1. Ambac Financial Group, Inc. Adding diversity to our financial sector holdings

2. Current Finance Sector Holdings  Washington Mutual  Citigroup  Bank of America  Alliance Capital  Fannie Mae

3. Investment Thesis  Low interest rates  Flat yield curve  Infrastructure deficit  Continued stress on State and Local Budgets  Lead to continued strength in debt markets

4. Strategy for the Sector  Trade Fannie Mae for Ambac

5. Why Buy Ambac Financial Group?  A history of solid performance  Double digit ROE and EPS growth  Good valuations  International growth opportunities

6. Historical Performance

7. Risk Return Comparison ABKACBACCFNMWM Historical Beta0.481.290.591.310.220.03 Return / STD Dev0.210.100.250.080.050.19 Annualized Return19%10%20%7%5%27%

8. Ambac Financials Business  Financial Guaranty Public finance Structured finance International finance  Financial Services Interest rate swaps Total return swaps Funding conduits

9. Financial Guaranty Business Net par in billions of dollars 12/2004

10. Financial Guaranty Revenue Billions of dollars 2004

11. Total Revenue Millions of dollars

12. Competition for Ambac  Only three players globally  High barriers to entry  Ambac is a strong competitor 28% market share in 2003 Highest gross par written for 2004  History of consolidation if market crowds

13. Indicators of Success  Industry leading 15% ROE average over the last 10 years  Double digit earnings growth for 12 years running  Effective underwriting  Efficient operations

14. Combined Expense Ratio

15. Loss Ratio

16. Income Projections by Business Historic CAGR = 19%

17. Valuation Methods Used  Price to book value  Price to earnings value  Excess return dividend model  Current Price $72.39

18. Recommendations  Purchase Ambac Financial Group  Sell Fannie Mae

19. What’s Wrong With Fannie  No audited financial statements  Effect of regulatory changes on future revenues is unknowable  Currently running without CEO and CFO  Too difficult to understand given high manager turnover And…  FNM does not meet our investment policy requirements.

20. Investment Objective 1  “Security selection is to be made on the basis of a supportive fundamental analysis of a stock.”  Impossible to be thorough without financial statements

21. Investment Objective 2  “Maintain a risk level comparable to the S&P 500”  Company specific risks are significantly greater than other members of the S&P 500.

22. Investment Objective 3  “The investment guidelines are based on an investment horizon generally greater than 1 year and consistent with a normal market cycle of approximately 5 to 7 years.”  Market cycle has shifted

23. Suggested Trade TickerQuantityPriceTotal SellFNM57 $ 59 $ 3,372 BuyABK50 $ 72 $ 3,620

24. Questions?