SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Under Rule 14a-12 AMBAC FINANCIAL GROUP, INC. ................................................................................ (Name of Registrant as Specified In Its Charter) ................................................................................ (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: - -------------------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: - -------------------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): - -------------------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: - -------------------------------------------------------------------------------- 5) Total fee paid: - -------------------------------------------------------------------------------- [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: - -------------------------------------------------------------------------------- 2) Form, Schedule or Registration Statement No.: - -------------------------------------------------------------------------------- 3) Filing party: - -------------------------------------------------------------------------------- 4) Date Filed: - -------------------------------------------------------------------------------- Notes: Reg. (S) 240.14a-101 SEC 1913 (3-99)

AMBAC FINANCIAL GROUP, INC. [LOGO] Ambac NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT Meeting Date: Tuesday, May 1, 2001 at 11:30 A.M. (local time) Meeting Place: Ambac Financial Group, Inc. One State Street Plaza New York, New York 10004

AMBAC FINANCIAL GROUP, INC. One State Street Plaza New York, NY 10004 212.668.0340 PHILLIP B. LASSITER Chairman and Chief Executive Officer March 28, 2001 [LOGO] Ambac Dear Stockholders: It is my pleasure to invite you to Ambac's 2001 Annual Meeting of Stockholders. We will hold the meeting on Tuesday, May 1, 2001, at 11:30 a.m. at our executive offices in New York City. In addition to the formal items of business, I will review the major developments of 2000 and answer your questions. This booklet includes the Notice of Annual Meeting and the Proxy Statement. The Proxy Statement describes the business that we will conduct at the meeting. Your vote is important. Whether you plan to attend the meeting or not, please complete, sign and return the enclosed proxy card in the envelope provided. If you attend the meeting you may vote in person, even if you previously submitted your proxy. We look forward to seeing you at the meeting. Sincerely, /s/ Phillip B. Lassiter

AMBAC FINANCIAL GROUP, INC. One State Street Plaza New York, NY 10004 212.668.0340 NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS March 28, 2001 [LOGO] Ambac Dear Stockholders: We will hold the 2001 Annual Meeting of Stockholders on Tuesday, May 1, 2001 at 11:30 a.m. (local time) at our executive offices at One State Street Plaza in New York City. At our Annual Meeting, we will ask you to: . Elect seven directors; . Ratify the selection of KPMG LLP as independent auditors for 2001; and . Consider any other business that is properly presented at the Annual Meeting. You may vote at the Annual Meeting if you were an Ambac stockholder at the close of business on March 14, 2001. Along with the attached Proxy Statement, we are also sending you the Ambac 2000 Annual Report, which includes our financial statements. /s/ Anne G.Gill Anne G. Gill First Vice President, Corporate Secretary and Assistant General Counsel

TABLE OF CONTENTS INFORMATION ABOUT THE ANNUAL MEETING AND VOTING......................................... 1 Why Did You Send Me this Proxy Statement?............................................ 1 How Many Votes Do I Have?............................................................ 1 How Do I Vote by Proxy?.............................................................. 1 May I Vote by Telephone or Via the Internet?......................................... 2 May I Revoke My Proxy?............................................................... 2 How Do I Vote in Person?............................................................. 2 How Do Employees in the Ambac Stock Fund Vote?....................................... 3 What Votes Do We Need to be Present to Hold the Annual Meeting?...................... 3 What Vote Is Required to Approve Each Proposal?...................................... 3 What Is the Effect of Broker Non-Votes?.............................................. 3 Is Voting Confidential?.............................................................. 4 What Are the Costs of Soliciting these Proxies?...................................... 4 How Do I Obtain an Annual Report on Form 10-K?....................................... 4 Where Can I Find the Voting Results?................................................. 4 Whom Should I Call If I Have Any Questions?.......................................... 4 INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP.......................................... 5 Which Stockholders own at least 5% of Ambac?......................................... 5 How Much Stock is Owned By Directors and Executive Officers?......................... 6 Did Ambac Insiders Comply with Section 16(a) Beneficial Ownership Reporting in 2000?. 7 INFORMATION ABOUT DIRECTORS............................................................. 8 The Board of Directors............................................................... 8 The Committees of the Board.......................................................... 8 How We Compensate Directors.......................................................... 9 THE AUDIT COMMITTEE REPORT.............................................................. 11 INFORMATION ABOUT THE EXECUTIVE OFFICERS................................................ 12 The Executive Officers............................................................... 12 How We Compensate Executive Officers................................................. 14 The Pension Plan..................................................................... 16 Employment Agreement with the Chief Executive Officer................................ 18 Management Retention Agreements with Executive Officers.............................. 20 Definitions.......................................................................... 20 REPORT ON EXECUTIVE COMPENSATION FOR 2000 BY THE COMPENSATION AND ORGANIZATION COMMITTEE................................................................ 22 What is Our Executive Compensation Philosophy?....................................... 22 What is Our Position on Maximizing the Deductibility of Executive Compensation?...... 22 What are the Elements of Executive Compensation?..................................... 23 How Did We Determine Base Salaries for 2000?......................................... 23 How Did We Determine Bonuses for 2000?............................................... 24 What Were the Long-Term Incentive Awards in 2000?.................................... 25 PERFORMANCE GRAPH....................................................................... 27 DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD........................................ 28 Proposal 1: Elect Seven Directors.................................................... 28 Proposal 2: Ratify Selection of KPMG LLP as Independent Auditors for 2001............ 30 INFORMATION ABOUT STOCKHOLDER PROPOSALS................................................. 31

PROXY STATEMENT FOR THE AMBAC FINANCIAL GROUP, INC. 2001 ANNUAL MEETING OF STOCKHOLDERS INFORMATION ABOUT THE ANNUAL MEETING AND VOTING WHY DID YOU SEND ME THIS PROXY STATEMENT? We sent you this Proxy Statement and the enclosed proxy card because Ambac's Board of Directors is soliciting your proxy to vote at the 2001 Annual Meeting of Stockholders. This Proxy Statement summarizes the information you need to vote at the Annual Meeting. You do not need to attend the Annual Meeting to vote your shares. You may simply complete, sign and return the enclosed proxy card. We will begin mailing this Proxy Statement on March 28, 2001 to all stockholders entitled to vote. If you owned Ambac common stock at the close of business on March 14, 2001, you are entitled to vote. On that date, there were 105,652,028 shares of Ambac common stock outstanding. Ambac common stock is our only class of voting stock. HOW MANY VOTES DO I HAVE? You have one vote for each share of Ambac common stock that you owned at the close of business on March 14, 2001. The proxy card indicates the number. HOW DO I VOTE BY PROXY? If you properly fill in your proxy card and send it to us in time to vote, your "proxy" (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the Board: . "FOR" Proposal 1 (Elect Seven Directors); and . "FOR" Proposal 2 (Ratify Selection of KPMG LLP as Independent Auditors for 2001). If any other matter is presented, your proxy will vote in accordance with his or her best judgment. At the time we began printing this Proxy Statement, we knew of no matters that needed to be acted on at the Annual Meeting, other than those discussed in this Proxy Statement.

Whether you plan to attend the Annual Meeting or not, we urge you to complete, sign and date the enclosed proxy card and to return it promptly in the envelope provided. Returning the proxy card will not affect your right to attend the Annual Meeting and vote. MAY I VOTE BY TELEPHONE OR VIA THE INTERNET? Yes. Instead of submitting your vote by mail on the enclosed proxy card, you may be able to vote via the Internet or by telephone. Please note that there are separate Internet and telephone arrangements depending on whether you are a registered stockholder (that is, if you hold your stock in your own name), or whether you hold your shares in "street name" (that is, if your stock is held in the name of your broker or bank). If you are a registered stockholder, you may vote by telephone, or electronically through the Internet, by following the instructions provided on your proxy card. If your shares are held in "street name", you may need to contact your bank or broker to determine whether you will be able to vote by telephone or electronically. The telephone and Internet voting procedures are designed to authenticate stockholders' identities, to allow stockholders to give their voting instructions and to confirm that stockholders' instructions have been recorded properly. If you vote via the Internet, you may incur costs, such as usage charges from Internet access providers and telephone companies. You will be responsible for those costs. MAY I REVOKE MY PROXY? Yes. You may change your mind after you send in your proxy card by following any of these procedures. To revoke your proxy: . Send in another signed proxy with a later date; or . Send a letter revoking your proxy to Ambac's Corporate Secretary at the address indicated on page 31 under "Information about Stockholder Proposals"; or . Attend the Annual Meeting and vote in person. HOW DO I VOTE IN PERSON? If you plan to attend the Annual Meeting and vote in person, we will give you a ballot when you arrive. If your shares are held in the name of your broker, bank or other nominee, you must bring an account statement or letter from the nominee. The account statement or letter must show that you were the direct or indirect (beneficial) owner of the shares on March 14, 2001. 2

HOW DO EMPLOYEES IN THE AMBAC STOCK FUND VOTE? If you are an employee who participates in our Savings Incentive Plan ("SIP"), you are receiving this material because of shares held for you in the Ambac Stock Fund in the SIP. The SIP Trustee will send you a voting instruction card instead of a proxy card. This voting instruction card will indicate the number of shares of Ambac common stock credited to your account in the Ambac Stock Fund as of March 14, 2001. . If you complete, sign and return the voting instruction card on time, the SIP Trustee will vote the shares as you have directed. . If you do not complete, sign and return the voting instruction card on time, the SIP Trustee will not vote the shares credited to your account. WHAT VOTES DO WE NEED TO BE PRESENT TO HOLD THE ANNUAL MEETING? We need a majority of the shares of Ambac common stock outstanding on March 14, 2001 to be present, in person or by proxy, to hold the Annual Meeting. WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL? PROPOSAL 1: The seven nominees for director who receive the most ELECT SEVEN votes will be elected. If you do not vote for a DIRECTORS nominee, or you indicate "withhold authority to vote" for any nominee on your proxy card, your vote will not count either for or against the nominee. PROPOSAL 2: The affirmative vote of a majority of the votes present RATIFY SELECTION and entitled to vote at the Annual Meeting is required OF AUDITORS to ratify the selection of independent auditors. So, if you "abstain" from voting, it has the same effect as if you voted "against" this proposal. WHAT IS THE EFFECT OF BROKER NON-VOTES? Under the rules of the New York Stock Exchange, if your broker holds your shares in its "street" name, the broker may vote your shares on both proposals even if it does not receive instructions from you. However, if your broker does not vote on either of the proposals, it will have no effect on the outcome of the proposal. 3

IS VOTING CONFIDENTIAL? We maintain a policy of keeping all the proxies, ballots and voting tabulations confidential. The Inspectors of Election will forward to management any written comments that you make on the proxy card. WHAT ARE THE COSTS OF SOLICITING THESE PROXIES? Ambac will pay all the costs of soliciting these proxies. Although we are mailing these proxy materials, our directors and employees may also solicit proxies by telephone, by fax or other electronic means of communication, or in person. We will reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you. Georgeson Shareholder Communications, Inc. is assisting us with the solicitation of proxies for a fee of $8,500 plus out-of-pocket expenses. HOW DO I OBTAIN AN ANNUAL REPORT ON FORM 10-K? IF YOU WOULD LIKE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 THAT WE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WE WILL SEND YOU ONE WITHOUT CHARGE. PLEASE WRITE TO: INVESTOR RELATIONS AMBAC FINANCIAL GROUP, INC. ONE STATE STREET PLAZA NEW YORK, NEW YORK 10004 ATTENTION: BRIAN MOORE, MANAGING DIRECTOR, INVESTOR RELATIONS OR CONTACT MR. MOORE AT (212) 208-3333 OR AT BMOORE@AMBAC.COM. WHERE CAN I FIND THE VOTING RESULTS? We will publish the voting results in our FORM 10-Q for the second quarter of 2001, which we will file with the SEC in August 2001. You can also find the results on Ambac's website at WWW.AMBAC.COM. WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS? If you have any questions about the Annual Meeting or voting, please contact ANNE GILL, OUR CORPORATE SECRETARY, AT (212) 208-3355 OR AT AGILL@AMBAC.COM. If you have any questions about your ownership of Ambac common stock, please call BRIAN MOORE, MANAGING DIRECTOR, INVESTOR RELATIONS, AT (212) 208-3333 OR AT BMOORE@ AMBAC.COM. 4

INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP WHICH STOCKHOLDERS OWN AT LEAST 5% OF AMBAC? The following table shows all persons we know to be direct or indirect owners of at least 5% of Ambac common stock as of December 31, 2000. Persons who are direct or indirect owners of Ambac common stock are sometimes referred to in this Proxy Statement as "BENEFICIAL OWNERS" or as persons who "BENEFICIALLY OWN" Ambac common stock. Our information is based on reports filed with the Securities and Exchange Commission by each of the firms listed in the table below. If you wish, you may obtain these reports from the SEC. NUMBER OF SHARES OWNED PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY CLASS - ------------------------------------------------------------ FMR CORP. 12,631,764 12.0% 82 Devonshire Street Boston, Massachusetts 02109 J.P. MORGAN CHASE & CO. 9,132,506 8.6% 270 Park Avenue New York, New York 10017 GOLDMAN SACHS ASSET MANAGEMENT 5,946,050 5.6% 32 Old Slip New York, NY 10005 5

HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS? The following table shows the Ambac common stock owned directly or indirectly by Ambac's directors and executive officers as of February 15, 2001. Except for Mr. Lassiter, no director or executive officer beneficially owns 1% or more of the shares of Ambac common stock. All directors and executive officers as a group beneficially own 3.0% of the shares of Ambac common stock. We have adjusted all shares, options, restricted stock units ("RSUS") and phantom stock units to reflect Ambac's three-for-two stock split in December 2000. SHARES BENEFICIALLY TOTAL HOLDINGS OWNED PERCENT UNVESTED (INCLUDING RSUs NAME OF BENEFICIAL OWNER (1)(2)(3)(4)(5) OF CLASS RSUs(6) PSUs(7) AND PSUs) - ---------------------------------------------------------------------------------------------------- OUTSIDE DIRECTORS Michael A. Callen....................... 26,487 -- 4,628 7,576 38,691 Renso L. Caporali....................... 15,369 -- 3,020 5,442 23,831 Jill M. Considine....................... 626 -- 3,020 552 4,198 Richard Dulude.......................... 17,229 -- 4,628 8,318 30,175 W. Grant Gregory........................ 38,053 -- 4,628 10,061 52,742 C. Roderick O'Neil...................... 33,087 -- 4,628 4,011 41,726 EXECUTIVE OFFICERS Phillip B. Lassiter..................... 1,543,976 1.5% 16,640 -- 1,560,616 Robert J. Genader....................... 701,477 -- 10,775 -- 712,252 Frank J. Bivona......................... 438,327 -- 5,517 -- 443,844 David L. Boyle.......................... 228,036 -- 5,967 -- 234,003 Kevin J. Doyle.......................... 74,253 -- 4,364 -- 78,617 All executive officers and directors as a group (12 persons)................... 3,162,056 3.0% 70,072 35,960 3,268,088 - ---------------------------------------------------------------------------------------------------- (1) To our knowledge, except for Messrs. Lassiter and Genader, who share voting and investment power with their spouses, each of the directors and executive officers has sole voting and investment power over his shares. (2) The number of shares shown for Mr. Lassiter includes 12,000 shares owned by his spouse. Mr. Lassiter disclaims beneficial ownership of these shares. The number of shares shown for Mr. Gregory includes 4,999 shares held in the Gregory 1997 Children's Trust, of which his daughter is a beneficiary. Mr. Gregory disclaims beneficial ownership of these shares. (3) The number of shares shown for each director and executive officer includes shares that may be acquired upon exercise of stock options that were exercisable as of February 15, 2001 or that will become exercisable within 60 days after February 15, 2001. These shares are shown in the following table OUTSIDE DIRECTORS NUMBER OF SHARES EXECUTIVE OFFICERS NUMBER OF SHARES - ----------------- ---------------- ------------------ ---------------- Mr. Callen....... 9,000 Mr. Lassiter...... 427,596 Dr. Caporali..... 6,000 Mr. Genader....... 487,500 Ms. Considine.... 626 Mr. Bivona........ 329,229 Mr. Dulude....... 9,000 Mr. Boyle......... 222,500 Mr. Gregory...... 9,000 Mr. Doyle......... 68,875 Mr. O'Neil....... 9,000 (4) The number of shares shown for each executive officer also includes the number of shares of Ambac common stock owned indirectly as of February 15, 2001 by these executive officers in our Savings Incentive Plan ("SIP "). Our information on these shares is based on reports from the SIP Trustee. 6

(5) The number of shares shown for Messrs. Lassiter, Genader, Bivona, Boyle and Doyle include vested restricted stock units ("RSUs") that we awarded under our equity plans. These RSUs are shown in the following table: EXECUTIVE OFFICERS NUMBER OF VESTED RSUs - ------------------ --------------------- Mr. Lassiter...... 829,039 Mr. Genader....... 170,455 Mr. Bivona........ 93,638 Mr. Boyle......... 0 Mr. Doyle......... 0 (6) This column shows the 4,500 RSUs that were granted to each of Messrs. Callen, Dulude, Gregory, and O'Neil at the 1998 Annual Meeting under the 1997 Non-Employee Directors Equity Plan and accrued dividends and the 3,000 RSUs that were granted to Mr. Caporali and Ms. Considine at the 2000 Annual Meeting under the 1997 Non-Employee Directors Equity Plan and accrued dividends. These RSUs generally will vest on the date of the Annual Meeting held in the fifth calendar year following the date of grant. At that time, each of these directors will receive one share of Ambac common stock in settlement of each RSU. For more information on these RSUs, see below at page 9 under "How We Compensate Directors." This column also shows RSUs for Messrs. Lassiter, Genader, Bivona, Boyle and Doyle that were awarded as part of each executive officer's 1999 bonus and 2000 bonus pursuant to the Ambac Deferred Compensation Sub-Plan of the 1997 Equity Plan (the "SUB-PLAN") and accrued dividends. See page 25 for more detailed descriptions of these awards made pursuant to the Sub-Plan. (7) Under Ambac's Deferred Compensation Plan, directors may defer their cash compensation. If a director has elected to defer cash compensation into Phantom Stock Units ("PSUs"), these PSUs are shown in this column. For more information on the Deferred Compensation Plan, see below at page 10. DID AMBAC INSIDERS COMPLY WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING IN 2000? Section 16(a) of the Securities Exchange Act of 1934 requires that our insiders--our directors, executive officers, and greater-than-10% stockholders--file reports with the SEC and the New York Stock Exchange on their initial beneficial ownership of Ambac common stock and any subsequent changes. They must also provide us with copies of the reports. We reviewed copies of all reports furnished to us and obtained written representations that no other reports were required. Based on this, we believe that all of our insiders complied with their filing requirements for 2000. 7

INFORMATION ABOUT DIRECTORS THE BOARD OF DIRECTORS The Board of Directors oversees the business of Ambac and monitors the performance of management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed by discussing matters with the Chairman, other key executives and our principal external advisers (legal counsel, outside auditors, investment bankers and other consultants) by reading the reports and other materials that we send them regularly and by participating in Board and committee meetings. Ambac's Board usually meets five times per year in regularly scheduled meetings, but will meet more often if necessary. The Board met five times during 2000. All directors attended at least 75% of the Board meetings and meetings of the Committees of which they were members. Each of our directors also serves as a director of our principal operating subsidiary, Ambac Assurance Corporation, a leading triple-A rated financial guarantee insurance company. THE COMMITTEES OF THE BOARD The Board has three standing committees: the Audit Committee, the Compensation and Organization Committee and the Nominating Committee. None of the directors who serve as members of these committees is, or has ever been, an employee of Ambac or our subsidiaries. THE AUDIT The Audit Committee recommends the selection of the COMMITTEE independent auditors to the Board, approves the scope of the annual audit by the independent auditors and our internal auditors, reviews audit findings and accounting policies and oversees compliance with Ambac's Code of Business Conduct. The Committee also meets privately, outside the presence of Ambac management, with both the independent auditors and the internal auditors. Under the rules of the New York Stock Exhange, all of the members of the Audit Committee are independent. The Committee's Report is printed below at page 11. In January 2000, the Audit Committee approved and adopted an Audit Committee Charter, which is attached to this Proxy Statement as Appendix A. The Committee met three times during 2000. Messrs. Callen, Dulude, Gregory and O'Neil and Dr. Caporali and Ms. Considine currently serve as members of the Committee. Mr. O'Neil serves as Chairman of the Committee. THE COMPENSATION The Compensation and Organization Committee establishes AND ORGANIZATION and approves all elements of compensation for the COMMITTEE executive officers. Each year, as the SEC requires, the Committee reports to you on executive compensation. The Committee's Report on Executive Compensation for 2000 is printed below, starting at page 22. 8

The Committee administers Ambac's 1997 equity plan and has sole authority for awards under the plan. The Committee evaluates existing and proposed employee benefit plans and may approve of plan changes. The Committee also administers the 1997 Executive Incentive Plan and Ambac's Deferred Compensation Plan for Outside Directors and Ambac's Senior Officer Deferred Compensation Sub-Plan of the 1997 Equity Plan. The Committee met three times during 2000. Messrs. Callen, Dulude, Gregory and O'Neil and Dr. Caporali and Ms. Considine currently serve as members of the Committee. Mr. Dulude serves as Chairman of the Committee. THE NOMINATING The Nominating Committee is responsible for identifying COMMITTEE and recommending qualified candidates to the Board for election as directors. In addition, our By-laws provide a procedure for you to recommend candidates for director at an annual meeting. For more information, see below at page 31 under "Information About Stockholder Proposals." The Committee met once during 2000. Messrs. Callen, Dulude, O'Neil and Gregory currently serve as members of the Committee. Mr. Gregory serves as Chairman of the Committee. HOW WE COMPENSATE DIRECTORS ANNUAL We compensate directors who are not employees of Ambac CASH FEE or our subsidiaries with an annual cash fee of $20,000 per year. ANNUAL STOCK We also grant each non-employee director 3,750 stock OPTION AWARD options on the date of each annual meeting. (The Board adjusted the number of stock options awarded from 2,500 to 3,750 to reflect Ambac's three-for-two stock split in December 2000.) These options have an exercise price equal to the average of the high and low trading price of our stock on the New York Stock Exchange on the date of grant. The options generally will vest on the first anniversary of the date of the grant and expire on the date of the annual meeting held in the seventh calendar year following the date of the grant. AWARD OF Ambac grants each non-employee director 3,000 RESTRICTED STOCK restricted stock units ("RSUs") at the annual meeting UNITS EVERY at which the director is first elected to the Board. FIVE YEARS (The Board adjusted the number of RSUs awarded from 2,000 to 3,000 to reflect Ambac's three-for-two stock split in December 2000.) . These RSUs generally will vest on the date of the annual meeting held in the fifth year following the date of grant and will be settled by the delivery of one share of Ambac common stock for each RSU. 9

. If the director remains on the Board after the first award of RSUs vests, Ambac will grant the director a second award of 3,000 RSUs, subject to similar vesting conditions and restrictions on transfer. MEETING FEES We also pay each non-employee director a meeting fee of: . $1,000 for attendance at each meeting of stockholders and each Board meeting; and . $1,000 for attendance at each committee meeting. FEE FOR CHAIRING We pay an annual fee of $1,500 to each non-employee A COMMITTEE director who chairs a committee. EXPENSES AND Ambac reimburses all directors for travel and other BENEFITS related expenses incurred in attending stockholder, Board and committee meetings. We provide non-employee directors with life and health insurance benefits. We also allow them to participate in our Matching Gift Program up to $20,000. Under this Program, Ambac will match gifts by directors to qualified organizations. THE DEFERRED Under our Deferred Compensation Plan for Outside COMPENSATION Directors, non-employee directors may elect to defer PLAN all or part of their director compensation that is paid in cash. . At the director's election, we credit deferrals to a bookkeeping account that we maintain on the director's behalf either as a cash credit (which we credit with interest quarterly), or as phantom stock units ("PSU") based on the market value of Ambac common stock (on which we pay quarterly dividend equivalents in additional PSUs) or as performance units measured by the performance of those mutual funds the director selects out of a limited group of funds. . We do not fund the Deferred Compensation Plan. We settle accounts only in cash. SERVICE ON THE Although Ambac Assurance does not pay its non-employee AMBAC ASSURANCE directors an annual fee for serving on its Board of BOARD Directors, it does pay them meeting fees (in the same amounts as we do for the Ambac Board) and reimburses all directors for expenses. DIRECTORS WHO We do not compensate our employees or employees of our ARE AMBAC subsidiaries for service as a director. We do, however, EMPLOYEES reimburse them for travel and other related expenses. 10

THE AUDIT COMMITTEE REPORT The Audit Committee of Ambac is responsible for providing independent, objective oversight of Ambac's accounting functions and internal controls. The Audit Committee recommends the selection of the independent auditors to the Board. The Audit Committee is currently composed of six independent directors, each of whom is independent as defined under the rules of the New York Stock Exchange. The Audit Committee operates under a written charter adopted by the Board of Directors, attached to this Proxy Statement as Appendix A. Management is responsible for Ambac's internal controls and financial reporting process. The independent accountants are responsible for performing an independent audit of Ambac's consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to issue a report thereon. The Audit Committee's responsibility is to monitor and oversee these processes. However, none of the members of the Committee is professionally engaged in the practice of accounting or auditing nor are all of our members experts in those fields. The Committee relies without independent verification on the information provided to it and on the representations made by management and the independent auditors. In connection with these responsibilities, we met with management and KPMG LLP to review and discuss the December 31, 2000 financial statements. We also discussed with the independent accountants the matters required by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Corporation's independent accountants also provided us the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and we discussed with KPMG its independence. Based upon the review and discussions referred to above, we recommended to the Board of Directors, and the Board of Directors has approved, that Ambac's audited financial statements be included in Ambac's Annual Report on SEC Form 10-K for the fiscal year December 31, 2000. We also recommended the selection of KPMG LLP as Ambac's independent auditors for 2001 and, based on that recommendation, the Board has selected KPMG LLP as Ambac's independent auditors for 2001. PRINCIPAL ACCOUNTING FIRM FEES Fees paid to KPMG for the fiscal year ended December 31, 2000 were: Audit: $789,500; Financial Information Systems Design and Implementation Fees: $0 and All Other Fees: $682,193. Of the $682,193 All Other Fees, $148,200 were fees paid to KPMG for consents provided by KPMG in connection with the registration of securities of our clients which were guaranteed by Ambac Assurance. These fees were reimbursed to Ambac by the clients. THE AUDIT COMMITTEE C. Roderick O'Neil, Chairman Michael A. Callen Renso L. Caporali Jill M. Considine March 22, 2001 Richard Dulude W. Grant Gregory 11

INFORMATION ABOUT THE EXECUTIVE OFFICERS THE EXECUTIVE OFFICERS These are the biographies of Ambac's current executive officers, except for Mr. Lassiter, the Chief Executive Officer, and Mr. Genader, the President and Chief Operating Officer, whose biographies are included below at pages 28 and 29 under "Proposal 1: Elect Seven Directors." FRANK J. BIVONA VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER--FINANCE AND Age 45 INVESTMENT GROUP. In January 2001, Mr. Bivona was promoted to Vice Chairman and Chief Financial Officer--Finance and Investment Group of Ambac and Ambac Assurance. In February 2000, he was named as Head of the Finance and Investment Group, in addition to his position as Ambac's Chief Financial Officer. Mr. Bivona also has executive responsibility for managing Ambac's investment portfolio, asset and liability management services, corporate marketing, investor and public relations and corporate administration. Mr. Bivona served as Executive Vice President and Chief Financial Officer of Ambac and Ambac Assurance from January 1998 to January 2001. Mr. Bivona served as Senior Vice President and Chief Financial Officer of Ambac from 1993 to January 1998 and Ambac Assurance from 1987 to January 1998. Mr. Bivona also served as Treasurer of Ambac from 1993 to July 1998 and Ambac Assurance from 1987 to July 1998. Mr. Bivona also serves as a trustee of Cadre Institutional Investors Trust. Mr. Bivona joined Ambac Assurance from Citibank in 1986. DAVID L. BOYLE VICE CHAIRMAN--PORTFOLIO RISK MANAGEMENT GROUP. Age 54 In February 2000, Mr. Boyle was named Vice Chairman of Ambac's Portfolio Risk Management Group. The Portfolio Risk Management Group oversees our specialized finance and public finance portfolios, market risk management, reinsurance, technology and internal audit. Mr. Boyle previously served as Vice Chairman of the Municipal Financial Services Group from January 1998 to February 2000. Mr. Boyle joined Ambac and Ambac Assurance in March 1997 as Senior Vice President of the Financial Management Services Division. He became an Executive Vice President in July 1997. Mr. Boyle joined Ambac from Citibank, where, as a managing director, he held various management positions in corporate banking over a 22-year career. GREGG L. BIENSTOCK MANAGING DIRECTOR, HUMAN RESOURCES AND EMPLOYMENT Age 36 COUNSEL. Mr. Bienstock has been Managing Director, Human Resources and Employment Counsel since January 1999. Mr. Bienstock served as First Vice President, Director of Human Resources and Employment Counsel of Ambac and Ambac Assurance from February 1997 to January 1999. Mr. Bienstock joined Ambac from the Bristol Myers-Squibb Corporation, where he served as a Director of Human Resources from February 1996 to February 1997. From September 1993 to February 1996, Mr. Bienstock was an associate with the New York law firm of Proskauer Rose LLP. Prior to joining Proskauer, from April 1992 to September 1993, Mr. Bienstock was an Assistant General Counsel for the Mayor's Office of Labor Relations for the City of New York. 12

KEVIN J. DOYLE e MANAGING DIRECTOR AND GENERAL COUNSEL. Age 44 Mr. Doyle was named Managing Director and General Counsel of Ambac and Ambac Assurance in January 2000. Mr. Doyle is Ambac's chief legal officer. From January 1996 to January 2000, Mr. Doyle served as the Managing Director and General Counsel of the Specialized Finance Division of Ambac Assurance. Mr. Doyle served as First Vice President and General Counsel of the Specialized Finance Division of Ambac Assurance from July 1995 to January 1996. Mr. Doyle joined Ambac Assurance as a Vice President and Assistant General Counsel from the New York law firm LeBoeuf, Lamb, Greene & MacRae in 1991. 13

HOW WE COMPENSATE EXECUTIVE OFFICERS The tables on pages 14 through 16 show salaries, bonuses and other compensation paid during the last three years, options granted in 2000, options exercised in 2000 and option values as of year-end 2000 for the Chief Executive Officer and our next four most highly compensated executive officers. We have adjusted all share and option amounts to reflect Ambac's three-for-two stock split. SUMMARY COMPENSATION TABLE LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS ------------------- ------------------------- RESTRICTED SECURITIES ALL OTHER STOCK UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) UNITS($)(1) OPTIONS($)(2) ($)(3) - --------------------------------------------------------------------------------------------------- PHILLIP B. LASSITER 2000 $620,000 $930,000 $413,335 287,232 $78,509 Chairman and 1999 560,000 750,000 333,350 250,063 52,340 Chief Executive Officer 1998 560,000 840,000 0 187,811 50,200 ROBERT J. GENADER 2000 345,000 600,000 266,658 140,242 31,049 President and Chief 1999 310,000 487,500 216,650 63,888 28,973 Operating Officer 1998 310,000 525,000 0 81,098 27,900 FRANK J. BIVONA 2000 270,000 318,750 141,687 86,731 24,301 Vice Chairman and 1999 245,000 240,000 106,650 47,150 22,615 Chief Financial Officer--Finance 1998 245,000 260,000 0 42,820 22,050 and Investment Group DAVID L. BOYLE 2000 330,000 318,750 141,687 90,000 29,699 Vice Chairman--Portfolio 1999 300,000 281,250 125,030 20,000 28,040 Risk Management Group 1998 300,000 300,000 0 100,000 18,300 KEVIN J. DOYLE 2000 174,000 232,500 103,346 21,750 15,660 Managing Director 1999 164,000 206,250 91,667 15,000 15,327 and General Counsel 1998 164,000 210,000 0 15,000 14,520 - -------------------------------------------------------------------------------- (1) Pursuant to the Ambac Deferred Compensation Sub-Plan of the 1997 Equity Plan (the "SUB-PLAN"), the Compensation and Organization Committee paid 25% of each executive officer's bonus for 1999 and 2000 in restricted stock units ("RSUS"). Amounts shown in this column are based on the market value of the underlying Common Stock on the date of grant and do not reflect the discount attributed to such value by the Committee to take account of vesting requirements, restrictions on transfer and other limitations. See page 25 for more detailed descriptions of these awards made pursuant to the Sub-Plan. As dividends are paid on the common stock, dividend equivalents are accrued on the RSUs as additional RSUs and vest according to the same schedule. The total number of RSUs held by the named executive officers as of December 31, 2000, and the total value of these RSUs (based on the $58.31 per share closing price of Ambac common stock on the New York Stock Exchange on Friday, December 31, 2000), were as follows: Mr. Lassiter--767,719 RSUs ($44,765,695); Mr. Genader--175,565 RSUs ($10,237,195); Mr. Bivona--96,112 RSUs ($5,604,291); Mr. Boyle--4,062 RSUs ($236,855); and Mr. Doyle--2,980 RSUs ($173,764). (2) The number of securities underlying options for 1998, 1999 and 2000 includes restoration options awarded upon the exercise of stock options in accordance with Ambac's Restoration Option Program. For the specific breakdown of option and restoration option grants made in 2000, please refer below to the table on page 15 under "Option Grants in 2000." For a more detailed description of our Restoration Option Program, please see footnote 3 under the "Option Grants in 2000" table on page 15. 14

(3) The column called "ALL OTHER COMPENSATION" includes the amounts that Ambac contributed or credited on behalf of the named officers in 2000 to (a) our Savings Incentive Plan (the "SIP"), and (b) our Non-Qualified SIP. We credit amounts that we are precluded from contributing to the SIP because of limitations under the Internal Revenue Code to accounts that we maintain under Ambac's Non-Qualified SIP. CREDITS TO THE CONTRIBUTIONS NON-QUALIFIED TO THE SIP SIP ------------- -------------- Mr. Lassiter......................... $15,000 $40,802 Mr. Genader.......................... 13,700 17,349 Mr. Bivona........................... 14,700 9,601 Mr. Boyle............................ 14,403 15,296 Mr. Doyle............................ 13,700 1,960 OPTION GRANTS IN 2000 INDIVIDUAL GRANTS -------------------------------------------------------------------------- NUMBER OF SECURITIES UNDERLYING PERCENT OF TOTAL OPTIONS GRANTED (#) OPTIONS GRANTED GRANT DATE RESTORATION TO EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT VALUE NAME OPTIONS(1) OPTIONS(2) 2000 ($/SH)(3) DATE ($)(4) - ------------------------------------------------------------------------------------------------------------ Phillip B. Lassiter 225,000 12.53% $31.02 1/24/07 $2,592,000 62,232 3.46 53.48 1/28/04 891,162 Robert J. Genader 120,000 31.02 1/24/07 1,382,400 20,241 6.68 46.56 3/03/03 210,304 1.13 Frank J. Bivona 75,000 4.18 31.02 1/24/07 864,000 11,730 0.65 46.56 3/03/03 121,875 David L. Boyle 90,000 5.01 31.02 1/24/07 1,036,800 Kevin J. Doyle 21,750 1.21 31.02 1/24/07 250,560 - ------------------------------------------------------------------------------------------------------------ (1) Options awarded to the named executive officers by the Compensation and Organization Committee were long-term incentive awards granted on January 24, 2000. Each executive officer's options will vest in two equal installments when the market price of Ambac common stock meets or exceeds $43.33 and $56.66 for twenty consecutive trading days or no later than the sixth anniversary of the grant date. Vesting is accelerated upon retirement, death or permanent disability. Generally, all of the executive officers' options will expire seven years from the date of grant or, earlier, if employment terminates. We have adjusted all options awarded to reflect Ambac's three-for-two stock split in December 2000. (2) Restoration options were awarded upon the exercise of stock options in accordance with Ambac's Restoration Option Program. A restoration option is awarded automatically when the underlying option is exercised by tendering shares of common stock to pay the exercise price. Each restoration option will vest one year from the date of grant and has the same exercise, transfer and expiration provisions as its underlying option. We have adjusted all options awarded to reflect Ambac's three-for-two stock split in December 2000. (3) The exercise price per share is the fair market value of the common stock on the date of grant. We determine this by calculating the average of the high and low price of Ambac common stock on the New York Stock Exchange on the date of grant. We have adjusted all share prices to reflect Ambac's three-for-two stock split in December 2000. (4) We calculated these values by using the Black-Scholes stock option pricing model as follows: FOR THE JANUARY OPTION GRANTS. The model, as we applied, uses the grant date of January 24, 2000. The fair market value on that date was $31.02 per share as we discussed above. The model also assumes: (a) a risk-free rate of return of 15

6.6% (which was the yield on a U.S. Treasury Strip zero coupon bond with a maturity that approximates the term of the option), (b) stock price volatility of 30.1% (calculated using month-end closing prices of Ambac common stock on the New York Stock Exchange for the period beginning with January 31, 1997 and ending as of the end of the month preceding the grant date); (c) a constant dividend yield of .95% based on the quarterly cash dividend rate at the time of grant on Ambac common stock; and (d) an exercise date, on average, of 5.5 years after grant. FOR THE RESTORATION OPTION GRANTS. We use the following assumptions in applying the model for each Restoration Option Grant: (a) a risk-free rate of return equal to the yield on grant date of a U.S. Treasury Strip zero coupon bond with a maturity that approximates the term of the option; (b) stock price volatility of Ambac common stock calculated using month-end closing prices of Ambac common stock on the New York Stock Exchange for the three year period prior to the grant date; (c) a constant dividend yield based on the quarterly cash dividend rate at the time of grant on Ambac common stock; and (d) exercise of the restoration option at the end of its term. WE DID NOT ADJUST THE MODEL FOR NON-TRANSFERABILITY, RISK OF FORFEITURE, OR VESTING RESTRICTIONS. THE ACTUAL VALUE (IF ANY) AN EXECUTIVE OFFICER RECEIVES FROM A STOCK OPTION WILL DEPEND UPON THE AMOUNT BY WHICH THE MARKET PRICE OF AMBAC COMMON STOCK EXCEEDS THE EXERCISE PRICE OF THE OPTION ON THE DATE OF EXERCISE. THE HYPOTHETICAL VALUES ARE PRESENTED PURSUANT TO SEC RULES AND THERE CAN BE NO ASSURANCE THAT THE AMOUNT STATED AS "GRANT DATE PRESENT VALUE" WILL ACTUALLY BE REALIZED. AGGREGATED OPTION EXERCISES DURING 2000 AND YEAR-END OPTION VALUES NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS HELD AT NUMBER OF SHARES DECEMBER 31, 2000 DECEMBER 31, 2000 ($)(1)(2) ACQUIRED ON VALUE ------------------------- ---------------------------- NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------------------------------------------------------- Phillip B. Lassiter 238,028 $6,224,755 427,596 234,732 $ 9,930,705 $4,659,250 Robert J. Genader 123,146 3,494,240 487,500 110,241 16,975,472 2,519,425 Frank J. Bivona 81,725 2,438,854 329,229 69,230 11,654,404 1,590,671 David L. Boyle 0 0 222,500 92,500 6,460,428 2,490,338 Kevin J. Doyle 0 0 68,875 15,875 2,274,100 404,152 - ------------------------------------------------------------------------------------------------------- (1) We have adjusted all shares to reflect Ambac's three-for-two stock split in December 2000. (2) This valuation represents the difference between $58.31, the closing price of Ambac common stock on the New York Stock Exchange on Friday, December 31, 2000, and the exercise price of the stock options. "In-the-money" stock options are options for which the exercise price is less than the market price of the underlying stock on a particular date. THE PENSION PLAN Ambac's Pension Plan is a defined benefit pension plan intended to be tax-qualified under Section 401(a) of the Internal Revenue Code. . In general, officers and employees of Ambac and its subsidiaries become participants in the Pension Plan after one year of service. All executive officers participate in the Pension Plan. Non-employee directors of Ambac and our subsidiaries are not eligible to participate in the Pension Plan. 16

. Benefits under the Pension Plan vest after five years. Upon normal retirement at age 65, a retired employee receives an annual pension from the Pension Plan, subject to a statutory limit. The Pension Plan also contains provisions for early retirement and survivor benefits. The table below illustrates the annual pension benefits payable to executive officers under the Pension Plan. The table also reflects the excess and supplemental benefit plans that we have established to provide retirement benefits over Internal Revenue Code limitations. We calculated the benefits before offsetting (a) an employee's primary Social Security benefit and (b) benefits payable under the retirement plan of Citibank, N.A., Ambac's former parent company (the "CITIBANK PLAN"). Benefits shown in the table reflect a straight life form of annuity benefit. If payment is made in the form of a joint and survivor annuity, the annual amounts of benefit could be substantially below those illustrated. TOTAL YEARS OF SERVICE AT RETIREMENT ------------------------------------------------------------ AVERAGE YEARS OF COVERED SERVICE AT COMPENSATION TRANSITION DATE 10 15 20 25 30 35 - ------------------------------------------------------------------------------------------- $150,000 30 NA NA NA NA $ 90,000 $ 97,500 15 NA $ 45,000 $ 52,500 $ 60,000 67,500 75,000 0 $ 15,000 22,500 30,000 37,500 45,000 52,500 - ------------------------------------------------------------------------------------------- 200,000 30 NA NA NA NA 120,000 130,000 15 NA 60,000 70,000 80,000 90,000 100,000 0 20,000 30,000 40,000 50,000 60,000 70,000 - ------------------------------------------------------------------------------------------- 500,000 30 NA NA NA NA 300,000 325,000 15 NA 150,000 175,000 200,000 225,000 250,000 0 50,000 75,000 100,000 125,000 150,000 175,000 - ------------------------------------------------------------------------------------------- 1,000,000 30 NA NA NA NA 600,000 650,000 15 NA 300,000 350,000 400,000 450,000 500,000 0 100,000 150,000 200,000 250,000 300,000 350,000 - ------------------------------------------------------------------------------------------- 1,500,000 30 NA NA NA NA 900,000 975,000 15 NA 450,000 525,000 600,000 675,000 750,000 0 150,000 225,000 300,000 375,000 450,000 525,000 - ------------------------------------------------------------------------------------------- 2,000,000 30 NA NA NA NA 1,200,000 1,300,000 15 NA 600,000 700,000 800,000 900,000 1,000,000 0 200,000 300,000 400,000 500,000 600,000 700,000 - ------------------------------------------------------------------------------------------- 2,500,000 30 NA NA NA NA 1,500,000 1,625,000 15 NA 750,000 875,000 1,000,000 1,125,000 1,250,000 0 250,000 375,000 500,000 625,000 600,000 875,000 SERVICE FROM 1992 For service on or after January 1, 1992, the annual retirement benefit is equal to 1% (without an offset for any Social Security benefits) of an employee's Average Compensation (as described in the next sentence) multiplied by the employee's years of credited service. "Average Compensation" is defined, generally, as average annual base salary (which, in the case of executive officers identified in the Summary Compensation Table on page 14, is the amount shown under the column called "SALARY") for the five highest consecutive paid years of the ten years of employment preceding retirement. 17

SERVICE BEFORE For service prior to January 1, 1992, the annual 1992 retirement benefit is equal to 2% (with an offset for Social Security benefits) of an employee's Average Compensation (determined as if the employee retired on December 31, 1991) multiplied by years of credited service up to thirty years. YEARS OF SERVICE In view of the change in the formula for determining benefits under the Pension Plan that became effective as of January 1, 1992 (the "TRANSITION DATE"), we prepared the above table to show the benefits payable depending on how many years of service the executive officer would have: . prior to the Transition Date, and . at Retirement. In order to simplify the chart, we show only 0, 15 and 30 years of service at Transition, since those values cover the range for our executive officers. The years of credited service under the Pension Plan (including credit for years of past service under the Citibank Plan) as of December 31, 2000 for executive officers named in the Summary Compensation Table were as follows: Mr. Lassiter--31 years, Mr. Genader--26 years, Mr. Bivona--23 years, Mr. Boyle--4 years, and Mr. Doyle--9 years. The benefits payable under the Pension Plan to employees who receive credit for years of past service under the Citibank Plan will be reduced by the amount of any benefits payable under the Citibank Plan. EMPLOYMENT AGREEMENT WITH THE CHIEF EXECUTIVE OFFICER IN GENERAL Ambac's employment agreement with Mr. Lassiter provides that he shall serve as the Chairman and Chief Executive Officer and as a director. . The agreement has a two year term, which is extended on a daily basis, until Ambac or Mr. Lassiter terminates it. . Mr. Lassiter is to receive a base salary at a rate not less than his current rate. . He is to participate in bonus arrangements under which he is eligible to earn an annual bonus based on Ambac's achieving certain performance goals to be established by the Board. SUPPLEMENTAL Mr. Lassiter has a supplemental pension benefit that PENSION BENEFIT will be based on the benefit formula of the Pension Plan that was in effect until the end of 1991. The formula, however, will take into account his bonus compensation (including that portion of his bonus paid in RSUs) and will be determined without giving effect to provisions of the Internal Revenue Code that limit 18

the amount of compensation that may be taken into account in calculating benefits and the amount of annual benefits that may be paid. Mr. Lassiter's supplemental pension benefit will be reduced, however, to take account of enhancements in Ambac's contributions to the Savings Incentive Plan ("SIP") that we introduced in 1992. PAYMENTS AND If Mr. Lassiter's employment is terminated other than BENEFITS for "Cause" (as we define it below), or if he resigns for "Good Reason" (as we define it below), Mr. Lassiter will: - -- AFTER TERMINATION . receive, for the remainder of the term (which OR RESIGNATION typically would be for two years), compensation at an annualized rate equal to the sum of his base annual salary and target bonus at the time of termination; . be fully vested in all awards under the 1991 Stock Incentive Plan and the 1997 Equity Plan; . receive a lump-sum payment equal to the amount that we would have contributed to his account under the SIP and any nonqualified plan we maintained during the two years following termination; . be credited with an additional two years of service under the Pension Plan; and . continue to participate in all Ambac medical and other welfare plans for a limited time following termination. - -- AFTER CHANGE IN All stock options and other awards under the 1997 CONTROL Equity Plan that are made to Mr. Lassiter after January 1, 1998 will vest in full upon the occurrence of a "Change in Control" (as we define it below), whether or not his employment is subsequently terminated. In addition, if Mr. Lassiter's employment terminates following a Change in Control, his severance amount would be calculated and paid in the same manner as we describe below under "Management Retention Agreements with Executive Officers." Mr. Lassiter would also be entitled to the "gross up" payment described in that section. OTHER RESTRICTIONS Mr. Lassiter will be subject to certain restrictions prohibiting him from engaging in competition with Ambac or any of our subsidiaries (except that these restrictions will not apply following a Change in Control) and from divulging any confidential or proprietary information he obtained while he was our employee. 19

MANAGEMENT RETENTION AGREEMENTS WITH EXECUTIVE OFFICERS IN GENERAL We have entered into management retention agreements with each of our executive officers (other than Mr. Lassiter) to provide for payments and certain benefits if they are terminated following a "Change in Control" (as we define it below). PAYMENTS AND If there is a Change in Control and, within three years BENEFITS AFTER of the Change in Control, the executive's employment is CHANGE IN CONTROL terminated by Ambac or its successor other than for "Cause" (as we define it below), or if the executive resigns for "Good Reason" (as we define it below), the executive will . receive cash payments equal to two times the sum of (a) the executive's highest annual base salary and (b) the product of the executive's highest bonus percentage (as a percentage of base salary) times his highest base salary; . be fully vested in all stock options and other awards under the 1991 Stock Incentive Plan and the 1997 Equity Plan; . receive a lump-sum payment equal to the amount that we would have contributed to the executive's account under the SIP and any nonqualified plan we maintained during the two years following termination; . be credited with an additional two years of service under the Pension Plan; and . continue to participate in Ambac's medical and other welfare benefits programs for a limited time following termination. All stock options and other awards under the 1997 Equity Plan that are made to executive officers after January 1, 1998 will vest in full upon the occurrence of a Change in Control, whether or not the executive's employment is subsequently terminated. The agreements also provide for a "gross up" payment in an amount that is intended to make the executive whole, on an after-tax basis, for any excise tax (but not any other tax) imposed on the payments described above. DEFINITIONS The following definitions are used in the Management Retention Agreements and the Employment Agreement with the Chief Executive Officer described above: "CHANGE IN A "Change in Control" generally occurs if CONTROL" . an individual, entity or group acquires beneficial ownership of 20% or more of the outstanding common stock. Acquisitions by Ambac and 20

its affiliates or any employee benefit plan that they sponsor and certain acquisitions by persons who owned at least 15% of the outstanding shares of common stock on January 31, 1996 are not considered a change in control; . the individuals who, as of January 29, 1997, constitute the Board, and subsequently elected members of the Board whose election is approved or recommended by at least a majority of these members or their successors whose election was so approved or recommended, cease for any reason to constitute at least a majority of the Board; or . our stockholders approve a merger or similar business combination, or a sale of all or substantially all of Ambac's assets, unless the Ambac stockholders immediately prior to the completion of the transaction will continue to own at least 70% of outstanding shares and voting power of the corporation that results from the transaction. "CAUSE" "Cause" for an executive's termination generally includes: . the willful commission of acts that are dishonest and demonstrably and materially injurious to Ambac; . the conviction of certain felonies; or . a material breach of any of the executive's agreements concerning confidentiality and proprietary information. An executive's termination will not be considered to have been for Cause unless at least three-quarters of the members of the Board adopt a resolution finding that the executive has engaged in conduct that constitutes Cause as defined in the agreement. "GOOD REASON" An executive will generally have "Good Reason" to terminate his employment if: . there is substantial adverse change in the executive's duties or responsibilities; . the office of the executive is relocated more than 25 miles from the location where the executive worked immediately prior to the Change in Control; or . Ambac fails to honor its obligations under the agreement. During a 30-day period following the first anniversary of a Change in Control, a resignation by the executive for any reason will be considered a termination for Good Reason. 21

REPORT ON EXECUTIVE COMPENSATION FOR 2000 BY THE COMPENSATION AND ORGANIZATION COMMITTEE The Compensation and Organization Committee of the Board administers Ambac's executive compensation program. The members of the Committee are independent non-employee, non-affiliated directors. The Committee has furnished the following report on executive compensation for 2000: WHAT IS OUR EXECUTIVE COMPENSATION PHILOSOPHY? The Committee has designed Ambac's executive compensation program to support what we believe to be an appropriate relationship between executive pay and the creation of stockholder value. To emphasize this relationship, we link a significant portion of executive compensation to the market performance of Ambac common stock. The objectives of our program are: . To support a pay-for-performance policy that differentiates bonus amounts among all executives based on both their individual performance and the performance of Ambac; . To align the interests of executives with the long-term interests of stockholders through stock option and restricted stock unit awards whose value over time depends upon the market value of Ambac's common stock; . To provide compensation comparable to that offered by other leading companies in our industry, enabling Ambac to compete for and retain talented executives who are critical to our long-term success; and . To motivate key executives to achieve strategic business initiatives and to reward them for their achievement. WHAT IS OUR POSITION ON MAXIMIZING THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION? In 1997, our stockholders approved the 1997 Executive Incentive Plan ("EIP") and the 1997 Equity Plan. We designed these plans to allow Ambac to receive a tax deduction for incentive compensation payments to our Chief Executive Officer and our other four most highly paid executive officers. Without these qualifying performance-based plans, Ambac could not deduct incentive compensation payments to the extent the amounts paid to any of these executive officers in any year exceeded $1 million. The Committee intends to pursue a strategy of maximizing the deductibility of the compensation we pay to our executives. However, we intend to retain the flexibility to take actions that we consider to be in the best interests of Ambac and our stockholders and which may be based on considerations in addition to tax deductibility. 22

WHAT ARE THE ELEMENTS OF EXECUTIVE COMPENSATION? We compensate our executives through base salary, bonus (paid in a combination of cash and restricted stock units) and long-term incentive awards in the form of stock options. We target total compensation for our executive officers so that at least 60% (and in the case of the Chairman, 75%) consists of bonus and long term incentive awards. In this way, a significant portion of the value ultimately realized by the executives will depend upon Ambac's performance and can be considered "at risk." Our executives participate in a retirement plan, health plan, savings incentive plan and other voluntary benefit plans that we make available to all Ambac employees generally. We also provide our executives, and all Ambac employees who are eligible, with nonqualified savings incentive and pension plans. We also provide our executives with a voluntary deferred compensation arrangement, which is similar to those typically offered to executives by the corporations with which we compete for talent. Ambac has also entered into management retention agreements with our executive officers to provide for certain payments and other benefits if they are terminated following a change in control of Ambac. These agreements, and the employment agreement with Ambac's Chief Executive Officer, which includes comparable change in control provisions, are discussed elsewhere in the Proxy Statement. HOW DID WE DETERMINE BASE SALARIES FOR 2000? IN GENERAL We annually review the base salaries of our executives to determine if adjustments are appropriate to ensure that their salaries are competitive and that they reflect the executive's increased responsibilities as Ambac grows. For executives other than the Chief Executive Officer, we also consider the recommendations of Mr. Lassiter, Ambac's Chairman and Chief Executive Officer. COMPARATIVE DATA In conducting our review for 2000, we considered comparative data prepared by both Ambac's senior human resources officer and by Johnson Associates, Inc., the Committee's outside consultant for executive compensation. The comparison group we chose for compensation purposes (the "COMPARISON GROUP") consisted mainly of our competitors in the financial guarantee insurance industry. The index we chose for our performance graph was the Investor's Business Daily Insurance Property/Casualty/Title Index. This was the publicly available index that we found best corresponded to our business and included the greatest number of companies in the Comparison Group. The performance graph follows this Report in the Proxy Statement. We obtained data for the Comparison Group from a number of sources, including proxy statements, public information available from regulatory agencies and surveys by consulting firms. We used this comparative data as a benchmark in reaching our own determination of what were appropriate salary levels for our executives. 23

BASE SALARIES OF The data for the Comparison Group supported an THE EXECUTIVES increase in base salaries for 2000 and the Committee accepted Mr. Lassiter's recommendation to increase base salaries for all of the named executives. We note that the base salaries of our executives (excluding the Chief Executive Officer) are generally at or below the median for salaries of executives in the Comparison Group. The base salary for each of the named executive officers is reported in the "Summary Compensation Table" elsewhere in the Proxy Statement. BASE SALARY OF THE The Committee increased the base salary of Mr. CHIEF EXECUTIVE Lassiter for 2000 by approximately 10% from OFFICER $560,000 to $620,000. We note that Mr. Lassiter's base salary in 2000 was in the median for salaries of chief executive officers in the Comparison Group. HOW DID WE DETERMINE BONUSES FOR 2000? 2000 OVERALL In January 2001, the Committee evaluated Ambac's PERFORMANCE performance during 2000 under each of the nine categories set out in the EIP: return on equity; core/operating earnings growth; total return to stockholders; expense management; risk management; market share; industry leadership/image building; new products/initiatives; and organizational development/corporate culture. We did not weight the categories but instead arrived at an overall "grade" for corporate performance. We determined Ambac's overall performance to be extremely strong based especially on its excellent performance in the categories of return on equity, core/operating earnings growth, total return to shareholders; expense management, market share and organizational development/corporate culture. BONUSES FOR THE The Committee awarded bonus compensation for 2000 EXECUTIVES to each executive based on the executive's scope of responsibility, individual performance and specific contribution to Ambac's overall performance. We again considered the Chief Executive Officer's recommendations and also took into account the comparative data. The bonus for each of the named executive officers is reported in the "Summary Compensation Table" elsewhere in the Proxy Statement. Under the Ambac Senior Officer Deferred Compensation Sub-Plan of the 1997 Equity Plan, 25% of each executive officer's bonus is paid in RSUs unless the executive officer has satisfied the stock ownership target under the Ambac Stock Ownership Program. An executive who has met the ownership target may elect to receive 25% of his or her bonus in the form of RSUs. Each executive officer is receiving 25% of his bonus in the form of RSUs. Bonus amounts are reported in the Summary Compensation Table elsewhere in this Proxy Statement. 24

The value we ascribed to the RSUs awarded under the Sub-Plan for 2000 was based on a 25% discount from the market value of Ambac's common stock on the date of grant. The Committee decided to discount these RSUs in order to account for vesting requirements and restrictions on transfer of the RSUs. Accordingly, the value we ascribed to the RSUs differs from the amounts reported in the Summary Compensation Table under the column headed "Annual Compensation--Restricted Stock Units", as those amounts, in accordance with SEC requirements, are based on the market price of the Common Stock on the date of grant. BONUS FOR THE At our meeting in January 2000, the Committee CHIEF EXECUTIVE selected Mr. Lassiter as the only executive to OFFICER participate in the EIP. We then established a formula under the EIP for determining Mr. Lassiter's bonus for the performance year. The formula emphasized return on equity and core earnings growth. In January 2001, we applied the formula and awarded Mr. Lassiter a bonus of $1,240,000. Although we had the authority to award a bonus of less than the amount determined by the formula, in view of Ambac's very strong performance in 2000 under Mr. Lassiter's leadership, we decided to award Mr. Lassiter the maximum amount under the formula. Pursuant to the Sub-Plan, Mr. Lassiter elected to receive 25% of his bonus in the form of RSUs having the terms described above. For 2001, we selected Messrs. Lassiter and Genader as the only executive officers to participate in the EIP. WHAT WERE THE LONG-TERM INCENTIVE AWARDS IN 2000? 2000 GRANTS In 2000, we provided long-term incentive awards for executives by granting stock options. These awards provide compensation to executives only if shareholder value increases. We believe these awards focus executives on the Company's long-term success. In determining the number of stock options awarded, we reviewed surveys of similar awards given by companies within the Comparison Group and the executive's past performance. We also considered the number of stock options previously granted to executives. This year, we decided to award, for the first time, performance-based stock options. These options vest only if the share price of Ambac's common stock meets certain targets. For 2000, each of the options granted to the executives will vest in two equal installments when the market price of Ambac common stock meets or exceeds $43.33 and 25

$56.66 for twenty consecutive trading days or no later than the sixth anniversary of the grant date. (Please note that we have adjusted the share price to reflect Ambac's three-for-two stock split in December 2000.) As we have done since 1997, we again limited the term of the stock options to seven years. The number of stock options awarded to each of the executives (including Mr. Lassiter) was in the top quarter of recent awards given by companies within the Comparison Group. The number of stock options awarded to each of the named executive officers is reported in the "Option Grants in 2000" table elsewhere in the Proxy Statement. STOCK OWNERSHIP The Committee continues to apply our stock ownership GUIDELINES guidelines to all managing directors and executive officers. The guidelines set an appropriate level of ownership of Ambac stock (based on the market value of Ambac common stock) as a multiple of the officer's total cash compensation (base salary plus cash bonus). The multiple ranges from a high of seven times total cash compensation (in the case of Mr. Lassiter) to a low of one and one-half times total cash compensation for managing directors. Messrs. Lassiter, Genader and Bivona have all met their stock ownership guidelines. The Committee believes these guidelines have the positive effect of further aligning the interests of the executives with all stockholders. THE COMPENSATION AND ORGANIZATION COMMITTEE Richard Dulude, Chairman Michael A. Callen Renso L. Caporali Jill M. Considine W. Grant Gregory C. Roderick O'Neil March 22, 2001 26

PERFORMANCE GRAPH The graph below compares the five-year total return to stockholders (stock price appreciation plus reinvested dividends) for Ambac common stock with the comparable return of two indexes: the Standard & Poor's 500 Stock Index and the Investor's Business Daily Insurance--Property/Casualty/Title Index. The graph assumes that you invested $100 in Ambac common stock and in each of the indexes on December 31, 1995, and that all dividends were reinvested. Points on the graph represent the performance as of the last business day of each of the years indicated. [CHART] 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 Ambac Financial Group, Inc. $100.0 $143.2 $200.3 $263.9 $230.6 $389.6 S&P 500 Index 100.0 123.0 164.0 210.9 255.2 232.0 IBD-INS. Property/Casualty/ Title Index 100.0 105.0 129.2 103.3 78.5 110.2 If you had invested $100 in Ambac common stock on the date of our Initial Public Offering (July 18, 1991), your investment would have grown to approximately $925.58 by the end of 2000. This compares with a $100 investment growing to approximately $420.76 in the S&P 500 Index and to approximately $196.26 in the IBD Insurance Index. For this computation, we assumed that all dividends were reinvested, just as we did for the five-year total return comparison above. 27

DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD PROPOSAL 1: ELECT SEVEN DIRECTORS The Board has nominated seven directors for election at the Annual Meeting. Each nominee is currently serving as one of our directors. Mr. Genader was appointed as a director in January 2001. If you re-elect them, they will hold office until the next annual meeting or until their successors have been elected. As we noted above, each nominee also serves as a director of Ambac Assurance. We know of no reason why any nominee may be unable to serve as a director. If any nominee is unable to serve, your proxy may vote for another nominee proposed by the Board, or the Board may reduce the number of directors to be elected. If any director resigns, dies or is otherwise unable to serve out his term, or the Board increases the number of directors, the Board may fill the vacancy until the next annual meeting. NOMINEES PHILLIP B. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF LASSITER AMBAC AND AMBAC ASSURANCE since April 1991. Mr. Age 57 Lassiter also served as President of Ambac and Ambac Director since 1991 Assurance from August 1992 to January 2001. Mr. Lassiter joined Ambac in 1991 from Citibank, where he was a member of the Policy Committee and Finance Committee and served as Deputy Sector Head for Citibank's North American investment and corporate banking activities. Mr. Lassiter also serves as a director of Diebold Inc. and Worldinsure Limited. MICHAEL A. CALLEN PRESIDENT, AVALON ARGUS ASSOCIATES, LLC (financial Age 60 consulting) since April 1996. Mr. Callen was Special Director since 1991 Advisor to the National Commercial Bank located in Jeddah in the Kingdom of Saudi Arabia from April 1993 through April 1996. He was an independent consultant from January 1992 until June 1993, and an Adjunct Professor at Columbia University Business School during 1992. He was a director of Citicorp and Citibank and a Sector Executive for Citicorp from 1987 until January 1992. Mr. Callen also serves as a director of Intervest Corporation of New York and Intervest Bancshares Corporation. RENSO L. CAPORALI RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF GRUMMAN Age 68 CORPORATION (defense and aerospace). Dr. Caporali was Director since 1995 Senior Vice President of Raytheon Company (electronics, aircraft, engineering and construction) from April 1995 until he retired in May 1998. Previously, Dr. Caporali had retired in June 1994 as Chairman and Chief Executive Officer of Grumman Corporation. He was Chairman and Chief Executive Officer of Grumman Corporation from July 1990 until June 1994. Dr. Caporali also serves as a director of Bank of Akron. 28

JILL M. CONSIDINE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE DEPOSITORY Age 56 TRUST & CLEARING CORPORATION since November 1999 and Director since 2000 Chairman and Chief Executive Officer of The Depository Trust Company (securities depository and clearing house) since January 1999. Prior to joining The Depository Trust Company, Ms. Considine served as the President of the New York Clearing House Association, L.L.C. from 1993 to 1999. Ms. Considine served as a Managing Director, Chief Administrative Officer and as a member of the Board of Directors of American Express Bank Ltd., from 1991 to 1993. Prior to that, Ms. Considine served as the New York State Superintendent of Banks from 1985 to 1991. Ms. Considine also serves as a director of the Atlantic Mutual Insurance Companies and The Interpublic Group of Companies, Inc. RICHARD DULUDE RETIRED VICE CHAIRMAN OF CORNING INCORPORATED Age 68 (diversified manufacturing). Mr. Dulude was Vice Director since 1992 Chairman of Corning Incorporated from November 1990 until he retired in April 1993. Mr. Dulude was Group President of Corning Incorporated from 1983 until 1990. Mr. Dulude also serves as a director of Landec Corporation. ROBERT J. GENADER PRESIDENT AND CHIEF OPERATING OFFICER OF AMBAC AND Age 54 AMBAC. In January 2001, Mr. Genader was named as the Director since January President and Chief Operating Officer of Ambac and 2001 Ambac Assurance. From February 2000 to January 2001, Mr. Genader served as Vice Chairman of Ambac's Financial Insurance Business Group. From January 1998 to February 2000, Mr. Genader served as Vice Chairman of the Specialized Finance Division when the Specialized Finance Division and the Public Finance Division were combined to create the Financial Insurance Business Group. Mr. Genader has been a director of Ambac Assurance since 1992. Mr. Genader served as an Executive Vice President of Ambac from 1991 to January 1998 and Ambac Assurance from 1986 to January 1998. He joined Ambac Assurance from Citibank in 1986. Mr. Genader also served as Chairman of the Association of Financial Guaranty Insurors from January 1994 to January 1996. W. GRANT GREGORY CHAIRMAN OF GREGORY & HOENEMEYER, INC. (merchant Age 60 banking) since 1988. Mr. Gregory retired in 1987 as Director since 1991 Chairman of the Board of Touche Ross & Co., now Deloitte and Touche. Mr. Gregory also serves as a director of DoubleClick Inc., an Internet advertising company. In addition, Mr. Gregory serves as a director of three private companies: yClip.com, an e-commerce enabled incentives company; zUniversity.com, an online network for higher education; and Class.com, an Internet leader in accredited distance learning. The Board recommends that you vote "FOR" the election of all seven nominees for director. 29

PROPOSAL 2: RATIFY SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS FOR 2001 We are asking you to ratify the Board's selection of KPMG LLP, certified public accountants, as independent auditors for 2001. The Audit Committee recommended the selection of KPMG to the Board. KPMG has served as the independent auditors of Ambac Assurance since 1985 and of Ambac since our incorporation in 1991. A representative of KPMG will attend the Annual Meeting to answer your questions. We are submitting this proposal to you because the Board believes that such action follows sound corporate practice. If you do not ratify the selection of independent auditors, the Board will consider it a direction to consider selecting other auditors for next year. However, even if you ratify the selection, the Board may still appoint new independent auditors at any time during the year if it believes that such a change would be in the best interests of Ambac and our stockholders. The Board recommends that you vote "FOR" ratification of the selection of KPMG LLP as independent auditors for 2001. 30

INFORMATION ABOUT STOCKHOLDER PROPOSALS Under our By-laws, if you wish to nominate a director or bring other business before the stockholders: . You must notify the Corporate Secretary in writing not less than 60 days nor more than 90 days before the annual meeting. . If we give you less than 70 days' notice of the meeting date, however, you may notify us within 10 days after the notice was mailed or publicly disclosed. . Your notice must contain the specific information required in our By-laws. Please note that these By-laws requirements relate only to matters you wish to bring before your fellow stockholders at an annual meeting. They do not apply to proposals that you wish to have included in our proxy statement. If you wish to submit proposals to be included in our 2001 proxy statement, we must receive them on or before Thursday, November 29, 2001. Please address your proposals to: ANNE G. GILL, CORPORATE SECRETARY, AMBAC FINANCIAL GROUP, INC., ONE STATE STREET PLAZA, NEW YORK, NEW YORK 10004. If you would like a copy of our By-laws, we will send you one without charge. Please write to the Corporate Secretary of Ambac. By order of the Board of Directors, /s/ Anne G.Gill Anne G. Gill First Vice President, Corporate Secretary and Assistant General Counsel March 28, 2001 31

APPENDIX A AMBAC FINANCIAL GROUP, INC. CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS PURPOSE The purpose of the Ambac Financial Group, Inc. Audit Committee (the "COMMITTEE") is to understand, assess, and monitor the corporate control environment of Ambac Financial Group, Inc. (the "COMPANY"). The Committee will assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information that is provided to stockholders and others, the systems of internal controls established by management and the Board of Directors, and the audit process of the Company. The Committee will meet at least three times per year. The Committee will comply with the requirements of the Securities and Exchange Commission (the "SEC") and the New York Stock Exchange (the "NYSE") regarding corporate audit committees. MEMBERSHIP REQUIREMENTS The Committee will be comprised of at least three independent directors who are financially literate or who become financially literate within a reasonable period of time. These directors will not have any relationship to the Company that will interfere with their exercise of independent judgment from management and the Company as members of the Committee. At least one member of the Committee will have accounting or related financial management expertise. PRIMARY DUTIES In accordance with the SEC requirements, the Committee will provide a report in the Company's proxy statement which states whether the Committee: . reviewed and discussed the audited financial statements with management; . discussed with the independent auditors the matters required by Statement on Auditing Standards No. 61 (which requires the outside auditors to communicate to the Committee matters related to the conduct of the audit); . received the written disclosures and the letter from the auditors regarding the auditors' independence and discussed the auditors' independence as required by Independent Standards Board Standard No. 1 with the auditors; and A-1

. recommended to the Board of Directors that the financial statements be included in the Company's annual report on Form 10-K (or 10-KSB) for the last fiscal year for filing with the SEC based upon its discussions with the auditors regarding the auditors' independence. In accordance with the NYSE requirements, the Committee will: . review and reassess the adequacy of the audit committee charter on an annual basis; . select, evaluate, and replace the outside auditor, who is ultimately accountable to the Committee and the Board of Directors of the Company (or nominate the outside auditor for stockholder approval in any proxy statement); . ensure that the outside auditor submits a formal written statement to the Committee on a periodic basis that delineates all relationships between the outside auditor and the Company; . actively discuss with the outside auditor any relationships between the outside auditor and the Company or any other relationships that may impact the objectivity and independence of the outside auditor; and . recommend that the Board of Directors takes appropriate action in response to the report of the outside auditor to satisfy itself of the independence of the outside auditor. In general, the Committee will: . review the scope of the annual audit of the Company's financial statements, the fees for the audit and for non-audit services, and the findings and recommendations of the outside auditors; . review the Company's accounting practices, internal auditing controls, and business ethics practices, as appropriate, including the monitoring and enforcement of the Company's Code of Business Conduct; . review the Company's internal audit function, including the scope of the audits and the findings of the internal auditors; . review elements of the Company's financial statements on a periodic basis; and . meet with the internal auditors and other personnel of the Company, as appropriate. In carrying out its responsibilities, the Committee will comply with the SEC and the NYSE audit committee requirements. However, the policies and procedures of the Committee will remain flexible, and the Committee may assume other responsibilities as it deems necessary to ensure that the corporate accounting and reporting practices are appropriate given the circumstances of the Company. The evaluation of the Company's financial statements by the Committee is not of the same quality as the audits performed by the outside auditors, nor does the Committee's evaluation supersede or alter the traditional responsibilities of the Company's management for preparing, or the outside auditors for auditing, the Company's financial statements. A-2

[LOGO] Ambac ONE STATE STREET PLAZA, NEW YORK, NY 10004

--------------------------------------------- VOTE BY TELEPHONE --------------------------------------------- Have your proxy card available when you call the TOLL-FREE NUMBER 1-800-250-9081 using a touch-tone telephone. You will be prompted to enter your Control Number and then you can follow the simple prompts that will be presented to you to record your vote. --------------------------------------------- VOTE BY INTERNET --------------------------------------------- Have your proxy card available when you access the website HTTP://WWW.VOTEFAST.COM. You will be prompted to enter your Control Number and then you can follow the simple prompts that will be presented to you to record your vote. --------------------------------------------- VOTE BY MAIL --------------------------------------------- Please mark, sign and date your proxy card and return it in the POSTAGE-PAID ENVELOPE provided or return it to: Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230. --------------------------------------------- - ------------------------ ------------------------ ---------------------- VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL Call Toll-Free using a Access the website and Return your proxy touch-tone telephone: cast your vote: in the postage-paid 1-800-250-9081 http://www.votefast.com envelope provided. - ------------------------ ------------------------ ---------------------- VOTE 24 HOURS A DAY, 7 DAYS A WEEK! YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 11:59 P.M. EASTERN DAYLIGHT TIME ON APRIL 30, 2001 TO BE COUNTED IN THE FINAL TABULATION. ====================================================== YOUR CONTROL NUMBER IS: ====================================================== Please fold and detach card at perforation before mailing. AMBAC FINANCIAL GROUP, INC. PROXY - -------------------------------------------------------------------------------- THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 1, 2001. The undersigned hereby appoints Phillip B. Lassiter, Frank J. Bivona and Anne G. Gill, and each of them, proxies, with power of substitution, to vote all shares of Common Stock of Ambac Financial Group, Inc. which the undersigned is entitled to vote at the Annual Meeting of Stockholders to be held on Tuesday, May 1, 2001 at 11:30 a.m., local time, at Ambac's executive offices, One State Street Plaza, New York, New York, and at any adjournments of the Annual Meeting. The proxies have the authority to vote as directed on the reverse side of this card with the same effect as though the undersigned were present in person and voting. The proxies are further authorized in their discretion to vote upon such other business as may properly come before the Annual Meeting and any adjournments of the Annual Meeting. The undersigned revokes all proxies previously given to vote at the Annual Meeting. -------------------------------------- Signature(s) -------------------------------------- Signature(s) IMPORTANT: Please sign EXACTLY as your name(s) appears on the left. Joint owners should each sign. If you are signing as an executor, administrator, trustee, guardian, attorney or corporate officer, please give your full title. Date: , 2001 --------------------------

YOUR VOTE IS IMPORTANT! If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230, so that your shares may be represented at the Meeting. If you vote by telephone or internet, it is not necessary to return this proxy card. Please fold and detach card at perforation before mailing. AMBAC FINANCIAL GROUP, INC. PROXY - ------------------------------------------------------------------------------ PLEASE INDICATE BELOW HOW YOU WISH YOUR SHARES TO BE VOTED. UNLESS YOU INDICATE OTHERWISE, YOUR PROXY WILL VOTE "FOR" ALL OF THE PROPOSALS ON THIS CARD. WE CANNOT VOTE YOUR SHARES UNLESS YOU SIGN, DATE AND RETURN THIS CARD. THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE "FOR" ALL PROPOSALS. 1. Elect Seven Directors Nominees: (01) Phillip B. Lassiter (02) Michael A. Callen (03) Renso L. Caporali (04) Jill M. Considine (05) Richard Dulude (06) Robert J. Genader (07) W. Grant Gregory [ ] FOR all nominees listed above. [ ] WITHHOLD AUTHORITY (Except as listed to the contrary to vote for all nominees below.) listed above. To withhold authority to vote for any individual nominee, write that nominee's name or number below. - -------------------------------------------------------------------------------- 2. Ratify Selection of KPMG LLP as Independent Auditors for 2001. [ ] FOR [ ] AGAINST [ ] ABSTAIN TO BE SIGNED AND DATED ON REVERSE SIDE