investing in the assets or stock of broadcast companies after deregulation of that industry and believed the increased interest in communications companies and the competition to acquire such interests reflected industry recognition of the positive effects of deregulation on broadcasting operations. A modification to its Service Corporation Agreement, filed February 19, 1985 and executed by the California Department on April 5, 1985, added the authority to invest the proceeds from communications activities, including the authority to originate or otherwise participate in loans. Lincoln was authorized to increase its investment to $150 million on December 7, 1984.

G. Lincoln applied for authority to form Crescent Lending Corporation ("CLC") on April 8, 1985, and its organization and capitalization were approved by the California Department on September 19, 1985, with the authority to originate or otherwise participate in real estate loans for acquisition, development and/or construction purposes; however, no such loans were to be originated through brokers or professional loan packagers. Lincoln was authorized to invest up to $150 million in this entity.

H. Organization and capitalization of LINEIN Corporation ("LINFIN") as a finance subsidiary were applied for on August 8, 1985, and approved by the California Department on September 19, 1985. Its primary authorized activities were to hold assets transferred or made available to LINFIN by Lincoln, to incur debts and borrow monies to issue debt or equity securities, to pledge assets of LINFIN as collateral for LINFIN's debt or equity securities and debts and borrowings, to hedge LINFIN's interest rate risk with transactions in the financial futures market, and to remit to Lincoln the proceeds of debt or equity securities issued by LINFIN or borrowings by LINFIN from parties other than Lincoln. Lincoln was authorized to invest up to $300 million in LINFIN and authorized to guarantee LINFIN's obligations.

I. Castle Meadows, Inc. ("Castle Meadows") was organized to facilitate the development and sale of Lincoln's Castle Meadows master-planned residential community and proposed syndication in Colorado. Lincoln's application, filed on November 26, 1986, was approved by the California Department on March 18, 1987. Castle Meadows' primary authorized functions were to buy, sell or otherwise participate in real estate or real estate projects; to originate, buy, sell, or otherwise participate in loans; to act as partner or joint venturer in these projects; and to buy, sell or otherwise deal in corporate securities in connection with the above. Lincoln was authorized to invest up to $101,577,000 in Castle Meadows.

J. Lincoln applied to form CRESFIN Corporation ("CRESFIN" and the application, as amended, was approved by the California Department on February 19, 1987 for investment up to $60.6 million. Its primary authorized functions were identical to those of Castle Meadows. On March 18, 1987, Lincoln was authorized to transfer the Crescent Hotel to CRESFIN and increase its investment interest in CRESFIN to $101,577,000.

K. Lincoln requested authority to form The Crescent Hotel Group ("CHG") pursuant to an application filed on July 3, 1984 and approved by the California Department on July 31, 1984, to acquire, develop and/or manage commercial real estate projects, including hotels, and to buy, sell or otherwise participate in real estate loans. Lincoln intended for CHG to design and develop property, alone, in joint ventures, by syndication or through other marketing means and to provide full post-opening management services for those properties. Lincoln was authorized to invest. up to $100 million in CHG. Lincoln modified its application on March 11, 1985, and a Modified Service Corporation Agreement was executed by the California Department on March 20, 1985, to include authority to purchase or sell corporate securities, including the stock of The Crescent Hotel Group of Michigan (*CHGM"), a subsidiary whose formation was approved March 20, 1985. In addition, on April 15, 1987, the California Department approved the establishment of the Crescent Hotel Operating Company, as a subsidiary of CHG, to provide management services for three hotel properties owned by three separate subsidiaries of Lincoln.

L. The application to form Phoenician Commercial Properties, Inc. ("PCP"), formerly Lincoln Commercial Properties, was filed on November 27, 1984 and approved by the California Department on December 7, 1984, for authority to invest up to $100 million. The change of name to PCP was approved on July 7, 1985. Its primary authorized functions were to buy, sell or otherwise participate in real estate and real estate projects, real estate loans and corporate securities, to provide real estate management services, and to act as partner or joint venturer in connection with the above activities. A Modified Service Corporation Agreement was requested on December 18, 1986 and approved by the California Department on January 12, 1987, to add authority to acquire the stock of Phoenician Construction and Engineering Company, later changed to Phoenician Construction Corporation.

X. Lincoln's formation and capitalization of Provident Mortgage Corporation ("Provident") was originally authorized on June 29, 1972, with investment authority up to 21 of Lincoln's assets. Pursuant to the California Department's request, Lincoln reapplied on October 10, 1984 for such authority. Ă modification

to this Service Corporation Agreement was approved on April 15, 1985. As modified, this entity's primary authorized functions were to originate and service mortgage loans and deeds of trust; to act as a mortgage loan broker or mortgage banker in connection with real estate transactions; to acquire, develop or otherwise participate in real estate owned by savings and loan associations and others; and to originate, buy, sell or otherwise participate in real estate and home improvement loans. Authorized miscellaneous activities included travel agency services, mutual ticket agency services and bill paying services to savings and loan associations or their customers.

N. The Coast Construction Service Corporation of California was originally organized on March 11, 1969 and its name changed to SSFLC. An amendment to its Service Corporation Agreement was authorized by the California Department in September 20, 1983, authorizing SSFLC to carry on and conduct a securities brokerage business, and to conduct a general engineering and contracting business in connection with properties held for investment, acquired through foreclosure or otherwise constituting an asset of a domestic savings and loan corporation.

Lincoln's Operating Plan also described Lincoln's plans to expand its mortgage-banking operations, including the development of a program to enhance profit and expand its mortgage servicing portfolio to increase current earnings. The Operating Plan expressly described Lincoln's intent to pool loans in mortgage-backed securities or pledge these loans as collateral for mortgage-backed bonds, and later to use mortgage-backed securities as collateral for mortgage-backed bonds or for sale in the secondary market. Management believed that this practice would provide a more marketable and less expensive financed loan product and thereby would increase the quality of Lincoln's loan assets. In addition, mortgage-backed bonds would allow Lincoln to match mortgage instrument maturities with bond maturities.

Although Lincoln retained a commitment to maintain a traditional residential mortgage program, direct investment in residential real estate (including master-planned communities), equity securities and service corporations was viewed by Lincoln's new management as essential to Lincoln's long-term survival, particularly in light of Lincoln's unsuccessful past history and the recent failure or financial distress of hundreds of savings and loan associations throughout the United States. Most of these institutions had only a small percentage of their assets in direct investments and had relied on residential mortgage lending, almost exclusively, for their income, with the bulk of their assets in low interest rate loans with long maturities. ACC's previous financial success had been directly linked to its management's

years of experience in real property, land development and securities, and Lincoln, therefore, was uniquely qualified to rely more heavily than other institutions on direct investments as a means to restructure its portfolio prudently with less incremental risks. The Operating Plan specifically described Lincoln's intention to acquire and develop residential real property either directly or indirectly through its service corporations described above.

The Operating Plan also set forth Lincoln's plans to invest in commercial land development, including in hotel projects through its subsidiary CHG. ACC had successful earlier experience in the acquisition and development of commercial property through its wholly owned subsidiary, American Continental Properties, Inc., and had particular experience in the Arizona and Colorado real estate markets. The Operating Plan specifically stated Lincoln's intention that such commercial development would include buildings and complexes, shopping and mixed-use centers and industrial developments, which are the bases for its master-planned communities.

Lincoln also planned to invest in the communications industry, for example, through its authorized investment in LinComm. This investment further would diversify Lincoln's portfolio by incorporating non-interest rate sensitive assets, an important objective of ACČ in its restructuring plans. Management considered broadcast companies generally to have unique value based upon their strong cash flow experience and, generally, the need for only modest investment after purchase, and equity accounting rules would permit Lincoln to share in the earnings of its investment target. Other investments in service corporations outlined in the Operating Plan included investment in LAPICO, which Lincoln intended to use for investment in securities, and the ownership by Lincoln of two insurance agencies, Oxford and IWI, in which entities Lincoln intended to have a combined investment of approximately $2 million.

Lincoln's planned deposit, savings and borrowing goals provided for controlled growth in order to maintain financial stability. Lincoln initially intended to increase liabilities primarily through retail deposits acquired from branch office communities. Although Lincoln planned to rely primarily on retail deposits, it planned to continue to raise deposits through major investment bankers with maturities ranging from three to twelve years. Management intended that this program could be accelerated or terminated depending on interest rate fluctuations. Lincoln also structured various collateralized deposit programs, including the placement of $500 million in collateralized floating rate commercial paper through a subsidiary of Merrill Lynch.

Investments by Lincoln of $1,532,000 in PTS and $20 million in Provident, both authorized investments, were also set forth in the Operating Plan as potential long-term investments. To maintain maximum liquidity protection against fluctuations in deposits, lending activities and other investments, Lincoln planned to use credit facilities, giving it the ability to match assets and liabilities at minimum borrowing costs.

The Operating Plan reflected management's increased emphasis on closely monitoring asset and liability quality and interest rate sensitivity. Lincoln intensified its efforts to diversify its asset portfolio through lending and direct investments in land and equity securities and intended to seek acceptable real property, personal guaranties or other security with respect to loan assets. Lincoln planned to monitor its exposure to interest rate changes continually to enable it to plan or make appropriate adjustments in its portfolio.

Lincoln's preacquisition portfolio consisted largely of non-diversified California home loans, many of which were secured by risky second trust deeds, and a significant number of discounted adjustable rate mortgages which ultimately suffered delinquency problems and created extreme mismatching of liabilities and assets. After its acquisition by AČC, Lincoln created secured loan assets, diversified on a geographic and industry basis and closely matched with liabilities, without sacrificing an excellent delinquency rate 237 of 20% in 1984, .62% in 1985 and .43% in 1986. These rates compare favorably with the rates experienced by Lincoln prior to ACC's acquisition, .67% in 1981, .89% in 1982, and .67% in 1983. The post-acquisition portfolio was much less sensitive to interest rate fluctuations than the preacquisition portfolio. The Operating Plan included Lincoln's specific plans to develop a high-yield bond portfolio with a variable rate component that would provide increased returns as rates rise, and branch deposits with maturities from one to ten years with emphasis at the same time on liabilities with maturities of five to seven years. Lincoln's post-acquisition portfolio would be insulated from interest risk due to Lincoln's efforts to effect favorable matching. Interest rate swape were also considered as a means to transform some short-tem deposits into fixed-rate deposits and to help minimize interest rate increases. Lincoln's direct investment authority was seen as critical to Lincoln's ability to offset the effects of any upward interest rate surge.

237

Ratio of scheduled items, under applicable regulations, to total assets.