<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported) March 25, 1998
--------------
UCFC Acceptance Corporation
---------------------------
(Exact name of registrant as specified in its charter)
Louisiana 333-37499 72-123-5336
- ------------------------------- ---------- -------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) ID Number)
4041 Essen Lane, Baton Rouge, Louisiana 70809
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number,
including area code: (504) 924-6007
-------------
N/A
- ---------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
------------
Filing of Computational Materials and Consent of Independent Accountants.*
- -------------------------------------------------------------------------
Pursuant to Rule 424(b) under the Securities Act of 1933, as amended,
UCFC Acceptance Corporation (the "Depositor") is filing a prospectus and
prospectus supplement with the Securities and Exchange Commission relating to
the issuance by Home Equity Loan Owner Trust 1998-AA of its Asset-Backed
Notes, Series 1998-AA (the "Notes").
In connection with the issuance by UCFC Home Equity Loan Owner Trust
1998-AA of the Notes, Prudential Securities Incorporated prepared certain
materials (the "Computational Materials") which were distributed by Prudential
Securities Incorporated, Bear, Stearns & Co. Inc. and First Union Capital
Markets, a division of Wheat First Securities Corp. (the "Underwriters") to
their potential investors. Although the Depositor provided the Underwriters with
certain information regarding the characteristics of the Home Equity Loans in
the related portfolio, it did not participate in the preparation of the
Computational Materials. The Computational Materials are attached hereto as
Exhibit 99.1.
Also included for filing as Exhibit 23.1 attached hereto is the Consent
of KPMG Peat Marwick LLP, independent auditors for Financial Guaranty Insurance
Company, insurer of the Notes. The Financial Statements of Financial Guaranty
Insurance Company as of December 31, 1997 and 1996 and for each of the years in
the three-year period ended December 31, 1997 are attached hereto as Exhibit
99.2.
- --------------------------------
* Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Prospectus dated March 25, 1998, and
Prospectus Supplement dated March 25, 1998, of UCFC Acceptance Corporation,
relating to the issuance by UCFC Home Equity Loan Owner Trust 1998-AA of
Asset-Backed Notes, Series 1998-AA.
-2-
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
23.1. Consent of KPMG Peat Marwick LLP.
99.1. Computational Materials.
99.2. Financial Statements of Financial Guaranty Insurance Company.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UCFC ACCEPTANCE CORPORATION
By: /s/ H. C. McCall, III
-----------------------------------
Name: H.C. McCall, III
Title: President
Dated: March 25, 1998
-4-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
- ------- ----
23.1. Consent of KPMG Peat Marwick LLP.
99.1. Computational Materials.
99.2. Financial Statements of Financial
Guaranty Insurance Company.
-5-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Financial Guaranty Insurance Company:
We consent to the use of our report dated January 23, 1998 on the financial
statements of Financial Guaranty Insurance Company as of December 31, 1997 and
December 31, 1996, and for each of the years in the three-year period ended
December 31, 1997 included in the Form 8-K of UCFC Acceptance Corporation (the
"Registrant") which is incorporated by reference in the registration statement
(No. 333-37499), and to the reference to our firm under the heading "Report of
Experts" in the Prospectus Supplement of the Registrant.
New York, New York
March 25, 1998
/s/ KPMG Peat Marwick LLP
-------------------------
-6-
<PAGE>
PRELIMINARY
BACKGROUND INFORMATION
UCFC HOME EQUITY LOAN OWNER TRUST
Series 1998-AA
(Adjustable-Rate Collateral Only)
----------------------------------------------------------------------
Series 1998-AA
$[275,000,000] FLOATING-RATE NOTES
(non-SMMEA-eligible)
------------------------------------------------
The information included herein is provided solely by Prudential Securities
Incorporated ("PSI") as underwriter for the UCFC Home Equity Loan Owner Trust,
Series 1998-AA transaction, and not by or as agent for UCFC Acceptance Corp. or
any of its affiliates (collectively, the "Transferor"). The Transferor has not
prepared, reviewed or participated in the preparation hereof, is not responsible
for the accuracy hereof and has not authorized the dissemination hereof. The
analysis in this report is accurate to the best of PSI's knowledge and is based
on information provided by the Transferor. PSI makes no representations as to
the accuracy of such information provided by the Transferor. All opinions and
conclusions in this report reflect PSI's judgment as of this date and are
subject to change. All analyses are based on certain assumptions noted herein
and different assumptions could yield substantially different results. You are
cautioned that there is no universally accepted method for analyzing financial
instruments. You should review the assumptions; there may be differences between
these assumptions and your actual business practices. Further, PSI does not
guarantee any results and there is no guarantee as to the liquidity of the
instruments involved in this analysis. The decision to adopt any strategy
remains your responsibility. PSI (or any of its affiliates) or their officers,
directors, analysts or employees may have positions in securities, commodities
or derivative instruments thereon referred to herein, and may, as principal or
agent, buy or sell such securities, commodities or derivative instruments. In
addition, PSI may make a market in the securities referred to herein. Neither
the information nor the opinions expressed shall be construed to be, or
constitute, an offer to sell or buy or a solicitation of an offer to sell or buy
any securities, commodities or derivative instruments mentioned herein. Finally,
PSI has not addressed the legal, accounting and tax implications of the analysis
with respect to you and PSI strongly urges you to seek advice from your counsel,
accountant and tax advisor.
<PAGE>
UCFC Home Equity Loan Owner Trust, Series 1998-AA
UCFC HOME EQUITY LOAN OWNER TRUST, SERIES 1998-AA PRICING INFORMATION
---------------------------------------------------------------------
(ADJUSTABLE-RATE COLLATERAL ONLY)
SERIES 1998-AA
------------------------------------------
Description: Floating Rate Notes
Collateral: Adjustable Rate Loans
Approximate
Face Amount: $[275,000,000]
Note Rate: The least of:
1) 1M LIBOR + [TBD] bps
2) Net WAC Cap (described below)
After the Series 1998-AA Clean-up Call, the
least of:
1) 1M LIBOR + 2 x [TBD] bps
2) Net WAC Cap
Price: Par
Yield: Variable
Spread: TBD
Index: 1 Month LIBOR
Avg. Life to Call: [3.3] yrs
Avg. Life to Maturity: [3.6] yrs
Exp. 1st Prin Payment: 04/15/98
Exp. Mat to Call: [01/15/06]
Exp. Mat: [01/15/28]
Expected Rating: AAA/Aaa/AAA
Pricing Speed: All "3/27" loans (including the prefunded
"3/27" loans) will use a pricing prepayment
assumption of [4]% CPR for the first month
building to 30% CPR by month 30, remaining at
30% CPR through month 40. For months 41 and
thereafter - 25% CPR. All other loans will use
a 28% CPR Prepayment Assumption.
Pricing Date: TBD
Investor Settle Date: [03/30/98]
Payment Delay: 0 days
Cut-off Date: 03/01/98
Stated Maturity [2/15/2028]
Dated Date: [03/27/98]
Interest Payment: actual/360
Payment Terms: Monthly
1st Interest Payment Date: 04/15/98
Principal Paydown: All collected principal is passed through
to Notes.
SMMEA Eligibility: non-SMMEA eligible
Calculation of 1-Month LIBOR: Telerate page 3750 as of
11:00 am on the second business day
preceding such Distribution Date.
Initial LIBOR setting: March 26, 1998
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
UCFC Home Equity Loan Owner Trust, Series 1998-AA
UCFC HOME EQUITY LOAN OWNER TRUST, SERIES 1998-AA PRICING INFORMATION
(Continued)
-----------------------------------------------------------------
(ADJUSTABLE-RATE COLLATERAL ONLY)
Pre-Funding Account: On the closing date, approximately $[57.5 MM]
will be deposited in a pre-funding account for the
purchase of additional adjustable-rate mortgage
loans. From the closing date until [June] 15, 1998,
the Trust intends to purchase mortgage loans up to
the entire Loan Group One pre-funding amount. Any
funds remaining in the pre-funding account after this
period will be distributed to investors in the Notes
as a prepayment on [June] 15, 1998. The additional
mortgage loans will be subject to certain aggregate
group characteristics that will be more fully
described in the Prospectus Supplement.
Optional Cleanup Call: The Servicer will have the right to purchase all of
the remaining Home Equity Loans on any Remittance
Date when the aggregate Loan Balance of the Home
Equity Loans has declined to 10% or less of an
amount equal to the aggregate balance of the
Home Equity Loans as of the Cut-Off Date (including
the Subsequent Loans).
Net WAC Cap: As to any Distribution Date, the Net WAC Cap will
equal the lesser of:
(i) [14.896]%
(ii) A rate equal to the weighted average of
the Mortgage Rates on the ARMs minus the
Expense Fee Rate and beginning with the
13th Distribution Date, minus additional
0.50% per annum.
* Expense Fee Rate = 0.646%
LIBOR Interest Carryover: If, on any Disbribution Date, the Note Rate for the
Notes is based upon the Net WAC Cap, the excess of
(i) the amount of interest the Notes would be
entitled to receive on such Disbribution Date at the
then-applicable LIBOR Rate over (ii) the amount of
accrued interest for such Distribution Date at the
Net WAC Cap, together with the unpaid protion of any
such excess from prior Disbribution Dates (and
interest accrued thereon at the then-applicable LIBOR
Rate) is referred to as the LIBOR Interest Carryover.
Any LIBOR Interest Carryover will be carried forward
to the next Distribution Date until paid from sources
of funds and in the priority set forth in the Sale
and Servicing Agreement. The Servicer must pay the
LIBOR Interest Carryover prior to exercising the 10%
optional clean-up call. The LIBOR Interest Carryover
will not be insured by the FGIC guarantee.
Monthly Net WAC Cap Summary (calculated on 30/360 basis):
ARM GROUP
DATE CAP SUMMARY
- ------------------
04/98 9.276 05/00 9.237
05/98 9.279 06/00 9.237
06/98 9.281 07/00 9.237
07/98 9.283 08/00 9.293
08/98 9.286 09/00 9.330
09/98 9.357 10/00 9.331
10/98 9.388 11/00 9.331
11/98 9.496 12/00 9.332
12/98 9.496 01/01 9.333
01/99 9.495 02/01 9.333
02/99 9.495 03/01 9.334
03/99 9.576
04/99 9.076
05/99 9.087
06/99 9.086
07/99 9.085
08/99 9.084
09/99 9.106
10/99 9.105
11/99 9.104
12/99 9.103
01/00 9.102
02/00 9.177
03/00 9.239
04/00 9.238
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
UCFC Home Equity Loan Owner Trust, Series 1998-AA
SUMMARY OF TERMS
--------------------------
Bond Issuers: UCFC Home Equity Loan Owner Trust Series 1998-AA (Class
A Notes)
Lead Manager: Prudential Securities Incorporated
Co-Managers: First Union Capital Markets Group
Bear Stearns & Co. Inc.
Transferor: UCFC Acceptance Corporation.
Servicer: United Companies Lending Corporation.
Originators: The Home Equity Loans were, and any Subsequent Loans
will be, originated, either directly or through
correspondents or mortgage brokers, or purchased and
re-underwritten, by United Companies and certain
subsidiaries and affiliates thereof.
Indenture Trustee: Bankers Trust Company of California, N.A.
Securities Offered: 100% FGIC-guaranteed, asset-backed notes.
Offering: Public shelf offering -- a prospectus and prospectus
supplement will be distributed after pricing.
Pricing Date: TBD
Investor
Settlement Date: March 30, 1998
Form of Notes: Book-Entry form, same-day funds through DTC, Euroclear
and CEDEL
Distribution Date: The 15th day of each month (or, if any such date is not
a business day, the first business day thereafter)
commencing in April 1998. The payment delay will be
zero days.
Interest Accrual
Period: The initial interest accrual period will be from March
27th until April 14th. In future periods, interest will
accrue on the Notes at the applicable Pass-Through Rate
from the preceeding Distribution Date to and including
the day prior to the current Distribution Date.
Bond Insurer: Financial Guaranty Insurance Company ("FGIC"). FGIC's
claims-paying ability is rated "AAA" by Standard &
Poor's, "Aaa" by Moody's Investors Service and "AAA" by
Fitch Investors Service, Inc.
Bond Insurance
Policy: The Bond Insurance Policy will provide 100% coverage of
timely interest and ultimate principal payments due on
the Notes.
Credit Enhancement: A combination of:
(i) A reserve account (which may be funded by a Letter
of Credit); and
(ii) A Bond Insurance Policy from FGIC.
Note: The initial deposit and required maintenance
levels of the Reserve Account will be sized by
the surety provider.
Servicing Fee: 50 basis points per annum.
ERISA Considerations: Subject to the considerations and conditions described
in the Prospectus Supplement, it is expected that the
Notes may be purchased by employee benefit plans that
are subject to ERISA.
Taxation: No election will be made to treat the Trust Estate as a
REMIC for federal income tax purposes. For federal
income tax purposes, the Notes will be treated as debt
obligations of the Issuer.
Legal Investment: The Notes will not be SMMEA-eligible.
Ratings: "AAA" by S&P, "Aaa" by Moody's, and "AAA" by Fitch.
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
<TABLE>
<CAPTION>
CURRENT BALANCE: $275,000,000.00 DATED DATE: 03/27/98
CURRENT COUPON: 5.878% FIRST PAYMENT: 04/15/98
FACTOR: 1.0000000000 TOTAL CLASSES: 1
ORIGINAL BALANCE: $275,000,000.00 BOND A1 DISCOUNT MARGIN ACT/360 TABLE YIELD TABLE DATE: 03/30/98
ASSUMED CONSTANT LIBOR-1M 5.6875
********** TO CALL *************
PRICING SPEED
28.0%/ 50PPC/ 75PPC/ 125PPC/ 150PPC/ 175PPC/ 200PPC/
PRICE REP_LINE REP_LINE REP_LINE REP_LINE REP_LINE REP_LINE REP_LINE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
99-24 27.595 24.097 25.824 29.388 31.175 32.997 34.864
99-24+ 27.056 23.778 25.396 28.738 30.412 32.120 33.870
99-25 26.518 23.458 24.969 28.087 29.650 31.243 32.877
99-25+ 25.980 23.139 24.542 27.436 28.887 30.367 31.883
99-26 25.442 22.820 24.115 26.786 28.125 29.491 30.890
99-26+ 24.904 22.501 23.687 26.136 27.363 28.615 29.897
99-27 24.366 22.182 23.260 25.486 26.601 27.739 28.905
99-27+ 23.828 21.863 22.834 24.836 25.840 26.863 27.912
99-28 23.291 21.544 22.407 24.186 25.078 25.988 26.920
99-28+ 22.753 21.226 21.980 23.537 24.317 25.113 25.929
99-29 22.216 20.907 21.554 22.888 23.556 24.238 24.937
99-29+ 21.679 20.589 21.127 22.238 22.795 23.363 23.945
99-30 21.142 20.270 20.701 21.589 22.035 22.489 22.954
99-30+ 20.605 19.952 20.275 20.940 21.274 21.615 21.963
99-31 20.069 19.634 19.848 20.292 20.514 20.740 20.973
99-31+ 19.532 19.315 19.422 19.643 19.754 19.867 19.982
100-00 18.996 18.997 18.997 18.995 18.994 18.993 18.992
100-00+ 18.459 18.679 18.571 18.346 18.234 18.119 18.002
100-01 17.923 18.361 18.145 17.698 17.474 17.246 17.012
100-01+ 17.387 18.044 17.720 17.050 16.715 16.373 16.023
100-02 16.851 17.726 17.294 16.403 15.956 15.500 15.033
100-02+ 16.315 17.408 16.869 15.755 15.197 14.628 14.044
100-03 15.780 17.091 16.443 15.108 14.438 13.755 13.055
100-03+ 15.244 16.773 16.018 14.460 13.679 12.883 12.067
100-04 14.709 16.456 15.593 13.813 12.921 12.011 11.078
100-04+ 14.174 16.138 15.168 13.166 12.163 11.139 10.090
100-05 13.639 15.821 14.744 12.519 11.405 10.268 9.102
100-05+ 13.104 15.504 14.319 11.873 10.647 9.396 8.115
100-06 12.569 15.187 13.894 11.226 9.889 8.525 7.127
100-06+ 12.034 14.870 13.470 10.580 9.131 7.654 6.140
100-07 11.500 14.553 13.046 9.934 8.374 6.783 5.153
100-07+ 10.965 14.236 12.621 9.288 7.617 5.913 4.166
First Payment 0.042 0.042 0.042 0.042 0.042 0.042 0.042
Average Life 3.313 6.341 4.370 2.662 2.228 1.910 1.667
Last Payment 7.792 15.208 10.458 6.125 5.042 4.208 3.542
Mod.Dur. @ 100-00 2.796 4.717 3.522 2.313 1.973 1.716 1.513
</TABLE>
*** BOND SETTLES ON 3/30/98 WITH 3 DAYS ACCRUED INTEREST ***
======
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
- --------------------------------------------------------------------------------
- UCFC981
- Cut Off Date of Tape is 03/17/98
- ADJUSTABLE RATE COLLATERAL
- $217,480,888.15
- --------------------------------------------------------------------------------
Number of Mortgage Loans: 2,523
Index: Various
Lien Status: 1st Lien Loans
Aggregate Unpaid Principal Balance: $217,480,888.15
Aggregate Original Principal Balance: $217,656,098.17
- -------------------------------------------------------------------------------
Weighted Average Coupon (Gross): 9.873%
Gross Coupon Range: 6.500% - 13.375%
Weighted Average Margin (Gross): 5.324%
Gross Margin Range: 3.000% - 8.750%
Weighted Average Life Cap (Gross): 16.042%
Gross Life Cap Range: 13.500% - 20.375%
Weighted Average Life Floor (Gross): 8.662%
Gross Life Floor Range: 4.875% - 13.375%
- --------------------------------------------------------------------------------
Average Unpaid Principal Balance: $86,199.32
Average Original Principal Balance: $86,268.77
Maximum Unpaid Principal Balance: $701,596.11
Minimum Unpaid Principal Balance: $6,285.82
Maximum Original Principal Balance: $702,000.00
Minimum Original Principal Balance: $6,300.00
Weighted Avg. Stated Rem. Term (PTD to Mat Date): 341.391
Stated Rem Term Range: 60.000 - 360.000
Weighted Average Age (First Pay thru Paid Thru): 1.244
Age Range: 0.000 - 132.000
Weighted Average Original Term: 342.635
Original Term Range: 60.000 - 360.000
Weighted Average Note LTV: 80.818
Note LTV Range: 10.000% - 100.000%
Weighted Average Periodic Interest Cap: 1.089%
Periodic Interest Cap Range: 1.000% - 3.000%
Weighted Average Months to Interest Roll: 27.147
Months to Interest Roll Range: 2 - 38
Weighted Average Interest Roll Frequency: 6.022
Interest Frequency Range: 6 - 12
- --------------------------------------------------------------------------------
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
<TABLE>
<CAPTION>
LOAN TYPE
- ------------------------------------------------------------------------------------------------------------------------
WA WA
WA WA WA WA PER MONTH WA Total
# % Rem WA Orig LIFE GROSS INT TO INT LIFE Current
Loan Type Loan Pool WAC Term Age LTV CAP MARGIN CAP ROLL FLOOR Balance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ARM 575 21.47 9.734 335.20 1.22 79.88 15.98 5.600 1.116 6.15 9.72 $46,699,934.62
ARM 129 27 2.13 9.125 356.21 3.79 86.78 15.13 5.290 1.000 10.44 9.13 $4,622,420.18
ARM 228 326 16.32 9.384 357.20 2.80 74.31 16.07 5.910 1.318 22.33 9.35 $35,490,497.78
ARM 228 CMT 1 .05 9.250 357.00 3.00 80.00 16.25 5.750 2.000 22.00 5.75 $99,763.39
ARM 312 189 4.19 10.147 179.28 .72 78.02 16.15 4.845 1.000 36.89 8.15 $9,110,114.15
ARM 317 149 3.77 10.229 238.02 1.00 82.67 16.23 4.814 1.000 36.80 8.23 $8,209,017.04
ARM 327 1,248 51.65 10.074 359.01 .71 83.17 16.08 5.098 1.012 36.65 8.07 $112,332,561.88
ARM 327 CMT 5 .19 10.107 358.97 1.03 73.98 16.93 5.247 2.825 36.14 9.58 $417,666.03
ARM CMT 3 .23 8.366 335.22 2.74 73.41 14.83 5.910 1.768 7.19 7.43 $498,913.08
- ------------------------------------------------------------------------------------------------------------------------
Total..... 2,523 100.00% 9.873 341.39 1.24 80.82 16.04 5.324 1.089 27.15 8.66 $217,480,888.15
========================================================================================================================
</TABLE>
AGE OF LOAN
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Mortgage Principal Principal
Age Loans Balance Balance
Age = 0 1,411 107,732,609.50 49.54%
0 < Age <= 12 1,086 107,541,556.31 49.45%
12 < Age <= 24 9 1,041,663.78 0.48%
24 < Age <= 36 8 716,270.35 0.33%
36 < Age <= 48 4 177,372.42 0.08%
48 < Age <= 60 2 103,238.08 0.05%
60 < Age <= 72 1 78,152.82 0.04%
84 < Age <= 96 1 67,299.88 0.03%
120 < Age <= 132 1 22,725.01 0.01%
- -------------------------------------------------------------------
Total............ 2,523 $217,480,888.15 100.00%
===================================================================
CURRENT MORTGAGE LOAN AMOUNTS
Percentage of
Aggregate Cut-Off Date
Current Number of Unpaid Aggregate
Mortgage Loan Mortgage Principal Principal
Principal Balance Loans Balance Balance
Balance <= 25,000 117 2,273,003.39 1.05
25,000 < Balance <= 50,000 591 23,165,789.58 10.65
50,000 < Balance <= 100,000 1,120 79,455,555.21 36.53
100,000 < Balance <= 150,000 426 51,819,171.29 23.83
150,000 < Balance <= 200,000 125 21,406,649.97 9.84
200,000 < Balance <= 250,000 68 15,128,308.89 6.96
250,000 < Balance <= 300,000 45 12,241,523.73 5.63
300,000 < Balance <= 350,000 11 3,591,381.78 1.65
350,000 < Balance <= 400,000 10 3,755,836.90 1.73
400,000 < Balance <= 450,000 6 2,545,745.63 1.17
450,000 < Balance <= 500,000 3 1,396,325.67 0.64
700,000 < Balance <= 750,000 1 701,596.11 0.32
- --------------------------------------------------------------------------
Total.................... 2,523 $217,480,888.15 100.00%
==========================================================================
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
LOAN SUMMARY STRATIFIED BY
LIFE FLOOR
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Gross Mortgage Principal Principal
Life Floor Loans Balance Balance
4.500 < Life Floor <= 5.000 4 296,004.18 0.14
5.000 < Life Floor <= 5.500 3 240,348.78 0.11
5.500 < Life Floor <= 6.000 8 1,313,604.12 0.60
6.000 < Life Floor <= 6.500 26 4,557,181.64 2.10
6.500 < Life Floor <= 7.000 65 8,071,667.79 3.71
7.000 < Life Floor <= 7.500 217 19,514,336.44 8.97
7.500 < Life Floor <= 8.000 423 35,709,760.93 16.42
8.000 < Life Floor <= 8.500 315 30,067,034.23 13.83
8.500 < Life Floor <= 9.000 721 56,968,697.87 26.19
9.000 < Life Floor <= 9.500 200 24,913,937.70 11.46
9.500 < Life Floor <= 10.000 116 10,562,299.25 4.86
10.000 < Life Floor <= 10.500 105 7,355,147.11 3.38
10.500 < Life Floor <= 11.000 249 14,541,473.54 6.69
11.000 < Life Floor <= 11.500 33 1,656,027.93 0.76
11.500 < Life Floor <= 12.000 27 1,202,666.68 0.55
12.000 < Life Floor <= 12.500 4 174,648.14 0.08
12.500 < Life Floor <= 13.000 5 157,800.48 0.07
13.000 < Life Floor <= 13.500 2 178,251.34 0.08
- --------------------------------------------------------------------------
Total................. 2,523 $217,480,888.15 100.00%
==========================================================================
LOAN SUMMARY STRATIFIED BY
LIFE CAP
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Gross Mortgage Principal Principal
Life Cap Loans Balance Balance
13.000 < LIFE CAP <= 13.500 3 524,164.04 0.24
13.500 < LIFE CAP <= 14.000 10 1,651,251.26 0.76
14.000 < LIFE CAP <= 14.500 42 6,028,900.87 2.77
14.500 < LIFE CAP <= 15.000 140 18,831,883.22 8.66
15.000 < LIFE CAP <= 15.500 359 38,176,504.07 17.55
15.500 < LIFE CAP <= 16.000 546 49,396,470.32 22.71
16.000 < LIFE CAP <= 16.500 413 37,646,060.49 17.31
16.500 < LIFE CAP <= 17.000 852 54,621,060.06 25.12
17.000 < LIFE CAP <= 17.500 77 5,727,257.21 2.63
17.500 < LIFE CAP <= 18.000 48 3,182,434.34 1.46
18.000 < LIFE CAP <= 18.500 12 658,071.90 0.30
18.500 < LIFE CAP <= 19.000 12 582,026.78 0.27
19.000 < LIFE CAP <= 19.500 5 180,799.52 0.08
19.500 < LIFE CAP <= 20.000 2 95,752.73 0.04
20.000 < LIFE CAP <= 20.500 2 178,251.34 0.08
- --------------------------------------------------------------------------
Total................. 2,523 $217,480,888.15 100.00%
==========================================================================
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION
IN THE PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
NEXT INTEREST ROLLDATE DATE
Percentage
of Cut-Off
Aggregate Date
Number of Unpaid Aggregate
Mortgage Percent of Principal Principal
Loans Loan Count Balance Balance
02 4 .16 $ 653,058.33 00.30
03 5 .20 $ 665,198.40 00.31
04 23 .91 $ 3,008,442.11 01.38
05 75 2.97 $ 10,766,032.07 04.95
06 128 5.07 $ 8,861,819.76 04.07
07 279 11.06 $ 18,568,485.42 08.54
08 62 2.46 $ 4,408,600.00 02.03
09 3 .12 $ 475,420.08 00.22
10 11 .44 $ 1,873,789.85 00.86
11 13 .52 $ 2,231,321.86 01.03
12 1 .04 $ 248,000.00 00.11
14 1 .04 $ 61,100.00 00.03
19 3 .12 $ 182,114.88 00.08
20 6 .24 $ 519,730.68 00.24
21 23 .91 $ 3,678,709.34 01.69
22 133 5.27 $ 15,258,767.74 07.02
23 153 6.06 $ 14,910,693.55 06.86
24 9 .36 $ 1,040,244.98 00.48
31 1 .04 $ 36,732.43 00.02
32 1 .04 $ 32,353.04 00.01
33 4 .16 $ 388,192.43 00.18
34 7 .28 $ 677,706.42 00.31
35 61 2.42 $ 7,460,440.59 03.43
36 454 17.99 $ 38,802,038.86 17.84
37 857 33.97 $ 67,244,619.33 30.92
38 206 8.16 $ 15,427,276.00 07.09
- --------------------------------------------------------------------------
Total........ 2,523 100.00% $217,480,888.15 100.00%
==========================================================================
MORTGAGED PROPERTIES
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Mortgage Principal Principal
Loans Balance Balance
Duplex 58 5,851,946.45 2.69
Triplex 17 1,719,166.47 0.79
Fourplex or Quadplex 14 1,174,393.01 0.54
RowHouse 13 669,949.41 0.31
Modular Housing 1 89,884.83 0.04
Man.House/Perm 4 243,051.00 0.11
Semi-Detached 2 66,900.00 0.03
PUD 16 2,205,782.69 1.01
Townhouses 11 1,113,445.85 0.51
Condominiums 59 6,573,359.46 3.02
Single Family Detached 2,328 197,773,008.98 90.94
- --------------------------------------------------------------------------
Total............... 2,523 $217,480,888.15 100.00%
==========================================================================
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
LOAN SUMMARY STRATIFIED BY
OWNER OCCUPANCY
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Mortgage Principal Principal
Loans Balance Balance
Owner Occupied, 1st Mtg 2,448 212,721,851.86 97.81
Non-Owner Occupied, 1st Mtg 70 3,932,562.34 1.81
Second Home, 1st Mtg 5 826,473.95 0.38
- --------------------------------------------------------------------------
Total.................. 2,523 $217,480,888.15 100.00%
==========================================================================
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Mortgage Principal Principal
State Loans Balance Balance
Alabama 15 1,943,087.55 0.89
Arkansas 34 2,364,752.12 1.09
Arizona 26 3,130,785.89 1.44
California 148 23,822,579.03 10.95
Colorado 55 5,773,830.05 2.65
Connecticut 24 2,454,080.08 1.13
Dist of Col 2 181,065.16 0.08
Delaware 4 305,223.53 0.14
Florida 87 7,467,990.11 3.43
Georgia 36 3,232,444.91 1.49
Iowa 38 2,356,646.63 1.08
Idaho 13 995,870.87 0.46
Illinois 65 6,635,363.13 3.05
Indiana 155 8,802,190.91 4.05
Kansas 42 2,058,560.31 0.95
Kentucky 65 4,354,126.24 2.00
Louisiana 105 8,479,221.47 3.90
Massachusetts 27 2,739,373.40 1.26
Maryland 34 3,908,709.21 1.80
Maine 39 3,111,272.14 1.43
Michigan 177 10,811,199.92 4.97
Minnesota 16 1,243,765.64 0.57
Missouri 33 1,788,908.42 0.82
Mississippi 65 4,451,234.38 2.05
Montana 2 215,684.56 0.10
North Carolina 149 11,479,535.49 5.28
Nebraska 6 270,504.51 0.12
New Hampshire 36 2,886,521.47 1.33
New Jersey 52 5,899,459.33 2.71
New Mexico 24 1,998,443.47 0.92
Nevada 3 322,538.99 0.15
New York 87 8,983,637.02 4.13
Ohio 220 15,120,512.26 6.95
Oklahoma 42 2,281,394.54 1.05
Oregon 41 4,372,356.41 2.01
Pennsylvania 110 9,324,789.86 4.29
Rhode Island 5 452,177.67 0.21
South Carolina 35 3,260,971.16 1.50
Tennessee 107 8,225,876.11 3.78
Texas 35 4,065,923.00 1.87
Utah 29 4,610,895.05 2.12
Virginia 40 3,696,108.46 1.70
Vermont 3 199,483.95 0.09
Washington 44 5,880,562.28 2.70
Wisconsin 133 10,538,879.30 4.85
West Virgina 12 735,169.09 0.34
Wyoming 3 247,183.07 0.11
- --------------------------------------------------------------------------
Total............... 2,523 $217,480,888.15 100.00%
==========================================================================
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
LOAN SUMMARY STRATIFIED BY
GROSS MARGIN
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Gross Mortgage Principal Principal
Margin Loans Balance Balance
2.500 Gross Margin <= 3.000 1 144,300.00 0.07
3.000 Gross Margin <= 3.500 3 352,300.00 0.16
3.500 Gross Margin <= 4.000 195 14,666,436.18 6.74
4.000 Gross Margin <= 4.500 399 30,850,579.33 14.19
4.500 Gross Margin <= 5.000 355 39,382,076.83 18.11
5.000 Gross Margin <= 5.500 764 57,607,787.16 26.49
5.500 Gross Margin <= 6.000 483 42,818,604.90 19.69
6.000 Gross Margin <= 6.500 155 15,879,991.55 7.30
6.500 Gross Margin <= 7.000 118 11,624,512.44 5.35
7.000 Gross Margin <= 7.500 31 2,805,926.40 1.29
7.500 Gross Margin <= 8.000 11 862,100.60 0.40
8.000 Gross Margin <= 8.500 6 444,905.20 0.20
8.500 Gross Margin <= 9.000 2 41,367.56 0.02
- ----------------------------------------------------------------------------
Total................. 2,523 $217,480,888.15 100.00%
============================================================================
GROSS MORTGAGE INTEREST RATE RANGE
Percentage of
Aggregate Cut-Off Date
Gross Mortgage Number of Unpaid Aggregate
Interest Rate Mortgage Principal Principal
Range Loans Balance Balance
6.00% < Gross Coupon <= 6.50% 2 355,969.53 0.16
6.50% < Gross Coupon <= 7.00% 4 520,818.92 0.24
7.00% < Gross Coupon <= 7.50% 6 744,231.10 0.34
7.50% < Gross Coupon <= 7.75% 6 981,426.78 0.45
7.75% < Gross Coupon <= 8.00% 19 3,015,947.94 1.39
8.00% < Gross Coupon <= 8.25% 19 2,442,057.04 1.12
8.25% < Gross Coupon <= 8.50% 48 6,610,849.55 3.04
8.50% < Gross Coupon <= 8.75% 54 8,134,586.82 3.74
8.75% < Gross Coupon <= 9.00% 147 19,121,971.02 8.79
9.00% < Gross Coupon <= 9.25% 161 21,686,210.46 9.97
9.25% < Gross Coupon <= 9.50% 234 20,252,762.01 9.31
9.50% < Gross Coupon <= 9.75% 106 10,784,620.38 4.96
9.75% < Gross Coupon <= 10.00% 403 31,889,211.28 14.66
10.00% < Gross Coupon <= 10.25% 238 20,299,464.57 9.33
10.25% < Gross Coupon <= 10.50% 144 12,558,765.41 5.77
10.50% < Gross Coupon <= 10.75% 567 34,802,828.98 16.00
10.75% < Gross Coupon <= 11.00% 261 16,670,639.15 7.67
11.00% < Gross Coupon <= 11.25% 28 2,443,628.71 1.12
11.25% < Gross Coupon <= 11.50% 25 1,392,526.54 0.64
11.50% < Gross Coupon <= 11.75% 31 1,701,001.28 0.78
11.75% < Gross Coupon <= 12.00% 7 460,420.25 0.21
12.00% < Gross Coupon <= 12.25% 4 209,839.58 0.10
12.25% < Gross Coupon <= 12.50% 1 32,456.35 0.01
12.50% < Gross Coupon <= 12.75% 5 157,800.48 0.07
12.75% < Gross Coupon <= 13.00% 1 32,602.68 0.01
13.00% < Gross Coupon <= 13.25% 1 44,179.50 0.02
13.25% < Gross Coupon <= 13.50% 1 134,071.84 0.06
- --------------------------------------------------------------------------------
Total.......... 2,523 $217,480,888.15 100.00%
================================================================================
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
NOTE LOAN-TO-VALUE RATIOS
Percentage of
Aggregate Cut-Off Date
Original Number of Unpaid Aggregate
Loan-To-Value Mortgage Principal Principal
Ratio Loans Balance Balance
5.00 < LTV <= 10.00 1 18,100.00 0.01
10.00 < LTV <= 15.00 3 47,968.12 0.02
15.00 < LTV <= 20.00 1 30,700.00 0.01
20.00 < LTV <= 25.00 4 207,090.12 0.10
25.00 < LTV <= 30.00 7 270,017.63 0.12
30.00 < LTV <= 35.00 16 1,110,913.04 0.51
35.00 < LTV <= 40.00 15 596,581.61 0.27
40.00 < LTV <= 45.00 24 1,079,287.18 0.50
45.00 < LTV <= 50.00 30 2,121,503.87 0.98
50.00 < LTV <= 55.00 47 3,186,353.47 1.47
55.00 < LTV <= 60.00 76 4,710,720.16 2.17
60.00 < LTV <= 65.00 77 6,096,587.95 2.80
65.00 < LTV <= 70.00 128 11,117,213.86 5.11
70.00 < LTV <= 75.00 216 21,238,870.36 9.77
75.00 < LTV <= 80.00 458 49,471,463.71 22.75
80.00 < LTV <= 85.00 379 33,695,399.91 15.49
85.00 < LTV <= 90.00 564 49,732,636.16 22.87
90.00 < LTV <= 95.00 291 19,764,938.20 9.09
95.00 < LTV <=100.00 186 12,984,542.80 5.97
- --------------------------------------------------------------------------
Total.................... 2,523 $217,480,888.15 100.00%
==========================================================================
REMAINING MONTHS TO STATED MATURITY
Percentage of
Aggregate Cut-Off Date
Number of Unpaid Aggregate
Mortgage Principal Principal
Remaining Term Loans Balance Balance
48 < Rem Term <= 60 1 18,100.00 0.01%
60 < Rem Term <= 72 2 88,002.52 0.04%
84 < Rem Term <= 96 1 25,900.00 0.01%
96 < Rem Term <= 108 1 53,900.00 0.02%
108 < Rem Term <= 120 5 153,200.00 0.07%
120 < Rem Term <= 132 1 58,692.89 0.03%
132 < Rem Term <= 144 1 13,700.00 0.01%
144 < Rem Term <= 156 1 32,010.25 0.01%
156 < Rem Term <= 168 2 83,515.57 0.04%
168 < Rem Term <= 180 284 13,469,688.41 6.19%
192 < Rem Term <= 204 1 45,752.53 0.02%
204 < Rem Term <= 216 3 277,852.06 0.13%
216 < Rem Term <= 228 2 68,558.64 0.03%
228 < Rem Term <= 240 184 9,737,821.20 4.48%
264 < Rem Term <= 276 1 67,299.88 0.03%
276 < Rem Term <= 288 1 78,152.82 0.04%
288 < Rem Term <= 300 2 212,900.00 0.10%
300 < Rem Term <= 312 1 44,545.19 0.02%
312 < Rem Term <= 324 3 131,619.89 0.06%
324 < Rem Term <= 336 6 553,918.29 0.25%
336 < Rem Term <= 348 6 912,314.58 0.42%
348 < Rem Term <= 360 2,014 191,353,443.43 87.99%
- ----------------------------------------------------------------
Total............ 2,523 217,480,888.15 100.00%
===================================================================
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
PRELIMINARY
BACKGROUND INFORMATION
UCFC HOME EQUITY LOAN OWNER TRUST
Series 1998-AA
(Adjustable-Rate Collateral Only)
----------------------------------------------------------------------
Series 1998-AA
$[300,000,000] FLOATING-RATE NOTES
(non-SMMEA-eligible)
------------------------------------------------
The information included herein is provided solely by Prudential Securities
Incorporated ("PSI") as underwriter for the UCFC Home Equity Loan Owner Trust,
Series 1998-AA transaction, and not by or as agent for UCFC Acceptance Corp. or
any of its affiliates (collectively, the "Transferor"). The Transferor has not
prepared, reviewed or participated in the preparation hereof, is not responsible
for the accuracy hereof and has not authorized the dissemination hereof. The
analysis in this report is accurate to the best of PSI's knowledge and is based
on information provided by the Transferor. PSI makes no representations as to
the accuracy of such information provided by the Transferor. All opinions and
conclusions in this report reflect PSI's judgment as of this date and are
subject to change. All analyses are based on certain assumptions noted herein
and different assumptions could yield substantially different results. You are
cautioned that there is no universally accepted method for analyzing financial
instruments. You should review the assumptions; there may be differences between
these assumptions and your actual business practices. Further, PSI does not
guarantee any results and there is no guarantee as to the liquidity of the
instruments involved in this analysis. The decision to adopt any strategy
remains your responsibility. PSI (or any of its affiliates) or their officers,
directors, analysts or employees may have positions in securities, commodities
or derivative instruments thereon referred to herein, and may, as principal or
agent, buy or sell such securities, commodities or derivative instruments. In
addition, PSI may make a market in the securities referred to herein. Neither
the information nor the opinions expressed shall be construed to be, or
constitute, an offer to sell or buy or a solicitation of an offer to sell or buy
any securities, commodities or derivative instruments mentioned herein. Finally,
PSI has not addressed the legal, accounting and tax implications of the analysis
with respect to you and PSI strongly urges you to seek advice from your counsel,
accountant and tax advisor.
<PAGE>
UCFC Home Equity Loan Owner Trust, Series 1998-AA
UCFC HOME EQUITY LOAN OWNER TRUST, SERIES 1998-AA PRICING INFORMATION
--------------------------------------------------------
( ADJUSTABLE-RATE COLLATERAL ONLY)
SERIES 1998-AA
------------------------------------------
Description: Floating Rate Notes
Collateral: Adjustable Rate Loans
Approximate
Face Amount: $[300,000,000]
Note Rate: The least of:
1) 1M LIBOR + [19] bps
2) Net WAC Cap (described below)
After the Series 1998-AA Clean-up Call, the
least of:
1) 1M LIBOR + 2 x [19] bps
2) Net WAC Cap
Price: Par
Yield: Variable
Spread: 19 Bps
Index: 1 Month LIBOR
Avg. Life to Call: [3.3] yrs
Avg. Life to Maturity: [3.6] yrs
Exp. 1st Prin Payment: 04/15/98
Exp. Mat to Call: [01/15/06]
Exp. Mat: [01/15/28]
Expected Rating: AAA/Aaa/AAA
Pricing Speed: All "3/27" loans (including the prefunded
"3/27" loans) will use a pricing prepayment
assumption of [4]% CPR for the first month
building to 30% CPR by month 30, remaining
at 30% CPR through month 40. For months 41
and thereafter - 25% CPR. All other loans
will use a 28% CPR Prepayment Assumption.
Pricing Date: 3/20/98
Investor Settle Date: [03/30/98]
Payment Delay: 0 days
Cut-off Date: 03/01/98
Stated Maturity [2/15/2028]
Dated Date: [03/27/98]
Interest Payment: actual/360
Payment Terms: Monthly
1st Interest Payment Date: 04/15/98
Principal Paydown: All collected principal is passed through
to Notes.
SMMEA Eligibility: non-SMMEA eligible
Calculation of 1-Month LIBOR: Telerate page 3750 as of 11:00 am on the
second business day preceding such
Distribution Date.
Initial LIBOR setting: March 26, 1998
THIS COLLATERAL TERMSHEET SUPERSEDES ANY PREVIOUS COLLATERAL
TERMSHEETS, AND WILL BE SUPERSEDED BY THE COLLATERAL INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
THIS PAGE MUST BE ACCOMPANIED BY A DISCLAIMER. IF YOU DID NOT RECEIVE
SUCH A DISCLAIMER, PLEASE CONTACT YOUR PRUDENTIAL SECURITIES
INCORPORATED FINANCIAL ADVISOR IMMEDIATELY.
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
Financial Statements
December 31, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1997
<TABLE>
<S> <C>
Report of Independent Auditors............................................................................. A-1
Balance Sheets............................................................................................. A-2
Statements of Income....................................................................................... A-3
Statements of Stockholder's Equity......................................................................... A-4
Statements of Cash Flows................................................................................... A-5
Notes to Financial Statements.............................................................................. A-6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Financial Guaranty Insurance Company:
We have audited the accompanying balance sheets of Financial Guaranty Insurance
Company as of December 31, 1997 and 1996, and the related statements of income,
stockholder's equity, and cash flows for each of the years in the three year
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly, in
all material respects, the financial position of Financial Guaranty Insurance
Company as of December 31, 1997 and 1996 and the results of its operations and
its cash flows for each of the years in the three year period then ended in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
January 23, 1998
A-1
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturity securities available-for-sale (amortized cost of $2,313,458 in 1997
and $2,190,303 in 1996)............................................................ $2,443,746 $2,250,549
Short-term investments, at cost, which approximates market........................... 76,039 73,839
Cash................................................................................. 802 860
Accrued investment income............................................................ 38,927 37,655
Reinsurance recoverable.............................................................. 8,220 7,015
Prepaid reinsurance premiums......................................................... 154,208 167,683
Deferred policy acquisition costs.................................................... 86,286 91,945
Property and equipment, net of accumulated depreciation ($17,346 in 1997 and $15,333
in 1996)........................................................................... 3,142 4,696
Receivable for securities sold....................................................... -- 379
Prepaid expenses and other assets.................................................... 21,002 19,520
------------ ------------
Total assets.................................................................... $2,832,372 $2,654,141
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums.................................................................. $ 628,553 $ 681,816
Loss and loss adjustment expenses.................................................. 76,926 72,616
Ceded reinsurance balances payable................................................. 3,932 10,561
Accounts payable and accrued expenses.............................................. 26,352 54,165
Payable to Parent.................................................................. -- 1,791
Current federal income taxes payable............................................... 19,335 52,016
Deferred federal income taxes...................................................... 118,522 91,805
Payable for securities purchased................................................... 5,811 4,937
------------ ------------
Total liabilities............................................................... 879,431 969,707
------------ ------------
------------ ------------
Stockholder's Equity:
Common stock, par value $1,500 per share; 10,000 shares authorized, issued and
outstanding..................................................................... 15,000 15,000
Additional paid-in capital......................................................... 383,511 334,011
Net unrealized gains on fixed maturity securities available-for-sale, net of tax... 84,687 39,160
Foreign currency translation adjustment, net of tax................................ (752) (429)
Retained earnings.................................................................. 1,470,495 1,296,692
------------ ------------
Total stockholder's equity...................................................... 1,952,941 1,684,434
------------ ------------
Total liabilities and stockholder's equity...................................... $2,832,372 $2,654,141
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
A-2
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Gross premiums written....................................................... $ 95,995 $ 97,027 $ 97,288
Ceded premiums............................................................... (19,780) (29,376) (19,319)
-------- -------- --------
Net premiums written....................................................... 76,215 67,651 77,969
Decrease in net unearned premiums............................................ 39,788 51,314 27,309
-------- -------- --------
Net premiums earned........................................................ 116,003 118,965 105,278
Net investment income........................................................ 127,773 124,635 120,398
Net realized gains........................................................... 16,700 15,022 30,762
-------- -------- --------
Total revenues............................................................. 260,476 258,622 256,438
EXPENSES:
Loss and loss adjustment expenses............................................ 12,539 2,389 (8,426)
Policy acquisition costs..................................................... 12,936 16,327 13,072
Decrease (Increase) in deferred policy acquisition costs..................... 5,659 2,923 (3,940)
Other underwriting expenses.................................................. 14,691 12,508 19,100
-------- -------- --------
Total expenses............................................................. 45,825 34,147 19,806
-------- -------- --------
Income before provision for Federal income taxes............................. 214,651 224,475 236,632
-------- -------- --------
Federal income tax expense:
Current.................................................................... 39,133 41,548 28,913
Deferred................................................................... 1,715 5,318 19,841
-------- -------- --------
Total Federal income tax expense........................................... 40,848 46,866 48,754
-------- -------- --------
Net income................................................................. $173,803 $177,609 $187,878
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to financial statements.
A-3
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
GAINS (LOSSES) FOREIGN
ON FIXED MATURITY CURRENCY
ADDITIONAL SECURITIES TRANSLATION
COMMON PAID-IN AVAILABLE- ADJUSTMENT, RETAINED
STOCK CAPITAL FOR-SALE, NET OF TAX NET OF TAX EARNINGS
------- ---------- -------------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995........................... $15,000 $334,011 $(41,773) $(1,221) $ 973,706
Net income......................................... -- -- -- -- 187,878
Dividend paid...................................... -- -- -- -- (25,000)
Change in fixed maturity securities available for
sale, net of tax of $56,839...................... -- -- 105,558 -- --
Foreign currency translation adjustment............ -- -- -- (278) --
------- ---------- ---------- ----------- ----------
Balance, December 31, 1995......................... 15,000 334,011 63,785 (1,499) 1,136,584
------- ---------- ---------- ----------- ----------
Net Income......................................... -- -- -- -- 177,609
Dividend paid...................................... -- -- -- -- (17,500)
Change in fixed maturity securities available for
sale, net of tax of ($13,260).................... -- -- (24,625) -- --
Foreign currency translation adjustment............ -- -- -- 1,070 --
------- ---------- ---------- ----------- ----------
Balance at December 31, 1996....................... 15,000 334,011 39,160 (429) 1,296,692
------- ---------- ---------- ----------- ----------
Net Income......................................... -- -- -- -- 173,803
Capital contribution............................... -- 49,500 -- -- --
Change in fixed maturity securities available for
sale, net of tax of $24,516...................... -- -- 45,527 -- --
Foreign currency translation adjustment............ -- -- -- (323) --
------- ---------- ---------- ----------- ----------
Balance at December 31, 1997....................... $15,000 $383,511 $ 84,687 ($ 752) $1,470,495
------- ---------- ---------- ----------- ----------
------- ---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
A-4
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................ $ 173,803 $ 177,609 $ 187,878
Adjustments to reconcile net income to net cash provided by operating
activities:
Change in unearned premiums............................................. (53,263) (45,719) (29,890)
Change in loss and loss adjustment expense reserves..................... 4,310 (5,192) (20,938)
Depreciation of property and equipment.................................. 2,013 2,472 2,348
Change in reinsurance receivable........................................ (1,205) 657 6,800
Change in prepaid reinsurance premiums.................................. 13,475 (5,596) 2,581
Change in foreign currency translation adjustment....................... (497) 1,646 (427)
Policy acquisition costs deferred....................................... (12,936) (16,327) (16,219)
Amortization of deferred policy acquisition costs....................... 18,595 19,250 12,279
Change in accrued investment income, and prepaid expenses and other
assets............................................................... (2,754) (7,201) 2,906
Change in other liabilities............................................. (36,233) 30,117 (12,946)
Change in deferred income taxes......................................... 1,715 5,318 19,841
Amortization of fixed maturity securities............................... 2,698 792 1,922
Change in current income taxes payable.................................. (32,681) 720 (30,827)
Net realized gains on investments....................................... (16,700) (15,022) (30,762)
---------- ---------- ---------
Net cash provided by operating activities............................... 60,340 143,524 94,546
---------- ---------- ---------
INVESTING ACTIVITIES:
Sales and maturities of fixed maturity securities......................... 741,604 891,643 836,103
Purchases of fixed maturity securities.................................... (848,843) (1,033,345) (891,108)
Purchases, sales and maturities of short-term investments, net............ (2,200) 17,193 (15,358)
Purchases of property and equipment, net.................................. (459) (854) (750)
---------- ---------- ---------
Net cash used in investing activities..................................... (109,898) (125,363) (71,113)
---------- ---------- ---------
FINANCING ACTIVITIES:
Capital Contributions..................................................... 49,500 -- --
Dividends paid............................................................ -- (17,500) (25,000)
---------- ---------- ---------
Net cash provided by financing activities................................. 49,500 (17,500) (25,000)
---------- ---------- ---------
(Decrease) Increase in cash............................................... (58) 661 (1,567)
Cash at beginning of year................................................. 860 199 1,766
---------- ---------- ---------
Cash at end of year....................................................... $ 802 $ 860 $ 199
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes to financial statements.
A-5
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS
Financial Guaranty Insurance Company (the 'Company') is a wholly-owned
insurance subsidiary of FGIC Corporation (the 'Parent'). The Parent is owned
approximately ninety-nine percent by General Electric Capital Corporation ('GE
Capital') and approximately one percent by Sumitomo Marine and Fire Insurance
Company, Ltd. The Company provides financial guaranty insurance on newly issued
municipal bonds and municipal bonds trading in the secondary market, the latter
including bonds held by unit investment trusts and mutual funds. The Company
also insures structured debt issues outside the municipal market. Approximately
86% of the business written since inception by the Company has been municipal
bond insurance.
The Company insures only those securities that, in its judgment, are of
investment grade quality. Municipal bond insurance written by the Company
insures the full and timely payment of principal and interest when due on
scheduled maturity, sinking fund or other mandatory redemption and interest
payment dates to the holders of municipal securities. The Company's insurance
policies do not provide for accelerated payment of the principal of, or interest
on, the bond insured in the case of a payment default. If the issuer of a
Company-insured bond defaults on its obligation to pay debt service, the Company
will make scheduled interest and principal payments as due and is subrogated to
the rights of bondholders to the extent of payments made by it.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared on the basis of
generally accepted accounting principles ('GAAP') which differ in certain
respects from the accounting practices prescribed or permitted by regulatory
authorities (see Note 3). The prior years financial statements have been
reclassified to conform to the 1997 presentation. Significant accounting
policies are as follows:
Investments
The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115 ('SFAS 115'), 'Accounting for Certain
Investments in Debt and Equity Securities.' The Statement defines three
categories for classification of debt securities and the related accounting
treatment for each respective category. The Company has determined that its
fixed maturity securities portfolio should be classified as available-for-sale.
Under SFAS 115, securities held as available-for-sale are recorded at fair value
and unrealized holding gains/losses are recorded as a separate component of
stockholder's equity, net of applicable income taxes.
Short-term investments are carried at cost, which approximates fair value.
Bond discounts and premiums are amortized over the remaining terms of the
securities. Realized gains or losses on the sale of investments are determined
on the basis of specific identification.
Premium Revenue Recognition
Premiums for policies where premiums are collected in a single payment at
policy inception are earned over the period at risk, based on the total exposure
outstanding at any point in time. Financial guaranty insurance policies exposure
generally declines according to predetermined schedules. For policies with
premiums that are collected periodically, premiums are reflected in income pro
rata over the period covered by the premium payment.
A-6
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Policy Acquisition Costs
Policy acquisition costs include only those expenses that relate directly
to premium production. Such costs include compensation of employees involved in
underwriting, marketing and policy issuance functions, rating agency fees, state
premium taxes and certain other underwriting expenses, offset by ceding
commission income on premiums ceded to reinsurers (see Note 6). Net acquisition
costs are deferred and amortized over the period in which the related premiums
are earned. Anticipated loss and loss adjustment expenses are considered in
determining the recoverability of acquisition costs.
Loss and Loss Adjustment Expenses
Provision for loss and loss adjustment expenses is made in an amount equal
to the present value of unpaid principal and interest and other payments due
under insured risks at the balance sheet date for which, in management's
judgment, the likelihood of default is probable. Such reserves amounted to $76.9
million and $72.6 million at December 31, 1997 and 1996, respectively. As of
December 31, 1997 and 1996, such reserves included $35.1 million and $28.9
million, respectively, established based on an evaluation of the insured
portfolio in light of current economic conditions and other relevant factors. As
of December 31, 1997 and 1996, case-basis loss and loss adjustment expense
reserves were $41.8 million and $43.7 million, respectively. Loss and loss
adjustment expenses include amounts discounted at an interest rate between 5.9%
and 6.0% in 1997 and between 6.5% and 6.6% in 1996. The discount rate used is
based upon the risk free rate for the average maturity of the applicable bond
sector. The reserve for loss and loss adjustment expenses is necessarily based
upon estimates, however, in management's opinion the reserves for loss and loss
adjustment expenses is adequate. However, actual results will likely differ from
those estimates.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. These temporary differences relate principally to unrealized gains
(losses) on fixed maturity securities available-for-sale, premium revenue
recognition, deferred acquisition costs and deferred compensation. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Financial guaranty insurance companies are permitted to deduct from taxable
income, subject to certain limitations, amounts added to statutory contingency
reserves (see Note 3). The amounts deducted must be included in taxable income
upon their release from the reserves or upon earlier release of such amounts
from such reserves to cover excess losses as permitted by insurance regulators.
The amounts deducted are allowed as deductions from taxable income only to the
extent that U.S. government non-interest bearing tax and loss bonds are
purchased and held in an amount equal to the tax benefit attributable to such
deductions.
Property and Equipment
Property and equipment consists of furniture, fixtures, equipment and
leasehold improvements which are recorded at cost and are charged to income over
their estimated service lives. Office furniture and equipment are depreciated
straight-line over five years. Leasehold improvements are amortized over their
estimated service life or over the life of the lease, whichever is shorter.
Computer equipment and software are depreciated over three years. Maintenance
and repairs are charged to expense as incurred.
A-7
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Currency Translation
The Company has established foreign branches in France and the United
Kingdom and determined that the functional currencies of these branches are
local currencies. Accordingly, the assets and liabilities of these foreign
branches are translated into U.S. dollars at the rates of exchange existing at
December 31, 1997 and 1996 and revenues and expenses are translated at average
monthly exchange rates. The cumulative translation loss at December 31, 1997 and
1996 was $0.7 million and $0.4 million, respectively, net of tax, and is
reported as a separate component of stockholder's equity.
3. STATUTORY ACCOUNTING PRACTICES
The financial statements are prepared on the basis of GAAP, which differs
in certain respects from accounting practices prescribed or permitted by state
insurance regulatory authorities. The following are the significant ways in
which statutory-basis accounting practices differ from GAAP:
(a) premiums are earned directly in proportion to the scheduled
principal and interest payments rather than in proportion to the total
exposure outstanding at any point in time.
(b) policy acquisition costs are charged to current operations as
incurred rather than as related premiums are earned;
(c) a contingency reserve is computed on the basis of statutory
requirements for the security of all policyholders, regardless of whether
loss contingencies actually exist, whereas under GAAP, a reserve is
established based on an ultimate estimate of exposure;
(d) certain assets designated as non-admitted assets are charged
directly against surplus but are reflected as assets under GAAP, if
recoverable;
(e) federal income taxes are only provided with respect to taxable
income for which income taxes are currently payable, while under GAAP taxes
are also provided for differences between the financial reporting and the
tax bases of assets and liabilities;
(f) purchases of tax and loss bonds are reflected as admitted assets,
while under GAAP they are recorded as federal income tax payments; and
(g) all fixed income investments are carried at amortized cost rather
than at fair value for securities classified as available-for-sale under
GAAP.
A-8
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. STATUTORY ACCOUNTING PRACTICES--(CONTINUED)
The following is a reconciliation of net income and stockholder's equity
presented on a GAAP basis to the corresponding amounts reported on a
statutory-basis for the periods indicated below (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995
------------------------- ------------------------- -------------------------
NET STOCKHOLDER'S NET STOCKHOLDER'S NET STOCKHOLDER'S
INCOME EQUITY INCOME EQUITY INCOME EQUITY
-------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
GAAP basis amount........................ $173,803 $ 1,952,941 $177,609 $ 1,684,434 $187,878 $ 1,547,881
Premium revenue recognition.............. (4,924) (181,209) (9,358) (176,285) (22,555) (166,927)
Deferral of acquisition costs............ 5,659 (86,286) 2,923 (91,945) (3,940) (94,868)
Contingency reserve...................... -- (540,677) -- (460,973) -- (386,564)
Contingency reserve tax deduction (see
Note 2)................................ -- 95,185 -- 85,176 -- 78,196
Non-admitted assets...................... -- (2,593) -- (3,879) -- (5,731)
Case basis loss reserves................. 1,377 (1,872) (3,197) (3,249) 4,048 (52)
Portfolio loss reserves.................. 5,000 29,000 -- 24,000 (22,100) 24,000
Deferral of income taxes................. 1,715 72,260 5,317 70,719 19,842 64,825
Unrealized (gains) on fixed maturity
securities held at fair value, net of
tax.................................... -- (84,687) -- (39,160) -- (63,785)
Recognition of profit commission......... (1,203) (7,388) (441) (6,185) 3,096 (5,744)
Allocation of tax benefits due to
Parent's net operating loss to the
Company (see Note 5)................... 313 10,916 313 10,603 (637) 10,290
-------- ------------- -------- ------------- -------- -------------
Statutory-basis amount.............. $181,740 $ 1,255,590 $173,166 $ 1,093,256 $166,906 $ 1,001,521
-------- ------------- -------- ------------- -------- -------------
-------- ------------- -------- ------------- -------- -------------
</TABLE>
A-9
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INVESTMENTS
Investments in fixed maturity securities carried at fair value of $3.1
million and $3.1 million as of December 31, 1997 and 1996, respectively, were on
deposit with various regulatory authorities as required by law.
The amortized cost and fair values of short-term investments and of
investments in fixed maturity securities classified as available-for-sale are as
follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
1997 COST GAINS LOSSES VALUE
- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. government
corporations and agencies.................................. $ 11,539 $ 185 $ -- $ 11,724
Obligations of states and political subdivisions............. 2,272,225 130,183 655 2,401,753
Debt securities issued by foreign governments................ 29,694 603 28 30,269
---------- ---------- ---------- ----------
Investments available-for-sale............................... 2,313,458 130,971 683 2,443,746
Short-term investments....................................... 76,039 -- -- 76,039
---------- ---------- ---------- ----------
Total........................................................ $2,389,497 $ 130,971 $683 $2,519,785
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The amortized cost and fair values of short-term investments and of
investments in fixed maturity securities available-for-sale at December 31,
1997, by contractual maturity date, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
1997 COST VALUE
- ---- ---------- ----------
<S> <C> <C>
Due in one year or less........................................... $ 85,199 $ 85,395
Due after one year through five years............................. 61,168 62,955
Due after five years through ten years............................ 589,772 619,972
Due after ten years through twenty years.......................... 1,604,167 1,700,193
Due after twenty years............................................ 49,191 51,270
---------- ----------
Total............................................................. $2,389,497 $2,519,785
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
1996 COST GAINS LOSSES VALUE
- ---- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. government
corporations and agencies.................................. $ 57,987 $ 373 $ 1 $ 58,359
Obligations of states and political subdivisions............. 2,098,486 65,254 4,854 2,158,886
Debt securities issued by foreign governments................ 33,830 -- 526 33,304
---------- ---------- ---------- ----------
Investments available-for-sale............................... 2,190,303 65,627 5,381 2,250,549
Short-term investments....................................... 73,839 -- -- 73,839
---------- ---------- ---------- ----------
Total........................................................ $2,264,142 $ 65,627 $5,381 $2,324,388
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
In 1997, 1996 and 1995, proceeds from sales and maturities of investments
in fixed maturity securities available-for-sale carried at fair value were
$741.6 million, $891.6 million, and $836.1 million, respectively. For 1997, 1996
and 1995 gross gains of $19.1 million, $19.8 million and $36.3 million
respectively, and gross losses of $2.4 million, $4.8 million and $5.5 million
respectively, were realized on such sales.
A-10
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INVESTMENTS--(CONTINUED)
Net investment income of the Company is derived from the following sources
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income from fixed maturity securities $122,372 $119,290 $112,684
Income from short-term investments........................................... 6,366 6,423 8,450
-------- -------- --------
Total investment income...................................................... 128,738 125,713 121,134
Investment expenses.......................................................... 965 1,078 736
-------- -------- --------
Net investment income........................................................ $127,773 $124,635 $120,398
-------- -------- --------
-------- -------- --------
</TABLE>
As of December 31, 1997, the Company did not have more than 10% of its
investment portfolio concentrated in a single issuer or industry.
5. INCOME TAXES
The Company files a federal tax return as part of the consolidated return
of General Electric Capital Corporation ('GE Capital'). Under a tax sharing
agreement with GE Capital, taxes are allocated to the Company and the Parent
based upon their respective contributions to consolidated net income. The
Company also has a separate tax sharing agreement with its Parent. Under this
agreement the Company can utilize its Parent's net operating loss to offset
taxable income on a stand-alone basis. The Company's effective federal corporate
tax rate (19.0 percent in 1997, 20.8 percent in 1996 and 20.6 percent in 1995)
is less than the corporate tax rate on ordinary income of 35 percent in 1997,
1996 and 1995.
Federal income tax expense relating to operations of the Company for 1997,
1996 and 1995 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current tax expense.......................................................... $ 39,133 $ 41,548 $ 28,913
Deferred tax expense......................................................... 1,715 5,318 19,841
-------- -------- --------
Federal income tax expense................................................... $ 40,848 $ 46,866 $ 48,754
-------- -------- --------
-------- -------- --------
</TABLE>
The following is a reconciliation of federal income taxes computed at the
statutory rate and the provision for federal income taxes (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Income taxes computed on income before provision for federal income taxes, at
the statutory rate......................................................... $ 75,128 $ 78,566 $ 82,821
Tax effect of:
Tax-exempt interest........................................................ (34,508) (32,609) (30,630)
Other, net................................................................. 228 909 (3,437)
-------- -------- --------
Provision for income taxes................................................... $ 40,848 $ 46,866 $ 48,754
-------- -------- --------
-------- -------- --------
</TABLE>
A-11
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax liability or asset at December 31, 1997 and
1996 are presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Loss reserves................................................................. $ 10,999 $ 9,249
Deferred compensation......................................................... 2,242 2,531
Tax over book capital gains................................................... 2,996 2,144
Other......................................................................... 2,260 2,601
-------- --------
Total gross deferred tax assets................................................. 18,497 16,525
-------- --------
Deferred tax liabilities:
Unrealized gains on fixed maturity securities, available-for-sale............. 45,601 21,086
Deferred acquisition costs.................................................... 30,200 32,181
Premium revenue recognition................................................... 40,103 37,159
Rate differential on tax and loss bonds....................................... 9,454 9,454
Other......................................................................... 11,661 8,450
-------- --------
Total gross deferred tax liabilities............................................ 137,019 108,330
-------- --------
Net deferred tax liability...................................................... $118,522 $ 91,805
-------- --------
-------- --------
</TABLE>
Based upon the level of historical taxable income, projections of future
taxable income over the periods in which the deferred tax assets are deductible
and the estimated reversal of future taxable temporary differences, the Company
believes it is more likely than not that it will realize the benefits of these
deductible differences and has not established a valuation allowance at December
31, 1997 and 1996. The Company anticipates that the related deferred tax asset
will be realized based on future profitable business.
Total federal income tax payments during 1997, 1996 and 1995 were $71.8
million, $33.9 million, and $59.8 million, respectively.
6. REINSURANCE
The Company reinsures portions of its risk with other insurance companies
through quota share reinsurance treaties and, where warranted, on a facultative
basis. This process serves to limit the Company's exposure on risks
underwritten. In the event that any or all of the reinsuring companies were
unable to meet their obligations, the Company would be liable for such defaulted
amounts. The Company evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from activities or economic
characteristics of the reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under reinsurance
agreements in the form of letters of credit and trust agreements in various
amounts with various reinsurers totaling $37.0 million that can be drawn on in
the event of default.
Net premiums earned are presented net of ceded earned premiums of $33.3
million, $23.7 million and $21.9 million for the years ended December 31, 1997,
1996 and 1995, respectively. Loss and loss adjustment expenses incurred are
presented net of ceded losses of $0.2 million, $(0.8) million and $1.1 million
for the years ended December 31, 1997, 1996 and 1995, respectively.
A-12
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LOSS AND LOSS ADJUSTMENT EXPENSES
Activity in the reserve for loss and loss adjustment expenses is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1,........................................................ $ 72,616 $ 77,808 $ 98,746
Less reinsurance recoverable............................................... 7,015 (7,672) 14,472
-------- -------- --------
Net balance at January 1,.................................................. 65,601 70,136 84,274
Incurred related to:
Current year................................................................. 1,047 -- 26,681
Prior years.................................................................. 6,492 2,389 (1,207)
Portfolio reserves........................................................... 5,000 -- (33,900)
-------- -------- --------
Total Incurred............................................................... 12,539 2,389 (8,426)
-------- -------- --------
Paid related to:
Current year................................................................. (1,047) -- (197)
Prior years.................................................................. (8,387) (6,924) (5,515)
-------- -------- --------
Total Paid................................................................... (9,434) (6,924) (5,712)
-------- -------- --------
Net balance at December 31,.................................................. 68,706 65,601 70,136
Plus reinsurance recoverable................................................. 8,220 7,015 7,672
-------- -------- --------
Balance at December 31,...................................................... $ 76,926 $ 72,616 $ 77,808
-------- -------- --------
-------- -------- --------
</TABLE>
The changes in incurred portfolio and case reserves principally relates to
business written in prior years. The changes are based upon an evaluation of the
insured portfolio in light of current economic conditions and other relevant
factors.
8. RELATED PARTY TRANSACTIONS
The Company has various agreements with subsidiaries of General Electric
Company ('GE') and GE Capital. These business transactions include appraisal
fees and due diligence costs associated with underwriting structured finance
mortgage-backed security business; payroll and office expenses incurred by the
Company's international branch offices but processed by a GE subsidiary;
investment fees pertaining to the management of the Company's investment
portfolio; and telecommunication service charges. Approximately $4.9 million,
$8.1 million and $3.2 million in expenses were incurred in 1997, 1996 and 1995,
respectively, related to such transactions.
The Company also insured certain non-municipal issues with GE Capital
involvement as sponsor of the insured securitization and/or servicer of the
underlying assets. For some of these issues, GE Capital also provides first loss
protection in the event of default. Gross premiums written on these issues
amounted to $0.5 million in 1997, $0.6 million in 1996, and $1.3 million in
1995. As of December 31, 1997, par outstanding on these deals before reinsurance
was $112.9 million.
The Company insures bond issues and securities in trusts that were
sponsored by affiliates of GE (approximately 1 percent of gross premiums
written) in 1997, 1996 and 1995.
9. COMPENSATION PLANS
Officers and other key employees of the Company participate in the Parent's
incentive compensation, deferred compensation and profit sharing plans. Expenses
incurred by the Company under compensation plans and bonuses amounted to $5.0
million, $4.5 million and $7.5 million in 1997, 1996 and 1995, respectively,
before deduction for related tax benefits.
A-13
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. DIVIDENDS
Under New York insurance law, the Company may pay a dividend only from
earned surplus subject to the following limitations: (a) statutory surplus after
such dividend may not be less than the minimum required paid-in capital, which
was $66.4 million in 1997 and 1996, and (b) dividends may not exceed the lesser
of 10 percent of its surplus or 100 percent of adjusted net investment income,
as defined by New York insurance law, for the 12 month period ending on the
preceding December 31, without the prior approval of the Superintendent of the
New York State Insurance Department. At December 31, 1997 and 1996, the amount
of the Company's surplus available for dividends was approximately $124.6
million and $91.8 million, respectively.
During 1997, 1996 and 1995, the Company paid dividends of $0.0, $17.5
million and $25.0 million, respectively.
11. CAPITAL CONTRIBUTION
During 1997, the Parent made a capital contribution of $49.5 million to the
Company.
12. FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
Fixed Maturity Securities: Fair values for fixed maturity securities
are based on quoted market prices, if available. If a quoted market price
is not available, fair values is estimated using quoted market prices for
similar securities. Fair value disclosure for fixed maturity securities is
included in the balance sheets and in Note 4.
Short-Term Investments: Short-term investments are carried at cost,
which approximates fair value.
Cash, Receivable for Securities Sold, and Payable for Securities
Purchased: The carrying amounts of these items approximate their fair
values.
The estimated fair values of the Company's financial instruments at
December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets
Cash
On hand and in demand accounts............ $ 802 $ 802 $ 860 $ 860
Short-term investments....................... $ 76,039 $ 76,039 $ 73,839 $ 73,839
Fixed maturity securities.................... $2,443,746 $2,443,746 $2,250,549 $2,250,549
</TABLE>
Financial Guaranties: The carrying value of the Company's financial
guaranties is represented by the unearned premium reserve, net of deferred
acquisition costs, and loss and loss adjustment expense reserves. Estimated fair
values of these guaranties are based on amounts currently charged to enter into
similar agreements (net of applicable ceding commissions), discounted cash flows
considering contractual revenues to be received adjusted for expected
prepayments, the present value of future obligations and estimated losses, and
current interest rates. The estimated fair values of such financial guaranties
range between $355.7 million and $382.6 million compared to a carrying value of
$456.8 million as of December 31, 1997 and between $358.7 million and $387.4
million compared to a carrying value of $487.8 million as of December 31, 1996.
A-14
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. FINANCIAL INSTRUMENTS--(CONTINUED)
Concentrations of Credit Risk
The Company considers its role in providing insurance to be credit
enhancement rather than credit substitution. The Company insures only those
securities that, in its judgment, are of investment grade quality. The Company
has established and maintains its own underwriting standards that are based on
those aspects of credit that the Company deems important for the particular
category of obligations considered for insurance. Credit criteria include
economic and social trends, debt management, financial management and legal and
administrative factors, the adequacy of anticipated cash flows, including the
historical and expected performance of assets pledged for payment of securities
under varying economic scenarios and underlying levels of protection such as
insurance or overcollateralization.
In connection with underwriting new issues, the Company sometimes requires,
as a condition to insuring an issue, that collateral be pledged or, in some
instances, that a third-party guarantee be provided for a term of the obligation
insured by a party of acceptable credit quality obligated to make payment prior
to any payment by the Company. The types and extent of collateral pledged
varies, but may include residential and commercial mortgages, corporate debt,
government debt and consumer receivables.
As of December 31, 1997, the Company's total insured principal exposure to
credit loss in the event of default by bond issuers was $108.4 billion, net of
reinsurance of $31.6 billion. The Company's insured portfolio as of December 31,
1997 was broadly diversified by geography and bond market sector with no single
debt issuer representing more than 1% of the Company's principal exposure
outstanding, net of reinsurance.
As of December 31, 1997, the composition of principal exposure by type of
issue, net of reinsurance, was as follows (in millions):
<TABLE>
<CAPTION>
NET
PRINCIPAL
OUTSTANDING
-----------
<S> <C>
Municipal:
General obligation...................................................................... $ 57,244.4
Special revenue......................................................................... 35,526.8
Industrial revenue...................................................................... 405.7
Non-municipal........................................................................... 15,268.7
-----------
Total..................................................................................... $ 108,445.6
-----------
-----------
</TABLE>
The Company's gross and net exposure outstanding was $254,441.1 million and
$193,612.9 million, respectively, as of December 31, 1997.
As of December 31, 1997, the composition of principal exposure ceded to
reinsurers was as follows (in millions):
<TABLE>
<CAPTION>
CEDED
PRINCIPAL
OUTSTANDING
-----------
<S> <C>
Reinsurer:
Capital Re............................................................................... $14,909.1
Enhance Re............................................................................... 8,431.7
Other.................................................................................... 8,290.7
-----------
Total................................................................................. $31,631.5
-----------
-----------
</TABLE>
A-15
<PAGE>
FINANCIAL GUARANTY INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. FINANCIAL INSTRUMENTS--(CONTINUED)
The Company is authorized to do business in 50 states, the District of
Columbia, and in the United Kingdom and France. Principal exposure outstanding
at December 31, 1997 by state, net of reinsurance, was as follows (in millions):
<TABLE>
<CAPTION>
NET
PRINCIPAL
OUTSTANDING
-----------
<S> <C>
California................................................................................ $ 12,308.1
Pennsylvania.............................................................................. 10,277.8
Florida................................................................................... 10,181.7
New York.................................................................................. 8,945.5
Illinois.................................................................................. 7,203.8
Texas..................................................................................... 6,072.4
Michigan.................................................................................. 4,526.3
New Jersey................................................................................ 4,476.2
Arizona................................................................................... 3,109.2
Ohio...................................................................................... 2,616.1
-----------
Sub-total................................................................................. 69,717.1
Other states.............................................................................. 38,421.7
International............................................................................. 306.8
-----------
Total..................................................................................... $ 108,445.6
-----------
-----------
</TABLE>
13. COMMITMENTS
Total rent expense was $2.4 million, $2.8 million and $2.2 million in 1997,
1996 and 1995, respectively. For each of the next five years and in the
aggregate as of December 31, 1997, the minimum future rental payments under
noncancellable operating leases having remaining terms in excess of one year
approximate (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1998......................................................................................... $ 2,909
1999......................................................................................... 2,909
2000......................................................................................... 2,909
2001......................................................................................... 2,911
2002......................................................................................... --
-------
Total minimum future rental payments......................................................... $11,638
-------
-------
</TABLE>
A-16
