MGIC INVESTMENT CORPORATION & SUBSIDIARIES -- YEARS ENDED DECEMBER 31, 2000, 1999, 1998, 1997 AND 1996

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Five-Year Summary of Financial Information
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2000 1999 1998 1997 1996
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(In thousands of dollars, except per share data)
Summary of Operations
Revenues:

Net premiums written....................... $ 887,388 $ 792,345 $ 749,161 $ 690,248 $ 588,927
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Net premiums earned........................ $ 890,091 $ 792,581 $ 763,284 $ 708,744 $ 617,043
Investment income, net..................... 178,535 153,071 143,019 123,602 105,355
Realized investment gains, net............. 1,432 3,406 18,288 3,261 1,220
Other revenue.............................. 40,283 47,697 47,075 32,665 22,013
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Total revenues........................... 1,110,341 996,755 971,666 868,272 745,631
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Losses and expenses:
Losses incurred, net....................... 91,723 97,196 211,354 242,362 234,350
Underwriting and other expenses............ 177,837 198,147 187,103 154,138 142,460
Interest expense........................... 28,759 20,402 18,624 6,399 3,793
Litigation settlement...................... 23,221 - - - -
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Total losses and expenses................ 321,540 315,745 417,081 402,899 380,603
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Income before tax............................. 788,801 681,010 554,585 465,373 365,028
Provision for income tax...................... 246,802 210,809 169,120 141,623 107,037
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Net income.................................... $ 541,999 $ 470,201 $ 385,465 $ 323,750 $ 257,991
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Weighted average common shares outstanding (in
thousands) (1)............................. 107,260 109,258 113,582 117,924 119,046
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Diluted earnings per share (1)................ $ 5.05 $ 4.30 $ 3.39 $ 2.75 $ 2.17
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Dividends per share (1)....................... $ .10 $ .10 $ .10 $ .095 $ .08
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Balance sheet data
Total investments.......................... $ 3,472,195 $ 2,789,734 $ 2,779,706 $ 2,416,740 $ 2,036,234
Total assets............................... 3,857,781 3,104,393 3,050,541 2,617,687 2,222,315
Loss reserves.............................. 609,546 641,978 681,274 598,683 514,042
Long-term debt............................. 397,364 425,000 442,000 237,500 -
Shareholders' equity....................... 2,464,882 1,775,989 1,640,591 1,486,782 1,366,115
Book value per share....................... 23.07 16.79 15.05 13.07 11.59

(1) In May 1997, the Company declared a two-for-one stock split of the common stock in the form of a 100% stock dividend.
The additional shares were issued on June 2, 1997. Prior year shares, dividends per share and earnings per share have
been restated to reflect the split.

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A brief description of the Company's business is contained in Note 1 to the Consolidated Financial Statements of the Company,
page eighteen.

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MGIC INVESTMENT CORPORATION & SUBSIDIARIES -- YEARS ENDED DECEMBER 31, 2000, 1999, 1998, 1997 AND 1996

2000 1999 1998 1997 1996
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New primary insurance written ($ millions).... $ 41,546 $ 46,953 $ 43,697 $ 32,250 $ 32,756
New primary risk written ($ millions)......... 10,353 11,422 10,850 8,305 8,305
New pool risk written ($ millions)............ 345 564 618 394 2

Insurance in force (at year-end) ($ millions)
Direct primary insurance................... 160,192 147,607 137,990 138,497 131,397
Direct primary risk........................ 39,090 35,623 32,891 32,175 29,308
Direct pool risk........................... 1,676 1,557 1,133 590 232

Primary loans in default ratios
Policies in force.......................... 1,448,348 1,370,020 1,320,994 1,342,976 1,299,038
Loans in default........................... 37,422 29,761 29,253 28,493 25,034
Percentage of loans in default............. 2.58% 2.17% 2.21% 2.12% 1.93%

Insurance operating ratios (GAAP)
Loss ratio................................. 10.3% 12.3% 27.7% 34.2% 38.0%
Expense ratio.............................. 16.4% 19.7% 19.6% 18.4% 21.6%
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Combined ratio............................. 26.7% 32.0% 47.3% 52.6% 59.6%
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Risk-to-capital ratio (statutory)
MGIC....................................... 10.6:1 11.9:1 12.9:1 15.7:1 18.1:1

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Management's Discussion and Analysis
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Results of Consolidated Operations
2000 Compared with 1999

Net income for 2000 was $542.0 million, compared with $470.2 million in 1999, an
increase of 15%. Diluted earnings per share was $5.05 for 2000 compared with
$4.30 in 1999. Included in diluted earnings per share for 2000 were a $0.14
charge for the litigation settlement agreement referred to below and $0.01 for
realized gains. The 1999 earnings per share included $0.02 for realized gains
and $0.10 for loss reserve reductions made in the fourth quarter of 1999.
Excluding the aforementioned amounts, earnings per share was $5.18 for 2000,
compared to $4.18 for 1999, an increase of 24%.

Total revenues for 2000 were $1,110.3 million, an increase of 11% from the
$996.8 million for 1999. This increase was primarily attributed to an
improvement in persistency, which generated an increase in renewal premiums.
Also contributing to the increase in revenues was an increase in investment
income resulting from strong cash flows. See below for a further discussion of
premiums and investment income.

Losses and expenses for 2000 were $321.5 million, an increase of 2% from $315.7
million for the same period of 1999. The increase was primarily attributed to
the litigation settlement, offset by a decline in underwriting expenses
resulting from a decline in contract underwriting activity and an increase in
deferred insurance policy acquisition costs. See below for a further discussion
of losses incurred and underwriting expenses and the litigation settlement.

The amount of new primary insurance written by Mortgage Guaranty Insurance
Corporation ("MGIC") during 2000 was $41.5 billion, compared with $47.0 billion
in 1999. Refinancing activity decreased to 13% of new primary insurance written
in 2000, compared to 25% in 1999 as a result of the increasing mortgage interest
rate environment of the second half of 1999 and in 2000.

The $41.5 billion of new primary insurance written during 2000 was offset by the
cancellation of $28.9 billion of insurance in force, and resulted in a net
increase of $12.6 billion in primary insurance in force, compared to new primary
insurance written of $47.0 billion, cancellation of $37.4 billion, and a net
increase of $9.6 billion in insurance in force during 1999. Direct primary
insurance in force was $160.2 billion at December 31, 2000, compared to $147.6
billion at December 31, 1999.

In addition to providing direct primary insurance coverage, the Company also
insures pools of mortgage loans. New pool risk written during 2000 and 1999,
which was virtually all agency pool insurance, was $345.5 million and $563.8
million, respectively. The Company's direct pool risk in force at December 31,
2000 was $1.7 billion compared to $1.6 billion at December 31, 1999.

Cancellation activity has historically been affected by the level of mortgage
interest rates, with cancellations generally moving inversely to the change in
the direction of interest rates. Cancellations decreased during 2000 due to
increasing mortgage interest rates which resulted in an increase in the MGIC
persistency rate (percentage of insurance remaining in force from one year
prior) to 80.4% at December 31, 2000, from 72.9% at December 31, 1999. Future
cancellation activity could also be somewhat higher than it otherwise would have
been as a result of legislation that went into effect in July 1999 regarding
cancellation of mortgage insurance. Cancellation activity could also increase as
more of the Company's insurance in force is represented by subprime loans, which
the Company anticipates will have materially lower persistency than the
Company's prime business. In general, subprime loans are mortgages that would
not meet the standard underwriting guidelines of Fannie Mae and Freddie Mac for
prime mortgages due to credit quality, documentation, or other factors, such as
in a refinance transaction exceeding a specified increase in the amount of
mortgage debt due to cash being paid to the borrower.

Principally as a result of changes in coverage requirements by Fannie Mae and
Freddie Mac (described under "Other Matters" below), new insurance written for
mortgages with reduced coverage (coverage of 17% for 90s and coverage of 25% for
95s) increased to 14% of new insurance written in 2000 compared to 8% a year
ago. New insurance written for mortgages with deep coverage (coverage of 25% for
90s and coverage of 30% for 95s) declined to 62% of new insurance written in
2000 compared to 67% a year ago. 90s are mortgages with LTV ratios above 85% but
not above 90%, and 95s are mortgages with LTV ratios above 90% but not above
95%.

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New insurance written for subprime mortgages was 19% of new insurance written
during 2000 compared to 7% for 1999. The Company expects that subprime loans
will have delinquency and default rates in excess of those on the Company's
prime business. While the Company believes it has priced its subprime business
to generate acceptable returns, there can be no assurance that the assumptions
underlying the premium rates adequately address the risk of this business.

Net premiums written increased 12% to $887.4 million in 2000, from $792.3
million in 1999. Net premiums earned increased 12% to $890.1 million in 2000,
from $792.6 million in 1999. The increases were primarily a result of a higher
percentage of renewal premiums on products with higher premium rates and the
growth in insurance in force offset by an increase in ceded premiums to $52.9
million in 2000, compared to $26.2 million in 1999, primarily due to an increase
in captive mortgage reinsurance and similar arrangements.

Mortgages (newly insured during 2000 or 1999) equal to approximately 33% of
MGIC's new insurance written during 2000 were subject to captive mortgage
reinsurance and similar arrangements compared to 32% during 1999. Such
arrangements entered into during a reporting period customarily include loans
newly insured in a prior reporting period. As a result, the percentages cited
above would be lower if only the current reporting period's newly insured
mortgages subject to such arrangements were included. At December 31, 2000
approximately 21% of MGIC's risk in force was subject to captive reinsurance and
similar arrangements compared to 15% at December 31, 1999. The amount of
premiums ceded under captive mortgage reinsurance arrangements and the
percentage of new insurance written and risk in force subject to such
arrangements are expected to continue to increase.

Investment income for 2000 was $178.5 million, an increase of 17% over the
$153.1 million in 1999. This increase was primarily the result of an increase in
the amortized cost of average investment assets to $3.1 billion for 2000, from
$2.7 billion for 1999, an increase of 13%. The portfolio's average pretax
investment yield was 6.0% and 5.6% at December 31, 2000 and 1999, respectively.
The portfolio's average after-tax investment yield was 4.9% in 2000 and 1999.
The Company realized gains of $1.4 million during 2000 compared to $3.4 million
in 1999.

Other revenue, which is composed of various components, was $40.3 million in
2000, compared with $47.7 million in 1999. The change is primarily the result of
decreases in contract underwriting and FHA fee revenue (a contract with the FHA
was completed in 1999) and an increase in equity losses for Customers Forever
LLC, a joint venture with Marshall & Ilsley Corporation, which were offset by
increases in equity earnings from Credit-Based Asset Servicing and
Securitization LLC ("C-BASS"), a joint venture with Enhance Financial Services
Group Inc. ("Enhance"), and Sherman Financial Group LLC, ("Sherman," another
joint venture with Enhance). In the first quarter of 2001, Enhance was acquired
by Radian Group Inc.

C-BASS engages in the acquisition and resolution of delinquent single-family
residential mortgage loans ("mortgage loans"). C-BASS also purchases and sells
mortgage-backed securities ("mortgage securities"), interests in real estate
mortgage investment conduit residuals and performs mortgage loan servicing. In
addition, C-BASS issues mortgage-backed debt securities collateralized by
mortgage loans and mortgage securities. C-BASS's results of operations are
affected by the timing of these securitization transactions. Substantially all
of C-BASS's mortgage-related assets do not have readily ascertainable market
values and as a result their value for financial statement purposes is estimated
by the management of C-BASS. Market value adjustments could impact C-BASS's
results of operations and the Company's share of those results.

Total combined assets of C-BASS at December 31, 2000 and 1999 were approximately
$1.0 billion and $934 million, respectively, of which approximately $867 million
and $773 million, respectively, were mortgage-related assets, including open
trades. Total liabilities at December 31, 2000 and 1999 were approximately $765
million and $744 million, respectively, of which approximately $694 million and
$617 million, respectively, were funding arrangements, including accrued
interest, virtually all of which were short-term. For the years ended December
31, 2000 and 1999, revenues of approximately $153 million and $112 million,
respectively, and expenses of approximately $97 million and $72 million,
respectively, resulted in income before tax of approximately $56 million and $40
million, respectively.

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Sherman is engaged in the business of purchasing, servicing and securitizing
delinquent unsecured consumer assets such as credit card loans and Chapter 13
bankruptcy debt. A substantial portion of Sherman's consolidated assets are
investments in receivable portfolios that do not have readily ascertainable
market values and as a result their value for financial statement purposes is
estimated by the management of Sherman. Market value adjustments could impact
Sherman's results of operations and the Company's share of those results.

Net losses incurred decreased 6% to $91.7 million in 2000, from $97.2 million in
1999. Such decrease was primarily due to generally strong economic conditions,
including in California, and a related decline in losses paid which led the
Company to reduce its estimate of the claim rate and the severity (the "reserve
factors") for loans in the primary and pool notices inventory. Partially
offsetting the reduction in reserve factors was an increase in the primary
insurance notice inventory from 29,761 at December 31, 1999 to 37,422 at
December 31, 2000, primarily reflecting an increase in subprime notices, and an
increase in pool insurance notice inventory from 11,638 at December 31, 1999 to
18,209 at December 31, 2000. The redundancy in loss reserves for 2000 was
relatively consistent with that experienced in 1999. The default rate at
December 31, 2000 was 2.58% compared to 2.17% at December 31, 1999 and the
average claim paid for 2000 was $18,977 compared to $19,444 in 1999. The default
rates for the subprime business were 8.66% and 7.39% for 2000 and 1999,
respectively.

At December 31, 2000, 67% of the primary insurance in force was written during
the last three years, compared to 65% at December 31, 1999. Based on all of the
loans in the Company's insurance in force, the highest claim frequency years
have typically been the third through fifth years after the year of loan
origination. However, the pattern of claims frequency for refinance loans may be
different from this historical pattern and the Company expects the period of
highest claims frequency on subprime loans will occur earlier than in this
historical pattern.

Underwriting and other expenses decreased to $177.8 million in 2000 from $198.1
million in 1999, a decrease of 10%. This decrease was primarily due to decreases
in contract underwriting and an increase in deferred insurance policy
acquisition costs.

Interest expense in 2000 increased to $28.8 million from $20.4 million in 1999
due to higher weighted average interest rates in 2000 compared to 1999.

The consolidated insurance operations loss ratio was 10.3% for 2000 compared to
12.3% for 1999. The consolidated insurance operations expense and combined
ratios were 16.4% and 26.7%, respectively, for 2000 compared to 19.7% and 32.0%,
respectively, for 1999.

The effective tax rate was 31.3% in 2000, compared with 31.0% in 1999. During
both years, the effective tax rate was below the statutory rate of 35%,
reflecting the benefits of tax-preferenced investment income. The higher
effective tax rate in 2000 resulted from a lower percentage of total income
before tax being generated from tax-preferenced investments in 2000.

Other Matters

In December 2000, MGIC entered into an agreement to settle Downey et. al. v.
MGIC, which is pending in Federal District Court for the Southern District of
Georgia. The Court has preliminarily approved the settlement agreement,
certified a nationwide class of borrowers and scheduled a hearing for June 15,
2001 to consider whether it should enter a final order approving the settlement.
The Company has recorded a $23.2 million charge to cover the estimated costs of
the settlement, including payments to borrowers. The settlement includes an
injunction that prohibits certain practices and specifies the basis on which
agency pool insurance, captive mortgage reinsurance, contract underwriting and
other products may be provided in compliance with the Real Estate Settlement
Procedures Act.

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premium payments. If the Court does not enter a final order approving the
settlement, the litigation will continue. In these circumstances, there can be
no assurance that the ultimate outcome of the litigation will not materially
affect the Company's financial position or results of operations.

During the first quarter of 1999, Fannie Mae and Freddie Mac ("GSEs") changed
their mortgage insurance requirements for certain mortgages approved by their
automated underwriting services. The changes permit lower coverage percentages
on these loans than the deeper coverage percentages that went into effect in
1995. MGIC's premium rates vary with the depth of coverage. While lower coverage
percentages result in lower premium revenue, lower coverage percentages should
also result in lower incurred losses at the same level of claim incidence.
MGIC's results could also be affected to the extent the GSEs are compensated for
assuming default risk that would otherwise be insured by the private mortgage
insurance industry. The GSEs have programs under which a delivery fee is paid to
them, with mortgage insurance coverage reduced below the coverage that would be
required in the absence of the delivery fee.

In partnership with mortgage insurers, the GSEs are offering programs under
which, on delivery of an insured loan to a GSE, the primary coverage is
converted to an initial shallow tier of coverage followed by a second tier that
is subject to an overall loss limit and, depending on the program, compensation
may be paid to the GSE for services or other benefits realized by the mortgage
insurer from the coverage conversion. Because lenders receive guaranty fee
relief from the GSEs on mortgages delivered with these restructured coverages,
participation in these programs is competitively significant to mortgage
insurers.

In March 1999, the Office of Federal Housing Enterprise Oversight ("OFHEO")
released a proposed risk-based capital stress test for the GSEs. One of the
elements of the proposed stress test is that future claim payments made by a
private mortgage insurer on GSE loans are reduced below the amount provided by
the mortgage insurance policy to reflect the risk that the insurer will fail to
pay. Claim payments from an insurer whose claims-paying ability rating is 'AAA'
are subject to a 10% reduction over the 10-year period of the stress test, while
claim payments from a 'AA' rated insurer, such as MGIC, are subject to a 20%
reduction. The effect of the differentiation among insurers is to require the
GSEs to have additional capital for coverage on loans provided by a private
mortgage insurer whose claims-paying rating is less than 'AAA.' As a result, if
adopted as proposed, there is an incentive for the GSEs to use private mortgage
insurance provided by a 'AAA' rated insurer. The Company does not believe there
should be a reduction in claim payments from private mortgage insurance nor
should there be a distinction between 'AAA' and 'AA' rated private mortgage
insurers. The proposed stress test covers many topics in addition to capital
credit for private mortgage insurance and is not expected to become final for
some time. If the stress test ultimately gives the GSEs an incentive to use
'AAA' mortgage insurance, MGIC may need 'AAA' capacity, which in turn would
entail using capital to support such a facility as well as additional expenses
or MGIC may need to make other changes to provide the GSEs with the equivalent
of 'AAA' coverage. The Company cannot predict whether the portion of the stress
test discussed above will be adopted in its present form.

1999 Compared with 1998

Net income for 1999 was $470.2 million, compared with $385.5 million in 1998, an
increase of 22%. Diluted earnings per share for 1999 was $4.30, compared with
$3.39 in 1998, an increase of 27%. Included in the 1999 diluted earnings per
share was $0.02 for realized gains compared with $0.10 for realized gains in
1998. The percentage increase in diluted earnings per share was favorably
affected by the lower adjusted shares outstanding in 1999 as a result of common
stock repurchased by the Company in the second half of 1998 and during the third
quarter of 1999.

Total revenues for 1999 were $996.8 million, an increase of 3% from the $971.7
million for 1999. This increase was primarily attributed to an improvement in
persistency, which generated an increase in renewal premiums. Also contributing
to the increase in revenues was an increase in investment income resulting from
strong cash flows. See below for a further discussion of premiums and investment
income.

Losses and expenses for 1999 were $315.7 million, a decrease of 24% from the
$417.1 million for 1999. The decrease was primarily attributed to a decline in
losses incurred resulting from generally strong economic conditions, improvement
in the California real estate market, and MGIC's claims mitigation efforts which

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resulted in a decline in losses paid and a reduction in both primary and pool
reserve factors. See below for a further discussion of losses incurred and
underwriting expenses.

The amount of new primary insurance written by MGIC during 1999 was $47.0
billion, compared with $43.7 billion in 1998. Refinancing activity decreased to
25% of new primary insurance written in 1999, compared to 31% in 1998 as a
result of the increasing mortgage interest rate environment of the second half
of 1999.

The $47.0 billion of new primary insurance written during 1999 was offset by the
cancellation of $37.4 billion of insurance in force, and resulted in a net
increase of $9.6 billion in primary insurance in force, compared to new primary
insurance written of $43.7 billion, cancellation of $44.2 billion, and a net
decrease of $0.5 billion in insurance in force during 1998. Direct primary
insurance in force was $147.6 billion at December 31, 1999, compared to $138.0
billion at December 31, 1998.

In addition to providing direct primary insurance coverage, the Company also
insures pools of mortgage loans. New pool risk written during 1999 and 1998,
which was virtually all agency pool insurance, was $563.8 million and $618.1
million, respectively. The Company's direct pool risk in force at December 31,
1999 was $1.6 billion compared to $1.1 billion at December 31, 1998.

Net premiums written increased 6% to $792.3 million in 1999, from $749.2 million
in 1998. Net premiums earned increased 4% to $792.6 million in 1999, from $763.3
million in 1998. The increases were primarily a result of a higher percentage of
renewal premiums on mortgage loans with deeper coverages and the growth in
insurance in force offset by an increase in ceded premiums to $26.2 million in
1999, compared to $14.8 million in 1998, primarily due to an increase in captive
mortgage reinsurance.

For a discussion of captive mortgage reinsurance and similar arrangements,
certain programs with the GSEs regarding mortgage insurance and proposed capital
regulations for the GSEs, see the 2000 compared with 1999 discussion and "Other
Matters" above.

Investment income for 1999 was $153.1 million, an increase of 7% over the $143.0
million in 1998. This increase was primarily the result of an increase in the
amortized cost of average investment assets to $2.7 billion for 1999, from $2.5
billion for 1998, an increase of 11%. The portfolio's average pretax investment
yield was 5.6% in 1999 and 1998. The portfolio's average after-tax investment
yield was 4.9% in 1999 and 1998. The Company realized gains of $3.4 million
during 1999 compared to $18.3 million in 1998. The decrease is primarily the
result of gains on the sale of equity securities in 1998 compared to no such
gains in 1999.

Other revenue, which is composed of various components, was $47.7 million in
1999, compared with $47.1 million in 1998. The change is primarily the result of
an increase in equity earnings from C-BASS, a joint venture with Enhance, offset
by equity losses from two joint ventures formed in 1999, Sherman, another joint
venture with Enhance, and Customers Forever, a joint venture with Marshall and
Ilsley Corporation, and a decrease in contract underwriting revenue. In
accordance with generally accepted accounting principles, C-BASS is required to
estimate the value of its mortgage related assets and recognize in earnings the
resulting net unrealized gains and losses. Including open trades, C-BASS's
mortgage related assets were $773 million at December 31, 1999. Substantially
all of C-BASS's mortgage-related assets do not have readily ascertainable market
values and, as a result, their value for financial statement purposes is
estimated by the management of C-BASS. Market valuation adjustments could impact
C-BASS's results of operations and the Company's share of those results.

A substantial portion of Sherman's consolidated assets are investments in
receivable portfolios that do not have readily ascertainable market values and,
as a result, their value for financial statements purposes is estimated by the
management of Sherman. Market value adjustments could impact Sherman's results
of operations and the Company's share of those results.

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Net losses incurred decreased 54% to $97.2 million in 1999, from $211.4 million
in 1998. Such decrease was primarily due to generally strong economic
conditions, improvement in the California real estate market, and MGIC's claims
mitigation efforts, which in the aggregate resulted in a decline in losses paid
and led the Company to reduce reserve factors for loans in the primary and pool
notices inventory. Partially offsetting the reduction in reserve factors was an
increase in the primary insurance notice inventory from 29,253 at December 31,
1998 to 29,761 at December 31, 1999 and an increase in pool insurance notice
inventory from 6,524 at December 31, 1998 to 11,638 at December 31, 1999. The
reasons for the decrease in net losses incurred discussed above contributed to
an increase in redundancy in prior year loss reserves. The redundancy results
from actual claim rates and actual claim amounts being lower than those
estimated by the Company when originally establishing the reserve at December
31, 1998.

At December 31, 1999, 65% of the primary insurance in force was written during
the last three years, compared to 60% at December 31, 1998. The highest claim
frequency years have typically been the third through fifth years after the year
of loan origination. However, the pattern of claims frequency for refinance
loans may be different from the historical pattern of other loans.

Underwriting and other expenses increased 6% in 1999 to $200.8 million from
$190.0 million in 1998. This increase was primarily due to the increase in new
primary insurance written and the related underwriting expenses.

Interest expense in 1999 increased to $20.4 million from $18.6 million in 1998
due to a higher weighted average outstanding notes payable balance in 1999
compared to 1998.

The Company utilized financial derivative transactions during 1999 consisting of
interest rate swaps to reduce and manage interest rate risk on its notes
payable. Earnings on such transactions aggregated approximately $3.8 million and
were netted against interest expense. In 1998, earnings on an interest rate swap
and premium income on three put-swaptions aggregating approximately $0.5 million
for all such transactions were netted against interest expense.

The consolidated insurance operations loss ratio was 12.3% for 1999 compared to
27.7% for 1998. The consolidated insurance operations expense and combined
ratios were 19.7% and 32.0%, respectively, for 1999 compared to 19.6% and 47.3%,
respectively, for 1998.

The effective tax rate was 31.0% in 1999, compared with 30.5% in 1998. During
both years, the effective tax rate was below the statutory rate of 35%,
reflecting the benefits of tax-preferenced investment income. The higher
effective tax rate in 1999 resulted from a lower percentage of total income
before tax being generated from tax-preferenced investments in 1999.

Financial Condition

Consolidated total investments increased approximately $682 million to $3.5
billion at December 31, 2000 from $2.8 billion at December 31, 1999, primarily
due to positive net cash flow, as well as unrealized gains on securities marked
to market of $179 million. The Company generated consolidated cash flows from
operating activities of $551.0 million during 2000, compared to $455.0 million
generated during 1999. The increase in operating cash flows during 2000 compared
to 1999 is due primarily to an increase in renewal premiums and investment
income and a decrease in losses paid. As of December 31, 2000, the Company had
$151.6 million of short-term investments with maturities of 90 days or less, and
63% of the portfolio was invested in tax-preferenced securities. In addition, at
December 31, 2000, based on book value, the Company's fixed income securities
were approximately 98% invested in 'A' rated and above, readily marketable
securities, concentrated in maturities of less than 15 years. At December 31,
2000 the Company had $22.0 million of investments in equity securities compared
to $15.4 million at December 31, 1999.

At December 31, 2000, the Company had no derivative financial instruments in its
investment portfolio. The Company places its investments in instruments that
meet high credit quality standards, as specified in the Company's investment
policy guidelines; the policy also limits the amount of credit exposure to any
one issue, issuer and type of instrument. At December 31, 2000, the average
duration of the Company's investment portfolio was 6.1 years. The effect of a 1%
increase/ decrease in market interest rates would result in a 6.1%
decrease/increase in the value of the Company's fixed income portfolio.

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The Company's investments in joint ventures increased $37.3 million from $101.5
million at December 31, 1999 to $138.8 million at December 31, 2000 as a result
of additional investments of $19.2 million and equity earnings of $18.1 million.

Consolidated loss reserves decreased 5% to $609.5 million at December 31, 2000
from $642.0 million at December 31, 1999, reflecting a reduction in the primary
and pool reserve factors partially offset by increases in the primary and pool
insurance notice inventories, all of which were discussed earlier. Consistent
with industry practices, the Company does not establish loss reserves for future
claims on insured loans which are not currently in default.

Consolidated unearned premiums decreased $0.7 million from $181.4 million at
December 31, 1999, to $180.7 million at December 31, 2000, primarily reflecting
the continued high level of monthly premium policies written for which there is
no unearned premium offset by an increase in unearned premiums for agency pool
insurance written.

Consolidated shareholders' equity increased to $2.5 billion at December 31,
2000, from $1.8 billion at December 31, 1999, an increase of 39%. This increase
consisted of $542.0 million of net income during 2000, $47.2 million from the
reissuance of treasury stock and unrealized gains on investments, net of tax, of
$116.5 million offset by the repurchase of $6.2 million of outstanding common
shares and dividends declared of $10.6 million.

Liquidity and Capital Resources

The Company's consolidated sources of funds consist primarily of premiums
written and investment income. Funds are applied primarily to the payment of
claims and expenses. Approximately 68% of underwriting expenses are
personnel-related costs, most of which are considered by the Company to be fixed
costs over the short term. Approximately 6% of operating expenses relate to
occupancy costs, which are fixed costs. Substantially all of the remaining
operating expenses are considered by the Company to be variable in nature, with
data processing costs and taxes, licenses and fees representing approximately 4%
and 10%, respectively, of total operating expenses. The Company generated
positive cash flows of approximately $551.0 million, $455.0 million and $411.8
million in 2000, 1999 and 1998, respectively, as shown on the Consolidated
Statement of Cash Flows. Positive cash flows are invested pending future
payments of claims and other expenses. Cash-flow shortfalls, if any, could be
funded through sales of short-term investments and other investment portfolio
securities.

During 1999 and 1998, the Company repurchased approximately 3.6 million and 5.3
million shares, respectively, of its outstanding common stock at a cost of $201
and $247 million, respectively. Funds to repurchase the shares in 1998 were
primarily provided by borrowings under credit facilities evidenced by notes
payable. The shares repurchased in 1999 were funded with a $150 million special
dividend from MGIC and cash flow. At December 31, 1999, the Company's
outstanding balance on the credit facilities was $425 million, which
approximated market value.

In June of 2000, the Company filed a $500 million public debt shelf registration
statement. During the fourth quarter of 2000, the Company issued in public
offerings $300 million, 7-1/2% Senior Notes due 2005. The notes are unsecured
and were rated 'A1' by Moody's and 'A+' by Standard & Poors ("S&P"). The net
proceeds were used to repay a portion of the borrowings under the bank credit
facilities.

At December 31, 2000, the Company's aggregate outstanding balance under the 1998
and 1999 credit facilities, each of which provides $100 million of availability,
was approximately $98 million and the remaining credit available was $102
million. Amounts drawn under the 1998 and 1999 credit facilities are due in 2003
and 2004, respectively. The interest rates on these credit facilities vary based
on LIBOR and the 1999 and 2000 weighted average interest rates were 6.71% and
5.57%, respectively. Under the terms of the credit facilities, the Company must
maintain shareholders' equity of at least $1 billion and MGIC must maintain a
claims paying ability rating of 'AA-' or better with S&P. At December 31, 2000,
the Company had shareholders' equity of $2.46 billion and MGIC had a claims
paying ability rating of 'AA+' from S&P. The Company plans to sell commercial
paper and use the proceeds to repay borrowings under the credit facilities and
to use the credit facilities to back the commercial paper.

During 1999, the Company utilized three interest rate swaps, each with a
notional amount of $100 million, to reduce and manage interest rate risk on a
portion of the

----------
nine
----------

variable rate debt under the credit facilities. The notional amount of $100
million represents the stated principal balance used for calculating payments.
The Company received and paid amounts based on rates that were both fixed and
variable. Earnings on the swaps during 1999, of approximately $3.8 million, were
netted against interest expense.

Early in 2000, two of the swaps were amended and designated as hedges. Later in
2000, the two hedges were amended. The Company pays an interest rate based on
LIBOR and receives a fixed rate of 7.5%. The swaps have an expiration date
coinciding with the maturity of the public debt and are designated as hedges.
The remaining swap was also amended. On this swap, the Company pays a fixed rate
of 6.79% and receives an interest rate based on LIBOR. The swap has an
expiration date coinciding with the maturity of the credit facilities and is
designated as a hedge. Gains or losses arising from the amendment or termination
of interest rate swaps are deferred and amortized to interest expense over the
life of the hedged items. Earnings on the swaps during 2000, of approximately
$0.3 million, were netted against interest expense. The swaps are subject to
credit risk to the extent the counterparty would be unable to discharge its
obligations under the swap agreements.

MGIC is the principal insurance subsidiary of the Company. MGIC's
risk-to-capital ratio was 10.6:1 at December 31, 2000 compared to 11.9:1 at
December 31, 1999. The decrease was due to MGIC's increased policyholders'
reserves, partially offset by the net additional risk in force of $3.1 billion,
net of reinsurance, during 2000.

The risk-to-capital ratios set forth above have been computed on a statutory
basis. However, the methodology used by the rating agencies to assign
claims-paying ability ratings permits less leverage than under statutory
requirements. As a result, the amount of capital required under statutory
regulations may be lower than the capital required for rating agency purposes.
In addition to capital adequacy, the rating agencies consider other factors in
determining a mortgage insurer's claims-paying rating, including its competitive
position, business outlook, management, corporate strategy, and historical and
projected operating performance.

For certain material risks of the Company's business, see "Risk Factors" below.

Risk Factors

Our revenues and losses could be affected by the risk factors discussed below.
These factors may also cause actual results to differ materially from the
results contemplated by forward looking statements that the Company may make.
Forward looking statements consist of statements which relate to matters other
than historical fact. Among others, statements that include words such as the
Company "believes," "anticipates" or "expects," or words of similar import, are
forward looking statements.

If the volume of low down payment home mortgage originations declines, the
amount of insurance that we write could also decline which could result in
declines in our future revenues.

The factors that affect the volume of low down payment mortgage originations
include:

o the level of home mortgage interest rates,

o the health of the domestic economy as well as conditions in regional and
local economies,

o housing affordability,

o population trends, including the rate of household formation,

o the rate of home price appreciation, which in times of heavy refinancing
affects whether refinance loans have loan-to-value ratios that require
private mortgage insurance, and

o government housing policy encouraging loans to first-time homebuyers.

Our volume declined 12% in 2000 compared to the same period in 1999 because many
borrowers refinanced their mortgages during 1999 due to a lower interest rate
environment. While our volume was higher in 1999, lenders cancelled insurance on
loans due to borrowers refinancing. There has been substantially less
refinancing activity in 2000. As a result, lenders have cancelled our insurance
at a lower rate than in 1999. Also, due to generally favorable home mortgage
interest rates in 2000, home purchase activity by first-time homebuyers, who are
more likely to need private mortgage insurance, continued to be strong. As a
result
----------
ten
----------

of these factors, our premium revenues increased in 2000 compared to 1999. While
we have not experienced lower volume in recent years other than as a result of
refinancing activity, one of the risks we face is that substantially higher
interests rates will substantially reduce purchase activity by first-time
homebuyers and that the decline in cancellations of insurance that in the past
have accompanied higher interest rates will not be sufficient to offset the
decline in premiums from loans that are not made.

If lenders and investors select alternatives to private mortgage insurance, the
amount of insurance that we write could decline, which could result in declines
in our future revenues.

These alternatives to private mortgage insurance include:

o lenders using government mortgage insurance programs, including those of
the Federal Housing Administration and the Veterans Administration,

o investors holding mortgages in portfolio and self-insuring,

o investors using credit enhancements other than private mortgage insurance
or using other credit enhancements in conjunction with reduced levels of
private mortgage insurance coverage, and

o lenders structuring mortgage originations to avoid private mortgage
insurance, such as a first mortgage with an 80% loan-to-value ratio and a
second mortgage with a 10% loan-to-value ratio (referred to as an 80-10-10
loan) rather than a first mortgage with a 90% loan- to-value ratio.

We believe that during 2000 lenders and investors were self-insuring and making
80-10-10 loans at about the same percentage as they did over the last several
years. Although during 2000, the share of the low down payment market held by
loans with Federal Housing Administration and Veterans Administration mortgage
insurance was lower than in 1999, during three of the prior four years, the
Federal Housing Administration and Veterans Administration's collective share of
this market increased. In the last quarter of 2000, the Federal Housing
Administration reduced its mortgage insurance premiums. Investors are using
reduced mortgage insurance coverage on a higher percentage of loans that we
insure than they had over the last several years.

Because most of the loans MGIC insures are sold to Fannie Mae and Freddie Mac,
changes in their business practices could reduce our revenues or increase our
losses.

The business practices of Fannie Mae and Freddie Mac affect the entire
relationship between them and mortgage insurers and include:

o the level of private mortgage insurance coverage, subject to the
limitations of Fannie Mae and Freddie Mac's charters, when private mortgage
insurance is used as the required credit enhancement on low down payment
mortgages,

o whether Fannie Mae or Freddie Mac influence the mortgage lender's selection
of the mortgage insurer providing coverage and, if so, any transactions
that are related to that selection,

o whether Fannie Mae or Freddie Mac will give mortgage lenders an incentive,
such as a reduced guaranty fee, to select a mortgage insurer that has a
'AAA' claims-paying ability rating to benefit from the proposed lower
capital requirements for Fannie Mae and Freddie Mac when a mortgage is
insured by a company with that rating,

o the underwriting standards that determine what loans are eligible for
purchase by Fannie Mae or Freddie Mac, which thereby affect the quality of
the risk insured by the mortgage insurer and the availability of mortgage
loans,

o the terms on which mortgage insurance coverage can be canceled before
reaching the cancellation thresholds established by law, and

o the circumstances in which mortgage servicers must perform activities
intended to avoid or mitigate loss on insured mortgages that are
delinquent.

We do not have a 'AAA' rating. If the proposed capital rules of the Office of
Federal Housing Enterprise Oversight are adopted in a form that gives greater
capital credit to private mortgage insurers with 'AAA' ratings, we may need to
obtain a 'AAA' rating or may need to make other changes to provide Fannie Mae
and Freddie Mac with the equivalent of 'AAA' coverage. While we believe we can
obtain this rating, we would need to

----------
eleven
----------

dedicate capital to the mortgage insurance business that we might use in other
ways and we would also have additional costs that we would not otherwise incur.

Because we participate in an industry that is intensely competitive, changes in
our competitors' business practices could reduce our revenues or increase our
losses.

Competition for private mortgage insurance premiums occurs not only among
private mortgage insurers but increasingly with mortgage lenders through captive
mortgage reinsurance transactions. In these transactions, a lender's affiliate
reinsures a portion of the insurance written by a private mortgage insurer on
mortgages originated by the lender. The low level of losses that has recently
prevailed in the private mortgage insurance industry has encouraged competition
to assume default risk through captive reinsurance arrangements, self-insurance,
80-10-10 loans and other means. In 1996, we reinsured under captive reinsurance
arrangements virtually none of our primary insurance. At the end of 2000, about
21% of our risk in force was subject to captive reinsurance arrangements. The
level of competition within the private mortgage insurance industry has also
increased as many large mortgage lenders have reduced the number of private
mortgage insurers with whom they do business. At the same time, consolidation
among mortgage lenders has increased the share of the mortgage lending market
held by large lenders. Our top ten customers generated 27.0% of the new primary
insurance that we wrote in 1997 compared to 36.2% in 2000.

Our private mortgage insurance competitors include:

o PMI Mortgage Insurance Company
o GE Capital Mortgage Insurance Corporation
o United Guaranty Residential Insurance Company
o Radian Guaranty Inc.
o Republic Mortgage Insurance Company
o Triad Guaranty Insurance Corporation
o CMG Mortgage Insurance Company

If interest rates decline, house prices appreciate or mortgage insurance
cancellation requirements change, the length of time that our policies remain in
force could decline and result in declines in our revenue.

In each year, most of MGIC's premiums are from insurance that has been written
in prior years. As a result, the length of time insurance remains in force is an
important determinant of revenues. The factors affecting the length of time our
insurance remains in force include:

o the level of current mortgage interest rates compared to the mortgage
coupon rates on the insurance in force, which affects the vulnerability of
the insurance in force to refinancings, and

o mortgage insurance cancellation policies of mortgage investors along with
the rate of home price appreciation experienced by the homes underlying the
mortgages in the insurance in force.

While it is difficult to measure the extent of the decline, in recent years, the
length of time that our policies remain in force has declined somewhat. Due to
this decline, our premium revenues were lower than they would have been if the
length had not declined.

If the domestic economy deteriorates, more homeowners may default and our losses
may increase.

Losses result from events that reduce a borrower's ability to continue to make
mortgage payments, such as unemployment, and whether the home of a borrower who
defaults on his mortgage can be sold for an amount that will cover unpaid
principal and interest and the expenses of the sale. Favorable economic
conditions generally reduce the likelihood that borrowers will lack sufficient
income to pay their mortgages and also favorably affect the value of homes,
thereby reducing and in some cases even eliminating a loss from a mortgage
default. In recent years, due in part to the strength of the economy, we have
had low losses by historical standards. A significant deterioration in economic
conditions would probably increase our losses.

Our industry is subject to litigation risk.

In recent years, consumers have brought a growing number of lawsuits against
home mortgage lenders and settlement service providers. As of the middle of
February, 2001, seven mortgage insurers, including our MGIC subsidiary, were
involved in litigation alleging violations of the Real Estate Settlement
Procedures Act. Our MGIC subsidiary and two other mortgage insurers have entered
into an agreement to settle the cases against them. The Court will consider
whether to enter a final order approving this settlement in June 2001. We took a

----------
twelve
----------

$23.2 million pretax charge in 2000 to cover our share of the estimated costs of
the settlement. While the settlement includes an injunction that prohibits
certain practices and specifies the basis on which other practices may be done
in compliance with the Real Estate Settlement Procedures Act, we may still be
subject to future litigation.

Because we expect the pace of change in our industry and in home mortgage
lending to remain high, we will be disadvantaged unless we are able to respond
to new ways of doing business.

We expect the processes involved in home mortgage lending will continue to
evolve through greater use of technology. This evolution could effect
fundamental changes in the way home mortgages are distributed. Affiliates of
lenders who are regulated depositary institutions gained expanded insurance
powers under financial modernization legislation and the capital markets may
emerge as providers of insurance in competition with traditional insurance
companies. These trends and others increase the level of uncertainty in our
business, demand rapid response to change and place a premium on innovation.

----------
thirteen
----------

MGIC INVESTMENT CORPORATION & SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
------------------------------------------------------------------------------------
Consolidated Statement of Operations
------------------------------------------------------------------------------------

2000 1999 1998
-------------- --------------- ---------------
REVENUES: (In thousands of dollars, except per share data)
Premiums written:

Direct.................................................... $ 939,482 $ 816,351 $ 755,620
Assumed................................................... 847 2,215 8,352
Ceded (note 7)............................................ (52,941) (26,221) (14,811)
-------------- --------------- ---------------

Net premiums written........................................ 887,388 792,345 749,161
Decrease in unearned premiums............................... 2,703 236 14,123
-------------- --------------- ---------------

Net premiums earned (note 7)................................ 890,091 792,581 763,284

Investment income, net of expenses (note 4)................. 178,535 153,071 143,019
Realized investment gains, net (note 4)..................... 1,432 3,406 18,288
Other revenue............................................... 40,283 47,697 47,075
-------------- --------------- ---------------

Total revenues............................................ 1,110,341 996,755 971,666
-------------- --------------- ---------------

LOSSES AND EXPENSES:
Losses incurred, net (notes 6 and 7)........................ 91,723 97,196 211,354
Underwriting and other expenses............................. 177,837 198,147 187,103
Interest expense............................................ 28,759 20,402 18,624
Litigation settlement (note 13)............................. 23,221 - -
-------------- --------------- ---------------

Total losses and expenses................................. 321,540 315,745 417,081
-------------- --------------- ---------------

Income before tax.............................................. 788,801 681,010 554,585
Provision for income tax (note 10)............................. 246,802 210,809 169,120
-------------- --------------- ---------------

Net income..................................................... $ 541,999 $ 470,201 $ 385,465
============== =============== ===============

Earnings per share (note 11):
Basic....................................................... $ 5.10 $ 4.35 $ 3.44
=============== =============== ===============

Diluted..................................................... $ 5.05 $ 4.30 $ 3.39
=============== =============== ===============

See accompanying notes to consolidated financial statements.

----------
fourteen
----------

MGIC INVESTMENT CORPORATION & SUBSIDIARIES
December 31, 2000 and 1999
------------------------------------------------------------------------------------
Consolidated Balance Sheet
------------------------------------------------------------------------------------

2000 1999
---------------- -----------------
ASSETS (In thousands of dollars) Investment portfolio (note 4):
Securities, available-for-sale, at market value:

Fixed maturities........................................................ $ 3,298,561 $ 2,666,562
Equity securities....................................................... 22,042 15,426
Short-term investments.................................................. 151,592 107,746
---------------- -----------------

Total investment portfolio............................................ 3,472,195 2,789,734

Cash ........................................................................ 5,598 2,322
Accrued investment income.................................................... 51,419 46,713
Reinsurance recoverable on loss reserves (note 7)............................ 33,226 35,821
Reinsurance recoverable on unearned premiums (note 7)........................ 8,680 6,630
Home office and equipment, net............................................... 31,308 32,880
Deferred insurance policy acquisition costs.................................. 25,839 22,350
Investments in joint ventures (note 8)....................................... 138,838 101,545
Other assets................................................................. 90,678 66,398
---------------- -----------------

Total assets.......................................................... $ 3,857,781 $ 3,104,393
================ =================

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Loss reserves (notes 6 and 7)............................................. $ 609,546 $ 641,978
Unearned premiums (note 7)................................................ 180,724 181,378
Notes payable (note 5).................................................... 397,364 425,000
Other liabilities......................................................... 205,265 80,048
---------------- -----------------

Total liabilities..................................................... 1,392,899 1,328,404
---------------- -----------------

Contingencies (note 13)

Shareholders' equity (note 11):
Common stock, $1 par value, shares authorized 300,000,000; shares issued
121,110,800; outstanding 2000 - 106,825,758; 1999 - 105,798,034......... 121,111 121,111
Paid-in surplus........................................................... 207,882 211,593
Treasury stock (shares at cost 2000 - 14,285,042; 1999 -
15,312,766)............................................................. (621,033) (665,707)
Accumulated other comprehensive income - unrealized appreciation
(depreciation) in investments, net of tax (note 2)...................... 75,814 (40,735)
Retained earnings (note 11)............................................... 2,681,108 2,149,727
---------------- -----------------

Total shareholders' equity.............................................. 2,464,882 1,775,989
---------------- -----------------

Total liabilities and shareholders' equity.............................. $ 3,857,781 $ 3,104,393
================ =================

See accompanying notes to consolidated financial statements.

----------
fifteen
----------

MGIC INVESTMENT CORPORATION & SUBSIDIARIES
Years Ended December 31, 2000, 1999 and 1998
------------------------------------------------------------------------------------------------
Consolidated Statement of Shareholders' Equity
------------------------------------------------------------------------------------------------

Accumulated
other
comprehensive
Common Paid-in Treasury income Retained Comprehensive
stock surplus stock (note 2) earnings income
------------ ------------ ------------ -------------- ------------ -------------
(In thousands of dollars)

Balance, December 31, 1997......... $ 121,111 $ 218,499 $ (252,942) $ 83,985 $ 1,316,129

Net income......................... - - - - 385,465 $ 385,465
Unrealized investment gains, net... - - - 10,587 - 10,587
-------------
Comprehensive income............... - - - - - $ 396,052
=============
Dividends declared................. - - - - (11,243)
Repurchase of outstanding
common shares.................... - - (246,840) - -
Reissuance of treasury stock....... - (1,477) 17,317 - -
------------ ------------ ------------ -------------- ------------

Balance, December 31, 1998......... 121,111 217,022 (482,465) 94,572 1,690,351

Net income......................... - - - - 470,201 $ 470,201
Unrealized investment losses, net.. - - - (135,307) - (135,307)
-------------
Comprehensive income............... - - - - - $ 334,894
=============
Dividends declared................. - - - - (10,825)
Repurchase of outstanding
common shares.................... - - (200,533) - -
Reissuance of treasury stock....... - (5,429) 17,291 - -
------------ ------------ ------------ -------------- ------------

Balance, December 31, 1999......... 121,111 211,593 (665,707) (40,735) 2,149,727

Net income......................... - - - - 541,999 $ 541,999
Unrealized investment gains, net... - - - 116,549 - 116,549
-------------
Comprehensive income............... - - - - - $ 658,548
=============
Dividends declared................. - - - - (10,618)
Repurchase of outstanding
common shares.................... - - (6,224) - -
Reissuance of treasury stock....... - (3,711) 50,898 - -
------------ ------------ ------------ -------------- ------------

Balance, December 31, 2000......... $ 121,111 $ 207,882 $ (621,033) $ 75,814 $ 2,681,108
============ ============ ============ ============== ============

See accompanying notes to consolidated financial statements.

----------
sixteen
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MGIC INVESTMENT CORPORATION & SUBSIDIARIES
Years Ended December 31, 2000, 1999 and 1998
------------------------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
------------------------------------------------------------------------------------------------

2000 1999 1998
---------------- --------------- ----------------
(In thousands of dollars)
Cash flows from operating activities:

Net income....................................................... $ 541,999 $ 470,201 $ 385,465
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred insurance policy
acquisition costs.......................................... 20,597 16,822 20,717
Increase in deferred insurance policy acquisition costs...... (24,086) (15,107) (17,626)
Depreciation and other amortization.......................... 6,860 11,746 7,742
Increase in accrued investment income........................ (4,706) (5,236) (5,992)
Decrease (increase) in reinsurance recoverable on 2,595 9,706 (19,112)
loss reserves..............................................
(Increase) decrease in reinsurance recoverable on unearned
premiums................................................... (2,050) 2,126 483
(Decrease) increase in loss reserves......................... (32,432) (39,296) 82,591
Decrease in unearned premiums................................ (654) (2,361) (14,566)
Equity earnings in joint ventures............................ (18,113) (12,700) (12,420)
Other........................................................ 61,027 19,114 (15,500)
---------------- --------------- ----------------

Net cash provided by operating activities........................... 551,037 455,015 411,782
---------------- --------------- ----------------

Cash flows from investing activities:
Purchase of equity securities.................................... (14,629) (14,035) (3,886)
Purchase of fixed maturities..................................... (1,807,718) (1,223,599) (916,129)
Investments in joint ventures.................................... (19,180) (13,599) (33,426)
Proceeds from sale of equity securities.......................... 14,029 4,150 116,164
Proceeds from sale or maturity of fixed maturities............... 1,349,398 949,723 529,358
---------------- --------------- ----------------

Net cash used in investing activities............................... (478,100) (297,360) (307,919)
---------------- --------------- ----------------

Cash flows from financing activities:
Dividends paid to shareholders................................... (10,618) (10,825) (11,243)
Proceeds from issuance of long-term debt......................... 309,079 43,000 262,000
Repayment of long-term debt...................................... (336,751) (60,000) (57,500)
Reissuance of treasury stock..................................... 18,699 3,912 6,953
Repurchase of common stock....................................... (6,224) (200,533) (246,840)
---------------- --------------- ----------------

Net cash used in financing activities............................... (25,815) (224,446) (46,630)
---------------- --------------- ----------------

Net increase (decrease) in cash and cash equivalents................ 47,122 (66,791) 57,233
Cash and cash equivalents at beginning of year...................... 110,068 176,859 119,626
---------------- --------------- ----------------

Cash and cash equivalents at end of year............................ $ 157,190 $ 110,068 $ 176,859
================ =============== ================

See accompanying notes to consolidated financial statements.

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seventeen
----------

MGIC Investment Corporation & Subsidiaries-- December 31, 2000, 1999 and 1998
-----------------------------------------------------------------------------

Notes to Consolidated Financial Statements
------------------------------------------

1. Nature of business

MGIC Investment Corporation ("Company") is a holding company which, through
Mortgage Guaranty Insurance Corporation ("MGIC") and several other subsidiaries,
is principally engaged in the mortgage insurance business. The Company provides
mortgage insurance to lenders throughout the United States to protect against
loss from defaults on low down payment residential mortgage loans. Through
certain other non-insurance subsidiaries, the Company also provides various
services for the mortgage finance industry, such as contract underwriting and
portfolio analysis.

At December 31, 2000, the Company's direct primary insurance in force
(representing the current principal balance of all mortgage loans that are
currently insured) and direct primary risk in force, excluding MGIC Indemnity
Corporation ("MIC"), formerly known as Wisconsin Mortgage Assurance Corporation,
was approximately $160.2 billion and $39.1 billion, respectively. In addition to
providing direct primary insurance coverage, the Company also insures pools of
mortgage loans. The Company's direct pool risk in force at December 31, 2000 was
approximately $1.7 billion. MIC's direct primary insurance in force, direct
primary risk in force and direct pool risk in force was approximately $1.2
billion, $0.3 billion and $0.3 billion, respectively, at December 31, 2000. (See
note 7.)

2. Basis of presentation and summary of significant accounting policies

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.

Principles of consolidation
The consolidated financial statements include the accounts of MGIC
Investment Corporation and its wholly-owned subsidiaries. All intercompany
transactions have been eliminated. The Company's 45.9% investment in
Credit-Based Asset Servicing and Securitization LLC ("C-BASS") and 45.5%
investment in Sherman Financial Group LLC, ("Sherman"), joint ventures with
Enhance Financial Services Group Inc. and 46.4% investment in Customers Forever
LLC, ("Customers Forever"), a joint venture with Marshall & Ilsley Corporation
are accounted for on the equity method and recorded on the balance sheet as
investments in joint ventures. The Company's equity earnings from these joint
ventures are included in other revenue. (See note 8.)

The Company also holds a 12% voting preferred stock investment in GHR
Systems, Inc. ("GHR"). GHR provides infrastructure for Internet-based lending,
including loan decisioning technology. The investment in GHR is recorded on the
Company's balance sheet as an equity security.

Investments
The Company categorizes its investment portfolio according to its ability
and intent to hold the investments to maturity. Investments which the Company
does not have the ability and intent to hold to maturity are considered to be
available-for-sale and must be recorded at market and the unrealized gains or
losses recognized as an increase or decrease to shareholders' equity. The
Company's entire investment portfolio is classified as available-for-sale.
Realized investment gains and losses are reported in income based upon specific
identification of securities sold. (See note 4.)

Home office and equipment
Home office and equipment is carried at cost net of depreciation. For
financial statement reporting purposes, depreciation is determined on a
straight-line basis for the home office, equipment and data processing hardware
over estimated lives of 45, 5 and 3 years, respectively. For income tax
purposes, the Company uses accelerated depreciation methods.

Home office and equipment is shown net of accumulated depreciation of $31.3
million and $31.5 million at December 31, 2000 and 1999, respectively.

Deferred insurance policy acquisition costs
Costs associated with the acquisition of mortgage insurance business,
consisting of employee compensation and other policy issuance and underwriting
expenses, are initially deferred and reported as deferred acquisition costs
(DAC). Because SFAS 60 specifically excludes mortgage guaranty insurance from
its guidance relating to the amortization of DAC, amortization of these costs
for each underwriting year book of business are charged against

-------------
eighteen
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revenue in proportion to estimated gross profits over the life of the policies
using the guidance of SFAS 97, Accounting and Reporting by Insurance Enterprises
For Certain Long Duration Contracts and Realized Gains and Losses From the Sale
of Investments. This includes accruing interest on the unamortized balance of
DAC. The estimates for each underwriting year are updated annually to reflect
actual experience and any changes to key assumptions such as persistency or loss
development.

During 2000, 1999 and 1998, the Company amortized $20.6 million, $16.8
million and $20.7 million, respectively, of deferred insurance policy
acquisition costs.

Loss reserves
Reserves are established for reported insurance losses and loss adjustment
expenses based on when notices of default on insured mortgage loans are
received. Reserves are also established for estimated losses incurred on notices
of default not yet reported by the lender. Consistent with industry practices,
the Company does not establish loss reserves for future claims on insured loans
which are not currently in default. Reserves are established by management using
estimated claims rates and claims amounts in estimating the ultimate loss.
Amounts for salvage recoverable are considered in the determination of the
reserve estimates. Adjustments to reserve estimates are reflected in the
financial statements in the years in which the adjustments are made. The
liability for reinsurance assumed is based on information provided by the ceding
companies.

The incurred but not reported ("IBNR") reserves result from defaults
occurring prior to the close of an accounting period, but which have not been
reported to the Company. Consistent with reserves for reported defaults, IBNR
reserves are established using estimated claims rates and claims amounts for the
estimated number of defaults not reported.

Reserves also provide for the estimated costs of settling claims, including
legal and other expenses and general expenses of administering the claims
settlement process. (See note 6.)

Income recognition
The insurance subsidiaries write policies which are guaranteed renewable
contracts at the insured's option on a single, annual or monthly premium basis.
The insurance subsidiaries have no ability to reunderwrite or reprice these
contracts. Premiums written on a single premium basis and an annual premium
basis are initially deferred as unearned premium reserve and earned over the
policy term. Premiums written on policies covering more than one year are
amortized over the policy life in accordance with the expiration of risk which
is the anticipated claim payment pattern based on historical experience.
Premiums written on annual policies are earned on a monthly pro rata basis.
Premiums written on monthly policies are earned as coverage is provided.

Fee income of the non-insurance subsidiaries is earned and recognized as
the services are provided and the customer is obligated to pay.

Income taxes
The Company and its subsidiaries file a consolidated federal income tax
return. A formal tax sharing agreement exists between the Company and its
subsidiaries. Each subsidiary determines income taxes based upon the utilization
of all tax deferral elections available. This assumes tax and loss bonds are
purchased and held to the extent they would have been purchased and held on a
separate company basis since the tax sharing agreement provides that the
redemption or non-purchase of such bonds shall not increase such member's
separate taxable income and tax liability on a separate company basis.

Federal tax law permits mortgage guaranty insurance companies to deduct
from taxable income, subject to certain limitations, the amounts added to
contingency loss reserves. Generally, the amounts so deducted must be included
in taxable income in the tenth subsequent year. The deduction is allowed 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
deduction. The Company accounts for these purchases as a payment of current
federal income taxes.

Deferred income taxes are provided under the liability method which
recognizes the future tax effects of temporary differences between amounts
reported in the financial statements and the tax bases of these items. The
expected tax effects are computed at the current federal tax rate. (See note
10.)

Benefit plans
The Company has a non-contributory defined benefit pension plan covering
substantially all employees. Retirement benefits are based on compensation and
years of service. The Company's policy is to fund pension cost as required under
the Employee Retirement Income Security Act of 1974. (See note 9.)

-------------
nineteen
-------------

The Company accrues the estimated costs of retiree medical and life
benefits over the period during which employees render the service that
qualifies them for benefits. The Company offers both medical and dental benefits
for retired employees and their spouses. Benefits are generally funded on a
pay-as-you-go basis. (See note 9.)

Reinsurance
Loss reserves and unearned premiums are reported before taking credit for
amounts ceded under reinsurance treaties. Ceded loss reserves are reflected as
"Reinsurance recoverable on loss reserves." Ceded unearned premiums are
reflected as "Reinsurance recoverable on unearned premiums." The Company remains
contingently liable for all reinsurance ceded. (See note 7.)

Earnings per share
The Company's basic and diluted earnings per share ("EPS") have been
calculated in accordance with Statement of Financial Accounting Standards No.
128, Earnings Per Share ("SFAS 128"). The Company's net income is the same for
both basic and diluted EPS. Basic EPS is based on the weighted-average number of
common shares outstanding. Diluted EPS is based on the weighted-average number
of common shares outstanding and common stock equivalents which would arise from
the exercise of stock options. The following is a reconciliation of the
weighted-average number of shares used for basic EPS and diluted EPS. (See note
11.)
Years Ended December 31,
---------------------------------
2000 1999 1998
---- ---- ----
(shares in thousands)
Weighted-average shares -
Basic EPS 106,202 108,061 112,135
Common stock equivalents 1,058 1,197 1,447
---------- --------- ----------
Weighted-average shares -
Diluted EPS 107,260 109,258 113,582
========== ========= ==========

Statement of cash flows
For purposes of the consolidated statement of cash flows, the Company
considers short-term investments to be cash equivalents, as short-term
investments have original maturities of three months or less.

Comprehensive income
The Company's other comprehensive income consists of the change in
unrealized appreciation (depreciation) on investments, net of tax. Realized
investment gains of $1.4 million and $3.4 million in 2000 and 1999,
respectively, include sales of securities which had unrealized (depreciation)
appreciation of ($18.6) million and $27.9 million at December 31, 1999 and 1998,
respectively.

Recent accounting pronouncements
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
effective January 1, 2001. The statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. The adoption of
SFAS 133 will not have a significant effect on the Company's results of
operations or its financial position due to its limited use of derivative
instruments. (See note 5.)

Reclassifications
Certain reclassifications have been made in the accompanying financial
statements to 1999 and 1998 amounts to allow for consistent financial reporting.

3. Related party transactions

The Northwestern Mutual Life Insurance Company ("NML") held approximately
8% of the common stock of the Company at December 31, 2000. The Company
contracts with Northwestern Mutual Investment Services, LLC, a subsidiary of
NML, for investment portfolio management. The Company incurred expense of $1.1
million, $1.0 million and $1.0 million for these services in 2000, 1999 and
1998, respectively.

The Company provided certain services to C-BASS during 2000, 1999 and 1998,
and Customers Forever in 2000 and 1999 in exchange for an immaterial amount of
fees. In addition, C-BASS provided certain services to the Company during 2000
and 1999 in exchange for an immaterial amount of fees.

-------------
twenty
-------------

4. Investments

The following table summarizes the Company's investments at December 31, 2000 and 1999:

Financial
Amortized Market Statement
Cost Value Value
--------------- --------------- --------------
(In thousands of dollars)
At December 31, 2000:
- --------------------
Securities, available-for-sale:

Fixed maturities.................................................... $ 3,182,063 $ 3,298,561 $ 3,298,561
Equity securities................................................... 21,903 22,042 22,042
Short-term investments.............................................. 151,592 151,592 151,592
--------------- --------------- --------------
Total investment portfolio............................................ $ 3,355,558 $ 3,472,195 $ 3,472,195
=============== =============== ==============
At December 31, 1999:
- --------------------
Securities, available-for-sale:
Fixed maturities.................................................... $ 2,732,451 $ 2,666,562 $ 2,666,562
Equity securities................................................... 12,203 15,426 15,426
Short-term investments.............................................. 107,746 107,746 107,746
--------------- --------------- --------------
Total investment portfolio............................................ $ 2,852,400 $ 2,789,734 $ 2,789,734
=============== =============== ==============

The amortized cost and market value of investments at December 31, 2000 are as follows:

Gross Gross
Amortized Unrealized Unrealized Market
December 31, 2000: Cost Gains Losses Value
- -----------------
--------------- --------------- --------------- ---------------
(In thousands of dollars)
U.S. Treasury securities and obligations of U.S. government

corporations and agencies..................................$ 220,168 $ 6,033 $ (592) $ 225,609
Obligations of states and political subdivisions.............. 2,382,766 106,776 (1,226) 2,488,316
Corporate securities.......................................... 715,115 12,152 (7,282) 719,985
Mortgage-backed securities.................................... 1,648 9 - 1,657
Debt securities issued by foreign sovereign governments....... 13,958 628 - 14,586
--------------- --------------- --------------- ---------------

Total debt securities...................................... 3,333,655 125,598 (9,100) 3,450,153

Equity securities............................................. 21,903 757 (618) 22,042
--------------- --------------- --------------- ---------------

Total investment portfolio.................................$ 3,355,558 $ 126,355 $ (9,718) $ 3,472,195
=============== =============== =============== ===============

The amortized cost and market value of investments at December 31, 1999 are as follows:

Gross Gross
Amortized Unrealized Unrealized Market
December 31, 1999: Cost Gains Losses Value
- -----------------
--------------- --------------- --------------- ---------------
(In thousands of dollars)
U.S. Treasury securities and obligations of U.S. government

corporations and agencies..................................$ 163,663 $ 305 $ (9,162) $ 154,806
Obligations of states and political subdivisions.............. 2,195,031 25,196 (71,323) 2,148,904
Corporate securities.......................................... 466,204 469 (11,406) 455,267
Mortgage-backed securities.................................... 1,366 - (8) 1,358
Debt securities issued by foreign sovereign governments....... 13,933 55 (15) 13,973
--------------- --------------- --------------- ---------------

Total debt securities...................................... 2,840,197 26,025 (91,914) 2,774,308

Equity securities............................................. 12,203 3,223 - 15,426
--------------- --------------- --------------- ---------------

Total investment portfolio.................................$ 2,852,400 $ 29,248 $ (91,914) $ 2,789,734
=============== =============== =============== ===============

------------
twenty-one
------------

----------------------------
Notes (continued)
----------------------------

The amortized cost and market values of debt securities at December 31,
2000, by contractual maturity, are shown below. Debt securities consist of fixed
maturities and short-term investments. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

Amortized Market
Cost Value
------------- ------------
(In thousands of dollars)
Due in one year or less........ $ 180,967 $ 181,015
Due after one year through
five years................... 645,228 657,114
Due after five years through
ten years.................... 893,942 920,049
Due after ten years............ 1,611,870 1,690,318
------------- ------------

3,332,007 3,448,496

Mortgage-backed securities..... 1,648 1,657
------------- ------------

Total at December 31, 2000..... $ 3,333,655 $ 3,450,153
============= ============

Net investment income is comprised of the following:

2000 1999 1998
----------- ----------- ----------
(In thousands of dollars)
Fixed maturities....... $ 167,810 $ 144,614 $ 133,307
Equity securities...... 1,279 975 1,133
Short-term investments. 10,673 8,865 9,603
Other ................. 341 46 79
----------- ----------- ----------

Investment income...... 180,103 154,500 144,122
Investment expenses.... (1,568) (1,429) (1,103)
----------- ----------- ----------

Net investment income.. $ 178,535 $ 153,071 $ 143,019
=========== =========== ==========

The net realized investment gains (losses) and change in net unrealized
appreciation (depreciation) of investments are as follows:

2000 1999 1998
--------- ---------- ----------
(In thousands of dollars)
Net realized investment gains
(losses), on sale of investments:

Fixed maturities........ $ 1,440 $ 3,409 $ 8,349
Equity securities....... - - 9,941
Short-term investments.. (8) (3) (2)
---------- ---------- ----------
1,432 3,406 18,288
---------- ---------- ----------
Change in net unrealized
appreciation (depreciation):

Fixed maturities........ 182,387 (208,338) 25,631
Equity securities....... (3,084) 179 (9,339)
Short-term investments.. - - -
---------- ---------- ----------
179,303 (208,159) 16,292
---------- ---------- ----------

Net realized investment
gains (losses) and change
in net unrealized $ 180,735 $ (204,753) $ 34,580
appreciation (depreciation) ========== ========== ==========

The gross realized gains and the gross realized losses on sales of
available-for-sale securities were $18.2 million and $16.8 million,
respectively, in 2000, $14.5 million and $11.1 million, respectively, in 1999
and $22.7 million and $4.4 million, respectively, in 1998.

The tax expense (benefit) of the changes in net unrealized appreciation
(depreciation) was $62.8 million, ($72.9) million and $5.7 million for 2000,
1999 and 1998, respectively.

5. Long-term debt

During 1999 and 1998, the Company repurchased approximately 3.6 million and
5.3 million shares, respectively, of its outstanding common stock at a cost of
$201 million and $247 million, respectively. Funds to repurchase the shares in
1998 were primarily provided by borrowings under credit facilities evidenced by
notes payable. The shares repurchased in 1999 were funded with a $150 million
special dividend from MGIC and cash flow. At December 31, 1999, the Company's
outstanding balances on the 1997, 1998 and 1999 credit facilities were $200
million, $225 million and $0, respectively, which approximated market value.

In June of 2000, the Company filed a $500 million public debt shelf
registration statement. During the fourth quarter of 2000, the Company issued in
a public offering $300 million, 7-1/2% Senior Notes due 2005. The notes are
unsecured and were rated 'A1' by Moody's and 'A+' by Standard & Poors ("S&P").
The net proceeds were used to repay a portion of the previously existing credit
facilities.

During the fourth quarter, the Company repaid and terminated the 1997
credit facility. At December 31, 2000, the Company's outstanding balances under
the 1998 and 1999 credit facilities were approximately $98 million and $0,
respectively. The remaining credit available under these facilities at December
31, 2000 was $2 million and $100 million, expiring in 2003 and 2004,
respectively. The interest rates on these credit facilities vary based on LIBOR
and the 1999 and 2000 weighted average interest rates were 6.71% and 5.57%,
respectively. Under the terms of the credit facilities, the Company must
maintain shareholders' equity of at least $1 billion and MGIC must maintain a
claims paying ability rating of 'AA-' or better with S&P. At December 31, 2000,
the Company had shareholders' equity of $2.46 billion and MGIC had a claims
paying ability rating of 'AA+' from S&P.

------------
twenty-two
------------

During 1999, the Company utilized three interest rate swaps, each with a
notional amount of $100 million, to reduce and manage interest rate risk on a
portion of the variable rate debt under the credit facilities. The notional
amount of $100 million represents the stated principal balance used for
calculating payments. The Company received and paid amounts based on rates that
were both fixed and variable. Earnings on the swaps during 1999, of
approximately $3.8 million, were netted against interest expense.

Interest payments on all long-term debt were $25.5 million and $22.0 million for
the years ended December 31, 2000 and 1999, respectively. At December 31, 2000,
the carrying value of the long-term debt approximates market value.

6. Loss reserves

Loss reserve activity was as follows:

2000 1999 1998
------------ ------------ ------------
(In thousands of dollars)

Reserve at beginning of year $ 641,978 $ 681,274 $ 598,683
Less reinsurance recoverable.. 35,821 45,527 26,415
----------- ----------- -----------
Net reserve at beginning
of year...................... 606,157 635,747 572,268
Reserve transfer (1).......... 85 833 538
----------- ----------- -----------
Adjusted reserve at beginning
of year...................... 606,242 636,580 572,806

Losses incurred:
Losses and LAE incurred
in respect of default
notices received in:
Current year............ 320,769 333,193 377,786
Prior years (2)......... (229,046) (235,997) (166,432)
----------- ----------- -----------
Subtotal.............. 91,723 97,196 211,354
----------- ----------- -----------
Losses paid:
Losses and LAE paid in
respect of default notices
received in:
Current year............ 9,044 7,601 8,752
Prior years............. 112,601 120,018 139,661
----------- ----------- -----------
Subtotal.............. 121,645 127,619 148,413
----------- ----------- -----------

Net reserve at end of year.... 576,320 606,157 635,747

Plus reinsurance recoverages.. 33,226 35,821 45,527
----------- ----------- -----------
Reserve at end of year........ $ 609,546 $ 641,978 $ 681,274
=========== =========== ===========

(1) Received in conjunction with the cancellation of certain reinsurance
treaties. (See note 7.)
(2) A negative number for a prior year indicates a redundancy of loss reserves,
and a positive number for a prior year indicates a deficiency of loss reserves.

The top portion of the table above shows losses incurred on default notices
received in the current year and in prior years, respectively. The amount of
losses incurred relating to default notices received in the current year
represents the estimated amount to be ultimately paid on such default notices.
The amount of losses incurred relating to default notices received in prior
years represents an adjustment made in the current year for defaults which were
included in the loss reserve at the end of the prior year.

Current year losses incurred decreased from 1999 to 2000 primarily due to
generally strong economic conditions, including California and a related decline
in losses paid which resulted in a decline in both primary and pool reserve
factors. Partially offsetting the reduction in factors was an increase in the
primary insurance notice inventory from 29,761 at December 31, 1999 to 37,422 at
December 31, 2000 and an increase in pool insurance notice inventory from 11,638
at
------------
twenty-three
------------

December 31, 1999 to 18,209 at December 31, 2000. The default rate at December
31, 2000 was 2.58% compared to 2.17% at December 31, 1999 and the average claim
paid for 2000 was $18,977 compared to $19,444 in 1999.

The favorable development of the reserves in 2000, 1999 and 1998 is
reflected in the prior year line, and results from the actual claim rates and
actual claim amounts being lower than those estimated by the Company when
originally establishing the reserve at December 31, 1999, 1998 and 1997,
respectively.

The lower portion of the table above shows the breakdown between claims
paid on default notices received in the current year and default notices
received in prior years. Since it takes, on average, about twelve months for a
default which is not cured to develop into a paid claim, most losses paid relate
to default notices received in prior years.

7. Reinsurance

The Company cedes a portion of its business to reinsurers and records
assets for reinsurance recoverable on estimated reserves for unpaid losses and
unearned premiums. Business written between 1985 and 1993 is ceded under various
quota share reinsurance agreements with several reinsurers. The Company receives
a ceding commission in connection with this reinsurance. Beginning in 1997, the
Company has ceded business to captive reinsurance subsidiaries of certain
mortgage lenders primarily under excess of loss reinsurance agreements.

The reinsurance recoverable on loss reserves and the reinsurance
recoverable on unearned premiums primarily represent amounts recoverable from
large international reinsurers. The Company monitors the financial strength of
its reinsurers including their claims paying ability rating and does not
currently anticipate any collection problems. Generally, reinsurance
recoverables on loss reserves and unearned premiums are backed by trust funds or
letters of credit. No reinsurer represents more than $10 million of the
aggregate amount recoverable. As a result of the purchase of MIC on December 31,
1998, reinsurance recoverable on loss reserves as shown in the Consolidated
Balance Sheet includes approximately $15 million and $19 million of reinsured
loss reserves at December 31, 2000 and December 31, 1999, respectively.

The effect of reinsurance on premiums earned and losses incurred is as
follows:

2000 1999 1998
------------ ------------ ------------
(In thousands of dollars)
Premiums earned:
Direct.............. $ 939,981 $ 819,485 $ 770,775
Assumed............. 999 1,442 9,670
Ceded .............. (50,889) (28,346) (17,161)
------------ ------------ ------------

Net premiums earned. $ 890,091 $ 792,581 $ 763,284
============ ============ ============

Losses incurred:
Direct.............. $ 93,218 $ 94,920 $ 216,340
Assumed............. 35 (1,332) (3,234)
Ceded .............. (1,530) 3,608 (1,752)
------------ ------------ ------------

Net losses incurred. $ 91,723 $ 97,196 $ 211,354
============ ============ ============

8. Investments in joint ventures

C-BASS engages in the acquisition and resolution of delinquent
single-family residential mortgage loans ("mortgage loans"). C-BASS also
purchases and sells mortgage-backed securities ("mortgage securities"),
interests in real estate mortgage investment conduit residuals and performs
mortgage loan servicing. In addition, C-BASS issues mortgage-backed debt
securities collateralized by mortgage loans and mortgage securities.
Substantially all of C-BASS's mortgage-related assets do not have readily
ascertainable market values and as a result their value for financial statement
purposes is estimated by the management of C-BASS. Market value adjustments
could impact the Company's share of C-BASS's results of operations.

Total combined assets of C-BASS at December 31, 2000 and 1999 were
approximately $1,006 million and $934 million, respectively, of which
approximately $867 million and $773 million, respectively, were mortgage-related
assets, including open trades. Total liabilities at December 31, 2000 and 1999
were approximately $765 million and $744 million, respectively, of which
approximately $694 million and $617 million, respectively, were funding
arrangements, including accrued interest. For the years ended December 31, 2000
and 1999, revenues of approximately $153 million and $112 million, respectively,
and expenses of approximately $97 million and $72 million, respectively,
resulted in income before tax of approximately $56 million and $40 million,
respectively. The Company's investment in C-BASS on an equity basis at December
31, 2000 was $108.7 million.

Sherman is engaged in the business of purchasing, servicing and
securitizing delinquent unsecured consumer assets such as credit card loans and
Chapter 13
------------
twenty-four
------------

bankruptcy debt. A substantial portion of Sherman's consolidated assets are
investments in receivable portfolios that do not have readily ascertainable
market values and as a result their value for financial statement purposes is
estimated by the management of Sherman. Market value adjustments could impact
the Company's share of Sherman's results of operations. The Company's investment
in Sherman on an equity basis at December 31, 2000 was $17.0 million. MGIC is
guaranteeing one half of a $25 million Sherman credit facility that is scheduled
to expire in December 2001.

Customers Forever is an Internet-focused transaction service company
dedicated to helping large residential mortgage servicers retain and enhance
relationships with their customers nationwide. The Company's investment in
Customers Forever on an equity basis at December 31, 2000 is $8.3 million.

The Company expects that it will provide additional funding to the joint
ventures.

9. Benefit plans

The following tables provide reconciliations of the changes in the benefit
obligation, fair value of plan assets and funded status of the pension and other
postretirement benefit plans:

Other Postretirement
Pension Benefits Benefits
-------------------------- --------------------------
2000 1999 2000 1999
------------ ----------- ------------ ------------
(In thousands of dollars)
Reconciliation of benefit obligation:
- ------------------------------------

Benefit obligation at beginning of year............................... $ 69,971 $ 66,280 $ 24,512 $ 23,010
Service cost....................................................... 4,734 5,869 1,943 2,041
Interest cost...................................................... 4,885 4,677 1,831 1,644
Actuarial (gain) loss.............................................. (4,341) (5,917) (18) (2,044)
Benefits paid...................................................... (1,067) (938) (344) (139)
------------ ----------- ------------ ------------

Benefit obligation at end of year..................................... $ 74,182 $ 69,971 $ 27,924 $ 24,512
============ =========== ============ ============
Reconciliation of fair value of plan assets:
Fair value of plan assets at beginning of year........................ $ 86,848 $ 73,822 $ 13,330 $ 11,045
Actual return on plan assets....................................... (1,627) 6,390 (524) 422
Employer contributions............................................. 2,131 7,574 750 1,863
Benefits paid...................................................... (1,067) (938) - -
------------ ----------- ------------ ------------

Fair value of plan assets at end of year.............................. $ 86,285 $ 86,848 $ 13,556 $ 13,330
============ =========== ============ ============
Reconciliation of funded status:
- -------------------------------
Benefit obligation at end of year..................................... $ (74,182) $ (69,971) $ (27,924) $ (24,512)
Fair value of plan assets at end of year.............................. 86,285 86,848 13,556 13,330
------------ ----------- ------------ ------------
Funded status at end of year.......................................... 12,103 16,877 (14,368) (11,182)
Unrecognized net actuarial gain.................................... (7,977) (12,011) (3,426) (4,959)
Unrecognized net transition obligation............................. - 31 6,359 6,889
Unrecognized prior service cost.................................... 2,176 2,359 - -
------------ ----------- ------------ ------------

Prepaid (accrued) benefit cost........................................ $ 6,302 $ 7,256 $ (11,435) $ (9,252)
============ =========== ============ ============

------------
twenty-five
------------

--------------------------
Notes (continued)
--------------------------

The following table provides the components of net periodic benefit cost
for the pension and other postretirement benefit plans:

Other Postretirement
Pension Benefits Benefits
----------------------------------------- -----------------------------------------
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)

Service cost.............................. $ 4,734 $ 5,869 $ 4,064 $ 1,943 $ 2,041 $ 1,612
Interest cost............................. 4,885 4,677 3,959 1,831 1,644 1,357
Expected return on plan assets............ (6,496) (5,543) (4,674) (1,009) (844) (696)
Recognized net actuarial gain............. (520) - - (146) (17) (170)
Amortization of transition obligation..... 32 32 32 530 530 530
Amortization of prior service cost........ 183 183 183 - - -
------------ ------------ ------------ ------------ ------------ ------------

Net periodic benefit cost................. $ 2,818 $ 5,218 $ 3,564 $ 3,149 $ 3,354 $ 2,633
============ ============ ============ ============ ============ ============

The assumptions used in the measurement of the Company's pension and other
postretirement benefit obligations are shown in the following table:

Discount rate............................ 7.5% 7.5% 7.0% 7.5% 7.5% 7.0%
Expected return on plan assets........... 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Rate of compensation increase............ 6.0% 6.0% 6.0% N/A N/A N/A

Plan assets consist of fixed maturities and equity securities. The Company
is amortizing the unrecognized transition obligation for other postretirement
benefits over 20 years.

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation is:

Medical Pre 65... 8.0% for 2000 graded down by 0.5% to 6.0% in 2004 and
remaining level thereafter.
Medical Post 65.. 7.5% for 2000 graded down by 0.5% to 6.0% in 2003 and
remaining at 6.0% thereafter.
Dental........... 6.0% per year.

A 1% change in the health care trend rate assumption would have the
following effects on other postretirement benefits:

1-Percentage 1-Percentage
Point Point
Increase Decrease
-------------- --------------
(In thousands of dollars)
Effect on total service and
interest cost components.... $ 801 $ (678)
Effect on postretirement
benefit obligation.......... 5,400 (4,562)

The Company has a profit sharing and 401(k) savings plan for employees. At
the discretion of the Board of Directors, the Company may make a profit sharing
contribution of up to 5% of each participant's compensation. The Company
provides a matching 401(k) savings contribution on employees' before-tax
contributions at a rate of 80% of the first $1,000 contributed and 40% of the
next $2,000 contributed. Profit sharing costs and the Company's matching
contributions to the 401(k) savings plan were $4.7 million, $5.3 million and
$5.0 million in 2000, 1999 and 1998, respectively.

10. Income taxes

The components of the net deferred tax liability (asset) as of December 31,
2000 and 1999 are recorded on the Consolidated Balance Sheet as part of other
liabilities or other assets and are as follows:

2000 1999
----------- -----------
(In thousands of dollars)
Unearned premium reserves............ $ (12,054) $ (17,726)
Deferred policy acquisition costs.... 9,044 7,822
Loss reserves........................ (6,368) (8,119)
Unrealized appreciation/depreciation
in investments..................... 40,822 (21,933)
Contingency reserve.................. 51,330 29,029
Other ............................... (993) (4,521)
----------- -----------

Net deferred tax (asset) liability... $ 81,781 $ (15,448)
=========== ===========

------------
twenty-six
------------

At December 31, 2000, gross deferred tax assets and liabilities amounted to
$75.3 million and $157.1 million, respectively. Management believes that all
gross deferred tax assets at December 31, 2000 are fully realizable and no
valuation reserve has been established.

The following summarizes the components of the provision for income tax:

2000 1999 1998
----------- ---------- ----------
(In thousands of dollars)
Federal:
Current................. $ 208,949 $ 179,423 $ 171,244
Deferred................ 34,476 28,874 (4,198)
State..................... 3,377 2,512 2,074
----------- ---------- ----------

Provision for income tax.. $ 246,802 $ 210,809 $ 169,120
=========== ========== ==========

The Company paid $199.9 million, $173.1 million and $160.6 million in
federal income tax in 2000, 1999 and 1998, respectively. At December 31, 2000
and 1999, the Company owned $838.0 million and $704.1 million, respectively, of
tax and loss bonds.

The reconciliation of the tax provision computed at the federal tax rate of
35% to the reported provision for income tax is as follows:

2000 1999 1998
----------- ---------- ----------
(In thousands of dollars)
Tax provision computed at
federal tax rate.......... $ 276,080 $ 238,354 $ 194,105
(Decrease) increase in tax
provision resulting from:
Tax exempt municipal
bond interest......... (32,350) (31,851) (28,973)
Other, net.............. 3,072 4,306 3,988
----------- ---------- ----------
Provision for income tax.... $ 246,802 $ 210,809 $ 169,120
=========== ========== ==========

11. Shareholders' equity and dividend restrictions

The Company's insurance subsidiaries are subject to statutory regulations
as to maintenance of policyholders' surplus and payment of dividends. The
maximum amount of dividends that the insurance subsidiaries may pay in any
twelve-month period without regulatory approval by the Office of the
Commissioner of Insurance of the State of Wisconsin ("OCI") is the lesser of
adjusted statutory net income or 10% of statutory policyholders' surplus as of
the preceding calendar year end. Adjusted statutory net income is defined for
this purpose to be the greater of statutory net income, net of realized
investment gains, for the calendar year preceding the date of the dividend or
statutory net income, net of realized investment gains, for the three calendar
years preceding the date of the dividend less dividends paid within the first
two of the preceding three calendar years. In 2001, MGIC can pay $92.0 million
of dividends and the other insurance subsidiaries of the Company can pay $7.1
million of dividends without such regulatory approval.

Certain of the Company's non-insurance subsidiaries also have requirements
as to maintenance of net worth. These restrictions could also affect the
Company's ability to pay dividends.

In 2000, 1999 and 1998, the Company paid dividends of $10.6 million, $10.8
million and $11.2 million, respectively or $0.10 per share in 2000, 1999 and
1998.

The principles used in determining statutory financial amounts differ from
generally accepted accounting principles ("GAAP"), primarily for the following
reasons:

Under statutory accounting practices, mortgage guaranty insurance companies
are required to maintain contingency loss reserves equal to 50% of premiums
earned. Such amounts cannot be withdrawn for a period of ten years except
as permitted by insurance regulations. Contingency loss reserves are not
reflected as liabilities under GAAP.

Under statutory accounting practices, insurance policy acquisition costs
are charged against operations in the year incurred. Under GAAP, these
costs are deferred and amortized as the related premiums are earned
commensurate with the expiration of risk.

Statutory financial statements only include a provision for current income
taxes due, and purchases of tax and loss bonds are accounted for as
investments. GAAP financial statements provide for deferred income taxes,
and purchases of tax and loss bonds are recorded as payments of current
income taxes.

Under statutory accounting practices, fixed maturity investments are valued
at amortized cost. Under GAAP, those investments which the Company does not
have the ability and intent to hold to maturity are considered to be
available for sale and are recorded at market, with the unrealized gain or
loss recognized, net of tax, as an increase or decrease to shareholders'
equity.
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------------

The statutory net income, equity and the contingency reserve liability of
the insurance subsidiaries (excluding the non-insurance companies) are as
follows:

Year Ended Net Contingency
December 31, Income Equity Reserve
- -------------- ----------- ------------ ------------
(In thousands of dollars)
2000 $ 348,137 $ 991,343 $ 2,616,653
1999 296,287 637,234 2,253,418
1998 187,535 585,280 1,939,626

The differences between the statutory net income and equity presented above
for the insurance subsidiaries and the consolidated net income and equity
presented on a GAAP basis primarily represent the differences between GAAP and
statutory accounting practices, and the effect of the treasury shares on
consolidated equity.

In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance, which replaces the current Accounting Practices and
Procedures manual as the NAIC's primary guidance on statutory accounting as of
January 1, 2001. The Codification provides guidance for areas where statutory
accounting has been silent and also changes current statutory accounting in
other areas. The OCI has adopted the Codification guidance, effective January 1,
2001. The effect of the adoption is not expected to have a material impact on
the Company's insurance subsidiaries' statutory surplus. The most significant
change affecting surplus is the requirement to record deferred income taxes.

The Company has two stock option plans which permit certain officers and
employees to purchase common stock at specified prices. A summary of activity in
the stock option plans during 1998, 1999 and 2000 is as follows:

Average Shares
Exercise Subject to
Price Option
----------- -------------
Outstanding, December 31, 1997... $ 22.09 3,634,874

Granted....................... 62.28 109,500
Exercised..................... 10.99 (478,848)
Canceled...................... 33.99 (70,002)
----------- -----------
Outstanding, December 31, 1998... 24.87 3,195,524
----------- -----------
Granted....................... 42.29 791,750
Exercised..................... 8.74 (413,930)
Canceled...................... 45.94 (17,200)
----------- -----------
Outstanding, December 31, 1999... 30.52 3,556,144
----------- -----------
Granted....................... 45.40 954,000
Exercised..................... 16.91 (1,080,208)
Canceled...................... 37.96 (44,940)
----------- -----------
Outstanding, December 31, 2000... $ 38.96 3,384,996
=========== ===========

The exercise price of the options granted in 1998, 1999 and 2000 was equal
to the market value of the stock on the date of grant. The options are
exercisable between one and ten years after the date of grant. At December 31,
2000, 1,846,627 shares were available for future grant under the stock option
plans.

The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS 123"). Had compensation cost for the Company's stock option plans been
determined based on the fair value method described by SFAS 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share data):

Year Ended December 31,
--------------------------------------
2000 1999 1998
----------- ---------- -----------
Net income $ 530,625 $ 464,793 $ 381,689

Earnings per share:
Basic $ 5.00 $ 4.30 $ 3.40
Diluted $ 4.95 $ 4.25 $ 3.36

The fair value of these options was estimated at grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions for each year:

Grants Issued in Year Ended
December 31,
-------------------------------------
2000 1999 1998
----------- ----------- -----------
Risk free interest rate.... 6.75% 5.18% 5.33%
Expected life.............. 6.8 years 5.4 years 5.9 years
Expected volatility........ 33.62% 33.55% 26.69%
Expected dividend yield.... 0.15% 0.16% 0.25%
Fair value of each option.. $21.96 $16.70 $22.64

The following is a summary of stock options outstanding at December 31,
2000:

Options Outstanding Options Exercisable
----------------------------- -------------------
Remaining Average Average
Exercise Average Exercise Exercise
Price Range Shares Life (yrs.) Price Shares Price
- --------------- --------- ---------- -------- --------- ---------
$9.63-$20.88 380,830 3.0 $15.65 380,830 $ 15.65

$26.69-$46.06 2,886,166 7.6 40.97 791,418 37.41

$60.25-$68.63 118,000 7.0 65.15 56,790 64.75
--------- --------- -------- --------- ---------
Total 3,384,996 7.1 $38.96 1,229,038 $ 31.93
========= ========= ======== ========= =========

At December 31, 1999 and 1998, option shares of 1,721,204 and 1,751,725 were
exercisable at an average exercise price of $20.03 and $14.01, respectively. The
Company also granted an immaterial amount of equity instruments other than
options during 1999 and 2000.

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The Company adopted a Shareholder Rights Plan on July 22, 1999. Under terms
of the plan, on August 9, 1999, Common Share Purchase Rights were distributed as
a dividend at the rate of one Common Share Purchase Right for each outstanding
share of the Company's Common Stock. The "Distribution Date" occurs ten days
after an announcement that a person has acquired 15 percent or more of the
Company's Common Stock (the date on which such an acquisition occurs is the
"Shares Acquisition Date" and a person who makes such an acquisition is an
"Acquiring Person"), or ten business days after a person announces or begins a
tender offer in which consummation of such offer would result in ownership by a
person of 15 percent or more of the Common Stock. The Rights are not exercisable
until the Distribution Date. Each Right will initially entitle shareholders to
buy one-half of one share of the Company's Common Stock at a Purchase Price of
$225 per full share (equivalent to $112.50 for each one-half share), subject to
adjustment. If there is an Acquiring Person, then each Right (subject to certain
limitations) will entitle its holder to purchase, at the Rights' then-current
Purchase Price, a number of shares of Common Stock of the Company (or if after
the Shares Acquisition Date, the Company is acquired in a business combination,
common shares of the acquiror) having a market value at the time equal to twice
the Purchase Price. The Rights will expire on July 22, 2009, subject to
extension. The Rights are redeemable at a price of $.001 per Right at any time
prior to the time a person becomes an Acquiring Person. Other than certain
amendments, the Board of Directors may amend the Rights in any respect without
the consent of the holders of the Rights.

12. Leases

The Company leases certain office space as well as data processing
equipment and autos under operating leases that expire during the next seven
years. Generally, all rental payments are fixed.

Total rental expense under operating leases was $5.3 million, $5.5 million
and $5.4 million in 2000, 1999 and 1998, respectively.

At December 31, 2000, minimum future operating lease payments are as
follows (in thousands of dollars):

2001 $ 4,886
2002 3,408
2003 1,568
2004 820
2005 586
2006 and thereafter............ 143
----------
Total.................... $ 11,411
==========

13. Contingencies and litigation settlement

The Company is involved in litigation in the ordinary course of business.
In the opinion of management, the ultimate resolution of this pending litigation
will not have a material adverse effect on the financial position or results of
operations of the Company.

In addition, MGIC has entered into an agreement to settle Downey et. al. v.
MGIC, which is pending in Federal District Court for the Southern District of
Georgia. The Court has preliminarily approved the settlement agreement,
certified a nationwide class of borrowers and scheduled a hearing for June 15,
2001 to consider whether it should enter a final order approving the settlement.
The Company has recorded a $23.2 million charge to cover the estimated costs of
the settlement, including payments to borrowers. The settlement includes an
injunction that prohibits certain practices and specifies the basis on which
agency pool insurance, captive mortgage reinsurance, contract underwriting and
other products may be provided in compliance with the Real Estate Settlement
Procedures Act.

The complaint in the case alleges that MGIC violated the Real Estate
Settlement Procedures Act by providing agency pool insurance, captive mortgage
reinsurance, contract underwriting and other products that were not properly
priced, in return for the referral of mortgage insurance. The complaint seeks
damages of three times the amount of the mortgage insurance premiums that have
been paid and that will be paid at the time of judgment for the mortgage
insurance found to be involved in a violation of the Real Estate Settlement
Procedures Act. The complaint also seeks injunctive relief, including
prohibiting MGIC from receiving future premium payments. If the Court does not
enter a final order approving the settlement, the litigation will continue. In
these circumstances, there can be no assurance that the ultimate outcome of the
litigation will not materially affect the Company's financial position or
results of operations.

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- -------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------

To the Board of Directors & Shareholders of MGIC Investment Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of MGIC
Investment Corporation and Subsidiaries (the "Company") at December 31, 2000 and
1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
January 9, 2001

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

-----------------------------------------------------------------------------------------
Unaudited quarterly financial data
-----------------------------------------------------------------------------------------

Quarter
--------------------------------------------------------------- 2000
2000 First Second Third Fourth Year
- ---------------------------------------------- ------------- ------------- ------------- ------------- -------------
(In thousands of dollars, except per share data)

Net premiums written........................... $ 199,320 $ 220,814 $ 236,208 $ 231,046 $ 887,388
Net premiums earned............................ 210,104 218,434 229,208 232,345 890,091
Investment income, net of expenses............. 40,609 42,731 46,125 49,070 178,535
Losses incurred, net........................... 22,615 22,540 21,442 25,126 91,723
Underwriting and other expenses, net........... 47,008 46,198 40,055 44,576 177,837
Litigation settlement.......................... - - - 23,221 23,221
Net income..................................... 127,220 136,103 146,355 132,321 541,999
Earnings per share (a):
Basic....................................... 1.20 1.28 1.38 1.24 5.10
Diluted..................................... 1.19 1.27 1.36 1.23 5.05

Quarter
--------------------------------------------------------------- 1999
1999 First Second Third Fourth Year
- ---------------------------------------------- ------------- ------------- ------------- ------------- -------------
(In thousands of dollars, except per share data)

Net premiums written........................... $ 184,011 $ 196,374 $ 207,582 $ 204,378 $ 792,345
Net premiums earned............................ 193,981 194,766 200,042 203,792 792,581
Investment income, net of expenses............. 36,915 38,627 39,303 38,226 153,071
Losses incurred, net........................... 44,232 30,941 19,533 2,490 97,196
Underwriting and other expenses, net........... 52,872 51,384 47,476 46,415 198,147
Net income..................................... 100,418 112,934 122,909 133,940 470,201
Earnings per share (a):
Basic....................................... .92 1.04 1.13 1.27 4.35
Diluted..................................... .91 1.02 1.11 1.25 4.30

(a) Due to the use of weighted average shares outstanding when calculating earnings per share, the sum of the quarterly per share
data may not equal the per share data for the year.

------------
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-----------------------------------------------------------------------
Shareholder Information
-----------------------------------------------------------------------
MGIC Stock
- ----------
MGIC Investment Corporation Common Stock is listed on the New York Stock
Exchange under the symbol MTG. At December 31, 2000, 106,825,758 shares were
outstanding. The following table sets forth for 1999 and 2000 by quarter the
high and low sales prices of the Common Stock on the New York Stock Exchange
Composite Tape.

1999 2000
------------------------- ------------------------
Quarters High Low High Low

1st $ 45.625 $ 30.125 $ 59.2500 $ 31.9375
2nd 51.625 34.750 54.8750 42.0000
3rd 56.750 40.250 64.3125 44.7500
4th 62.750 46.500 71.5000 58.5000

In 1999 and 2000 the Company declared and paid the following cash dividends:

1999 2000
----------------- ------------------
Quarters
1st $ .025 $ .025
2nd .025 .025
3rd .025 .025
4th .025 .025
------------- ------------
$ .100 $ .100
============= ============

The Company is a holding company and the payment of dividends from its insurance
subsidiaries is restricted by insurance regulation. For a discussion of these
restrictions, see Note 11 of the Notes to the Consolidated Financial Statements.

As of March 12, 2001, the number of shareholders of record was 238. In addition,
there were approximately 33,500 beneficial owners of shares held by brokers and
fiduciaries

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