Inland Revenue.

Taxes on foreign income have been provided for at the U.S. statutory Federal
income tax rate of 35%. The U.K. taxes corporate income at a 33% rate. An
additional 2% is provided to account for U.S. taxation (net of applicable
foreign tax credits) on the future repatriation of these foreign earnings.

F-17
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

10) INCOME TAXES--(CONTINUED)
Total income tax expense (benefit) consists of the following:
<TABLE><CAPTION>
$ IN THOUSANDS FEDERAL STATE & LOCAL FOREIGN TOTAL
- ------------------------------------------------------ ------- ------------- ------- ------
YEAR ENDED
DECEMBER 31, 1995
- ------------------------------------------------------

<S> <C> <C> <C> <C>
Current............................................... $ 3,814 1,529 2,580 7,923
Deferred.............................................. 3,244 (59) -- 3,185
------- ----- ------- ------
TOTAL............................................. $ 7,058 1,470 2,580 11,108
------- ----- ------- ------
------- ----- ------- ------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Current............................................... $ 2,561 1,473 928 4,962
Deferred.............................................. 2,868 (38) -- 2,830
------- ----- ------- ------
TOTAL............................................. $ 5,429 1,435 928 7,792
------- ----- ------- ------
------- ----- ------- ------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Current............................................... $ 1,811 1,019 -- 2,830
Deferred.............................................. 2,820 (80) -- 2,740
------- ----- ------- ------
TOTAL............................................. $ 4,631 939 -- 5,570
------- ----- ------- ------
------- ----- ------- ------
</TABLE>

Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 35% in 1995 and 34% in 1994 and 1993:
<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
--------------- ---------------- ----------------
$ IN THOUSANDS AMOUNT % AMOUNT % AMOUNT %
- ---------------------------------------------- ------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed at the statutory
rate.......................................... $12,132 35.0 $ 8,452 34.0 $ 6,133 34.0
Increase (decrease) in tax resulting from:
Tax-exempt interest......................... (2,335) (6.7) (1,646) (6.6) (1,140) (6.3)
State and local income taxes, net of Federal
benefit....................................... 935 2.7 934 3.8 594 3.3
Other, net.................................. 376 1.1 52 0.2 (17) (0.1)
------- ---- -------- ---- -------- ----
TOTAL INCOME TAX EXPENSE.................. $11,108 32.1 $ 7,792 31.4 $ 5,570 30.9
------- ---- -------- ---- -------- ----
------- ---- -------- ---- -------- ----
</TABLE>

F-18
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

10) INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liability are as follows:

<TABLE><CAPTION>
$ IN THOUSANDS DECEMBER 31, 1995 DECEMBER 31, 1994
- ------------------------------------------ ----------------- -----------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Unrealized capital losses on
investments............................... $-- (2,845)
Unrealized capital losses on the TMG Group
warrants.................................. (457) --
Deferred compensation..................... (2,120) (1,623)
Losses and loss adjustment expenses....... (1,002) (936)
Unearned premiums......................... (852) (762)
Other, net................................ (275) (346)
-------- ------
Total gross deferred tax assets......... (4,706) (6,512)
-------- ------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs................ 12,307 8,453
Unrealized capital gains on investments... 1,769 --
Deferred capital gains on investments..... 654 726
Deferred financing costs.................. 152 186
Other, net................................ 600 590
-------- ------
Total gross deferred tax liabilities.... 15,482 9,955
-------- ------
NET DEFERRED TAX LIABILITY.............. $10,776 3,443
-------- ------
-------- ------
</TABLE>

A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
that the deferred tax assets will be fully realized in the future.

11) INSURANCE REGULATORY RESTRICTIONS

CapMAC is subject to insurance regulatory requirements of the State of New
York and other states in which it is licensed to conduct business. Generally,
New York insurance laws require that dividends be paid from earned surplus and
restrict the amount of dividends in any year that may be paid without obtaining
approval for such dividends from the Superintendent of Insurance to the lower of
(i) net investment income as defined or (ii) 10% of statutory surplus as of
December 31 of the preceding year. No dividends were paid by CapMAC to Holdings
during the years ended December 31, 1995, 1994 and 1993. No dividends could be
paid during these periods because CapMAC had negative earned surplus. Statutory
surplus at December 31, 1995 and 1994 was approximately $195,018,000 and
$139,739,000, respectively. Statutory surplus differs from stockholders' equity
determined under GAAP principally due to the mandatory contingency reserve
required for statutory accounting purposes and differences in accounting for
investments, deferred acquisition costs, SLR and deferred taxes provided under
GAAP. Statutory net income was $9,000,000, $4,543,000 and $4,528,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. Statutory net income
differs from net income determined under GAAP principally due to deferred
acquisition costs, SLR and deferred income taxes.

F-19
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

12) COMMITMENTS AND CONTINGENCIES

On January 1, 1988, Holdings assumed from Citibank, N.A. the obligations of
a sublease agreement for space occupied in New York. On November 21, 1993, the
sublease was terminated and a new lease was negotiated which expires on November
20, 2008. Holdings has a lease agreement for its London office beginning October
1, 1992 and expiring October 1, 2002. As of December 31, 1995, future minimum
payments under the lease agreements are as follows:

$ IN THOUSANDS PAYMENT
- ----------------------------------------------------------------- -------
1996............................................................. $ 2,255
1997............................................................. 2,948
1998............................................................. 3,027
1999............................................................. 3,476
2000 and thereafter.............................................. 36,172
-------
TOTAL........................................................ $47,878
-------
-------

Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1995, 1994 and 1993 amounted to $2,398,000, $2,374,000 and
$2,065,000, respectively.

CapMAC has available a $100,000,000 standby corporate liquidity facility
(the "Liquidity Facility") provided by a consortium of banks, headed by Bank of
Montreal, as agent, which is rated "A-1+" and "P-1" by S&P and Moody's,
respectively. Under the Liquidity Facility, CapMAC will be able, subject to
satisfying certain conditions, to borrow funds from time to time in order to
enable it to fund any claim payments or payments made in settlement or
mitigation of claim payments under its insurance contracts. For the years ended
December 31, 1995, 1994 and 1993, no draws had been made under the Liquidity
Facility.

Certain officers of Dillon, Read & Co. Inc. are directors of Holdings, and
receive no compensation from the Company. Dillon, Read & Co. Inc., which serves
as investment manager for Saratoga Partners II, a principal stockholder of the
Company, received an advisory retention fee of $200,000 for the years ended
December 31, 1995, 1994 and 1993.

The Company has agreed to make an additional investment of up to $7 million
in Asia Services through its affiliate CapMAC Asia.

13) REINSURANCE

In the ordinary course of business, CapMAC cedes exposure under various
treaty, pro rata and excess of loss reinsurance contracts primarily designed to
minimize losses from large risks and protect the capital and surplus of CapMAC.

F-20
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

13) REINSURANCE--(CONTINUED)
The effect of reinsurance on premiums written and earned was as follows:
<TABLE><CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------------------
1995 1994 1993
----------------- ---------------- ----------------
$ IN THOUSANDS WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
- ----------------------------------------------- ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Direct......................................... $56,541 36,853 43,598 28,561 24,491 20,510
Assumed........................................ 935 761 1,064 258 403 364
Ceded.......................................... (15,992) (8,372) (11,069) (5,716) (3,586) (3,391)
------- ------- ------- ------ ------- ------
NET PREMIUMS................................... $41,484 29,242 33,593 23,103 21,308 17,483
------- ------- ------- ------ ------- ------
------- ------- ------- ------ ------- ------
</TABLE>

Although the reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders, it is the industry practice of insurers
for financial statement purposes to treat reinsured risks as though they were
risks for which the ceding insurer was only contingently liable. A contingent
liability exists with respect to the aforementioned reinsurance arrangements,
which may become a liability of CapMAC in the event the reinsurers are unable to
meet obligations assumed by them under the reinsurance contracts. At December
31, 1995 and 1994, CapMAC had ceded loss reserves of $69,000 and $0,
respectively, and had ceded unearned premiums of $13,171,000 and $5,551,000,
respectively.

In 1994, CapMAC entered into a reinsurance agreement (the "Lureco Treaty")
with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a European-based
reinsurer. The agreement is renewable annually at the Company's option, subject
to satisfying certain conditions. The agreement reinsured and indemnified the
Company for any loss incurred by CapMAC during the agreement period up to the
limits of the agreement. 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 premium deposit amounts in the Lureco Trust Account have been reflected
as assets by CapMAC during the term of the agreement. Premiums in excess of the
deposit amounts have been recorded as ceded premiums in the consolidated
statements of income. In the 1994 policy year, the agreement provided $5 million
of loss coverage in excess of the premium deposit amounts of $2 million retained
in the Lureco Trust Account. No losses were applied against the Lureco Trust
Account or ceded to the Lureco Treaty in 1994. The agreement was renewed for the
1995 policy year and provides $5 million of loss coverage in excess of the
premium deposit amount of $4.5 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,
a claim of approximately $2.5 million on an insurance policy was applied against
the Lureco Trust Account.

In addition to its capital (including statutory contingency reserves) and
other reinsurance available to pay claims under its insurance contracts, on June
25, 1992, CapMAC entered into a Stop Loss Reinsurance Agreement (the "Stop-loss
Agreement") with Winterthur Swiss Insurance Company ("Winterthur") which is
rated "AAA" by S&P and "Aaa" by Moody's. At the same time, CapMAC and Winterthur
also entered into a Quota Share Reinsurance Agreement (the "Winterthur Quota

F-21
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

13) REINSURANCE--(CONTINUED)

Share Agreement") pursuant to which Winterthur had the right to reinsure on a
quota share basis 10% of each policy written by CapMAC.

The Winterthur Stop-loss Agreement had an original term of seven years and
was renewable for successive one-year periods. In April 1995, Winterthur
notified CapMAC that it was canceling the Winterthur Stop-loss Agreement and the
Winterthur Quota Share Agreement effective June 30, 1996.

CapMAC elected to terminate the Winterthur Stop-loss Agreement effective
November 30, 1995 and, on the same date, entered into a Stop-loss Reinsurance
Agreement with Mitsui Marine (the "Mitsui Stop-loss Agreement"). Under the
Mitsui Stop-loss Agreement, Mitsui Marine will be required to pay any losses in
excess of $100 million in the aggregate incurred by CapMAC during the term of
the Mitsui Stop-loss Agreement on the insurance policies in effect on December
1, 1995 and written during the one-year period thereafter, up to an aggregate
limit payable under the Mitsui Stop-loss Agreement of $50 million. The Mitsui
Stop-loss Agreement has a term of seven years and is subject to early
termination by CapMAC in certain circumstances.

The Winterthur Quota Share Agreement was canceled November 30, 1995. On
January 1, 1996, CapMAC reassumed the liability, principally unearned premium,
for all policies reinsured by Winterthur. As a result, CapMAC reassumed
approximately $1.4 billion of principal insured by Winterthur as of December 31,
1995. In connection with the commutation, Winterthur will return the unearned
premiums as of December 31, 1995, net of ceding commission and federal excise
tax. Such amount is expected to total approximately $2.0 million.

14) FOREIGN OPERATIONS

The Company provides advisory services in Europe through CFS (Europe). The
revenue and net income generated from this business for the year ended December
31, 1995 was $7.8 million and $5.1 million, respectively, and for the period
from inception of CFS (Europe) on July 14, 1994 through December 31, 1994 was
$3.1 million and $2.0 million, respectively. The total assets for CFS (Europe)
as of December 31, 1995 and 1994 were $9.6 million and $3.1 million,
respectively.

15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. SFAS No.
107, "Disclosures About Fair Value

F-22
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)

of Financial Instruments," defines the fair value of a financial instrument as
the amount at which the instrument could be exchanged in a current transaction
between willing parties.
<TABLE><CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
$ IN THOUSANDS AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ---------------------------------------------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Investments......................................... $329,758 329,758 202,637 202,637
FINANCIAL LIABILITIES:
Senior notes........................................ $ 15,000 15,434 15,000 13,811
OFF-BALANCE-SHEET INSTRUMENTS:
Financial Guarantees Outstanding.................... $ -- 147,840 -- 93,494
Ceding Commission................................... $ -- 44,352 -- 28,048
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments summarized above:

INVESTMENTS

The fair values of fixed maturities and mutual funds are based upon quoted
market prices. The fair value of short-term investments approximates amortized
cost. The fair value of investment in affiliates is determined based upon the
percentage of the Company's ownership of the book value of the affiliate at the
current foreign exchange rate.

SENIOR NOTES

The fair value of senior notes is based on prices believed by management to
be currently charged for similar debt issues adjusted for changes in interest
rates and credit quality that occurred subsequent to its issuance.

FINANCIAL GUARANTEES OUTSTANDING

The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2) the fair
value of installment revenue which is derived by calculating the present value
of the estimated future cash inflow to CapMAC of policies in force having
installment premiums, net of amounts payable to reinsurers, at a discount rate
of 7% at December 31, 1995 and 1994. The amount calculated is equivalent to the
consideration that would be paid under market conditions prevailing at the
reporting dates to transfer CapMAC's financial guarantee business to a third
party under reinsurance and other agreements. Ceding commission represents the
expected amount that would be paid to CapMAC to compensate CapMAC for
originating and servicing the insurance contracts. In constructing estimated
future cash inflows, management makes assumptions regarding prepayments for
amortizing asset-backed securities which are consistent with relevant historical
experience. For revolving programs, assumptions are made regarding program
utilization based on discussions with program users. The amount of future
installment revenue actually realized by CapMAC could be reduced in the future
due to factors such as early termination of insurance contracts, accelerated
prepayments of underlying obligations or lower than anticipated utilization of
insured

F-23
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
structured programs, such as commercial paper conduits. Although increases in
future installment revenue earnings due to renewals of existing insurance
contracts historically have been greater than reductions in future installment
revenue due to factors such as those described above, there can be no assurance
that future circumstances might not cause a net reduction in installment
revenue, resulting in lower revenues.

16) CAPITALIZATION

Holdings' certificate of incorporation, as amended during 1995, authorizes
the issuance of 50,000,000 shares of common stock, par value $.01 per share and
20,000,000 shares of preferred stock, par value $.01 per share.

On November 27, 1995, the Company effected a 3-for-2 common stock split
which has been reflected in the accompanying consolidated financial statements
for all periods presented.

Authorized and issued shares at December 31, 1995, 1994 and 1993 were
15,966,032, 12,282,818 and 12,282,135, respectively. Outstanding shares at
December 31, 1995, 1994 and 1993 were 15,965,995, 12,282,780 and 12,282,098 with
par value of $.01 per share, respectively. No dividends were declared by the
Company during the years ended 1995, 1994 and 1993.

On July 21, 1995, the Company sold 500,001 shares of common stock to ORIX
for $10 million, or $20 per share. In August 1995, net proceeds of $9 million
from such transaction were contributed to CapMAC. In connection with the ORIX
investment, the Company paid Dillon, Read & Co. Inc. an advisory fee of
$500,000.

On December 19, 1995, Holdings sold 3,710,000 shares of its common stock at
a price of $20.00 per share in the Offering. Of the 3,710,000 common shares,
2,500,000 shares were sold by the Company and 1,210,000 shares by certain
existing stockholders. Proceeds to the Company, net of underwriting and other
expenses, were $45.2 million. Dillon, Read & Co. Inc. was the managing
underwriter of the Offering and has in that capacity received $3,500,000 from
the Company.

In December 1995, the Company also issued 500,000 shares to Centre Re for a
price per share that is 5% less than the Offering price of $20.00 per share. Net
proceeds to the Company were $9.5 million.

In December 1995, a portion of the net proceeds from the Offering and the
private placement in the amount of $50 million were contributed to CapMAC.

On June 25, 1992, Holdings granted approximately 2,250,000 warrants to
non-employee stockholders of Holdings to purchase common stock at an exercise
price of $13.33 per share. The Warrants expire on June 25, 1999.

Holdings authorized 1,725,000 stock options under the 1992 Stock Option Plan
and 1,200,000 stock options under the 1994 Stock Option Plan. In conjunction
with the public offering, the remaining 1,005,000 shares that could have been
awarded under the 1994 Stock Option Plan have been made available under the
Omnibus Plan (see note 6).

F-24
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994

17) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected quarterly financial data for 1995 and 1994 are presented below:

<TABLE><CAPTION>
$ IN THOUSANDS FIRST SECOND THIRD FOURTH FULL YEAR
- ------------------------------------------------- ------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
1995
Gross premiums written........................... $16,992 16,669 12,306 11,509 57,476
Net premiums written............................. 13,899 14,116 6,118 7,351 41,484
Net premiums earned.............................. 7,101 7,303 7,311 7,527 29,242
Advisory fees.................................... 2,024 2,618 6,746 4,082 15,470
Net investment income............................ 2,811 3,088 3,329 3,615 12,843
Losses and loss adjustment expenses.............. 696 762 821 862 3,141
Income before income taxes and minority
interest......................................... 5,405 6,023 12,186 11,050 34,664
Net income....................................... 3,840 4,480 8,033 7,175 23,528
- ------------------------------------------------------------------------------------------------------
1994
Gross premiums written........................... $12,100 10,804 11,172 10,586 44,662
Net premiums written............................. 8,540 9,270 7,874 7,909 33,593
Net premiums earned.............................. 5,238 5,591 5,673 6,601 23,103
Advisory fees 195 1,570 852 8,106 10,723
Net investment income............................ 2,347 2,432 2,638 2,899 10,316
Losses and loss adjustment expenses.............. 270 296 376 487 1,429
Income before income taxes....................... 2,437 4,069 4,120 14,232 24,858
Net income....................................... 1,885 2,898 3,063 9,220 17,066
- ------------------------------------------------------------------------------------------------------
</TABLE>

F-25
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE><CAPTION>
MARCH 31,1996 DECEMBER 31,1995
-------------- -----------------
(UNAUDITED)
ASSETS
INVESTMENTS:
<S> <C> <C>
Bonds at fair value (amortized cost $258,874 at March 31,
1996 and $210,651 at December 31, 1995).................... $259,226 215,706
Short-term investments (at amortized cost which approximates
fair value).................................................. 50,380 82,019
Investment in affiliates..................................... 35,023 32,033
-------------- --------
Total investments........................................ 344,629 329,758
-------------- --------
Cash......................................................... 909 1,033
Accrued investment income.................................... 3,356 3,136
Deferred acquisition costs................................... 37,559 35,162
Premiums receivable.......................................... 3,463 3,540
Prepaid reinsurance.......................................... 13,379 13,171
Other assets................................................. 2,823 5,473
-------------- --------
TOTAL ASSETS............................................. $406,118 391,273
-------------- --------
-------------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unearned premiums............................................ $ 50,266 45,767
Reserve for losses and loss adjustment expenses.............. 7,261 6,548
Ceded reinsurance............................................ 2,773 2,469
Accounts payable and other accrued expenses.................. 12,904 11,367
Senior notes................................................. 15,000 15,000
Current income taxes......................................... 5,494 3,264
Deferred income taxes........................................ 9,324 10,776
-------------- --------
Total liabilities........................................ 103,022 95,191
-------------- --------
MINORITY INTEREST............................................ 21,398 19,563
-------------- --------
STOCKHOLDERS' EQUITY:
Common Stock--$0.01 par value per share; 50,000,000 shares
are authorized; 15,966,032 shares issued March 31, 1996 and
December 31, 1995; 15,965,995 shares outstanding at March
31, 1996 and December 31, 1995; Preferred Stock--$0.01 par
value per share; 20,000,000 shares are authorized............ 160 160
Additional paid-in capital................................... 223,400 223,400
Unrealized (depreciation) appreciation on investments, net of
tax.......................................................... (2,244) 2,443
Retained earnings............................................ 66,610 57,029
Unallocated ESOP shares...................................... (6,227) (6,497)
Cumulative translation adjustment, net of tax................ (1) (16)
-------------- --------
Total stockholders' equity............................... 281,698 276,519
-------------- --------
TOTAL LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS'
EQUITY....................................................... $406,118 391,273
-------------- --------
-------------- --------
</TABLE>

See accompanying notes to consolidated financial statements.

F-26
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
------------------ ------------------
<S> <C> <C>
REVENUES:
Direct premiums written................................. $ 14,155 16,838
Assumed premiums written................................ 874 154
Ceded premiums written.................................. (1,910) (3,093)
-------- -------
Net premiums written.................................. 13,119 13,899
Increase in unearned premiums........................... (4,291) (6,798)
-------- -------
Net premiums earned................................... 8,828 7,101
Advisory fees........................................... 9,549 2,024
Net investment income................................... 4,111 2,811
Net realized capital gains.............................. 149 9
Other income............................................ 610 262
-------- -------
Total revenues........................................ 23,247 12,207
-------- -------
EXPENSES:
Losses and loss adjustment expenses..................... 1,075 696
Underwriting and operating expenses..................... 5,069 4,080
Policy acquisition costs................................ 2,064 1,725
Interest expense........................................ 301 301
-------- -------
Total expenses........................................ 8,509 6,802
-------- -------
Income before income taxes and minority interest...... 14,738 5,405
-------- -------
INCOME TAXES:
Current income tax...................................... 3,899 1,024
Deferred income tax..................................... 987 541
-------- -------
Total income taxes.................................... 4,886 1,565
-------- -------
Income before minority interest....................... 9,852 3,840
-------- -------
MINORITY INTEREST..................................... 48 --
-------- -------
NET INCOME............................................ $ 9,900 3,840
-------- -------
-------- -------
Primary earnings per share.............................. $ 0.57 0.28
Fully diluted earnings per share........................ $ 0.57 0.28
-------- -------
-------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

F-27
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
THREE MONTHS ENDED
MARCH 31, 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
----------
Balance at end of period................................................ 223,400
----------
UNREALIZED (DEPRECIATION) APPRECIATION ON INVESTMENTS, NET OF TAX:
Balance at beginning of period............................................ 2,443
Unrealized depreciation on investments.................................... (4,687)
----------
Balance at end of period................................................ (2,244)
----------
RETAINED EARNINGS:
Balance at beginning of period............................................ 57,029
Net income................................................................ 9,900
Dividends paid............................................................ (319)
----------
Balance at end of period................................................ 66,610
----------
UNALLOCATED ESOP SHARES:
Balance at beginning of period............................................ (6,497)
Allocation of ESOP shares................................................. 270
----------
Balance at end of period................................................ (6,227)
----------
CUMULATIVE TRANSLATION ADJUSTMENT, NET OF TAX:
Balance at beginning of period............................................ (16)
Translation adjustment.................................................... 15
----------
Balance at end of period................................................ (1)
----------
TOTAL STOCKHOLDERS' EQUITY.............................................. $281,698
----------
----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-28
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 9,900 3,840
-------- -------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Reserve for losses and loss adjustment expenses....... 713 696
Unearned premiums..................................... 4,499 8,075
Deferred acquisition costs............................ (2,397) (2,662)
Premiums receivable................................... 77 (3,241)
Accrued investment income............................. (220) 400
Income taxes payable.................................. 3,217 (897)
Net realized capital gains............................ (149) (9)
Accounts payable and other accrued expenses........... 1,537 4,120
Prepaid reinsurance................................... (208) (1,277)
Other, net............................................ 277 1,223
-------- -------
Total adjustments................................... 7,346 6,428
-------- -------
Net cash provided by operating activities............. 17,246 10,268
-------- -------
Cash flows from investing activities:
Purchases of investments................................ (108,578) (26,940)
Purchases of investments in affiliates.................. (3,333) --
Proceeds from sale of investments....................... 6,158 4,072
Proceeds from maturities of investments................. 86,281 12,561
-------- -------
Net cash used in investing activities................. (19,472) (10,307)
-------- -------
Cash flows from financing activities:
Allocation of ESOP shares............................... 270 281
Minority interest capital contribution to CapMAC Asia... 2,151 --
Dividends paid.......................................... (319) --
-------- -------
Net cash provided by financing activities............. 2,102 281
-------- -------
Net (decrease) increase in cash......................... (124) 242
Cash balance at beginning of period..................... 1,033 883
-------- -------
Cash balance at end of period......................... $ 909 1,125
-------- -------
-------- -------
Supplemental disclosures of cash flow information:
Income taxes paid....................................... $ 1,655 2,463
-------- -------
-------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

F-29
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996

1. ORGANIZATION AND OWNERSHIP

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 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 three months ended
March 31, 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.

F-30
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN [LOGO] CAPMAC HOLDINGS INC.
CONNECTION WITH THE OFFERING COVERED
HEREBY. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST -------------------
NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN 3,000,000 SHARES
OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK IN ANY
JURISDICTION WHERE OR TO ANY PERSON TO COMMON STOCK
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE
OMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE PROSPECTUS
----
Additional Information................. 3
COMMON STOCK
Prospectus Summary..................... 4 -------------------
Risk Factors........................... 12
Price Range of Common Stock and
Dividends.............................. 17
Dividend Policy........................ 17
Capitalization......................... 18
Use of Proceeds........................ 18
The Company............................ 19
Selected Historical Consolidated
Financial Information.................. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 27
Industry Overview...................... 36
Business............................... 39
Insurance Regulatory Matters........... 59
Accounting............................. 62 DILLON, READ & CO. INC.
Indebtedness........................... 63
Management............................. 65
Principal and Selling Stockholders..... 75
Certain Relationships and Related ALEX. BROWN & SONS
Transactions........................... 81 INCORPORATED
Description of Capital Stock........... 83
Certain United States Tax
Considerations......................... 86
Shares Eligible for Future Sale........ 87
Underwriting........................... 89 GOLDMAN, SACHS & CO.
Legal Matters.......................... 90 -------------------
Experts................................ 90
Glossary of Insurance Terms............ 91
Credit Ratings of Securities and Other
Obligations.......................... 94
Index to Consolidated Financial
Statements............................. F-1

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

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Set forth below is an itemization of the estimated costs expected to be
incurred in connection with the offer and sale of the securities registered
hereby.

Securities Act Registration Fee................................. $ 32,791
NASD Filing Fee................................................. 10,010
Transfer Agent Fee.............................................. 10,000
Printing and Engraving Expenses................................. 75,000
Legal Fees and Expenses......................................... 75,000
Accounting Fees and Expenses.................................... 60,000
Blue Sky Fees and Expenses...................................... 20,000
Miscellaneous................................................... 20,000
--------
Total..................................................... 302,801
--------
--------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL (providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which a director derived an improper personal benefit. The
Registrant's Amended and Restated Certificate of Incorporation limits the
liability of directors to the extent permitted by Section 102(b)(7) of the DGCL.

Under the Amended and Restated Certificate of Incorporation of the
Registrant and under its Amended and Restated Bylaws, the Registrant shall have
the power to indemnify its officers, directors, employees and agents to the full
extent permitted by the laws of the State of Delaware.

The Registrant maintains insurance, at its expense, to protect any director
or officer of the Registrant against certain expenses, liabilities or losses.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

On December 19, 1995, the registrant issued 500,000 shares of Common Stock
to Centre Reinsurance Limited ("Centre Re") at a price of $19.00 per share. In
connection with the sale, Centre Re paid a placement fee of $500,000. On July
21, 1995, the Registrant issued 500,001 shares of Common Stock to ORIX USA
Corporation at a price of $20 per share. On December 21, 1994, Homer McK. Rees
received 716 shares of Common Stock in exchange for consulting service rendered
in 1993. In September 1995, Mr. Rees received an additional 548 shares on
September 1, 1995 in exchange for consulting services rendered in 1994. In
addition, since entering into a Warrant Agreement dated June 9, 1992, the
Registrant has issued warrants convertible into 2,230,024.5 shares of Common
Stock of Holdings. As to all such securities, exemption was claimed under
Section 4(2) of the Securities Act of 1933 (the "Securities Act").

Pursuant to the Registrant's 1992 Employee Stock Option Plan, an aggregate
of 1,713,213 options are outstanding as of the date hereof. The exercise price
with respect to each share of Common Stock underlying 1,698,213 options is
$13.33 and with respect to 15,000 options is $14.67. Pursuant to the
Registrant's 1994 Stock Option Plan, an aggregate of 195,000 options have been
granted as of the date hereof. The exercise price with respect to each share
underlying such options is $20 per share. As to all

II-1
<PAGE>
such options, exemption from registration was claimed under Section 4(2) of the
Securities Act and Rule 701 thereunder. Pursuant to the Company's Omnibus Stock
Incentive Plan, an aggregate of 393,000 options are outstanding as of the date
hereof. The exercise price with respect to each share of Common Stock underlying
198,000 options is $20.00 and with respect to 195,000 options is $24.50. 182,633
shares of Restricted Stock were issued to certain executive officers upon
consummation of the Company's initial public offering in exchange for such
executive officers agreeing to forego receipt of unrestricted common stock due
to them as holders of 182,633 restricted stock units which provided for
conversion to unrestricted common stock upon the initial public offering. In the
event any such officer wishes to transfer such Restricted Stock, the Company has
an option to purchase such Restricted Stock for an amount equal to the market
price per share on the date of the proposed transfer minus $19.00. Each such
officer also received, on a deferred basis, an amount equal to the product of
$20.00 and the number of restricted stock units held by such officer.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<C> <S>
1 --Form of Underwriting Agreement.
3.1 --Amended and Restated Certificate of Incorporation.1
3.2 --Amended and Restated Bylaws.1
4 --Specimen of Common Stock Certificate.1
5 --Opinion of Simpson Thacher & Bartlett (a partnership which includes professional
corporations) regarding the legality of the Common Stock being registered.
10.1 --Service Agreement dated as of June 25, 1992 between CapMAC and CapMAC Management
Services Corporation (predecessor to CFS).2
10.2 --Credit Agreement as amended, dated as of June 25, 1992 by and among CapMAC, Bank of
Montreal, individually and as agent, and the banks from time to time party thereto.2
10.3 --Stockholder Agreement dated as of June 9, 1992 among CapMAC Acquisition Corp.
(predecessor corporation to Holdings) and each of the Shareholders listed on
Schedule A attached thereto, together with Amendments No. 1 and No. 2.2
10.4 --Stop Loss Reinsurance Agreement dated June 25, 1992 between CapMAC and Winterthur
Swiss Reinsurance Company.2
10.5 --Note Purchase Agreement dated as of December 15, 1992 between CapMAC Holdings Inc.
and the Purchasers listed on Annex 1 attached thereto.2
10.6 --Subscription Agreement dated as of June 30, 1995 between Orix USA Corporation and
Holdings.2
10.7 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
John B. Caouette.2
10.8 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
Michael L. Hein.2
10.9 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
Alex S.K. Lam.2
10.10 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
Charles Jackson Lester.2
10.11 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
C. Thomas Meyers.2
10.12 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
Paul V. Palmer.2
10.13 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
Joyce S. Richardson.2
10.14 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition Corp. and
Ram D. Wertheim.2
10.15 --1992 Stock Option Plan of Holdings.2
10.16 --1994 Stock Option Plan of Holdings.2
10.17 --Omnibus Stock Incentive Plan.2
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
10.18 --CapMAC Employee Stock Ownership Plan.2
10.19 --CapMAC Employee Stock Ownership Plan Trust Agreement.2
10.20 --ESOP Loan Agreement by and between CapMAC Acquisition Corp. (predecessor corporation
to Holdings) and the ESOP Trust dated as of June 25, 1992.2
10.21 --Form of Supplemental Executive Retirement Plan.
10.22 --Subscription Agreement dated as of November 27, 1995, between CapMAC Holdings Inc.
and Centre Reinsurance Limited.2
10.23 --Promissory Note of John B. Caouette dated April 24, 1996.
10.24 --Stop Loss Reinsurance Agreement dated December 1, 1995 between CapMAC and Mitsui
Marine & Fire Insurance Co., Ltd.2
10.25 --Amendment No. 3 to Stockholder Agreement dated as of June 9, 1992.
10.26 --Letter Agreement dated January 1, 1996 between CapMAC Holdings Inc. and Winterthur
Swiss Insurance Company terminating Consumer Product and Trade Receivables Quota
Share Reinsurance Treaty, Quota Share Reinsurance Agreement and Facultative
Reinsurance Agreements.1
10.27 --Letter dated November 30, 1995 from CapMAC to Winterthur Swiss Insurance Company
terminating the Stop Loss Reinsurance Agreement.1
10.28 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between John B. Caouette and Holdings.1
10.29 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between Michael L. Hein and Holdings.1
10.30 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between Alex S.K. Lam and Holdings.1
10.31 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between Charles Jackson Lester and Holdings.1
10.32 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between C. Thomas Meyers and Holdings.1
10.33 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between Paul V. Palmer and Holdings.1
10.34 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between Joyce S. Richardson and Holdings.1
10.35 --Deferred Compensation and Restricted Stock Agreement dated as of December 7, 1995
between Ram D. Wertheim and Holdings.1
10.36 --Promissory Notes of Ram D. Wertheim dated May 13, 1996.
10.37 --Promissory Notes of Paul V. Palmer dated May 13, 1996.
11 --Statement re computation of per share earnings.3
21 --Subsidiaries of Registrant.2
23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of Simpson Thacher & Bartlett (included in Exhibit 5).
24 --Power of Attorney of Directors.*
28 --Information from reports furnished to state insurance regulatory authorities.4
</TABLE>

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

<TABLE>
<S> <C>
* Includes Powers of Attorney for Messrs. Elliman, Model and Penn. The Powers of Attorney
for the other Directors were previously filed.
1 Previously filed as an exhibit, under the same exhibit number, to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
2 Previously filed as an exhibit, under the same exhibit number, to the Company's
Registration Statement on Form S-1 (Reg. No. 33-98254), as such Registration Statement
has been amended, and incorporated herein by reference.
3 Previously filed as an exhibit, under the same exhibit number, to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and incorporated
herein by reference.
4 Previously filed as an exhibit, under exhibit number 28.1, to the Company's
Registration Statement on Form S-8 (Reg. No. 333-05429), and incorporated herein by
reference.
</TABLE>

II-3
<PAGE>
(b) Financial Statement Schedules

Schedule I-- CapMAC Holdings Inc. and Subsidiaries--Summary of Investments
Other Than Investments in Related Parties at December 31,
1995.

Schedule II-- CapMAC Holdings Inc. and Subsidiaries--Condensed Financial
Information of Registrant (Parent Company Only)--Condensed
Balance Sheets; Condensed Statements of Operations and
Retained Earnings and Condensed Statements of Cash Flows.

Schedule IV-- CapMAC Holdings Inc. and Subsidiaries--Reinsurance

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be a part
of this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 12, 1996.

CAPMAC HOLDINGS INC.

By /s/ RAM D. WERTHEIM
...................................
Ram D. Wertheim
General Counsel, Managing
Director and Secretary

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on June 12, 1996.

<TABLE><CAPTION>
SIGNATURE TITLE

<S> <C>
* Chairman of the Board of Directors, President
........................................ and Chief Executive Officer (Principal
John B. Caouette Executive Officer)

/s/ PAUL V. PALMER Managing Director and Chief Financial Officer
........................................ (Principal Financial Officer)
Paul V. Palmer

/s/ GERARD EDWARD MURRAY Controller (Principal Accounting Officer)
........................................
Gerard Edward Murray

* Director
........................................
Bryan A. Bowers

* Director
........................................
Todd G. Cole

* Director
........................................
Charles P. Durkin, Jr.

* Director
........................................
David Elliman

* Director
........................................
Stephen L. Green

* Director
........................................
George Merritt Jenkins

* Director
........................................
James H. Laird
</TABLE>

II-5
<PAGE>

SIGNATURE TITLE

* Director
........................................
Dr. Rosita Leong, M.D.

* Director
........................................
Robert Model

* Director
........................................
Lief Olsen

* Director
........................................
Arthur S. Penn

* Director
........................................
Homer McK. Rees

* Director
........................................
Doren W. Russler

* Director
........................................
Akira Seko

*
......................................... Director
John T. Shea

* Director
........................................
Richard Yancey

*By /s/ RAM D. WERTHEIM
.....................................
Ram D. Wertheim
Attorney-in-fact

II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
CapMAC Holdings Inc.:

Under the date of January 31, 1996, we reported on the consolidated balance
sheets of CapMAC Holdings Inc. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995 which are included in the Registration Statement. In connection with our
audits of the aforementioned consolidated financial statements, we also have
audited the related consolidated financial statement schedules in the
Registration Statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.

In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" at December 31, 1993.

KPMG PEAT MARWICK LLP

New York, New York
January 31, 1996

S-1
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
SCHEDULE I--SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
AMOUNT AT WHICH
ESTIMATED SHOWN IN THE
TYPE OF INVESTMENT AMORTIZED COST FAIR VALUE BALANCE SHEET
- ----------------------------------------------------- -------------- ---------- ---------------
<S> <C> <C> <C>
U.S. Treasury obligations............................ $ 4,153 4,208 4,208
Mortgage-backed securities of U.S. government
instrumentalities and agencies....................... 110,104 110,338 110,338
Obligations of states, municipalities and political
subdivisions......................................... 166,010 170,737 170,737
Corporate and asset-backed securities................ 12,403 12,442 12,442
-------------- ---------- ---------------
TOTAL............................................ $292,670 297,725 297,725
-------------- ---------- ---------------
-------------- ---------- ---------------
</TABLE>

S-2
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE><CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
INVESTMENTS:
Short-term investments (at amortized cost which
approximates fair value)................................. $ 8,984 695
Mutual funds at fair value (cost $1,435 at December 31,
1994)...................................................... -- 1,362
Investment in affiliates................................... 1,339 --
----------------- -----------------
Total investments...................................... 10,323 2,057
----------------- -----------------
Cash....................................................... 187 59
Investments in subsidiaries................................ 309,652 191,975
Deferred income taxes...................................... 491 535
Other assets............................................... 2,540 1,191
----------------- -----------------
TOTAL ASSETS........................................... $ 323,193 195,817
----------------- -----------------
----------------- -----------------

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other accrued expenses................ $ 12,111 156
Senior notes............................................... 15,000 15,000
----------------- -----------------
Total liabilities...................................... 27,111 15,156
----------------- -----------------
MINORITY INTEREST.......................................... 19,563 --
----------------- -----------------
STOCKHOLDERS' EQUITY:
Common Stock--$0.01 par value per share; 50,000,000 shares
are authorized; 15,966,032 and 12,282,818 shares issued
December 31, 1995 and December 31, 1994; 15,965,995 and
12,282,780 shares outstanding at December 31, 1995, and
December 31, 1994; Preferred stock--$0.01 par value per
share; 20,000,000 shares are authorized.................... 160 123
Additional paid-in capital................................. 223,400 159,728
Unrealized appreciation (depreciation) on investments, net
of tax................................................... 2,443 (5,522)
Retained earnings.......................................... 57,029 33,501
Unallocated ESOP shares.................................... (6,497) (7,169)
Cumulative translation adjustment, net of tax.............. (16) --
----------------- -----------------
Total stockholders' equity............................. 276,519 180,661
----------------- -----------------
TOTAL LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS'
EQUITY..................................................... $ 323,193 195,817
----------------- -----------------
----------------- -----------------
</TABLE>

S-3
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES:
Net investment income..................... $ 278 67 125
Net realized losses....................... (10) (50) (33)
Other income from subsidiaries............ 626 -- --
-------- ------ ------
Total revenues........................ 894 17 92
-------- ------ ------
EXPENSES:
Interest expense.......................... 1,203 1,203 1,203
Operating expenses........................ 497 175 107
-------- ------ ------
Total expenses........................ 1,700 1,378 1,310
-------- ------ ------
Income before income taxes, equity in
undistributed net income of subsidiaries
and minority interest..................... (806) (1,361) (1,218)
INCOME TAXES:
Total income tax expense (benefit)........ 192 (471) (425)
-------- ------ ------
Income before equity in undistributed net
income of subsidiaries and minority
interest.................................. (998) (890) (793)
-------- ------ ------
EQUITY IN UNDISTRIBUTED NET INCOME OF
SUBSIDIARIES.............................. 24,554 17,956 13,262
-------- ------ ------
Income before minority interest........... 23,556 17,066 12,469
MINORITY INTEREST......................... (28) -- --
-------- ------ ------
NET INCOME................................ 23,528 17,066 12,469
Retained earnings at beginning of
period.................................... 33,501 16,435 3,966
-------- ------ ------
RETAINED EARNINGS AT END OF PERIOD........ $57,029 33,501 16,435
-------- ------ ------
-------- ------ ------
</TABLE>

S-4
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION
OF REGISTRANT (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE><CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $23,528 17,066 12,469
-------- ------- -------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Equity in undistributed net income of
subsidiaries.............................. (24,554) (17,956) (13,262)
Increase (decrease) in income taxes
payable................................... 170 (389) (473)
Other, net................................ 10,364 43 731
-------- ------- -------
Total adjustments......................... (14,020) (18,302) (13,004)
-------- ------- -------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES................................ 9,508 (1,236) (535)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................. (8,897) (1,795) (2,247)
Purchases of investment in affiliates..... (1,350) -- --
Proceeds from sales of investments........ 1,414 1,642 --
Proceeds from maturities of investments... 713 130 2,163
-------- ------- -------
NET CASH USED BY INVESTING ACTIVITIES... (8,120) (23) (84)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Allocation of ESOP shares................. 672 1,308 620
Minority interest capital contribution to
CapMAC Asia............................... 19,535 -- --
Proceeds from sale of common stock........ 63,699 -- --
Investment in subsidiaries................ (89,666) -- --
Dividend from subsidiary.................. 4,500 -- --
-------- ------- -------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES................................ (1,260) 1,308 620
-------- ------- -------
Net increase in cash...................... 128 49 1
Cash at beginning of period............... 59 10 9
-------- ------- -------
CASH AT END OF PERIOD................... $ 187 59 10
-------- ------- -------
-------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during year for:
Income taxes............................ $ 7,106 2,345 2,535
Interest................................ $ 1,128 1,128 1,106
Cash received during the year for:
Income taxes............................ $ 6,415 2,455 2,530
-------- ------- -------
-------- ------- -------
</TABLE>

S-5
<PAGE>
CAPMAC HOLDINGS INC. AND SUBSIDIARIES
SCHEDULE IV--REINSURANCE
(DOLLARS IN THOUSANDS EXCEPT PERCENTAGES)

<TABLE><CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
INSURANCE PREMIUMS WRITTEN AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ------------------------------------------ ------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993.............. $24,491 $ 3,586 $ 403 $21,308 1.89%
Year ended December 31, 1994.............. $43,598 $11,069 $1,064 $33,593 3.17%
Year ended December 31, 1995.............. $56,541 $15,992 $ 935 $41,484 2.25%
</TABLE>

S-6
<PAGE>
EXHIBIT INDEX

<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------------- ----
<C> <S> <C>
1 --Form of Underwriting Agreement.
3.1 --Amended and Restated Certificate of Incorporation.1
3.2 --Amended and Restated Bylaws.1
4 --Specimen of Common Stock Certificate.1
5 --Opinion of Simpson Thacher & Bartlett (a partnership which includes
professional corporations) regarding the legality of the Common Stock being
registered.
10.1 --Service Agreement dated as of June 25, 1992 between CapMAC and CapMAC
Management Services Corporation (predecessor to CFS).2
10.2 --Credit Agreement as amended, dated as of June 25, 1992 by and among CapMAC,
Bank of Montreal, individually and as agent, and the banks from time to time
party thereto.2
10.3 --Stockholder Agreement dated as of June 9, 1992 among CapMAC Acquisition Corp.
(predecessor corporation to Holdings) and each of the Shareholders listed on
Schedule A attached thereto, together with Amendments No. 1 and No. 2.2
10.4 --Stop Loss Reinsurance Agreement dated June 25, 1992 between CapMAC and
Winterthur Swiss Reinsurance Company.2
10.5 --Note Purchase Agreement dated as of December 15, 1992 between CapMAC Holdings
Inc. and the Purchasers listed on Annex 1 attached thereto.2
10.6 --Subscription Agreement dated as of June 30, 1995 between Orix USA Corporation
and Holdings.2
10.7 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and John B. Caouette.2
10.8 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and Michael L. Hein.2
10.9 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and Alex S.K. Lam.2
10.10 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and Charles Jackson Lester.2
10.11 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and C. Thomas Meyers.2
10.12 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and Paul V. Palmer.2
10.13 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and Joyce S. Richardson.2
10.14 --Employment Agreement dated as of June 25, 1992 between CapMAC Acquisition
Corp. and Ram D. Wertheim.2
10.15 --1992 Stock Option Plan of Holdings.2
10.16 --1994 Stock Option Plan of Holdings.2
10.17 --Omnibus Stock Incentive Plan.2
10.18 --CapMAC Employee Stock Ownership Plan.2
10.19 --CapMAC Employee Stock Ownership Plan Trust Agreement.2
10.20 --ESOP Loan Agreement by and between CapMAC Acquisition Corp. (predecessor
corporation to Holdings) and the ESOP Trust dated as of June 25, 1992.2
10.21 --Form of Supplemental Executive Retirement Plan.
10.22 --Subscription Agreement dated as of November 27, 1995, between CapMAC Holdings
Inc. and Centre Reinsurance Limited.2
10.23 --Promissory Note of John B. Caouette dated April 24, 1996.
10.24 --Stop Loss Reinsurance Agreement dated December 1, 1995 between CapMAC and
Mitsui Marine & Fire Insurance Co., Ltd.2
10.25 --Amendment No. 3 to Stockholder Agreement dated as of June 9, 1992.
10.26 --Letter Agreement dated January 1, 1996 between CapMAC Holdings Inc. and
Winterthur Swiss Insurance Company terminating Consumer Product and Trade
Receivables Quota Share Reinsurance Treaty, Quota Share Reinsurance Agreement
and Facultative Reinsurance Agreements.1
</TABLE>

<PAGE>

<TABLE><CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ------------------------------------------------------------------------------- ----
<C> <S> <C>
10.27 --Letter dated November 30, 1995 from CapMAC to Winterthur Swiss Insurance
Company terminating the Stop Loss Reinsurance Agreement.1
10.28 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between John B. Caouette and Holdings.1
10.29 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between Michael L. Hein and Holdings.1
10.30 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between Alex S.K. Lam and Holdings.1
10.31 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between Charles Jackson Lester and Holdings.1
10.32 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between C. Thomas Meyers and Holdings.1
10.33 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between Paul V. Palmer and Holdings.1
10.34 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between Joyce S. Richardson and Holdings.1
10.35 --Deferred Compensation and Restricted Stock Agreement dated as of December 7,
1995 between Ram D. Wertheim and Holdings.1
10.36 --Promissory Notes of Ram D. Wertheim dated May 13, 1996.
10.37 --Promissory Notes of Paul V. Palmer dated May 13, 1996.
11 --Statement re computation of per share earnings.3
21 --Subsidiaries of Registrant.2
23.1 --Consent of KPMG Peat Marwick LLP.
23.2 --Consent of Simpson Thacher & Bartlett (included in Exhibit 5).
24 --Power of Attorney of Directors.*
28 --Information from reports furnished to state insurance regulatory
authorities.4
</TABLE>

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

* Includes Powers of Attorney for Messrs. Elliman, Model and Penn. The Powers of
Attorney for the other Directors were previously filed.

1 Previously filed as an exhibit, under the same exhibit number, to the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference.

2 Previously filed as an exhibit, under the same exhibit number, to the
Company's Registration Statement on Form S-1 (Reg. No. 33-98254), as such
Registration Statement has been amended, and incorporated herein by reference.

3 Previously filed as an exhibit, under the same exhibit number, to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996
and incorporated herein by reference.

4 Previously filed as an exhibit, under exhibit number 28.1, to the Company's
Registration Statement on Form S-8 (Reg. No. 333-05429), and incorporated
herein by reference.

EXHIBIT 1

Shares
Common Stock
($0.01 Par Value)

UNDERWRITING AGREEMENT

, 1996

<PAGE>

UNDERWRITING AGREEMENT

, 1996

DILLON, READ & CO. INC.
ALEX. BROWN & SONS INCORPORATED
GOLDMAN, SACHS & CO.
as Managing Underwriters
c/o Dillon Read & Co. Inc.
535 Madison Avenue
New York, New York 10022

Ladies and Gentlemen:

The stockholders of CapMAC Holdings Inc., a Delaware corporation
(the "Company"), named in Schedule B annexed hereto (the "Selling Stockholders")
------- --------------------
propose to sell, to the underwriters named in Schedule A annexed hereto (the
"Underwriters"), an aggregate of shares (the "Firm Shares") of Common Stock,
------------ -----------
$0.01 par value (the "Common Stock"), of the Company, in the respective amounts
------------
set forth under the caption "Firm Shares" in Schedule B annexed hereto.

In addition, solely for the purpose of covering over-allotments, the
Selling Stockholders propose to grant to the Underwriters the option to purchase
from the Selling Stockholders up to an additional shares of Common Stock (the
"Additional Shares") in the respective amounts set forth under the caption
-----------------
"Additional Shares" in Schedule B annexed hereto. The Firm Shares and the
Additional Shares are hereinafter collectively sometimes referred to as the
"Shares." The Shares are described in the Prospectus which is referred to below.
------

The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively, the "Act"), with the Securities and Exchange Commission (the
---
"Commission") a registration statement on Form S-1 (333- ), including a
----------
prospectus, relating to the Shares. The Company has furnished to you, for use by
the Underwriters and by dealers, copies of one or more preliminary prospectuses
(each, a "Preliminary Prospectus") relating to the Shares. Except where the
----------------------
context otherwise requires, the registration statement, as amended when it
becomes effective (together any registration statement filed pursuant to Rule
462(b) under the Act increasing the size of the offering registered under the
Act), including all documents filed as a part thereof, and including any
information

<PAGE>

-2-

contained in a prospectus subsequently filed with the Commission pursuant to
Rule 424(b) under the Act and deemed to be part of the registration statement at
the time of effectiveness pursuant to Rule 430A under the Act, is herein called
the "Registration Statement," and the prospectus, in the form filed by the
----------------------
Company with the Commission pursuant to Rule 424(b) under the Act or, if no such
filing is required, the form of final prospectus included in the Registration
Statement at the time it became effective, is herein called the "Prospectus."
----------

The Company, the Selling Stockholders and the Underwriters agree as
follows:

1. Sale and Purchase. Upon the basis of the warranties and
-----------------
representations and the other terms and conditions herein set forth, each of the
Selling Stockholders, severally and not jointly, agree to sell to the respective
Underwriters and each of the Underwriters, severally and not jointly, agrees to
purchase from each Selling Stockholder the respective number of Firm Shares
(subject to such adjustment as you may determine to avoid fractional shares)
which bears the same proportion to the number of Firm Shares to be sold by such
Selling Stockholder as the number of Firm Shares set forth opposite the name of
such Underwriter in Schedule A annexed hereto bears to the total number of Firm
Shares to be sold by the Selling Stockholders, at a purchase price of $ per
Share. You shall release the Firm Shares for public sale promptly after this
Agreement becomes effective. You may from time to time increase or decrease the
public offering price after the initial public offering to such extent as you
may determine.

In addition, the Selling Stockholders hereby grant to the several
Underwriters the option to purchase, and upon the basis of the warranties and
representations and the other terms and conditions herein set forth the
Underwriters shall have the right to purchase, severally and not jointly, from
the Selling Stockholders all or a portion of the Additional Shares as may be
necessary to cover over-allotments made in connection with the offering of the
Firm Shares, at the same purchase price per share to be paid by the Underwriters
to the Selling Stockholders for the Firm Shares. This option may be exercised at
any time (but not more than once) on or before the thirtieth day following the
date hereof, by written notice from Dillon, Read & Co. Inc. ("Dillon Read") to
the Company and the Representatives of the Selling Stockholders (as defined).
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised, and the date and time when

<PAGE>
-3-

the Additional Shares are to be delivered (such date and time, the "additional
----------
time of purchase"); provided, however, that the additional time of purchase
- ---------------- -----------------
shall not be earlier than the time of purchase (as defined below) nor earlier
than the second business day after the date on which the option shall have been
exercised nor later than the eighth business day after the date on which the
option shall have been exercised. As used herein, "business day" shall mean a
------------
day on which the New York Stock Exchange is open for trading. The number of
Additional Shares to be sold to each Underwriter shall be the number which bears
the same proportion to the aggregate number of Additional Shares being purchased
as the number of Firm Shares set forth opposite the name of such Underwriter on
Schedule A annexed hereto bears to the total number of Firm Shares (subject, in
each case, to such adjustment as you may determine to avoid fractional shares).
The number of Additional Shares to be sold by each Selling Stockholder shall be
the number which bears the same proportion to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Selling Stockholder in Schedule B annexed hereto bears to the total
number of Firm Shares (subject, in each case, to such adjustment as you may
determine to avoid fractional shares). No Additional Shares shall be sold or
delivered unless the Firm Shares previously have been, or simultaneously are,
sold and delivered.

Pursuant to powers of attorney granted by each Selling Stockholder
(the "Powers-of-Attorney"), will act as representatives of the Selling
------------------
Stockholders. The foregoing representatives (the "Representatives of the Selling
------------------------------
Stockholders") are authorized, on behalf of each Selling Stockholder, to execute
- ------------
any documents necessary or desirable in connection with the sale of the Shares
to be sold hereunder by each Selling Stockholder, to make delivery of the
certificates for such Shares, to receive the proceeds of the sale of such
Shares, to give receipts for such proceeds, to pay therefrom the expenses to be
borne by each Selling Stockholder in connection with the sale and public
offering of the Shares, to distribute the balance of such proceeds to each
Selling Stockholder in proportion to the number of Shares sold by each Selling
Stockholder, to receive notices on behalf of each Selling Stockholder and to
take such other action as may be necessary or desirable in connection with the
transactions contemplated by this Agreement.

2. Payment and Delivery. Payment of the purchase price for the
--------------------
Firm Shares shall be made to each of the Selling Stockholders by wire transfer
of same-day funds to an account specified by the Representatives of the Selling

<PAGE>
-4-

Stockholders not later than two business days prior to the time of purchase
against delivery of the certificates for the Firm Shares to you for the
respective accounts of the Underwriters. Such payment and delivery shall be made
at [10:00 A.M.], New York City time, on , 1996 (unless another time shall be
agreed to by you and the Representatives of the Selling Stockholders or unless
postponed in accordance with the provisions of Section 10 hereof). The time at
which such payment and delivery are actually made is hereinafter sometimes
called the "time of purchase." Certificates for the Firm Shares shall be
----------------
delivered to you in definitive form in such names and in such denominations as
you shall specify on the second business day preceding the time of purchase. For
the purpose of expediting the checking of the certificates for the Firm Shares
by you, the Selling Stockholders agree to make such certificates available to
you for such purpose at least one full business day preceding the time of
purchase.

Payment of the purchase price for the Additional Shares shall be
made at the additional time of purchase in the same manner as the payment for
the Firm Shares. Certificates for the Additional Shares shall be delivered to
you in definitive form in such names and in such denominations as you shall
specify on the second business day preceding the additional time of purchase.
For the purpose of expediting the checking of the certificates for the
Additional Shares by you, the Selling Stockholders agree to make such
certificates available to you for such purpose at least one full business day
preceding the additional time of purchase.

The Selling Shareholders will pay all applicable state transfer
taxes, if any, involved in the transfer to the several Underwriters of the
Shares to be purchased by them from the Selling Shareholders and the respective
Underwriters will pay any additional stock transfer taxes involved in further
transfers.

3. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each of the Underwriters that:

(a) (i) at the time the Registration Statement becomes effective,
including at the time of effectiveness of any post-effective amendment,
(i) the Registration Statement and the Prospectus will fully comply in all

<PAGE>
-5-

material respects with the provisions of the Act, (ii) the Registration
Statement will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (iii) the Prospectus will
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
--------- -------
warranty or representation with respect to any statement contained in the
Registration Statement or the Prospectus in reliance upon and in
conformity with information concerning the Underwriters and furnished in
writing by or on behalf of any Underwriter through you to the Company
expressly for use in the Registration Statement or the Prospectus;

(b) as of the date of this Agreement, the Company has an authorized
capitalization as set forth in the Prospectus; all of the issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the
Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
full power and authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus and to execute
and deliver this Agreement;

(c) the Company and each of its subsidiaries (the "Subsidiaries")
------------
are duly qualified or licensed by and are in good standing in each
jurisdiction in which they conduct their respective businesses and in
which the failure to be so licensed or qualified, singly or in the
aggregate with all other such failures, could reasonably be expected to
have a material adverse effect on the business, condition (financial or
otherwise), results of operations, prospects or liabilities of the Company
and its Subsidiaries taken as a whole (a "Material Adverse Effect"); the
-----------------------
Company and each of its Subsidiaries are in compliance in all material
respects with the laws, orders, rules, regulations and directives issued
or administered by such jurisdictions;

(d) neither the Company nor any of its Subsidiaries is in breach of,
or in default under (nor has any event

<PAGE>
-6-

occurred that with notice, lapse of time, or both would constitute a
breach of, or default under), its respective charter or by-laws or in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, bank
loan or credit agreement or other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which any of them is
bound, and the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not conflict
with, or result in any breach of or constitute a default under (nor
constitute any event that with notice, lapse of time, or both would
constitute a breach of, or default under), any provision of the charter or
by-laws of the Company or any of its Subsidiaries or under any provision
of any material license, indenture, mortgage, deed of trust, bank loan or
credit agreement or other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which any of them or their
respective properties may be bound or affected, or under any Federal,
state, local or foreign law, regulation or rule or any decree, judgment or
order applicable to the Company or any of its Subsidiaries;

(e) this Agreement has been duly authorized, executed and delivered
by the Company and is a legal, valid and binding agreement of the Company
enforceable in accordance with its terms, except as rights to indemnity
and contribution hereunder may be limited by Federal or state securities
laws;

(f) the capital stock of the Company, including the Shares, conforms
in all material respects to the description thereof contained in the
Registration Statement and the Prospectus and the certificates for the
Shares are in due and proper form and the holders of the Shares will not
be subject to personal liability by reason of being such holders;

(g) no approval, authorization, consent or order of or filing with
any national, state or local governmental or regulatory commission, board,
body, authority or agency is required in connection with the sale of the
Shares as contemplated hereby other than registration of the Shares under
the Act and any necessary qualification under the securities or blue sky
laws of the various jurisdictions in which the Shares are being offered by
the Underwriters

<PAGE>
-7-

and any consents that have been obtained and are in full force and effect;

(h) except as described in the Prospectus, no person has the right,
contractual or otherwise, to cause the Company to issue to it, or register
pursuant to the Act, any shares of capital stock of the Company upon the
sale of the Shares to the Underwriters hereunder (except pursuant to
"piggyback" registration rights described in the Prospectus, which have
been waived or complied with), nor does any person have rights of first
refusal or other rights to purchase any of the Shares;

(i) KPMG Peat Marwick LLP, whose reports on the consolidated
financial statements of the Company and its Subsidiaries are filed with
the Commission as part of the Registration Statement and the Prospectus,
are independent certified public accountants as required by the Act;

(j) each of the Company and its Subsidiaries has all necessary
licenses, authorizations, consents and approvals and has made all
necessary filings required under any Federal, state, local or foreign law,
regulation or rule, and has obtained all necessary authorizations,
consents and approvals from other persons in order to conduct its
respective business, except where the failure to have, make or obtain such
licenses, authorizations, consents, approvals or filings, singly or in the
aggregate with all other such failures, could not reasonably be expected
to have a Material Adverse Effect; neither the Company nor any of its
Subsidiaries is in violation of, or in default under, any such license,
authorization, consent or approval or any Federal, state, local or foreign
law, regulation or rule or any decree, order or judgment applicable to the
Company or any of its Subsidiaries, which violation or default, singly or
in the aggregate with all other such violations and defaults, could
reasonably be expected to have a Material Adverse Effect; except as
disclosed in the Prospectus, no regulatory agency or body has issued any
order or decree impairing, restricting or prohibiting (A) payment of
dividends by the Company or by any Subsidiary to the Company or (B) the
continuation of the business of the Company or any Subsidiary in all
material respects as presently conducted;

(k) all legal or governmental proceedings, contracts or documents of
a character required to be described in

<PAGE>
-8-

the Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement have been so described or filed as required;

(l) there is no action, suit or proceeding pending or, to the
Company's knowledge, threatened against the Company or any of its
Subsidiaries or any of their respective properties, at law or in equity,
or before or by any Federal, state, local or foreign governmental or
regulatory commission, board, body, authority or agency that, singly or in
the aggregate with all other such actions, suits and proceedings, could
reasonably be expected to have a Material Adverse Effect;

(m) the financial statements included in the Registration Statement
and the Prospectus present fairly the consolidated financial position of
the Company and its Subsidiaries as of the dates indicated and the
consolidated results of operations and changes in financial position of
the Company and its Subsidiaries for the periods specified; such financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved except as otherwise stated therein;

(n) subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may be
otherwise stated in the Registration Statement or Prospectus, there has
not been (A) any material and unfavorable change, financial or otherwise,
in the business, condition (financial or otherwise), results of
operations, prospects or liabilities, present or prospective, of the
Company and its Subsidiaries taken as a whole, (B) any transaction which
is material to the Company and its Subsidiaries taken as a whole
contemplated or entered into by the Company or any of its Subsidiaries or
(C) any obligation, contingent or otherwise, directly or indirectly
incurred by the Company or any of its Subsidiaries outside the ordinary
course of business which is material to the Company and its Subsidiaries
taken as a whole;

(o) Capital Markets Assurance Corporation ("CapMAC") and Asian
------
Securitization and Infrastructure Assurance (Private) Ltd. ("ASIA Ltd.")
--------
are the only entities in which the Company holds a direct or indirect
equity interest which conduct insurance or reinsurance business;

<PAGE>
-9-

CapMAC is a wholly owned Subsidiary of the Company; the Company, CapMAC
and ASIA Ltd. are in compliance with, and have filed all reports,
information statements and other documents under, all insurance laws and
regulations that are applicable to them, including those relating to
companies that control insurance companies, and the rules, regulations and
interpretations of the insurance regulatory authorities thereunder
(collectively, the "Applicable Insurance Laws"), and have duly paid all
-------------------------
taxes (including franchise taxes and similar fees) they are required to
have paid under the Applicable Insurance Laws, except, in each case, where
the failure to do so, singly or in the aggregate with all other such
failures, could not reasonably be expected to have a Material Adverse
Effect; the Company, CapMAC and ASIA Ltd. maintain their books and records
in accordance with the Applicable Insurance Laws, except where the failure
to do so, singly or in the aggregate with all other such failures, could
not reasonably be expected to have a Material Adverse Effect; to the best
of the Company's knowledge, no change in any insurance law or regulation
is pending that, if made effective, could, singly or in the aggregate with
all such changes, reasonably be expected to have a Material Adverse
Effect;

(p) without limiting Section 3(j), each of CapMAC and ASIA Ltd. is
duly licensed, authorized or admitted as an insurer in each jurisdiction
where it is required to be so licensed, authorized or admitted to conduct
its business as currently conducted, except where the failure to be so
licensed, authorized or admitted, singly or in the aggregate with all
other such failures, could not reasonably be expected to have a Material
Adverse Effect; the Company, CapMAC and ASIA Ltd. have all necessary
consents, authorizations, approvals, licenses, orders, certificates and
permits (collectively, "Authorizations") of and from all insurance
--------------
authorities, commissions or other insurance regulatory bodies to conduct
their respective businesses, except where the failure to have any such
authorization, singly or in the aggregate with all other such failures,
could not reasonably be expected to have a Material Adverse Effect; none
of the Company, CapMAC or ASIA Ltd. has received any inquiry or
notification or has knowledge of any threatened inquiry, notification or
action, from or by any insurance authority, commission or other regulatory
body to the effect that any additional Authorization from such authority,
commission or other regulatory body is needed to be obtained by the
Company, CapMAC or ASIA Ltd. to

<PAGE>
-10-

conduct its business as currently conducted, except where the failure to
obtain any such Authorization, singly or in the aggregate with all other
such failures, could not reasonably be expected to have a Material Adverse
Effect; and there is no pending or, to the best of the Company's
knowledge, threatened, action, suit, proceeding or investigation that may
lead to the revocation, termination or suspension of any such
Authorization;

(q) without limiting Section 3(p), the statutory annual statements
of CapMAC for each of the three years ended December 31, 1995, and the
statutory quarterly statement of CapMAC for the most recently completed
fiscal quarter, have been filed on a timely basis with the New York State
Insurance Department and with the insurance regulatory authorities of each
other jurisdiction in which such filings were required, and the balance
sheets, income statements and other financial information contained in
such annual and quarterly statements have been prepared in conformity with
required or permitted statutory accounting principles or practices
consistently followed, except as may otherwise be indicated in the notes
thereto, and present fairly in all material respects the financial
position of CapMAC (on a statutory basis) as at the dates thereof, and the
results of operations of CapMAC (on a statutory basis) for the periods
covered thereby; and

(r) except as disclosed in the Prospectus, each material reinsurance
or retrocessional treaty, contract, agreement or arrangement to which
CapMAC or ASIA Ltd. is a party or by which it is bound (each, a
"Reinsurance Agreement") is in full force and effect, and none of the
---------------------
Company, CapMAC or ASIA Ltd. is in violation of, or in default in the
performance of, any material obligation contained therein; none of the
Company, CapMAC or ASIA Ltd. has received notice from any of the other
parties to such Reinsurance Agreements that such other party intends not
to perform any such Reinsurance Agreement, and none of the Company, CapMAC
or ASIA Ltd. has any reason to believe that any of the other parties to
any such Reinsurance Agreement will be unable to perform such Reinsurance
Agreement.

4. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder, severally and not jointly, represents and warrants to
each Underwriter that:

<PAGE>
-11-

(a) such Selling Stockholder now is, and at the time of delivery of
such Shares (whether at the time of purchase or additional time of
purchase, as the case may be) will be, the lawful owner of the number of
Shares to be sold by such Selling Stockholder pursuant to this Agreement
and has and, at the time of delivery thereof, will have valid and
marketable title to such Shares, and upon delivery of and payment for such
Shares (whether at the time of purchase or the additional time of
purchase, as the case may be), the Underwriters will acquire valid and
marketable title to such Shares free and clear of any claim, lien,
encumbrance, security interest, community property right, restriction on
transfer or other defect in title;

(b) such Selling Stockholder has and at the time of delivery of such
Shares (whether at the time of purchase or additional time of purchase, as
the case may be) will have full legal right, power and capacity, and any
approval required by law (other than those imposed by the Act and the
securities or blue sky laws and other than those that have been obtained
and are in full force and in effect), to sell, assign, transfer and
deliver such Shares in the manner provided in this Agreement;

(c) this Agreement and the Custody Agreement, dated as of the date
hereof, among Harris Trust and Savings Bank, as custodian, and the Selling
Stockholders (the "Custody Agreement") have been duly executed and
-----------------
delivered by such Selling Stockholder and each is a legal, valid and
binding agreement of such Selling Stockholder enforceable in accordance
with its terms, except, in the case of this Agreement, as rights to
indemnity and contribution hereunder may be limited by Federal or state
securities laws;

(d) when the Registration Statement becomes effective and at all
times subsequent thereto through the latest of the time of purchase,
additional time of purchase and the termination of the offering of the
Shares, the Registration Statement and the Prospectus, and any supplements
or amendments thereto, as they relate to such Selling Stockholder will not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;

<PAGE>
-12-

(e) such Selling Stockholder has duly and irrevocably authorized the
Representatives of the Selling Stockholders, on behalf of such Selling
Stockholder, to execute and deliver this Agreement and any other document
necessary or desirable in connection with the transactions contemplated
hereby and to deliver the Shares to be sold by such Selling Stockholder
and receive payment therefor pursuant hereto; and

(f) the sale of such Selling Stockholder's Shares pursuant to this
Agreement is not prompted by any information concerning the Company which
is not set forth in the Prospectus.

5. Certain Covenants of the Company. The Company hereby agrees:
--------------------------------

(a) to furnish such information as may be required and otherwise to
cooperate in qualifying the Shares for offering and sale under the
securities or blue sky laws of such states as you may designate and to
maintain such qualifications in effect so long as required for the
distribution of the Shares, provided that the Company shall not be
required to qualify as a foreign corporation or to consent to the service
of process under the laws of any such state in which it is not now subject
to service of process (except service of process with respect to the
offering and sale of the Shares);

(b) to make available to you in New York City, as soon as
practicable after the Registration Statement becomes effective (but in any
event not later than 1:00 P.M. on the business day immediately following
the date hereof), and thereafter, from time to time for so long as a
prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, to furnish to the Underwriters and dealers,
without charge, as many copies of the Prospectus (or of the Prospectus as
amended or supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the Registration
Statement) as the Underwriters may reasonably request;

(c) to advise you promptly and (if requested by you) to confirm such
advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective
and

<PAGE>
-13-

(ii) if Rule 430A under the Act is used, when the Prospectus is filed with
the Commission pursuant to Rule 424(b) under the Act (which the Company
agrees to file in a timely manner under such Rule);

(d) to advise you promptly (and to confirm such advice in writing)
of the receipt of any comments from the Commission or any request by the
Commission for amendments or supplements to the Registration Statement or
the Prospectus or for additional information with respect thereto, or, to
the extent the Company has received notice thereof, the issuance by the
Commission of a stop order suspending the effectiveness of the
Registration Statement or the threatening or initiation of any proceedings
for that purpose or the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, or the threatening or initiation of
any proceeding for that purpose; to make every reasonable effort to
prevent the issuance of any stop order or any order preventing or
suspending the use of any Preliminary Prospectus or suspending such
qualification, and if any stop order or any order suspending the use of
any Preliminary Prospectus or suspending such qualification is issued, to
obtain the lifting or removal thereof as soon as possible;

(e) to advise you promptly of any proposal to amend or supplement
the Registration Statement or Prospectus and to file no such amendment or
supplement to which you shall reasonably object after having had a
reasonable opportunity to review such amendment or supplement;

(f) to furnish, without charge, to you, and, upon request, to each
of the other Underwriters, for a period of five years from the date of
this Agreement (i) copies of any reports or other communications which the
Company shall send to its stockholders or shall from time to time publish
or publicly disseminate, (ii) copies of all annual, quarterly and current
reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such
other similar form as may be designated by the Commission, and (iii)
provided that the Company remains subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (collectively, the "Exchange Act"), such
------------
other information as you may reasonably request regarding the Company or
its Subsidiaries;

<PAGE>
-14-

(g) to advise you promptly of the happening of any event known to
the Company within the time during which a prospectus relating to the
Shares is required to be delivered under the Act which, in the judgment of
the Company, would require the making of any change in the Prospectus then
being used so that the Prospectus would not contain an untrue statement of
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they are
made, not misleading, and, during such time, to prepare and furnish, at
the Company's expense, to the Underwriters promptly such amendments or
supplements to such Prospectus as may be necessary to reflect any such
change and to furnish you a copy of such proposed amendment or supplement
before filing any such amendment or supplement with the Commission;

(h) as soon as practicable and for the time period specified by Rule
158 under the Act, to make generally available to its security holders,
and to deliver to you, an earnings statement of the Company that will
satisfy the provisions of Section 11(a) of the Act and Rule 158 under the
Act;

(i) to furnish to you four (4) conformed copies of the Registration
Statement, as initially filed with the Commission, and of all amendments
thereto (including all exhibits thereto) and sufficient conformed copies
of the foregoing (other than exhibits) for distribution of a copy to each
of the Underwriters;

(j) to furnish to you as early as practicable prior to the time of
purchase and the additional time of purchase, as the case may be, but not
later than two business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements, if any, of the
Company and its Subsidiaries which have been read by the Company's
independent certified public accountants, as stated in their letter to be
furnished pursuant to Section 8(c) of this Agreement; and

(k) to furnish to you, before filing with the Commission subsequent
to the effective date of the Registration Statement and during the period
referred to in paragraph (g) above, a copy of any document proposed to be
filed pursuant to Sections 13, 14 or 15(d) of the Exchange Act.

<PAGE>
-15-

6. Certain Covenants of the Company and the Selling
------------------------------------------------
Stockholders. (a) The Company agrees with each Underwriter that, whether or
- ------------
not the transactions contemplated hereby are consummated or this Agreement is
terminated, the Company will pay all expenses, fees and taxes (other than any
transfer taxes and fees and disbursements of counsel for the Underwriters except
as set forth under Section 7 hereof or (iii) below) in connection with (i) the
preparation and filing of the Registration Statement, each Preliminary
Prospectus, the Prospectus, and any amendments or supplements thereto, and the
printing and furnishing of copies of each thereof to the Underwriters and to
dealers (including costs of mailing and shipment), (ii) the sale and delivery of
the Shares by the Company and the Selling Stockholders, (iii) the qualification
of the Shares for offering and sale under state laws and the determination of
their eligibility for investment under state law as aforesaid (including the
legal fees and filing fees and other disbursements of counsel to the
Underwriters) and the printing and furnishing of copies of any blue sky surveys
or legal investment surveys to the Underwriters and to dealers, (iv) the filing
fees relating to the review of the public offering of the Shares by the National
Association of Securities Dealers, Inc. (the "NASD") and (v) the performance of
----
the Company's and the Selling Stockholders' other obligations hereunder.

(b) The Company and each of the Selling Stockholders agree with each
Underwriter that, for a period of 120 days after the date hereof, the Company
and the Selling Stockholders will not sell, contract to sell, grant any option
to sell or otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible into or exchangeable for Common Stock or
warrants or other rights to purchase Common Stock or permit the registration
under the Act of any shares of Common Stock without the prior written consent of
Dillon Read, except that (A) the Company may (i) register shares of Common Stock
pursuant to this Agreement and pursuant to the Form S-8 Registration Statement
of the Company filed with the Commission on June 7, 1996, (ii) issue shares of
Common Stock upon the exercise of outstanding options and warrants or the
repurchase of outstanding warrants and (iii) grant options to purchase Common
Stock and award restricted stock pursuant to director and employee benefit plans
described in the Prospectus and (B) the Selling Stockholders may sell the Shares
hereunder.

7. Reimbursement of Underwriters' Expenses. If the closing of the
---------------------------------------
transactions contemplated hereby does not occur for any reason other than the
termination of this Agreement

<PAGE>
-16-

pursuant to the second paragraph of Section 9 hereof or the default by one or
more of the Underwriters in its or their respective obligations hereunder, the
Company shall reimburse the Underwriters for all of their out-of-pocket
expenses, including the fees and disbursements of their counsel, reasonably
incurred by them in connection with this Agreement and the transactions
contemplated hereby.

8. Conditions of Underwriters' Obligations. The several
---------------------------------------
obligations of the Underwriters hereunder are subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders on the date hereof and at the time of purchase (and the several
obligations of the Underwriters at the additional time of purchase are subject
to the accuracy of the representations and warranties on the part of the Company
and the Selling Stockholders on the date hereof and at the time of purchase
(unless previously waived) and at the additional time of purchase, as the case
may be), the performance by the Company and the Selling Stockholders of their
obligations hereunder and to the following conditions:

(a) The Company shall furnish to you at the time of purchase and at
the additional time of purchase, as the case may be, an opinion of Simpson
Thacher & Bartlett, counsel for the Company and the Selling Stockholders,
addressed to the Underwriters and dated the time of purchase or additional
time of purchase, as the case may be, with reproduced copies for each of
the other Underwriters and in form satisfactory to Cahill Gordon &
Reindel, counsel for the Underwriters, stating that:

(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with full corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;

(ii) each of CapMAC and CapMAC Financial Services, Inc. ("CFS")
---
has been duly incorporated and is validly existing as a corporation
in good standing under the laws of its respective jurisdiction of
incorporation with full corporate power and authority to own its
respective properties and to conduct its respective business as
described in the Prospectus;

<PAGE>
-17-

(iii) this Agreement has been duly authorized, executed and
delivered by the Company;

(iv) the Company has an authorized capitalization as set forth
in the Registration Statement and the Prospectus; the outstanding
shares of capital stock of the Company (including the Shares to be
sold by the Selling Stockholders) have been duly authorized and
validly issued, and are fully paid and nonassessable; there are no
preemptive rights under Federal or New York law or under the
Delaware General Corporation Law to subscribe for or purchase shares
of the Company's capital stock and there are no preemptive or other
rights to subscribe for or to purchase any shares of the Company's
capital stock pursuant to the Company's charter or by-laws or
pursuant to any agreement or other instrument listed on a schedule
attached to such opinion;

(v) the holders of the Shares will not be subject to personal
liability under the Delaware General Corporation Law by reason of
being such holders;

(vi) such counsel has been informed by the Commission that the
Registration Statement is effective under the Act; to such counsel's
knowledge, no stop order proceedings with respect to the
Registration Statement are pending or threatened under the Act;

(vii) no approval, authorization, consent or order of or filing
with any Federal or New York court or governmental agency or body or
any Delaware court of governmental agency or body acting pursuant to
the Delaware General Corporation Law is required for the sale of the
Shares as contemplated hereby except those mentioned in the
preceding paragraph and such approvals, authorizations, consents,
orders or filings as may be required under state securities or blue
sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;

(viii) the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not breach or
result in a default under any provision of any agreement or
instrument listed on a schedule to such opinion, nor will any

<PAGE>
-18-

such action violate the certificate of incorporation or bylaws of
the Company, CapMAC or CFS;

(ix) to such counsel's knowledge, there are no pending or
threatened legal or governmental proceedings that are required to be
described in the Prospectus but are not so described;

(x) the statements made in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to
constitute summaries of the terms of the Company's capital stock or
the Delaware General Corporation Law, constitute accurate summaries
of the terms of such capital stock or such statute, as the case may
be, in all material respects;

(xi) the statements made in the Prospectus under the caption
"Insurance Regulatory Matters," insofar as they purport to
constitute summaries of the terms of New York or Federal statutes,
regulations thereunder or legal and governmental proceedings
thereunder, constitute accurate summaries of the terms of such
statutes, regulations or such legal and governmental proceedings in
all material respects;

(xii) the statements made in the Prospectus under the caption
"Certain United States Tax Considerations," insofar as they purport
to constitute summaries of matters of United States Federal tax law
and regulations or legal conclusions with respect thereto,
constitute accurate summaries of such matters or accurate legal
conclusions in all material respects;

(xiii) this Agreement, the Powers-of-Attorney and the Custody
Agreement have been duly executed and delivered by or on behalf of
each of the Selling Stockholders; and

(xiv) each Selling Stockholder is the sole registered owner of
the Shares to be sold by such Selling Stockholder; assuming the
Underwriters are purchasing the Shares in good faith and without
notice of any adverse claim, upon payment for and delivery of such
Shares in accordance with this Agreement, the Underwriters will
acquire all of the rights of such Selling Stockholder in such Shares
and will also acquire

<PAGE>

-19-

their interest in such Shares free of any adverse claim (within the
meaning of the Uniform Commercial Code as in effect in the State of
New York).

In addition, such opinion shall state that in the course of the
preparation by the Company of the Registration Statement and the
Prospectus, such counsel has participated in conferences with certain
officers and employees of the Company, representatives of the independent
public accountants of the Company and counsel to the Company and based on
such counsel's examination of the Registration Statement and the
Prospectus, such counsel's investigations made in connection with the
preparation of the Registration Statement and the Prospectus and such
counsel's participation in the conferences referred to above, (i) such
counsel is of the opinion that the Registration Statement, as of its
effective date, and the Prospectus, as of its date, complied as to form in
all material respects with the requirements of the Act and the applicable
rules and regulations of the Commission thereunder, except that in each
case we express no opinion with respect to the financial statements or
other financial data contained in the Registration Statement or the
Prospectus, and (ii) such counsel has no reason to believe that the
Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading or that the Prospectus, as of its date or at the
time of purchase (or the additional time of purchase, as the case may be)
contained or contains any untrue statement of a material fact or omitted
or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, except that in each case such counsel need
express no belief with respect to the financial statements or other
financial data contained in the Registration Statement or the Prospectus.

(b) The Company shall furnish to you at the time of purchase and at
the additional time of purchase, as the case may be, an opinion of Ram D.
Wertheim, General Counsel of the Company, addressed to the Underwriters
and dated the time of purchase or additional time of purchase, as the case
may be, with reproduced copies for each of the other Underwriters and in
form satisfactory to Cahill

<PAGE>
-20-

Gordon & Reindel, counsel for the Underwriters, stating that:

(ii) each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
its respective jurisdiction of incorporation with full corporate
power and authority to own its respective properties and to conduct
its respective business as described in the Prospectus;

(iii) each of the Company and its Subsidiaries is duly qualified
to do business and is in good standing in each jurisdiction in which
its ownership or lease of properties or the conduct of its business
requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material
Adverse Effect;

(iv) the Company has an authorized capitalization as set forth
in the Registration Statement and the Prospectus; the outstanding
shares of capital stock of the Company have been duly authorized and
validly issued, and are fully paid and nonassessable; and there are
no other rights to subscribe for or to purchase any shares of the
Company's capital stock pursuant to the Company's charter or by-laws
or pursuant to any agreement or other instrument to which the
Company is a party or by which it may be bound or affected;

(v) no approval, authorization, consent or order of or filing
with any national, state or local governmental or regulatory
commission, board, body, authority or agency is required in
connection with the sale of the Shares as contemplated hereby other
than such as have been obtained and are in full force and effect
(except such counsel need express no opinion as to any necessary
qualification under the state securities or blue sky laws of the
various

<PAGE>
-21-

jurisdictions in which the Shares are being offered
by the Underwriters);

(vi) the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not breach or
result in a default under (nor constitute any event that with
notice, lapse of time, or both, would constitute a breach of or
default under), any provision of any material license, indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its Subsidiaries is a
party or by which any of them or their respective properties may be
bound or affected, or under any law, regulation or rule or any
decree, judgment or order applicable to the Company or any of its
Subsidiaries, nor will any such action violate the certificate of
incorporation or bylaws of the Company or any of its Subsidiaries;

(vii) to such counsel's knowledge, neither the Company nor any
of its Subsidiaries is in breach of, or in default under (nor has
any event occurred that with notice, lapse of time, or both would
constitute a breach of, or default under) any material license,
indenture, mortgage, deed of trust, bank loan or any other agreement
or instrument to which the Company or any of its Subsidiaries is a
party or by which any of them or their respective properties may be
bound or affected or under any law, regulation or rule or any
decree, judgment or order applicable to the Company or any of its
Subsidiaries;

(viii) to such counsel's knowledge, there are no contracts or
documents of a character which are required to be filed as exhibits
to the Registration Statement or to be summarized or described in
the Prospectus which have not been so filed, summarized or
described, as the case may be;

(ix) to such counsel's knowledge, there are no pending or
threatened legal or governmental proceedings that are required to be
described in the Prospectus but are not so described;

<PAGE>
-22-

(x) CapMAC is the only entity in which the Company holds a
direct or indirect equity interest which conducts insurance or
reinsurance business in the United States; to the best of such
counsel's knowledge, the Company and CapMAC are in compliance with,
and have filed all reports, information statements and other
documents under, all Applicable Insurance Laws, and have duly paid
all taxes (including franchise taxes and similar fees) it is
required to have paid under the Applicable Insurance Laws, except,
in each case, where the failure to do so, singly or in the aggregate
with all other such failures, could not reasonably be expected to
have a Material Adverse Effect; to such counsel's knowledge, no
change in any insurance law or regulation is pending that, if made
effective, could, singly or in the aggregate with all such changes,
reasonably be expected to have a Material Adverse Effect;

(xi) CapMAC is duly licensed, authorized or admitted as an
insurer in each jurisdiction where it is required to be so licensed,
authorized or admitted to conduct its business as currently
conducted, except where the failure to be so licensed, authorized or
admitted, singly or in the aggregate with all other such failures,
could not reasonably be expected to have a Material Adverse Effect;
to such counsel's knowledge, the Company and CapMAC have all
necessary Authorizations of and from all insurance authorities,
commissions or other insurance regulatory bodies to conduct their
respective businesses, except where the failure to have any such
authorization, singly or in the aggregate with all other such
failures, could not reasonably be expected to have a Material
Adverse Effect; to such counsel's knowledge, neither the Company nor
CapMAC has received any inquiry or notification or has knowledge of
any threatened inquiry, notification or action, from or by any
insurance authority, commission or other regulatory body to the
effect that any additional Authorization from such authority,
commission or other regulatory body is needed to be obtained by the
Company or CapMAC to conduct its respective business as currently
conducted, except where the failure to obtain any such
Authorization, singly or in the aggregate with all other such
failures, could not reasonably be expected to have a Material
Adverse

<PAGE>
-23-

Effect; and there is no pending, or to such counsel's knowledge,
threatened, action, suit, proceeding or investigation that may lead
to the revocation, termination or suspension of any such
Authorization;

(xii) each Reinsurance Agreement is in full force and effect,
and, to such counsel's knowledge, neither the Company nor CapMAC is
in violation of, or in default in the performance of, any obligation
contained therein;

(xiii) there is no contract or agreement between the Company and
any person granting such person the right (other than rights that
have been waived or satisfied) to require the Company to register,
pursuant to the Registration Statement or otherwise under the Act,
any securities of the Company owned or to be owned by such person;
and

(xiv) the statements made in the Prospectus under the captions
"Indebtedness" and "Shares Eligible for Future Sale," insofar as
they purport to constitute summaries of the terms of Federal
statutes and regulations thereunder or contracts and other
documents, constitute accurate summaries of the terms of such
statutes, regulations and contracts and other documents in all
material respects.

<PAGE>
-24-

untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that in each case such counsel need express no belief with respect
to the financial statements or other financial data contained in the
Registration Statement or the Prospectus.

(c) You shall have received from KPMG Peat Marwick LLP, letters
dated, respectively, the date of this Agreement and the time of purchase
and additional time of purchase, as the case may be, and addressed to the
Underwriters (with reproduced copies for each of the Underwriters) in the
forms heretofore approved by you.

(d) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion of
Cahill Gordon & Reindel, counsel for the Underwriters, dated the time of
purchase or the additional time of purchase, as the case may be, in form
and substance satisfactory to you.

(e) No amendment or supplement to the Registration Statement or
Prospectus shall be filed prior to the time the Registration Statement
becomes effective to which you object.

(f) The Registration Statement shall become effective at or before
5:00 P.M., New York City time, on the date of this Agreement, or if Rule
430A under the Act is used, the Prospectus shall have been filed with the
Commission in accordance with Rule 424(b) under the Act; provided,
--------
however, that the Company, the Representatives of the Selling Stockholders
-------
and you or any group of Underwriters (which may include you) who have
agreed hereunder to purchase in the aggregate at least 50% of the Firm
Shares may from time to time agree on a later time for the effectiveness
of the Registration Statement.

(g) Prior to the time of purchase or the additional time of
purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued under
the Act or proceedings initiated under Section 8(d) or 8(e) of the Act;
(ii) the Registration Statement and all amendments thereto, or
modifications thereof, if any, shall not contain an untrue statement of a
material fact or omit to state a material

<PAGE>
-25-

fact required to be stated therein or necessary to make the statements
therein not misleading; and (iii) the Prospectus and all amendments or
supplements thereto, or modifications thereof, if any, shall not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they are made, not
misleading.

(h) Between the time of execution of this Agreement and the time of
purchase or the additional time of purchase, as the case may be, (i) none
of Standard & Poor's Ratings Services, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Nippon Investors Service, Inc. shall
downgrade, or threaten to downgrade, the claims-paying ability rating of
CapMAC, and no other material and unfavorable change, financial or
otherwise, in the business, condition (financial or otherwise), results of
operations, prospects or liabilities of the Company and its Subsidiaries
taken as a whole shall occur or become known and (ii) neither the Company
nor any of its Subsidiaries shall have entered into any transaction that,
singly or in the aggregate with all other such transactions, could
reasonably be expected to have a Material Adverse Effect.

(i) The Company will, at the time of purchase or additional time of
purchase, as the case may be, deliver to you a certificate of two of its
executive officers to the effect that the representations and warranties
of the Company as set forth in this Agreement and the conditions set forth
in paragraphs (g) and (h) of this Section 8 have been met and that they
are true and correct as of each such date.

(j) You shall have received signed letters from each of the Selling
Stockholders and each of the directors and officers of the Company to the
effect that such persons will not offer, sell, contract to sell, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares
of Common Stock of the Company or securities convertible into or
exchangeable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 120 days after the date of the Prospectus
without the prior written consent of Dillon Read.

(k) The Selling Stockholders shall have delivered to
you, at the time of purchase and the additional time of

<PAGE>
-26-

purchase, as the case may be, a certificate of the Representatives of the
Selling Stockholders to the effect that the representations and the
warranties of the Selling Stockholders as set forth in this Agreement are
true and correct as of each such date.

(l) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Shares, and
the Prospectus, and all other legal matters relating to this Agreement,
the Shares, and the transactions contemplated hereby and thereby shall be
satisfactory in all reasonable respects to Cahill Gordon & Reindel, and
such counsel shall have been furnished with such documents and opinions,
in addition to those set forth above, as they may reasonably require for
the purpose of enabling them to review or pass upon the matters referred
to in this Section 8, in order to evidence the accuracy, completeness and
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained and to render the opinion
referred to in Section 8(d).

(m) The Company and the Selling Stockholders shall have furnished to
you such other documents and certificates as to the accuracy and
completeness of any statement in the Registration Statement and the
Prospectus as of the time of purchase and the additional time of purchase,
as the case may be, as you may reasonably request.

(n) The Company and the Selling Stockholders shall have performed
such of their respective obligations under this Agreement as are to be
performed by the terms hereof at or before the time of purchase and at or
before the additional time of purchase, as the case may be.

9. Effective Date of Agreement; Termination. This Agreement shall
----------------------------------------
become effective (x) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or (y)
if Rule 430A under the Act is used, when the parties hereto have executed and
delivered this Agreement.

The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares, if, at any time prior to the time of
purchase or,

<PAGE>
-27-

with respect to the purchase of any Additional Shares, the additional time of
purchase, as the case may be, (i) trading in securities on the New York Stock
Exchange shall have been suspended or minimum prices shall have been established
on the New York Stock Exchange, (ii) a banking moratorium shall have been
declared either by the United States or New York State authorities, or (iii) the
United States shall have declared war in accordance with its constitutional
processes or there shall have occurred any material outbreak or escalation of
hostilities or other national or international calamity or crisis of such
magnitude in its effect on the financial markets of the United States as, in
your judgment or in the judgment of such group of Underwriters, to make it
impracticable or inadvisable to market the Shares.

If you or any such group of Underwriters elects to terminate this
agreement as provided in this Section 9, the Company, the Representatives of the
Selling Stockholders and each other Underwriter shall be notified promptly in
accordance with Section 12 hereof.

If the sale to the Underwriters of the Shares, as contemplated by
this Agreement, is not carried out by the Underwriters for any reason permitted
under this Agreement or if such sale is not carried out because the Company or
the Selling Stockholders, as the case may be, shall be unable to comply with any
of the terms of this Agreement, the Company or the Selling Stockholders, as the
case may be, shall not be under any obligation or liability under this Agreement
(except to the extent provided in Sections 6(a), 7 and 11 hereof), and the
Underwriters shall be under no obligation or liability to the Company and the
Selling Stockholders under this Agreement (except to the extent provided in
Section 11 hereof) or to one another hereunder.

10. Increase in Underwriters' Commitments. If any Underwriter shall
-------------------------------------
default in its obligation to take up and pay for the Firm Shares to be purchased
by it hereunder and if the number of Firm Shares which all Underwriters so
defaulting shall have agreed but failed to take up and pay for does not exceed
10% of the total number of Firm Shares, the non-defaulting Underwriters shall
take up and pay for (in addition to the aggregate principal amount of Firm
Shares they are obligated to purchase pursuant to Section 1 hereof) the number
of Firm Shares agreed to be purchased by all such defaulting Underwriters, as
hereinafter provided. Such Shares shall be taken up and paid for by such
non-defaulting Underwriter or

<PAGE>
-28-

Underwriters in such amount or amounts as you may designate with the consent of
each Underwriter so designated or, in the event no such designation is made,
such Shares shall be taken up and paid for by all non-defaulting Underwriters
pro rata in proportion to the aggregate number of Firm Shares set opposite the
names of such non-defaulting Underwriters in Schedule A.

Without relieving any defaulting Underwriter from its obligations
hereunder, the Company and the Selling Stockholders agree with the
non-defaulting Underwriters that they will not sell any Firm Shares hereunder
unless all of the Firm Shares are purchased by the Underwriters (or by
substituted Underwriters selected by you with the approval of the Company or
selected by the Company with your approval).

If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the right
to postpone the time of purchase for a period not exceeding five business days
in order that any necessary changes in the Registration Statement and the
Prospectus and other documents may be effected.

The term Underwriter as used in this agreement shall refer to and
include any Underwriter substituted under this Section 10 with like effect as if
such substituted Underwriter had originally been named in Schedule A.

11. Indemnity by the Company, the Selling Stockholders and the
----------------------------------------------------------
Underwriters. (a) The Company and the Selling Stockholders, jointly and
- ------------
severally, agree to indemnify, defend and hold harmless each Underwriter, any
person who controls any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act and their respective officers, directors,
partners, employees, representatives and agents (each, an "Indemnitee"), from
----------
and against any loss, expense, liability or claim, including the reasonable cost
of investigation (collectively, "Losses") which, jointly or severally, any such
------
Indemnitee may incur under the Act, the Exchange Act or otherwise insofar as any
such Loss arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or in the
Registration Statement as amended by any post-effective amendment thereof by the
Company) or in a Prospectus (the term Prospectus for the purpose of this Section
11 being deemed to include any Preliminary Prospectus, the Prospectus and the
Prospectus as amended or supplemented by the Company), or arises

<PAGE>
-29-

out of or is based upon any omission or alleged omission to state a material
fact required to be stated in either such Registration Statement or such
Prospectus or necessary to make the statements made therein not misleading,
except insofar as any such Loss arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained in and in
conformity with information furnished in writing by any Underwriter through you
or your counsel to the Company expressly for use with reference to such
Underwriter in such Registration Statement or such Prospectus or arises out of
or is based upon any omission or alleged omission to state a material fact in
connection with such information required to be stated in either such
Registration Statement or Prospectus or necessary to make such information not
misleading; provided, however, that no Selling Stockholder shall be responsible,
-------- -------
either pursuant to this indemnity or as a result of any breach of this
Agreement, for Losses arising out of or based upon such untrue statement or
omission or allegation thereof based upon information furnished by any party
other than such Selling Stockholder and, in any event, no Selling Stockholder
shall be responsible, either pursuant to this indemnity or as a result of any
breach of this Agreement, for Losses for an amount in excess of the proceeds to
be received by such Selling Stockholder (before deducting expenses) from the
sale of Shares hereunder. Notwithstanding the foregoing, the indemnification
contained in this paragraph with respect to any Preliminary Prospectus shall not
inure to the benefit of any Underwriter or related Indemnitee on account of any
Losses arising from the sale of Shares to any person by such Underwriter if (i)
it is established in the related proceeding that such Underwriter failed to send
or give a copy of the Prospectus (as amended or supplemented if any amendments
or supplements thereto shall have been furnished to such Underwriter prior to
the written confirmation of such sale) to such person with or prior to the
written confirmation of such sale, if required by applicable law, and (ii) the
untrue statement or omission or alleged untrue statement or omission was
completely corrected in the Prospectus (as amended or supplemented if amended or
supplemented as aforesaid) and such Prospectus does not contain any other untrue
statement or omission or alleged untrue statement or omission that was the
subject matter of the related proceeding.

If any action is brought against an Indemnitee in respect of which
indemnity may be sought against the Company or any Selling Stockholder pursuant
to the foregoing paragraph, such Indemnitee shall promptly notify the Company
and the

<PAGE>
-30-

Representatives of the Selling Stockholders in writing of the institution of
such action and the Company or such Selling Stockholder, as the case may be,
shall assume the defense of such action, including the employment of counsel
reasonably satisfactory to such Indemnitee and payment of fees and expenses.
Such Indemnitee shall have the right to employ its own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
Indemnitee unless the employment of such counsel shall have been authorized in
writing by the Company or such Selling Stockholder in connection with the
defense of such action or the Company or such Selling Stockholder shall not have
employed counsel reasonably satisfactory to the Indemnitee to have charge of the
defense of such action or such Indemnitee shall have been advised by its counsel
in writing that there may be defenses available to it that are different from or
additional to those available to the Company or such Selling Stockholder (in
which case the Company or such Selling Stockholder shall not have the right to
direct the defense of such action on behalf of the Indemnitee), in any of which
events such fees and expenses shall be borne by the Company or such Selling
Stockholder, as the case may be, and paid as incurred (it being understood,
however, that the Company or such Selling Stockholder shall not be liable for
the expenses of more than one separate counsel (other than local counsel) in any
one action or series of related actions in the same jurisdiction representing
the Indemnitees who are parties to such action). Anything in this paragraph to
the contrary notwithstanding, the Company or such Selling Stockholder shall not
be liable for any settlement of any such claim or action effected without its
written consent (unless the Company and the Selling Stockholders shall be in
breach of their obligation to pay fees and expenses pursuant to this Agreement).

(b) Each Underwriter severally agrees to indemnify, defend and hold
harmless the Company, each Selling Stockholder, any person who controls the
Company or any Selling Stockholder within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act and their respective officers, directors,
partners, employees, representatives and agents (each, a "Selling Indemnitee")
------------------
from and against any Loss that, jointly or severally, the Company, any Selling
Stockholder or any such person may incur under the Act or otherwise, insofar as
any such Loss arises out of or is based upon any untrue statement or alleged
untrue statement of a material fact contained in and in conformity with
information furnished in writing by or on behalf of such Underwriter through you
or your counsel to the Company expressly for use with reference to such
Underwriter in

<PAGE>
-31-

the Registration Statement (or in the Registration Statement as amended by any
post-effective amendment thereof by the Company) or in a Prospectus, or arises
out of or is based upon any omission or alleged omission to state a material
fact in connection with such information required to be stated either in such
Registration Statement or Prospectus or necessary to make such information not
misleading.

If any action is brought against a Selling Indemnitee in respect of
which indemnity may be sought against any Underwriter pursuant to the foregoing
paragraph, such Selling Indemnitee shall promptly notify such Underwriter in
writing of the institution of such action and such Underwriter shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to such Selling Indemnitee and payment of fees and expenses. Such
Selling Indemnitee shall have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
Selling Indemnitee unless the employment of such counsel shall have been
authorized in writing by such Underwriter in connection with the defense of such
action or such Underwriter shall not have employed counsel reasonably
satisfactory to such Selling Indemnitee to have charge of the defense of such
action or such Selling Indemnitee shall have been advised by its counsel in
writing that there may be defenses available to it or them which are different
from or additional to those available to such Underwriter (in which case such
Underwriter shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by such Underwriter and paid as incurred (it being
understood, however, that such Underwriter shall not be liable for the expenses
of more than one separate counsel (other than local counsel) in any one action
or series of related actions in the same jurisdiction representing the
indemnified parties who are parties to such action). Anything in this paragraph
to the contrary notwithstanding, no Underwriter shall be liable for any
settlement of any such claim or action effected without the written consent of
such Underwriter (unless such Underwriter shall be in breach of its obligation
to pay the fees and expenses of counsel for the Selling Indemnitee pursuant to
this paragraph).

(c) If the indemnification provided for in this Section 11 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 11 in respect of any Losses referred to therein, then each applicable
indemnifying party, in lieu of indemnifying such indemnified party, shall

<PAGE>
-32-

contribute to the amount paid or payable by such indemnified party as a result
of such losses, expenses, liabilities or claims (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other hand from
the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders on the one
hand and of the Underwriters on the other in connection with the statements or
omissions which resulted in such Losses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault of
the Company and the Selling Stockholders on the one hand and of the Underwriters
on the other shall be determined by reference to, among other things, whether
the untrue statement or alleged untrue statement of a material fact or omission
or alleged omission relates to information supplied by the Company, by the
Selling Stockholders or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, expenses, liabilities and claims referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any claim or action.

(d) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
11 were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in subsection (c)
above. Notwithstanding the provisions of this Section 11, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue

<PAGE>
-33-

statement or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriter's obligations to contribute
pursuant to this Section 11 are several in proportion to their respective
underwriting commitments and not joint.

(e) The indemnity and contribution agreements contained in this
Section 11 and the covenants, warranties and representations of the Company and
the Selling Stockholders contained in this Agreement shall remain in full force
and effect regardless of any investigation made by or on behalf of any
Underwriter, or any person who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of
the Company, its directors and officers, any Selling Stockholder or any person
who controls the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, and shall survive any termination of this Agreement or
the issuance and delivery of the Shares. The Company, each Selling Stockholder
and each Underwriter agree promptly to notify the others of the commencement of
any litigation or proceeding against it and, in the case of the Company, against
any of the Company's officers and directors in connection with the issuance and
sale of the Shares, or in connection with the Registration Statement or
Prospectus.

(f) The Company and the Selling Stockholders acknowledge for all
purposes under this Agreement (including this Section 11 and Section 3(a)
hereof) that the statements set forth in the last paragraph on the cover page of
the Prospectus, the first paragraph on page two of the Prospectus and the first,
second and fourth paragraphs under the caption "Underwriting" in the Prospectus
constitute the only written information furnished to the Company by or on behalf
of the Underwriters through you or your counsel expressly for use in the
Registration Statement, any Preliminary Prospectus, or the Prospectus (or any
amendment or supplement to any of them) and that no Underwriter shall be deemed
to have provided any information (and therefore are not responsible for any
statements or omissions) pertaining to any arrangement or agreement with respect
to any party other than such Underwriter.

12. Notices. Except as otherwise herein provided, all statements,
-------
requests, notices and agreements shall be in

<PAGE>
-34-

writing or by telegram and, if to the Underwriters, shall be sufficient in all
respects if delivered or sent to Dillon, Read & Co. Inc., 535 Madison Avenue,
New York, New York 10022, Attention: Syndicate Department, if to the Company or
to any of the Selling Stockholders, shall be sufficient in all respects if
delivered or sent to the Company at the offices of the Company at 885 Third
Avenue, 14th Floor, New York, New York 10022, Attention: General Counsel.

13. Construction. This Agreement shall be governed by, and construed
------------
in accordance with, the laws of the State of New York, without regard to the
principles of conflicts of law. The Section headings in this Agreement have been
inserted as a matter of convenience of reference and are not a part of this
Agreement.

14. Parties at Interest. The Agreement herein set forth has been and
-------------------
is made solely for the benefit of the Underwriters, the Company, the Selling
Stockholders and the controlling persons, directors, officers and other
Indemnitees referred to in Section 11 hereof, and their respective successors,
assigns, executors and administrators. No other person, partnership, association
or corporation (including a purchaser, as such purchaser, from any of the
Underwriters) shall acquire or have any right under or by virtue of this
Agreement.

15. Counterparts. This agreement may be signed by the parties in
------------
counterparts which together shall constitute one and the same agreement among
the parties.

<PAGE>
If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the Underwriters, please so indicate in
the space provided below for the purpose, whereupon this letter and your
acceptance shall constitute a binding agreement among the Company, the Selling
Stockholders and the Underwriters, severally.

Very truly yours,

CAPMAC HOLDINGS INC.

By:
----------------------------------
Name:
Title:

THE SELLING STOCKHOLDERS NAMED IN
SCHEDULE B ATTACHED HERETO

By:
----------------------------------
Name:
Title:

Accepted and agreed to as of the date first above written, on behalf of
themselves and the other several Underwriters named in Schedule A

DILLON, READ & CO. INC.
ALEX. BROWN & SONS INCORPORATED
GOLDMAN, SACHS & CO.

By: DILLON, READ & CO. INC.

By:
-----------------------------
Name:
Title:

<PAGE>

SCHEDULE A

Number of
Underwriter Firm Shares
- ----------- -----------
Dillon, Read & Co. Inc........................................
Alex. Brown & Sons Incorporated...............................
Goldman, Sachs & Co...........................................

Total......................................................

<PAGE>
SCHEDULE B

Number of Number of
Selling Stockholders Firm Shares Additional Shares
- -------------------- ----------- -----------------

Total. . . . .
------------ ----------------

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, N.Y. 10017-3954

June 12, 1996

CapMAC Holdings Inc.
885 Third Avenue, 14th Floor
New York, NY 10022

Dear Sirs:

We have acted as counsel to CapMAC Holdings Inc., a Delaware

corporation (the "Company") and certain stockholders of the Company (the

"Selling Stockholders") in connection with the proposed sale by the Selling

Stockholders of up to 3,450,000 shares of the Company's Common Stock, par value

$.01 per share (the "Shares"), as described in the Registration Statement on

Form S-1 (File No. 333-05211) (the "Registration Statement"), filed with the

Securities and Exchange Commission (the "Commission") under the Securities Act

of 1933, as amended (the "Securities Act").

We have examined an executed copy of the Registration Statement and all

exhibits thereto, including the Certificate of Incorporation of the Company, as

amended (the "Certificate"), filed with the Secretary of State of the State of

Delaware. We have also examined, and have relied as to matters of fact upon,

originals or copies, certified or otherwise identified to our satisfaction, of

such corporate records, agreements, documents and other instruments and such

certificates or comparable documents of public officials and of officers and

representatives of the Company, and have made such other and further

investigations, as we have deemed relevant and necessary as a basis for the

opinions hereinafter set forth.

<PAGE>

CapMAC Holdings Inc. -2- June 12, 1996

In such examination, we have assumed the genuineness of all signatures,

the legal capacity of all natural persons, the authenticity of all documents

submitted to us as originals, the conformity to original documents of all

documents submitted to us as certified or photostatic copies, and the

authenticity of the originals of such latter documents.

Based on the foregoing, and subject to the qualifications and

limitations stated therein, we are of the opinion that the issuance of the

Shares has been duly authorized and the Shares are validly issued, fully paid

and non-assessable.

We are members of the Bar of the State of New York, and we do not

express any opinion herein concerning any other law other than the law of the

State of New York, the federal law of the United States and the Delaware General

Corporation Law.

This opinion letter is rendered to you in connection with the above

described transactions. This opinion letter may not be relied upon by you for

any other purpose, or relied upon by, or furnished to, any other person, firm or

corporation without our prior written consent. We hereby consent to the use of

this opinion as an exhibit to the Registration Statement and to the use of our

name under the heading "Legal Matters" in the Prospectus included therein.

Very truly yours,

/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT

EXHIBIT 10.21

Exhibit 10.21 - Supplemental Executive Retirement Plan

CAPMAC

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

EFFECTIVE AS OF SEPTEMBER 1, 1995

<PAGE>
CAPMAC

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Section Page
------- ----

I. Establishment and Purpose . . . . . . . . . . . 1

II. Definitions . . . . . . . . . . . . . . . . . . 2
III. Eligibility and Participation . . . . . . . . . 5

IV. Deferred Compensation Amounts . . . . . . . . . 6

V. Time of Payment and Manner of Payments . . . . 8

VI. Deferred Compensation Account . . . . . . . . . 10
VII. Administration . . . . . . . . . . . . . . . . 12

VIII. Miscellaneous . . . . . . . . . . . . . . . . . 13

Appendix Schedule of Participants

<PAGE>
SECTION I

ESTABLISHMENT AND PURPOSE

1.01 Establishment. CapMAC Holdings Corp. (hereinafter referred to as
--------------

the "Company") hereby establishes, effective as of September 1, 1995, an

unfunded supplemental deferred compensation plan for a select group of

management or highly compensated employees as described herein, which shall be

known as the CAPMAC SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN" (hereinafter

referred to as the "Plan").

1.02 Purpose. The purpose of this Plan is to enable the Company to
--------

supplement the benefits under the CapMAC Employee Stock Ownership Plan to

certain executive employees of the Company, which will be reduced because of the

limitations under Section 401(a)(17) and Section 415 of the Internal revenue

Code of 1986, as amended, and to attract and retain certain executive employees

of outstanding competence by providing capital accumulation opportunities to

such individuals.

<PAGE>
SECTION II

DEFINITIONS

The following words and phrases shall have the following meanings,

unless a different meaning is plainly required by the context. Any masculine

terminology used in the Plan shall also include the feminine gender and the

definition of any terms in the singular shall also include the plural.

2.01 "Account" or "Deferred Compensation Account" means the deferred

compensation account established for a Participant pursuant to Section VI to

which allocations of Company Supplemental ESOP Contributions and interest

thereon are credited.

2.02 "Beneficiary" means any person or entity validly designated by

the Participant in accordance with Section III to receive the benefits, if any,

payable under the Plan to such Participant.

2.03 "Board" means the Board of Directors of the Company.

2.04 "Committee" means the Administration Committee as defined in

Section VII.

2.05 "Company" means CapMAC Holdings Inc., or any successor by merger,

purchase or otherwise, or any other affiliated company which has adopted the

CapMAC Employee Stock Ownership Plan and as approved by the Administrative

Committee.

2.06 "Company Supplemental ESOP Contribution" means the amount, if

any, contributed by the Company to the Plan on behalf of the Participant in

accordance with Section IV. For any Plan Year, the amount of any Company

Supplemental ESOP Contributions shall be made in the sole discretion of the

<PAGE>
Company.

2.07 "Disability" means a physical or mental disability which

qualifies the Participant for disability benefits under the long-term disability

plan of the Company.

2.08 "Effective Date" means September 1, 1995.

2.09 "Eligible Employee" means any employee who is a member of the

Policy Committee or member of senior management and who satisfies the

requirements of Section III and has been designated by the Administrative

Committee to participate in the Plan.

2.10 "ESOP" means the CapMAC Employee Stock Ownership Plan, the tax-

qualified plan maintained by the Company.

2.11 "Participant" means an Eligible Employee of the Company who is

selected to participate in the Plan in the manner described in Section III.

2.12 "Plan" means the CapMAC Supplemental Executive Retirement Plan as

set forth herein and as the same may be amended from time to time.

2.13 "Plan Year" means the calendar year.

2.14 "Retirement Date" means the Participant's Normal Retirement Date,

Deferred Retirement Date or Disability Retirement Date as those terms are

defined under the ESOP.

2.15 "Total Compensation" means an Eligible Employee's total wages

payable for a calendar year by the Company including all other payments of

compensation payable by the Company and reportable on such Eligible Employee's

Form W-2.

2.16 "Trust" means the CapMAC Supplemental Executive Retirement Plan

Trust or any other trust established by agreements between the Company and the

Trustee in connection with the Plan under which Plan assets are held

<PAGE>
and invested and from which benefits under the Plan are paid.

2.17 "Trustee" means the corporation, or other entity acting as

trustee of the Trust at any time and from which benefits under the Plan are

paid.

2.18 "Year of Service" means a one year period of employment with the

Company in which the Participant completes at least 1,000 hours.

2.19 "Valuation Date" means December 31 or any other date selected by

the Administrative Committee upon which the Plan assets are valued.

<PAGE>
SECTION III

ELIGIBILITY AND PARTICIPATION

3.01 Eligibility
-----------

(a) Any employee who is also a member of the Policy Committee

shall be considered an Eligible Employee. The Board of Directors of the Company

may select from time to time additional senior management employees who shall be

eligible to participate under the Plan.

(b) Participation in the Plan shall continue until the balance

credited to the Participant's Account has been paid in full.

3.02 Beneficiary Designation The Participant shall submit to the
-----------------------

Company upon enrollment in the Plan or at such time as the Administrative

Committee requests and on a form provided by the Committee, a written

designation of a primary beneficiary to whom payment of his Deferred

Compensation Account under the Plan shall be made in the event of his death.

Each beneficiary designation shall become effective only when received by the

Administrative Committee.

<PAGE>
SECTION IV

DEFERRED COMPENSATION AMOUNTS

4.01 Company Supplemental ESOP Contributions. The Company may
----------------------------------------

contribute to the Trust for each Plan Year and on behalf of each Participant, a

Company Supplemental ESOP Contribution, as may be determined by the

Administrative Committee in its sole discretion provided, however, that the

Participant is employed by the Company on the last day of such Plan Year. For

Plan years beginning on or after June 22, 1992, the Company Supplemental ESOP

Contribution for any Plan Year shall be the "value," as defined below, of the

number of shares that represents the difference between (I) the number of shares

that would have been allocated to each Participant under the ESOP without regard

to the limitations under Sections 401(a)(17) and 415 of the Code, and (II) the

number of shares that are actually allocated to such Participant under the ESOP

for the applicable Plan Year. For purposes of this Section 4.01, the "value" of

the shares which will determine the amount of the Company Supplemental ESOP

Contribution for any Plan Year shall mean the per share value of the common

stock of the Company as of the last day of the Plan Year for which the

contribution is made.

4.02 Interest Rate Credit. A Participant's Deferred Compensation
---------------------

Account shall reflect the actual investment experience of the Trust investments

during the applicable Plan Year. For the Plan Years before January 1, 1995, if

no investment is made, the Company shall credit each Participant's Deferred

Compensation Account with interest at a rate of 10% per annum.

4.03 Vesting.
--------

<PAGE>

(a) All Company Supplemental ESOP Contributions made on behalf

of a Participant and credited to his Deferred Compensation Account shall be

vested in accordance with the following schedule:

Year of Service Percent Vested
--------------- --------------

less than 5 0%

years

5 or more years 100%

For vesting purposes, Years of Service shall include all prior years of service

completed by the Participant with the Company (including all service with

Citicorp or any of its subsidiaries). Notwithstanding the foregoing, a

Participant shall be 100% vested in and have a nonforfeitable right to his

Deferred Compensation Account upon death or the attainment of his Retirement

Date while in the service of the Company.

<PAGE>
SECTION V

TIME OF PAYMENT AND MANNER OF PAYMENTS

5.01 Time of Payment. Payments of the Participant's Deferred
----------------

Compensation Account under the Plan shall be made in accordance with the

Company's ESOP and will commence upon one of the following events:

(a) death,

(b) disability retirement date

(d) other termination of employment

5.02 Manner of Payment. A Participant may irrevocably elect the
------------------

manner in which Company Supplemental ESOP Contributions made under the Plan will

be paid. Any such election must be made at the Participant's initial enrollment

in the Plan. In accordance with the distribution options under the ESOP, the

Participant may select either a single lump sum payment or substantially equal

periodic payments (not less frequently than annually under rules adopted by the

Administrative Committee), payable in installments of equal or varying

percentages of the balance of his bookkeeping account under the Trust or such

other method as approved by the Administrative Committee. Distribution of the

Participant's Account shall be made in either cash or in whole shares at their

then fair market value based on the most recent Valuation Date preceding the

distribution, provided, however, such value can be determined by the Company at

a reasonable cost.

<PAGE>
Notwithstanding anything to the contrary and subject to the discretion of the

Administrative Committee, if at the time of distribution, the Participant's

Account is invested in assets that are not readily tradeable (or valuation of

such assets is not readily ascertainable) the amount of the Participant's

distribution shall consist of all Company contributions made to the

Participant's Account credited annually (since the date of his initial

participation) with an interest rate which is equivalent to the average

quarterly rate of interest on 30 year U.S. Treasury Bonds.

5.03 Death Benefit
-------------

(a) In the event of the Participant's death while in the

employment of the Company and prior to the commencement of his Deferred

Compensation Account, the Company shall pay the amount of the Participant's

Deferred Compensation Account in a lump sum payment as of the date of death to

the Participant's designated Beneficiary in accordance with the such designation

received by the Administrative Committee.

(b) In the event of the Participant's death after the

commencement of his Deferred Compensation Account, but prior to the completion

of all such payments due and owing hereunder, the Company shall continue to make

such payments, in equal annual installments over the remainder of the period

that would have been applicable to the Participant had he survived. Such

continuing payments shall be made to the Participant's designated Beneficiary,

in accordance with the last such designation received by the Administrative

Committee from the Participant prior to his death.

<PAGE>
SECTION VI

DEFERRED COMPENSATION ACCOUNT

6.01 Participant Accounts. The Administrative Committee shall cause
--------------------

the Trustee to maintain a bookkeeping account to be kept in the name of each

Participant which shall reflect the value of the Company Supplemental ESOP

Contributions, if any, made by the Company, on the Participant's behalf. The

Participant's Account shall be credited with the Company contributions including

interest thereon at times as the Administrative Committee shall direct.

6.02 Investment of Accounts. In accordance with the terms of the
----------------------

Trust, the value of funds credited to the Participant's bookkeeping account may

be kept in cash or invested and reinvested in mutual funds, stocks, bonds,

securities or any other investment funds as may be selected by the

Administrative Committee in its discretion and reflected in Investment

Guidelines furnished to the Trustee from time to time. In no event, however,

will the Deferred Compensating Accounts be invested in any Company common stock

and the value of such Accounts will not reflect the appreciation in the fair

market value of such stock at any particular time. In providing such Investment

Guidelines to the Trustee, the Participants shall be permitted limited

investment direction of their Deferred Compensation Accounts, subject to

approval by the Administrative Committee and the Trustee, to select the

investment vehicles described in the Investment Guidelines in which the Accounts

are deemed to be invested. Any investment direction by the Participants shall

be deemed a continuing direction until a change is approved by the

Administrative Committee. As of each Valuation Date, the bookkeeping

<PAGE>
Account of each Participant shall be credited with a gain or loss equal to the

adjustment which would be made if assets equal to the bookkeeping account had

been invested in accordance with such Investment Guidelines.

6.03 Assumption of Risk. The Participant agrees on behalf of himself
------------------

and his designated beneficiary to assume all risk in connection with any

decrease in value of the funds which are deemed to be invested or which continue

to be invested in accordance with the provisions of this Plan. Funds invested

or deemed invested under this Plan shall continue for all purposes to be part of

the general assets of the Company, and no person, other than the Company shall,

by virtue of the provisions of this Plan, have interest in such funds.

6.04 Charges Against Accounts. There shall be charged against each
------------------------

Participant's bookkeeping account any payments made to the Participant or his

beneficiary in accordance with Plan Article V.

<PAGE>
SECTION VII

ADMINISTRATION

8.01 Authority. The Plan shall be administered by the Administrative
---------

Committee thereof appointed by the Board, which shall have full power and

authority to administer and interpret the Plan. It shall be the duty of the

Administrative Committee to maintain such records as well enable the

Administrative Committee to determine the employees and their beneficiaries who

are entitled to receive a benefit under the Plan. The Administrative Committee

may establish rules for the administration of the Plan from time to time. Any

decision by the Administrative Committee concern the Plan shall be final and

binding on all persons participating in the Plan.

8.02 Liability. No member of the Board or management of the Company
---------

or the Administrative Committee shall be liable to any persons for any actions

taken under the Plan.

8.03 Procedures. The Board may from time to time adopt such
----------

procedures as it deems appropriate to assist in the administration of the Plan.

<PAGE>
SECTION VIII

MISCELLANEOUS

9.01 Claim for Benefits. No employee or other person shall have any
------------------

claim or right to payment of any amount hereunder until payment has been

authorized and directed by the Board.

9.02 Not an Employment Contract. This Plan is not and shall not be
--------------------------

deemed to constitute a contract of employment between the Company and any

employee or other person, nor shall anything herein contained be deemed to give

any employee or other person any right to be retained in the Company's employ or

in any way limit or restrict the Company's right or power to discharge any

employee or other person at any time and to treat him without regard to the

effect which such treatment might have upon him as a Participant in the Plan.

Each Participant, Beneficiary and any other person or persons having or claiming

a right to payments thereunder shall rely solely on the unsecured promise of the

Company, and nothing herein shall be construed to give a Participant,

Beneficiary or any other person or persons any right, title, interest or claim

in or to any specific asset, fund, reserve, account or property of any kind

whatsoever owned by the Company or in which it may have any right, title or

interest now or in the future.

9.03 Nontransferability. A Participant's rights and interest under
-------------------

the Plan, including amounts payable, may not be assigned, pledged or transferred

except, in the event of a Participant's death, to his Beneficiary.

9.04 Tax Withholding. The Company shall withhold the amount of any
---------------

federal, state or local income tax or other tax required to be withheld by the

Company under applicable law with respect to any amount payable under the

<PAGE>
Plan.

9.05 Expenses. All expenses of administering the Plan shall be borne
--------

by the Company.

9.06 Governing Law. The Plan shall be construed in accordance with
-------------

and governed by the laws of the State of New York.

9.07 Amendment and Termination. The Board, in its discretion, may
-------------------------

amend or terminate the Plan at any time. Notice of any amendment or termination

shall be promptly communicated to Participants.

CapMAC Holdings Inc.

By: ________________

<PAGE>
APPENDIX

SCHEDULE OF PARTICIPANTS

PROMISSORY NOTE

$500,000
New York, New York
April 24, 1996

1. FOR VALUE RECEIVED, the undersigned, John B. Caouette (the "Borrower"),
agrees to pay to the order of CapMAC Financial Services, Inc. (the "Lender") at
885 Third Avenue, New York, New York 10022 or such other place as may be
designated by the Lender from time to time, in lawful money of the United States
of America and in immediately available funds, the principal amount of Five
Hundred Thousand Dollars ($500,000) together with interest on the unpaid portion
of such principal amount from the date hereof until due and payable (whether at
the stated maturity thereof, by acceleration or otherwise) at the per annum rate
equal to 6.75%.

2. Interest on this Note will be payable annually concurrently with the payment
of an annual bonus to the Borrower and, if no bonus is paid to the Borrower in
any calender year, then interest on this Note shall be payable by the Borrower
on the last business day of such year. The Lender (or any affiliate of the
Lender) shall be entitled to deduct from any bonus or other compensation payable
to the Borrower the amount of interest due hereon that is not paid by the
Borrower when due. Interest shall be calculated on the basis of a year of 365
days for the actual number of days elapsed.

3. The principal amount of this Note shall become payable in full on the earlier
of (i) April 24, 2001, (ii) the date of the Borrower's Termination of Employment
for reasons other than death or disability and (iii) 90 days after the date of
the Borrower's Termination of Employment due to death or disability. As used
herein, "Termination of Employment" shall mean any termination of employment,
whether voluntary or involuntary and with or without cause, including death or
permanent disability. This Note shall become due and payable (i) within five
days after notice by the Lender to the Borrower of any default by the Borrower
of the Borrower's obligations hereunder and (ii) immediately upon the filing by
or against the Borrower of any bankruptcy petition for protection under the
bankruptcy laws of United States or any state thereof.

4. The principal amount of this Note may be prepaid in whole or in part at any
time.

5. Upon the maturity of this Note (whether at the stated maturity thereof, by
acceleration or otherwise), the Lender (or any of its affiliates) shall be
entitled to apply any amounts due (including, without limitation, any severance
payments) by the Lender (or any affiliate of the Lender) to the Borrower to the
payment of any accrued and unpaid interest and any outstanding principal of this
Note and of any other Notes issued by the Borrower to the Lender under the
CapMAC Financial Services Executive Loan Program (the "Loan Program") in the
inverse order of the maturity of such

1
<PAGE>

Notes, and the Borrower shall be liable for the payment of any remaining accrued
interest and unpaid principal of this Note and any such other Notes.

6. The Borrower hereby agrees that as long as any amount is outstanding under
this Note, the Borrower shall (i) not pledge any of his stock in CapMAC Holdings
Inc., including any stock issuable to the Borrower upon the exercise of any
stock options ("Stock"), to secure any indebtedness or other payment obligation
and (ii) apply the proceeds of the sale of any Stock to repay the unpaid
principal amount of this Note and of any other Note issued by the Borrower under
the Loan Program, such payment to be applied to repay such Notes in the order
specified by the Borrower or, if the Borrower does not specify how such payment
is to be applied, in the inverse order of the maturity of all Notes issued by
the Borrower under the Loan Program.

7. If any payment on this Note becomes due and payable on a day other than a
business day the maturity thereof shall be extended to the next succeeding
business day, and with respect to payments of principal, interest thereon shall
be payable at the then applicable rate during such extension.

IN WITNESS WHEREOF, the Borrower has duly executed and delivered this Note to
the Lender

By: /s/ John B. Caouette
--------------------
John B. Caouette

Accepted and Agreed:

CapMAC FINANCIAL SERVICES, INC.

By: /s/ Paul Palmer
---------------------------
Title: Chief Financial Officer

THIRD AMENDMENT
TO STOCKHOLDER AGREEMENT
------------------------

THIRD AMENDMENT (The "Amendment"), dated as of November 27, 1995, to
Stockholder Agreement, dated as of June 9, 1992, as amended by the First
Amendment, dated as of July 21, 1993, and the Second Amendment, dated as of
July 15, 1995, to the Stockholder Agreement (the "Stockholder Agreement"),
---------------------
among CapMAC HOLDINGS INC., successor by merger with CapMAC Acquisition
Corp., a Delaware corporation (the "Company"), each of the Investors (as
-------
defined in the Stockholder Agreement) and Centre Reinsurance Limited, a
Bermuda corporation ("Centre Re").
---------

The parties hereto hereby agree as follows:

1. Definitions. Terms defined in the Stockholder Agreement shall be
-----------
used in this Amendment with their defined meanings unless otherwise defined
herein.

2. Amendments. (a) From and after the Effective Date (as defined in
----------
Section 6), the Stockholder Agreement is hereby amended by adding Centre Re
as an Investor thereunder for all purposes thereof. Centre Re hereby
confirms that it has reviewed the provisions of the Stockholder Agreement
and agrees to be bound by all the terms and conditions of the Stockholder
Agreement as if it were an Investor thereunder and a party thereto.

(b) Schedule A to the Stockholder Agreement is hereby amended by
deleting such Schedule in its entirety and replacing it with Schedule A
hereto.

(i) The following is hereby added as the first sentence of
Section 3: "For purposes of this Section 3, the term "Transfer" shall mean
any transfer, sale or other disposition of shares of Common Stock, except
for (i) and such Transfer pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), (ii)
any such Transfer pursuant to Rule 144 promulgated by the Securities and
Exchange Commission under the Securities Act, (iii) any such Transfer by an
Investor to any affiliate of such Investor that controls, is controlled by
or is under common control with such Investor or (iv) any such Transfer by
an Investor to any person or any affiliate of any person if the number of
shares of Common Stock proposed to be transferred by such Investor to such
person or affiliate, together with any other shares of Common Stock
transferred by such Investor to such person and to affiliates of such
person, does not exceed five percent of the total number of shares of
Common Stock outstanding on the proposed date of such Transfer.

<PAGE>

(ii) The words "permitted by Section 2(b)(iv)" in the second
line of Section 3 are hereby deleted.

(d) Section 11 is hereby amended by adding at the end thereof the
following new sentence: "In addition, notwithstanding any termination
pursuant to clause (i) above, the provisions of Sections 5, 6, 7, 9, 10,
11, 12, 13, 14 and 16, shall survive until the third anniversary of any
termination pursuant to clause (i) above."

3. Notices. All notices and other communications to Centre Re pursuant
-------
to Section 9 of the Stockholder Agreement shall be delivered in accordance
with the provisions of said Section 9 to the following address:

Centre Reinsurance Limited
Cumberland House
One Victoria Street
P.O. Box HM 1788
Hamilton HM HX Bermuda
Tel: 809-295-8501
Fax: 809-295-3705

4. No Other Amendments. Except as expressly amended hereby,
-------------------
the Stockholder Agreement shall continue to be, and shall remain, in
full force and effect in accordance with its terms.

5. Counterparts. This Amendment may be executed by the parties
------------
hereto in any number of separate counterparts and all of such counterparts
taken together shall be deemed to constitute one and the same instrument.

6. Effectiveness. The amendments to the Stockholder Agreement set
-------------
forth in Section 2(a) and 2(b) above (the "Centre Re Amendments") shall
become effective on the latest to occur (the "Effective Date") of the date
--------------
that the Company has executed and delivered this Amendment, received an
executed counterpart of this Amendment from Centre Re and received the
consent of Investors holding not less than 66.67% of the outstanding shares
of Common Stock to such amendments and the date that Centre Re purchases
shares of Common Stock pursuant to the Subscription Agreement dated as of
November 27, 1995 (the "Subscription Agreement") between the Company and
Centre Re; provided that, the Centre Re Amendments shall be terminated
without further action and shall not be effective if the sale of the shares
of the Company to Centre Re under the Subscription Agreement does not occur
for any reason. The Amendments set forth in Section 2(c) and Section 2(d)
above shall become effective on the date that the Company has executed and
delivered this Amendment and received a consent to this Amendment from
Investors holding not less than 66.67% of the outstanding shares of Common
Stock.

<PAGE>

7. Governing Law. This Amendment shall be governed by, and shall be
-------------
construed and interpreted in accordance with, the laws of the State of
Delaware.

CapMAC HOLDINGS INC.

By: /s/ Ram D. Wertheim
------------------
Name: Ram D. Wertheim
Title: Chief Administrative Officer, Secretary
and General Counsel.

CENTRE REINSURANCE LIMITED

By: /s/ David A. Brown
----------------------
Name: David A. Brown
Title: EVP

PROMISSORY NOTE

$250,000
New York, New York
May 13, 1996

1. FOR VALUE RECEIVED, the undersigned, Ram D. Wertheim (the "Borrower") ,
agrees to pay to the order of CapMAC Financial Services, Inc. (the "Lender") at
885 Third Avenue, New York, New York 10022 or such other place as may be
designated by the Lender from time to time, in lawful money of the United States
of America and in immediately available funds, the principal amount of Two
Hundred Fifty Thousand Dollars ($250,000) together with interest on the unpaid
portion of such principal amount from the date hereof until due and payable
(whether at the stated maturity thereof, by acceleration or otherwise) at the
per annum rate equal to 6.95%.

3. The principal amount of this Note shall become payable in full on the earlier
of (i) May 13, 2001, (ii) the date of the Borrower's Termination of Employment
for reasons other than death or disability and (iii) 90 days after the date of
the Borrower's Termination of Employment due to death or disability. As used
herein, "Termination of Employment" shall mean any termination of employment,
whether voluntary or involuntary and with or without cause, including death or
permanent disability. This Note shall become due and payable (i) within five
days after notice by the Lender to the Borrower of any default by the Borrower
of the Borrower's obligations hereunder and (ii) immediately upon the filing by
or against the Borrower of any bankruptcy petition for protection under the
bankruptcy laws of United States or any state thereof.

4. The principal amount of this Note may be prepaid in whole or in part at any
time.

1
<PAGE>

Notes, and the Borrower shall be liable for the payment of any remaining accrued
interest and unpaid principal of this Note and any such other Notes.

IN WITNESS WHEREOF, the Borrower has duly executed and delivered this Note to
the Lender

By: /s/ Ram D. Wertheim
-------------------
Ram D. Wertheim

Accepted and Agreed:

CapMAC FINANCIAL SERVICES, INC.

By: /s/ Paul Palmer
---------------------------
Title: Chief Financial Officer

PROMISSORY NOTE

$160,000
New York, New York
May 13, 1996

1. FOR VALUE RECEIVED, the undersigned, Paul Palmer (the "Borrower") , agrees to
pay to the order of CapMAC Financial Services, Inc. (the "Lender") at 885 Third
Avenue, New York, New York 10022 or such other place as may be designated by the
Lender from time to time, in lawful money of the United States of America and in
immediately available funds, the principal amount of One Hundred Sixty Thousand
Dollars ($160,000) together with interest on the unpaid portion of such
principal amount from the date hereof until due and payable (whether at the
stated maturity thereof, by acceleration or otherwise) at the per annum rate
equal to 6.95%.

4. The principal amount of this Note may be prepaid in whole or in part at any
time.

1
<PAGE>

Notes, and the Borrower shall be liable for the payment of any remaining accrued
interest and unpaid principal of this Note and any such other Notes.

IN WITNESS WHEREOF, the Borrower has duly executed and delivered this Note to
the Lender

By: /s/ Paul Palmer
---------------
Paul Palmer

Accepted and Agreed:

CapMAC FINANCIAL SERVICES, INC.

By: /s/ Ram D. Wertheim
----------------------------------------
Title: Managing Director and General Counsel

EXHIBIT 23.1

Consent of Independent Certified Public Accountants

The Board of Directors
CapMAC Holdings Inc.:

We consent to the use of our reports included herein and to the reference to
our Firm under the heading "Experts" in the Registration Statement.

Our reports dated January 31, 1996, refer to the Company's adoption at December
31, 1993 of 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
June 11, 1996

EXHIBIT 24

Power of Attorney

The undersigned, a director of CapMAC Holdings Inc. (the "Company"), does
hereby constitute and appoint each and any of John B. Caouette, Ram D. Wertheim
and Paul V. Palmer, as my true and lawful attorney and agent, with full power of
substitution and resubstitution, to do any and all acts and things in my name
and behalf in any and all capacities and to execute any and all instruments for
us in my name in any and all capacities, which attorney and agent may deem
necessary or advisable to enable the Company to comply with the Securities
Exchange Act of 1933, as amended, and any rules, regulations, and requirements
of the Securities and Exchange Commission (the "Commission"), in connection with
the filing with the Commission of a Registration Statement on Form S-1 relating
to the offering of Common Stock of the Company, including specifically, but
without limitation, power and authority to sign for me in my name in my capacity
as a director of the Company, any and all amendments (including post-effective
amendments) thereto; and I do hereby ratify and confirm all that said attorney
and agent, or his substitute, shall do or cause to be done by virtue thereof.

IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be
executed as of this 29th day of May, 1996.

/s/ David D. Elliman
---------------------------
David D. Elliman

<PAGE>

Power of Attorney

IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be
executed as of this 29th day of May, 1996.

/s/ Robert Model
---------------------------
Robert Model

<PAGE>

Power of Attorney

IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be
executed as of this 29th day of May, 1996.

/s/ Arthur S. Penn
---------------------------
Arthur S. Penn