IMPAC COMMERCIAL HOLDINGS INC, 424B4, 1998-06-23

IMPAC COMMERCIAL HOLDINGS INC
424B4, 1998-06-23
REAL ESTATE INVESTMENT TRUSTS

Previous: ALEXANDRIA REAL ESTATE EQUITIES INC, 8-K, 1998-06-23

Next: JLM INDUSTRIES INC, 8-K, 1998-06-23

<PAGE>

Filed pursuant to Rule 424(b)(4)
Registration Number 333-52231

2,000,000 SHARES

[LOGO OF IMPAC APPEARS HERE]

IMPAC COMMERCIAL HOLDINGS, INC.

COMMON STOCK

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

All of the shares of Common Stock offered hereby are being sold by Impac
Commercial Holdings, Inc. ("ICH" or the "Company"). The Company's Common Stock
is listed on the American Stock Exchange ("AMEX") under the symbol "ICH." On
June 22, 1998, the last reported sale price of the Common Stock as reported by
the AMEX was $15.3125 per share.

SEE "RISK FACTORS" STARTING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
<TABLE>
<CAPTION>
Underwriting
Price to Discount and Proceeds to
Public Commissions (1) Company (2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $15.3125 $0.77 $14.5425
- ------------------------------------------------------------------------------
Total................................ $30,625,000 $1,540,000 $29,085,000
- ------------------------------------------------------------------------------
Total Assuming Full Exercise of
Over-Allotment Option (3)........... $35,218,750 $1,771,000 $33,447,750
</TABLE>
================================================================================
(1) See "Underwriting."
(2) Before deducting expenses estimated at $600,000, all of which are payable
by the Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 300,000 additional shares, on the same
terms, solely to cover over-allotments. See "Underwriting."

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

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City on or about
June 26, 1998.

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

PAINEWEBBER INCORPORATED
STIFEL, NICOLAUS & COMPANY
INCORPORATED
CIBC OPPENHEIMER
EVEREN SECURITIES, INC.

THE DATE OF THIS PROSPECTUS IS JUNE 22, 1998
<PAGE>

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document referred to as an exhibit to the Registration Statement.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Commission.
The Registration Statement, including the exhibits and schedules thereto, as
well as such reports and other information filed by the Company with the
Commission, can be inspected, without charge, and copied at the public
reference facilities maintained by the Commission at the office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, and at
the following Regional Offices of the Commission: 7 World Trade Center, New
York, New York 10048, Suite 1300; and 500 West Madison Street, Chicago,
Illinois 60661, Suite 1400. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C., 20549 upon the payment of the fees prescribed by the
Commission. The Commission maintains a Website that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission. The address of the site is
http:/www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Reports, proxy
statements and other information concerning the Company can be inspected at
such Website and the American Stock Exchange, Inc., 86 Trinity Place, New
York, New York 10006.

CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS CONSTITUTES "FORWARD-
LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT,
AND SECTION 21E OF THE EXCHANGE ACT, WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVES THEREOF OR OTHER VARIATIONS THEREON
OR COMPARABLE TERMINOLOGY. THE STATEMENTS UNDER THE CAPTIONS "RISK FACTORS" IN
THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT
FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH
FORWARD-LOOKING STATEMENTS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes appearing elsewhere
in this Prospectus. Unless otherwise indicated, the Prospectus (i) gives effect
to the conversion of shares of non-voting Class A Common Stock, $.01 par value
per share ("Class A Stock"), held by Impac Mortgage Holdings, Inc. ("IMH") into
that number of shares of Common Stock, $.01 par value per share (the "Common
Stock"), of Impac Commercial Holdings, Inc. ("ICH") not greater than 9.8% of
the outstanding shares of Common Stock of ICH upon the closing of this offering
and (ii) assumes that the Underwriters' over-allotment option will not be
exercised. Unless the context otherwise requires, references herein to the
"Company" refer to ICH, its subsidiary IMH/ICH Dove Street, LLC ("Dove"), and
Impac Commercial Capital Corporation ("ICCC"), collectively. Capitalized and
certain other terms used herein shall have the meanings assigned to them in the
Glossary.

THE COMPANY

GENERAL

BACKGROUND

Impac Commercial Holdings, Inc. is a recently formed specialty commercial
property finance company that conducts its business through its Conduit
Operations, which originates, purchases and sells or securitizes Commercial
Mortgages (as defined below), and through its Long-Term Investment Operations
which, to date, has invested primarily in Commercial Mortgages and mortgage-
backed securities on commercial properties ("CMBSs"). Commercial mortgages are
comprised of mortgage loans on condominium-conversions and commercial
properties, such as industrial and warehouse space, office buildings, retail
space and shopping malls, hotels and motels, nursing homes, hospitals,
multifamily, congregate care facilities and senior living centers
(collectively, "Commercial Mortgages"). The Company has elected to be taxed at
the corporate level as a real estate investment trust ("REIT") for federal
income tax purposes, which generally allows the Company to pass through income
to stockholders without payment of federal income tax at the corporate level.

The Commercial Mortgage securitization market has experienced significant
growth in recent years. In 1997, $44.3 billion of Commercial Mortgages were
securitized, representing a 48% increase over 1996 and a 133% increase over
1995, according to the Commercial Mortgage-Backed Securitization Update
1997/1998 published by E&Y Kenneth Leventhal Real Estate Group, a unit of Ernst
& Young LLP. The Company believes that the growth of the Commercial Mortgage
securitization market (including the emergence of an efficient secondary market
for Commercial Mortgages and mortgage-backed securities on CMBSs) and the
creation of uniform underwriting and document standards for Commercial
Mortgages are significant factors driving Commercial Mortgage originations by
conduits.

To take advantage of these trends, the Company has created operations to
efficiently originate Commercial Mortgages to either hold for investment those
Commercial Mortgages which are particularly attractive as REIT investments or
to sell or securitize the remainder into the secondary market. The Company
believes that this strategy will allow it to compete effectively in the
Commercial Mortgage market and to profit from the growth in the Commercial
Mortgage securitization market. For the three months ended March 31, 1998 and
the period from January 15, 1997 to December 31, 1997 (the "Commencement
Period"), the Conduit Operations originated $124.9 million and $233.5 million
in Commercial Mortgages, respectively.

1
<PAGE>

CONDUIT OPERATIONS

The Company's Conduit Operations operates through three divisions: the
ConduitExpress Division, the CommercialExpress Division, and the CondoSelect
Division.

ConduitExpress Division. The Company's ConduitExpress Division offers
Commercial Mortgages with a principal balance ranging from $1.5 million to
$10.0 million through specified correspondents such as savings and loan
associations, banks, mortgage bankers and other mortgage brokers. These
Commercial Mortgages are generally for projects more substantial than those
funded by the CommercialExpress Division. The ConduitExpress Division's
strategic focus is to be a low cost national mortgage originator through a
network of Commercial Mortgage correspondents which enables the Company to
shift the high fixed costs of interfacing with the property owner to such
correspondents. The marketing strategy for the ConduitExpress Division is
designed to accomplish three objectives: (1) attract a geographically diverse
group of correspondent loan originators, (2) establish relationships with such
correspondents and facilitate their ability to offer a variety of Commercial
Mortgage products designed by the ConduitExpress Division and (3) purchase
Commercial Mortgages and securitize or sell such mortgages into the secondary
market or to the Long-Term Investment Operations. The ConduitExpress Division
originated $72.9 million and $159.2 million during the three months ended March
31, 1998 and the Commencement Period, respectively.

CommercialExpress Division. The CommercialExpress Division markets Commercial
Mortgages directly to property owners who seek Commercial Mortgages to purchase
a building or refinance an existing mortgage. The CommercialExpress Division
offers smaller balance (ranging from $500,000 to $1.5 million) adjustable and
fixed rate Commercial Mortgages to project owners or developers for smaller
properties and projects than those offered by the ConduitExpress Division. The
division utilizes short-term prepayment lock-outs and prepayment penalties with
these Commercial Mortgages which reduces the Company's exposure to interest
rate changes and enhances the profitability of these Commercial Mortgages. The
Commercial Mortgages offered by the CommercialExpress Division generally
utilizes non-negotiable loan documents and limited scope third party reports
which provide more efficient underwriting and closing. The CommercialExpress
Division originated $48.6 million and $50.7 million during the three months
ended March 31, 1998 and the Commencement Period, respectively.

CondoSelect Division. The CondoSelect Division markets Commercial Mortgages
directly to developers and project owners who have completed a condominium
complex or are converting an apartment complex to a condominium complex. The
Division's products allow developers and project owners to structure flexible
financing for qualified condominium projects. Typical uses of the program
include financing the sale of individual units, replacing existing matured
loans or financing condominium acquisitions. Commercial Mortgages offered by
the CondoSelect Division are typically adjustable rate mortgages with an
initial balance between $3.0 million and $10.0 million. The CondoSelect
Division originated $3.4 million and $23.6 million during the three months
ended March 31, 1998 and the Commencement Period, respectively.

LONG-TERM INVESTMENT OPERATIONS

The Long-Term Investment Operations invests in mortgage loans for long-term
investment and mortgage-backed securities ("MBSs"). To date, the Long-Term
Investment Operations has invested primarily in Commercial Mortgages and CMBSs.
Income is earned principally from the net interest income received by the
Company on mortgage loans, MBSs held in its portfolio and finance receivables.
Purchases of mortgage loans and MBSs are financed with a portion of the
Company's capital, as well as long-term financing through Collateralized
Mortgage Obligations ("CMOs") and borrowings under warehouse line agreements
and reverse repurchase agreements. ICCC supports the investment objectives of
ICH by selling Commercial Mortgages and CMBSs to ICH at costs that are
comparable to those available through investment bankers and other third
parties. At March 31, 1998, the Company's mortgage loan and MBS portfolio
consisted of $205.5 million in finance receivables, $61.9 million in Commercial
Mortgages, $18.2 million in CMBSs, and $10.2 million of residual interest in
securitizations.

2
<PAGE>

RECENT DEVELOPMENTS

ICH's non-compete agreement with IMH expired in March 1998 and, as a result,
ICH now has the ability to invest in Residential Mortgage Assets (as defined
herein). To date, ICH has not invested in any Residential Mortgage Assets and
there can be no assurance that ICH will invest in any such assets. Due to the
asset size of ICH, any investments in Residential Mortgage Assets may
constitute a substantial percentage of the Company's total investments in
mortgage assets. See "Risk Factors--Value of Residential Mortgage Loans May be
Adversely Affected by Characteristics of Underlying Property, Borrower Credit
and Other Considerations" and "Certain Transactions--Non-Compete Agreement and
Right of First Refusal Agreement."

During the quarter ended March 31, 1998, the Company made a strategic
decision not to conduct whole loan sales during the first half of fiscal 1998
but rather to accumulate Commercial Mortgages in anticipation of a potential
securitization in the second half of fiscal 1998. In addition, the Company
intends to build its balance sheet by retaining a larger percentage of its
Conduit Operations production as long-term investments, thus generating
additional earnings from the net interest income on such assets. The Company
believes it will achieve better pricing execution by securitizing loans rather
than utilizing whole loan sales. The Company's results of operations and
financial condition will be adversely affected in any quarter in which the
Company does not effect a bulk whole loan sale or securitization. Earnings for
the quarter ended March 31, 1998 were adversely affected by the absence of a
whole loan sale and second quarter results are likely to be similarly affected.
The Company does not believe that earnings for the year ending December 31,
1998 will be materially adversely affected by its decision not to conduct whole
loan sales during the first half of fiscal 1998.

RAI ADVISORS, LLC

The Company's day-to-day operations are overseen by RAI Advisors, LLC ("RAI"
or the "Manager") which was formed as a vehicle through which the Impac
Mortgage Holdings, Inc. ("IMH") management team could effectively manage the
operations of the Company, IMH and future real estate investment trusts. The
Manager is responsible for three primary activities:

. asset-liability management--primarily the analysis and oversight of the
purchasing, financing and disposition of Company assets;

. capital management--primarily the oversight of the Company's capital
raising and investor relations activities, including both debt and
equity financings; and

. operations management--primarily the oversight of ICH's operating
subsidiaries.

The Company believes that the Manager provides these services more
efficiently than it could provide on its own, thereby enhancing ICH's
operations. See "RAI Advisors, LLC."

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

FORMATION

IMH, formerly Imperial Credit Mortgage Holdings, Inc., capitalized ICH with
$15.0 million in cash in March 1997. As of March 31, 1998, IMH owned 719,789
shares, or 9.8%, of ICH Common Stock and 674,211 shares of ICH Class A Stock.
Upon the closing of this offering, IMH will own 937,084 shares, or 9.8%, of ICH
Common Stock and 456,916 shares of ICH Class A Stock. See "Certain
Transactions--Transactions with IMH--Organizational Transactions."

ICH was incorporated in Maryland in February 1997 under the name Imperial
Credit Commercial Holdings, Inc., changed its name to IMH Commercial Holdings,
Inc. in June 1997, and in January 1998, the stockholders approved the change of
ICH's name to Impac Commercial Holdings, Inc. The Company's headquarters is
located at 20371 Irvine Avenue, Santa Ana Heights, California 92707 and its
telephone number is (714) 556-0122.

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

3
<PAGE>

RISK FACTORS

Each prospective purchaser of the shares offered hereby should review "Risk
Factors" beginning on page 8 for a discussion of certain factors that should be
considered before investing in the Shares, including, without limitation:

. Net interest income may be adversely affected by interest rate
fluctuations; Commercial Mortgages may be subject to prepayments;

. Borrowings and substantial leverage may have the potential of net
interest and operating losses; liquidity;

. Reduction in demand for Commercial Mortgages and the Company's loan
products may adversely affect the Company's operations;

. Dependence on securitizations may create liquidity risks;

. Company operations may be adversely affected if the Company fails to
effectively hedge against interest rate changes or if losses are incurred
in connection with hedging activities;

. Mortgage servicing rights subject to volatility;

. Delinquency ratios and Company performance may be affected by contracted
subservicing;

. Risk of variations in quarterly operating results; possible volatility of
stock price;

. Cost of compliance with Americans with Disabilities Act of 1990 may be
substantial;

. Value of Commercial Mortgages may be adversely affected due to
characteristics of underlying commercial properties and facilities;

. Geographic concentration of mortgage loans may expose mortgage loan
portfolio to regional economic fluctuations;

. Prepayment restrictions on Commercial Mortgages may be insufficient to
deter prepayments;

. Balloon payment at maturity and extension maturity increases lender
risks;

. Environmental risks may adversely affect value of underlying Commercial
Mortgages;

. Value of interest-only, principal-only, residual interest and
subordinated securities subject to fluctuation;

. Value of residential mortgage loans may be adversely affected by
characteristics of underlying property, borrower credit and other
considerations;

. Limited history of operations of limited relevance in predicting future
performance;

. No assurance of continued growth;

. Competition in the Commercial Mortgage industry may adversely affect the
Company's operations;

. Conflicts of interest; executive officers and directors to receive
extensive benefits;

. Subordinated indebtedness may affect value of underlying Commercial
Mortgages;

. Junior mortgages may affect Company's rights;

. Lack of experience of the Manager in managing a Commercial Mortgage REIT
may have an adverse effect on the Company;

. Termination of Management Agreement could adversely affect the Company's
operating results;

. Adverse consequences of failure to maintain REIT status includes ICH
being subject to taxation as a regular corporation;

. Potential characterization of distributions as UBTI may result in
taxation of tax-exempt investors on Company distributions;

4
<PAGE>

. Classification as a taxable mortgage pool could subject the Company to
increased taxation;

. Company's Operations may be adversely affected if Company is subject to
the Investment Company Act;

. Future revisions in policies and strategies at the discretion of the
Board of Directors may be affected without stockholder consent;

. Effect of future offerings may adversely affect the market price of
Common Stock;

. Shares eligible for future sale may adversely affect the market price of
the Company's Common Stock;

. Classification and reclassification of stock could adversely affect
common stockholders; issuance of preferred stock could adversely affect
common stockholders; restrictions on ownership of common stock may
inhibit market activity; possible anti-takeover effect may deter takeover
of the Company; and

. Year 2000 compliance.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company
(1).................................. 2,000,000 Shares
Common Stock to be Outstanding after
the Offering (1)(2).................. 9,562,084 Shares
Use of Proceeds....................... To provide funding for the Company's
Long-Term Investment Operations and its
Conduit Operations and for general
corporate purposes.
American Stock Exchange Symbol........ "ICH"
</TABLE>
- --------
(1) Assumes that the Underwriters' option to purchase up to an additional
300,000 shares of Common Stock to cover over-allotments is not exercised.
(2) Does not include 632,500 shares reserved for issuance pursuant to the
Company's Stock Option and Awards Plan of which: options to acquire 84,000
shares are outstanding at a per share exercise price of $17.625; options to
acquire 22,250 shares are outstanding at a per share exercise price of
$18.875; and options to acquire 190,000 shares are outstanding at a per
share exercise price of $15.00. Also does not include 456,916 shares of ICH
Class A Stock owned by IMH, which shares represent the right to receive
additional shares of ICH Common Stock. See "Capitalization," "Impac
Commercial Holdings, Inc.--Stock Option and Awards Plans" and "Description
of Capital Stock."

DIVIDEND POLICY AND DISTRIBUTIONS

To maintain its qualification as a REIT, ICH intends to make annual
distributions to its stockholders of at least 95% of its REIT taxable income
(which does not necessarily equal net income as calculated in accordance with
GAAP) determined without regard to the deduction for dividends paid and by
excluding any net capital gains. Any taxable income remaining after the
distribution of regular quarterly dividends will be distributed annually in a
special dividend on or prior to the date of the first regular quarterly
dividend payment date of the following taxable year. The dividend policy is
subject to revision at the discretion of the Board of Directors. All
distributions in excess of those required for ICH to maintain REIT status will
be made by the Company at the discretion of the Board of Directors and will
depend on the taxable earnings of the Company, the financial condition of ICH
and such other factors as the Board of Directors deems relevant. The Board of
Directors has not established a minimum distribution level. The following table
sets forth the dividends paid for the periods indicated:

<TABLE>
<CAPTION>
PER SHARE
STOCKHOLDER DIVIDEND
PERIOD COVERED RECORD DATE AMOUNT
-------------- ----------------- ---------
<S> <C> <C>
Quarter ended September 30, 1997 (1).......... October 21, 1997 $0.15
Quarter ended December 31, 1997............... December 31, 1997 $0.38
Quarter ended March 31, 1998.................. April 9, 1998 $0.40
Quarter ended June 30, 1998 (2)............... June 19, 1998 $0.45
</TABLE>
- --------
(1) ICH became a public entity on August 4, 1997.
(2) On June 8, 1998 the Company declared a dividend payable on July 2, 1998.

5
<PAGE>

The Company anticipates adopting a Dividend Reinvestment and Stock Purchase
Plan ("DRP") that allows stockholders of ICH who have enrolled in the DRP to
reinvest their dividends automatically in additional shares of Common Stock at
a discount from the current market price, in some cases. The shares of Common
Stock to be acquired for distribution under the DRP may be purchased on the
open market or directly from the Company at the option of the Company. The
shares issuable by ICH pursuant to the DRP are not being registered by means of
the Registration Statement of which this Prospectus forms a part. See "Dividend
Reinvestment Plan."

THE MANAGER

The Manager oversees the day-to-day operations of the Company, subject to the
supervision of the Company's Board of Directors, pursuant to a management
agreement (the "Management Agreement"). RAI has entered into a submanagement
agreement (the "Submanagement Agreement") with IFC, the conduit operations of
IMH, to provide all administrative services as required by the Company
including facilities and costs associated therewith, technology, human
resources, management information systems, general ledger accounts, check
processing and accounts payable as RAI deems necessary. IMH owns all of the
outstanding non-voting preferred stock of IFC, which represents 99% of the
economic interest in IFC and Messrs. Tomkinson, Johnson and Ashmore own 100% of
the Common Stock of IFC which represents 1% of the economic interest.

The Manager is responsible for three primary activities: (1) asset-liability
management--primarily the analysis and oversight of the purchasing, financing
and disposition of Company assets; (2) capital management--primarily the
oversight of the Company's structuring, analysis, capital raising and investor
relations activities; and (3) operations management--primarily the oversight of
ICH's operating subsidiaries. The Management Agreement has an initial term of
five years, renewable annually by agreement between the Company and the
Manager, subject to the approval of a majority of the Unaffiliated Directors.
The Management Agreement may be terminated by the Company at any time upon 60
days' written notice. In the event that the Management Agreement is terminated
or not renewed by the Company without cause, the Company will be obligated to
pay the Manager a termination or non-renewal fee determined by an independent
appraisal. See "Risk Factors--Other Considerations--Termination of Management
Agreement Could Adversely Affect the Company's Operating Results" and "RAI
Advisors, LLC--Management Agreement."

RAI is owned equally by each of Messrs. Tomkinson, Ashmore and Johnson.
Pursuant to a voting trust agreement, the Chief Executive Officer of RAI has
the right to control the vote of 51% of the outstanding voting securities of
RAI. See "RAI Advisors, LLC."

All of the officers of the Manager are also officers of ICH, ICCC, IMH and
IFC. The Manager has agreed to cause each of its officers to devote as much of
his or her time to the operations of the Company as is reasonably necessary.
ICH reimburses the Manager, who reimburses IFC, on a dollar for dollar basis
(including the service charge referenced below), for the actual cost of
providing the services of its officers to the Company based upon the
compensation payable to them by IFC, plus a 15% service charge. ICH reimburses
the Manager for expenses incurred by the Manager, plus a service charge of 15%
on all expenses owed by the Manager to IFC for costs and services under any
submanagement agreement between IFC and the Manager. The Manager pays all such
third parties on a dollar for dollar basis for the aforementioned amounts
received by it from the Company; no such 15% service charge is paid to third
party service providers other than IFC. For the first three years of the
Management Agreement, there is a minimum annual amount of $500,000 (including
the 15% service charge) payable by the Company in connection with services
provided and expenses incurred by RAI and payable by RAI to IFC. After August
8, 2000, the Company is only responsible for reimbursing expenses and services
provided, with the 15% service charge for amounts due to IFC. The Company does
not believe that its operations are adversely affected as a result of these
relationships. In addition, the Company pays the Manager, as compensation for
each fiscal quarter, an amount equal to 25% of the Net Income of the Company,
before deduction of such compensation, in excess of the amount that would
produce an annualized Return on Equity equal to the Ten Year U.S. Treasury Rate
plus 2% (the "25% Payment"). "Return on Equity" is computed on Average Net
Worth and

6
<PAGE>

has no necessary correlation with the actual distributions received by
stockholders. The 25% Payment to the Manager is calculated quarterly in arrears
before any income distributions are made to stockholders for the corresponding
period. During the three months ended March 31, 1998 and the Commencement
Period, ICH recorded expenses of $162,000 and none, respectively, in connection
with the 25% Payment payable to RAI and recorded an aggregate of $111,000 and
$525,000, respectively, in expenses payable to RAI. See "RAI Advisors, LLC--
Management Agreement" for a more detailed explanation of the management fee
arrangement and "Glossary" for full definitions of the terms "Net Income,"
"Return on Equity," "Ten Year U.S. Treasury Rate" and "Average Net Worth."

7
<PAGE>

RISK FACTORS

Before investing in the shares offered hereby, prospective investors should
give special consideration to the information set forth below, in addition to
the information set forth elsewhere in this Prospectus. The following risk
factors are interrelated and, consequently, investors should treat such risk
factors as a whole.

OPERATIONAL RISKS

NET INTEREST INCOME MAY BE ADVERSELY AFFECTED BY INTEREST RATE FLUCTUATIONS;
COMMERCIAL MORTGAGES MAY BE SUBJECT TO PREPAYMENTS.

The Company's earnings may be affected by changes in market interest rates.
In conducting its Conduit Operations, the Company is subject to the risk of
rising mortgage interest rates between the time the Company commits to
purchase Commercial Mortgages at a fixed price and the time the Company sells
or securitizes those Commercial Mortgages. An increase in interest rates will
generally result in a decrease in market value of Commercial Mortgages that
the Company has committed to purchase at a fixed price, but has not yet sold
or securitized.

Higher rates of interest may discourage potential borrowers from refinancing
Commercial Mortgages or borrowing to purchase or expand a multifamily building
or office complex or other type of commercial mortgage property, thus
decreasing the volume of Commercial Mortgages available to be purchased by the
Conduit Operations. In addition, an increase in short-term interest rates may
decrease or eliminate or, in certain circumstances, cause to be negative, the
Company's net interest spread during the accumulation of Commercial Mortgages
held for sale or the net interest spread on Commercial Mortgages held for
investment when such loans are financed through reverse repurchase agreements.
Should short-term interest rates exceed long-term interest rates (an "inverted
yield curve" scenario), the negative effect on the Company's net interest
spread would likely be coupled with a reduction in any earnings on any
servicing portfolio held by the Company to the extent prepayments on the
underlying Commercial Mortgages increased as long-term interest rates
declined. See "--Dependence on Securitizations May Create Liquidity Risks."

In conducting its Long-Term Investment Operations, a significant portion of
the Company's mortgage assets held for long-term investment consist of
mortgage loans that bear interest at an adjustable rate ("ARMs") or pass-
through rates based on short-term interest rates, and substantially all of the
Company's borrowings bear interest at fixed rates and have maturities of less
than 60 days. Consequently, changes in short-term interest rates may
significantly influence the Company's net interest income. Mortgages owned by
the Company that are ARMs or MBSs backed by ARMs are subject to periodic
interest rate adjustments based on objective indices such as the Prime Rate,
CMT Index or LIBOR. Interest rates on the Company's borrowings are also based
on short-term indices. To the extent any of the Company's mortgage assets are
financed with borrowings bearing interest based on an index different from
that used for the related mortgage assets, so-called "basis" interest rate
risk may arise. In such event, if the index used for the subject mortgage
assets is a "lagging" index (such as the 11th District Cost of Funds) that
reflects market interest rate changes on a delayed basis, and the rate borne
by the related borrowings reflects market rate changes more rapidly, the
Company's net interest income will be adversely affected in periods of
increasing market interest rates. Additionally, the Company's mortgage assets
are subject to periodic interest rate adjustments that may be less frequent
than the increases or decreases in rates borne by the borrowings or financings
utilized by the Company. Accordingly, in a period of increasing interest
rates, the Company could experience a decrease in net interest income or a net
loss because the interest rates on borrowings could adjust faster than the
interest rates on the Company's mortgage loans that are ARMs or MBSs backed by
ARMs. Moreover, ARMs are typically subject to periodic and lifetime interest
rate caps, which limit the amount an ARMs interest rate can change during any
given period. The Company's borrowings are not

8
<PAGE>

subject to similar restrictions. Hence, in a period of rapidly increasing
interest rates, the Company could also experience a decrease in net interest
income or a net loss in the absence of effective hedging because the interest
rates on borrowings could increase without limitation by caps while the
interest rates on the Company's mortgage loans that are ARMs and MBSs backed
by ARMs would be so limited. Further, some ARMs may be subject to periodic
payment caps that result in some portion of the interest accruing on the ARMs
being deferred and added to the principal outstanding. This could result in
less cash received by the Company on its mortgage loans that are ARMs than is
required to pay interest on the related borrowings, which will not have such
payment caps and may result in an increased level of default on such mortgage
loans. The Company expects that the net effect of these factors, all other
factors being equal, will be to lower the Company's net interest income or
cause a net loss during periods of rapidly rising interest rates, which could
negatively impact the market price of the Company's Common Stock. No assurance
can be given as to the amount or timing of changes in income. To the extent
that the Company utilizes short-term debt financing for fixed rate mortgage
loans or MBSs backed by fixed rate mortgages, the Company may also be subject
to interest rate risks. To the extent that any warehouse loans made by the
Company bear interest based upon an intermediate-term index while the
Company's borrowings to fund such loans bear interest based upon a short-term
index, the Company will be subject to the risk of narrowing interest rate
spreads.

Higher rates of interest may have a negative effect, in particular, on the
yield of any Company portfolio of "principal-only" MBSs and other types of
MBSs purchased at a discount. If the Company were required to dispose of any
"principal-only" MBSs held in its portfolio in a rising rate environment, a
loss could be incurred. Lower long-term rates of interest may negatively
affect the yield on any Company portfolio of "interest-only" MBSs, servicing
fees receivable, and other mortgage loans and MBSs purchased at a premium. It
is also possible that in certain low interest rate environments the Company
would not fully recoup any initial investment in such securities or
investments. See "--Borrowings and Substantial Leverage Have the Potential of
Net Interest and Operating Losses; Liquidity."

Although the Company's Commercial Mortgages that are ARMs generally contain
lock-outs on prepayments and prepayment penalties to reduce exposure to
prepayments, mortgage prepayment rates vary from time to time and may cause
changes in the amount of the Company's net interest income. Prepayments on
mortgage loans that are ARMs and MBSs backed by ARMs generally increase when
fixed mortgage interest rates fall below the then-current interest rates on
such mortgage loans and generally decrease when fixed mortgage interest rates
exceed the then-current interest rate on such mortgages. Prepayment experience
also may be affected by the geographic location of the property securing the
mortgage loans, the credit grade of the mortgage loan, the assumability of the
mortgage loan, the ability of the borrower to convert to a fixed-rate loan,
conditions in the mortgage loan and financial markets and general economic
conditions. In addition, prepayments on ARMs are affected by conditions in the
fixed-rate mortgage market. Furthermore, the existence of balloon payments may
result in obligors refinancing their mortgage loan earlier than if such
mortgages fully amortize over the maturity of the mortgage loan. See
"Business--Conduit Operations."

Prepayments of mortgage loans could affect the Company in several adverse
ways. A substantial portion of the ARMs purchased by the Company (either
directly as mortgage loans or through MBSs backed by ARMs) are newly
originated within six months of purchase and generally may bear initial
interest rates which are lower than their "fully-indexed" loans (the
applicable index plus the margin). In the event that such an ARM is prepaid
prior to or soon after the time of adjustment to a fully-indexed rate, the
Company will have experienced an adverse effect on its net interest income
during the time it held such ARM compared with holding a fully-indexed ARM and
will have lost the opportunity to receive interest at the fully-indexed rate
over the expected life of the ARM. In the event that the Company experiences a
significant level of prepayments on mortgage loans that are ARMs in a
declining interest rate environment, the Company could experience a drop in
net interest income due to an inability to reinvest such prepayments in
comparable Commercial Mortgages or CMBSs.

The prepayment of any mortgage loans that had been purchased at a premium by
the Company would result in the immediate write-off of any remaining
capitalized premium amount and a consequent decrease in the Company's interest
income. The Conduit Operations' strategy at the present time is to originate
or purchase

9
<PAGE>

Commercial Mortgages on a "servicing released" basis (i.e., the Company will
acquire both the Commercial Mortgages and the rights to service them). This
strategy requires payment of a higher purchase price by the Company for the
Commercial Mortgages, and to the extent a premium is paid, the Company is more
exposed to the adverse effects of early prepayments of the Commercial
Mortgages, as described above, and may not recognize a significant level of
gain or may experience a loss with respect to its servicing operations.

BORROWINGS AND SUBSTANTIAL LEVERAGE MAY HAVE THE POTENTIAL OF NET INTEREST
AND OPERATING LOSSES; LIQUIDITY

The Company employs a financing strategy to increase the size of its
investment portfolio by borrowing a substantial portion (up to approximately
92%, depending on the nature of the underlying asset) of the market value of
substantially all of its investments in mortgage loans and MBSs. The Company
intends to maintain a ratio of equity capital (book value of stockholders'
equity) to total assets of approximately 15%-20%. The Company has elected to
utilize CMO borrowings to a substantial degree because CMOs are more
consistent with ICH's maintenance of its REIT tax status. CMOs can receive
financing treatment as opposed to sale treatment. Financing treatment allows
the Company to recognize spread income over time as qualifying interest income
under the REIT gross income tests, as compared to gains at ICCC from the
issuance of pass-through securities which receives sale treatment and is fully
taxable. The value of the assets collateralizing CMO borrowings are reflected
on the Company's balance sheet, while the value of the assets backing pass-
through securities are not reflected on the balance sheet. Consequently, CMO
borrowings tend to increase the assets of the Company and to reduce the
Company's ratio of equity capital to total assets, as compared to the sale of
pass-through securities.

A majority of other Company borrowings are collateralized, currently in the
form of warehouse line agreements. In the future, such borrowings may be
collateralized in the form of reverse repurchase agreements. Both forms of
collateralization are based on the market value of the Company's assets
pledged to secure the specific borrowings. The cost of borrowings under such
agreements corresponds to the referenced interest rate (e.g., the Prime Rate,
CMT Index or LIBOR) plus or minus a margin. The margin over or under the
referenced interest rate varies depending upon the lender, the nature and
liquidity of the underlying collateral, the movement of interest rates, the
availability of financing in the market and other factors. If the returns on
the mortgage loans and MBSs financed with borrowed funds fail to cover the
cost of the borrowings, the Company will experience net interest losses. See
"Business--Long-Term Investment Operations."

The use of CMOs as financing vehicles tends to increase the Company's
leverage as mortgage loans held for CMO collateral are retained for investment
rather than sold in a secondary market transaction. Retaining mortgage loans
as CMO collateral exposes the Company to greater potential credit losses than
from the use of securitization techniques that are treated as sales. The
creation of a CMO involves an equity investment by the Company to fund
collateral in excess of the amount of the securities issued. Should the
Company experience credit losses greater than expected, the value of the
Company's equity investment in its CMOs would decrease and the Company's
financial condition and results of operations would be materially adversely
affected.

The ability of the Company to achieve its investment objectives depends not
only on its ability to borrow money in sufficient amounts and on favorable
terms but also on the Company's ability to renew or replace on a continuous
basis its maturing short-term borrowings. The Company's business strategy
relies on short-term borrowings to fund long-term mortgage loans and
investment securities available for sale. In the event the Company is not able
to renew or replace maturing borrowings, the Company could be required to
sell, under adverse market conditions, all or a portion of its mortgage loans
and investment securities available for sale, and could incur losses as a
result. In addition, in such event the Company may be required to terminate
hedge positions, which could result in further losses to the Company. Such
events could have a material adverse effect on the Company.

Certain of the Company's mortgage loans may be cross-collateralized to
secure multiple borrowing obligations of the Company to a single lender. A
decline in the market value of such assets could limit the Company's ability
to borrow or result in lenders initiating margin calls (i.e., requiring a
pledge of cash or additional mortgage loans to re-establish the ratio of the
amount of the borrowing to the value of the

10
<PAGE>

collateral). The Company could be required to sell mortgage loans under
adverse market conditions in order to maintain liquidity. If these sales were
made at prices lower than the carrying value of its mortgage loans, the
Company would experience losses. A default by the Company under its
collateralized borrowings could also result in a liquidation of the
collateral, including any cross-collateralized assets, and a resulting loss of
the difference between the value of the collateral and the amount borrowed.
Additionally, in the event of a bankruptcy of the Company, certain reverse
repurchase agreements may qualify for special treatment under the Bankruptcy
Code, the effect of which is, among other things, to allow the creditors under
such agreements to avoid the automatic stay provisions of the Bankruptcy Code
and to liquidate the collateral under such agreements without delay.
Conversely, in the event of a bankruptcy of a party with whom the Company had
a reverse repurchase agreement, the Company might experience difficulty
repurchasing the collateral under such agreement if it were to be repudiated
and the Company's claim against the bankrupt lender for damages resulting
therefrom were to be treated simply as one of an unsecured creditor. Should
this occur, the Company's claims would be subject to significant delay and, if
and when received, may be substantially less than the damages actually
suffered by the Company. See "Business--Long-Term Investment Operations--
Financing."

To the extent the Company is compelled to liquidate mortgage loans or MBSs
classified as Qualified REIT Assets to repay borrowings, ICH may be unable to
comply with the REIT asset and income tests, possibly jeopardizing ICH's
status as a REIT. See "Federal Income Tax Considerations--Taxation of ICH--
Income Tests."

The REIT provisions of the Code require ICH to distribute to its
stockholders substantially all of its taxable income. As a result, such
provisions restrict the Company's ability to retain earnings and replenish the
capital committed to its business activities.

The Company's liquidity is also affected by its ability to access the debt
and equity capital markets. To the extent that the Company is unable to
regularly access such markets, the Company could be forced to sell assets at
unfavorable prices or discontinue various business activities in order to meet
its liquidity needs. As a result, any such inability to access the capital
markets could have a negative impact on the Company's earnings.

Substantially all of the assets of the Conduit Operations are pledged to
secure the repayment of reverse repurchase agreements or other borrowings. In
addition, substantially all of the Commercial Mortgages that the Company has
originated or purchased and will in the future originate or purchase have been
or will be pledged to secure borrowings pending their securitization or sale
or as a part of their long-term financing. The cash flows received by the
Company from its investments that have not yet been distributed, pledged or
used to originate or purchase Commercial Mortgages or other investments may be
the only unpledged assets available to unsecured creditors and stockholders in
the event of liquidation of the Company. ICH has secured an aggregate of
$600.0 million of warehouse line agreements with two investment banks. For a
description of these facilities, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

REDUCTION IN DEMAND FOR COMMERCIAL MORTGAGES AND THE COMPANY'S LOAN PRODUCTS
MAY ADVERSELY AFFECT THE COMPANY'S OPERATIONS

The availability of Commercial Mortgages meeting the Company's criteria is
dependent upon, among other things, the size and level of activity in the
commercial and multi-family real estate lending market. The size and level of
activity in the commercial and multifamily real estate lending market depend
on various factors, including the level of interest rates, regional and
national economic conditions and inflation and deflation in commercial and
multifamily property values, as well as the general regulatory and tax
environment as it relates to mortgage lending. See "Business--Regulation." To
the extent the Company is unable to obtain sufficient Commercial Mortgages
meeting its criteria, the Company's business will be adversely affected.

In general, lower interest rates prompt greater demand for Commercial
Mortgages, because more entities can afford to purchase commercial and multi-
family properties, and refinancing transactions increase. However,

11
<PAGE>

if low interest rates are accompanied by a weak economy and high unemployment,
demand for Commercial Mortgages may decline. Conversely, higher interest rates
and decreased levels of commercial and multi-family activity may lower
Commercial Mortgage purchase volume levels, resulting in decreased economies
of scale and higher costs per unit, reduced fee income, smaller gains on the
sale of Commercial Mortgages and lower net income.

DEPENDENCE ON SECURITIZATIONS MAY CREATE LIQUIDITY RISKS

In connection with its Conduit Operations, ICCC has effected and will effect
bulk whole loan sales and will engage in securitizations. In connection with
the issuance of CMBSs by ICCC, such securities are expected to be non-recourse
to ICCC, except in the case of a breach of the standard representations and
warranties made by ICCC when Commercial Mortgages are securitized. While ICCC
may have recourse to the correspondents of Commercial Mortgages for any such
breaches, there can be no assurance of such correspondents' abilities to honor
their respective obligations. ICCC engages in bulk whole loan sales pursuant
to agreements that provide for recourse by the purchaser against ICCC (and, in
certain cases, ICH as guarantor) in the event of a breach of any
representation or warranty made by ICCC, any fraud or misrepresentation during
the Commercial Mortgage origination process or upon early default on such
Commercial Mortgages. ICCC has generally limited the remedies of such
purchasers to the remedies ICCC receives from the persons from whom ICCC
purchased such Commercial Mortgages. However, in some cases, the remedies
available to a purchaser of Commercial Mortgages from ICCC are broader than
those available to ICCC against its correspondents, and should a purchaser
exercise its remedies against ICCC, ICCC may not always be able to enforce
whatever remedies ICCC may have against its correspondents. ICCC may from time
to time provide provisions for loan losses related to estimated losses from
the breach of a standard representation and warranty.

The Company plans on securitizing a substantial portion of the Commercial
Mortgages it originates and purchases. ICCC expects to rely significantly upon
securitizations to generate cash proceeds for repayment of any warehouse lines
and to create credit availability. Further, gains on sales from ICCC's
securitizations are expected to represent a significant portion of ICCC's
earnings. Several factors are expected to affect the Company's ability to
complete securitizations of its Commercial Mortgages, including conditions in
the securities markets generally, conditions in the CMBS market specifically,
the credit quality of the Commercial Mortgages originated or purchased by the
Conduit Operations, the volume of ICCC's Commercial Mortgage originations and
purchases, and the Company's ability to obtain credit enhancement. If ICCC
were unable to securitize profitably a sufficient number of its Commercial
Mortgages in a particular financial reporting period, then the Company's
revenues for such period would decline, which could result in lower income or
a loss for such period. In addition, unanticipated delays in closing a
securitization could also increase ICCC's interest rate risk by increasing the
warehousing period for its Commercial Mortgages.

The Company also expects to rely on securitizations in the form of CMO
borrowings to finance a substantial portion of the mortgage loans held by the
Long-Term Investment Operations. Any reduction in the Company's ability to
complete securitizations would require the Company to utilize other sources of
financing which may be on less favorable terms.

In connection with its securitizations, the Company will endeavor to sell
all securities subjecting it to a first loss risk. However, the market for
such securities in securitizations of Commercial Mortgages is generally
limited. Such investment decisions may subject the Company to a greater degree
of credit risk than in traditional securitizations involving residential
mortgage loans. As a result, the Company may be required to hold securities
subjecting the Company to a first loss risk in order to effectuate its
securitizations of Commercial Mortgages.

COMPANY OPERATIONS MAY BE ADVERSELY AFFECTED IF THE COMPANY FAILS TO
EFFECTIVELY HEDGE AGAINST INTEREST RATE CHANGES OR IF LOSSES ARE INCURRED
IN CONNECTION WITH HEDGING ACTIVITIES

To mitigate risks associated with its Conduit Operations, the Company,
through ICCC, enters into transactions designed to hedge interest rate risks,
which may include mandatory and optional forward selling of U.S. Treasuries,
interest rate caps, floors and swaps and buying and selling of futures and
options on futures. To mitigate risks associated with its Long-Term Investment
Operations, the Company's policy is to attempt to match

12
<PAGE>

the interest rate sensitivities of its adjustable rate mortgage assets held
for investment with the associated liabilities. The Company may purchase
interest rate caps, interest rate swaps or similar instruments to attempt to
mitigate the cost of its variable rate liabilities increasing at a faster rate
than the earnings on its subject assets during a period of rising interest
rates. The nature and quantity of the hedging transactions for the Conduit
Operations and the Long-Term Investment Operations is determined by the
Company based on various factors, including market conditions and the expected
volume of Commercial Mortgage originations and purchases, and there have been
no limitations placed on the Company's use of certain instruments in such
hedging transactions. No assurance can be given that such hedging transactions
will offset the risks of changes in interest rates, and it is possible that
there will be periods during which the Company could incur losses after
accounting for its hedging activities. As of March 31, 1998, the Company was
not aware of any material losses associated with its hedging operations. See
"Business--Hedging."

MORTGAGE SERVICING RIGHTS SUBJECT TO VOLATILITY

When ICCC purchases mortgage loans that include the associated servicing
rights or originates mortgage loans, the allocated cost of the servicing
rights will be reflected on its financial statements as Mortgage Servicing
Rights ("MSRs"). MSRs are amortized in proportion to, and over the period of,
expected future net servicing income.

SFAS No. 125 requires that a portion of the cost of acquiring a mortgage
loan be allocated to the mortgage loan servicing rights based on its fair
value relative to the loan as a whole. To determine the fair value of the
servicing rights created, ICCC uses a valuation model that calculates the
present value of future net servicing revenues to determine the fair value of
the servicing rights. In using this valuation method, ICCC incorporates
assumptions that it believes market participants would use in estimating
future net servicing income which include estimates of the cost of servicing,
an inflation rate, ancillary income per mortgage loan, a prepayment rate, a
default rate and a discount rate commensurate with the risks involved.

MSRs are subject to some degree of volatility in the event of unanticipated
prepayments or defaults. Prepayments in excess of those anticipated at the
time MSRs are recorded could result in a decline in the fair value of the MSRs
below their carrying value requiring a provision to increase the MSRs'
valuation allowance. The rate of prepayment of mortgage loans is affected by a
variety of economic and other factors, including prevailing interest rates and
the availability of alternative financing. The effect of those factors on
Commercial Mortgage prepayment rates may vary depending on the particular type
of mortgage loan. Estimates of prepayment rates are made based on management's
expectations of future prepayment rates, which are based, in part, on the
historical rate of prepayment of ICCC's Commercial Mortgages, and other
considerations. There can be no assurance of the accuracy of the Company's
prepayments estimates. If actual prepayments with respect to loans serviced
occur more quickly than were projected at the time such mortgage loans were
sold, the carrying value of the MSRs may have to be reduced through a
provision recorded to increase the MSRs' valuation allowance in the period the
fair value declined below the MSRs' carrying value. If actual prepayments with
respect to mortgage loans occur more slowly than estimated, the carrying value
of MSRs would not increase, although total income would exceed previously
estimated amounts and the related valuation allowances, if any, could be
unnecessary.

DELINQUENCY RATIOS AND COMPANY PERFORMANCE MAY BE AFFECTED BY CONTRACTED SUB-
SERVICING

ICCC currently contracts for the sub-servicing of all Commercial Mortgages
it originates or purchases and holds for sale or investment with third-party
sub-servicers. As with any external service provider, ICCC is subject to risks
associated with inadequate or untimely services. Many of ICCC's borrowers
require notices and reminders to keep their Commercial Mortgages current and
to prevent delinquencies and foreclosures. A substantial increase in ICCC's
delinquency rate or foreclosure rate could adversely affect its ability to
access profitably the capital markets for its financing needs, including
future securitizations. ICCC regularly reviews the delinquencies of its
servicing portfolio. Although the Conduit Operations periodically reviews the
costs associated with establishing operations to service the loans it
purchases, it has no plans to establish and perform servicing operations at
this time. See "Business--Servicing."

13
<PAGE>

One of ICCC's sub-servicing agreements with its third-party sub-servicers
provide that if ICCC terminates the agreement without cause (as defined in the
agreement), ICCC may be required to pay the third-party sub-servicer a fee.
Further, this agreement currently provides that ICCC shall pay the third-party
sub-servicer a transfer fee per Commercial Mortgage for any Commercial
Mortgage which ICCC transfers to another sub-servicer without terminating the
agreement. Depending upon the size of ICCC's loan portfolio sub-serviced at
any point in time, the termination penalty that ICCC would be obligated to pay
upon termination without cause, may be substantial.

ICCC intends to subcontract with sub-servicers to service the Commercial
Mortgages for any of the Company's public securitizations. With respect to
such Commercial Mortgages, the related pooling and servicing agreements would
permit ICCC to be terminated as servicer under specific conditions described
in such agreements, which generally include the failure to make payments,
including advances, within specific time periods. Such termination would
generally be at the option of the trustee but not at the option of the
Company. If, as a result of a sub-servicer's failure to perform adequately,
ICCC were terminated as servicer of a securitization, the value of any
servicing rights held by ICCC would be adversely impacted. In addition, if a
new sub-servicer were selected with respect to any such securitization, the
change in sub-servicing may result in greater delinquencies and losses on the
related loans, which would adversely impact the value of any "interest-only,"
"principal-only," residual interest and subordinated securities held by the
Company in connection with such securitization.

RISK OF VARIATIONS IN QUARTERLY OPERATING RESULTS; POSSIBLE VOLATILITY OF
STOCK PRICE

Several factors affecting the Company's business can cause significant
variations in its quarterly results of operations. Variations in the volume of
the Company's loan originations, the differences between the Company's cost of
funds and the average interest rates earned on originated loans, the inability
or decisions not to complete significant bulk whole loan sale transactions or
securitizations in a particular quarter, and problems generally affecting the
mortgage loan industry can result in significant increases or decreases in the
Company's revenues from quarter to quarter. A delay in closing a particular
mortgage loan sale transaction or securitization would also increase the
Company's exposure to interest rate fluctuations by lengthening the period
during which its variable rate borrowings under its warehouse facilities are
outstanding. If the Company were unable to sell a sufficient number of its
mortgage loans at a premium during a particular reporting period, the
Company's revenues for such period would decline, resulting in a lower net
income and possibly a net loss for such period, which could have a material
adverse affect on the Company's results of operations, financial condition and
stock price. As such, the trading price of the Company's Common Stock could
also be subject to significant fluctuations in response to variations in
quarterly operating results, and other factors, such as changes in analysts'
estimates and changes generally affecting the mortgage industry. In addition,
the stock market is subject to price and volume fluctuations that affect
market prices for companies in general and may not be related to their
operating performance.

During the quarter ended March 31, 1998, the Company made a strategic
decision not to conduct whole loan sales during the first half of fiscal 1998
but rather to accumulate Commercial Mortgages in anticipation of a potential
securitization in the second half of fiscal 1998. In addition, the Company
intends to build its balance sheet by retaining a larger percentage of its
Conduit Operations production as long-term investments, thus generating
additional earnings from the net interest income on such assets. The Company
believes it will achieve better pricing execution by securitizing loans rather
than utilizing whole loan sales. The Company's results of operations and
financial condition will be adversely affected in any quarter in which the
Company does not effect a bulk whole loan sale or securitization. Earnings for
the quarter ended March 31, 1998 were adversely affected by the absence of a
whole loan sale and second quarter results are likely to be similarly
affected. The Company does not believe that earnings for the year ending
December 31, 1998 will be materially adversely affected by its decision not to
conduct whole loan sales during the first half of fiscal 1998.

14
<PAGE>

COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT OF 1990 MAY BE
SUBSTANTIAL

Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. To the extent a mortgaged property
securing one of the Company's Commercial Mortgages does not comply with the
ADA, ICH or the related borrower, as the case may be, is likely to incur costs
of complying with the ADA. In addition, noncompliance could result in the
imposition of fines by the federal government or an award of damages to
private litigants. As of March 31, 1998, the Company was not aware of any
material costs associated with compliance with the ADA to which it may be
subject.

ORIGINATING AND INVESTING IN MORTGAGES AND COMMERCIAL MORTGAGES MAY ENTAIL
SUBSTANTIAL RISKS

GENERAL

The Company makes long-term investments in Commercial Mortgages.
Accordingly, during the time it holds Commercial Mortgages for investment, the
Company is subject to risks of borrower defaults, bankruptcies and losses that
are not covered by insurance (such as those occurring from earthquakes or
floods). Commercial Mortgage lending is generally viewed as exposing the
lender to a greater risk of loss than residential mortgage lending in part
because it typically involves larger loans to single borrowers or groups of
related borrowers than residential mortgage loans. Further, the repayment of
Commercial Mortgages secured by income-producing properties is typically
dependent upon the tenant's ability to meet its obligations under the lease
relating to such property, which in turn depends upon profitable operation of
the related property. In the event of a default on any Commercial Mortgage
held by the Company, the Company bears the risk of loss of principal to the
extent of any deficiency between the value of the related mortgaged property,
plus any payments from an insurer or guarantor, and the amount owed on the
Commercial Mortgage. Defaulted Commercial Mortgages will also cease to be
eligible collateral for borrowings, and will have to be financed by the
Company out of other funds until ultimately liquidated.

The profitable operation of multifamily properties and multitenant retail
office and industrial properties is also dependent on the performance and
viability of the property manager of such project. The property manager is
responsible for responding to changes in the local market, planning and
implementing the rental structure, including establishing appropriate rental
rates, and advising the borrower so that maintenance and capital improvements
can be carried out in a timely fashion all of which may impact the borrower's
ability to make payments under the related Commercial Mortgage, which may
adversely affect the timing and amount of payments received by the Company
with respect to such Commercial Mortgages. There is no assurance regarding the
performance of any operators and/or managers or persons who may become
operators and/or managers upon the expiration or termination of leases or
management agreements or following any default or foreclosure under a
Commercial Mortgage.

Commercial Mortgages generally are non-recourse to the borrower. In the
event of foreclosure on a Commercial Mortgage, the value of the property and
other collateral securing the Commercial Mortgage may be less than the
principal amount outstanding on the Commercial Mortgage and the accrued but
unpaid interest. Also, there may be costs and delays involved in enforcing
rights of a property owner against tenants in default under the terms of
leases with respect to commercial properties, who may seek the protection of
the bankruptcy laws which can result in termination of lease contracts all of
which may adversely affect the timing and amount of payment received by the
Company with respect to such Commercial Mortgages.

VALUE OF COMMERCIAL MORTGAGES MAY BE ADVERSELY AFFECTED DUE TO
CHARACTERISTICS OF UNDERLYING COMMERCIAL PROPERTIES AND FACILITIES

Multifamily Properties. Adverse economic conditions, either local, regional
or national, may limit the amount of rent that can be charged and may result
in a reduction in timely rent payments or a reduction in occupancy levels.
Further, the costs of operating a property may increase, including the costs
of utilities and the

15
<PAGE>

costs of required capital expenditures. Occupancy and rent levels may also be
affected by construction of additional housing units, local military base
closings and national and local politics, including current or future rent
stabilization and rent control laws and agreements. In addition, the level of
mortgage interest rates may encourage tenants to purchase single-family
housing. All of these conditions and events may increase the possibility that
a borrower may be unable to meet its obligation under the related Commercial
Mortgage all of which may adversely affect the timing and amount of payment
received by the Company with respect to such Commercial Mortgages.

Retail, Office and Industrial Properties. Income from and the market value
of properties which are retail or office properties would be adversely
affected if space in such properties could not be leased, if tenants are
unable to meet their lease obligations, if a significant tenant were not able
to make its lease payments or were to become a debtor in a bankruptcy case
under the United States Bankruptcy Code and the lease of the related property
was rejected, or if for any other reason rental payments could not be
collected. If tenant sales in the properties that contain retail space were to
decline, percentage rents may decline, tenants may be unable to pay their base
rent or delays in enforcing the lessor's rights could be experienced.
Repayment of the related Commercial Mortgages will be affected by the
expiration of space leases and the ability of the respective borrowers to
renew their leases or relet the space on comparable terms. Even if vacated
space is successfully relet, the costs associated with reletting, including
tenant improvements and leasing commissions (to the extent not reserved),
could be substantial and could reduce cash flow from the properties. Shopping
centers (and other retail properties) are, in general, affected by the health
of the retail industry, which is currently undergoing a consolidation and is
experiencing changes due to the growing market share of "off-price" and direct
mail retailing, and a particular shopping center may be adversely affected by
the bankruptcy, decline in drawing power, departure or cessation of operations
of an anchor tenant, a shift in consumer demand due to demographic changes
(for example, population decreases or changes in average age or income) and/or
changes in consumer preference.

Office properties may also be adversely affected if there is an economic
decline in the business operated by their tenants. The risk of such an adverse
effect is increased if revenue is dependent on a single tenant or if there is
a significant concentration of tenants in a particular business or industry.
Office properties generally require their owners to expend significant amounts
of cash to pay for general capital improvements, tenant improvements and costs
or re-leasing space. Also, office properties that are not equipped to
accommodate the needs of modern businesses may become functionally obsolete
and thus non-competitive.

Industrial and warehouse properties may be adversely affected by reduced
demand for industrial space occasioned by a decline in a particular industry
segment (for example, a decline in defense spending), and a particular
industrial or warehouse property that suited the needs of its original tenant
may be difficult to relet to another tenant or may become functionally
obsolete relative to newer properties.

Self-Storage Facilities. Self-storage properties are considered vulnerable
to competition, because both acquisition costs and break-even occupancy are
relatively low. The conversion of self-storage facilities to alternative uses
would generally require substantial capital expenditures. Thus, if the
operation of a self-storage property becomes unprofitable due to decreased
demand, competition, age or improvements or other factors such that the
borrower becomes unable to meet its obligations on the related Commercial
Mortgage, the liquidation value of that self-storage property may be
substantially less, relative to the amount owing on the Commercial Mortgage,
than would be the case if the self-storage property were readily adaptable to
other uses. Tenant privacy, anonymity and efficient access may heighten
environmental risks.

Congregate Care Facilities. Mortgaged properties that operate as hospitals
and nursing homes may present special risks to lenders due to the significant
governmental regulation of the ownership, operation, maintenance and financing
of health care institutions.

GEOGRAPHIC CONCENTRATION OF MORTGAGE LOANS MAY EXPOSE MORTGAGE LOAN PORTFOLIO
TO REGIONAL ECONOMIC FLUCTUATIONS

The Company does not set specific limitations on the aggregate percentage of
its portfolio composed of properties underlying the Company's mortgage loans
located in any one area (whether by state, zip code or other

16
<PAGE>

geographic measure). For the three months ended March 31, 1998 and for the
Commencement Period, 47% and 52%, respectively, of the Commercial Mortgages
purchased by the Company were secured by properties located in California.
Concentration in any one area will increase exposure of the Company's
portfolio to the economic and natural hazard risks associated with such area.
Repayments by borrowers and the market value of the mortgaged properties on
the related mortgage loans may be affected by economic conditions generally or
in regions where the mortgaged properties are located, conditions in the real
estate market where the mortgaged properties securing the related mortgage
loans are located, changes in governmental rules and fiscal policies, acts of
nature, including floods, tornadoes and earthquakes (which may result in
uninsured losses), and other factors which are beyond the control of the
borrowers.

Management estimates that a majority of the mortgage loans held by the
Company for portfolio investment will be secured by properties in California.
At March 31, 1998 and December 31, 1997, approximately 33% and 31%,
respectively, of the mortgage loans held by the Company for portfolio
investment were secured by properties in California. Certain parts of
California have experienced an economic downturn in recent years, particularly
in areas of high defense industry concentration, and have suffered the effects
of certain natural hazards such as earthquakes, fires and floods.

PREPAYMENT RESTRICTIONS ON COMMERCIAL MORTGAGES MAY BE INSUFFICIENT TO DETER
PREPAYMENTS

Substantially all of the Commercial Mortgages (other than Commercial
Mortgages associated with condominium conversions and other multifamily
properties) originated by the Company contain provisions restricting
prepayments of such Commercial Mortgages. Such restrictions prohibit
prepayments in whole or in part during a specified period of time and/or
require the payment of a prepayment charge in connection with the prepayment
thereof. Such prepayment restrictions can, but do not necessarily, provide a
deterrent to prepayments. Prepayment charges may be in an amount which is less
than the figure which would fully compensate for the difference in yield upon
reinvestment of the prepayment proceeds against the expected yield to maturity
of the Commercial Mortgage. There can be no assurance that the borrower on a
Commercial Mortgage which is being prepaid will have sufficient financial
resources to pay all or a portion of any required prepayment charges,
particularly where the prepayment results from acceleration of the Commercial
Mortgage following a payment default. No assurance can be given that, at the
time any prepayment charges are required to be made in connection with a
defaulted Commercial Mortgage, foreclosure proceeds will be sufficient to make
such payments. No representation or warranty is made as to the effect of such
prepayment charges on the rate of prepayment of the related Commercial
Mortgage. In addition, prepayments on Commercial Mortgages held by the Long-
Term Investment Operations during periods of low or declining interest rates
may decrease net income if the Long-Term Investment Operations is unable to
invest in Commercial Mortgages with a comparable interest rate.

The enforceability, under the laws of a number of states, of provisions
similar to the provisions in the Commercial Mortgages providing for the
payment of prepayment charges upon a voluntary or involuntary prepayment is
unclear. In particular, no assurance can be given that, at any time that any
prepayment charge is required to be made in connection with an involuntary
prepayment, the obligation to pay such prepayment charge will be enforceable
under applicable law or, if enforceable, that foreclosure proceeds will be
sufficient to make such payment. Proceeds recovered in respect of any
defaulted Commercial Mortgage will, in general, be applied to cover
outstanding property protection expenses and servicing expenses and unpaid
principal and interest prior to being applied to cover any prepayment charge
due in connection with the liquidation of such Commercial Mortgage.

BALLOON PAYMENT AT MATURITY AND EXTENSION OF MATURITY INCREASES LENDER RISKS

A substantial percentage of the Company's Commercial Mortgages have a
balloon payment due for each such Commercial Mortgage at its respective
maturity date. Commercial Mortgages with balloon payments involve a greater
risk to a lender than self-amortizing loans, because the ability of a borrower
to pay such amount will normally depend on its ability to fully refinance the
Commercial Mortgage or sell the related property at a price sufficient to
permit the borrower to make the balloon payment. The ability of a borrower to
effect a refinancing or sale will be affected by a number of factors,
including, without limitation, the value of the related

17
<PAGE>

property, the level of available mortgage interest rates at the time of
refinancing, the related borrower's equity in the property, the financial
condition and operating history of the borrower and the related property, the
strength of the commercial and multifamily real estate markets, tax laws, and
prevailing general economic conditions. Neither ICH nor any of its affiliates
is under any obligation to refinance any Commercial Mortgage. As of March 31,
1998, the Company was not aware of any material costs associated with balloon
payments to which it may be subject.

ENVIRONMENTAL RISKS MAY ADVERSELY AFFECT VALUE OF UNDERLYING COMMERCIAL
MORTGAGES

Contamination of real property may give rise to a lien on that property to
assure payment of the cost of clean-up or, in certain circumstances, may
result in liability to the lender for that cost. Such contamination may also
reduce the value of the property. A "Phase I" environmental site assessment
will generally be performed on mortgaged properties with a loan balance over
$1.5 million. For loan balances below $1.5 million, the Company requires the
borrower to prepare an environmental worksheet. Depending on the results of
the worksheet, the Company may require a Phase I environmental site
assessment. For certain of the mortgaged properties, depending on the result
of the Phase I environmental site assessment, a further regulatory file review
and/or Phase II environmental site assessment will be performed.

ICCC's servicing guidelines require it to obtain an environmental site
assessment of a mortgaged property prior to acquiring title thereto or
assuming its operation. Such requirement effectively precludes enforcement of
the security for the related Commercial Mortgage until a satisfactory
environmental site assessment is obtained or until any required remedial
action is thereafter taken but will decrease the likelihood that ICH will
become liable for a material adverse environmental condition at the mortgaged
property. However, there can be no assurance that the servicing guidelines
will effectively insulate ICH from potential liability for a materially
adverse environmental condition at any mortgaged property.

On April 29, 1992, the United States Environmental Protection Agency ("EPA")
issued a final rule intended to protect lenders from liability under the
federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"). This rule was in response to a 1990 decision
of the United States Court of Appeals for the Eleventh Circuit, United States
v. Fleet Factors Corp., which narrowly construed the security interest
exemption under CERCLA to hold lenders liable if they had the capacity to
influence their borrower's management of hazardous waste. On February 4, 1994,
the United States Court of Appeals for the District of Columbia Circuit in
Kelley v. Environmental Protection Agency invalidated this EPA rule. As a
result of the Kelley case, the state of the law with respect to the secured
creditor exemption and the scope of permissible activities in which a lender
may engage to protect its security interest remain uncertain. EPA and the
Department of Justice ("DOJ"), however, issued a joint policy memorandum in
which these agencies announced that they would continue to follow the "Lender
Liability Rule" vacated by the Kelley case. These agencies indicated that
prior to its invalidation, several courts adhered to the terms of the "Lender
Liability Rule" or interpreted CERCLA in a manner consistent with the "Lender
Liability Rule." EPA and DOJ indicated in the September 22, 1995 memorandum
that they intend to follow this line of cases. This EPA/DOJ policy, however,
would not necessarily affect the potential for lender liability in actions by
parties other than EPA or under laws or legal theories other than CERCLA. If a
lender is or becomes liable, it can bring an action for contribution against
the owner or operator who created the environmental hazard, but that person or
entity may be bankrupt or otherwise judgment proof.

Environmental clean-up costs may be substantial. It is possible that such
costs could become a liability of ICH reducing the return to holders of the
Company's Common Stock if such remedial costs were incurred. As of March 31,
1998, the Company was not aware of any environmental remedial costs to which
it may be subject.

INVESTING IN MORTGAGE-BACKED SECURITIES MAY ENTAIL SUBSTANTIAL RISKS

GENERAL

18
<PAGE>

mortgage pay-through securities, although other structures are possible. With
a typical mortgage pass-through security, payment of principal and interest on
the underlying mortgages, following deduction of servicing expenses, is passed
through directly to holders of the securities. Mortgage pay-through securities
represent an obligation of the issuer, secured by a pool of mortgage loans
pledged as collateral for payments of principal and interest on the debt
instrument. The issuer's obligation to pay principal and interest under a
mortgage pay-through security is limited to the pledged collateral.

MBSs generally are structured with some form of credit enhancement to
protect against potential losses on the underlying Commercial Mortgages.
Credit support increases the likelihood of timely and full payment of
principal and interest to the more senior class of MBSs. Because of the
particular risks that accompany MBSs, the amount of such credit support may be
substantial. Credit supports used in the MBSs market has included issuer
guarantees, reserve funds, subordinated securities (which bear the risks of
default before more senior classes of securities of the same issuer), cross-
collateralization and over-collateralization.

In addition to credit support, MBSs may be structured with liquidity
protections intended to provide assurance of timely payment of principal and
interest. Such protections may include surety bonds, letters of credit and
payment advance agreements. The value of a liquidity credit support provided
by a third party will depend on the continued ability of the party providing
the support to do so. Consequently, as part of the process of monitoring the
credit quality of a MBS, rating agencies will monitor the creditworthiness of
providers of related liquidity supports. Unanticipated demands for liquidity
assistance or other difficulties encountered by the liquidity support provider
that may adversely affect its ability to provide support to an issue may lead
to a decline in credit quality and rating downgrades. Delays or difficulties
encountered in servicing MBSs may cause earlier reliance on liquidity supports
than was originally anticipated and also may lead to downgrades in credit
quality.

The CMBS market is newer and in terms of total outstanding principal amount
of issues is relatively small compared to the total size of the market for
residential MBSs. CMBSs have been issued in public and private transactions by
a variety of agency and private-label issuers. CMBSs have been issued using a
variety of structures, some of which were developed in the residential
mortgage context, including multi-class structures featuring senior and
subordinated classes. Because of the great diversity in characteristics of the
Commercial Mortgages that secure CMBSs, however, such securities have unique
features and characteristics.

Since the CMBS market is relatively new and unseasoned, rating agencies have
not had substantial experience over a long period through different economic
cycles in assigning ratings to CMBSs or monitoring previously rated CMBSs. The
process of rating CMBSs generally involves a more complicated credit analysis
than applies to ratings of residential mortgage-backed securities. The process
of servicing CMBSs also is more complicated than the servicing of residential
mortgage-backed securities, and difficulties encountered in servicing may
cause a rating agency to reevaluate or downgrade the credit quality of an
issue of CMBSs.

VALUE OF INTEREST-ONLY, PRINCIPAL-ONLY, RESIDUAL INTEREST AND SUBORDINATED
SECURITIES SUBJECT TO FLUCTUATION

ICH's assets include "interest-only," "principal-only," residual interest
and subordinated securities, valued by the Company in accordance with SFAS No.
115, "Accounting for Certain Debt and Equity Securities," if purchased by the
Company in the secondary market or in accordance with SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities," if created in connection with the securitization of
Commercial Mortgages held for sale by ICCC. ICH records its retained interest
in ICCC's securitizations (including "interest-only," "principal-only" and
subordinated securities) as investments classified as trading securities and
records its purchased residual interests and subordinated securities as
available for sale securities. Realization of these "interest-only,"
"principal-only," residual interest and subordinated securities in cash is
subject to the timing and ultimate realization of cash flows associated
therewith, which is in turn effected by the prepayment and loss
characteristics of the underlying loans. Because subordinated securities, in
general, bear all credit losses prior to the related senior securities, the
amount of credit risk associated with any investment in such subordinated
securities is significantly greater than that associated with a comparable

19
<PAGE>

investment in the related senior securities and, on a percentage basis, the
risk associated with holding subordinated securities is greater than holding
the underlying mortgage loans directly due to the concentration of losses in
such subordinated securities and that subordinated securities receive payments
of principal and interest after such payments on related senior securities and
the underlying mortgage loans. The Company estimates future cash flows from
these "interest-only," "principal-only," residual interest and subordinated
securities and values such securities utilizing assumptions that it believes
to be consistent with those that would be utilized by an unaffiliated third
party purchaser. If actual experience differs from the assumptions used in the
determination of the asset value, future cash flows and earnings could be
negatively impacted, and the Company could be required to reduce the value of
its "interest-only," "principal-only," residual interest and subordinated
securities in accordance with SFAS No. 115 and SFAS 125. The value of such
securities can therefore fluctuate widely and may be extremely sensitive to
changes in discount rates, projected mortgage loan prepayments and loss
assumptions. The Company believes that its aggregate delinquency and loan loss
experience will increase as its mortgage loan portfolio matures. To the
Company's knowledge, the market for the sale of the " interest-only,"
"principal-only," residual interest and subordinated securities is limited. No
assurance can be given that "interest-only," "principal-only," residual
interest and subordinated securities could be sold at their reported value, if
at all. See "Business--Long-Term Investment Operations--Investments in
Mortgage-Backed Securities."

The risks of investing in MBSs include risks that the existing credit
support will prove to be inadequate, either because of unanticipated levels of
losses or, if such credit support is provided by a third party, because of
difficulties experienced by such credit support provider. Delays or
difficulties encountered in servicing MBSs may cause greater losses and,
therefore, greater resort to credit support than was originally anticipated,
and may cause a rating agency to downgrade a security.

The Company also bears risk of loss on any MBSs it purchases in the
secondary market. To the extent third parties have been contracted to insure
against these types of losses, the Company would be dependent in part upon the
creditworthiness and claims paying ability of the insurer and the timeliness
of reimbursement in the event of a default on the underlying obligations.
Further, the insurance coverage for various types of losses is limited, and
losses in excess of the limitation would be borne by the Company.

VALUE OF RESIDENTIAL MORTGAGE LOANS MAY BE ADVERSELY AFFECTED BY
CHARACTERISTICS OF UNDERLYING PROPERTY, BORROWER CREDIT AND OTHER
CONSIDERATIONS

The Company may also make investments in residential mortgage loans and MBSs
on residential properties. Some of the risks applicable to Commercial
Mortgages are also applicable to residential mortgage loans, which include,
without limitation, the following risks relating to an investment in such
instruments:

Mortgage Loan Credit Risks. During the time it holds any residential
mortgage loans, the Company will be subject to increased credit risks,
including risks of borrower defaults and bankruptcies and special hazard
losses that are not covered by standard hazard insurance (such as those
occurring from earthquakes or floods).

In the event of a default on any residential mortgage loan held by the
Company, the Company will bear the risk of loss of principal to the extent of
any deficiency between the value of the secured property, less any payments
from an insurer or guarantor, and the amount owing on the mortgage loan.
Residential mortgage loans in default will also cease to be eligible
collateral for borrowings, and will have to be financed by the Company out of
other funds until ultimately liquidated. Although the Company establishes
allowances in amounts it believes are adequate to cover these risks, in view
of the Company's limited operating history, there can be no assurance that
allowances that are established will be sufficient to offset losses on
mortgage loans in the future.

Even assuming that properties secured by any residential mortgage loans held
by the Company provide adequate security for such mortgage loans, substantial
delays could be encountered in connection with the foreclosure of defaulted
mortgage loans, with corresponding delays in the receipt of related proceeds
by the

20
<PAGE>

Company. State and local statutes and rules may delay or prevent the Company's
foreclosure on or sale of the residential mortgaged property and may prevent
it from receiving proceeds sufficient to repay all amounts due on the related
mortgage loan. Some properties that may collateralize the Company's
residential mortgage loans may have unique characteristics or may be subject
to seasonal factors that could materially prolong the time period required to
resell the property.

The risk of defaulted mortgage loans will increase if the Company's
residential mortgage loans are adjustable-rate mortgage loans. In the event
interest rates increase, which would result in an increase in the monthly
payment amount owing by borrowers, such borrowers may become less likely to
make payments on the residential mortgage loans.

Seller's Inability to Repurchase Residential Mortgage Loans Following Breach
of Representations Could Cause Loan Losses. It is expected that when the
Company acquires residential mortgage loans, the seller will represent and
warrant to the Company that there has been no fraud or misrepresentation
during the origination of the mortgage loans and will agree to repurchase any
mortgage loan with respect to which there is fraud or misrepresentation. The
Company will provide similar representations and warranties when the Company
sells or pledges the residential mortgage loans as collateral for mortgage-
backed securities. Although the Company will have recourse to the seller based
on the seller's representations and warranties to the Company, the Company
will be at a risk for loss to the extent the seller does not perform its
repurchase obligations.

Risk of Inadequate Subservicing Could Negatively Impact Mortgage Loan
Repayments. The Company intends to contract with third-party subservicers for
the sub-servicing of all residential mortgage loans it holds for investment.
As with any external service provider, the Company will be subject to risks
associated with inadequate or untimely services, such as the risk that a sub-
servicer becomes financially unsound and cannot perform its duties.
Additionally, each of the Company's sub-servicing agreements with its third-
party sub-servicers will likely provide a termination fee if the sub-servicer
is terminated without cause, limiting the Company's alternatives in the event
it desires to change sub-servicers.

Competition. In acquiring residential mortgage loans and residential MBSs,
the Company will compete with other REITs, investment banking firms, savings
and loan associations, banks, mortgage bankers, insurance companies, mutual
funds, and other entities purchasing mortgage assets, most of which have
greater financial resources than the Company. The existence of these
competitors may increase competition for the available supply of residential
mortgage assets suitable for purchase by the Company. Increased competition
for the acquisition of eligible residential mortgage assets or a diminution in
the supply could result in higher prices and, thus, lower yields on such
residential mortgage assets.

GENERAL RISKS

LIMITED HISTORY OF OPERATIONS OF LIMITED RELEVANCE IN PREDICTING FUTURE
PERFORMANCE

Since the Company commenced operations in January 1997, its historical
performance may be of limited relevance in predicting future performance of
the Company. The Commercial Mortgages purchased to date by ICH have been
outstanding for a relatively short period of time. Consequently, the
delinquency and loss experience of ICH's Commercial Mortgages to date may not
be indicative of future results. It is unlikely that the Company will be able
to maintain delinquency and loan loss ratios at their present levels as the
portfolio grows and becomes more seasoned.

NO ASSURANCE OF CONTINUED GROWTH

The Company commenced operations in January 1997. Although the Company was
profitable for the three months ended March 31, 1998 and the Commencement
Period, and has experienced substantial growth in Commercial Mortgage
originations and total revenues, there can be no assurance that the Company
will be profitable in the future or that these rates of growth will be
sustainable or indicative of future results.

21
<PAGE>

The Company intends to pursue a growth strategy for the foreseeable future,
and its future operating results will depend largely upon its ability to
expand its Conduit Operations and Long-Term Investment Operations. Each of
these plans requires additional personnel and assets and there can be no
assurance that the Company will be able to successfully expand and operate its
expanded operations profitably. There can be no assurance that the Company
will anticipate and respond effectively to all of the changing demands that
its expanding operations will have on the Company's management, information
and operating systems, and the failure to adapt its systems could have a
material adverse effect on the Company's results of operations and financial
condition. There can be no assurance that the Company will successfully
achieve its planned expansion or, if achieved, that the expansion will result
in profitable operations.

COMPETITION IN THE COMMERCIAL MORTGAGE INDUSTRY MAY ADVERSELY AFFECT THE
COMPANY'S OPERATIONS

In purchasing Commercial Mortgages and issuing CMBSs, the Company competes
with established mortgage conduit programs, investment banking firms, savings
and loan associations, banks, thrift and loan associations, finance companies,
mortgage bankers, insurance companies, other lenders and other entities
purchasing mortgage assets. Continued consolidation in this industry may also
reduce the number of current correspondents to the Conduit Operations, thus
reducing the Company's potential customer base, resulting in the Company
purchasing a larger percentage of Commercial Mortgages from a smaller number
of correspondents. Such changes could negatively impact the Conduit
Operations. CMBSs issued through the Conduit Operations will face competition
from other investment opportunities available to prospective investors. See
"--Operational Risks--Reduction in Demand for Commercial Mortgages and the
Company's Loan Products May Adversely Affect the Company's Operations,"
"Business--Conduit Operations," and "Business--Competition."

Other multifamily residences, self-storage facilities, retail shopping
facilities, office buildings and combination warehouse/industrial facilities
located in the areas of the mortgaged properties securing the Company's
Commercial Mortgages competes with the mortgaged properties of such types to
attract residents, retail correspondents, tenants and customers. The leasing
of real estate is highly competitive. The principal means of competition are
price, location and the nature and condition of the facility to be leased. A
borrower under a Commercial Mortgage competes with all lessors and developers
of comparable types of real estate in the area in which the mortgaged property
is located. Such lessors or developers could have lower rentals, lower
operating costs, more favorable locations or better facilities. While a
borrower under a Commercial Mortgage may renovate, refurbish or expand the
mortgaged property to maintain it and remain competitive, such renovation,
refurbishment or expansion may itself entail significant risk. Increased
competition could adversely affect income from the market value of the
mortgaged property. In addition, the business conducted at each mortgaged
property may face competition from other industries and industry segments.

CONFLICTS OF INTEREST; EXECUTIVE OFFICERS AND DIRECTORS TO RECEIVE EXTENSIVE
BENEFITS

Benefit to Insiders; Interlocking Relationships; Other Considerations. The
Company is subject to conflicts of interest arising from its relationships
with IMH, RAI and their officers, directors and affiliates. First, IMH owns a
substantial number of shares of the Company's Common Stock. Upon the closing
of this offering, IMH will own 937,084 shares of ICH Common Stock and 456,916
shares of ICH Class A Stock. Second, RAI, renders management services to the
Company and is paid the 25% Payment on a quarterly basis, resulting in a
direct benefit to its owners, who are officers or directors of ICH. Third,
IFC, the conduit operations of IMH, has entered into the Submanagement
Agreement with RAI pursuant to which the Company pays IFC (through RAI) for
all costs and services under such contract, plus a 15% service charge. Fourth,
many of the officers and directors of the Company are officers, directors and
owners of IMH, IFC, RAI and ICCC. See "Impac Commercial Holdings, Inc.--
Directors and Executive Officers," "RAI Advisors, LLC--Managers and Executive
Officers," and "Principal Stockholders."

RAI oversees the day-to-day operations of the Company, subject to the
supervision of ICH's Board of Directors, pursuant to the Management Agreement.
RAI is owned one-third by Joseph R. Tomkinson, ICH's Chairman of the Board and
Chief Executive Officer, one-third by William S. Ashmore, ICH's President and

22
<PAGE>

Chief Operating Officer, and one-third by Richard J. Johnson, ICH's Executive
Vice President, Chief Financial Officer, Treasurer and Secretary. Pursuant to
the Management Agreement, ICH pays the 25% Payment to RAI on a quarterly
basis, resulting in a direct benefit to its owners. See "RAI Advisors, LLC--
Management Fees."

The Company is subject to conflicts of interest arising from its
relationship with RAI, and with RAI's affiliates. RAI has interests that may
conflict with those of the Company in fulfilling certain of its duties.
Specifically, all of the officers of RAI are also officers or directors of
IMH. RAI has entered into the Submanagement Agreement with IFC, the conduit
operations of IMH, to provide administrative services as required by the
Company. IMH owns all of the outstanding shares of non-voting preferred stock
of IFC, representing 99% of the economic interest in IFC, and Messrs.
Tomkinson, Johnson and Ashmore own all of the outstanding shares of common
stock of IFC, representing 1% of the economic interest. Each of these persons
who are officers of IFC has modified his or her employment agreement with IFC
to allow him or her to be an officer of RAI (and of ICH and ICCC). RAI has
agreed to cause each of its officers to devote as much of his or her time to
the operations of the Company as is necessary. However, such officers are
expected to devote the majority of their time and effort towards the
management and operations of IMH and IFC. The Company reimburses RAI, who
reimburses IFC, on a dollar for dollar basis (including the service charge
referenced below), for the actual cost of providing the services of its
officers to the Company based upon the compensation payable to them by IFC,
plus a 15% service charge. ICH reimburses the Manager for expenses incurred by
the Manager, plus a service charge of 15% on all expenses owed by the Manager
to IFC for costs and services under any submanagement agreement between IFC
and the Manager. The Manager pays all such third parties on a dollar for
dollar basis for the aforementioned amounts received by it from the Company;
no such 15% service charge is paid to third party service providers other than
IFC. For the first three years of the Management Agreement, there is a minimum
amount of $500,000 (including the 15% service charge) payable by the Company
in connection with services provided and expenses incurred by RAI and payable
by RAI to IFC. After August 8, 2000, the Company is only responsible for
reimbursing expenses and services provided, with the 15% service charge for
amounts due to IFC. During the three months ended March 31, 1998 and the
Commencement Period, ICH recorded expenses of $162,000 and none, respectively,
in connection with the 25% Payment payable to RAI and recorded an aggregate of
$111,000 and $525,000, respectively, in expenses payable to RAI. Should the
operations of IMH and IFC and those of the Company require immediate attention
or action by RAI or any of its officers, there can be no assurance that the
officers of RAI will be able to properly allocate sufficient time to the
operations of the Company. No assurance can be given that the Company's
relationships with RAI and its affiliates will continue indefinitely. The
failure or inability of RAI to provide the services required of it under the
Management Agreement or any other agreements or arrangements with the Company
would have a material adverse effect on the Company's business.

Many of the affiliates of IMH, RAI and ICCC have interlocking executive
positions and share common ownership. Joseph R. Tomkinson, ICH's Chairman of
the Board and Chief Executive Officer, is the Chief Executive Officer and
Chairman of the Board of IMH, a one-third owner of RAI and an owner of 25% of
the common stock of ICCC. William S. Ashmore, ICH's President and Chief
Operating Officer, is the President and a Director of IMH, a one-third owner
of RAI and an owner of 25% of the common stock of ICCC. Richard J. Johnson,
ICH's Executive Vice President, Chief Financial Officer, Treasurer and
Secretary, is Executive Vice President, Chief Financial Officer, Treasurer and
Secretary of IMH, a one-third owner of RAI and a 25% owner of the common stock
of ICCC. William D. Endresen, ICH's Senior Vice President, is an owner of 25%
of the common stock of ICCC. Mary C. Glass-Schannault, ICH's Senior Vice
President, is a Senior Vice President of IMH. Each of James Walsh, Frank P.
Filipps and Stephan R. Peers, Directors of ICH, are Directors of IMH. In
addition, since Messrs. Tomkinson, Ashmore, Johnson and Endresen own all of
the outstanding shares of voting stock of ICCC, they have the right to elect
all directors of ICCC and the ability to control the outcome of all matters
for which the consent of the holders of the common stock of ICCC is required.
Ownership of 100% of the common stock of ICCC entitles the owners thereof to
an aggregate of 5% of the economic interest in ICCC.

Effect of Right of First Refusal Agreement. It is anticipated that RAI will
act as the Manager for other REITs, some of which may have been or will be
affiliated with the Company, IMH, or their respective conduit operations (an
"Affiliated REIT"). In such an event, any Affiliated REIT utilizing RAI as its
Manager may be

23
<PAGE>

in competition with the Company. In August 1997, RAI, ICH, ICCC, IMH and IFC
entered into a ten-year right of first refusal agreement (the "Right of First
Refusal Agreement"). It is expected that any Affiliated REIT utilizing RAI as
its Manager will become a party to the Right of First Refusal Agreement, but
such event is outside the control of the Company and there can be no assurance
that any or all Affiliated REITs (other than IMH) will actually become parties
to the Right of First Refusal Agreement. Pursuant to this Agreement, RAI has
agreed that any mortgage loan or mortgage-backed security investment
opportunity (an "Investment Opportunity") which is offered to it on behalf of
either the Company, IMH or any Affiliated REIT will first be offered to that
entity (the "Principal Party") whose initial primary business as described in
its initial public offering documentation (the "Initial Primary Business")
most closely aligns with such Investment Opportunity. In addition, both IMH
and IFC on the one hand and ICH and ICCC on the other have agreed that any
Investment Opportunity offered to either of them which falls outside the scope
of its Initial Primary Business should be offered to the Principal Party.
Should the Principal Party decline to take advantage of an Investment
Opportunity offered to RAI, RAI will make an independent evaluation of which
REIT's business is more greatly enhanced by such Investment Opportunity.
Should all of said REITs decline such Investment Opportunity, RAI may offer
the investment opportunity to any third party. Should the Principal Party
decline to take advantage of an Investment Opportunity offered to a REIT which
is a party to the Right of First Refusal Agreement, said REIT shall then be
free to pursue the Investment Opportunity. In such an event there can be no
assurance that the Company will be able to take advantage of any such
Investment Opportunity or that any competitive activity of IMH, IFC or any
Affiliated REIT will not adversely affect the Company's operations. In
addition, the Company may become further prejudiced by the Right of First
Refusal Agreement to the extent that the Company desires to pursue or pursues
a business outside its Initial Primary Business.

Unaffiliated Directors. It is the intention of the Company and IMH that any
agreements and transactions, taken as a whole, between the Company, on the one
hand, and IMH or its affiliates, on the other hand, are fair to both parties.
To minimize or avoid potential conflicts of interests, all Unaffiliated
Directors must by majority vote approve all such agreements and transactions.
However, there can be no assurance that each of such agreements or
transactions will be on terms at least as favorable to the Company as could
have been obtained from unaffiliated third parties. See "Impac Commercial
Holdings, Inc.," "RAI Advisors, LLC," "Relationships with Affiliates" and
"Certain Transactions."

OTHER CONSIDERATIONS

In connection with a commercial or multifamily property, the property owner
may utilize tenant leases, including anchor tenant leases, which contain
certain provisions that require the tenant to attorn to (that is, recognize as
landlord under the lease) a successor owner of the property following
foreclosure. Some of such leases, including anchor tenant leases, may be
either subordinate to the liens created by the Commercial Mortgages purchased
by the Company or else contain a provision that requires the tenant to
subordinate the lease if the mortgagee agrees to enter into a non-disturbance
agreement. In some states, if tenant leases are subordinate to the liens
created by the Commercial Mortgages and such leases do not contain attornment
provisions, such leases may terminate upon the transfer of the property to a
foreclosing lender or purchaser at foreclosure. Accordingly, in the case of
the foreclosure of a mortgaged property located in such a state and leased to
one or more desirable tenants under leases that do not contain attornment
provisions, such mortgaged property could experience a further decline in
value if such tenants' leases were terminated (e.g., if such tenants were
paying above-market rents). If a Commercial Mortgage is subordinate to a
lease, the lender will not (unless it has otherwise agreed with the tenant)
possess the right to dispossess the tenant upon foreclosure of the property,
and if the lease contains provisions inconsistent with the Commercial Mortgage
(e.g., provisions relating to application of insurance proceeds or
condemnation awards), the provisions of the lease will take precedence over
the provisions of the Commercial Mortgage. Part of the foregoing could have a
material adverse effect on the value of the Commercial Mortgage.

Certain of Commercial Mortgages may be secured in part by an assignment of
leases and rents pursuant to which the borrower typically assigns its right,
title and interest as landlord under the leases on the related

24
<PAGE>

mortgaged property and the income derived therefrom to the lender as further
security for the related Commercial Mortgage, while retaining a license to
collect rents for so long as there is no default. In the event the borrower
defaults, the license terminates and the lender is entitled to collect rents.
Such assignments are typically not perfected as security interests prior to
actual possession of the cash flows. Some state laws may require that the
lender take possession of the mortgage property and obtain a judicial
appointment of a receiver before becoming entitled to collect the rents. In
addition, if bankruptcy or similar proceedings are commenced by or in respect
to the borrower, the lender's ability to collect the rents may be adversely
affected.

SUBORDINATE INDEBTEDNESS MAY AFFECT VALUE OF UNDERLYING COMMERCIAL MORTGAGES

The Company's Commercial Mortgage documents may or may not prohibit the
borrower from entering into subordinate indebtedness. Where subordinate
indebtedness would be permitted, it is expected that the subordinate lender
would not be required to enter into an intercreditor agreement; however, in
many cases there may be preconditions (such as minimum combined debt service
coverage ratios) which must be satisfied prior to the mortgagor being
permitted to incur subordinate indebtedness. The encumbrance of a property by
subordinate indebtedness without execution of an intercreditor agreement
increases the risk to the senior lienholder posed by the subordinate debt. In
such cases, there would be no restriction on the junior lienholder's exercise
of remedies. The presence of subordinate debt can hinder conveyance to the
senior lienholder by deed in lieu of foreclosure, effectively forcing
foreclosure. Similarly, the presence of subordinate debt can hinder loan
modification due to the concern that modification may corrupt subordination
and place the subordinate lender in pari passu status with the senior
lienholder in whole or in part.

JUNIOR MORTGAGES MAY AFFECT COMPANY'S RIGHTS

In certain circumstances, Commercial Mortgages originated by the Company may
be secured by junior mortgages which are subordinate to senior mortgages or
deeds of trust held by other lenders or institutional investors. The rights of
ICH, as beneficiary under a junior mortgage, are subordinate to those of the
mortgagee or beneficiary under the senior mortgage or deed of trust, including
the prior rights of the senior mortgagee or beneficiary to receive rents,
hazard insurance and condemnation proceeds and to cause the mortgaged property
securing the junior mortgage unless the ICH's subordinate interest in the
mortgaged property in foreclosure litigation or satisfies the defaulted senior
loan.

LACK OF EXPERIENCE OF THE MANAGER IN MANAGING A COMMERCIAL MORTGAGE REIT MAY
HAVE AN ADVERSE EFFECT ON THE COMPANY

The Company is dependent for the monitoring of its day-to-day operations,
including, but not limited to, the selection, structuring and monitoring of
its assets and associated borrowings and on the diligence and skill of the
officers and employees of the Manager. The Manager is a recently formed entity
with no significant assets and no significant prior history of operations; the
Manager has not previously acted as a Manager or advisor with respect to any
other company. Although all of the persons who are officers of the Manager
have experience in the operations of a REIT due to their involvement as
officers of IMH, none of such persons has any prior experience in managing a
Commercial Mortgage REIT. See "RAI Advisors, LLC" for further descriptions of
the business experience of key management personnel.

TERMINATION OF MANAGEMENT AGREEMENT COULD ADVERSELY AFFECT THE COMPANY'S
OPERATING RESULTS

The Company may terminate the Management Agreement without cause at any time
upon 60 days' written notice. Any such termination or failure to extend by the
Company without cause result in the payment of a termination or non-renewal
fee to the Manager determined by an independent appraisal. Payment of a
termination fee could have an adverse effect on the Company's business and
results of operations and would reduce the amount of funds available for
distribution to stockholders.

25
<PAGE>

ADVERSE CONSEQUENCES OF FAILURE TO MAINTAIN REIT STATUS MAY INCLUDE ICH BEING
SUBJECT TO TAXATION AS A REGULAR CORPORATION

Commencing with its taxable year ended December 31, 1997, ICH has operated
and intends to continue to operate so as to qualify as a REIT under the
Internal Revenue Code of 1986, as amended, (the "Code"). Although ICH believes
that it has operated and will continue to operate in such a manner, no
assurance can be given that ICH was organized or has operated, or will be able
to continue to operate, in a manner which will allow it to qualify as a REIT.
Qualification as a REIT involves the satisfaction of numerous requirements
(some on an annual and others on a quarterly basis) established under highly
technical and complex Code provisions for which there are only limited
judicial and administrative interpretations, and involves the determination of
various factual matters and circumstances not entirely within ICH's control.
For example, in order to qualify as a REIT, at least 95% of ICH's gross income
in any year must be derived from qualifying sources, and ICH must pay
distributions to stockholders aggregating annually at least 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and
by excluding net capital gains). No assurance can be given that legislation,
new regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or
the federal income tax consequences of such qualification. The Company expects
that Brown & Wood LLP, tax counsel to ICH, will render an opinion to the
effect that commencing with ICH's taxable year ending December 31, 1997, ICH
has been organized in conformity with the requirements for qualification as a
REIT, and its proposed method of operation has enabled and will enable it to
meet the requirements for qualification and taxation as a REIT under the Code.
See "Federal Income Tax Considerations--Taxation of ICH" and "Legal Matters."
Such legal opinion is based on various assumptions and factual representations
by ICH regarding ICH's ability to meet the various requirements for
qualification as a REIT, and no assurance can be given that actual operating
results will meet these requirements. Such legal opinion is not binding on the
Internal Revenue Service (the "Service") or any court.

Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5% of the value of the
REIT's total assets on certain testing dates. See "Federal Income Tax
Considerations--Taxation of ICH--Requirements for Qualification." ICH believes
that the aggregate value of the securities of ICCC held by ICH have been and
will continue to be less than 5% of the value of ICH's total assets. In
rendering its opinion as to the qualification of ICH as a REIT, Brown & Wood
LLP is relying on the representation of ICH regarding the value of its
securities in ICCC.

ICH owns 100% of the nonvoting preferred stock of ICCC, which represents
approximately 95% of the economic value of all classes of stock of ICCC. ICH
does not and will not own any of the voting securities of ICCC, and therefore
ICH will not be considered to own more than 10% of the voting securities of
ICCC (which would be prohibited by the REIT asset tests currently set forth in
the Code). President Clinton's 1999 federal budget proposal contains a
provision which would amend the REIT asset tests so as to prohibit REITs from
owning stock of a corporation possessing more than 10% of the vote or value of
all classes of stock of the corporation. This proposal would be effective with
respect to stock acquired on or after the date of the first Congressional
committee action with respect to the proposal (the "Action Date"). In
addition, to the extent that a REIT's stock ownership is grandfathered by
virtue of this effective date, such grandfathered status would terminate if
the subsidiary corporation engages in a trade or business that it is not
engaged in on the Action Date or acquires substantial new assets on or after
such date. Accordingly, if this provision of the budget proposal were enacted
in its present form, ICH's stock ownership in ICCC would be grandfathered, but
such grandfathered status would terminate if ICCC engages in a trade or
business that it is not engaged in on the Action Date or acquires substantial
new assets (including additional mortgage loans) on or after such date, even
if such activities are undertaken or assets are acquired prior to the adoption
of the proposal. In such case, ICH's continued ownership of more than 10% of
the economic value of ICCC beyond ICH's next quarterly asset testing date
following the Action Date (which could occur prior to the adoption of the
proposal) could cause ICH to fail to qualify as a REIT. See "Federal Income
Tax Considerations--Failure to Qualify." It is presently uncertain whether any
proposal regarding REIT subsidiaries, such as ICCC, will be enacted, or if
enacted, what the terms of such proposal (including its effective date) will
be. At this time, it is expected that ICCC will continue to acquire additional
mortgage loans notwithstanding the proposed legislation regarding REIT
subsidiaries.

26
<PAGE>

Furthermore, if the proposal passes, then in order to maintain its REIT
status, ICH may be required to dispose of its ownership of ICCC either through
a sale of ICCC or a distribution of the shares of ICCC to ICH's stockholders
in connection with a spin-off. It is anticipated that upon any distribution of
the shares in connection with a spin-off, a right of first refusal would be
entered into between ICH and ICCC so that ICCC will be obligated to first
offer mortgage assets to ICH. A sale of ICCC, whether if required pursuant to
the proposal or otherwise, would leave ICH without a concentrated origination
source which would require ICH to purchase mortgage assets from other sources.
As such, approval of the proposal may have a material adverse effect on ICH's
business and results of operations. Lastly, any distribution of shares to
ICH's stockholders would have a number of tax consequences including, without
limitation, the possibility of ICH's stockholders recognizing a material
amount of dividend income.

If ICH were to fail to qualify as a REIT in any taxable year, ICH would be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates and would not be allowed
a deduction in computing its taxable income for amounts distributed to its
stockholders. Moreover, unless entitled to relief under certain statutory
provisions, ICH also would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. This
treatment would reduce the net income of ICH available for investment or
distribution to stockholders because of the additional tax liability to ICH
for the years involved. In addition, distributions to stockholders would no
longer be required to be made. See "Federal Income Tax Considerations--
Taxation of ICH--Requirements for Qualification."

Even if ICH maintains its REIT status, it may be subject to certain federal,
state and local taxes on its income. For example, if ICH has net income from a
prohibited transaction, such income will be subject to a 100% tax. See
"Federal Income Tax Considerations--Taxation of ICH." In addition, the net
income, if any, from the Conduit Operations conducted through ICCC is subject
to federal income tax at regular corporate tax rates. See "Federal Income Tax
Considerations--Other Tax Consequences."

POTENTIAL CHARACTERIZATION OF DISTRIBUTIONS OR GAIN ON SALE AS UBTI TO TAX-
EXEMPT INVESTORS

In the event that (i) the Company is subject to the rules relating to
taxable mortgage pools (discussed below) or the Company is a "pension-held
REIT," (ii) a tax-exempt stockholder has incurred indebtedness to purchase or
hold its Common Stock or is not exempt from federal income taxation under
certain special sections of the Code, or (iii) the residual REMIC interests
acquired by the Company generate "excess inclusion income," distributions to
and, in the case of a stockholder described in (ii), gains realized on the
sale of Common Stock by, such tax-exempt stockholder may be subject to federal
income tax as unrelated business taxable income as defined in section 512 of
the Code ("UBTI"). See "Federal Income Tax Considerations."

CLASSIFICATION AS A TAXABLE MORTGAGE POOL COULD SUBJECT THE COMPANY TO
INCREASED TAXATION

A REIT that incurs debt obligations with two or more maturities and which
are secured by mortgage loans or mortgage-backed securities may be classified
as a "taxable mortgage pool" under the Code if payments required to be made on
such debt obligations bear a relationship to the payments received on such
assets. If all or a portion of the Company was treated as a taxable mortgage
pool, the Company's status as a REIT would not be impaired, but a portion of
the taxable income generated by the Company may, under regulations to be
issued by the Treasury Department, be characterized as "excess inclusion"
income and allocated to the stockholders. Any such excess inclusion income (i)
would not be allowed to be offset by the net operating losses of a
stockholder, (ii) would be subject to tax as UBTI to a tax-exempt stockholder,
(iii) would be subject to the application of federal income tax withholding at
the maximum rate (without reduction for any otherwise applicable income tax
treaty) with respect to amounts allocable to foreign stockholders, and (iv)
would be taxable (at the highest corporate tax rate) to a REIT, rather than
its stockholders, to the extent allocable to shares of stock held by
disqualified organizations (generally, tax-exempt entities not subject to tax
on unrelated business income, including governmental organizations). See
"Federal Income Tax Considerations."

27
<PAGE>

The Company enters into reverse repurchase agreements, warehouse line
agreements, CMOs and other secured lending transactions pursuant to which the
Company borrows funds with differing maturity dates which are cross-
collateralized by specific mortgage loans or MBSs. The Company has taken the
position that its existing financing arrangements do not create a taxable
mortgage pool. No assurances can be given, however, that the IRS might not
successfully maintain that the Company's financing arrangements constitute a
taxable mortgage pool. In addition, the Company may enter into arrangements
creating such excess inclusion income in the future.

COMPANY'S OPERATIONS MAY BE ADVERSELY AFFECTED IF COMPANY IS SUBJECT TO THE
INVESTMENT COMPANY ACT

The Company at all times intends to conduct its business so as not to become
regulated as an investment company under the Investment Company Act.
Accordingly, the Company does not expect to be subject to the restrictive
provisions of the Investment Company Act. The Investment Company Act exempts
entities that are "primarily engaged in the business of purchasing or
otherwise acquiring mortgages and other liens on and interests in real estate"
("Qualifying Interests"). Under the current interpretation of the staff of the
Commission, in order to qualify for this exemption, the Company must maintain
at least 55% of its assets directly in mortgage loans, qualifying pass-through
certificates and certain other Qualifying Interests in real estate. In
addition, unless certain MBSs represent all the certificates issued with
respect to an underlying pool of mortgage loans, such MBSs may be treated as
securities separate from the underlying mortgage loans and, thus, may not
qualify as Qualifying Interests for purposes of the 55% requirement. The
Company's ownership of certain mortgage loans therefore may be limited by the
provisions of the Investment Company Act. In addition, in meeting the 55%
requirement under the Investment Company Act, the Company intends to consider
privately issued certificates issued with respect to an underlying pool as to
which the Company holds all issued certificates as Qualifying Interests. If
the Commission, or its staff, adopts a contrary interpretation with respect to
such securities, the Company could be required to restructure its activities
to the extent its holdings of such privately issued certificates did not
comply with the interpretation. Such a restructuring could require the sale of
a substantial amount of privately issued certificates held by the Company at a
time it would not otherwise do so. Further, in order to insure that the
Company at all times continues to qualify for the above exemption from the
Investment Company Act, the Company may be required at times to adopt less
efficient methods of financing certain of its mortgage loans and MBSs than
would otherwise be the case and may be precluded from acquiring certain types
of such mortgage assets whose yield is somewhat higher than the yield on
assets that could be purchased in a manner consistent with the exemption. The
net effect of these factors will be to lower at times the Company's net
interest income, although the Company does not expect the effect to be
material. If the Company fails to qualify for exemption from registration as
an investment company, its ability to use leverage would be substantially
reduced, and it would be unable to conduct its business as described herein.
Any such failure to qualify for such exemption could have a material adverse
effect on the Company.

FUTURE REVISIONS IN POLICIES AND STRATEGIES AT THE DISCRETION OF THE BOARD OF
DIRECTORS MAY BE EFFECTED WITHOUT STOCKHOLDER CONSENT

The Board of Directors, including a majority of the Unaffiliated Directors,
has established the investment policies and operating policies and strategies
set forth in this Prospectus as the investment policies and operating policies
and strategies of the Company. With respect to other matters, the Company may,
in the future, except as described in this Prospectus but currently has no
present plans to, invest in the securities of other REITs for the purpose of
exercising control, offer securities in exchange for property or offer to
repurchase or otherwise reacquire its shares or other securities. The Company
may also, but does not currently intend to underwrite the securities of other
issuers. However, any of the policies, strategies and activities referenced
above or described in this Prospectus may be modified or waived by the Board
of Directors, subject in certain cases to approval by a majority of the
Unaffiliated Directors, without stockholder consent.

EFFECT OF FUTURE OFFERINGS MAY ADVERSELY AFFECT THE MARKET PRICE OF COMMON
STOCK

The Company in the future may increase its capital resources by making
additional private or public offerings of its Common Stock, securities
convertible into its Common Stock, preferred stock or debt securities. The
actual or perceived effect of such offerings, the timing of which cannot be
predicted, may be the dilution of

28
<PAGE>

the book value or earnings per share of the Common Stock outstanding, which
may result in the reduction of the market price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET PRICE OF THE
COMPANY'S COMMON STOCK

Sale of substantial amounts of the Company's Common Stock in the public
market or the prospect of such sales could materially and adversely affect the
market price of the Common Stock. Of the 46,000,000 shares of Common Stock
authorized, 9,562,084 shares will be outstanding upon the closing of this
offering; 8,325,000 shares will be immediately eligible for sale in the public
market without restriction or further registration under the Securities Act
unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act; and 1,237,084 shares of Common Stock will
be saleable pursuant to Rule 144. Upon the closing of this offering, IMH will
hold 937,084 shares of ICH Common Stock and 456,916 shares of ICH Class A
Stock. The number of shares of ICH Common Stock and ICH Class A Stock held by
IMH, and the eligibility of such shares for future sales, will be affected by
future issuances of ICH Common Stock by the Company and dispositions of shares
of ICH Common Stock by IMH. The Company, its directors and executive officers
and IMH have agreed with the Underwriters that, for a period of 90 days
following the commencement of this offering, they will not sell, contract to
sell or otherwise dispose of any shares of Common Stock or rights to acquire
such shares (other than pursuant to employee plans or the DRP) without the
prior written consent of PaineWebber Incorporated. See "Shares Eligible for
Future Sale." As of March 31, 1998, there were outstanding: (i) stock options
to purchase 190,000 shares of Common Stock granted at an exercise price of
$15.00 per share, none of which, except on the event of a change of control of
the Company, are exercisable until August 1998; (ii) stock options to purchase
22,250 shares of Common Stock granted at an exercise price of $18.875 per
share, none of which, except on the event of a change of control of the
Company, are exercisable until September 1998; and (iii) stock options to
purchase 84,000 shares of Common Stock granted at an exercise price of $17.625
per share, none of which, except on the event of a change of control of the
Company, are exercisable until February 1999. An additional 336,250 shares of
Common Stock are reserved for future issuance pursuant to the Company's Stock
Option and Awards Plan. The Company intends to register under the Securities
Act shares reserved for issuance pursuant to the DRP and the Stock Option and
Awards Plan. See "Dividend Reinvestment Plan," "Impac Commercial Holdings,
Inc.--Stock Option and Awards Plan" and "Description of Capital Stock."

CLASSIFICATION AND RECLASSIFICATION OF STOCK COULD ADVERSELY AFFECT COMMON
STOCKHOLDERS; ISSUANCE OF PREFERRED STOCK COULD ADVERSELY AFFECT COMMON
STOCKHOLDERS; RESTRICTIONS ON OWNERSHIP OF COMMON STOCK MAY INHIBIT MARKET
ACTIVITY; POSSIBLE ANTI-TAKEOVER EFFECT MAY DETER TAKEOVER OF THE COMPANY

ICH's Charter (as defined herein) authorizes the Board of Directors to issue
shares of Preferred Stock, to reclassify any unissued shares of Common Stock
and to classify any unissued shares of Preferred Stock and reclassify any
previously classified but unissued shares of Preferred Stock into one or more
classes or series of stock. Unissued shares of Preferred Stock may be issued
from time to time in one or more classes or series of stock with such
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption as shall be determined by
the Board of Directors, subject to the provisions of the Charter regarding
restrictions on transfer of stock. Preferred Stock is available for possible
future financing of, or acquisitions by, ICH and for general corporate
purposes without further stockholder authorization. Thus, the Board could
authorize the issuance of shares of Preferred Stock with terms and conditions
which could have the effect of delaying, deferring or preventing a change in
control of ICH or other transaction that might involve a premium price for
holders of Common Stock or otherwise be in their best interest. The Preferred
Stock, if issued, may have a preference on dividend payments which could
reduce the assets available to ICH to make distributions to the common
stockholders. See "Description of Capital Stock."

In order for ICH to maintain its qualification as a REIT under the Code not
more than 50% in value of the outstanding shares of ICH's stock, including
Common Stock, may be owned, actually or constructively, by or for five or
fewer individuals (as defined in the Code to include certain entities) at any
time during the last half of a taxable year (other than the first year for
which the election to be treated as a REIT has been made).

29
<PAGE>

Furthermore, after the first taxable year for which a REIT election is made,
ICH's shares of stock, including Common Stock, must be held by a minimum of
100 persons for at least 335 days of a 12-month taxable year (or a
proportionate part of a shorter taxable year). In order to protect ICH against
the risk of losing REIT status due to a concentration of ownership among its
stockholders, the Charter limits actual or constructive ownership of the
outstanding shares of Common Stock by any person to 9.8% (the "Ownership
Limit") (in value or in number of shares, whichever is more restrictive) of
the then outstanding shares of Common Stock. See "Description of Capital
Stock--Repurchase of Shares and Restrictions on Transfer." Although the Board
of Directors presently has no intention of doing so (except as described
below), the Board of Directors, in its sole discretion, could waive the
Ownership Limit with respect to a particular person if it were satisfied,
based upon the advice of tax counsel or otherwise, that ownership by such
person in excess of the Ownership Limit would not jeopardize ICH's status as a
REIT. The Board of Directors may from time to time increase the Ownership
Limit. Actual or constructive ownership of shares of Common Stock in excess of
the Ownership Limit, or, with the consent of the Board of Directors, such
other limit, will cause the violative transfer of ownership to be void with
respect to the intended transferee or owner as to that number of shares in
excess of such limit, and such shares will be automatically transferred to a
trustee in a trust for the benefit of a charitable beneficiary. The trustee of
such trust shall sell such shares and distribute the net proceeds generally as
follows: the intended transferee shall receive the lesser of (i) the price
paid by the intended transferee for such excess shares and (ii) the sales
proceeds received by the trustee for such excess shares. Any proceeds in
excess of the amount payable to the intended transferee will be paid
immediately to the charitable beneficiary. In addition, shares of Common Stock
held in trust shall be deemed to have been offered for sale to ICH, or its
designee, at a price per share equal to the lesser of (i) the price per share
in the transaction that resulted in such transfer to the trust and (ii) the
Market Price (as defined below) on the date ICH, or its designee, accepts such
offer. ICH shall have the right to accept such offer until the trustee has
sold the shares held in the trust. Upon such a sale to ICH, the interest of
the charitable beneficiary in the shares sold shall terminate and the trustee
shall distribute the net proceeds of the sale to the intended transferee.
Also, such intended transferee shall have no right to vote such shares or be
entitled to dividends or other distributions with respect to such shares. See
"Description of Capital Stock--Repurchase of Shares and Restrictions on
Transfer" for additional information regarding the Ownership Limit.

These provisions may inhibit market activity and the resulting opportunity
for ICH's stockholders to receive a premium for their shares that might
otherwise exist if any person were to attempt to assemble a block of shares of
Common Stock in excess of the number of shares permitted under the Charter.
Such provisions also may make ICH an unsuitable investment vehicle for any
person seeking to obtain ownership of more than 9.8% of the outstanding shares
of Common Stock.

In addition, certain provisions of the Maryland General Corporation Law
("MGCL") and of ICH's Charter and Bylaws may also have the effect of delaying,
deferring or preventing a change in control of the Company or other
transaction that might involve a premium price for holders of Common Stock or
otherwise be in their best interest. See "Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws."

YEAR 2000 COMPLIANCE

A problem may arise as a result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The Company relies upon third-
party service providers for its computer software and has been informed that
the Company's software will not be materially impacted as a result of Year
2000 problems. Based solely on current assurances from its software service
providers, the Company does not expect that it will incur significant
operating expenses or be required to incur material costs in connection with
the Year 2000 issue. However, since the Company is relying on third-party
service providers, there can be no assurance that the Company's computer
software will be Year 2000 compliant or that failure to comply will not have a
material adverse effect on its financial condition or results of operations.

30
<PAGE>

USE OF PROCEEDS

The net proceeds of this offering are estimated to be $28.5 million (or
$32.8 million if the Underwriters' over-allotment option is exercised in
full). The proceeds will be used to provide funding for the Company's Long-
Term Investment Operations and its Conduit Operations, respectively. The
balance of such proceeds will be used for working capital and general
corporate purposes. Pending these uses, the proceeds may be invested
temporarily to the extent consistent with the REIT provisions of the Code.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed on the AMEX under the symbol ICH. The
following table sets forth for the high and low sale prices for ICH's Common
Stock as reported by the AMEX for the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
Third Quarter (1)........................................... $20.75 $16.56
Fourth Quarter.............................................. 19.31 15.25

1998
First Quarter............................................... $19.75 $17.00
Second Quarter (through June 22, 1998)...................... 18.13 14.00
</TABLE>
- --------
(1) ICH became a public entity on August 4, 1997.

On June 22, 1998, the last reported sale price of the Common Stock on the
AMEX was $15.3125 per share. As of June 19, 1998, there were 93 holders of
record (including holders who are nominees for an undetermined number of
beneficial owners) of ICH's Common Stock.

31
<PAGE>

DIVIDEND POLICY AND DISTRIBUTIONS

The Company intends to distribute 95% or more of its taxable income (which
may not necessarily equal net income as calculated in accordance with GAAP) to
its common stockholders in each year so as to comply with the REIT provisions
of the Code. The Company intends to declare regular quarterly dividends
distributions on or about the twenty-second day of the month following said
quarter. Any taxable income remaining after the distribution of the regular
quarterly dividends will be distributed annually in a special dividend or
prior to the date of the first regular quarterly dividends payment date of the
following taxable year. The dividend policy is subject to revision at the
discretion of the Board of Directors. All distributions in excess of those
required for the Company to maintain REIT status will be made by the Company
at the discretion of the Board of Directors and will depend on the taxable
earnings of the Company, the financial condition of the Company and such other
factors as the Board of Directors deems relevant. The Board of Directors has
not established a minimum distribution level. The following table sets forth
the dividends paid for the periods indicated:

Distributions to stockholders will generally be taxable as ordinary income,
although a portion of such distributions may be designated by ICH as capital
gain or may constitute a tax-free return of capital. ICH will annually furnish
to each of its stockholders a statement setting forth distributions paid
during the preceding year and their characterization as ordinary income,
capital gains or return of capital. Of the dividends paid during the
Commencement Period, approximately $504,000 represented a tax-free return of
capital. For a discussion of the federal income tax treatment of distributions
by the Company, see "Federal Income Tax Considerations."

32
<PAGE>

DIVIDEND REINVESTMENT PLAN

The Company intends to adopt a DRP for stockholders who wish to reinvest
their dividend distributions in additional shares of Common Stock. All ICH
common stockholders will be eligible to participate in the DRP. The following
is a description of the anticipated terms of the DRP, which may be subject to
change. The DRP will provide common stockholders of ICH with a convenient
method of investing cash dividends (in some cases, at a discount and without
payment of any brokerage commission or service charge) and investing optional
cash payments in additional shares of Common Stock. The price to be paid for
shares of Common Stock purchased under the DRP will likely be a price
reflecting (i) a discount of approximately 3% (subject to change) from the
current market price for the reinvestment of cash dividends and the investment
of optional cash payments of up to $10,000, to the extent shares are purchased
directly from ICH, (ii) no discount (subject to change) from the market price
for the reinvestment of cash dividends and for the investment of optional cash
payments of up to $10,000, to the extent shares are purchased on the open
market, and (iii) a discount of 0% to 5% (the "Waiver Discount") from the
market price for the investment of optional cash payments that exceed $10,000.
Each of the discounts will be subject to change (but will not vary from the
range of 0% to 5%) from time to time or discontinuance at ICH's discretion
after a review of current market conditions, the level of participation in the
DRP and ICH's current and projected capital needs. In addition, participants
will be responsible for their pro rata share of brokerage commissions incurred
in connection with the purchase of shares on the open market. However, the
Board of Directors may in the future determine that ICH will pay such
brokerage commissions on behalf of participants. Subject to the availability
of shares of Common Stock registered for issuance under the DRP, there will be
no total maximum number of shares that can be issued pursuant to the
reinvestment of dividends and no pre-established maximum limit applies to
optional cash payments that may be made pursuant to Requests for Waiver.
Boston Equiserve, L.P., the Company's transfer agent, will act as the trustee
and administrator of the DRP (the "Plan Administrator"). All dividends and
cash distributions paid with respect to the Common Stock owned by participants
in the DRP will be paid directly to the Plan Administrator. If the dividend
paid to any common stockholder is not sufficient to purchase one whole share
of Common Stock, such common stockholder will be credited with fractional
shares, computed to three decimal places. DRP participants will generally be
treated as having received a dividend distribution in an amount equal to the
fair market value of the Common Stock purchased with the reinvested dividends
generally on the date the Plan Administrator credits such Common Stock to the
DRP participant's account, plus brokerage commissions and fees, if any,
subtracted from the participant's distribution.

Participants electing to invest optional cash payments in additional shares
of Common Stock will be subject to a minimum per month purchase limit of $50
and a maximum per month purchase limit of $10,000 (subject to a waiver).
Optional cash payments in excess of $10,000 may be made only upon acceptance
by the Company of a completed Request for Waiver form from a participant. Each
month the Company will establish the Waiver Discount applicable to optional
cash payments that exceed $10,000. The Waiver Discount, which may vary each
month, will be established in the Company's sole discretion after a review of
current market conditions, the level of participation in the DRP and the
Company's current and projected capital needs. Optional cash payments that do
not exceed $10,000 and the reinvestment of dividends in additional shares of
Common Stock will not be subject to the Waiver Discount. Optional cash
payments of less than $50 and that portion of any optional cash payment which
exceeds the maximum monthly purchase limit of $10,000, unless such limit has
been waived, will be subject to return to the participant without interest.
Participants may request that any or all shares held in the DRP be sold by the
Plan Administrator on behalf of such Participants.

Common stockholders will not be automatically enrolled in the DRP. Each
common stockholder desiring to participate must complete and deliver to the
Plan Administrator an enrollment form, which will be sent to each eligible
common stockholder by the Plan Administrator. Participation in the DRP will
commence with all dividends and distributions payable after receipt of a
participant's authorization, provided that the authorization must be received
by the Plan Administrator prior to the record date for any dividends in order
for any common stockholder to be eligible for reinvestment of such dividends.
A participant may terminate participation in the DRP at any time upon delivery
of a written notice to that effect to the Plan Administrator, provided that
the

33
<PAGE>

termination notice must be received by the Plan Administrator prior to the
record date for any dividends in order for the termination to be effective
with respect to such dividends. Upon termination, the Plan Administrator will
send to the participant certificates evidencing the whole shares in the
participant's account and a check for any fractional shares based on the
current market value of the Common Stock on the date of termination.

Participants will be sent detailed statements showing the amount of dividend
or distribution received, the number and price of shares of the Common Stock
purchased for their accounts and the total number of shares held by the Plan
Administrator for their accounts. Tax information for each calendar year of
the DRP will be sent to participants by the Plan Administrator.

ICH may suspend, terminate, or amend the DRP at any time. Notice will be
sent to the participants of any suspension or termination, or of any amendment
that alters the DRP terms and conditions, as soon as practicable after such
action by ICH.

34
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company at March
31, 1998 and as adjusted to reflect the sale of the Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See "Use
of Proceeds."

<TABLE>
<CAPTION>
AS ADJUSTED
ACTUAL (1)(2)(3)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Borrowings............................................... $243,155 $243,155
Stockholders' equity:
Preferred Stock; $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding actual
and as adjusted(4).................................... -- --
Common Stock; $.01 par value; 46,000,000 shares
authorized; 7,344,789 shares issued and outstanding
actual; 9,562,084 shares issued and outstanding as
adjusted.............................................. 73 95
Class A Common Stock; $.01 par value; 4,000,000 shares
authorized; 674,211 shares issued and outstanding
actual; 456,916 shares issued and outstanding as
adjusted.............................................. 7 5
Additional paid-in-capital............................. 104,761 133,226
Investment securities valuation allowance.............. (590) (590)
Cumulative dividends declared.......................... (4,250) (4,250)
Retained earnings...................................... 4,988 4,988
-------- --------
Total stockholders' equity........................... 104,989 133,474
-------- --------
Total capitalization................................. $348,144 $376,629
======== ========
</TABLE>
- --------
(1) After deducting estimated underwriting discounts and commissions and
estimated offering expenses of $600,000 payable by the Company, and
assuming no exercise of the Underwriters' over-allotment option to
purchase up to an additional 300,000 shares of Common Stock. See
"Underwriting."
(2) Does not include 632,500 shares of Common Stock reserved for issuance
pursuant to the Company's Stock Option and Awards Plan of which: options
to acquire 84,000 shares are outstanding at a per share exercise price of
$17.625; options to acquire 22,250 shares are outstanding at a per share
exercise price of $18.875; and options to acquire 190,000 shares are
outstanding at a per share exercise price of $15.00. See "Impac Commercial
Holdings, Inc.--Stock Option and Awards Plan."
(3) Shares of ICH Class A Stock convert into shares of ICH Common Stock on a
one-for-one basis. Upon any subsequent issuances of ICH Common Stock,
shares of ICH Class A Stock shall automatically continue to convert into
additional shares of the ICH Common Stock, subject to said 9.8%
limitation. As of March 31, 1998, IMH owned 719,789 shares of ICH Common
Stock and 674,211 shares of ICH Class A Stock; upon the closing of this
offering, IMH will own 937,084 shares of ICH Common Stock and 456,916
shares of ICH Class A Stock.
(4) Gives effect to an amendment to ICH's Charter reclassifying Class A
Preferred Stock to undesignated Preferred Stock.

35
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data for the period from January 15, 1997
(commencement of operations) through December 31, 1997 and the period from
January 15, 1997 (commencement of operations) through March 31, 1997, and as
of December 31, 1997 were derived from the Company's consolidated financial
statements and ICCC's financial statements audited by KPMG Peat Marwick LLP
("KPMG"), independent auditors. The following selected financial data for the
three months ended March 31, 1998 were derived from the unaudited financial
statements of the Company and ICCC contained elsewhere herein and reflect, in
management's opinion, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of financial position and
results of operations for these periods. Results of operations for the three
months ended March 31, 1998 are not necessarily indicative of results to be
expected for the year ending December 31, 1998. Such selected financial data
should be read in conjunction with the consolidated financial statements and
the notes thereto and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" also included elsewhere herein.

IMPAC COMMERCIAL HOLDINGS, INC.
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 15, 1997 JANUARY 15, 1997
FOR THE (COMMENCEMENT OF (COMMENCEMENT OF
THREE MONTHS OPERATIONS) OPERATIONS)
ENDED THROUGH THROUGH
MARCH 31, MARCH 31, DECEMBER 31,
1998 1997 1997
------------ ---------------- ----------------
STATEMENT OF OPERATIONS DATA: (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Interest income............... $5,774 $ 366 $7,459
Equity in net earnings (loss)
of Impac Commercial
Capital Corporation.......... (454) -- 1,694
Rental and other income....... 109 -- 174
------ ------- ------
5,429 366 9,327
------ ------- ------
Expenses:
Interest on borrowings........ 2,716 279 2,350
General and administrative and
other........................ 190 3 288
Management advisory fee....... 162 -- --
Professional services......... 136 60 617
Provision for loan losses..... 48 13 564
Stock compensation expense.... -- 2,697 2,697
------ ------- ------
3,252 3,052 6,516
------ ------- ------
Net earnings (loss)......... $2,177 $(2,686) $2,811
====== ======= ======
Net earnings per share--
basic...................... $ 0.27 $ 0.61
====== ======
Net earnings per share--
diluted.................... $ 0.27 $ 0.61
====== ======
Dividends declared per
share...................... $ -- $ 0.53
====== ======
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1998 1997
------------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $355,789 $218,839
Finance receivables.............................. 205,545 95,711
Commercial Mortgages held-for-investment and CMO
collateral...................................... 61,879 67,045
Investment securities available-for-sale......... 18,229 19,353
Residual interest in securitizations, held-for-
trading......................................... 10,202 9,936
Total borrowings................................. 243,155 104,391
Total stockholders' equity....................... 104,989 103,242
</TABLE>

36
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT OPERATING DATA)

<TABLE>
<CAPTION>
FOR THE FOR THE
PERIOD FROM PERIOD FROM
JANUARY 15, 1997 JANUARY 15, 1997
FOR THE (COMMENCEMENT OF (COMMENCEMENT OF
THREE MONTHS OPERATIONS) OPERATIONS)
ENDED THROUGH THROUGH
MARCH 31, MARCH 31, DECEMBER 31,
1998 1997 1997
------------ ---------------- ----------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Revenues:
Interest income.............. $2,846 $ 6 $2,804
Gain on sale of loans........ -- -- 3,657
Loan servicing and other
income...................... 84 2 62
------ ----- ------
2,930 8 6,523
------ ----- ------
Expenses:
Interest on borrowings....... 2,919 5 2,747
General and administrative
and other................... 605 126 636
Professional services........ 233 63 540
Provision for repurchases.... -- -- 201
------ ----- ------
3,757 194 4,124
------ ----- ------
Earnings (loss) before
income taxes.............. (827) (186) 2,399
Income taxes expense
(benefit)................... (349) -- 1,022
------ ----- ------
Net earnings (loss)........ $ (478) $(186) $1,377
====== ===== ======
OPERATING DATA (IN MILLIONS):
Commercial Mortgage
originations (volume)......... $124.9 $ -- $233.5
Servicing portfolio at period-
end........................... 287.7 17.5 169.2
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1998 1997
------------ ---------------
BALANCE SHEET DATA:
<S> <C> <C>
Total assets....................................... $237,893 $112,635
Commercial Mortgage loans held-for-sale............ 231,720 106,654
Warehouse line agreements.......................... 223,815 104,219
Total shareholders' equity......................... 3,925 4,403
</TABLE>

37
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Prospectus contains forward-looking statements that inherently involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following section, in "Risk
Factors" and elsewhere in this Prospectus. The following discussion should be
read in conjunction with the Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.

GENERAL

ICH was incorporated in the state of Maryland on February 3, 1997. ICH was
formed to seek opportunities in the commercial mortgage market. The Company's
Commercial Mortgage Assets include Commercial Mortgages comprised of mortgage
loans on condominium-conversions and commercial properties, such as industrial
and warehouse space, office buildings, retail space and shopping malls, hotels
and motels, nursing homes, hospitals, multifamily, congregate care facilities
and senior living centers. The Company operates the Long-Term Investment
Operations, which invests in mortgage loans and MBSs; to date, the Long-Term
Investment Operations has invested primarily in Commercial Mortgages and
CMBSs. The Company engages in the Conduit Operations, conducted by ICCC, which
originates, purchases and sells or securitizes Commercial Mortgages. ICCC
operates three divisions: the ConduitExpress Division, the CommercialExpress
Division, and the CondoSelect Division.

RESULTS OF OPERATIONS; IMPAC COMMERCIAL HOLDINGS, INC.

Three months ended March 31, 1998 compared to the period from January 15,
1997 (commencement of operations) through March 31, 1997

Net Earnings

Net earnings for the three months ended March 31, 1998 increased to $2.2
million as compared to a net loss of $2.7 million for the period from January
15, 1997 (commencement of operations) through March 31, 1997 (the "March 31,
1997 Period"). The net loss for the March 31, 1997 Period was primarily the
result of the issuance by ICH of stock that resulted in a one-time stock
compensation expense of $2.7 million. Excluding the stock compensation
expense, ICH would have earned $11,000 for the March 31, 1997 Period. The
increase in net earnings was primarily attributed to an increase in net
interest income earned on Commercial Mortgages, investment and residual
securities, and finance receivables partially offset by an increase in
management advisory fees and professional services expense. Net earnings were
adversely affected by the strategic decision of the Board of Directors to
boost long-term assets rather than realize current earnings from a whole loan
sale. The significant increase in the Company's net earnings for the three
months ended March 31, 1998 as compared to the March 31, 1997 Period is the
result of the Company's growth over the past 12 months as the Company had only
been in operation for approximately two months as of March 31, 1997.

Revenues

Revenues for the three months ended March 31, 1998 increased to $5.4 million
as compared to $366,000 for the March 31, 1997 Period. The increase is
primarily due to an increase in interest income earned on Commercial Mortgages
held-for-investment, investment securities available-for-sale, residual
interests in securitizations, and finance receivables (collectively,
"Commercial Mortgage Assets") partially offset by equity in net loss of ICCC
of $454,000.

Interest income for the three months ended March 31, 1998 increased to $5.8
million as compared to $366,000 for the March 31, 1997 Period. Such an
increase is attributed to an increase in average Commercial Mortgage Assets to
$213.2 million for the three months ended March 31, 1998 as compared to $12.1
million for the March 31, 1997 Period.

38
<PAGE>

The Company recorded an equity in net loss of ICCC for the three months
ended March 31, 1998 of $454,000. The Company has a 95% economic interest in
ICCC through its ownership of 100% of the preferred stock of ICCC which was
acquired in August 1997. See "Certain Transactions." As the preferred stock of
ICCC was contributed to the Company in August 1997, the Company did not record
any investment in or equity in net earnings or loss for the March 31, 1997
Period. For additional information on the financial results of ICCC, see "--
Results of Operations; Impac Commercial Capital Corporation."

Expenses

Expenses for the three months ended March 31, 1998 increased 6.6% to $3.3
million as compared to $3.1 million for the March 31, 1997 Period. The
increase is primarily due to an increase in interest expense on borrowings,
management advisory fees and professional expenses offset by a decrease in
stock compensation expense. Interest expense for the three months ended March
31, 1998 increased to $2.7 million as compared to $279,000 for the March 31,
1997 Period as average borrowings, which include warehouse line agreements,
reverse repurchase agreements and CMO borrowings, increased to $144.0 million
for the three months ended March 31, 1998 as compared to $9.6 million for the
March 31, 1997 Period. Management advisory fees increased to $162,000 for the
three months ended March 31, 1998 as compared to zero for the March 31, 1997
Period. The Company incurs management advisory fee expense pursuant to the
Management Agreement with RAI. See "RAI Advisors, LLC." The Company did not
record a management advisory fee for the March 31, 1997 Period as the
Company's operations were in a formative stage, and thus, the return on equity
was less than the hurdle rate (average Ten year U.S. Treasury rate plus 2%).
Professional expenses increased 127% to $136,000 for the three months ended
March 31, 1998 as compared to $60,000 for the March 31, 1997 Period. The
Company records professional expenses primarily as a result of legal services
and various services provided by IFC including technology, management
information and accounting services. Stock compensation expense decreased as
the Company incurred a one-time charge of $2.7 million in the March 31, 1997
Period as a result of the Company issuing founders' stock.

For the period from January 15, 1997 (commencement of operations) through
December 31, 1997

Net Earnings

Net earnings for the Commencement Period was $2.8 million. Contributions to
net earnings for the Commencement Period were primarily the result of net
interest income earned on Commercial Mortgages, investment and residual
securities, and finance receivables which was partially offset by stock
compensation expense, professional services and provision for loan losses.

Revenues

Revenues for the Commencement Period were $9.3 million which was primarily
comprised of interest income earned on Commercial Mortgages held-for-
investment, investment securities available-for-sale, residual interests in
securitizations, and finance receivables (collectively, "Commercial Mortgage
Assets"). Revenues were also positively affected by equity in net income of
ICCC.

Interest income earned for the Commencement Period on Commercial Mortgage
Assets was $6.7 million as average outstanding Commercial Mortgage Assets was
$63.0 million.

Interest income of $2.1 million was earned for the Commencement Period on
Commercial Mortgages held-for-investment and CMO collateral as ICH acquired
$58.5 million of adjustable rate Commercial Mortgages from ICCC for the Period
and ICH contributed $4.3 million of adjustable rate condominium conversion
loans as CMO collateral in December 1997. Average outstanding Commercial
Mortgages and CMO collateral was $22.0 million and $233,000, respectively, for
the Commencement Period.

Interest income of $2.4 million was earned for the Commencement Period on
finance receivables as average outstanding finance receivables to ICCC was
$28.0 million. ICCC acquired $233.5 million in Commercial Mortgages during the
Commencement Period which were financed by ICH. ICH earns interest at the
prime rate on finance receivables outstanding to ICCC.

39
<PAGE>

Interest income of $1.7 million and $514,000 was earned for the Commencement
Period from a residual interest in securitization and investment securities
available-for-sale, respectively. The residual interest in securitization was
purchased from IFC in February 1997 for $10.1 million. The average outstanding
balance on total residual and investment securities for the Commencement
Period was $12.8 million.

Equity in net earnings of Impac Commercial Capital Corporation was $1.7
million. ICH has a 95% economic interest in ICCC through its ownership of 100%
of the preferred stock of ICCC which was acquired in August 1997. See "Certain
Transactions." For additional information on the financial results of ICCC,
see "--Results of Operations; Impac Commercial Capital Corporation."

Expenses

Expenses for the Commencement Period were $6.5 million which was primarily
comprised of interest expense on reverse repurchase agreements, borrowings
from IWLG, formerly Imperial Warehouse Lending Group, Inc., and other
borrowings and stock compensation expense related to the issuance of founder's
stock.

Interest expense for the Commencement Period on total borrowings was $2.4
million as total average outstanding borrowings was $31.0 million.

Interest expense for the Commencement Period on warehouse line and reverse
repurchase agreements was $1.4 million on average outstanding borrowings of
$20.4 million. These borrowings were used to finance the acquisition of $58.5
million of Commercial Mortgages and $20.2 million of CMBSs during the Period.

Interest expense for the Commencement Period on borrowings from IWLG was
$453,000 on average outstanding borrowings of $5.0 million. These borrowings
were used to finance the acquisition of $17.5 million in principal balance of
condominium conversion loans acquired from IFC until ICH obtained warehouse
financing facilities from third party lenders.

Interest expense for the Commencement Period on borrowings from others was
$503,000 as average outstanding borrowings was $5.5 million. These borrowings
were used to finance the acquisition of $10.1 million in residual interest in
securitization which was paid off in September 1997 with proceeds from ICH's
initial public offering ("IPO").

Stock compensation expense was related to the issuance of founder's stock to
directors and officers of the Company. ICH issued 300,000 shares of common
stock to directors and officers of ICH on February 3, 1997 at $0.01 per share.
The estimated fair value of the shares was $9.00 (a difference of $8.99 per
share) or $2.7 million.

Professional services was primarily the result of intercompany allocations.
ICH is charged for various services provided by IMH and IFC, including
facilities and costs associated therewith, technology, human resources,
management information systems, general ledger accounts, check processing and
accounts payable, plus a 15% service charge, under the Company's Management
Agreement with RAI. Of the $617,000 of professional services incurred during
the Commencement Period, $525,000 in professional services were allocated to
ICH in connection with the Management Agreement.

The provision for loan losses during the Commencement Period was $564,000 as
a result of the combined increase in Commercial Mortgages held-for-investment,
CMO collateral, and finance receivables of $162.8 million outstanding at
December 31, 1997. The Company did not experience any loan charge-offs during
the Commencement Period. While the Company believes that it has adequately
provided for any future credit losses, the Company may have to add to its loan
loss allowance based upon actual loan loss experience or an increase in the
Company's investments.

40
<PAGE>

RESULTS OF OPERATIONS; IMPAC COMMERCIAL CAPITAL CORPORATION

Three Months Ended March 31, 1998 Compared to the period from January 15,
1997 (commencement of operations) through March 31, 1997

Net Earnings

Net loss increased to $478,000 for the three months ended March 31, 1998 as
compared to $186,000 for the March 31, 1997 Period. The net loss for the three
months ended March 31, 1998 was primarily due to net interest expense from the
loans held for sale as well as general and administrative and other expense.
The net loss for the March 31, 1997 Period was primarily due to general and
administrative expenses incurred during the Company's formative stage.

Revenues

Revenues for the three months ended March 31, 1998 increased to $2.9 million
as compared to $8,000 for the March 31, 1997 Period primarily attributable to
the increase in average loans held for sale to $137.3 million as compared to
zero for the March 31, 1997 Period.

Expenses

Expenses for the three months ended March 31, 1998 increased $3.8 million as
compared to $194,000 for the March 31, 1997 Period. The increase is primarily
due to an increase in interest expense to $2.9 million for the three months
ended March 31, 1998 as compared to $5,000 for the March 31, 1997 Period. This
increase was directly related to an increase in average borrowings for the
three months ended March 31, 1998 to $129.1 million as compared to $86,000 for
the March 31, 1997 Period and as a result of the growth of ICCC's operations.

For the period from January 15, 1997 (commencement of operations) through
December 31, 1997

Net Earnings

Net earnings for the Commencement Period was $1.4 million. Contributions to
net earnings for the Commencement Period were primarily the result of net
interest income earned on Commercial Mortgages held-for-sale and gain on sale
of Commercial Mortgages which was partially offset by professional services
and provision for repurchases.

Revenues

Revenues for the Commencement Period were $6.5 million which was primarily
comprised of interest income earned on Commercial Mortgages held-for-sale and
gain on sale of loans. Interest income earned for the Commencement Period on
Commercial Mortgages was $2.8 million as average outstanding Commercial
Mortgages was $32.3 million as ICCC acquired $233.5 million of Commercial
Mortgages during the Commencement Period. Gain on sale of loans for the
Commencement Period was $3.7 million as ICCC sold $73.4 million of Commercial
Mortgages to third parties.

Expenses

Expenses for the Commencement Period were $4.1 million which were primarily
comprised of interest expense on borrowings from ICH under warehouse line
agreements and other affiliated borrowings, general and administrative
expenses, and professional services.

Interest expense for the Commencement Period on total borrowings was $2.7
million as total average outstanding borrowings was $31.1 million. Interest
expense for the Commencement Period on borrowings from ICH under warehouse
line agreements and on borrowings with other affiliates was $2.4 million and
$375,000, respectively, on average outstanding borrowings of $28.0 million and
$3.1 million, respectively. These borrowings were used to finance the
acquisition of $233.5 million of Commercial Mortgages during the Commencement
Period.

41
<PAGE>

Professional services was primarily the result of intercompany allocations.
ICCC is charged for various services provided by IMH and IFC, including
facilities and costs associated therewith, technology, human resources,
management information systems, general ledger accounts, check processing and
accounts payable, plus a 15% service charge, under the Company's Management
Agreement with RAI. Of the $540,000 of professional services incurred during
the Commencement Period, $456,000 in professional services were allocated to
ICCC in connection with the Management Agreement.

Provision for repurchases during the Commencement Period was $201,000.
Management expects to increase ICCC's allowance for repurchases, both in terms
of amount and expressed as a percentage of the last twelve months of loan
sales, in future periods as ICCC's loan sales activity increases.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal liquidity requirements result from funding needs
arising from the acquisition of mortgage loans and MBSs by the Long-Term
Investment Operations, ICH, and the origination or purchase of Commercial
Mortgages held-for-sale by the Conduit Operations, ICCC. The Company's ability
to meet its long-term liquidity requirements is subject to the renewal of its
credit and repurchase facilities and/or obtaining other sources of financing,
including additional debt or equity from time to time. Any decision by the
Company's lenders and/or investors to make additional funds available to the
Company in the future will depend upon a number of factors, such as the
Company's compliance with the terms of its existing credit arrangements, the
Company's financial performance, industry and market trends in the Company's
various businesses, the general availability of and rates applicable to
financing and investments, such lenders' and/or investors' own resources and
policies concerning loans and investments, and the relative attractiveness of
alternative investment or lending opportunities.

Prior to the ICH IPO, the Long-Term Investment Operations was funded by
$15.0 million in investments and $900,000 in borrowings from IMH and a
warehouse line agreement from a third party lender. ICCC was funded by
affiliated borrowings and by $500,000 from the issuance of preferred stock.
Subsequent to the Company's IPO, the Long-Term Investment Operations and the
Conduit Operations were funded through borrowings from warehouse line
agreements and reverse repurchase agreements, borrowings from affiliated
companies, sales of Commercial Mortgages and proceeds from the issuance of
capital stock.

ICH, as a stand-alone entity, has entered into warehouse line agreements
with two investment banks, one of which expires in May 1999 and one of which
expires in February 1999 (unless terminated earlier), which provide up to an
aggregate of $600.0 million (of which $200.0 million is uncommitted) to
finance ICH's operations as needed. Terms of the warehouse line agreements
require that the Commercial Mortgages be held by an independent third party
custodian, which gives the Company the ability to borrow against the
collateral as a percentage of the fair market value of the Commercial
Mortgages. The borrowing rates are expressed in basis points plus one-month
LIBOR or Eurodollar Rate. The margins on the warehouse line agreements are
based on the type of mortgage collateral used and the loan amounts generally
range from 75% to 92% of the fair market value of the collateral. Management
believes that the warehouse line agreements will be sufficient to handle the
Company's liquidity needs. As of March 31, 1998, an aggregate of $229.8
million was outstanding on the warehouse line agreements.

ICH has entered into three reverse repurchase agreements whereby ICH pledges
specific CMBSs as collateral to secure short-term loans. The interest rates on
the loans are based on one-month LIBOR plus a margin depending on the type of
collateral. As of March 31, 1998, amounts outstanding on the reverse
repurchase agreements were $9.4 million. See "Business--Long-Term Investment
Operations--Financing."

Effective May 28, 1998, ICH obtained a $10,000,000 line of credit from
Imperial Bank with an initial interest rate at 8.75%. The line of credit
matures in March 1999.

In August 1997, the Company raised net proceeds of $88.2 million (after
underwriting discounts and before offering expenses) from its IPO as
stockholders purchased 6,325,000 shares of common stock at a price of $15.00
per share. Underwriting discount and commissions were $6.6 million and the
total expenses were approximately $1.2 million.

42
<PAGE>

In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby ICH agreed to advance to IMH up to a maximum amount of $15.0 million.
The agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are at an interest rate and maturity to be determined at the time
of each advance with interest and principal paid monthly. As of March 31, 1998
and December 31, 1997, there were no amounts outstanding under the credit
arrangement. Interest income recorded by ICH for the three months ended March
31, 1998 and the Commencement Period related to such advances to IMH was
approximately $55,000 and $68,000, respectively.

In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby IMH agreed to advance to ICH up to a maximum amount of $15.0 million.
The agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are at an interest rate and maturity to be determined at the time
of each advance with interest and principal paid monthly. As of March 31, 1998
and December 31, 1997, ICH's outstanding borrowings under the credit
arrangement was none and $9.1 million, respectively. Interest expense recorded
by ICH related to such borrowings from IMH for the three months ended March
31, 1998 and the Commencement Period was approximately $43,000 and $55,000,
respectively.

ICCC has entered into warehouse line agreements with ICH which provide up to
an aggregate of $900.0 million to finance ICCC's operations as needed. Terms
of the warehouse line agreements require that the Commercial Mortgages be held
by an independent third party custodian, which gives the Company the ability
to borrow against the collateral as a percentage of the fair market value of
the Commercial Mortgages. The borrowing rates on the warehouse line agreements
are at prime which was 8.50% at March 31, 1998. The margins on the warehouse
line agreements are up to 90% of the fair market value of the collateral.
Management believes that the warehouse line agreements will be sufficient to
handle the Company's liquidity needs. As of March 31, 1998 and December 31,
1997, amounts outstanding on ICCC's warehouse line agreements with ICH were
$205.5 million and $95.7 million, respectively.

ICCC has entered into an uncommitted warehouse line agreement with IMH to
provide financing as needed. The margins on the warehouse line agreement are
at 8% of the fair market value of the collateral. The interest rates on the
borrowings are indexed to the prime rate. As of March 31, 1998 and December
31, 1997, outstanding amounts on the warehouse line agreement were $18.3
million and $8.5 million, respectively.

During the three months ended March 31, 1998 and the Commencement Period,
ICCC sold none and $73.4 million, respectively to third party investors and
sold $2.3 million and $58.4 million, respectively, in principal balance of
Commercial Mortgages to ICH.

For the three months ended March 31, 1998 and the March 31, 1997 Period, net
cash provided by (used in) operating activities was $(24.4) million and
$5,000, respectively. Net cash used in operating activities for the three
months ended March 31, 1998 was primarily the result of a net increase in the
net due from affiliates and due to affiliates balances of $(27.0) million
partially offset by a net change in other assets and liabilities of $205,000.
Net cash provided by operating activities for the March 31, 1997 Period was
primarily affected by $2.7 million in stock compensation expense related to
the issuance of 300,000 shares of ICH Common Stock.

For the three months ended March 31, 1998 and the March 31, 1997 Period, net
cash used in investing activities was $104.3 million and $27.6 million,
respectively. Net cash used in investing activities for the three months ended
March 31, 1998 was primarily the result of a net increase in finance
receivables of $109.8 million. Net cash used in investing activities for the
March 31, 1997 Period was primarily affected by the purchases of $17.5 million
in Commercial Mortgages held-for-investment and $10.1 million in residual
interest in securitization.

For the three months ended March 31, 1998 and the March 31, 1997 Period, net
cash provided by financing activities was $135.7 million and $32.0 million,
respectively. Net cash provided by financing activities for the three months
ended March 31, 1998 was primarily the result of an increase in net borrowings
on warehouse line and reverse repurchase agreements of $139.0 million
partially offset by dividends paid of $3.0 million. Net cash provided by
financing activities for the March 31, 1997 Period was primarily the result of
an increase in net

43
<PAGE>

borrowings on warehouse line and reverse repurchase agreements of $16.6
million and the issuance of promissory notes of $15.0 million.

INFLATION

The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased costs
of the Company's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Company's operations are monetary in nature. As
a result, interest rates have a greater impact on the Company's operations'
performance than do the effects of general levels of inflation. Inflation
affects the Company's operations primarily through its effect on interest
rates, since interest rates normally increase during periods of high inflation
and decrease during periods of low inflation. During periods of increasing
interest rates, demand for mortgage loans and a borrower's ability to qualify
for mortgage financing in a purchase transaction may be adversely affected.

44
<PAGE>

BUSINESS

The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual result could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.

GENERAL

Impac Commercial Holdings, Inc. is a recently formed specialty commercial
property finance company which originates and purchases Commercial Mortgages
comprised of mortgage loans on condominium-conversions and commercial
properties, such as industrial and warehouse space, office buildings, retail
space and shopping malls, hotels and motels, nursing homes, hospitals,
multifamily, congregate care facilities and senior living centers. The Company
has elected to be taxed at the corporate level as a REIT for federal income
tax purposes, which generally allows the Company to pass through income to
stockholders without payment of federal income tax at the corporate level.

The Commercial Mortgage securitization market has experienced significant
growth in recent years. In 1997, $44.3 billion of Commercial Mortgages were
securitized, representing a 48% increase over 1996 and a 133% increase over
1995, according to the Commercial Mortgage-Backed Securitization Update
1997/1998 published by E&Y Kenneth Leventhal Real Estate Group, a unit of
Ernst & Young LLP. The Company believes that the growth of the Commercial
Mortgage securitization market (including the emergence of an efficient
secondary market for Commercial Mortgages and CMBSs and the creation of
uniform underwriting and document standards for Commercial Mortgages) are
significant factors driving Commercial Mortgage originations by conduits.

To take advantage of these trends, the Company has created operations to
originate Commercial Mortgages efficiently, to hold for investment those
Commercial Mortgages which are particularly attractive as REIT investments and
to sell or securitize the remainder into the secondary market. The Company
believes that this strategy will allow it to compete effectively in the
Commercial Mortgage market and to profit from the growth in the Commercial
Mortgage securitization market. For the three months ended March 31, 1998 and
the Commencement Period, the Conduit Operations originated $124.9 million and
$233.5 million in Commercial Mortgages, respectively.

The Company conducts its business through its Conduit Operations, which
originates, purchases and sells or securitizes Commercial Mortgages and
through its Long-Term Investment Operations which, to date, has invested
primarily in Commercial Mortgages and mortgage-backed securities on commercial
properties.

The following table sets forth the interest earning assets and interest
bearing liabilities of the Company on the dates indicated:

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
FOR THE THREE MONTHS ENDED (COMMENCEMENT OF OPERATIONS)
MARCH 31, 1998 THROUGH DECEMBER 31, 1997
----------------------------------- ----------------------------------
AVERAGE WEIGHTED PERCENTAGE AVERAGE WEIGHTED PERCENTAGE
BALANCE AVERAGE YIELD OF PORTFOLIO BALANCE AVERAGE YIELD OF PORTFOLIO
-------- ------------- ------------ ------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSET TYPE
Cash and cash
equivalents............ $ 8,009 5.12% 3.62% $ 9,116 5.17% 12.64%
Investment securities
available-for-sale..... 19,211 12.90 8.68 4,930 13.44 6.84
Residual interest in
securitizations........ 10,013 20.00 4.53 7,855 20.00 10.89
Finance receivables..... 119,775 8.44 54.13 27,936 8.49 38.75
Commercial Mortgages
held-for-investment.... 60,092 8.65 27.16 22,029 9.50 30.55
CMO collateral.......... 4,164 8.93 1.88 233 9.00 0.32
-------- ------ ------- ------
Total Interest Bearing
Assets............... $221,264 9.29% 100.00% $72,099 9.97% 100.00%
======== ====== ======= ======
BORROWING TYPE
Warehouse line
agreements............. $130,512 6.67% 90.64% $25,470 6.82% 92.16%
CMO borrowings.......... 4,087 6.42 2.84 228 6.45 0.83
Reverse repurchase
agreements............. 9,385 6.05 6.52 1,938 5.92 7.01
-------- ------ ------- ------
Total Interest Bearing
Liabilities.......... $143,984 6.63% 100.00% $27,636 7.15% 100.00%
======== ====== ======= ======
NET INTEREST
SPREAD............. 2.66% 2.82%
</TABLE>

45
<PAGE>

LONG-TERM INVESTMENT OPERATIONS

The Long-Term Investment Operations invests in mortgage loans for long-term
investment and mortgage-backed securities. Income is earned principally from
the net interest income received by the Company on mortgage loans, mortgage-
backed securities held in its portfolio and finance receivables. Purchases of
mortgage loans and mortgage-backed securities are financed with a portion of
the Company's capital, as well as long-term financing through CMOs and
borrowings under warehouse line agreements and reverse repurchase agreements.
To date, the Long-Term Investment Operations has invested primarily in
Commercial Mortgages and CMBSs. ICCC supports the investment objectives of ICH
by selling Commercial Mortgages and CMBSs to ICH at costs that are comparable
to those available through investment bankers and other third parties. In
December 1997, ICH participated in the issuance of a CMO with IMH Assets Corp.
(a wholly-owned, specialty purpose subsidiary of IMH through which IMH
conducts its CMO borrowings) whereby ICH contributed $4.3 million of
Commercial Mortgages as CMO collateral. At March 31, 1998, the Company's
mortgage loan and MBS portfolio consisted of $205.5 million in finance
receivables, $61.9 million in Commercial Mortgages, $18.2 million in CMBSs,
and $10.2 million of residual interest in securitizations. For the three
months ended March 31, 1998 and the Commencement Period, the Long-Term
Investment Operations acquired $2.3 million and $58.5 million, respectively,
of adjustable rate Commercial Mortgages from ICCC.

COMMERCIAL MORTGAGES HELD IN THE PORTFOLIO

The Company originates, through ICCC, and invests a substantial portion of
its assets in Commercial Mortgages. Although the Company acquired all
Commercial Mortgages from ICCC during 1997, the Company can and in the future
expects to purchase Commercial Mortgages from third party investors for long-
term investment and for resale.

FINANCE RECEIVABLES

ICH provides an aggregate of $900.0 million in warehouse line agreements to
ICCC to fund the origination and acquisition of Commercial Mortgages during
the time of the closing of the Commercial Mortgages to their sale or other
settlement with pre-approved investors. ICCC's outstanding balances on
warehouse lines appear on ICH's balance sheet as finance receivables and are
structured to qualify under REIT asset tests and to generate income qualifying
under the 75% gross income test. Terms of the warehouse lines are based on
Bank of America's prime rate with advance rates to 90% of the fair value of
the mortgage loans outstanding. As of March 31, 1998, ICCC's outstanding
aggregate balances on the warehouse line agreements with ICH was
$205.5 million.

INVESTMENTS IN MORTGAGE-BACKED SECURITIES

The Company may also acquire CMBSs generated through its own securitization
efforts as well as MBSs generated by third parties. In connection with the
issuance of CMBSs by the Company in the form of real estate mortgage
investment conduits ("REMICs"), ICH may retain the senior or subordinated
securities as regular interests of a REMIC on a short-term or long-term basis.
Any such retained CMBSs may include "principal only," "interest only" or
residual interest securities or other interest rate or prepayment sensitive
securities or investments. Any such retained securities or investments may
subject the Company to credit, interest rate and/or prepayment risks.

MBSs are securities that represent an interest in, or are secured by,
mortgage loans. MBSs may pay fixed or floating rates of interest. MBSs
generally have been structured as mortgage pass-through securities, although
other structures are possible. With a typical mortgage pass-through security,
payment of principal and interest on the underlying mortgages, following
deduction of servicing expenses, is passed through directly to holders of the
securities. Mortgage pass-through securities represent an obligation of the
issuer, secured by a pool of mortgage loans pledged as collateral for payments
of principal and interest on the debt instrument. The issuer's obligation to
pay principal and interest under a mortgage pass-through security is limited
to the pledged collateral.

MBSs generally are structured with some form of credit enhancement to
protect against potential losses on the underlying mortgage loans. Credit
support increases the likelihood of timely and full payment of principal

46
<PAGE>

and interest to the more senior class of MBSs. Because of the particular risks
that accompany MBSs, the amount of such credit support may be substantial.
Credit supports used in the MBS market have included issuer guarantees,
reserve funds, subordinated securities (which bear the risks of default before
more senior classes of securities of the same issuer), cross-collateralization
and over-collateralization.

The CMBS market is newer than the residential MBS market and in terms of
total outstanding principal amount of issues is relatively small compared to
the total size of the market for residential MBSs. CMBSs have been issued in
public and private transactions by a variety of agency and private-label
issuers. CMBSs have been issued using a variety of structures, some of which
were developed in the residential mortgage market, including multi-class
structures featuring senior and subordinated classes. Because of the great
diversity in characteristics of the Commercial Mortgages that secure CMBSs,
however, such securities have unique features and characteristics.

FINANCING

The Long-Term Investment Operations is principally financed through the
issuance of CMOs, equity capital, borrowings under warehouse line agreements
and reverse repurchase agreements.

Collateralized Mortgage Obligations. As Commercial Mortgages are
accumulated, the Company issues CMOs secured by such loans as a means of
financing its Long-Term Investment Operations. The decision to issue CMOs will
be based on the Company's current and future investment needs, market
conditions and other factors. For accounting and tax purposes, the Commercial
Mortgages financed through the issuance of CMOs will be treated as assets of
the Company, and the CMOs will be treated as debt of the Company when for
accounting purposes the CMO qualifies as a financing arrangement under FAS
125. Each issuance of CMOs is expected to be fully payable from the principal
and interest payments on the underlying Commercial Mortgages collateralizing
such debt, any cash or other collateral required to be pledged as a condition
to receiving the desired rating on the debt, and any investment income on such
collateral. The Long-Term Investment Operations earns the net interest spread
between the interest income on the Commercial Mortgages and the interest and
other expenses associated with the CMO financing. The net interest spread may
be directly impacted by the levels of prepayment of the underlying Commercial
Mortgages and to the extent CMO classes have variable rates of interest, may
be affected by changes in short-term interest rates. As of March 31, 1998, the
Company had $3.9 million in CMOs outstanding.

The Company believes that under prevailing market conditions an issuance of
CMOs receiving other than an investment grade rating would require payment of
an excessive yield to attract investors which will reduce net interest spread
earned as a result of such CMO issuance. No assurance can be given that the
Company will achieve the ratings it plans to seek for the CMOs. The CMOs are
guaranteed for the holders thereof by a mortgage loan insurer, giving the CMOs
the highest rating established by a nationally recognized rating agency.

Warehouse Line Agreements. The Company has financing facilities with two
investment banks, one of which expires in May 1999 and one of which expires in
February 1999 (unless terminated earlier), not to exceed an aggregate of
$600.0 million (of which $200 million is uncommitted) at interest rates that
are consistent with the financing objectives discussed herein. A warehouse
line agreement acts as a financing facility under which the Company pledges
certain Commercial Mortgages as collateral to secure a short-term loan.
Generally, the lender makes a loan in an amount equal to 75% to 92% of the
fair market value of the pledged collateral. The Company's warehouse line
agreements require the Company to pledge the collateral to be held by a third-
party custodian. ICH's warehouse line agreements call for the Company to
pledge cash, additional Commercial Mortgages or additional securities in the
event the market value of the existing collateral declines. The terms of ICH's
warehouse line agreements stipulate that no Commercial Mortgage may be on the
warehouse line agreement for more than 364 days. The interest rates are based
upon one-month LIBOR or Eurodollar Rate.

47
<PAGE>

In an event of default under ICH's warehouse line agreements, the lender may
force the liquidation of the pledged collateral subject to any bankruptcy
proceedings rights and remedies available to a creditor. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Liquidity and Capital Resources."

Reverse Repurchase Agreements. The Company may also obtain reverse
repurchase agreements with third-party lenders, at interest rates that are
consistent with its financing objectives described herein. The Company has
currently entered into three reverse repurchase agreements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." A reverse repurchase agreement, although
structured as a sale and repurchase obligation, acts as a financing vehicle
under which the Company pledges certain mortgage loans and/or MBSs as
collateral to secure a short-term loan. Generally, the other party to the
agreement makes the loan in an amount equal to a percentage of the market
value of the pledged collateral. At the maturity of the reverse repurchase
agreement, the Company is required to repay the loan in exchange for the
return of its collateral. Under a reverse repurchase agreement, the Company
retains the incidence of beneficial ownership, including the right to
distributions on the collateral and the right to vote on matters as to which
certificate holders vote. Upon a payment default under such agreements, the
lending party may liquidate the collateral. The borrowing agreements may
require the Company to pledge cash, additional mortgage loans or MBSs in the
event the market value of existing collateral declines. To the extent that
cash reserves are insufficient to cover such deficiencies in collateral, the
Company may be required to sell assets to reduce its borrowings.

Reverse repurchase agreements take the form of a sale of securities to the
lender at a discounted price in return for the lender's agreement to resell
the same securities to the borrower at a future date (the maturity of the
borrowing) at an agreed price. In the event of the insolvency or bankruptcy of
the Company, certain reverse repurchase agreements may qualify for special
treatment under the Bankruptcy Code, the effect of which is, among other
things, to allow the creditor under such agreements to avoid the automatic
stay provisions of the Bankruptcy Code and to foreclose on the collateral
agreements without delay. In the event of the insolvency or bankruptcy of a
lender during the term of a reverse repurchase agreement, the lender may be
permitted, under the Bankruptcy Code, to repudiate the contract, and the
Company's claim against the lender for damages therefrom may be treated simply
as one of the unsecured creditors. In addition, if the lender is a broker or
dealer subject to the Securities Investor Protection Act of 1970, the
Company's ability to exercise its rights to recover its securities under a
reverse repurchase agreement or to be compensated for any damages resulting
from the lender's insolvency may be further limited by such statute. If the
lender is an insured depository institution subject to the Federal Deposit
Insurance Act, the Company's ability to exercise its rights to recover its
securities under a reverse repurchase agreement or to be compensated for
damages resulting from the lender's insolvency may be limited by such statute
rather than the Bankruptcy Code. The effect of these various statutes is,
among other things, that a bankrupt lender, or its conservator or receiver,
may be permitted to repudiate or disaffirm its reverse repurchase agreements,
and the Company's claims against the bankrupt lender for damages resulting
therefrom may be treated simply as one of an unsecured creditor. Should this
occur, the Company's claims would be subject to significant delay and, if and
when received, may be substantially less than the damages actually suffered by
the Company.

To reduce its exposure to the potential credit risk of reverse repurchase
agreement lenders, the Company enters into such agreements with different
parties and follows its own credit exposure procedures. The Company monitors
the financial condition of its reverse repurchase agreement lenders on a
regular basis, including the percentage of mortgage loans that are the subject
of reverse repurchase agreements with any single lender. Notwithstanding these
measures, no assurance can be given that the Company will be able to avoid
such third party risks.

Other CMBSs. As an additional alternative for the financing of its Long-Term
Investment Operations, the Company may issue other CMBSs, if, in the
determination of the Company, the issuance of such other securities is
advantageous. In particular, mortgage pass-through certificates representing
an undivided interest in pools of Commercial Mortgages formed by the Company
may prove to be an attractive vehicle for raising funds.

48
<PAGE>

The holders of CMBSs receive their pro rata share of the principal payments
made on a pool of Commercial Mortgages and interest at a pass-through interest
rate that is fixed at the time of offering. The Company may retain up to a
100% undivided interest in a significant number of the pools of Commercial
Mortgages underlying such pass-through certificates. The retained interest, if
any, may also be subordinated so that, in the event of a loss, payments to
certificate holders will be made before the Company receives its payments.
Unlike the issuance of CMOs, the issuance of CMBSs will not create an
obligation of the Company to security holders in the event of a borrower
default resulting in a short-fall in a principal or interest payment on CMBSs.
However, as in the case of CMOs, the Company may be required to obtain various
forms of credit enhancements in order to obtain an investment grade rating for
issues of mortgage pass-through certificates by a nationally recognized rating
agency.

INVESTMENT POLICIES

The following is a summary of some of the investment policies of the
Company, any of which may be changed by the Company's Board of Directors
without a vote of security holders. The executive officers of the Company are
empowered to make day-to-day investment decisions, including the issuance of
commitments on behalf of the Company to purchase mortgage loans and MBSs
meeting the investment criteria set from time to time by the Company's Board
of Directors. Other than statutory limitations imposed in order to have ICH
classified as a REIT, there is no current limitation set by the Board of
Directors on the percentage of assets which the Company may invest in any one
type of investment or the percentage of MBSs of any one issue which the
Company may acquire.

The Company does not anticipate wide geographic diversification of the
properties underlying the Company's mortgage loans and does not expect to set
specific limitations on the aggregate percentage of its portfolio composed of
such properties located in any one area (whether by state, zip code or other
geographic measure). Management estimates that a majority of the mortgage
loans held by the Company for portfolio investment will be secured by
properties in California. For the three months ended March 31, 1998 and for
the Commencement Period, 47% and 52%, respectively, of the Commercial
Mortgages purchased by the Company were secured by properties located in
California. It is the Company's policy to acquire assets primarily for income
and to finance its operations by warehouse lines of credit, reverse repurchase
agreements, issuance of CMOs and CMBSs and proceeds from the issuance of
capital stock.

CONDUIT OPERATIONS

ICCC began its mortgage conduit operations in January 1997. The Conduit
Operations consist of the origination or purchase and securitization or sale
of Commercial Mortgages primarily secured by first liens on commercial
properties that are originated in accordance with ICCC's underwriting
guidelines. As the Conduit Operations of the Company, ICCC acts as a bulk and
flow purchaser of Commercial Mortgages. All Commercial Mortgages originated or
purchased by ICCC will be made available for sale to ICH at the same price at
which the loans were originated or purchased by ICCC or fair market value at
the date of sale and subsequent transfer to ICH. During the three months ended
March 31, 1998 and the Commencement Period, ICCC originated or acquired $124.9
million and $233.5 million, respectively, of Commercial Mortgages and sold
none and $73.4 million, respectively, of such loans to third party investors.
During the same periods the Long-Term Investment Operations acquired
$2.3 million and $58.5 million, respectively, of Commercial Mortgages from
ICCC.

The Company's Conduit Operations operates three divisions: the
ConduitExpress Division, the CommercialExpress Division and the CondoSelect
Division.

CONDUITEXPRESS DIVISION

Correspondent Origination. The Company's ConduitExpress Division offers
larger principal balance Commercial Mortgages through specified correspondents
such as savings and loan associations, banks, mortgage bankers and other
mortgage brokers. These Commercial Mortgages are generally for projects more
substantial

49
<PAGE>

than those funded by the CommercialExpress Division. The ConduitExpress
Division's strategic focus is to be a low cost national originator through a
national correspondent network of Commercial Mortgages to be held for
investment or sold in the secondary market as whole loans or securitized as
CMBSs. A key feature of this approach is the use of a national network of
correspondent originators, which enables the Company to shift the high fixed
costs of interfacing with the property owner to such correspondents. The
marketing strategy for the ConduitExpress Division is designed to accomplish
three objectives: (1) attract a geographically diverse group of correspondent
loan originators, (2) establish relationships with such correspondents and
facilitate their ability to offer a variety of Commercial Mortgage products
designed by the ConduitExpress Division and (3) purchase Commercial Mortgages
and securitize or sell them in the secondary market or to ICH.

The ConduitExpress Division's standard programs are adjustable rate
Commercial Mortgages with principal balances ranging from $1.5 million to
$10.0 million. Such adjustable rate Commercial Mortgages bear interest based
on LIBOR, 1-Year CMT or Prime Rate Index plus, in each case, a spread with
amortization schedules ranging from 15 to 30 years and maturities of 5 to 15
years with a substantial balloon payment due at maturity and with a maximum
LTV generally not to exceed 80%. ICCC utilizes short-term prepayment lock-outs
and prepayment penalties to reduce its exposure to prepayments. The
ConduitExpress Division also offers fixed rate Commercial Mortgages with a
principal amount between $1.5 million and $10.0 million. The amortization
schedules range from 15 to 30 years with maturities of 5, 7, 10 or 15 years
with a substantial balloon payment due at maturity and with a maximum LTV
generally not to exceed 80%. The Division utilizes prepayment lock-out and
prepayment penalties with these Commercial Mortgages as well.

To facilitate its relationship with its correspondents, reduce the Company's
reliance on the California market and nationally expand the Company's
Commercial Mortgage origination capability, the Company has targeted major
metropolitan areas in the United States for correspondent originations in
1998.

Correspondents are required to meet certain financial, insurance and
performance requirements established by ICCC before they are eligible to
participate in its correspondent program, and must submit to periodic reviews
by ICCC to ensure continued compliance with these requirements. In addition,
correspondents are required to have comprehensive loan origination quality
control procedures. In connection with its qualification, each correspondent
enters into an agreement that generally provides for recourse by ICCC against
the correspondent in the event of certain defects with respect to Commercial
Mortgages sold to ICCC. All Commercial Mortgages originated through
correspondents are underwritten by ICCC.

A portion of the adjustable rate Commercial Mortgages originated or
purchased by this Division may be held in portfolio by the Long-Term
Investment Operations, while the balance thereof and a substantial portion of
the fixed rate Commercial Mortgages originated or purchased will be resold
through whole loan bulk sales or securitizations. For the three months ended
March 31, 1998 and the Commencement Period, the ConduitExpress Division
originated $72.9 million and $159.2 million, respectively, of Commercial
Mortgages, of which, none and $20.7 million, respectively, were sold to the
Long-Term Investment Operations.

Bulk Purchases. In addition to originating Commercial Mortgages on a
correspondent basis, the Division may in the future purchase Commercial
Mortgages in bulk packages and on a flow basis. Bulk loan purchases are in the
form of complete loan packages that have been originated and underwritten by
financial institutions or Commercial Mortgage brokers. All Commercial
Mortgages purchased on a bulk basis will be reviewed by ICCC's underwriting
staff to determine that the loan packages are complete and materially comply
with the Company's underwriting guidelines. Depending on the size of the pool
of Commercial Mortgages purchased, the Company may engage a third-party
underwriter to underwrite the Commercial Mortgages, determine credit grade,
verify the quality of the appraisal, verify the operations of the property,
including the Debt Service Coverage Ratios ("DSCR"), and on Commercial
Mortgages with smaller balances, verify the borrower's employment status.

50
<PAGE>

The Company has established relationships with Commercial Mortgage brokers
who are reviewed by the Company to ensure the quality and type of Commercial
Mortgages originated. The Company will also analyze the financial conditions
of the Commercial Mortgage brokers, including a review of the Commercial
Mortgage brokers' licenses and financial statements. Upon approval, the
Company expects to require Commercial Mortgage broker to enter into a purchase
and sale agreement with customary representations and warranties regarding the
loans such Commercial Mortgage broker will sell to the Company.

COMMERCIALEXPRESS DIVISION

The CommercialExpress Division markets Commercial Mortgages directly to
property owners who seek Commercial Mortgages to purchase a building or
refinance an existing mortgage. The CommercialExpress Division offers smaller
balance adjustable and fixed rate Commercial Mortgages to project owners or
developers for smaller properties and projects than those offered by the
ConduitExpress Division. The CommercialExpress Division's standard program are
adjustable rate Commercial Mortgages with principal balances ranging from
$500,000 to $1.5 million. Such adjustable rate Commercial Mortgages bear
interest based on LIBOR, 1-Year CMT or Prime Rate Index plus, in each case, a
spread with amortization schedules ranging from 15 to 30 years and maturities
of 5 to 15 years with a substantial balloon payment due at maturity and with a
maximum LTV generally not to exceed 80%. ICCC utilizes short-term prepayment
lock-outs and prepayment penalties to reduce its exposure to prepayments. The
CommercialExpress Division also offers fixed rate Commercial Mortgages with a
principal amount between $500,000 and $1.5 million. The amortization schedules
range from 15 to 30 years with maturities of 5, 7, 10 or 15 years with a
substantial balloon payment due at maturity and with a maximum LTV generally
not to exceed 80%. The Division utilizes prepayment lock-out and prepayment
penalties with these Commercial Mortgages as well. The Commercial Mortgages
offered by the CommercialExpress Division generally utilizes non-negotiable
loan documents and limited scope third party reports which provide more
efficient underwriting and closing.

Although processing and funding relating to these Commercial Mortgages are
performed centrally at ICCC's executive offices, the Company has targeted
major metropolitan areas such as Atlanta, Dallas and Chicago for the opening
of satellite offices for regional originations in 1998. The CommercialExpress
Division's marketing strategy is to solicit Commercial Mortgage originations
through direct mailings to selected builders and commercial and multi-family
real estate brokers, and through advertising in various forms of mass media
and trade magazines. The Company believes this centralized approach to
processing and closing allows the CommercialExpress Division to originate
Commercial Mortgages at a competitive cost. For the three months ended March
31, 1998 and the Commencement Period, the CommercialExpress Division
originated $48.6 million and $50.7 million, respectively, of Commercial
Mortgages, of which $650,000 and $14.2 million, respectively, were sold to the
Long-Term Investment Operations.

CONDOSELECT DIVISION

Through its CondoSelect Division, ICCC markets Commercial Mortgages directly
to developers and project owners who have completed a condominium complex or
the conversion of an apartment complex to a condominium complex, allowing
developers and project owners to structure flexible financing on qualified
condominium projects. Typical uses of the program are (where existing
financing precludes release provisions on individual units), to replace
existing matured loans or for acquisition financing. Commercial Mortgages
offered by the CondoSelect Division are typically adjustable rate mortgages
with an interest rate equal to a spread over six-month LIBOR, with an initial
interest rate for the first 12 to 24 months, and are fully amortizing over a
30-year term. The typical Commercial Mortgage is between $3.0 million and
$10.0 million, the current maximum LTV limits for such loans are (i) 65% of
the combined retail market value of the sum of individual units and (ii) 80%
of the value derived from an income approach as an apartment complex and the
DSCR generally exceeds 1.25.

51
<PAGE>

The Company believes an opportunity has developed to finance the sale of
previously constructed condominium complexes within certain geographic
regions. Increases in the prices of single-family detached homes have
decreased the ability of many potential first time home buyers to purchase
such properties. In addition, the Company believes that rents for high quality
apartments have substantially increased and vacancies for such apartments have
substantially decreased. The Company believes that previously constructed
condominium complexes have become an important alternative for such first time
buyers in certain geographic regions. In many cases tenants or third party
buyers can purchase a condominium unit with a total debt service at or near
their existing level of rent. These results combined with tax benefits and
potential future appreciation provide a significant incentive for the first-
time buyer who may be unable to afford a detached single family residence. The
Company believes that these conditions provide a substantial financing
opportunity.

The Commercial Mortgages offered by the CondoSelect Division are designed
for complete or partial condominium complexes that will be marketed to the
home buying community in accordance with market demand. The final loan amount
is based on both the retail value of the individual condominium unit and the
current multi-family value. Each project must have a verified operating
history that will provide adequate net income to cover the debt service.

The CondoSelect Division offers Commercial Mortgages which require master
loan agreements that include provisions for cross-collateralization and cross-
default of units within a complex. In addition, Commercial Mortgages offered
by the CondoSelect Division are generally with full recourse to the
sponsor/developer. The units may be released at par or on an accelerated basis
depending on sales absorption, DSCRs and the integrity of sales values. DSCRs
of similar income producing properties will be compared with those of the
property to be financed at the time of origination of the Commercial Mortgage.
The CondoSelect Division originates, underwrites, processes and funds
Commercial Mortgages on a retail basis from ICCC's executive offices. For the
three months ended March 31, 1998 and the Commencement Period, the CondoSelect
Division originated $3.4 million and $23.6 million, respectively, of
Commercial Mortgages, of which $1.7 million and $23.6 million, respectively,
were sold to the Long-Term Investment Operations.

52
<PAGE>

The following table sets forth ICCC's Commercial Mortgage originations by
type of Commercial Mortgage for the periods shown:

<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 15, 1997
FOR THE THREE (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -------------------
(DOLLARS IN MILLIONS,
EXCEPT FOR AVERAGE LOAN SIZE)
<S> <C> <C>
Fixed Rate Loans:
ConduitExpress Division--
Volume of Loans.......................... $ 72.9 $ 142.7
Percent of total volume.................. 58.4% 61.1%
CommercialExpress Division--
Volume of Loans.......................... 46.3 37.6
Percent of total volume.................. 37.1% 16.1%
CondoSelect Division--
Volume of Loans.......................... -- --
Percent of total volume.................. -- --
---------- --------
Total Fixed Rate Loans--
Volume of Loans.......................... $ 119.2 $ 180.3
Percent of total volume.................. 95.5% 77.2%
---------- --------
Variable Rate Loans:
ConduitExpress Division--
Volume of Loans.......................... $ -- $ 16.5
Percent of total volume.................. -- 7.1%
CommercialExpress Division--
Volume of Loans.......................... 2.3 13.1
Percent of total volume.................. 1.8% 5.6%
CondoSelect Division--
Volume of Loans.......................... 3.4 23.6
Percent of total volume.................. 2.7% 10.1%
---------- --------
Total Variable Rate Loans--
Volume of Loans.......................... $ 5.7 $ 53.2
Percent of total volume.................. 4.5% 22.8%
---------- --------
Total Loan Originations...................... $ 124.9 $ 233.5
========== ========
Average Loan Size............................ $1,274,000 $474,000
</TABLE>

The credit quality of the loans originated or purchased by ICCC will vary
depending upon the specific program under which such loans are purchased.

53
<PAGE>

ICCC's Commercial Mortgage origination and purchase activities typically
focus on those regions of the country where higher volumes of Commercial
Mortgages are originated, including Arizona, Arkansas, California, Colorado,
Florida, Nevada, New Hampshire, Ohio, Oregon, Texas and Wisconsin. The highest
concentration of Commercial Mortgages originated or purchased by ICCC relate
to properties located in California because of the generally higher property
values and mortgage loan balances prevalent in California. The following table
sets forth the geographic distribution of ICCC's Commercial Mortgage
originations for the periods shown:

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
(COMMENCEMENT OF
FOR THE THREE MONTHS ENDED OPERATIONS) THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
--------------------------- --------------------------
AGGREGATE % OF AGGREGATE AGGREGATE % OF AGGREGATE
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE BALANCE BALANCE BALANCE
--------- --------------- --------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
California........... $ 58.9 47.2% $ 121.3 52.0%
Washington........... 16.7 13.4 -- --
Texas................ 9.8 7.8 16.6 7.1
Arizona.............. 9.1 7.3 30.2 12.9
Oregon............... 8.3 6.7 2.9 1.2
Minnesota............ 5.0 4.0 -- --
Nevada............... 4.6 3.7 9.7 4.2
Connecticut.......... 4.5 3.6 -- --
Wisconsin............ 3.4 2.7 2.9 1.2
Colorado............. 2.5 2.0 4.3 1.8
Mississippi.......... 1.3 1.0 -- --
Ohio................. -- -- 27.9 11.9
Arkansas............. -- -- 4.5 2.0
New Hampshire........ -- -- 4.7 2.0
Florida.............. -- -- 4.3 1.8
Others (1)........... 0.8 0.6 4.2 1.9
------ ----- ------ -----
$124.9 100.0% $233.5 100.0%
====== ===== ====== =====
</TABLE>
- --------
(1) No other state accounted for over 1% of mortgage loans originations or
acquisitions for the three months ended March 31, 1998 and the
Commencement Period.

ICCC generally originates Commercial Mortgages and retains servicing rights
due to its belief that control over the servicing and collection functions
with respect to such Commercial Mortgages is important to the realization of a
satisfactory return thereon. In connection therewith, the Company has
contracted with Westco Real Estate Services and Wendover Funding Corporation
for the performance of such servicing functions. While the Company expects to
have its loans sub-serviced by others, ICCC may be retained for special
servicing on the securities it issues. As part of this process, the Company
may in the future form a separate collection group to assist sub-servicers in
the servicing of these Commercial Mortgages, see "--Servicing."

PRICING

ICCC sets purchase prices at least once every business day for Commercial
Mortgages it originates through its Conduit Operations based on prevailing
market conditions. Different prices are established for the various types of
Commercial Mortgages and rate-lock periods. ICCC's standard pricing is based
on factors such as the anticipated price it would receive upon sale or
securitization of such Commercial Mortgages, the anticipated interest spread
realized during the accumulation period, the targeted profit margin and the
anticipated issuance,

54
<PAGE>

credit enhancement and ongoing administrative costs associated with such sale
or securitization. The credit enhancement cost component of ICCC's pricing is
established for individual Commercial Mortgages or pools of Commercial
Mortgages based upon the characteristics of such loans or loan pools. As the
characteristics of the Commercial Mortgages or pools of Commercial Mortgages
vary, this cost component is correspondingly adjusted upward or downward to
reflect such variation. ICCC's adjustments are reviewed periodically by
management to reflect changes in the cost of credit enhancements, see "--
Securitization and Sale Process."

Following the issuance of a rate-lock, ICCC is subject to the risk of
interest rate fluctuations and enters into hedging transactions to diminish
such risk. Hedging transactions may include, interest rate caps, floors and
swaps, mandatory forward sales, mandatory or optional sales of futures and
other financial futures transactions including U.S. Treasury obligations. The
nature and quantity of hedging transactions are determined by the Company
based on various factors, including market conditions, expected duration of
the Commercial Mortgages and the expected securitization of Commercial
Mortgage purchases. Gains and losses on hedging transactions are deferred
until subsequent sale of the Commercial Mortgages.

UNDERWRITING AND QUALITY CONTROL

Origination and Purchase Guidelines. ICCC has developed comprehensive
guidelines for the origination or purchase of Commercial Mortgages by the
Conduit Operations. Subject to certain exceptions, each Commercial Mortgage
originated or purchased must conform to program guidelines with respect to,
among other things, loan amount, type of property, loan-to-value ratio, type
and amount of insurance, credit history of the borrower, DSCRs, sources of
funds, appraisals and loan documentation. ICCC also performs a legal
documentation review prior to the origination or purchase of any Commercial
Mortgage. Additionally, for Commercial Mortgages that are underwritten by
contract underwriters, ICCC does not perform a full underwriting review prior
to origination or purchase, but instead relies on the credit review and
analysis performed by the contract underwriter, as well as its own pre-
purchase eligibility process to ensure that the loan meets the program
acceptance guidelines and a post-purchase quality control review.

Underwriting Methods. Commercial Mortgages have maximum loan amounts and
LTV's and minimum DSCRs which are determined from time-to-time by the
executive committee of ICCC. The DSCR for any Commercial Mortgage is the ratio
of net operating income produced by the related mortgaged property to the
monthly payment due from the borrower on such property, in most cases as
underwritten by the related originator and verified by the appraiser, to the
amounts of principal and interest due under such Commercial Mortgages.
Generally, net operating income for a mortgaged property equals the operating
revenues for such mortgaged property minus its operating expenses and
replacement reserves, but without giving effect to debt service, depreciation,
non-recurring capital expenditures, tenant improvements, leasing commissions
and similar items. Appraisals and field inspections (performed by outside and
certified inspectors) and title insurance are required for each Commercial
Mortgage.

ICCC's underwriting standards under its Commercial Mortgage lending programs
are primarily intended to assess the economic value of the mortgaged property
and the financial capabilities, credit standing and managerial ability of the
borrower. In determining whether a loan should be made, ICCC will consider,
among other things, the borrower's management experience, DSCRs, the
borrower's overall financial position and the adequacy of such property as
collateral for the Commercial Mortgage, and ICCC may also consider the
creditworthiness of the borrower, the borrower's income, and liquid assets and
liabilities. While the primary consideration in underwriting a Commercial
Mortgage is the property securing the Commercial Mortgage and its net
operating income, sufficient documentation on the borrower is required to
establish the financial strength and ability of the borrower to successfully
operate the property and meet its obligations under the note and deed of
trust. Generally, Commercial Mortgages from the CondoSelect Division require
recourse against the related borrower in the form of a guarantee.

The Commercial Mortgage lending programs require that the property and
records relating to the property are inspected to determine the number of
units that can be rebuilt under current zoning requirements, the number

55
<PAGE>

of buildings on the property, the type of construction materials used, the
proximity of the property to natural hazards, flood zones and fire stations,
whether there are any environmental factors and whether a tract map has been
recorded. The property must front on publicly dedicated and maintained streets
with provisions for an adequate and safe ingress and egress. Properties that
share an ingress and egress through an easement or private road must have a
recorded non-exclusive easement. Recreational facilities and amenities, if
any, must be located on site and be under the exclusive control of the owner
of the premises. If available, engineering reports concerning the condition of
the major building components of the property are reviewed as is a ground
lease analysis if the property is on leased ground. Also, the title is
reviewed to determine if there are any covenants, conditions and restrictions,
easements or reservations of mineral interests in the property. The properties
are appraised by independent appraisers approved by ICCC.

In addition to the considerations set forth above, with respect to
Commercial Mortgages secured by commercial properties, ICCC's underwriting
policies typically require that the usage is permitted under local zoning and
use ordinances and the utilization of the commercial space is compatible with
the property and neighborhood. If the property is an office building, the
office building must have a stable occupancy history, must be located in a
good office market area and in a conforming neighborhood, must have adequate
parking and must be fire sprinkler equipped. Industrial properties must be
located in a conforming industrial marketplace and may not be used for the
production, storage or treatment of toxic waste. Retail properties must be
highly visible and located on a heavily traveled thoroughfare and typically
have tenants on term leases. ICCC does not generally make loans secured by a
property that has any of the following characteristics; inadequate maintenance
or repairs as determined by ICCC, the property is subject to covenants, the
property is not to code or the cost of restoring the property to code is
prohibitive or existence of or potential for contamination by hazardous toxic
materials evidenced in environmental reports obtained by ICCC.

ICCC analyzes the financial statements of the borrower to determine the
borrower's equity in the mortgaged property and overall capitalization,
particularly as it relates to real estate mortgage demands on equity. If the
borrower's holdings are heavily encumbered so that the debt service
requirements consume a high percentage of the rental income from the mortgaged
property, or consist substantially of unimproved or underimproved properties
having little or no gross income, ICCC analyzes whether the borrower will be
able to meet all of the mortgaged property's loan obligations (expenses, debt
service and equity return). In addition to DSCRs, the borrower's income and
expense ratios may be calculated.

In addition to the income from the mortgaged property, ICCC also evaluates
the borrower's income as a possible secondary source of repayment for the
Commercial Mortgage. In analyzing such income, ICCC considers, among other
factors, employment or business history of borrower and the stability and
seasonality of the borrower's current employment or business. If the borrower
derives income from rental property, ICCC evaluates the experience of the
manager of the rental property, type of tenancy and the cash flow generated by
the borrower's real estate portfolio. ICCC also reviews the borrower's credit
history to determine the borrower's ability and willingness to repay debts. In
general, ICCC will not grant a Commercial Mortgage to a borrower who has a
history of slow payments or delinquencies, bankruptcies, collection actions,
foreclosures or judgments against the borrower without adequate explanations
for each exception.

SECURITIZATION AND SALE PROCESS

General. The Conduit Operations utilizes warehouse line agreements with ICH
to finance the origination and purchase of Commercial Mortgages. For a
description of the terms of the Company's existing warehouse line agreements,
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources." When a sufficient volume of
Commercial Mortgages with similar characteristics has been accumulated,
generally $200 million to $300 million or more than 100 Commercial Mortgages,
ICCC will securitize them through the issuance of CMBSs in the form of REMICs
or resell them in bulk whole loan sales. It is anticipated that the period
between the time ICCC commits to purchase a Commercial Mortgage and the time
it sells or securitizes Commercial Mortgages will generally range from 90 to
180 days, depending on certain factors, including the length of the purchase
commitment period, the loan volume by product type and the securitization
process.

56
<PAGE>

Any decision to form a REMIC or to sell Commercial Mortgages in bulk by ICCC
is influenced by a variety of factors. REMIC transactions are generally
accounted for as sales of the Commercial Mortgages and can eliminate or
minimize any long-term residual investment in such loans. REMIC securities
consist of one or more classes of "regular interests" and a single class of
"residual interest." The regular interests are tailored to the needs of
investors and may be issued in multiple classes with varying maturities,
average lives and interest rates. These regular interests are predominantly
senior securities but, in conjunction with providing credit enhancement, may
be subordinated to the rights of other regular interests. The residual
interest represents the remainder of the cash flows from the Commercial
Mortgages (including, in some instances, reinvestment income) over the amounts
required to be distributed to the regular interests. In some cases, the
regular interests may be structured so that there is no significant residual
cash flow, thereby allowing ICCC to sell its entire interest in the Commercial
Mortgages. As a result, in some cases, all of the capital originally invested
in the Commercial Mortgages by the Company is redeployed in the Conduit
Operations. As part of its operations, the Company may retain regular and
residual interests on a short-term or long-term basis.

Credit Enhancement. Any REMICs or CMOs created by the Conduit Operations or
the Long-Term Investment Operations are expected to be structured so that one
or more of the classes of such securities are rated investment grade by at
least one nationally recognized rating agency. In contrast to agency
certificates (pass-through certificates guaranteed by the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation or the
Governmental National Mortgage Association) in which the principal and
interest payments are guaranteed by the U.S. government or an agency thereof,
securities created by Conduit Operations or the Long-Term Investment
Operations do not benefit from any such guarantee. The ratings for the Conduit
Operations' REMICs or the Long-Term Investment Operations' CMOs are based upon
the perceived credit risk by the applicable rating agency of the underlying
Commercial Mortgages, the structure of the securities, and the associated
level of credit enhancement. Credit enhancement is designed to provide
protection to the security holders in the event of borrower defaults and other
losses including those associated with fraud or reductions in the principal
balances or interest rates on Commercial Mortgages as required by law or a
bankruptcy court.

The Conduit Operations or the Long-Term Investment Operations may utilize
multiple forms of credit enhancement, including special hazard insurance,
letters of credit, over-collateralization and subordination or any combination
thereof. In determining whether to provide credit enhancement through
subordination or other credit enhancement methods, the Conduit Operations and
the Long-Term Investment Operations take into consideration the costs
associated with each method.

Each series of CMBSs is typically fully payable from the mortgage assets
underlying such series, and the recourse of investors is limited to such
assets and any associated credit enhancement features, such as
senior/subordinated structures. To the extent the Company holds subordinated
securities, a form of credit enhancement, the Company generally bears all
losses prior to the related senior security holders. Generally, any losses in
excess of the credit enhancement obtained are borne by the security holders.
Except in the case of a breach of the standard representations and warranties
made by the Company when Commercial Mortgages are securitized, such securities
are non-recourse to the Company. Typically, the Company has recourse to the
correspondents of Commercial Mortgages for any such breaches, but there are no
assurances of the correspondent's abilities to honor their respective
obligations.

Ratings of CMBSs are based primarily upon the characteristics of the pool of
underlying Commercial Mortgages and associated credit enhancements. A decline
in the credit quality of such pools (including delinquencies and/or credit
losses above initial expectations), or adverse developments in general
economic trends affecting real estate values or the mortgage industry, could
result in downgrades of such ratings.

HEDGING

The Company conducts certain hedging activities in connection with both its
Long-Term Investment Operations, only with respect to its liabilities, and its
Conduit Operations.

57
<PAGE>

Long-Term Investment Operations. To the extent consistent with ICH's
election to qualify as a REIT, the Company follows a hedging program intended
to protect against interest rate changes and to enable the Company to earn net
interest income in periods of generally rising, as well as declining or
static, interest rates. Specifically, the Company's hedging program is
formulated with the intent to offset the potential adverse effects resulting
from (1) interest rate adjustment limitations on its mortgage loans and MBSs
and (2) the differences between the interest rate adjustment indices and
interest rate adjustment periods of its adjustable rate mortgage loans secured
by such loans and related borrowings. As part of its hedging program, the
Company also monitors on an ongoing basis the prepayment risks that arise in
fluctuating interest rate environments.

The Company's hedging program encompasses a number of procedures. The
Company will structure its borrowing agreements to have a range of different
maturities. As a result, the Company may adjust the average maturity of its
borrowings on an ongoing basis by changing the mix of maturities as borrowings
come due and are renewed. In this way, the Company would minimize any
differences between interest rate adjustment periods of mortgage loans and
related borrowings that may occur due to prepayments of mortgage loans or
other factors.

The Company may occasionally purchase interest rate caps to limit or
partially offset adverse changes in interest rates associated with its
borrowings. In a typical interest rate cap agreement, the cap purchaser makes
an initial lump sum cash payment to the cap seller in exchange for the
seller's promise to make cash payments to the purchaser on fixed dates during
the contract term if prevailing interest rates exceed the rate specified in
the contract. In this way, the Company generally hedges as much of the
interest rate risk arising from lifetime rate caps on mortgage loans and from
periodic rate and/or payment caps as the Company determines is in the best
interests of the Company, given the cost of such hedging transactions and the
need to maintain ICH's status as a REIT. Such periodic caps on the Company's
mortgage loans may also be hedged by the purchase of mortgage derivative
securities. Mortgage derivative securities can be effective hedging
instruments in certain situations as the value and yields of some of these
instruments tend to increase as interest rates rise and tend to decrease in
value and yields as interest rates decline, while the experience for others is
the converse. The Company intends to limit its purchases of mortgage
derivative securities to investments that qualify as qualified REIT assets or
qualified hedges so that income from such investments will constitute
qualifying income for purposes of the 95% and 75% gross income tests. To a
lesser extent, the Company, through its Conduit Operations, may enter into
interest rate swap agreements, buy and sell financial futures contracts and
options on financial futures contracts and trade forward contracts as a hedge
against future interest rate changes; however, the Company will not invest in
these instruments unless the Company and the Manager are exempt from the
registration requirements of the Commodity Exchange Act or otherwise comply
with the provisions of that Act. The REIT provisions of the Code may restrict
the Company's ability to purchase certain instruments and may severely
restrict the Company's ability to employ other strategies. In all its hedging
transactions, the Company deals only with counterparties that the Company
believes are sound credit risks.

Conduit Operations. In conducting its Conduit Operations, ICCC is subject to
the risk of rising mortgage interest rates between the time it commits to
purchase Commercial Mortgages at a fixed price or rate and the time it sells
or securitizes those Commercial Mortgages. To mitigate this risk, ICCC enters
into transactions designed to hedge interest rate risks, which may include
mandatory and optional forward selling of Commercial Mortgages and buying and
selling of futures and options on futures and U.S. Treasury obligations. The
nature and quantity of these hedging transactions are determined by the
management of ICCC or RAI, the Manager of the Company, based on various
factors, including market conditions and the average duration of the mortgage
loans and the expected subordination of the mortgage loans upon
securitization. See "RAI Advisors, LLC."

Costs and Limitations. The Company has implemented a hedging program
designed to provide a level of protection against interest rate risks.
However, an effective hedging strategy is complex, and no hedging strategy can
completely insulate the Company from interest rate risks. Moreover, as noted
above, certain of the federal income tax requirements that ICH must satisfy to
qualify as a REIT limit the Company's ability to fully hedge its interest rate
risks. The Company monitors carefully, and may have to limit, its hedging
strategies to assure that it does not realize excessive hedging income or hold
hedging assets having excess value in relation to total

58
<PAGE>

assets, which would result in ICH's disqualification as a REIT or, in the case
of excess hedging income, the payment of a penalty tax for failure to satisfy
certain REIT income tests under the Code, provided such failure was for
reasonable cause.

In addition, hedging involves transaction and other costs, and such costs
increase dramatically as the period covered by the hedging protection
increases and also increase in periods of rising and fluctuating interest
rates. Therefore, the Company may be prevented from effectively hedging its
interest rate risks, without significantly reducing the Company's return on
equity.

SERVICING

The Company currently purchases all of its mortgage loans on a "servicing
released" basis and thereby acquires the servicing rights. Mortgage loans
purchased on a servicing released basis are unencumbered by any obligation on
the part of the party purchasing the mortgages to pay a fee to a third party
to service the mortgage loans. The rights of any party to service mortgage
loans for a fee are commonly referred to as "mortgage loans servicing rights"
or "MSRs." The Company has established guidelines for the servicing of
mortgage loans and for monitoring the performance of other loan servicers
which service mortgage loans for the Company. Servicing includes collecting
and remitting loan payments, making required advances, accounting for
principal and interest, holding escrow or impound funds for payment of taxes
and insurance, making required inspections of the mortgaged property,
contacting delinquent borrowers and supervising foreclosures and property
dispositions in the event of unremedied defaults in accordance with the
Company's guidelines.

The following table sets forth certain information regarding ICCC's
servicing portfolio of loans for the period shown:

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
FOR THE THREE (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -------------------
(DOLLARS IN MILLIONS, EXCEPT FOR
AVERAGE LOAN SIZE)
<S> <C> <C>
Beginning servicing portfolio.............. $ 169.2 $ --
Loans added to the servicing portfolio..... 124.9 251.1
Loans sold servicing released and principal
paydowns ................................. (6.4) (81.9)
-------- --------
Ending servicing portfolio................. $ 287.7 $ 169.2
======== ========
Number of loans serviced................... 554 559
Average loan size.......................... $519,000 $303,000
</TABLE>

The Company subcontracts all of its servicing obligations under Commercial
Mortgages purchased on a "servicing released basis" or originated pursuant to
sub-servicing agreements (the "Sub-Servicing Agreements") with terms that are
in accordance with ICCC's guidelines, the Commercial Mortgage documents,
customary and usual standards for servicers of Commercial Mortgages and
applicable laws. Commercial Mortgage servicing fees paid to these sub-
servicers generally range from 0.03% to 0.25% per annum on the declining
principal balances of the loans sub-serviced or an amount based on the type
and number of loans serviced. Each sub-servicer is required to pay all
expenses related to the performance of its duties under the Sub-Servicing
Agreement. Each Sub-Servicing Agreement is cancelable by either party upon
giving notice. The Company believes that the terms of the Sub-Servicing
Agreements are comparable to industry standards.

The Company may terminate a Sub-Servicing Agreement with any sub-servicer
upon the occurrence of one or more of the events specified in the Sub-
Servicing Agreement. Such events generally relate to the sub-servicer's proper
and timely performance of its duties and obligations under the Sub-Servicing
Agreement and the sub-servicer's financial stability. In addition, the Company
will have the right to terminate any Sub-Servicing Agreement with respect to
any or all of the Commercial Mortgages subserviced thereunder, without cause
upon 30 to 90 days' notice and may require a termination fee that is
comparable to termination fees generally found in

59
<PAGE>

the industry. If required, the termination fee will be based on the aggregate
outstanding principal amount of the Commercial Mortgages then serviced under
the Sub-Servicing Agreement. Each Sub-Servicing Agreement will provide that
the subservicer may not assign any of its rights or obligations with respect
to the Commercial Mortgages serviced for the Company without the Company's
consent. With respect to Commercial Mortgages that support CMOs or CMBSs, the
Company may not be able to terminate a sub-servicer without the approval of
the trustee or bond insurer for such securities.

In the future, ICCC may offer its correspondents of Commercial Mortgages the
opportunity to retain commercial mortgage servicing rights to the Commercial
Mortgages sold by them to the Company but only to the extent that it is
consistent with ICH's classification as a REIT. Each servicer will enter into
an agreement with the Company to service the Commercial Mortgages for ICCC in
accordance with ICCC's guidelines, the Commercial Mortgage documents,
customary and usual standards for servicers of Commercial Mortgages and
applicable laws (the "Servicing Agreements"). The Company believes that the
terms of these Servicing Agreements will be comparable to industry standards.

Commercial mortgage servicing fees payable to the servicers under the
Servicing Agreements will generally range from 0.125% to 0.375% per annum on
the declining principal balances of the Commercial Mortgages serviced. As
additional compensation, each servicer will retain any late payment charges
collected from borrowers and assumption and other ancillary fees collected
from borrowers in connection with the servicing of the Commercial Mortgages.
Additionally, each servicer may retain any benefit derived from the interest
earned on principal and interest payments held between the date of receipt and
the date of remittance to the Company and from interest earned on tax and
insurance impound funds to the extent not payable to the borrowers. Each
servicer will be required to pay all of its expenses related to the
performance of its duties under the Servicing Agreement.

The servicer will be required to make advances of principal and interest,
taxes and required insurance premiums that are not collected from borrowers
with respect to any Commercial Mortgage, only if the servicer determines that
such advances are recoverable from the mortgagor, insurance proceeds or other
sources with respect to such Commercial Mortgage. If such advances are made,
the servicer generally will be reimbursed prior to the Company receiving the
remaining proceeds. The servicer also will be entitled to reimbursement by the
Company for expenses incurred by it in connection with the liquidation of
defaulted Commercial Mortgages and in connection with the restoration of
mortgaged property. If claims are not made or paid under applicable insurance
policies or if coverage thereunder has ceased, the Company suffers a loss to
the extent that the proceeds from liquidation of the mortgaged property, after
reimbursement of the servicer's expenses in the sale, are less than the
principal balance of the related Commercial Mortgage. The servicer will be
responsible to the Company for any loss suffered as a result of the servicer's
failure to make and pursue timely claims or as a result of actions taken or
omissions by the servicer which cause the policies to be canceled by the
insurer. Each servicer will be required to represent and warrant that the
Commercial Mortgages it services comply with any loan servicing guidelines
promulgated by the Company and agree to repurchase, at the request of the
Company, any Commercial Mortgage it services in the event that the servicer
fails to make such representations or warranties or any such representation or
warranty is untrue.

At March 31, 1998, there were no delinquencies on mortgage loans comprising
the Company's servicing portfolio. The Commercial Mortgages originated by ICCC
since its inception have not been outstanding for any periods commencing
earlier than January 15, 1997. Consequently, the Company's delinquency and
foreclosure experience to date may not be indicative of future results.

During periods of declining interest rates, prepayments on mortgage loans
increase as borrowers look to refinance at lower rates, resulting in a
decrease in the value of the mortgage loan servicing portfolio. Mortgage loans
with higher interest rates are more likely to result in prepayments.

60
<PAGE>

The following table sets forth certain information regarding the number of
and aggregate principal balance of the Commercial Mortgages serviced by ICCC,
including both fixed and adjustable rate Commercial Mortgages, at various
mortgage interest rates for the periods shown:

The following table sets forth the geographic distribution of ICCC's
servicing portfolio for the periods shown:

<TABLE>
<CAPTION>
PERIOD FROM JANUARY 15, 1997
FOR THE THREE MONTHS ENDED (COMMENCEMENT OF OPERATIONS)
MARCH 31, 1998 THROUGH DECEMBER 31, 1997
--------------------------------- ---------------------------------
AGGREGATE % OF AGGREGATE AGGREGATE % OF AGGREGATE
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
-------- --------- -------------- -------- --------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
California.............. 86 $131.0 45.5% 54 $ 73.3 43.3%
Ohio.................... 12 27.7 9.7 12 27.8 16.5
Florida................. 2 4.3 1.5 2 4.3 2.5
Nevada.................. 7 12.2 4.3 5 7.7 4.6
Washington.............. 3 16.7 5.8 -- -- --
Oregon.................. 4 11.1 3.9 -- -- --
Arizona................. 363 36.4 12.7 411 30.7 18.1
Colorado................ -- -- -- 41 2.1 1.3
Texas................... 12 24.5 8.5 6 15.0 8.8
Minnesota............... 3 5.0 1.7 -- -- --
Connecticut............. 5 4.5 1.6 -- -- --
Wisconsin............... 47 5.9 2.1 21 2.8 1.6
Others (1).............. 10 8.4 2.7 7 5.5 3.3
--- ------ ------ --- ------ -----
554 $287.7 100.00% 559 $169.2 100.0%
=== ====== ====== === ====== =====
</TABLE>
- --------
(1) No other state accounted for greater than 1% of the Company's Commercial
Mortgage Servicing Portfolio for the three months ended March 31, 1998 and
the Commencement Period.

The Company will issue CMBSs or CMOs backed by the Commercial Mortgages it
originates or purchases through its Conduit Operations. When CMBSs or CMOs are
issued, a trust is created, and Commercial Mortgages are deposited into the
trust for the benefit of the holders of the securities. When the trust is
created, the loan servicing function for the Commercial Mortgages deposited
into the trust are commonly divided into two areas of responsibility: master
servicing and special servicing. The trustee and the depositor of the
Commercial Mortgages enter into an agreement, typically called a pooling and
servicing agreement, with one or more parties who will assume the
responsibilities for master servicing and special servicing. Master servicing

61
<PAGE>

generally includes all of the servicing activities associated with non-
defaulted Commercial Mortgages which typically includes collecting and
remitting loan payments, making required advances, accounting for principal
and interest, holding escrow impound or reserve funds for payment of taxes and
insurance, making inspections or improvements of the mortgaged property, and
remitting funds and reporting to the trustee. Special servicing generally
includes managing all loan default matters and other more complicated issues
associated with the servicing of the loans. Special servicing generally
includes contacting delinquent borrowers and supervising foreclosures and
property dispositions in the event of borrower defaults which are not
remedied. Special servicing also includes overseeing condemnation issues,
insurance claims for casualty losses on collateral property and other matters
of this nature. ICCC contracts with qualified Commercial Mortgage master
servicers to assume the master servicing role in these securitizations and
ICCC acts as special servicer. The Company believes that acting as special
servicer will allow it to monitor and manage those matters of significant risk
associated with the Commercial Mortgages. In this manner, the Company believes
it will be best positioned to protect any beneficial interest it may retain in
the trusts it creates. However, the Company reserves the right to act as
either the master servicer, the special servicer, both or neither in the
future. In addition, ICCC acts as the servicer for all loans purchased by the
Long-Term Investment Operations. With respect to its function as a servicer
for the Long-Term Investment Operations, ICCC and ICH entered into a Servicing
Agreement having terms substantially similar to those described above.

When ICCC purchases Commercial Mortgages that include the associated
servicing rights ("CMSRs") or originates Commercial Mortgages, the allocated
cost of the servicing rights will be reflected on its financial statements as
CMSRs. CMSRs will be amortized in proportion to, and over the period of,
expected future net servicing income.

SFAS No. 125 requires that a portion of the cost of originating or
purchasing a mortgage loan be allocated to the mortgage loan servicing rights
based on its fair value relative to the fair value of the components of the
loan. To determine the fair value of the servicing rights created, ICCC uses a
valuation model that calculates the present value of future net servicing
revenues to determine the fair value of the servicing rights. In using this
valuation method, ICCC incorporates assumptions that it believes market
participants would use in estimating future net servicing income which include
estimates of the cost of servicing or subservicing, an inflation rate,
ancillary income per Commercial Mortgage, a prepayment rate, loss severity, a
default rate and a discount rate commensurate with the risks involved.

MSRs are subject to some degree of volatility in the event of unanticipated
prepayments or defaults. Prepayments in excess of those anticipated at the
time MSRs are recorded could result in a decline in the fair value of the MSRs
below their carrying value requiring a provision to increase the MSRs
valuation allowance. The rate of prepayment of mortgage loans is affected by a
variety of economic and other factors, including prevailing interest rates and
the availability of alternative financing. The effect of those factors on
mortgage loan prepayment rates may vary depending on the particular type of
mortgage loan. Estimates of prepayment rates are made based on management's
expectations of future prepayment rates, which are based, in part, on the
historical rate of prepayment of ICCC's Commercial Mortgages, and other
considerations. There can be no assurance of the accuracy of the Company's
prepayments estimates. If actual prepayments with respect to mortgage loans
serviced occur more quickly than were projected at the time such mortgage
loans were sold, the carrying value of the MSRs may have to be reduced through
a provision recorded to increase the MSRs valuation allowance in the period
the fair value declined below the MSR carrying value. If actual prepayments
with respect to mortgage loans occur more slowly than estimated, the carrying
value of MSRs would not increase, although total income would exceed
previously estimated amounts and the related valuation allowances, if any,
could be unnecessary.

REGULATION

The rules and regulations applicable to the Conduit Operations, among other
things, prohibit discrimination and establish underwriting guidelines that
include provisions for inspections and appraisals, require credit reports on
prospective borrowers and fix maximum loan amounts. Commercial Mortgage
origination and purchase

62
<PAGE>

activities are subject to, among other laws, the Equal Credit Opportunity Act,
Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act and
the regulations promulgated thereunder that prohibit discrimination and
require the disclosure of certain basic information to mortgagors concerning
credit terms and settlement costs.

Additionally, there are various state and local laws and regulations
affecting the Conduit Operations. ICCC is licensed in those states requiring
such a license. Mortgage operations also may be subject to applicable state
usury statutes. The Company believes it is presently in material compliance
with all material rules and regulations to which it is subject.

COMPETITION

In originating Commercial Mortgages and issuing CMBSs, the Company competes
with established mortgage conduit programs, investment banking firms, savings
and loan associations, banks, thrift and loan associations, finance companies,
mortgage bankers, insurance companies, other lenders and other entities
purchasing mortgage assets. CMBSs issued by the Conduit Operations and CMOs
issued by the Long-Term Investment Operations face competition from other
investment opportunities available to prospective investors.

The Company faces competition in its Conduit Operations from other financial
institutions, including but not limited to banks and investment banks. Many of
the institutions with which the Company competes in its Conduit Operations
have significantly greater financial resources than the Company.

Other multifamily residences, self-storage facilities, retail shopping
facilities, office buildings and combination warehouse/industrial facilities
located in the areas of the mortgaged properties securing the Company's
Commercial Mortgages compete with the mortgaged properties of such types to
attract residents, retail correspondents, tenants and customers. The leasing
of real estate is highly competitive. The principal means of competition are
price, location and the nature and condition of the facility to be leased. A
borrower under a Commercial Mortgage competes with all lessors and developers
of comparable types of real estate in the area in which the mortgaged property
is located. Such lessors or developers could have lower rentals, lower
operating costs, more favorable locations or better facilities. While a
borrower under a Commercial Mortgage may renovate, refurbish or expand the
mortgaged property to maintain it and remain competitive, such renovation,
refurbishment or expansion may itself entail significant risk. Increased
competition could adversely affect income from the market value of the
mortgaged properties. In addition, the business conducted at each mortgaged
property may face competition from other industries and industry segments.

In acquiring residential mortgage loans and residential mortgage backed
securities, the Company will compete with other REITs, investment banking
firms, savings and loan associations, banks, mortgage bankers, insurance
companies, mutual funds, and other entities purchasing mortgage assets, most
of which have greater financial resources than the Company. The existence of
these competitors may increase competition for the available supply of
residential mortgage assets suitable for purchase by the Company. Increased
competition for the acquisition of eligible residential mortgage assets or a
diminution in the supply could result in higher prices and, thus, lower yields
on such residential mortgage assets.

EMPLOYEES

All employees and operating management of the Company are also employees of
ICCC. As of March 31, 1998, ICCC had 60 employees. The Company believes that
relations with its employees are good. The Company is not a party to any
collective bargaining agreement.

FACILITIES

Pursuant to the Management Agreement, RAI contracts with IMH to provide
space for the Company's executive offices and administrative facilities at
IMH's executive offices in Santa Ana Heights, California. ICCC currently
occupies, and is fully utilizing, approximately 18,000 square feet of office
space in Irvine, California under a premises operating lease expiring in
November 2000.

63
<PAGE>

In August 1997, ICH and IMH each purchased, for cash, a 50% interest in a
commercial office building in Newport Beach, California. ICH and IMH financed
the commercial property with a $5.2 million loan from ICCC. See "Certain
Transactions--Transactions with Other Affiliates--Credit Arrangements." The
Company expects ICCC to begin relocating employees to the building in 1998
with relocation scheduled for completion in 1999. Management believes that
these facilities will adequately provide for the Company's growth needs for
the foreseeable future.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

IMPAC COMMERCIAL HOLDINGS, INC.

DIRECTORS AND EXECUTIVE OFFICERS

The Company was incorporated in the State of Maryland on February 3, 1997.
The following table sets forth certain information with respect to the
directors and executive officers of ICH and ICCC:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Joseph R. Tomkinson (S).... 50 Chairman of the Board and Chief Executive
Officer of ICH and Chairman of the Board and
Chief Executive Officer of ICCC
William S. Ashmore......... 48 President and Chief Operating Officer of ICH,
Executive Vice President and Director of ICCC
Richard J. Johnson......... 36 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of ICH and
ICCC and Director of ICCC
William D. Endresen........ 43 Senior Vice President of ICH and President and
Director of ICCC
Mary C. Glass-Schannault... 44 Senior Vice President of ICH and Senior Vice
President of ICCC
James Walsh................ 48 Director of ICH
Frank P. Filipps 0......... 50 Director of ICH
Stephan R. Peers 0......... 45 Director of ICH
Thomas J. Poletti+, (S).... 40 Director of ICH
Timothy R. Busch+, 0, (S).. 44 Director of ICH

Key Employees
Lawrence R. Goswiller...... 45 Senior Vice President of Loan Administration
and Chief Credit Officer
Gretchen Brunk............. 33 Senior Vice President, Chief Accounting
Officer
Todd R. Taylor............. 33 Vice President, Controller
</TABLE>
- --------
+ Unaffiliated Director
0 Member of Audit Committee
(S) Member of Compensation Committee

JOSEPH R. TOMKINSON has been Chairman of the Board and Chief Executive
Officer of ICH and Chairman of the Board and Chief Executive Officer of ICCC
since their formation. Mr. Tomkinson has been the Vice Chairman of the Board
and Chief Executive Officer of IMH and Chairman of the Board of IFC and IWLG
since August 1995. In April 1998, he became Chairman of the Board of IMH. Mr.
Tomkinson served as President and Chief Operating Officer of ICII (Nasdaq-
ICII) from January 1992 to February 1996 and, from 1986 to January 1992, he
was President of Imperial Bank Mortgage, a subsidiary of Imperial Bank, one of
the companies that combined to become ICII in 1992. Mr. Tomkinson has been a
Director of ICII since December 1991. From 1984 to 1986, he was employed as
Executive Vice President of Loan Production for American Mortgage Network, a
privately owned mortgage banker. Mr. Tomkinson brings 22 years of combined
experience in real estate, real estate financing and mortgage banking to the
Company. Mr. Tomkinson is also director of BNC Mortgage, Inc. (Nasdaq-BNCM).

64
<PAGE>

WILLIAM S. ASHMORE has been President and Chief Operating Officer of ICH and
Executive Vice President and a Director of ICCC since their formation. Mr.
Ashmore has been President and Chief Operating Officer of IMH, Executive Vice
President and a Director of IFC and President and a Director of IWLG since
August 1995. In March 1997, Mr. Ashmore became President of IFC and in July
1997 he became a Director of IMH. From August 1993 to February 1996, he was
Executive Vice President and a Director of Secondary Marketing at ICII, having
been its Senior Vice President of Secondary Marketing since January 1988. From
1985 to 1987, he was Chief Executive Officer and Vice Chairman of the Board of
Century National Mortgage Corporation, a wholesale mortgage banking company.
From 1978 to 1985, Mr. Ashmore was President and co-owner of Independent Homes
Real Estate Company, which evolved in 1980 into a mortgage banking firm that
was sold to Century National Bank in 1985. Mr. Ashmore has over 20 years of
combined experience in real estate, real estate financing and mortgage
banking.

RICHARD J. JOHNSON has been Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of ICH and ICCC and a Director of ICCC since their
formation. Effective January 1998, Mr. Johnson became Executive Vice President
of ICH. Mr. Johnson has been Executive Vice President since January 1998
(after being Senior Vice President since August 1995), Chief Financial
Officer, Treasurer and Secretary of IMH and IFC since August 1995, and a
Director of IFC since March 1996. From September 1992 to March 1995, Mr.
Johnson was Senior Vice President and Chief Financial Officer of ICII. From
November 1989 to September 1992, Mr. Johnson was Vice President and Controller
of ICII. From February 1988 to October 1989, he was Vice President and Chief
Financial Officer of Bayhill Service Corporation, a mortgage banking company,
and Vice President of Capital Savings and Loan, the parent of Bayhill Service
Corporation. From January 1987 to February 1988, Mr. Johnson was Vice
President of Finance for Merrill Lynch Huntoon Paige, Inc., a mortgage banking
subsidiary of Merrill Lynch Capital Markets. Mr. Johnson is a Certified Public
Accountant.

WILLIAM D. ENDRESEN has been Senior Vice President of ICH and President and
Director of ICCC since their formation. From 1995 through February 1997, Mr.
Endresen was the Chairman and a Director of American Capital Resource, Inc., a
commercial mortgage banking company which originated and closed bulk
condominium and multi-family transactions in the Western United States. Mr.
Endresen was President of Butterfield Mortgage Corporation from May 1993
through 1995 and developed, originated and closed numerous bulk condominium
and multi-family transactions. From 1987 to 1992, Mr. Endresen was Director of
Acquisitions and Project Finance for Monnig Development, Inc., a Southern
California based real estate development company. In July 1995, Mr. Endresen
filed a petition for Chapter 7 bankruptcy in federal court, Santa Ana. The
bankruptcy was discharged in November 1995. Mr. Endresen has more than 24
years of combined experience in real estate, real estate financing and
commercial mortgage banking.

MARY C. GLASS-SCHANNAULT has been Senior Vice President of each of ICH and
ICCC since their formation. Ms. Glass-Schannault has been Vice President of
IMH and Senior Vice President, Operations of IFC and IWLG since August 1995.
From April 1995 through November 1996, Ms. Glass-Schannault was the Senior
Vice President and Managing Director of Imperial Capital Markets Group, a
division of ICII, and from February 1993 to April 1995, she was Senior Vice
President of IFC, a division of ICII. From 1991 through 1993, Ms. Glass-
Schannault acted as a mortgage banking consultant. From 1990 through 1991, she
was an Executive Vice President at PriMerit Mortgage Corporation. From 1988 to
1990, Ms. Glass-Schannault was President of SCS Mortgage. From September 1984
through September 1988, Ms. Glass-Schannault was Senior Vice President of
Concor Financial Services.

JAMES WALSH has been a Director of ICH since February 1997 and a Director
of IMH since August 1995. Mr. Walsh is an Executive Vice President of Walsh
Securities, Inc. where he directs mortgage loan production, sales and
securitization. Mr. Walsh was an executive of Donaldson, Lufkin and Jenrette
Securities Corporation from January 1989 through March 1996 where he oversaw
residential mortgage securitization, servicing brokerage and mortgage banking
services. From February 1987 to December 1988, Mr. Walsh was an executive in
the mortgage banking department at Bear Stearns & Company. From December 1985
to February 1987, Mr. Walsh was a senior banking officer at Carteret Savings
Bank.

65
<PAGE>

FRANK P. FILIPPS has been a Director of ICH since February 1997 and a
Director of IMH since August 1995. Mr. Filipps was elected President of CMAC
Investment Corporation and Chairman, President and Chief Executive Officer of
Commonwealth Mortgage Assurance Company ("CMAC") in January 1995. Mr. Filipps
joined CMAC in 1992 as Senior Vice President and Chief Financial Officer,
where he was responsible for the company's financial, investment and data
processing operations, as well as the legal and human resources functions. In
1994, Mr. Filipps was promoted to Executive Vice President and Chief Operating
Officer for both CMAC Investment Corporation and CMAC, where his additional
responsibilities included the company's sales, marketing, underwriting and
risk management operations. In 1975, Mr. Filipps joined American International
Group and, from 1989 to 1992, he was Vice President and Treasurer. Prior to
that, he was a Second Vice President for Chase Manhattan Bank, N.A., in New
York.

STEPHAN R. PEERS has been a Director of ICH since February 1997 and a
Director of IMH since October 1995. Since January 1998, Mr. Peers has been an
executive at Aames Financial Corporation, a mortgage loan company. Mr. Peers
served as a Managing Director of Resource Bancshares Corporation from August
1995. Since April 1993 to December 1997, Mr. Peers has been an Executive Vice
President of International Strategic Finance Corporation, Ltd., where he
performs corporate finance services for overseas issuers. From April 1989 to
April 1993, Mr. Peers was a Vice President in corporate finance at Montgomery
Securities where he specialized in financial services institutions. From March
1987 to March 1989, Mr. Peers was a Vice President at The First Boston
Corporation in mortgage finance specializing in mortgage related products.

THOMAS J. POLETTI has been a Director of ICH since March 1997. Mr. Poletti
has been with the law firm of Freshman, Marantz, Orlanski, Cooper & Klein
since 1983 and a partner of the firm since 1989. Freshman, Marantz, Orlanski,
Cooper & Klein acts as counsel to the Company and IMH. See "Certain
Transactions" and "Legal Matters."

TIMOTHY R. BUSCH has been a director of ICH since March 1997. Since October
1985, Mr. Busch has been the President of T. R. Busch Realty Corporation, a
licensed real estate corporation, which was a general partner of European
Hotel Investors, II, a California limited partnership that filed a voluntary
petition pursuant to Chapter 11 of the Bankruptcy Code on February 22, 1994; a
confirmation order was issued on or about December 23, 1994. Since 1985, Mr.
Busch has been President of TRB Management, Inc., a California corporation,
which was the sole general partner of Mercado del Sol Investors Limited
Partners, an Arizona limited partnership. Mercado del Sol Investors Limited
Partnership filed a voluntary petition pursuant to Chapter 11 of the
Bankruptcy Code on August 10, 1993 and converted to a Chapter 7 bankruptcy in
1995. The assets of the entity were liquidated and the partnership was
dissolved. Since 1984, Mr. Busch has been President of The Busch Firm, a
professional corporation law firm. Mr. Busch is currently a director of
Advanced Materials Group (Nasdaq-ADMG).

Key Employees

LAWRENCE R. GOSWILLER has been Senior Vice President of Loan Administration
and Chief Credit Officer of ICCC since its formation. From 1993 to February
1997, Mr. Goswiller was the Manager of the Real Estate Department for Marine
National Bank and from 1987 to 1993, he was self-employed as a real estate
broker arranging construction and permanent financing for developers of
residential and commercial projects. From 1984 to 1987, Mr. Goswiller worked
for Bay Development Corporation, an Orange County, California based commercial
real estate development company. From 1981 to 1984, Mr. Goswiller was employed
by Weyerhaeuser Venture Company where he was responsible for analyzing and
managing limited partnership investments in real estate development projects
throughout the western U.S. and prior to 1981, Mr. Goswiller was employed for
six years by Union Bank and Wells Fargo Bank as a real estate construction
lender.

GRETCHEN D. BRUNK has been Senior Vice President and Chief Accounting
Officer of ICH since August 1997. From 1996 to August 1997, Ms. Brunk was a
Senior Manager with KPMG Peat Marwick LLP in the Mortgage and Structured
Finance Group. From 1993 to 1996, Ms. Brunk was Treasurer, and in 1996, she
became

66
<PAGE>

Chief Financial Officer and Vice President of Finance for Bay Federal Credit
Union. From 1991 to 1996, she was also Controller of Santa Cruz Cellular
Telephone, Inc. Ms. Brunk was a Senior Accountant with KPMG Peat Marwick LLP
from 1988 to 1991 and was a Senior Accountant at Plaza Savings and Loan
Association, a mortgage lender, from 1986 to 1988. Ms. Brunk is a certified
public accountant and received her bachelor's degree from California State
University at Long Beach.

TODD R. TAYLOR has been Vice President and Controller of ICCC since March
1998. From January 1996 to March 1998, Mr. Taylor was a Senior Accountant for
KPMG Peat Marwick LLP specializing in the financial services industry and from
September 1992 to December 1995, Mr. Taylor was employed by ICII as an
accountant. Mr. Taylor received his Bachelor of Arts degree in 1996 from
California State University at Fullerton.

All directors are elected at each annual meeting of the Company's
stockholders to serve until the next annual meeting of stockholders and until
their successors are elected and qualify. Replacements for vacancies occurring
among the Unaffiliated Directors will be elected by a majority vote of the
remaining Directors, including a majority of the Unaffiliated Directors. All
officers are elected and may be removed by the Board of Directors. The Company
pays an annual director's fee to each Unaffiliated Director equal to $20,000
and reimburses such Directors' costs and expenses for attending Board
meetings.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter of the
Company contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.

The Charter of the Company authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has
served another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become
subject or which such person may incur by reason of his status as a present or
former director or officer of the Company. The Bylaws of the Company obligate
it, to the maximum extent permitted by Maryland law, to indemnify and to pay
or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any present or former director or officer who is made a
party to the proceeding by reason of his service in that capacity or (b) any
individual who, while a director of the Company and at the request of the
Company, serves or has served another corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of such corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made a party to the proceeding by
reason of his service in that capacity. The Charter and Bylaws also permit the
Company to indemnify and advance expenses to any person who served a
predecessor of the Company in any of the capacities described above and to any
employee or agent of the Company or a predecessor of the Company.

The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise
to the proceeding and (1) was committed in bad faith or (2) was the result of
active and deliberate dishonesty, (b) the

67
<PAGE>

director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission
was unlawful. However, under the MGCL, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL requires the Company, as a
condition to advancing expenses, to obtain (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Company and (b) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
the Company if it shall ultimately be determined that the standard of conduct
was not met. Insofar as indemnification by the Company for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to indemnity agreements or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. The Company maintains directors and
officers insurance to insure them against certain liabilities.

EXECUTIVE COMPENSATION

Joseph R. Tomkinson, William S. Ashmore, Richard J. Johnson and Mary C.
Glass-Schannault, who are executive officers of ICH are also officers of IMH
and IFC and are officers of RAI, the Manager. See "RAI Advisors, LLC." These
officers modified their employment agreements with IFC to also become officers
of the Manager (and of ICH and ICCC). The Manager has agreed to cause each of
its officers to devote as much of his or her time to the operations of the
Company as is reasonably necessary. The Company will reimburse the Manager
which will reimburse IFC on a dollar for dollar basis (includes the service
charge referenced below), for the actual cost of providing the services of
these officers to the Company based upon the compensation payable to them by
IFC, plus a 15% service charge. Salary, other annual compensation and all
other compensation are allocated to the Company at a rate of one-third and to
IMH at a rate of two-thirds for services performed by executive officers
(except Mr. Endresen) as part of the Submanagement Agreement among IMH, IFC
and RAI. The following is the amount of compensation allocated to the Company
for services performed by Messrs. Tomkinson, Ashmore, and Johnson and
Ms. Glass-Schannault and cash compensation paid to Mr. Endresen for the
Commencement Period.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION --------------
--------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY (1) BONUS (2) COMPENSATION (4) OPTIONS (#)(5) COMPENSATION (6)
------------------ ---- ---------- --------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Joseph R. Tomkinson..... 1997 $100,000 $ 5,300 $252,992 10,000 $480
Chairman of the Board
and CEO of ICH and
ICCC
William S. Ashmore...... 1997 $ 75,000 $ 5,300 $250,192 10,000 $290
President and COO of
ICH, Executive Vice
President and Director
of ICCC
Richard J. Johnson...... 1997 $ 37,500 $ 5,300 $204,256 10,000 $ 88
Senior Vice President,
CFO, Treasurer and
Secretary of ICH and
ICCC and Director of
ICCC
Mary C. Glass- 1997 $ 30,870 $27,790(3) $ 42,317 10,000 $119
Schannault.............
Senior Vice President
of ICH and ICCC
William D. Endresen .... 1997 $120,000 $49,000(3) $ 43,280 50,000 $468
Senior Vice President
of ICH and President
and Director of ICCC
</TABLE>

68
<PAGE>

- --------
(1) Pursuant to their respective employment agreements with IFC, total current
base salaries for Messrs. Tomkinson, Ashmore and Johnson and Ms. Glass-
Schannault are $300,000, $225,000, $112,500 and $92,930, respectively.
Effective January 1998, Mr. Johnson became Executive Vice President of
ICH.
(2) Each of the persons in the above table is entitled to be paid a quarterly
bonus equal to the aggregate dividend such person would have received from
the Company on all shares of Common Stock underlying unexercised stock
options held by such person which were outstanding.
(3) Includes a performance and profitability bonus.
(4) Consists of (i) car allowance paid by the Company, (ii) contributions paid
by the Company under the 401(k) plan, and (iii) the dollar value of the
difference between the price paid by each officer for shares of Common
Stock of ICH and the fair market value of such stock ($3.20) on the date
of purchase. See "Certain Relationships--Transactions with IMH--
Organizational Transactions."
(5) Consists of options granted under ICH's Stock Option and Awards Plan (as
described below). Options vest 33.33% per year on each anniversary of the
date of grant and have been granted with related DERs (as defined below).
(6) For each person, consists of payments on group term-life insurance.

EMPLOYMENT AGREEMENTS

In August 1997, in connection with ICH's IPO, each officer's employment
agreement with IFC was amended and restated to allow him or her to become an
officer of RAI (and of ICH and ICCC). See "--Executive Compensation--Summary
Compensation Table" for annual salary descriptions. RAI has agreed to cause
each of its officers to devote as much of his or her time to the operations of
ICH as is necessary. ICH will reimburse RAI, who will reimburse IFC, on a
dollar for dollar basis (see "RAI Advisors, LLC--Management Agreement"), for
the actual cost of providing the services of its officers to ICH based upon
the compensation payable to them by IFC, plus a 15% service charge. In August
1997, Mr. Endresen entered into an employment agreement with ICCC for a term
of five years. His base salary is currently $175,000 per year subject to an
annual review and cost of living adjustment.

Pursuant to the employment agreements, if the officer is terminated without
cause (as defined therein) then the officer will receive (i) his or her base
salary for a period of one year following the date of termination, (ii) any
bonus or incentive compensation prorated through the date of termination;
provided that if the bonus or incentive compensation is discretionary, then
the officer will receive a payment at least equal to the last previous payment
made to the officer, if any, for the previous year prorated to the date of
termination, and (iii) any expense reimbursements. Each officer agreed that he
or she will not compete with the Company if the agreement is voluntarily
terminated by the officer. The employment agreements will not be terminated
upon any merger or the transfer of all or substantially all of the Company's
assets.

STOCK OPTION AND AWARDS PLAN

In April 1997, the Company adopted the 1997 Stock Option and Awards Plan
(the "Stock Option and Awards Plan") which provides for the grant of qualified
incentive stock options ("ISOs") which meet the requirements of section 422 of
the Code, stock options not so qualified ("NQSOs"), deferred stock, restricted
stock, performance shares, stock appreciation and limited stock appreciation
rights awards ("Awards") and dividend equivalent rights ("DERs").

The purpose of the Stock Option and Awards Plan is to provide a means of
performance-based compensation in order to attract and retain qualified
personnel and to provide an incentive to others whose job performance affects
the Company. The Stock Option and Awards Plan is administered by the Board of
Directors or a Committee, appointed by the Board of Directors (the
"Administrator"). ISOs may be granted to the officers and key employees of the
Company. NQSOs and Awards may be granted to the directors, officers, key
employees and agents and consultants of the Company, any of its subsidiaries
or parent corporation, of RAI, and to the directors, officers and key
employees of ICCC.

The Stock Option and Awards Plan provides for the granting of DERs in tandem
with all options granted under the Stock Option and Awards Plan. Such DERs
accrue shares of Common Stock for the account of the optionee upon the payment
of cash dividends on outstanding shares of Common Stock. The number of shares

69
<PAGE>

accrued is determined by a formula and such shares are currently transferred
to the optionee only upon exercise of the related option. The Stock Option and
Awards Plan permits DERs to be granted under the Stock Option and Awards Plan
with certain characteristics. First, DERs can be issued in "current-pay" form
so that payments can be made to the optionee at the same time as dividends are
paid to holders of outstanding Common Stock. Second, DERs can be made eligible
to participate not only in cash distributions but also distributions of stock
or other property made to holders of outstanding Common Stock. Shares of
Common Stock accrued for the account of the optionee pursuant to a DER grant
may also be made eligible to receive dividends and distributions. Finally,
DERs can be made "performance based" by conditioning the right of the holder
of the DER to receive any dividend equivalent payment or accrual upon the
satisfaction of specified performance objectives.

Subject to anti-dilution provisions for stock splits, stock dividends and
similar events, the Stock Option and Awards Plan currently authorizes the
grant of options to purchase, and Awards of, an aggregate of 632,500 shares.
At March 31, 1998, options to acquire 84,000 shares were outstanding at a per
share exercise price of $17.625, options to acquire 22,250 shares were
outstanding at a per share exercise price of $18.875 and options to acquire
190,000 shares were outstanding at a per share exercise price of $15.00. If an
option granted under the Stock Option and Awards Plan expires or terminates,
or an Award is forfeited, the shares subject to any unexercised portion of
such option or Award will again become available for the issuance of further
options or Awards under the Stock Option and Awards Plan.

Unless previously terminated by the Board of Directors, the Stock Option and
Awards Plan will terminate in April 2007, and no options or Awards may be
granted under the Stock Option and Awards Plan thereafter.

Options granted under the Stock Option and Awards Plan will become
exercisable in accordance with the terms of the grant made by the
Administrator. Awards will be subject to the terms and restrictions of the
Award made by the Administrator. The Administrator has discretionary authority
to select participants from among eligible persons and to determine at the
time an option or Award is granted when and in what increments shares covered
by the option may be purchased and, in the case of options, whether it is
intended to be an ISO or a NQSO provided, however, that certain restrictions
applicable to ISOs are mandatory, including a requirement that ISOs not be
issued for less than 100% of the then fair market value of the Common Stock
(110% in the case of a grantee who holds more than 10% of the outstanding
Common Stock) and a maximum term of ten years (five years in the case of a
grantee who holds more than 10% of the outstanding Common Stock).

Under current law, ISOs may not be granted to any director of the Company
who is not also an employee, or to directors, officers and other employees of
entities unrelated to the Company. No options or Awards may be granted under
the Stock Option and Awards Plan to any person who, assuming exercise of all
options held by such person, would own or be deemed to own more than 9.8% of
the outstanding shares of equity stock of the Company.

Each option must terminate no more than 10 years from the date it is granted
(or five years in the case of ISOs granted to an employee who is deemed to own
in excess of 10% of the combined voting power of the Company's outstanding
equity stock). Options may be granted on terms providing for exercise either
in whole or in part at any time or times during their respective terms, or
only in specified percentages at stated time periods or intervals during the
term of the option.

The exercise price of any option granted under the Stock Option and Awards
Plan is payable in full in cash, or its equivalent as determined by the
Administrator. The Company may make loans available to option holders to
exercise options evidenced by a promissory note executed by the optionholder
and secured by a pledge of Common Stock with fair market value at least equal
to the principal of the promissory note unless otherwise determined by the
Administrator.

The Board of Directors may from time to time revise or amend the Stock
Option and Awards Plan, and may suspend or discontinue it at any time.
However, no such revision or amendment may impair the rights of any
participant under any outstanding Award without his consent.

70
<PAGE>

The following table sets forth the stock options granted to Directors and
executive officers under the Stock Option and Awards Plan.

OPTIONS GRANTED IN FISCAL YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------- POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF SHARES ANNUAL RATES OF STOCK
UNDERLYING PERCENTAGE OF PRICE APPRECIATION FOR
OPTIONS OPTIONS EXERCISE OPTION TERM (4)
GRANTED(#) GRANTED TO PRICE EXPIRATION -----------------------
NAME (1) EMPLOYEES (%) ($/SH) (2) DATE (3) 5% ($) 10% ($)
---- ---------- ------------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
William D. Endresen..... 50,000 24 15.00 August 2007 471,671 1,195,307
Joseph R. Tomkinson..... 10,000 5 15.00 August 2007 94,334 239,061
William S. Ashmore...... 10,000 5 15.00 August 2007 94,334 239,061
Richard J. Johnson...... 10,000 5 15.00 August 2007 94,334 239,061
Mary C. Glass-
Schannault............. 10,000 5 15.00 August 2007 94,334 239,061
</TABLE>
- --------
(1) Such stock options vest 33.33% per year on each anniversary of the date of
grant and have been granted with related DERs.
(2) The exercise price for all options equals the fair market value of such
shares at the date of grant as determined by the Administrator.
(3) Such stock options expire ten years from the date of grant or earlier upon
termination of employment.
(4) Amounts reflect assumed risks of appreciation set forth in the
Commission's executive compensation disclosure requirements. The actual
value, if any, an executive officer may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised.

On August 4, 1997, the Company granted to each of Messrs. Walsh, Filipps,
Peers, Poletti and Busch options to purchase 10,000 shares of ICH Common Stock
at a per share exercise price of $15.00, vesting 50% on the first anniversary
of the date of grant and 50% on the second anniversary date of grant.

The following table sets forth certain information regarding exercisable and
unexercisable stock options.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE (#)(1) UNEXERCISABLE ($)(2)
---- ----------- ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Joseph R. Tomkinson..... -- -- --/10,000 --/ 26,250
Willam S. Ashmore....... -- -- --/10,000 --/ 26,250
Richard J. Johnson...... -- -- --/10,000 --/ 26,250
Mary C. Glass-
Schannault............. -- -- --/10,000 --/ 26,250
William D. Endresen..... -- -- --/50,000 --/131,250
</TABLE>
- --------
(1) For a description of the terms of such options, see "--Stock Option and
Awards Plan."
(2) Based on a price per share of $17.625, which was the price of a share of
Common Stock as quoted on the AMEX at the close of business on December
31, 1997.

401(k) PLAN

The Company participates in the ICII contributory retirement plan ("401(k)
Plan") for all full time employees with at least six months of service, which
is designed to be tax deferred in accordance with the provisions of Section
401(k) of the Code. The 401(k) Plan provides that each participant may
contribute from 2% to 14% of his or her salary, and the Company will
contribute to the participant's plan account at the end of

71
<PAGE>

each plan year 50% of the first 4% of salary contributed by a participant.
Under the 401(k) Plan, employees may elect to enroll on the first day of any
month, provided that they have been employed for at least six months.

Subject to the rules for maintaining the tax status of the 401(k) Plan, an
additional Company contribution may be made at the discretion of the Company,
as determined by the Unaffiliated Directors. Should a discretionary
contribution be made, the contribution would first be allocated to those
employees deferring salaries in excess of 4%. The matching contribution would
be 50% of any deferral in excess of 4% up to a maximum deferral of 8%. Should
discretionary contribution funds remain following the allocation outlined
above, any remaining Company matching funds would be allocated as a 50% match
of employee contributions, on the first 4% of the employee's deferrals.
Company matching contributions will be made as of December 31st each year in
the form of Company Common Stock. No contributions were made for any period
presented herein.

72
<PAGE>

RAI ADVISORS, LLC

THE MANAGER

The Manager, RAI, commenced operations in August 1997. Each of the persons
who are executive officers of the Manager has significant experience in
purchasing, financing, servicing, securitizing and investing in mortgage loans
and mortgage securities and all of such persons are officers of IMH and IFC;
however, they have not previously managed a Commercial Mortgage REIT. RAI is a
recently formed entity with no significant assets and no prior history of
operations. RAI is owned equally by each of Messrs. Tomkinson, Ashmore, and
Johnson. IMH owns all of the outstanding shares of non-voting preferred stock
of IFC, its conduit operations, representing 99% of the economic interest in
IFC, and Messrs. Tomkinson, Johnson and Ashmore own all of the outstanding
shares of common stock of IFC, representing 1% of the economic interest. The
officers of RAI have modified their employment agreements with IFC to allow
them to become officers of the Manager (and of ICH and ICCC). The Manager has
agreed to cause each of its officers to devote as much of his or her time to
the operations of the Company as is reasonably necessary. ICH reimburses the
Manager, who reimburses IFC on a dollar for dollar basis (including the
service charge referenced below), for the actual cost of providing the
services of these officers to the Company based upon the compensation payable
to them by IFC, plus a 15% service charge. ICH reimburses the Manager for
expenses incurred by the Manager, plus a service charge of 15% on all expenses
owed by the Manager to IFC for costs and expenses owed by the Manager to IFC
for costs and services under any submanagement agreement between IFC and the
Manager. The Manager pays all such third parties on a dollar for dollar basis
for the aforementioned amounts received by it from the Company; no such 15%
service charge is paid to third party service providers other than IFC. For
the first three years of the Management Agreement there is a minimum amount of
$500,000 per annum (including the 15% service charge) payable by ICH in
connection with services provided and expenses incurred by the Manager and
payable by RAI to IFC. After the third year, ICH is only responsible for
reimbursing expenses and services provided, with the 15% service charge for
amounts due to IFC. RAI has entered into the Submanagement Agreement with IFC,
the conduit operations of IMH, to provide administrative services as required
by the Company including facilities and costs associated therewith,
technology, human resources, management information systems, general ledger
accounts, check processing and accounts payable as RAI deems necessary. See
"--Management Agreement--Expenses."

The address of the Manager is 20371 Irvine Avenue, Santa Ana Heights,
California 92707, telephone (714) 556-0122.

MANAGERS AND EXECUTIVE OFFICERS

The managers and executive officers of RAI are as follows:

<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Joseph R. Tomkinson* Chairman and Chief Executive Officer
William S. Ashmore* President and Manager
Richard J. Johnson* Executive Vice President, Chief Financial Officer and Manager
Mary C. Glass-
Schannault* Senior Vice President
</TABLE>
- --------
* Each of these persons also serve as directors or executive officers of the
Company.

For biographical information on these persons, see "Impac Commercial
Holdings, Inc.--Directors and Executive Officers."

MANAGEMENT AGREEMENT

In August 1997, the Company entered into the Management Agreement with the
Manager, for an initial term expiring on December 31, 2002. Successive
extensions, each for a period not to exceed one year, may be made by agreement
between the Company and the Manager. The Management Agreement may be
terminated by

73
<PAGE>

the Company without cause at any time upon 60 days' written notice. Any such
termination or failure to extend by the Company without cause shall result in
the payment of a termination or non-renewal fee to the Manager determined by
an independent appraisal. In addition, the Company and the Manager have the
right to terminate the Management Agreement upon the occurrence of a breach by
the other party of any provision contained in the Management Agreement which
remains uncured for 30 days. In addition, the Company may renew or terminate
the Management Agreement by a majority vote of its Unaffiliated Directors or
by a vote of the holders of a majority of the outstanding shares of Common
Stock.

The terms of the Management Agreement, including the management fees, were
determined by what management of both RAI and ICH believe are comparable with
other advisory relationships and have been approved by the Board of Directors
of RAI and the Unaffiliated Directors of ICH. ICH's Bylaws provide that the
Unaffiliated Directors shall determine at least annually whether the
compensation paid to the Manager is reasonable in relation to the nature and
quality of the services performed by the Manager.

The Manager is at all times subject to the supervision of the Company's
Board of Directors and provides advisory services to the Company in accordance
with the terms of the Management Agreement. The Manager is involved in three
primary activities: (1) capital management--primarily the oversight of the
Company's structuring, analysis, capital raising and investor relations
activities; (2) asset management--primarily the analysis and oversight of the
acquisition, management, securitization and disposition of Company assets; and
(3) operations management--primarily the oversight of ICH's operating
subsidiaries. Specifically, the Manager performs such services and activities
relating to the assets and operations of the Company as may be appropriate,
including:

(1) serving as the Company's consultant with respect to the formulation
of investment criteria and interest rate risk management by its Board of
Directors;

(2) advising as to the issuance of commitments on behalf of the Company
to purchase Commercial Mortgages or purchasing Commercial Mortgages and
CMBSs meeting the investment criteria set from time to time by the
Company's Board of Directors;

(3) advising, negotiating, and overseeing the securitization of the
Company's Commercial Mortgages in REMIC or CMOs and negotiating terms with
rating agencies and coordinating with investment bankers as to structure
and pricing of the securities formed by the Company;

(4) advising the Company in connection with and assisting in its Long-
Term Investment Operations;

(5) furnishing reports and statistical and economic research to the
Company regarding the Company's activities and the services performed for
the Company by the Manager;

(6) monitoring and providing to the Board of Directors on an on-going
basis price information and other data obtained from certain nationally-
recognized dealers who maintain markets in Commercial Mortgages identified
by the Board of Directors from time to time, and providing data and advice
to the Board of Directors in connection with the identification of such
dealers;

(7) providing the executive and administrative personnel, office space
and services required in rendering services to the Company, which includes
contracting with appropriate third parties, which may include IMH and its
affiliates, to provide various services including facilities and costs
related therewith, technology, management information systems, human
resource administration, general ledger accounts, check processing,
accounts payable and other similar operational or administrative services;

(8) overseeing the day-to-day operations of ICH and supervising the
performance of such other administrative functions necessary to the
management of ICH as directed by the Board of Directors of ICH;

(9) advising and negotiating agreements on behalf of the Company with
banking institutions and other lenders to provide for the short-term
borrowing of funds by the Company;

(10) communicating on behalf of the Company with the holders of the
equity and debt securities of the Company as required to satisfy the
reporting and other requirements of any governmental bodies or agencies and
to maintain effective relations with such holders;

74
<PAGE>

(11) subject to an agreement executed by the Company, advising as to the
designation of a servicer for those loans sold by ICCC whereby ICCC elected
not to service such loans;

(12) counseling the Company in connection with policy decisions to be
made by its Board of Directors; and

(13) upon request by and in accordance with the direction of the Board of
Directors of the Company, investing or reinvesting any money of the
Company.

RAI entered into the Submanagement Agreement with IFC, the conduit
operations of IMH, to provide administrative services as required by the
Company, including facilities and costs associated therewith, technology,
human resources, management information systems, general ledger accounts,
check processing and accounts payable as RAI deems necessary. The Manager may
also enter into additional contracts with other parties, which may include IMH
or its affiliates, to provide any such services for the Manager, which third
party shall be approved by the Company's Board of Directors. See "--Expenses."

RAI has a total of four officers and three managers who participate in the
oversight of the Company's operations.

MANAGEMENT FEES

The Manager is entitled to receive for each fiscal quarter the 25% Payment,
(an amount equal to 25% of the Net Income of the Company, before deduction of
such compensation, in excess of the amount that would produce an annualized
Return on Equity equal to the daily average Ten Year U.S. Treasury Rate plus
2%). The term "Return on Equity" is calculated for any quarter by dividing the
Company's Net Income for the quarter by its Average Net Worth for the quarter.
For such calculations, the "Net Income" of the Company means the net income of
the Company determined in accordance with the Code before the Manager's
compensation, the deduction for dividends paid and any net operating loss
deductions arising from losses in prior periods. A deduction for all of the
Company's interest expenses for borrowed money is also taken in calculating
Net Income. "Average Net Worth" for any period means the arithmetic average of
the sum of the gross proceeds from any offering of its equity securities by
the Company, before deducting any underwriting discounts and commissions and
other expenses and costs relating to the offering, plus the Company's retained
earnings less dividends declared (without taking into account any losses
incurred in prior periods) computed by taking the daily average of such values
during such period. The 25% Payment to the Manager is calculated quarterly in
arrears before any income distributions are made to stockholders for the
corresponding period.

The Manager's fees are calculated by the Manager within 60 days after the
end of each calendar quarter, with the exception of the fourth quarter for
which compensation will be computed within 30 days, and such calculation will
be promptly delivered to the Company. The Company is obligated to pay the fee
within 90 days after the end of each calendar quarter. For the three months
ended March 31, 1998 and the Commencement Period, ICH recorded expenses of
$162,000 and none, respectively, in connection with the 25% Payment payable to
RAI.

EXPENSES

Pursuant to the Management Agreement, ICH also pays all operating expenses
incurred by the Manager under the Management Agreement. The operating expenses
generally required to be incurred by the Manager and reimbursed by ICH include
out-of-pocket costs, equipment and other personnel required for the Company's
operations, including amounts payable by RAI pursuant to submanagement
agreements with outside third parties, which include IMH and its affiliates,
to provide various services to the Company including facilities and costs
related therewith, technology, management information systems, human resource
administration, general ledger accounts, check processing, accounts payable
and other similar operational services ("Reimbursable Expenses"). Reimbursable
Expenses also include issuance and transaction costs associated with the
purchase, disposition and financing of investments, regular legal and auditing
fees and expenses of the Company, the fees and expenses of

75
<PAGE>

the Company's Directors, premiums for directors' and officers' liability
insurance, premiums for fidelity and errors and omissions insurance, servicing
and sub-servicing expenses, the costs of printing and mailing proxies and
reports to stockholders, and the fees and expenses of the Company's custodian
and transfer agent, if any.

The Company reimburses the Manager for all Reimbursable Expenses, plus a
service charge of 15% on all Reimbursable Expenses owed by RAI to IFC, the
conduit operations of IMH, for costs and services under any subcontract
between RAI and IFC. RAI pays all such third parties on a dollar-for-dollar
basis the aforementioned amounts received by it from the Company; no such 15%
service charge is paid to third party service providers other than IFC.

All of the officers of the Manager are officers of ICH, ICCC, IMH and IFC.
IMH owns all of the outstanding shares of non-voting preferred stock of IFC,
its conduit operations, representing 99% of the economic interest in IFC, and
Messrs. Tomkinson, Johnson and Ashmore own all of the outstanding shares of
common stock of IFC, representing 1% of the economic interest. Each of these
officers have modified their employment agreements with IFC to allow them to
be officers of the Manager (and of ICH and ICCC). The Manager has agreed to
cause each of its officers to devote as much of his or her time to the
operations of the Company as is reasonably necessary. The Company reimburses
the Manager, who reimburses IFC on a dollar for dollar basis, for the actual
cost (the "Reimbursable Executive Amounts") of providing the services of these
officers to the Company based upon compensation payable to them by IFC, plus a
15% service charge.

For the first three years of the Management Agreement, there is a minimum
amount of $500,000 per annum (which includes the 15% service charge) payable
by ICH to RAI for Reimbursable Expenses and Reimbursable Executive Amounts and
payable by RAI to IFC. After the third year, ICH is only responsible for
paying RAI the actual amount of Reimbursable Expenses and Reimbursable
Executive Amounts, with the 15% service charge for amounts due to IFC.

The Company does not believe that its operations are adversely affected as a
result of these relationships. Payments of Reimbursable Expenses and
Reimbursable Executive Amounts by the Company to RAI are made monthly. For the
three months ended March 31, 1998 and the Commencement Period, ICH recorded an
aggregate of $111,000 and $525,000, respectively, representing Reimbursable
Expenses and Reimbursable Executive Amounts payable to RAI.

TABULAR PRESENTATION OF AMOUNT PAYABLE TO MANAGER

The following table presents all compensation, fees, profits and other
benefits (including reimbursement of out-of-pocket expenses) which RAI and its
affiliates may earn or receive in connection with the Management Agreement.

<TABLE>
<CAPTION>
RECIPIENT PAYOR AMOUNT
--------- ----- ------
<C> <C> <S>
RAI(1) ICH 25% Payment(2)
RAI(3) ICH Reimbursable Expenses, plus a 15% service charge(4)
RAI(3) ICH Reimbursable Executive Amounts, plus a 15% service
charge(4)
</TABLE>
- --------
(1) RAI is equally owned by each of Messrs. Tomkinson, Ashmore and Johnson;
the 25% payment to RAI will be retained by RAI, resulting in a direct
benefit to its owners.
(2) For a more detailed explanation of the 25% Payment, see "--Management
Fees." There is no minimum or maximum amount of the 25% Payment due in any
year. For the three months ended March 31, 1998 and the Commencement
Period, ICH recorded expenses of $162,000 and none, respectively, in
connection with the 25% Payment payable to RAI.
(3) All amounts payable by ICH to RAI for Reimbursable Expenses and
Reimbursable Executive Amounts, plus the 15% service charge, are payable
by RAI to IFC. For the three months ended March 31, 1998 and the
Commencement Period, ICH recorded an aggregate of $111,000 and $525,000,
respectively, representing Reimbursable Expenses and Reimbursable
Executive Amounts payable to RAI.

76
<PAGE>

(4) For a more detailed explanation of Reimbursable Expenses and Reimbursable
Executive Amounts see""--Expenses." For the first three years of the
Management Agreement, there is a minimum amount of $500,000 per annum
(which includes the 15% service charge) payable by ICH to RAI for
Reimbursable Expenses and Reimbursable Executive Amounts due in any year.
There is no maximum amount of Reimbursable Expenses or Reimbursable
Executive Amounts due in any year.

STOCK OPTION AND AWARDS PLAN

The Company has adopted the Stock Option and Awards Plan and the directors,
officers and employees of the Manager have been granted certain options or
rights under the Stock Option and Awards Plan, and may in the future be
granted additional options or rights under the Stock Option and Awards Plan.
See "Impac Commercial Holdings, Inc.--Stock Option and Awards Plan."

LIMITS OF RESPONSIBILITY

Pursuant to the Management Agreement, the Manager does not assume any
responsibility other than to render the services called for thereunder and
will not be responsible for any action of the Company's Board of Directors in
following or declining to follow its advice or recommendations. The Manager,
its directors, officers, equityholders and employees are not liable to the
Company, any mortgage security issuer, any subsidiary of the Company, the
Unaffiliated Directors, the Company's stockholders or any subsidiary's
shareholders for acts performed in accordance with and pursuant to the
Management Agreement, except by reason of acts or omissions constituting bad
faith, willful misconduct, gross negligence or reckless disregard of their
duties under the Management Agreement. The Manager is a recently formed entity
and does not have significant assets. Consequently, there can be no assurance
that the Company would be able to recover any damages for claims it may have
against the Manager. The Company has agreed to indemnify the Manager, and its
managers, officers, equityholders and employees with respect to all expenses,
losses, damages, liabilities, demands, charges and claims arising from any
acts or omissions of the Manager made in good faith in the performance of its
duties under the Management Agreement. See "Risk Factors--General--Conflicts
of Interest; Executive Officers and Directors to Receive Extensive Benefits."

RELATIONSHIPS WITH AFFILIATES

IMH is a publicly traded company whose shares of common stock are listed on
the AMEX. RAI is an entity owned by persons all of whom are officers of ICH,
IMH and RAI. RAI is the Manager and provides advisory services to ICH in
accordance with the terms of the Management Agreement. As of March 31, 1998,
IMH owned 719,789 shares, or 9.8%, of ICH Common Stock, and 674,211 shares of
ICH Class A Stock; upon the closing of this offering, IMH will own in the
aggregate 937,084 shares of ICH Common Stock representing 9.8% of the
outstanding Common Stock, and 456,916 shares of ICH Class A Stock convertible
into an equivalent number of shares of ICH Common Stock. In addition, a number
of Directors and officers of ICH and ICCC also serve as Directors and/or
officers of IMH. RAI has entered into the Submanagement Agreement with IFC,
the conduit operations of IMH, to provide the administrative services required
by the Company including facilities and costs associated therewith,
technology, human resources, management information systems, general ledger
accounts, check processing and accounts payable as RAI deems necessary.

With a view toward protecting the interests of ICH's stockholders, the
Bylaws of ICH provide that a majority of the Board of Directors (and at least
a majority of each committee of the Board of Directors) must not be
"Affiliates" of RAI, as that term is defined in the Bylaws, and that the
investment policies of ICH must be reviewed annually by the Unaffiliated
Directors. Such policies and restrictions thereon may be established from time
to time by the Board of Directors, including a majority of the Unaffiliated
Directors. In addition, any transaction between ICH and any Affiliated Person
requires the affirmative vote of a majority of the Unaffiliated Directors.
Moreover, approval, renewal or termination of the Management Agreement
requires the affirmative vote of a majority of the Unaffiliated Directors. The
Management Agreement may be terminated by ICH upon 60 days' notice. Any such
termination or failure to extend by ICH without cause shall result in the
payment of a termination or non-renewal fee to the Manager determined by an
independent appraisal.

77
<PAGE>

CERTAIN TRANSACTIONS

TRANSACTIONS WITH IMH

ORGANIZATIONAL TRANSACTIONS

In February 1997, Joseph R. Tomkinson, ICH's Chairman of the Board and Chief
Executive Officer, William S. Ashmore, ICH's President and Chief Operating
Officer, Richard J. Johnson, ICH's Executive Vice President, Chief Financial
Officer, Treasurer and Secretary, William D. Endresen, ICH's Senior Vice
President, Mary C. Glass-Schannault, ICH's Senior Vice President, and each of
James Walsh, Frank P. Filipps, Stephan R. Peers and Thomas J. Poletti,
Directors of ICH, and H. Wayne Snavely, purchased 76,800, 76,800, 62,400,
12,000, 12,000 and 12,000 shares of the Common Stock of ICH, respectively, at
a per share price of $.01. In addition, IMH purchased 299,000 shares of the
Common Stock of ICH, at a per share price of $.01.

In February 1997, IMH purchased all of the non-voting preferred stock of
ICCC, which represents 95% of the economic interest in ICCC (entitling the
holder to receive 95% of any dividend or distribution made by ICCC), for
$500,000. Each of Messrs. Tomkinson, Ashmore, Johnson and Endresen purchased
all of the outstanding shares of Common Stock of ICCC (125 shares each at a
per share price of $1.00), which represent 5% of the economic interest in
ICCC.

In March 1997, IMH lent ICH $15.0 million evidenced by a promissory note
bearing interest at the rate of 8% per annum which was convertible into shares
of non-voting convertible preferred stock of ICH at the rate of one share of
ICH Preferred Stock for each $5.00 principal amount of said note.

In March 1997, IMH converted the aforementioned $15.0 million principal
amount promissory note into an aggregate of 3,000,000 shares of ICH Preferred
Stock. All ICH Preferred Stock automatically converted, upon the closing of
ICH's IPO, into shares of ICH Common Stock determined by multiplying the
number of shares of ICH Preferred Stock converted by a fraction, the numerator
of which was $5.00 and the denominator of which was $15.00, the IPO price per
share. Notwithstanding the foregoing, consistent with IMH's classification as
a REIT, IMH was not entitled to convert into ICH Common Stock more than that
number of shares of ICH Preferred Stock whereby IMH would have owned,
immediately after such conversion, greater than 9.8% of the outstanding ICH
Common Stock. Any shares of ICH Preferred Stock not converted into ICH Common
Stock upon the closing of the IPO automatically converted into shares of ICH
Class A Stock at the same rate as the ICH Preferred Stock converted into ICH
Common Stock on said date. Shares of ICH Class A Stock converted into shares
of ICH Common Stock on a one-for-one basis and each such class of ICH Common
Stock is entitled to cash dividends on a pro rata basis. Upon any subsequent
issuances of Common Stock by ICH or sales of ICH Common Stock held by IMH,
shares of ICH Class A Stock will automatically convert into additional shares
of ICH Common Stock, subject to said 9.8% limitation.

In April 1997, IMH exchanged the 299,000 shares of ICH Common Stock held by
it for an equal number of shares of ICH Class A Stock.

Upon the closing of the IPO in August 1997, IMH contributed to ICH (the
"Contribution") 100% of the outstanding shares of non-voting preferred stock
of ICCC in exchange for 95,000 shares of ICH Class A Stock. As of March 31,
1998, IMH owned 719,784 shares, or 9.8%, of ICH Common Stock and 674,211
shares of ICH Class A Stock; upon the closing of this offering, IMH will own
937,084 shares of ICH Common Stock and 456,916 shares of ICH Class A Stock.

Prior to the Contribution, ICCC was allocated expenses of various
administrative services provided by IMH. The costs of such services were not
directly attributable to a specific division or subsidiary and primarily
included general corporate overhead, such as accounting and cash management
services, human resources and other administrative functions. These expenses
were calculated as a pro rata share of certain administrative costs based on
head count or relative assets and liabilities of the division or subsidiary,
which management believed was a reasonable method of allocation.

78
<PAGE>

NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT

The Company's operations may be affected by the activities of IMH and IFC.
Pursuant to a non-compete agreement (the "Non-Compete Agreement") between IMH,
IFC, ICH and ICCC which became effective upon the closing of ICH's IPO, for a
period of the earlier of nine months from August 1997 or the date upon which
the Company accumulated (for investment or sale) $300.0 million of Commercial
Mortgages and/or CMBSs, neither IMH nor IFC would originate or acquire any
Commercial Mortgages; however, this Agreement did not preclude IMH (either
directly or through IFC) from purchasing any Commercial Mortgages or CMBSs
under the Right of First Refusal Agreement discussed below. The Non-Compete
Agreement terminated in March 1998. Subject to the Right of First Refusal
Agreement, as defined below, IMH, as a mortgage REIT, and IFC, as its conduit
operations, may compete with the operations of the Company.

It is anticipated that RAI will act as the Manager for other REITs, some of
which may have been or will be Affiliated REITs. In such an event, any
Affiliated REIT utilizing RAI as its Manager may be in competition with the
Company. In August 1997, RAI, ICH, ICCC, IMH and IFC entered into the ten-year
Right of First Refusal Agreement. It is expected that any Affiliated REIT
utilizing RAI as its Manager will become a party to the Right of First Refusal
Agreement, but such event is outside the control of the Company and there can
be no assurance that any or all Affiliated REITs (other than IMH) will
actually become parties to the Right of First Refusal Agreement. Pursuant to
this Agreement, RAI agreed that any Investment Opportunity which is offered to
it on behalf of either the Company, IMH or any Affiliated REIT will first be
offered to the Principal Party whose Initial Primary Business most closely
aligns with such Investment Opportunity. In addition, both IMH and IFC on the
one hand and ICH and ICCC on the other agreed that any Investment Opportunity
offered to either of them which falls outside the scope of its Initial Primary
Business should be offered to the Principal Party. Should the Principal Party
decline to take advantage of an Investment Opportunity offered to RAI, RAI
will make an independent evaluation of which REITs business is more greatly
enhanced by such Investment Opportunity. Should all of such REITs decline such
Investment Opportunity RAI may offer the Investment Opportunity to any third
party. Should the Principal Party decline to take advantage of an Investment
Opportunity offered to a REIT which is a party to the Right of First Refusal
Agreement, said REIT shall then be free to pursue the Investment Opportunity.
In such an event there can be no assurance that the Company will be able to
take advantage of any such Investment Opportunity or that any competitive
activity of IMH, IFC or any Affiliated REIT will not adversely affect the
Company's operations. In addition, the Company may become further prejudiced
by the Right of First Refusal Agreement to the extent that the Company desires
to pursue or pursues a business outside its Initial Primary Business.

MANAGEMENT, SUBMANAGEMENT AND SERVICING AGREEMENTS

RAI, which acts as the Manager to the Company pursuant to the Management
Agreement, is owned one-third by each of Messrs. Tomkinson, Ashmore and
Johnson. RAI entered into the Submanagement Agreement with IFC, the conduit
operations of IMH, to provide administrative services as required by the
Company including facilities and costs associated therewith, technology, human
resources, management information systems, general ledger accounts, check
processing and accounts payable as RAI deems necessary. IFC charges ICH and
ICCC for these services based upon usage which management believes is
reasonable. Total cost allocations IFC charged to ICH and ICCC for the three
months ended March 31, 1998 were $111,000 and $159,000, respectively, and for
the Commencement Period were $525,000 and $456,000, respectively. For a
general description of the persons who are officers of the Manager and the
terms of the Management Agreement, see "RAI Advisors, LLC."

ICCC acts as a servicer of Commercial Mortgages acquired on a "servicing-
released" basis by the Company in its Long-Term Investment Operations pursuant
to the terms of a Servicing Agreement which became effective in February 1997.
For a general description of the terms of such a Servicing Agreement, see
"Business--Servicing." ICCC subcontracts all of its servicing obligations
under such loans to independent third parties pursuant to sub-servicing
agreements.

79
<PAGE>

CREDIT ARRANGEMENTS

ICCC maintains an uncommitted warehouse financing facility with an interest
rate indexed to the prime rate with IMH of which $18.3 million was outstanding
on the warehouse line at March 31, 1998. The largest aggregate balance
outstanding during the three months ended March 31, 1998 and the Commencement
Period was $18.3 million and $8.5 million, respectively. Interest expense
recorded by ICCC related to warehouse financing due to IMH for the three
months ended March 31, 1998 and the Commencement Period was $193,000 and
$262,000, respectively.

During 1997, ICH maintained a warehouse financing facility with IWLG, a
wholly owned subsidiary of IMH, until ICH obtained warehouse financing
facilities with third-party lenders. The interest rate on the warehouse
financing facility was 8.50% per annum and the highest balance outstanding
during the year ended December 31, 1997 was $16.6 million. Interest expense
recorded by ICH related to finance receivables due to IWLG for the year ended
December 31, 1997 was $453,000. As of March 31, 1998 and December 31, 1997,
ICH did not maintain a warehouse facility with IWLG.

In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby ICH agreed to advance to IMH up to a maximum amount of $15.0 million.
The agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are at an interest rate and maturity to be determined at the time
of each advance (typically, prime plus 1%) with interest and principal paid
monthly. During the three months ended March 31, 1998 and the Commencement
Period, the largest aggregate amount outstanding under the credit arrangement
was $8.0 million and $12.6 million, respectively, each at an interest rate of
9.5%. As of March 31, 1998 and December 31, 1997, there was no balance
outstanding under the credit arrangement. Interest income recorded by ICH for
the three months ended March 31, 1998 and the Commencement Period related to
such advances to IMH was approximately $55,000 and $68,000, respectively.

In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby IMH agreed to advance to ICH up to maximum amount of $15.0 million.
The agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are at an interest rate and maturity to be determined at the time
of each advance (typically, prime plus 1%) with interest and principal paid
monthly. During the three months ended March 31, 1998 and the Commencement
Period, the largest aggregate amount outstanding under the credit arrangement
was none and $15 million, respectively, at an interest rate of 9.5%. As of
March 31, 1998 and December 31, 1997, ICH's outstanding borrowings under the
credit arrangement were none and $9.1 million, respectively. Interest expense
recorded by ICH for the three months ended March 31, 1998 and the Commencement
Period related to such borrowings from IMH was approximately $43,000 and
$55,000, respectively.

In October 1997, ICH entered into a revolving credit arrangement with IFC
whereby ICH would advance to IFC up to a maximum amount of $15.0 million.
Advances under the revolving credit arrangement were evidenced by an unsecured
promissory note and at an interest rate and maturity determined at the time of
each advance (typically, prime plus 1%) with interest and principal paid
monthly. During the Commencement Period, the largest balance outstanding under
the revolving credit arrangement was $2.0 million, at an interest rate of
9.5%. The revolving credit arrangement expired in December 1997.

PURCHASE OF COMMERCIAL MORTGAGES

In February 1997, ICCC brokered ICH's purchase of $7.3 million and $10.2
million of condominium conversion loans which were financed with $16.6 million
in borrowings under a warehouse lending facility provided by a subsidiary of
IMH (see "--Credit Arrangements" above) and $900,000 in borrowings from IMH.
All of the condominium conversion loans were purchased from IFC and $7.3
million of such mortgage loans were originated by a company with which William
D. Endresen was an affiliate. IMH owns all of the outstanding non-voting
preferred stock of IFC, which represents 99% of the economic interest in IFC,
and Messrs. Tomkinson, Johnson and Ashmore own 100% of the common stock of IFC
representing 1% of the economic interest. As of March 31, 1998, Messrs.
Tomkinson, Ashmore and Johnson owned 100% of the common stock of IFC.

80
<PAGE>

In March 1997, ICH purchased a $10.1 million CMBS from IFC which was
financed by a promissory note with ICII, of which Mr. Tomkinson is a director.
In March 1997, the promissory note was repaid with cash from IMH's $15.0
million investment. Concurrently therewith, the Company repaid the $900,000
owed to IMH in connection with its purchase of condominium conversion loans.

TRANSACTIONS WITH OTHER AFFILIATES

RELATED PARTY COST ALLOCATIONS

The Company was charged expenses for certain services and costs that
primarily include human resources, data processing, professional services and
accounting functions. These expenses were primarily charged based on a pro
rata allocation of certain IFC employees time spent working on Company related
business, which management believes is reasonable, and included a 15% service
charge which is included in the terms of the management agreement with RAI.
The related party allocations for the three months ended March 31, 1998 and
for the Commencement Period totaled $286,000 and $981,000, respectively.
Management believes the related party expenses allocated to the Company and
included in its results of operations for the three months ended March 31,
1998 and for the Commencement Period approximate what the expenses would have
been if the Company had operated as an unaffiliated entity of IMH and its
affiliates.

CREDIT ARRANGEMENTS

ICCC has entered into warehouse line agreements with ICH which provide up to
an aggregate of $900.0 million to finance ICCC's operations as needed. Terms
of the warehouse line agreements require that the Commercial Mortgages be held
by an independent third party custodian, which gives the Company the ability
to borrow against the collateral as a percentage of the fair market value of
the Commercial Mortgages. The borrowing rates on the warehouse line agreements
are at prime which was 8.50% at March 31, 1998. The margins on the warehouse
line agreements are up to 90% of the fair market value of the collateral.
Management believes that the warehouse line agreements will be sufficient to
handle the Company's liquidity needs. During the three months ended March 31,
1998 and the Commencement Period, the highest aggregate amount outstanding
under the credit arrangements was $205.5 and $95.7 million, respectively. As
of March 31, 1998 and December 31, 1997, amounts outstanding on ICCC's
warehouse line with ICH were $205.5 million and $95.7 million, respectively.
Interest expense recorded by ICCC related to warehouse lines with ICH for the
three months ended March 31, 1998 and the Commencement Period, was
$2.5 million and $2.4 million, respectively.

On December 31, 1997, the Company financed its 50% interest, through its
ownership in Dove, in a commercial office building located in Newport Beach,
California with a loan for $5.2 million from ICCC in which ICCC recorded loan
origination fees of $71,000. During each of the three months ended March 31,
1998 and the Commencement Period, the highest amount outstanding under the
loan was $5.2 million. Terms of the loan are for 25 years at an adjustable
rate of 9.0% with current monthly principal and interest payments of $44,000.
For the three months ended March 31, 1998 and the Commencement Period, Dove
recorded interest expense of $120,000 and $3,000, respectively, in connection
with such loan. See "Business--Facilities."

During the normal course of business, ICH may advance or borrow funds on a
short-term basis with affiliated companies. Advances to affiliates are
reflected as "Due From Affiliates" while borrowings are reflected as "Due To
Affiliates" on the Company's balance sheet. These short-term advances and
borrowings bear interest at a fixed rate of 8.00% per annum. Interest income
recorded by ICH related to short-term advances due from affiliates was
$578,000 and $268,000 for the three months ended March 31, 1998 and the
Commencement Period, respectively. Interest expense recorded by ICH related to
short-term advances due to affiliates was $288,000 and $45,000 for the three
months ended March 31, 1998 and the Commencement Period, respectively.

81
<PAGE>

fixed rate of 8.00% per annum. Interest income recorded by ICCC related to
short-term advances due from affiliates was $13,000 and $16,000 for the three
months ended March 31, 1998 and the Commencement Period, respectively.
Interest expense recorded by ICCC related to short-term advances due to
affiliates was $200,000 and $113,000 for the three months ended March 31, 1998
and the Commencement Period, respectively.

CASH AND CASH EQUIVALENTS

As of March 31, 1998 and December 31, 1997, ICH had $18,000 and $12.5
million, respectively, of cash and cash equivalents on deposit with Southern
Pacific Bank, formerly Southern Pacific Thrift and Loan Association, a
subsidiary of ICII of which Joseph R. Tomkinson is a director.

PURCHASE OF COMMERCIAL MORTGAGES

During the three months ended March 31, 1998 and the Commencement Period,
ICH purchased $2.3 million and $58.5 million, respectively, of adjustable rate
Commercial Mortgages from ICCC at a net premium of $1,000 and $111,000,
respectively.

During the three months ended March 31, 1998 and the Commencement Period,
Bankers Capital Resource, of which Mr. Endresen's brother is a principal,
brokered an aggregate of approximately $1.5 million and $4.1 million,
respectively, of loans to ICCC. ICCC has paid to Bankers Capital Resource
broker fees of $15,000 and $41,000 for the three months ended March 31, 1998
and the Commencement Period, respectively.

STOCK COMPENSATION EXPENSE

Stock compensation expense of $2,697,000 represents the difference between
the price at which ICH issued 300,000 shares of common stock to directors and
officers of IMH and ICH on February 3, 1997 ($.01 per share) and the estimated
fair value for financial reporting purposes of such shares as determined by
the Company's management, as of February 3, 1997 ($9.00 per share). Fair value
was based primarily on management's projection of the Company's future cash
flow and net earnings, as well as the lack of liquidity of the shares at the
date of issuance and the uncertainty of certain future events regarding the
development of the Company's business and organization structure including,
but not limited to, obtaining independent financing for the organization and
purchase of Commercial Mortgages, funding and closing Commercial Loans, and
developing a pipeline of future Commercial Loan originations.

Stock compensation expense of $25,000 represents the difference between the
price at which ICCC issued 500 shares of Common Stock to directors and offices
of IMH and ICH on February 10, 1997, and the net book value, which the
Company's management believes approximated the fair value of the 5% economic
interest in ICCC purchased by the common shareholders.

OTHER TRANSACTIONS

In April 1997, ICH, as a stand-alone entity, entered into a warehouse line
agreement to provide up to $200.0 million to finance the Company's businesses.
Terms of the warehouse line of credit required that the Commercial Mortgages
be held by an independent third party custodian, which gave the Company the
ability to borrow against the collateral as a percentage of the fair market
value of the Commercial Mortgages. The borrowing rates were expressed in basis
points over one-month LIBOR, depending on the type of collateral provided by
the Company. The margins on the warehouse line agreement were based on the
type of mortgage collateral used and generally ranged from 85% to 92% of the
fair market value of the collateral. The warehouse line agreement was
guaranteed by IMH until the closing of the IPO.

Thomas J. Poletti, a Director of ICH, is a partner in the law firm Freshman,
Marantz, Orlanski, Cooper & Klein, which is counsel to the Company and IMH.
Mr. Poletti owns 12,000 shares of the Company's Common Stock and options to
purchase 10,000 shares of Common Stock. See "Impac Commercial Holdings, Inc.--
Directors and Executive Officers," "--Transactions with IMH--Organizational
Transactions" and "Legal Matters."

82
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Of the 46,000,000 shares of Common Stock authorized, the Company will have
outstanding upon the closing of this offering 9,562,084 shares of Common
Stock; 8,325,000 shares will be immediately eligible for sale in the public
market without restriction or further registration under the Securities Act
unless purchased by "affiliates" of the Company as that term is defined in
Rule 144 under the Securities Act; and 1,237,084 shares will be saleable
pursuant to Rule 144. Upon the closing of this offering, IMH will hold 937,084
shares of ICH Common Stock and 456,916 shares of ICH Class A Stock. The number
of shares of ICH Common Stock and ICH Class A Stock held by IMH, and the
eligibility of such shares for future sales, will be affected by future
issuances of ICH Common Stock by the Company and dispositions of shares of ICH
Common Stock by IMH. As described below, Rule 144, permits resales of
restricted securities subject to certain restrictions. In general, under Rule
144 as currently in effect, a person (or persons whose shares are aggregated)
who beneficially owned shares for at least one year, including any person who
may be deemed an "affiliate" of the Company, would be entitled to sell within
any three-month period a number of such shares that does not exceed the
greater of 1% of the shares of the Company's Common Stock then outstanding or
the average weekly trading volume in the Company's Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed
with the Commission. A person who is not deemed to have been an "affiliate" of
the Company at any time during the three months immediately preceding a sale
and who has beneficially owned shares for at least two years would be entitled
to sell such shares under Rule 144, without regard to the volume limitation
described above.

The Company, its directors and executive officers and IMH have agreed with
the Underwriters that, for a period of 90 days following the commencement of
this Offering, they will not sell, contract to sell or otherwise dispose of
any of shares of the Common Stock or rights to acquire such shares (other than
pursuant to employee plans) without the prior written consent of PaineWebber
Incorporated.

Additionally, as of March 31, 1998, there were outstanding: (i) stock
options to purchase 190,000 shares of Common Stock granted at an exercise
price of $15.00 per share, none of which, except on the event of a change of
control of the Company, are exercisable until August 1998; (ii) stock options
to purchase 22,250 shares of Common Stock granted at an exercise price of
$18.875 per share, none of which, except on the event of a change of control
of the Company, are exercisable until September 1998; and (iii) stock options
to purchase 84,000 shares of Common Stock granted at an exercise price of
$17.625 per share, none of which, except on the event of a change of control
of the Company, are exercisable until February 1999. An additional 336,250
shares of Common Stock are reserved for issuance pursuant to the Company's
Stock Option and Awards Plan. The Company intends to register under the
Securities Act shares reserved for issuance pursuant to the DRP and the Stock
Option and Awards Plan. See "Dividend Reinvestment Plan," "Impac Commercial
Holdings, Inc.--Stock Option and Awards Plan" and "Description of Capital
Stock."

83
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock at March 31,
1998, after giving effect to the conversion of ICH Class A Stock held by IMH
into 9.8% of ICH's Common Stock upon the closing of this offering, and as
adjusted to reflect the sale of Common Stock being offered hereby, by (1) each
person known to the Company to beneficially own more than five percent of the
Company's Common Stock, (2) each Director, (3) the Company's executive
officers and (4) all Directors and executive officers as a group. Unless
otherwise indicated in the footnotes to the table, the beneficial owners named
have, to the knowledge of the Company, sole voting and investment power with
respect to the shares beneficially owned, subject to community property laws
where applicable.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF BENEFICIALLY OWNED
SHARES -------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING (1) OFFERING (2)
------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Impac Mortgage Holdings, Inc.
(2)(3).............................. 937,084 13.6% 9.8%
Joseph R. Tomkinson (4).............. 105,133 1.4% 1.1%
William S. Ashmore (4)............... 86,133 1.1% *
Richard J. Johnson (4)............... 69,518 * *
William D. Endresen (5).............. 28,666 * *
Mary C. Glass-Schannault (4)......... 15,433 * *
James Walsh (6)...................... 17,000 * *
Frank P. Filipps (6)................. 17,000 * *
Stephan R. Peers (6)................. 18,500 * *
Thomas J. Poletti (6)................ 17,000 * *
Timothy R. Busch (6)................. 5,000 * *
All directors and executive officers
as a group (10 persons)............. 379,383 5.2% 4.0%
</TABLE>
- --------
* less than 1%

(1) Excludes 456,916 shares of ICH Class A Stock owned by IMH.

(2) Assumes 9,562,084 shares outstanding. Shares of ICH Class A Stock convert
into shares of the Common Stock of ICH on a one-for-one basis. Upon any
subsequent issuances of Common Stock by ICH or sales of ICH Common Stock
held by IMH, shares of ICH Class A Stock shall automatically convert into
additional shares of the Common Stock of ICH, subject to a 9.8%
limitation. As of March 31, 1998, IMH owned 719,789 shares, or 9.8%, of
ICH Common Stock and 674,211 shares of ICH Class A Stock; upon the closing
of this offering, IMH will own 937,084 shares of ICH Common Stock and
456,916 shares of ICH Class A Stock; shares beneficially owned by IMH
after this offering exclude said shares of ICH Class A Stock and the
shares of ICH Common Stock issuable upon their conversion.

(3) IMH's address is 20371 Irvine Avenue, Santa Ana Heights, California,
92707.

(4) Includes options to purchase 3,333 shares of Common Stock of ICH
exercisable in August 1998.

(5) Includes options to purchase 16,666 shares of Common Stock of ICH
exercisable in August 1998.

(6) Includes options to purchase 5,000 shares of Common Stock of ICH
exercisable in August 1998.

84
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized stock of ICH consists of 46,000,000 shares of Common Stock,
$0.01 par value per share, 4,000,000 shares of Class A Non-Voting Common
Stock, $0.01 par value per share and 10,000,000 shares of Preferred Stock,
$0.01 par value per share. Meetings of the stockholders of ICH will be held
annually. Special meetings of the stockholders may be called by the President,
Chief Executive Officer, a majority of the entire Board of Directors or a
majority of the Unaffiliated Directors and must be called upon the written
request of holders of shares entitled to cast at least a majority of all the
votes entitled to be cast at the meeting. The Charter reserves to ICH the
right to amend any provision thereof in the manner prescribed by Maryland law
upon the affirmative vote of stockholders entitled to cast at least a majority
of all the votes entitled to be cast on the matter.

COMMON STOCK

Each share of Common Stock is entitled to participate equally in dividends
when and as authorized and declared by the Board of Directors and in the
distribution of assets of ICH upon liquidation. Each share of Common Stock is
entitled to one vote, subject to the provisions of the Charter regarding
restrictions on transfer of stock, and will be fully paid and nonassessable by
ICH upon issuance. Shares of Common Stock have no preference, conversion,
exchange, preemptive or cumulative voting rights. The authorized stock of ICH
may be increased and altered from time to time in the manner prescribed by
Maryland law upon the affirmative vote of stockholders entitled to cast at
least a majority of all the votes entitled to be cast on the matter. The
Charter authorizes the Board of Directors to reclassify any unissued shares of
its Common Stock in one or more classes or series of stock.

Class A Non-Voting Common Stock

Designation and Amount. Of the 50,000,000 shares of Common Stock authorized,
4,000,000 shares are designated as Class A Non-Voting Common Stock (the "Class
A Stock").

Rights, Preferences and Privileges and Voting Rights. The Class A Stock has
the identical preferences, conversion or other rights, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption as the Common Stock except that the holders of shares
of Class A Stock are not entitled to any voting rights. If ICH issues
additional shares of its Common Stock as a dividend on its outstanding Common
Stock, ICH shall simultaneously issue as a dividend on its outstanding Class A
Stock, pro rata among the holders thereof, that number of shares of Class A
Stock equal to the number of shares of Common Stock issued as a dividend
multiplied by a fraction, the numerator of which is the number of shares of
Class A Stock outstanding immediately before the record date for the payment
of the Class A Stock dividend and the denominator of which is the number of
shares of Common Stock outstanding immediately before the record date for the
payment of the Common Stock dividend.

Conversion Rights. On any date on which shares of Common Stock are issued by
ICH increasing the number of shares of Common Stock issued and outstanding
(the "Conversion Date"), the shares of Class A Stock held by each person will
automatically convert into that number of shares of Common Stock as calculated
below, except that those shares of Class A Stock (collectively, "Excess
Shares") which would cause the holder thereof to own shares of Common Stock
(i) in excess of the Limit or (ii) in violation of any stock ownership
limitation set forth in the ICH's Charter shall not be converted and shall
remain outstanding shares of Class A Stock. "Limit" shall mean not greater
than 9.8% (in value or in number of shares, whichever is more restrictive) of
the aggregate of the outstanding shares of Common Stock of ICH. The number and
value of outstanding shares of Common Stock shall be determined by the Board
of Directors of ICH in good faith, which determination shall be conclusive for
all purposes hereof.

If, subsequent to the Conversion Date, the conversion of Excess Shares into
shares of Common Stock would no longer cause the holder thereof to own shares
of Common Stock (i) in excess of the Limit or (ii) in violation of any stock
ownership limitation set forth in the Charter, such shares shall automatically
convert into that

85
<PAGE>

number of shares of Common Stock as calculated below, except that those Excess
Shares which, if converted pursuant to this provision, would cause the holder
thereof to own shares of Common Stock (i) in excess of the Limit or (ii) in
violation of any stock ownership limitation set forth in the Charter shall not
be converted and shall remain outstanding shares of Class A Stock.

The shares of Class A Stock are convertible at the principal office of ICH,
and at such other office or offices, if any, as the Board of Directors may
designate, into fully paid and non-assessable shares of Common Stock of ICH
(calculated as to each conversion to the nearest whole share). The number of
shares of Common Stock to be issued upon conversion will be determined by
multiplying the number of shares of Class A Stock to be converted by one,
subject to certain adjustments. No fractional shares of Common Stock will be
issued upon conversion of shares of ICH Class A Stock, and the number of
shares of Common Stock to be issued will be rounded to the nearest whole
share.

PREFERRED STOCK

The Charter authorizes the Board of Directors to issue shares of Preferred
Stock and to classify any unissued shares of Preferred Stock and reclassify
any previously classified but unissued shares of Preferred Stock from time to
time into one or more series of stock. The Preferred Stock may be issued from
time to time with such designations, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption as shall be
determined by the Board of Directors subject to the provisions of the Charter
regarding restrictions on transfer of stock. Preferred Stock is available for
possible future financing of, or acquisitions by, ICH and for general
corporate purposes without further stockholder authorization. Thus, the Board
could authorize the issuance of shares of Preferred Stock with terms and
conditions which could have the effect of delaying, deferring or preventing a
change in control of ICH by means of a merger, tender offer, proxy contest or
other transaction that might involve a premium price for the holders of Common
Stock or otherwise be in their best interest. The Preferred Stock, if issued,
may have a preference on dividend payments which could reduce the assets
available to ICH to make distributions to the common stockholders.

REPURCHASE OF SHARES AND RESTRICTIONS ON TRANSFER

For ICH to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of stock may be owned, actually or constructively, by
or for five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year
for which an election to be treated as a REIT has been made). In addition, a
REIT's stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year (other than the first year for which an election to be
treated as a REIT has been made).

Because ICH expects to continue to qualify as a REIT, the Charter contains
restrictions on the transfer of Common Stock which are intended to assist ICH
in complying with these requirements. The Ownership Limit set forth in the
Charter prohibits any person, subject to certain specified exceptions
discussed below, from owning, actually or constructively, shares of Common
Stock in excess of 9.8% (in value or in number, whichever is more restrictive)
of the outstanding shares of Common Stock. The constructive ownership rules
are complex, and may cause shares of Common Stock owned actually or
constructively by a group of related individuals and/or entities to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 9.8% of the shares of Common Stock (or the acquisition of an
interest in an entity that owns, actually or constructively, shares of Common
Stock) by an individual or entity, could nevertheless cause that individual or
entity, or another individual or entity, to own constructively in excess of
9.8% of the outstanding shares of Common Stock and thus violate the Ownership
Limit, or such other limit as provided in the Charter or as otherwise
permitted by the Board of Directors. The Board of Directors may, but in no
event will be required to, exempt a person from the Ownership Limit if it
determines that such person's ownership of shares of Common Stock will not
jeopardize ICH's status as a REIT. As a condition of such waiver, the Board of
Directors may require a ruling from the Internal Revenue Service or opinions
of counsel satisfactory to it and shall require undertakings or
representations from the applicant with respect to ICH's status as a REIT.

86
<PAGE>

ICH's Charter further prohibits (a) any person from actually or
constructively owning shares of Common Stock that would result in ICH being
"closely held" under Section 856(h) of the Code or otherwise cause ICH to fail
to qualify as a REIT, and (b) any person from transferring shares of stock if
such transfer would result in shares of stock being owned by fewer than 100
persons. Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of stock of ICH that will or may violate any
of the foregoing restrictions on transferability and ownership is required to
give written notice immediately to ICH and provide ICH with such other
information as it may request in order to determine the effect of such
transfer on its status as a REIT. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interest of ICH to attempt to
qualify, or to continue to qualify, as a REIT. The Board of Directors may from
time to time increase the Ownership Limit.

Pursuant to the Charter, if any purported transfer of stock or any other
event would otherwise result in any person owning shares of stock in excess of
the Ownership Limit or in ICH being "closely held" as described above or
otherwise failing to qualify as a REIT, then that number of shares of stock
the actual or constructive ownership of which otherwise would cause such
person to violate such restrictions (rounded up to a whole share) will be
automatically transferred to a trustee (the "Trustee") as trustee of a trust
(the "Trust") for the exclusive benefit of one or more charitable
beneficiaries (the "Charitable Beneficiary"), and the intended transferee will
not acquire any rights in such shares. Shares held by the Trustee will
constitute issued and outstanding shares of stock. The intended transferee
will not benefit economically from ownership of any shares held in the Trust,
will have no rights to dividends and will not possess any rights to vote or
other rights attributable to the shares held in the Trust. The Trustee will
have all voting rights and rights to dividends or other distributions with
respect to shares held in the Trust, which rights will be exercised for the
exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by ICH that shares of stock have been
transferred to the Trustee will be paid with respect to such shares to the
Trustee upon demand and any dividend or other distribution authorized but
unpaid will be paid when due to the Trustee. Any dividends or distributions so
paid over to the Trustee will be held in trust for the Charitable Beneficiary.
Subject to Maryland law, effective as of the date that such shares have been
transferred to the Trustee, the Trustee will have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by an intended
transferee prior to the discovery by ICH that such shares have been
transferred to the Trustee and (ii) to recast such vote in accordance with the
desires of the Trustee acting for the benefit of the Charitable Beneficiary.

Within 20 days of receiving notice from ICH that shares of stock have been
transferred to the Trust, the Trustee will sell the shares held in the Trust
to a person designated by the Trustee whose ownership of the shares will not
violate the ownership restrictions set forth in the Charter. Upon such sale,
the interest of the Charitable Beneficiary in the shares sold will terminate
and the Trustee will distribute the net proceeds of the sale to the intended
transferee and to the Charitable Beneficiary as follows: the intended
transferee will receive the lesser of (1) the price paid by the intended
transferee for the shares or, if the intended transferee did not give value
for the shares in connection with the event causing the shares to be held in
the Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price (as defined below) of the shares on the day of the event causing
the shares to be held in the Trust and (2) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust.
Any net sales proceeds in excess of the amount payable to the intended
transferee will be immediately paid to the Charitable Beneficiary.

In addition, shares of stock held in Trust will be deemed to have been
offered for sale to ICH, or its designee, at a price per share equal to the
lesser of (i) the price per share in the transaction that resulted in such
transfer to the Trust (or, in the case of a devise or gift, the Market Price
(as defined in the Charter) at the time of such devise or gift) and (ii) the
Market Price on the date ICH, or its designee, accepts such offer. ICH will
have the right to accept such offer until the Trustee has sold the shares held
in the Trust. Upon such a sale to ICH, the interest of the Charitable
Beneficiary in the shares sold will terminate and the Trustee will distribute
the net proceeds of the sale to the intended transferee.

The Charter defines the term "Market Price" on any date, with respect to any
class or series of outstanding shares of ICH's stock, as the Closing Price (as
defined below) for such shares on such date. The "Closing Price"

87
<PAGE>

on any date shall mean the last sale price for such shares, regular way, or,
in case no such sale takes place on such day, the average of the closing bid
and asked prices, regular way, for such shares, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if such shares are
not listed or admitted to trading on the NYSE, as reported on the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which such shares are listed or
admitted to trading or, if such shares are not listed or admitted to trading
on any national securities exchange, the last quoted price, or, if not so
quoted, the average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System or, if such system is no longer in use, the
principal other automated quotation system that may then be in use or, if such
shares are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market
in such shares selected by the Board of Directors or, in the event that no
trading price is available for such shares, the fair market value of the
shares, as determined in good faith by the Board of Directors.

If any purported transfer of shares of Common Stock would cause ICH to be
beneficially owned by fewer than 100 persons, such transfer will be null and
void in its entirety and the intended transferee will acquire no rights to
such shares.

All certificates representing shares of Common Stock and Preferred Stock
bear a legend referring to the restrictions described above.

Under the Charter, every owner of a specified percentage (or more) of the
outstanding shares of stock must file a completed questionnaire with the
Company containing the information regarding their ownership of such shares,
as set forth in the Treasury Regulations. Under current Treasury Regulations,
the percentage will be set between 0.5% and 5.0%, depending upon the number of
record holders of the Company's shares. In addition, each stockholder shall
upon demand be required to disclose to the Company in writing such information
as the Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership of stock on the Company's
status as a REIT and to ensure such compliance with the Ownership Limit or
such other limit as otherwise prescribed by the Board of Directors.

The Charter provides that "disqualified organizations" within the meaning of
Section 860E(e)(5) of the Code, which generally include governmental entities
and other tax-exempt persons not subject to tax on unrelated business taxable
income, are ineligible to hold the Company's shares. Accordingly, the shares
offered hereby should not be purchased or held by such disqualified
organizations. See "Federal Income Tax Considerations."

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe, L.P.

88
<PAGE>

UNDERWRITING

Under the terms of and subject to the conditions contained in the
underwriting agreement (the "Underwriting Agreement") between the Company and
the Underwriters named below (the "Underwriters"), for whom PaineWebber
Incorporated, Stifel, Nicolaus & Company, Incorporated, CIBC Oppenheimer Corp.
and EVEREN Securities, Inc. are acting as representatives (the
"Representatives"), the Underwriters have severally agreed to purchase from
the Company and the Company has agreed to sell to the Underwriters severally
the respective number of shares set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES TO BE
UNDERWRITERS PURCHASED
------------ ------------
<S> <C>
PaineWebber Incorporated........................................ 800,000
Stifel, Nicolaus & Company, Incorporated........................ 400,000
CIBC Oppenheimer Corp. ......................................... 400,000
EVEREN Securities, Inc. ........................................ 400,000
---------
Total......................................................... 2,000,000
=========
</TABLE>

In the Underwriting Agreement, the Underwriters have severally agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares of Common Stock being sold pursuant to the Underwriting Agreement
(other than those covered by the over-allotment option described below), if
any shares of Common Stock are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may
be increased or the Underwriting Agreement may be terminated.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares in part to the public at the public offering price
set forth on the cover page of this Prospectus, and in part to certain
securities dealers (who may include the Underwriters) at such price less a
concession not in excess of $0.45 per share, and that the Underwriters and
such dealers may reallow to certain dealers a discount not in excess of $0.10
per share. After commencement of the public offering, the public offering
price, concessions to selected dealers and the discount to other dealers may
be changed by the Representatives.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase, at the
public offering price less the underwriting discount and commissions set forth
on the cover page of this Prospectus, 300,000 additional shares of Common
Stock. The Underwriters may exercise such option only to cover over-
allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent the Underwriters exercise such
option, each of the Underwriters will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such option
shares as it was obligated to purchase pursuant to the Underwriting Agreement.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Federal securities laws, or to
contribute to payments which the Underwriters may be required to make in
respect thereof.

The Company, its directors and executive officers, and IMH, have agreed with
the Underwriters that, for a period of 90 days following the commencement of
this Offering, they will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or rights to acquire such shares (other
than pursuant to employee plans) without the prior written consent of
PaineWebber Incorporated.

Certain of the Underwriters, including the Representatives, may from time to
time in the future enter into reverse repurchase agreements or other financing
arrangements with the Company to finance the purchase of mortgage assets.

Certain of the Underwriters, including the Representatives, have in the past
performed, and may continue to perform investment banking, broker-dealer and
financial advisory services for certain of its affiliates and have

89
<PAGE>

received customary compensation therefor. Until the distribution of Common
Stock is completed, rules of the Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Common Stock. As an exception to these rules, the Underwriters are permitted
to engage in certain transactions that stabilize the price of the Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock. If the
Underwriters create a short position in the Common Stock in connection with
the Offering, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, then the Underwriters may reduce
that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
a part of the over-allotment option described above. In general, purchases of
a security for the purpose of stabilization or to reduce a short position
could cause the price of the security to be higher than it might be in the
absence of such purchases. In addition, PaineWebber Incorporated, on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Neither the Company nor any of the Underwriters make any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Common
Stock. In addition, neither the Company nor any of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions once commenced, will not be discontinued without notice. The
Company's Common Stock is listed on the AMEX under the symbol "ICH."

CERTAIN PROVISIONS OF MARYLAND LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS

The following summary of certain provisions of the MGCL and of the Charter
and the Bylaws of ICH does not purport to be complete and is subject to and
qualified in its entirety by reference to Maryland law and to the Charter and
the Bylaws of ICH, copies of which are filed with the Commission. See
"Available Information." For a description of additional restrictions on
transfer of the Common Stock, see "Description of Capital Stock--Repurchase of
Shares and Restrictions on Transfer."

REMOVAL OF DIRECTORS

The Charter provides that a director may be removed from office at any time
but only by the affirmative vote of holders of shares entitled to cast not
less than two-thirds of all the votes entitled to be cast in the election of
directors.

BUSINESS COMBINATIONS

Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting
power of the corporation's shares or an affiliate of the corporation who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
of such an Interested Stockholder are prohibited for five years after the most
recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative
vote of at least (a) 80% of the votes entitled to be cast by holders of
outstanding shares of voting stock of the corporation and (b) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in
cash or in the same form as previously paid by the Interested Stockholder for
its shares. These provisions of Maryland law do not apply, however, to
business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the Interested Stockholder becomes
an Interested Stockholder.

90
<PAGE>

CONTROL SHARE ACQUISITIONS

The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power: (1) one-fifth or more but less than one-third, (2) one-third or more
but less than a majority, or (3) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained stockholder approval. A
"control share acquisition" means the acquisition of control shares, subject
to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the corporation may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to
the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of
stockholders at which the voting rights of such shares are considered and not
approved. If voting rights for control shares are approved at a stockholders'
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The
fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquiror in the
control share acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation and adopted at any time before the acquisition of
shares.

The Bylaws of ICH contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of ICH's shares of
stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.

AMENDMENT TO THE CHARTER

ICH reserves the right from time to time to make any amendment to its
Charter, now or hereafter authorized by law, including any amendment which
alters the contract rights as expressly set forth in the Charter, of any
shares of outstanding stock. The Charter may be amended only by the
affirmative vote of holders of shares entitled to cast not less than a
majority of all the votes entitled to be cast on the matter; provided,
however, that provisions on removal of directors may be amended only by the
affirmative vote of holders of shares entitled to cast not less than two-
thirds of all the votes entitled to be cast in the election of directors.

DISSOLUTION OF THE COMPANY

The dissolution of ICH must be approved by the affirmative vote of holders
of shares entitled to cast not less than a majority of all the votes entitled
to be cast on the matter.

ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS

The Bylaws provide that (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made

91
<PAGE>

only (1) pursuant to ICH's notice of the meeting, (2) by the Board of
Directors, or (3) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(b) with respect to special meetings of stockholders, only the business
specified in ICH's notice of meeting may be brought before the meeting of
stockholders and nominations of persons for election to the Board of Directors
may be made only (1) pursuant to ICH's notice of the meeting, (2) by the Board
of Directors, or (3) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by a stockholder who is entitled
to vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws.

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS

The business combination provisions and, if the applicable provision in the
Bylaws is rescinded, the control share acquisition provisions of the MGCL, the
provisions of the Charter on ownership and transfer of stock and on removal of
directors and the advance notice provisions of the Bylaws could delay, defer
or prevent a change in control of ICH or other transaction that might involve
a premium price for holders of Common Stock or otherwise be in their best
interest.

FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material federal income tax considerations
regarding the Company and the holders of Common Stock is based on current law,
is for general information only and is not tax advice. The information set
forth below, to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, is the opinion of Brown & Wood LLP, tax
counsel to the Company. The tax treatment of a holder of Common Stock will
vary depending on his or her particular situation, and this summary does not
purport to deal with all aspects of taxation that may be relevant to
prospective purchasers of Common Stock in light of such purchasers' particular
investment or tax circumstances, or to certain types of purchasers subject to
special treatment under the federal income tax laws, including, without
limitation, insurance companies, certain financial institutions, broker-
dealers, stockholders holding Common Stock as part of a conversion
transaction, as part of a hedge or hedging transaction, or as a position in a
straddle for tax purposes, tax-exempt organizations (except to the extent
discussed under the heading "--Taxation of Tax-Exempt Stockholders"), or
foreign corporations, foreign partnerships and persons who are not citizens or
residents of the United States. In addition, the summary below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to prospective purchasers of Common Stock.

The information in this section is based on the Code, current, temporary and
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of
the Service (including its practices and policies as expressed in certain
private letter rulings which are not binding on the Service except with
respect to the particular taxpayers who requested and received such rulings),
and court decisions, all as of the date hereof. No assurance can be given that
future legislation, Treasury Regulations, administrative interpretations and
practices and/or court decisions will not adversely affect existing
interpretations. Any such change could apply retroactively to transactions
preceding the date of the change. ICH has not requested, and does not plan to
request, any ruling from the Service concerning the tax treatment of ICH.
Thus, no assurance can be provided that the statements set forth herein (which
are, in any event, not binding on the Service or courts) will not be
challenged by the Service or will be sustained by a court if so challenged.

PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND SALE
OR OTHER DISPOSITION OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE OR
OTHER DISPOSITION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF ICH

General. ICH elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ending December 31, 1997. ICH
believes that, commencing with such taxable year, it has

92
<PAGE>

been organized and has operated in such a manner as to qualify for taxation as
a REIT under the Code, and ICH intends to continue to operate in such a
manner. However, no assurance can be given that ICH has operated or will
continue to operate in such a manner so as to qualify or remain qualified as a
REIT.

The sections of the Code and Treasury Regulations governing REITs are highly
technical and complex. The following summary sets forth the material aspects
of the sections that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.

Brown & Wood LLP has acted as tax counsel to ICH in connection with the
offering. In the opinion of Brown & Wood LLP commencing with ICH's taxable
year ending December 31, 1997, ICH has been organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
has enabled and will enable it to meet the requirements for qualification and
taxation as a REIT under the Code. It must be emphasized that this opinion is
based on various factual assumptions relating to the organization and
operation of ICH and is conditioned upon certain representations made by ICH
as to factual matters. In addition, this opinion is based upon the factual
representations of ICH concerning its business and assets as set forth in this
Prospectus and assumes that the actions described in this Prospectus are
completed in a timely fashion. Moreover, such qualification and taxation as a
REIT depends upon ICH's ability to meet (through actual annual operating
results, distribution levels and diversity of stock ownership) the various
qualification tests imposed under the Code discussed below, the results of
which have not been and will not be reviewed by Brown & Wood LLP. Accordingly,
no assurance can be given that the actual results of ICH's operation for any
particular taxable year have satisfied or will satisfy such requirements.
Further, the anticipated income tax treatment described in this Prospectus may
be changed, perhaps retroactively, by legislative, administrative or judicial
action at any time. See "Risk Factors--Other Considerations--Adverse
Consequences of Failure to Maintain REIT Status May Include ICH Being Subject
to Tax as a Regular Corporation" and "--Failure to Qualify."

If ICH qualifies for taxation as a REIT, it generally will not be subject to
federal corporate income taxes on its net income that is currently distributed
to stockholders. This treatment substantially eliminates the "double taxation"
(at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, ICH will be subject to federal
income tax as follows: First, ICH will be taxed at regular corporate rates on
any undistributed "REIT taxable income," including undistributed net capital
gains. Second, under certain circumstances, ICH may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if ICH has
(i) net income from the sale or other disposition of "foreclosure property"
(defined generally as property acquired through foreclosure or otherwise as a
result of a default on a loan secured by the property or a lease of such
property) which is held primarily for sale to customers in the ordinary course
of business, or (ii) other nonqualifying net income from foreclosure property,
it will be subject to tax at the highest corporate rate on such income.
Fourth, if ICH has net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property held primarily for
sale to customers in the ordinary course of business other than foreclosure
property), such income will be subject to a 100% tax. Fifth, if ICH should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on an amount equal to (a) the gross income attributable to the greater of
the amount by which ICH fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect ICH's profitability. Sixth, if ICH should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
ICH would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if ICH has excess
inclusion income (attributable to its interest, if any, in a residual interest
in a REMIC or if all or a portion of ICH, is treated as a taxable mortgage
pool) and a disqualified organization (generally, tax-exempt entities not
subject to tax on unrelated business income, including governmental
organizations) holds shares of stock in ICH, ICH will be taxed at the highest
corporate tax rate on the amount of excess inclusion income for the taxable
year allocable to the shares held by such disqualified organization. Eighth,
with respect to any asset (a "Built-In Gain Asset") acquired by ICH from a
corporation which is or has

93
<PAGE>

been a C corporation (i.e., generally a corporation subject to full corporate-
level tax) in a transaction in which the basis of the Built-In Gain Asset in
the hands of ICH is determined by reference to the basis of the asset in the
hands of the C corporation, if ICH recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by ICH, then, to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of such asset
over (b) ICH's adjusted basis in such asset, determined as of the beginning of
the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that ICH will make an election pursuant to IRS Notice 88-
19 and that the availability or nature of such election is not modified as
proposed in President Clinton's 1999 federal budget proposal.

Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares, or by transferable certificates of beneficial interest; (iii) which
would be taxable as a domestic corporation but for Sections 856 through 859 of
the Code; (iv) which is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) during the last half
of each taxable year not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by or for five or fewer
individuals (as defined in the Code to include certain entities); and (vii)
which meets certain other tests, described below, regarding the nature of its
income and assets and the amount of its distributions. The Code provides that
conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year
of twelve months, or during a proportionate part of a taxable year of less
than twelve months. Conditions (v) and (vi) do not apply until after the first
taxable year for which an election is made to be taxed as a REIT. For purposes
of conditions (v) and (vi), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of condition (vi). In addition, a corporation may not elect to become
a REIT unless its taxable year is the calendar year. ICH has a calendar
taxable year.

ICH believes that it has issued sufficient shares of Common Stock with
sufficient diversity of ownership to allow ICH to satisfy conditions (v) and
(vi). In addition, the Charter provides for restrictions regarding the
transfer and ownership of shares, which restrictions are intended to assist
ICH in continuing to satisfy the share ownership requirements described in (v)
and (vi) above. Such ownership and transfer restrictions are described in
"Description of Capital Stock--Repurchase of Shares and Restrictions on
Transfer." These restrictions, however, may not, in all cases, ensure that ICH
will be able to satisfy the share ownership requirements described above. If
ICH fails to satisfy such share ownership requirements, ICH's status as a REIT
will terminate; provided, however, that if ICH complies with the rules
contained in the applicable Treasury Regulations requiring ICH to attempt to
ascertain the actual ownership of its shares, and ICH does not know, and would
not have known through the exercise of reasonable diligence, whether it failed
to meet the requirement set forth in condition (vi) above, ICH will be treated
as having met such requirement. See "--Failure to Qualify."

Ownership of Qualified REIT Subsidiaries. ICH may acquire 100% of the stock
of one or more qualified REIT subsidiaries (each, a "QRS"). A corporation will
qualify as a QRS during the period in which 100% of its stock is held by ICH.
A QRS will not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a QRS will be
treated as assets, liabilities and such items (as the case may be) of ICH for
all purposes of the Code including the REIT qualification tests. For this
reason, references under "Federal Income Tax Considerations" to the income and
assets of ICH shall include the income and assets of any QRS. A QRS will not
be subject to federal income tax and ICH's ownership of the voting stock of a
QRS will not violate the restrictions against ownership of securities of any
one issuer which constitute more than 10% of such issuer's voting securities
or more than 5% of the value of ICH's total assets, described below under "--
Asset Tests."

Ownership of Partnerships or LLCs. If ICH invests in a partnership or
limited liability company (a "LLC"), it will be deemed to own its
proportionate share of the assets of the partnership or LLC and will be

94
<PAGE>

deemed to be entitled to the income of the partnership or LLC attributable to
such share. In addition, the character of the assets and gross income of the
partnership or LLC shall retain the same character in the hands of ICH for
purposes of the REIT gross income and asset tests.

Income Tests. In order to maintain its qualification as a REIT, ICH annually
must satisfy two gross income requirements. First, at least 75% of ICH's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from: (i) rents from real
property; (ii) interest on obligations secured by mortgages on real property
or on interests in real property; (iii) gain from the sale or other
disposition of real property (including interests in real property and
interests in mortgages on real property) not held primarily for sale to
customers in the ordinary course of business; (iv) dividends or other
distributions on, and gain (other than gain from prohibited transactions) from
the sale or other disposition of, transferable shares in other real estate
investment trusts; (v) abatements and refunds of taxes on real property; (vi)
income and gain derived from foreclosure property; (vii) amounts (other than
amounts the determination of which depend in whole or in part on the income or
profits of any person) received or accrued as consideration for entering into
agreements (a) to make loans secured by mortgages on real property or on
interests in real property or (b) to purchase or lease real property
(including interests in real property and interests in mortgages on real
property); (viii) gain from the sale or other disposition of a real estate
asset which is not a prohibited transaction; and (ix) qualified temporary
investment income. Second, at least 95% of ICH's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
from the sources described above with respect to the 75% gross income test,
dividends, interest, and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing). In addition, for
taxable years beginning prior to August 5, 1997, short-term gain from the sale
or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales or
other dispositions of foreclosure property) must represent less than 30% of
ICH's gross income (including gross income from prohibited transactions). The
30% gross income test has been repealed and will not apply beginning with
ICH's 1998 taxable year.

The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.

Generally, if a loan is secured by both personal property and real property,
interest must be allocated between the personal property and the real
property, with only the interest allocable to the real property qualifying as
mortgage interest under the 75% gross income test. Treasury Regulations
provide that if a loan is secured by both personal and real property and the
fair market value of the real property as of the commitment date (generally,
the date on which the REIT's obligation to make the loan becomes binding)
equals or exceeds the amount of the loan, the entire interest amount will
qualify under the 75% gross income test. If the amount of the loan exceeds the
fair market value of the real property as of the commitment date, the interest
income allocated to the real property is an amount equal to the interest
income multiplied by a fraction, the numerator of which is the fair market
value of the real property as of the commitment date, and the denominator of
which is the amount of the loan. The interest income allocated to the personal
property is an amount equal to the excess of the total interest income over
the interest income allocated to the real property.

Interest earned on mortgage loans, and mortgage-backed securities secured by
or representing an interest in such loans, will qualify as "interest" for
purposes of both the 95% and 75% gross income tests to the extent such assets
are treated as obligations secured by mortgages on real property or on
interests in real property. However, income attributable to securities or
other obligations that are not treated as obligations secured by mortgages on
real property or on interests in real property (and which are not otherwise
Qualified REIT Assets), dividends on stock (including any dividends ICH
receives from ICCC, but not including dividends ICH receives from other
qualifying REITs or from any QRSs), and gains from the sale or disposition of
such stock or such securities or other obligations will not qualify under the
75% gross income test. Such income will qualify under the 95% gross income
test, however, if such income constitutes interest, dividends or gain from the
sale or disposition of stock or securities. Income from loan guarantee fees,
mortgage servicing contracts or other

95
<PAGE>

contracts will not qualify under either the 95% or 75% gross income test if
such income constitutes fees for services rendered by ICH or is not treated as
interest (on obligations secured by mortgages on real property or on interests
in real property for purposes of the 75% gross income test). Similarly, income
from hedging transactions, including the sale of hedges, may not qualify under
the 75% or 95% gross income tests unless such hedges constitute Qualified
Hedges, in which case such income will qualify under the 95% gross income
test.

Furthermore, ICCC receives servicing and processing fees and income from
gain on the sale of certain Commercial Mortgages and CMBSs. Such fees do not
accrue to ICH, but ICH receives dividends on its nonvoting preferred stock in
ICCC. Such dividends will qualify under the 95% gross income test, but will
not qualify under the 75% gross income test.

In order to comply with the 95% and 75% gross income tests, ICH has limited
and will continue to limit substantially all of the assets that it acquires to
Commercial Mortgages or other securities or obligations that are treated as
obligations secured by mortgages on real property or on interests in real
property or to other Qualified REIT Assets. As a result, ICH may limit the
type of assets, including hedging contracts, that it otherwise might acquire
and, therefore, the type of income it otherwise might receive, including
income from hedging, other than income from Qualified Hedges. See "Business--
Hedging."

In order to comply with the REIT gross income tests, ICH has monitored and
will continue to monitor its income, including income from dividends,
warehouse lending, hedging transactions, futures contracts, servicing and
sales of Mortgage Assets, gains on the sale of securities, and other income
not derived from Qualified REIT Assets. ICH believes that the aggregate amount
of any nonqualifying income in any taxable year has not exceeded and will not
exceed the limit on nonqualifying income under the gross income tests.

If ICH fails to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if ICH's failure to meet such tests was
due to reasonable cause and not due to willful neglect, ICH attaches a
schedule of the sources of its income to its federal income tax return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
ICH would be entitled to the benefit of these relief provisions. For example,
if ICH fails to satisfy the gross income tests because nonqualifying income
that ICH intentionally incurs exceeds the limits on such income, the Service
could conclude that ICH's failure to satisfy the tests was not due to
reasonable cause. If these relief provisions are inapplicable to a particular
set of circumstances involving ICH, ICH will not qualify as a REIT. As
discussed above in "Federal Income Tax Considerations--Taxation of ICH--
General," even if these relief provisions apply and ICH retains its status as
a REIT, a 100% tax would be imposed on an amount equal to (a) the gross income
attributable to the greater of the amount by which ICH failed the 75% or 95%
test multiplied by (b) a fraction intended to reflect ICH's profitability.
There can be no assurance that ICH will always be able to maintain compliance
with the gross income tests for REIT qualification despite its periodic
monitoring procedures. For taxable years beginning prior to August 5, 1997, no
similar mitigation provision provides relief if ICH failed the 30% gross
income test. In such case, ICH would cease to qualify as a REIT. See "--
Failure to Qualify."

Any gain realized by ICH on the sale of any property (including Commercial
Mortgages and CMBSs) held as inventory or other property held primarily for
sale to customers in the ordinary course of business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction treatment may also have an adverse effect upon ICH's
ability to satisfy the income tests for qualification as a REIT. Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. ICCC securitizes Commercial Mortgages and sells the resulting
mortgage securities. See "Business--Securitization and Sale Process." If ICH
were to sell such CMBSs on a regular basis, there is a substantial risk that
such sales would constitute prohibited transactions and that all of the
profits therefrom would be subject to a 100% tax. Therefore, such sales will
be made only by ICCC. ICCC is not subject to the 100% penalty tax on income
from prohibited transactions, which is only applicable to a REIT.

96
<PAGE>

Asset Tests. ICH, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of ICH's total assets must be represented by Qualified REIT
Assets, cash, cash items and government securities. Second, not more than 25%
of ICH's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by ICH may not exceed 5% of the
value of ICH's total assets and ICH may not own more than 10% of any one
issuer's outstanding voting securities. ICH believes that substantially all of
its assets, other than the nonvoting preferred stock of ICCC, are Qualified
REIT Assets.

ICH provides short-term lines of credit ("hypothecation loans") to ICCC to
finance Commercial Mortgages during the time from the closing of such loans to
their sale or other settlement with pre-approved investors. ICH's
hypothecation loans are secured by assignments of first priority perfected
security interests in and liens on, among other items of collateral, mortgage
loans and related mortgage notes owned by the customer that in turn are
secured by mortgages on real property. The Service has issued a Revenue Ruling
in which it ruled that loans similar to ICH's hypothecation loans to ICCC were
obligations secured by mortgages on real property and interests in mortgages
on real property, and therefore that such loans were Qualified REIT Assets.
Based on such Revenue Ruling, ICH believes that its hypothecation loans are
Qualified REIT Assets. However, in the event that ICH's hypothecation loans
are not treated as Qualified REIT Assets, ICH would likely fail the 5% asset
test and fail to qualify as a REIT. See "--Failure to Qualify."

As described above, ICH owns 100% of the nonvoting preferred stock of ICCC,
which represents approximately 95% of the economic value of all classes of
stock of ICCC. ICH does not and will not own any of the voting securities of
ICCC, and therefore ICH will not be considered to own more than 10% of the
voting securities of ICCC (which would be prohibited by the REIT asset tests
currently set forth in the Code). President Clinton's 1999 federal budget
proposal contains a provision which would amend the REIT asset tests so as to
prohibit REITs from owning stock of a corporation possessing more than 10% of
the vote or value of all classes of stock of the corporation. This proposal
would be effective with respect to stock acquired on or after the date of the
first Congressional committee action with respect to the proposal (the "Action
Date"). In addition, to the extent that a REIT's stock ownership is
grandfathered by virtue of this effective date, such grandfathered status
would terminate if the subsidiary corporation engages in a trade or business
that it is not engaged in on the Action Date or acquires substantial new
assets on or after such date. Accordingly, if this provision of the budget
proposal were enacted in its present form, ICH's stock ownership in ICCC would
be grandfathered, but such grandfathered status would terminate if ICCC
engages in a trade or business that it is not engaged in on the Action Date or
acquires substantial new assets (including additional mortgage loans) on or
after such date, even if such activities are undertaken or assets are acquired
prior to the adoption of the proposal. In such case, ICH's continued ownership
of more than 10% of the economic value of ICCC beyond ICH's next quarterly
asset testing date following the Action Date (which could occur prior to the
adoption of the proposal) could cause ICH to fail to qualify as a REIT. See
"--Failure to Qualify." It is presently uncertain whether any proposal
regarding REIT subsidiaries, such as ICCC, will be enacted, or if enacted,
what the terms of such proposal (including its effective date) will be. At
this time, it is expected that ICCC will continue to acquire additional
mortgage loans notwithstanding the proposed legislation regarding REIT
subsidiaries.

ICH believes that the aggregate value of its securities of ICCC has not at
any time exceeded 5% of the total value of ICH's assets, and will not exceed
such amount in the future. Brown & Wood LLP, in rendering its opinion as to
the qualification of ICH as a REIT, is relying on the representation of ICH to
such effect. No independent appraisals have been obtained to support this
conclusion. There can be no assurance that the Service will not contend that
the value of the securities of ICCC held by ICH exceeds the 5% value
limitation.

The 5% asset test requires that ICH revalue its assets at the end of each
calendar quarter in which ICH acquires additional securities in ICCC for the
purpose of applying such test. Although ICH plans to take steps to ensure that
it satisfies the 5% asset test for any quarter with respect to which retesting
is to occur, there can be no assurance that such steps will always be
successful, or will not require a reduction in ICH's overall interest in ICCC.

97
<PAGE>

ICH has taken and will continue to take measures to prevent the value of
securities issued by any one entity that do not constitute Qualified REIT
Assets from exceeding 5% of the value of ICH's total assets as of the end of
each calendar quarter. In particular, as of the end of each calendar quarter,
ICH has limited and diversified and will continue to limit and diversify its
ownership of securities of ICCC and other securities that do not constitute
Qualified REIT Assets as necessary to satisfy the REIT asset tests described
above.

When purchasing CMBSs, ICH and its counsel may rely on opinions of counsel
for the issuer or sponsor of such securities given in connection with the
offering of such securities, or statements made in related offering documents,
for purposes of determining whether and to what extent those securities
constitute Qualified REIT Assets for purposes of the REIT asset tests and
produce income which qualifies under the REIT gross income tests discussed
above. The inaccuracy of any such opinions or statements may have an adverse
impact on ICH's qualification as a REIT.

After initially meeting the asset tests at the close of any quarter, ICH
will not lose its status as a REIT for failure to satisfy the asset tests at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by the
disposition of sufficient nonqualifying assets within 30 days after the close
of that quarter. ICH intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance. If ICH fails to cure noncompliance with the asset
tests within such time period, ICH would cease to qualify as a REIT.

Annual Distribution Requirements. ICH, in order to maintain its
qualification as a REIT, is required to distribute dividends (other than
capital gain dividends) to its stockholders in an amount at least equal to (i)
the sum of (a) 95% of ICH's "REIT taxable income" (generally, net income of
ICH computed without regard to the dividends paid deduction and by excluding
its net capital gain) and (b) 95% of the excess of the net income, if any,
from foreclosure property over the tax imposed on such income, minus (ii) the
excess of the sum of certain items of noncash income (i.e., income
attributable to leveled stepped rents, original issue discount on a debt
instrument in excess of cash received on the debt instrument for the year, a
like-kind exchange that is later determined to be taxable, or excess inclusion
income in excess of cash distributed on a REMIC residual interest or similar
interest in a taxable mortgage pool) over 5% of "REIT taxable income." In
addition, if ICH disposes of any Built-In Gain Asset during its Recognition
Period, ICH will be required, pursuant to Treasury Regulations which have not
yet been promulgated, to distribute at least 95% of the Built-in Gain (after
tax), if any, recognized on the disposition of such asset. Such distributions
must be paid in the taxable year to which they relate, or in the following
taxable year if declared before ICH timely files its tax return for such year
and if paid on or before the first regular dividend payment date after such
declaration and if ICH so elects and specifies the dollar amount on its tax
return. Such distributions are taxable to holders of Common Stock (other than
certain tax-exempt entities, as discussed below) in the year in which paid,
even if such distributions relate to the prior year for purposes of ICH's 95%
distribution requirement. The amount distributed must not be preferential
(e.g., each holder of shares of Common Stock must receive the same
distribution per share). To the extent that ICH does not distribute all of its
net capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax on the undistributed
portion at regular ordinary and capital gain corporate tax rates. Furthermore,
if ICH should fail to distribute during each calendar year (or, in the case of
distributions with declaration and record dates falling in the last three
months of the calendar year, by the end of January immediately following such
year) at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, ICH would be subject to a 4%
excise tax on the excess of such required distributions over the amounts
actually distributed. Any REIT taxable income and net capital gain on which
this excise tax is imposed for any year is treated as an amount distributed
that year for purposes of calculating such tax. ICH believes that it has and
intends to make timely distributions sufficient to satisfy these annual
distribution requirements.

ICH anticipates that it will generally have sufficient cash or liquid assets
to enable it to satisfy the distribution requirements described above. It is
possible, however, that ICH, from time to time, may not have sufficient cash
or other liquid assets to meet these distribution requirements due to timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and

98
<PAGE>

deduction of such expenses in arriving at taxable income of ICH. For instance,
ICH may realize income without a corresponding cash payment, as in the case of
original issue discount or accrued interest on defaulted Commercial Mortgages.
In the event that such timing differences occur, in order to meet the
distribution requirements, ICH may find it necessary to sell assets, arrange
for short-term, or possibly long-term, borrowings, or pay dividends in the
form of taxable stock dividends.

The Service has ruled that if a REIT's dividend reinvestment plan allows
stockholders of the REIT to elect to have cash distributions reinvested in
shares of the REIT at a purchase price equal to at least 95% of fair market
value on the distribution date, then such cash distributions reinvested
pursuant to such a plan qualify under the 95% distribution test. The terms of
ICH's DRP are expected to comply with this ruling. See "Dividend Reinvestment
Plan."

Under certain circumstances, ICH may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in ICH's deduction for
dividends paid for the earlier year. Thus, ICH may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, ICH will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.

RECORDKEEPING REQUIREMENTS

A REIT is required to maintain certain records, including records regarding
the actual and constructive ownership of its shares, and within 30 days after
the end of its taxable year, to demand statements from persons owning above a
specified level of the REIT's shares (e.g., if ICH has 2,000 or more
stockholders of record, from persons holding 5% or more of ICH's outstanding
shares of Common Stock; if ICH has over 200 but fewer than 2,000 stockholders
of record, from persons holding 1% or more of ICH's outstanding shares of
Common Stock; and if ICH has 200 or fewer shareholders of record, from persons
holding 1/2% or more of ICH's outstanding shares of Common Stock) regarding
their ownership of shares. In addition, ICH must maintain, as part of its
records, a list of those persons failing or refusing to comply with this
demand. Shareholders who fail or refuse to comply with the demand must submit
a statement with their tax returns setting forth their actual stock ownership
and other information. ICH will maintain the records and demand statements as
required by Treasury Regulations.

FAILURE TO QUALIFY

If ICH fails to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, ICH will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to stockholders in any year in which ICH fails to qualify
will not be deductible by ICH nor will they be required to be made. As a
result, ICH's failure to qualify as a REIT would substantially reduce the cash
available for distribution by ICH to its stockholders. In addition, if ICH
fails to qualify as a REIT, all distributions to stockholders will be taxable
as ordinary income, to the extent of ICH's current or accumulated earnings and
profits, and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, ICH will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances ICH would be entitled to such statutory relief. Failure
to qualify for even one year could result in the ICH's incurring substantial
indebtedness (to the extent borrowings are feasible) or liquidating
substantial investments in order to pay the resulting taxes. In addition,
President Clinton's 1999 federal budget proposal contains a provision which,
if enacted in its present form, would result in the immediate taxation of all
gain inherent in a C corporation's assets upon an election by the corporation
to become a REIT in taxable years beginning after January 1, 1999, and thus
could effectively preclude ICH from re-electing to be taxed as a REIT
following a loss of its REIT status.

99
<PAGE>

TAXATION OF TAXABLE U.S. STOCKHOLDERS

As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any state thereof including, for this purpose, the District of Columbia,
(iii) is an estate, the income of which is subject to United States federal
income taxation regardless of its source, or (iv) is a trust, if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in regulations, certain trusts
in existence on August 20, 1996, and treated as United States persons prior to
such date that elect to continue to be treated as United States persons, shall
also be considered U.S. stockholders.

As long as ICH qualifies as a REIT, distributions made by ICH out of its
current or accumulated earnings and profits (and not designated as capital
gain dividends) will constitute dividends taxable to its taxable U.S.
Stockholders as ordinary income. Such distributions will not be eligible for
the dividends received deduction in the case of U.S Stockholders that are
corporations. Distributions made by ICH that are properly designated by ICH as
capital gain dividends will be taxable to taxable U.S. Stockholders as gain
(to the extent that they do not exceed ICH's actual net capital gain for the
taxable year) from the sale or disposition of a capital asset (provided that
the shares have been held as a capital asset). Depending upon the period of
time that ICH held the assets to which such gains were attributable, and upon
certain designations, if any, which may be made by ICH, such gains will be
taxable to non-corporate U.S. Stockholders at a rate of either 20%, 25% or
28%. U.S. Stockholders that are corporations may, however, be required to
treat up to 20% of certain capital gain dividends as ordinary income. To the
extent that ICH makes distributions (not designated as capital gain dividends)
in excess of its current and accumulated earnings and profits, such
distributions will be treated first as a tax-free return of capital to each
U.S. Stockholder, reducing the adjusted basis which such U.S. Stockholder has
in his shares of Common Stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset). With respect to non-
corporate U.S. Stockholders, amounts described as being treated as capital
gains in the preceding sentence will be taxable as long-term capital gains if
the shares to which such gains are attributable have been held for more than
eighteen months, mid-term capital gains if the shares have been held for more
than one year but not more than eighteen months, or short-term capital gains
if the shares have been held for one year of less. Dividends declared by ICH
in October, November, or December of any year and payable to a stockholder of
record on a specified date in any such month shall be treated as both paid by
ICH and received by the stockholder on December 31 of such year, provided that
the dividend is actually paid by ICH on or before January 31 of the following
calendar year. Stockholders may not include in their own income tax returns
any net operating losses or capital losses of ICH.

ICH may elect to retain, rather than distribute as a capital gain dividend,
its net long-term capital gains. In such event, ICH would pay tax on such
retained net long-term capital gains. In addition, to the extent designated by
ICH, a U.S. Stockholder generally would (i) include its proportionate share of
such undistributed long-term capital gains in computing its long-term capital
gains in its return for its taxable year in which the last day of ICH's
taxable year falls (subject to certain limitations as to the amount so
includable), (ii) be deemed to have paid the capital gains tax imposed on ICH
on the designated amounts included in such U.S. Stockholder's long-term
capital gains, (iii) receive a credit or refund for such amount of tax deemed
paid by it, (iv) increase the adjusted basis of its shares of Common Stock by
the difference between the amount of such includable gains and the tax deemed
to have been paid by it, and (v) in the case of a U.S. Stockholder that is a
corporation, appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be prescribed by the
Service.

Distributions made by ICH and gain arising from the sale or exchange by a
U.S. Stockholder of shares of Common Stock will not be treated as passive
activity income, and, as a result, U.S. Stockholders generally will not be
able to apply any "passive losses" against such income or gain. Distributions
made by ICH (to the extent

100
<PAGE>

they do not constitute a return of capital) generally will be treated as
investment income for purposes of computing the investment interest
limitation. Gain arising from the sale or other disposition of Common Stock
(or distributions treated as such), however, will not be treated as investment
income unless the U.S. Stockholder elects to reduce the amount of such U.S.
Stockholder's total net capital gain eligible for the maximum capital gains
rate by the amount of such gain with respect to such Common Stock.

Upon any sale or other disposition of Common Stock, a U.S. Stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to
the difference between (i) the amount of cash and the fair market value of any
other property received on such sale or other disposition and (ii) the
holder's adjusted basis in such shares of Common Stock for tax purposes. Such
gain or loss will be capital gain or loss if the shares have been held by the
U.S. Stockholder as a capital asset, and, with respect to non-corporate U.S.
Stockholders, will be mid-term or long-term gain or loss if such shares have
been held for more than one year or eighteen months, respectively. In general,
any loss recognized by a U.S. Stockholder upon the sale or other disposition
of shares of Common Stock that have been held for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions received by such U.S. Stockholder from
ICH which were required to be treated as long-term capital gains.

BACKUP WITHHOLDING

ICH will report to its U.S. Stockholders and the Service the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless
such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A U.S. Stockholder that does not provide ICH with
his correct taxpayer identification number may also be subject to penalties
imposed by the Service. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, ICH
may be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status to ICH. See "--
Taxation of Non-U.S. Stockholders."

TAXATION OF TAX-EXEMPT STOCKHOLDERS

Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account (IRA) or a pension, profit-
sharing or stock bonus plan which is "qualified" under the Code, that holds
Common Stock as an investment will not be subject to tax on dividends paid by
ICH. However, if such tax-exempt investor is treated as having purchased its
Common Stock with borrowed funds, some or all of its dividends from the Common
Stock will be subject to tax. In addition, under some circumstances certain
pension plans (including "qualified" plans but not including IRAs and
government pension plans) that own more than 10% (by value) of ICH's
outstanding stock, including Common Stock, could be subject to tax on a
portion of their Common Stock dividends even if their Common Stock is held for
investment and is not treated as acquired with borrowed funds. The ownership
limit set forth in the ICH Charter with respect to the Company's capital stock
(see "Description of Capital Stock--Repurchase of Shares and Restrictions on
Transfer"), however, should prevent this result. Tax-exempt investors may also
be subject to tax on distributions from ICH to the extent ICH has excess
inclusion income. See "--Special Considerations."

TAXATION OF NON-U.S. STOCKHOLDERS

The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are not U.S. Stockholders ("Non-U.S. Stockholders"). In general,
Non-U.S. Stockholders may be subject to special tax withholding requirements
on distributions from ICH and with respect to their sale or other disposition
of Common Stock, except to the extent reduced or eliminated by an income tax
treaty between the United States and the Non-U.S. Stockholder's

101
<PAGE>

country. A Non-U.S. Stockholder who is a stockholder of record and is eligible
for reduction or elimination of withholding must file an appropriate form with
ICH in order to claim such treatment. In addition, non-U.S. Stockholders are
subject to special treatment with respect to distributions from ICH to the
extent ICH has excess inclusion income. See "--Special Considerations." The
Service has issued final Treasury Regulations regarding the backup withholding
rules as applied to Non-U.S. Stockholders. Those final Treasury Regulations
alter the current system of backup withholding compliance and will be
effective for payments made after December 31, 1999. Non-U.S. Stockholders
should consult their own tax advisors concerning the federal income tax
consequences to them of a purchase of shares of ICH's Common Stock including
the federal income tax treatment of dispositions of interests in, and the
receipt of distributions from, ICH.

SPECIAL CONSIDERATIONS

ICH may invest in or otherwise acquire residual interests in REMICs. In
general, a REMIC is a fixed pool of mortgage instruments in which investors
hold multiple classes of interests and for which a REMIC election has been
made. Part or all of any income derived by ICH from a REMIC residual interest
may be excess inclusion income. Excess inclusion income is generally taxable
income with respect to a residual interest in excess of a specified return on
investment in the residual interest. In some cases, substantially all taxable
income with respect to a residual interest may be considered excess inclusion
income. Pursuant to regulations not yet published, if ICH pays any dividends
to its stockholders that are attributable to such excess inclusion income, the
stockholders who receive such dividends would be subject to certain special
rules including (i) the characterization of excess inclusion income as UBTI
for tax-exempt stockholders (including employee benefit plans and individual
retirement accounts), (ii) the application of federal income tax withholding
at the maximum rate (without reduction for any otherwise applicable income tax
treaty) on any excess inclusion income allocable to foreign stockholders,
(iii) the inability of a stockholder generally to offset excess inclusion
income with net operating losses, and (iv) the taxation (at the highest
corporate tax rate) of a REIT, rather than its stockholders, on the amount of
excess inclusion income for the taxable year allocable to shares of stock held
by disqualified organizations (generally, tax-exempt entities not subject to
tax on unrelated business taxable income, including governmental
organizations). Until regulations or other guidance are issued, the Company
will use methods it believes are appropriate for calculating the amount of any
excess inclusion income it recognizes from REMICs, and allocating any excess
inclusion income to its stockholders.

ICH has financed and intends to continue to finance the acquisition of
mortgage assets by entering into reverse repurchase agreements (which are
essentially loans secured by ICH's mortgage assets), CMOs or other secured
lending transactions. If the Service were to successfully take the position
that such transactions result in ICH having issued debt instruments (i.e.,
reverse repurchase agreements, CMOs or other secured loans) with differing
maturity dates secured by a pool of Commercial Mortgages, ICH could be
treated, in whole or in part, as a taxable mortgage pool. In this case, a
portion of ICH's income could be characterized as excess inclusion income
which would subject stockholders (or ICH, to the extent Common Stock is held
by disqualified organizations) to the tax treatment described above with
respect to residual interests in REMICs. ICH intends to take the position that
its existing financing arrangements do not create a taxable mortgage pool or
excess inclusion income. However, ICH may enter into arrangements creating
such excess inclusion income in the future. In the absence of any definitive
authority on this issue, there can be no assurance regarding whether ICH's
reverse repurchase agreements, CMOs or other secured loans will cause ICH to
realize excess inclusion income.

OTHER TAX CONSEQUENCES

ICCC will not qualify as a REIT and will pay federal, state and local income
taxes on its taxable income at normal corporate rates. As a result, ICCC is
able to distribute only its net after-tax earnings to its shareholders,
including ICH, as dividend distributions, thereby reducing the cash available
for distribution by ICH to its stockholders.

102
<PAGE>

STATE AND LOCAL TAXES

ICH and its stockholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of ICH and its
stockholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
ICH.

ERISA INVESTORS

A fiduciary of a pension, profit-sharing, stock bonus plan or individual
retirement account, including a plan for self-employed individuals and their
employees or any other employee benefit plan (collectively, a "Plan") subject
to the prohibited transaction provisions of the Code or the fiduciary
responsibility provisions of the Employee Retirement Income Security Act of
1974 ("ERISA"), should consider (1) whether the ownership of the Common Stock
is in accordance with the documents and instruments governing the Plan, (2)
whether the ownership of the Common Stock is consistent with the fiduciary's
responsibilities and satisfies the requirements of Part 4 of Subtitle A of
Title I of ERISA (if applicable) and, in particular, the diversification,
prudence and liquidity requirements of Section 404 of ERISA, (3) the
prohibitions under ERISA on improper delegation of control over, or
responsibility for "plan assets" and ERISA's imposition of co-fiduciary
liability on a fiduciary who participates in, or permits (by action or
inaction) the occurrence of, or fails to remedy a known breach of duty by
another fiduciary with respect to plan assets, and (4) the need to value the
assets of the Plan annually.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed on
for the Company by Freshman, Marantz, Orlanski, Cooper & Klein, a law
corporation, Beverly Hills, California, certain tax matters will be passed on
for the Company by Brown & Wood LLP, Washington, D.C., and certain legal
matters with respect to Maryland law will be passed on for the Company by
Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal matters
will be passed on for the Underwriters by Skadden, Arps, Slate, Meagher & Flom
(Illinois). Thomas J. Poletti, a Director of ICH, is a partner in the law firm
Freshman, Marantz, Orlanski, Cooper & Klein, counsel to the Company and IMH;
Mr. Poletti owns 12,000 shares of the Company's Common Stock and options to
purchase an additional 10,000 shares of Common Stock. See "Certain
Transactions--Transactions with IMH--Organizational Transactions" and "--Other
Transactions."

EXPERTS

The financial statements of Impac Commercial Holdings, Inc. and Impac
Commercial Capital Corporation as of December 31, 1997, and for the period
from January 15, 1997 (commencement of operations) through December 31, 1997
and from January 15, 1997 through March 31, 1997, have been included herein in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.

103
<PAGE>

GLOSSARY

As used in this Prospectus, the capitalized and other terms listed below
have the meanings indicated.

"Affiliated Person" means of any entity: (1) any person directly or
indirectly owning, controlling, or holding with the power to vote, five
percent (5%) or more of the outstanding voting securities of such entity;
(2) any person five percent (5%) or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held with power to
vote, by such entity; (3) any person directly or indirectly controlling,
controlled by, or under common control with, such entity or (4) any officer,
director or employee of such entity or any person set forth in (1), (2) or (3)
above. Any person who owns beneficially, either directly or through one or
more controlled companies, more than twenty-five percent (25%) of the voting
securities of any entity shall be presumed to control such entity. Any person
who does not so own more than twenty-five percent (25%) of the voting
securities of any entity shall be presumed not to control such entity. A
natural person shall be presumed not to be a controlled entity.

"Affiliated REIT" means a REIT which may have been or will be an Affiliated
Person with respect to the Company, IMH, or their respective conduit
operations.

"Agency Certificates" means Pass-Through Certificates guaranteed by the
Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation or the Government National Mortgage Association.

"AMEX" means American Stock Exchange, Inc.

"ARM" means a mortgage loan or any mortgage loan underlying a Mortgage
Security that features adjustments of the underlying interest rate at
predetermined times based on an agreed margin to an established index. An ARM
is usually subject to periodic interest rate and/or payment caps and a
lifetime interest rate cap.

"Average Net Worth" means the arithmetic average of the sum of the gross
proceeds from any sale of equity securities by the Company, before deducting
any underwriting discounts and commissions and other expenses and costs
relating to the offering, plus the Company's retained earnings less dividends
declared (without taking into account any losses incurred in prior periods)
computed by taking the daily average of such values during such period.

"Bankruptcy Code" means Title 11, United States Code, as amended.

"Charter" means Articles of Incorporation, as amended, corrected,
supplemented or restated.

"Class A Stock" means the non-voting Class A Common Stock, $.01 par value
per share, of ICH.

"CMO" means an adjustable or fixed-rate debt obligation (bond) that is
collateralized by mortgage loans or mortgage certificates and issued by
private institutions.

"CMSRs" means Commercial Mortgage Servicing Rights.

"CMT Index" means the one year constant maturity Treasury index.

"CMBSs" means (1) pass-through certificates and (2) REMICs.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commercial Mortgages" mean commercial mortgage assets including
condominium-conversions, mortgage loans on commercial real property such as
industrial and warehouse properties, office buildings, retail space and
shopping malls, hotels and motels, nursing homes, hospitals, multi-family,
congregate care facilities and senior living centers.

"Commercial Mortgage Assets" means Commercial Mortgages held-for-investment,
investment securities available-for-sale, residual interests in
securitizations, and finance receivables.

104
<PAGE>

"Commencement Period" means the period from January 15, 1997 to December 31,
1997.

"Commission" means the Securities and Exchange Commission.

"Company" means ICH, its subsidiary Dove, and ICCC, as a combined entity
unless the context requires otherwise.

"Conduit Operations" means ICCC.

"Contribution" means the contribution by IMH to ICH of 100% of the
outstanding shares of the non-voting preferred stock of ICCC in exchange for
95,000 shares of ICH Class A Stock.

"Conversion Rate" means the rate in which the $15.0 million promissory note
to ICH from IMH converts into one share of ICH Preferred Stock for each $5.00
principal amount of said note.

"Dove" means IMH/ICH Dove Street, LLC, a subsidiary of ICH.

"DRP" means Dividend Reinvestment and Stock Purchase Plan.

"DSCRs" means Debt Service Coverage Ratios.

"11th District Cost of Funds" means the index made available monthly by the
Federal Home Loan Bank Board of the cost of funds to members of the Federal
Home Loan Bank 11th District.

"ERISA" means the Employee Retirement Income Security Act of 1974.

"ERISA Plan" or "Plan" means a pension, profit-sharing, retirement or other
employee benefit plan which is subject to ERISA.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"GAAP" means generally accepted accounting principles.

"ICCC" means Impac Commercial Capital Corporation, a California corporation
that conducts the Conduit Operations.

"ICH" means Impac Commercial Holdings, Inc., a Maryland corporation.

"ICII" means Imperial Credit Industries, Inc.

"IFC" means Impac Funding Corporation, a California corporation and the
conduit operations of IMH.

"IMH" means Impac Mortgage Holdings, Inc., a Maryland corporation.

"Initial Primary Business" means the primary business as described in the
Principal Party's initial public offering documentation.

"Investment Company Act" means the Investment Company Act of 1940, as
amended.

"Investment Opportunity" means any mortgage loan or mortgage-backed security
investment opportunity offered to RAI , IMH, ICH or an Affiliated REIT, as the
case may be.

"IPO" means the initial public offering of ICH.

"ISOs" means qualified incentive stock options granted under the Stock
Option and Awards Plan, which meet the requirements of Section 422 of the
Code.

105
<PAGE>

"IWLG" means Impac Warehouse Lending Group, Inc., a subsidiary of IMH.

"Keogh Plans" means H.R. 10 Plans.

"LIBOR" means the London interbank offered rate.

"Long-Term Investment Operations" means ICH.

"LTV" or "loan-to-value ratio" means the percentage obtained by dividing the
principal amount of a loan by the lower of the sales price or appraised value
of the mortgaged property when the loan is originated.

"Management Agreement" means that certain management agreement entered into
in August 1997 between RAI and ICH.

"Manager" means RAI Advisors, LLC.

"March 31, 1997 Period" means the period from January 15, 1997 (commencement
of operations) to March 31, 1997.

"Master Commitments" means commitments issued by the Company which will
obligate the Company to purchase Mortgage Assets from the holders of the
commitment for a specified period of time, in a specified aggregate principal
amount and at a specified price.

"MBSs" mean (1) pass through certificates and (2) REMICs.

"MGCL" means the Maryland General Corporation Law, as amended from time to
time.

"MSRs" means mortgage servicing rights.

"NASD" means the National Association of Securities Dealers, Inc.

"Net Income" means the net income of the Company as determined by the Code
before the Manager's compensation, the deduction for dividends paid, and any
net operating loss deductions arising from losses in prior periods. The
Company's interest expenses for borrowed money shall be deducted in
calculating Net Income.

"Ownership Limit" means 9.8% (in value or in number of shares, whichever is
more restrictive) of the aggregate of the outstanding shares of Common Stock,
as may be increased or, subject to limitations, reduced by the Board of
Directors of ICH.

"Pass-Through Certificates" means securities (or interests therein) which
are Qualified REIT Assets evidencing undivided ownership interests in a pool
of mortgage loans, the holders of which receive a "pass-through" of the
principal and interest paid in connection with the underlying mortgage loans
in accordance with the holders' respective, undivided interests in the pool.
Pass-Through Certificates evidence interests in loans secured by multi-family
or commercial real estate properties.

"Principal Party" means the entity whose Initial Primary Business most
closely aligns with an Investment Opportunity and the entity which will first
be offered an Investment Opportunity pursuant to the Right of First Refusal
Agreement.

"Privately-Issued Certificates" means privately-issued Pass-Through
Certificates issued by the Company or an affiliate of the Company or other
non-Agency third party issuer.

"Qualified Hedge" means an interest rate swap or cap agreement, option,
futures contract, forward rate agreement, or any similar financial instrument
entered into by ICH to reduce the interest rate risks with respect to any
indebtedness incurred or to be incurred by ICH to acquire or carry Qualified
REIT Assets.

106
<PAGE>

"QRS" means a qualified REIT subsidiary that is a corporation whose stock is
entirely owned by the REIT at all times during such corporation's existence.

"Qualified REIT Assets" means (i) real property (including interests in real
property and interests in mortgages on real property), (ii) shares (or
transferable certificates of beneficial interest) in other REITs which meet
the requirements of Sections 856-859 of the Code, (iii) stock or debt
instruments (not otherwise described in (i), (ii) or (iv)) held for not more
than one year that were purchased with the proceeds of (a) an offering of
stock in ICH (other than amounts received pursuant to a dividend reinvestment
plan) or (b) a public offering of debt obligations of ICH which have
maturities of at least 5 years, and (iv) a regular or residual interest in a
REMIC, but only if 95% or more of the assets of such REMIC are assets
described in (i) through (iii).

"Qualifying Interests" means "mortgages and other liens on and interests in
real estate," as defined in Section 3(c)(5)(C) under the Investment Company
Act.

"RAI" means RAI Advisors, LLC, the Manager of the Company.

"Real Estate Asset" means interests in real property, interests in mortgages
on real property, and regular interests in REMICS.

"REIT" means a real estate investment trust as defined under Section 856 of
the Code.

"REMIC" means serially maturing debt securities secured by a pool of
mortgage loans, the payments on which bear a relationship to the debt
securities and the issuer of which qualifies as a Real Estate Mortgage
Investment Conduit as defined under Section 860D of the Code.

"Residential Mortgage Assets" means single-family residential mortgages
held-for-investment, investment securities available-for-sale, residual
interests in securitizations, and finance receivables.

"Return on Equity" means return calculated for any quarter by dividing the
Company's Net Income for the quarter by its Average Net Worth for the quarter.

"Reverse Repurchase Agreement" means a borrowing device by an agreement to
sell securities or other assets to a third party and a simultaneous agreement
to repurchase them at a specified future date and price, the price difference
constituting the interest on the borrowing.

"Right of First Refusal Agreement" means that certain right of first refusal
agreement entered into in August 1997 among ICH, ICCC, IMH and IFC.

"Securities Act" means the Securities Act of 1933, as amended.

"Service" means the United States Internal Revenue Service.

"Servicing Agreements" means agreements entered into with correspondents in
which the correspondents retain the right to service the Commercial Mortgages.

"Submanagement Agreement" means that certain submanagement agreement entered
into in August 1997 between RAI and IFC.

"Tax-Exempt Entity" means a qualified pension, profit-sharing or other
employee retirement benefit plan, Keogh Plan, bank commingled trust fund for
such plans, an IRA or other similar entity intended to be exempt from federal
income taxation.

"Ten Year U.S. Treasury Rate" means the average of the weekly average yield
to maturity for U.S. Treasury securities (adjusted to a constant maturity of
10 years) as published weekly by the Federal Reserve Board during a quarter.

107
<PAGE>

"25% entity" means any entity of which IMH owns 25% or more of the voting
securities.

"25% Payment" means incentive compensation for each fiscal quarter, in an
amount equal to 25% of the Net Income of the Company, before deduction of such
incentive compensation, in excess of the amount that would produce an
annualized Return on Equity equal to the Ten Year U.S. Treasury Rate plus 2%.

"UBTI" means "unrelated trade or business taxable income" as defined in
Section 512 of the Code.

"Unaffiliated Director" means a Director who is independent of the Company,
except for being a Director of the Company, any manager of the Company
(including RAI) and IMH and its Affiliated Persons.

108
<PAGE>

INDEX TO FINANCIAL STATEMENTS

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets.......................................... F-3
Consolidated Statements of Operations................................ F-4
Consolidated Statements of Changes in Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows................................ F-6
Notes to Consolidated Financial Statements........................... F-8

IMPAC COMMERCIAL CAPITAL CORPORATION

Independent Auditors' Report......................................... F-27
Balance Sheets....................................................... F-28
Statements of Operations............................................. F-29
Statements of Changes in Shareholders' Equity........................ F-30
Statements of Cash Flows............................................. F-31
Notes to Financial Statements........................................ F-32
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Impac Commercial Holdings, Inc.:

We have audited the accompanying consolidated balance sheet of Impac
Commercial Holdings, Inc. and subsidiary as of December 31, 1997 and the
related consolidated statements of operations and cash flows for the periods
from January 15, 1997 (commencement of operations) through December 31, 1997
and from January 15, 1997 through March 31, 1997 and the statement of changes
in stockholders' equity for the period from January 15, 1997 through December
31, 1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Impac Commercial Holdings, Inc. and subsidiary as of December 31, 1997 and
the results of their operations and their cash flows for the periods from
January 15, 1997 through December 31, 1997 and from January 15, 1997 through
March 31, 1997 in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Orange County, California
February 9, 1998

F-2
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 22,962 $ 15,908
Investment securities available-for-sale.............. 18,229 19,353
Residual interest in securitizations, held-for-
trading.............................................. 10,202 9,936
Loan receivables:
Finance receivables................................. 205,545 95,711
Commercial Mortgages held-for-investment............ 57,861 62,790
CMO collateral...................................... 4,018 4,255
Allowance for loan losses........................... (612) (564)
--------- ---------
Net loan receivables.............................. 266,812 162,192
Due from affiliates................................... 27,876 1,592
Premises and equipment, net........................... 3,876 3,857
Investment in Impac Commercial Capital Corporation.... 3,728 4,182
Accrued interest receivable........................... 1,667 1,361
Other assets.......................................... 437 458
--------- ---------
$ 355,789 $ 218,839
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse line agreements............................. $ 229,762 $ 90,374
Reverse repurchase agreements......................... 9,447 9,841
Due to affiliates..................................... 7,369 8,067
CMO borrowings........................................ 3,946 4,176
Other liabilities..................................... 276 3,139
--------- ---------
Total liabilities................................. 250,800 115,597
--------- ---------
Stockholders' Equity:
Preferred Stock; $.01 par value; 6,000,000 shares
authorized; no shares issued and outstanding at
March 31, 1998 (unaudited) and December 31, 1997... -- --
Convertible Class A Preferred Stock; $.01 par value;
4,000,000 shares authorized; no shares issued and
outstanding at March 31, 1998 (unaudited) and
December 31, 1997.................................. -- --
Common Stock; $.01 par value; 46,000,000 shares
authorized; 7,344,789 shares issued and outstanding
at March 31, 1998 (unaudited) and December 31,
1997............................................... 73 73
Class A Common Stock; $.01 par value; 4,000,000
shares authorized; 674,211 shares issued and
outstanding at March 31, 1998 (unaudited) and
December 31, 1997.................................. 7 7
Additional paid-in-capital.......................... 104,761 104,761
Investment securities valuation allowance........... (590) (160)
Cumulative dividends declared....................... (4,250) (4,250)
Retained earnings................................... 4,988 2,811
--------- ---------
Total stockholders' equity........................ 104,989 103,242
--------- ---------
Commitments and contingencies
$ 355,789 $ 218,839
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS)

<TABLE>
<CAPTION>
CLASS A INVESTMENT
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL SECURITIES CUMULATIVE TOTAL
----------------- -------------- ------------- PAID-IN VALUATION DIVIDENDS RETAINED STOCKHOLDERS'
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR CAPITAL ALLOWANCE DECLARED EARNINGS EQUITY
-------- ------- ------ ------ ------ ------ ---------- ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
15, 1997
(commencement of
operations)...... -- $ -- -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Sale of Common
Stock to IMH and
certain officers
and directors of
the Company...... 599 6 -- -- 2,697 -- -- -- 2,703
Conversion of
promissory notes
to Preferred
Stock............ 3,000 30 -- -- -- -- 14,970 -- -- -- 15,000
Cumulative
dividends
declared......... -- -- -- -- -- -- -- -- (4,250) -- (4,250)
Net proceeds from
public stock
offering......... -- -- 6,325 63 -- -- 86,961 -- -- -- 87,024
Class A Common
Stock issued to
IMH for ICCC
Preferred Stock.. -- -- -- -- 95 1 113 -- -- -- 114
Conversion of ICH
Preferred Stock
to Class A Common
Stock............ (3,000) (30) 720 7 280 3 20 -- -- -- --
Conversion of ICH
Common Stock to
Class A Common
Stock............ -- -- (299) (3) 299 3 -- -- -- -- --
Securities
valuation
allowance, net... -- -- -- -- -- -- -- (160) -- -- (160)
Net earnings from
January 15, 1997
(commencement of
operations)
through December
31, 1997......... -- -- -- -- -- -- -- -- -- 2,811
-------- ------- ----- ----- --- ----- -------- ----- ------- ------ --------
Balance, December
31, 1997......... -- -- 7,345 73 674 7 104,761 (160) (4,250) 2,811 103,242
-------- ------- ----- ----- --- ----- -------- ----- ------- ------ --------
Securities
valuation
allowance, net
(unaudited)...... -- -- -- -- -- -- -- (430) -- -- (430)
Net earnings for
the three months
ended March 31,
1998 (unaudited)
................. -- -- -- -- -- -- -- -- -- 2,177 2,177
-------- ------- ----- ----- --- ----- -------- ----- ------- ------ --------
Balance, March
31, 1998
(unaudited)...... -- $ -- 7,345 $ 73 674 $ 7 $104,761 $(590) $(4,250) $4,988 $104,989
======== ======= ===== ===== === ===== ======== ===== ======= ====== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JANUARY 15, 1997 JANUARY 15, 1997
FOR THE THREE (COMMENCEMENT OF (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH OPERATIONS) THROUGH
MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997
-------------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net earnings (loss)... 2,177 $ (2,686) $ 2,811
Adjustments to
reconcile net
earnings (loss) to
net cash provided by
operating activities:
Equity in net earnings
of Impac Commercial
Capital Corporation.. 454 -- (1,694)
Stock compensation
expense.............. -- 2,697 2,697
Provision for loan
losses............... 48 13 564
Depreciation.......... 49 -- 65
Net change in accrued
interest on
receivables.......... (306) (128) (1,361)
Net change in other
assets and
liabilities.......... 205 109 (366)
Net change in due from
affiliates and due to
affiliates........... (26,982) -- 6,475
-------- -------- --------
Net cash provided by
(used in) operating
activities.......... (24,355) 5 9,191
-------- -------- --------
Cash flows from invest-
ing activities:
Net change in
Commercial Mortgages
held-for-investment.. 4,929 (17,535) (62,790)
Net change in finance
receivables.......... (109,834) -- (95,711)
Net change in CMO
collateral........... 237 -- (4,255)
Purchase of investment
securities available-
for-sale............. -- -- (20,202)
Principal reductions
on investment
securities available-
for-sale............. 694 -- 689
Purchase of residual
interest in
securitizations...... -- (10,098) (10,098)
Principal reductions
on residual interest
in securitizations... (266) 73 162
Purchase of premises
and equipment........ 68 -- (3,922)
Contribution to Impac
Commercial Capital
Corporation.......... -- -- (2,375)
-------- -------- --------
Net cash used in
investing
activities.......... (104,308) (27,560) (198,502)
-------- -------- --------
Cash flows from financ-
ing activities:
Net change in
warehouse line and
reverse repurchase
agreements........... 138,994 16,563 100,215
Net change in other
affiliated
borrowings........... -- 386 --
Net change in CMO
borrowings........... (230) -- 4,176
Issuance of Common
Stock................ -- 6 87,024
Issuance of promissory
notes................ -- 15,000 15,000
Issuance of Class A
Common Stock......... -- -- 7
Dividends paid........ (3,047) -- (1,203)
-------- -------- --------
Net cash provided by
financing
activities.......... 135,717 31,955 205,219
-------- -------- --------
Net change in cash and
cash equivalents...... 7,054 4,400 15,908
Cash and cash equiva-
lents at beginning of
period................ 15,908 -- --
-------- -------- --------
Cash and cash equiva-
lents at end of peri-
od.................... $ 22,962 $ 4,400 $ 15,908
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)

(DOLLAR AMOUNTS IN THOUSANDS)

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE FINANCIAL INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
IS UNAUDITED.

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Impac Commercial Holdings, Inc. (ICH or the Company), a newly formed
Maryland corporation, commenced operations in January 1997 as a separate
division of Impac Mortgage Holdings, Inc. (IMH). ICH changed its name to IMH
Commercial Holdings, Inc. on June 30, 1997 and on January 28, 1998 the Company
changed its name to Impac Commercial Holdings, Inc. The Company operates as a
specialty commercial property finance company which elects to be taxed as a
real estate investment trust (REIT) for Federal income tax purposes, which
generally allows the Company to pass through income to stockholders without
payment of corporate level Federal income tax.

The Company and Impac Commercial Capital Corporation (ICCC), the Company's
unconsolidated conduit operations vehicle, were formed for the purpose of
originating, purchasing and securitizing or selling commercial mortgages and
investing in commercial mortgages and commercial mortgage-backed securities
(CMBSs). Commercial Mortgage assets include mortgage loans on condo-
conversions, mortgage loans on commercial property, such as industrial and
warehouse properties, office buildings, retail space and shopping malls,
hotels and motels, nursing homes, hospitals, multifamily, congregate care
facilities and senior living centers (collectively, Commercial Mortgages).

ORGANIZATIONAL TRANSACTIONS AND CONTRIBUTION TRANSACTION

On February 3, 1997, certain officers and directors of the Company, as a
group, and IMH purchased 300,000 and 299,000 shares of common stock of ICH
("ICH Common Stock"), respectively. In addition, IMH purchased all of the non-
voting preferred stock of ICCC, which has a coupon which represents 95% of
generally accepted accounting principles (GAAP) based economic interest in
ICCC entitling the holder to receive 95% of any dividend or distribution made
by ICCC, for $500,000. Certain of the Company's officers purchased all of the
outstanding shares of common stock of ICCC, which represents 5% of GAAP based
economic interest in ICCC entitling the holder to receive 5% of any dividend
or distribution of ICCC. In addition, ICCC brokered the Company's purchase of
$7.3 million and $10.2 million of condominium conversion loans which were
financed with $16.6 million in borrowings from Impac Warehouse Lending Group,
Inc. (IWLG), formerly Imperial Warehouse Lending Group, Inc., a subsidiary of
IMH, under a warehouse lending facility and $900,000 in other borrowings from
IMH. All of such condominium conversion loans were purchased from Impac
Funding Corporation (IFC), formerly ICI Funding Corporation, the conduit
operations of IMH, and $7.3 million of such mortgage loans were originated by
a company with which William D. Endresen, an officer of the Company and ICCC,
was an affiliate.

In March 1997, IMH loaned ICH $15.0 million evidenced by a promissory note
bearing interest at the rate of 8% per annum which was convertible into shares
of non-voting convertible preferred stock of ICH (the "ICH Preferred Stock")
at the rate of one share of ICH Preferred Stock for each $5.00 principal
amount of said note (the "Conversion Rate"). IMH converted the aforementioned
$15.0 million principal amount promissory note into an aggregate of 3,000,000
shares of ICH Preferred Stock. All ICH Preferred Stock was automatically
converted upon the closing of ICH's initial public offering (IPO) into shares
of ICH Common Stock determined by multiplying the number of shares of ICH
Preferred Stock to be converted by a fraction, the numerator of which is $5.00
and the denominator of which was $15.00. Notwithstanding the foregoing,
consistent with IMH's classification as a REIT, IMH is not entitled to have
converted into ICH Common Stock more than that number of shares of ICH
Preferred Stock whereby IMH would own, immediately after such conversion,
greater than 9.8% of the outstanding ICH Common Stock. Shares of ICH Class A
Stock convert into shares of ICH Common Stock on a one-for-one basis and each
such class of ICH Common Stock is entitled to cash dividends on a pro rata
basis. Upon any subsequent issuances of ICH Common Stock or sales of ICH
Common Stock held by

F-8
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

IMH, shares of ICH Class A Stock shall automatically convert into additional
shares of ICH Common Stock, subject to said 9.8% limitation.

In April 1997, IMH exchanged the 299,000 shares of ICH Common Stock held by
it for an equal number of shares of ICH Class A Common Stock.

Upon the closing of the IPO in August 1997, IMH contributed to ICH (the
Contribution) 100% of the outstanding shares of non-voting preferred stock of
ICCC in exchange for 95,000 shares of ICH Class A Stock. As of March 31, 1998,
IMH owned 719,789 shares of ICH Common Stock and 674,211 shares of ICH Class A
Common Stock.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The operations of ICH have been presented in the consolidated financial
statements for the three months ended March 31, 1998, the period from January
15, 1997 (commencement of operations) through December 31, 1997 and the period
from January 15, 1997 (commencement of operations) through March 31, 1997 and
include the financial results of ICH as a stand-alone entity, the financial
results of ICH's equity interest in net earnings in ICCC as a stand-alone
entity, subsequent to the Contribution, and the financial results of Dove for
the period from August 25, 1997 through December 31, 1997. Costs and expenses
of IMH have been allocated to ICH in proportion to services provided, plus a
15% service charge.

The Company is entitled to 95% of the earnings or losses of ICCC through its
ownership of all of the non-voting preferred stock of ICCC. As such, the
Company records its investment in ICCC using the equity method. Under this
method, original investments are recorded at cost and adjusted by the
Company's share of earnings or losses. Gain or loss on the sale of loans or
securities by ICCC to ICH are deferred and amortized or accreted for gain or
loss on sale over the estimated life of the loans or securities using the
interest method.

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.

All significant intercompany balances and transactions with ICH's
consolidated subsidiary (Dove) have been eliminated in consolidation.

INCOME TAXES

ICH operates so as to qualify as a real estate investment trust (REIT) under
the requirements of the Internal Revenue Code (the Code). Requirements for
qualification as a REIT include various restrictions on ownership of ICH's
stock, requirements concerning distribution of taxable income and certain
restrictions on the nature of assets and sources of income. A REIT must
distribute at least 95% of its taxable income to its stockholders, the
distribution of which 85% must be distributed within the taxable year in order
to avoid the imposition of an excise tax and the remaining balance may extend
until timely filing of its tax return in its subsequent taxable year.
Qualifying distributions of its taxable income are deductible by a REIT in
computing its taxable income. If in any tax year ICH should not qualify as a
REIT, it would be taxed as a corporation and distributions to the stockholders
would not be deductible in computing taxable income. If ICH were to fail to
qualify as a REIT in any tax year, it would not be permitted to qualify for
that year and the succeeding four years. In any year in which the Company
qualifies as a REIT, it generally will not be subject to Federal income tax on
that portion of its taxable income or net capital gain that is distributed to
its stockholders. The Company will, however, be subject to tax at normal
corporate rates upon any net income or net capital gain not distributed. The
Company intends to distribute substantially all of its taxable income to its
stockholders on a pro rata basis in each year.

F-9
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NET EARNINGS PER SHARE

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). This
statement replaces the previously reported primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings
per share, basic earnings per share excludes any diluted effects of stock
options. Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share.

Net earnings per share is computed on the basis of the weighted average
number of shares and common equivalent shares outstanding for the period.
Basic and dilutive earnings per share are approximately the same for each
period presented. Of the dividends paid during 1997, approximately $504,000
represented a tax-free return of capital.

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
FOR THE THREE (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
NUMERATOR:
Numerator for basic earnings per share--
Net earnings ........................... $ 2,177 $ 2,811
======= =======
DENOMINATOR:
Denominator for basic earnings per share--
Weighted average number of common shares
outstanding during the period.......... 8,019 4,631
Net effect of dilutive stock options.... 36 14
------- -------
Denominator for diluted earnings per
share.................................... 8,055 4,645
======= =======
Net earnings per share--basic............. $ 0.27 $ 0.61
======= =======
Net earnings per share--diluted........... $ 0.27 $ 0.61
======= =======
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive
Income" (SFAS No. 130) and "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131), respectively (collectively, the
Statements). The Statements are effective for fiscal years beginning after
December 15, 1997. SFAS No. 130 established standards for reporting of
comprehensive income and its components in annual financial statements. SFAS
No. 131 establishes standards for reporting financial and descriptive
information about an enterprise's operating segments in its annual financial
statements and selected segment information in interim financial reports.
Reclassification or restatement of comparative financial statements or
financial information for earlier periods is required upon adoption of SFAS
No. 130 and SFAS No. 131, respectively. Application of the Statements'
requirements is not expected to have a material impact on the Company's
disclosures.

F-10
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

REPORTING COMPREHENSIVE INCOME

Comprehensive Income. In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("Statement 130"). Statement 130 establishes standards
for reporting and display of comprehensive income and its components in the
financial statements.

The FASB defines comprehensive income as "the change in equity of a business
enterprise during the period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during
a period except those resulting from investment by owners and distributions to
owners."

Comprehensive income adjustments for the three months ended March 31, 1998
and the period from January 15, 1997 (commencement of operations) through
March 31, 1997 were ($430,000) and none, respectively, and were related to the
unrealized losses on investment securities available-for-sale, net.

2. CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, cash and cash equivalents
consist of cash and money market mutual funds. The Company considers
investments with maturities of three months or less at date of purchase to be
cash equivalents.

3. INVESTMENT IN IMPAC COMMERCIAL CAPITAL CORPORATION

The Company records its investment in ICCC on the equity method. Certain
officers and directors of the Company and ICCC own all of the common stock of
ICCC and are entitled to 5% of the earnings or loss of ICCC. The Company is
entitled to 95% of the earnings or losses of ICCC through its ownership of all
of the non-voting preferred stock in ICCC. ICCC is a commercial loan conduit
organization, which purchases mortgage loans and subsequently securitizes or
sells such loans to permanent investors, including ICH. Gain or loss on the
sale of loans or securities by ICCC to ICH are deferred and amortized or
accreted for gain or loss on sale over the estimated life of the loans or
securities using the interest method.

4. INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The Company classifies CMBSs as held-to-maturity, available-for-sale, and/or
trading securities. Held-to-maturity securities are reported at amortized
cost, available-for-sale securities are reported at fair value with unrealized
gains and losses as a separate component of stockholders' equity, and trading
securities are reported at fair value with unrealized gains and losses
reported in income. The Company's investment securities are held as available-
for-sale, reported at fair value with unrealized gains and losses reported as
a separate component of stockholders' equity. As the Company qualifies as a
REIT and no income taxes are paid, the unrealized gains and losses are
reported gross in stockholders' equity. Premiums or discounts obtained on
investment securities are accreted or amortized to interest income over the
estimated life of the investment securities using the interest method. The
Company's investment securities may subject the Company to credit, interest
rate and/or prepayment risk.

F-11
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The amortized cost and estimated fair value of investment securities
available-for-sale at March 31, 1998 and December 31, 1997 are summarized as
follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At March 31, 1998 (unaudited):
Commercial mortgage-backed
securities....................... $ 6,435 $ -- $ 178 $ 6,257
Interest only securities.......... 12,384 -- 412 11,972
-------- ---- ----- --------
Total investment securities
available-for-sale............. $ 18,819 $ -- $ 590 $ 18,229
======== ==== ===== ========
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAIN LOSS FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1997:
Commercial mortgage-backed
securities....................... $ 6,363 $ -- $ -- $ 6,363
Interest only securities.......... 13,150 -- 160 12,990
-------- ---- ----- --------
Total investment securities
available-for-sale............. $ 19,513 $ -- $ 160 $ 19,353
======== ==== ===== ========
</TABLE>

5. RESIDUAL INTEREST IN SECURITIZATION, HELD-FOR-TRADING

The accompanying balance sheets include one residual interest in
securitization (residual) of real estate mortgage investment conduit (REMIC)
which was recorded as a result of a 1995 securitization by Imperial Credit
Industries, Inc. (ICII) of commercial loans through a special purpose trust
vehicle. ICII has one director who also serves on the Board of ICH. ICH
purchased the residual in March 1997 from IFC for $10.1 million. As of March
31, 1998 and December 31, 1997, the carrying amount of the residual was $10.2
million and $9.9 million, respectively.

IFC and ICH have estimated future cash flows from the residual utilizing
assumptions that they believe are commensurate with the risk inherent in the
investment and consistent with those that they believe would be utilized by an
unaffiliated third-party purchaser and discounted at a rate commensurate with
the risk involved. The Company has classified this residual as a held-for-
trading security. Unrealized gains and losses net of related income taxes will
be recognized as a reduction to current operations. To the Company's
knowledge, there is currently no active market for the purchase or sale of
this residual.

The fair value of the residual is determined by computing the present value
of the excess of the weighted-average coupon on the Commercial Mortgages sold
(10.6%) over the sum of: (1) the coupon on the senior interest (5.9%), (2) a
base servicing fee paid to servicer of the Commercial Mortgages (0.50%) and
other fees, (3) expected estimated losses (0.40%) to be incurred on the
portfolio of Commercial Mortgages sold over the estimated lives of the
Commercial Mortgages and using an estimated future prepayment assumption
(10%). The prepayment assumptions used in estimating the cash flows is based
on recent evaluations of the actual prepayments of the related portfolio and
on market prepayment rates on new portfolios of similar Commercial Mortgages,
taking into consideration the current interest rate environment and its
expected impact on the estimated future prepayment rate. The estimated cash
flows expected to be received by the Company are discounted at an interest
rate that the Company believes an unaffiliated third-party purchaser would
require as a rate of return commensurate with the risk of holding such a
financial instrument. At December 31, 1997, the rate used to discount the cash
flows coming out of the trust was approximately 16.6%. To the extent that
actual future excess cash flows are different from estimated excess cash
flows, the fair value of the Company's residual could decline.

F-12
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Under the terms of the securitization, the residual is required to build
overcollateralization to specified levels using the excess cash flows
described above until set percentages of the securitized portfolio are
attained. Future cash flows to the residual holder are all held by the REMIC
trust until a specific percentage of either the original or current
certificate balance is attained which percentage can be raised if certain
charge-offs and delinquency ratios are exceeded. The certificate holders'
recourse for credit losses is limited to the amount of overcollateralization
held by the residual in the REMIC trust. Upon maturity of the certificates or
upon exercise of an option ("clean up call") to repurchase all the remaining
Commercial Mortgages once the balance of the Commercial Mortgages in the trust
are reduced to 10% of a specified balance of the original Commercial Mortgages
in the trust, any remaining amounts in the trust are distributed. The current
amount of any overcollateralization balance held by the trust are recorded as
part of the residual.

6. COMMERCIAL MORTGAGES HELD FOR INVESTMENT AND COLLATERALIZED MORTGAGE
OBLIGATIONS (CMO) COLLATERAL

The Company purchases Commercial Mortgages to be held as long-term
investments or as CMO collateral. Commercial Mortgages held for investment and
CMO collateral are recorded at cost at the date of purchase. Commercial
Mortgages held for investment and CMO collateral include various types of
adjustable-rate loans secured by commercial mortgages on real property and
adjustable rate loans to developers secured by first liens on converted
condominium complexes. As of March 31, 1998 and December 31, 1997, Commercial
Mortgages held as long-term investments were $57.9 million and $62.8 million,
respectively, which include premiums of $102,000 and $111,000, respectively.

Premiums and discounts related to these Commercial Mortgages are amortized
over their estimated lives using the interest method. Commercial Mortgages are
continually evaluated for collectibility and, if appropriate, the Commercial
Mortgages may be placed on nonaccrual status, generally when the mortgage is
90 days past due, and previously accrued interest reversed from income. Other
than temporary impairment in the carrying value of Commercial Mortgages held
for investment, if any, will be recognized as a reduction to current
operations.

7. FINANCE RECEIVABLES

Finance receivables represent transactions with ICCC involving commercial
real estate lending. The Company earns interest at prime (8.5% at December 31,
1997) on the warehouse line agreements. The maximum available on ICCC's
warehouse line agreements as of March 31, 1998 and December 31, 1997 was
$900.0 million. As of March 31, 1998 and December 31, 1997, the balance of
outstanding finance receivables to ICCC was $205.5 million and $95.7 million,
respectively.

As a warehouse lender, the Company is a secured creditor and is subject to
the risks inherent in that status including, the risk of borrower default and
bankruptcy. Any claim of the Company as a secured lender in a bankruptcy
proceeding may be subject to adjustment and delay. The Company's finance
receivables represent warehouse lines of credit with ICCC collateralized by
Commercial Mortgages on commercial real property. Finance receivables are
stated at the principal balance outstanding. Interest income is recorded on
the accrual basis in accordance with the terms of the loans. Finance
receivables are continually evaluated for collectibility and, if appropriate,
the receivable is placed on non-accrual status, generally when the receivable
is 90 days past due. Future collections of interest income are included in
interest income or applied to the loan balance based on an assessment of the
likelihood that the loans will be repaid.

8. ALLOWANCE FOR LOAN LOSSES

The Company maintains an allowance for losses on Commercial Mortgages held
for investment, collateral for CMOs and finance receivables at an amount which
it believes is sufficient to provide adequate protection

F-13
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

against future losses in the Commercial Mortgage portfolio. The allowance for
losses is determined primarily on the basis of management's judgment of net
loss potential, including specific allowances for known impaired loans and
other factors such as changes in the nature and volume of the portfolio, value
of the collateral and current economic conditions that may affect the
borrowers ability to pay. A provision is recorded for all loans or portions
thereof deemed to be uncollectible thereby increasing the allowance for loan
losses. Subsequent recoveries on Commercial Mortgages previously charged off
are credited back to the allowance.

Activity in the allowance for loan losses was as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
FOR THE THREE (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
Balance, beginning of period................. $ 564 $ --
Provision for loan losses.................... 48 564
Charge-offs.................................. -- --
----- -----
Balance, end of period....................... $ 612 $ 564
===== =====
</TABLE>

9. PREMISES AND EQUIPMENT, NET

Premises and equipment are stated at cost, less accumulated depreciation or
amortization. Depreciation on premises and equipment is recorded using the
straight-line method over the estimated useful lives of individual assets
(three to seven years).

Premises and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Premises and equipment................................. $ 3,990 $ 3,922
Less accumulated depreciation.......................... (114) (65)
------- -------
$ 3,876 $ 3,857
======= =======
</TABLE>

10. CMO BORROWINGS

The Company issues CMOs, which are secured by Commercial Mortgages as a
means of financing its Long-Term Investment Operations. For accounting and tax
purposes, Commercial Mortgages financed through the issuance of CMOs are
treated as assets of the Company and the CMOs are treated as debt of the
Company. Each issue of CMOs are fully payable from the principal and interest
payments on the underlying mortgage loans collateralizing such debt and any
investment income on such collateral. The maturity of each class of CMO is
directly affected by the rate of principal prepayments on the related CMO
collateral. Each CMO series is also subject to redemption according to
specific terms of the respective indentures. As a result, the actual maturity
of any class of a CMO series is likely to occur earlier than the stated
maturities of the underlying mortgage loans.

F-14
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table sets forth CMOs issued by the Company, CMOs outstanding
as of March 31, 1998, and certain interest rate information:

<TABLE>
<CAPTION>
INTEREST RATE INTEREST RATE INTEREST RATE
MARGIN OVER MARGIN MARGIN AFTER
ISSUE ISSUANCE CMOS ONE-MONTH ADJUSTMENT ADJUSTMENT
DATE ISSUANCE NAME AMOUNT OUTSTANDING LIBOR DATE DATE
----- ------------- -------- ----------- ------------- ------------- -------------
(IN MILLIONS)
<C> <S> <C> <C> <C> <C> <C>
12/10/97 Imperial CMB
Trust Series 1997-2.. $ 4.2 $ 3.9 0.26-1.30% 1/2005 0.52-2.60%
</TABLE>

11. WAREHOUSE LINE AGREEMENTS

ICH entered into warehouse line agreements, one of which expires in May 1999
and the other expires in February 1999 (unless terminated earlier), with two
investment banking firms to provide financing to an aggregate maximum of
$600.0 million to fund the purchase of Commercial Mortgages and CMBSs. Terms
of the warehouse line agreements require that the Commercial Mortgages be held
by an independent third party custodian, which gives the Company the ability
to borrow against the collateral as a percentage of the fair market value of
the Commercial Mortgages. The borrowing rates are expressed in basis points
plus one-month LIBOR or Eurodollar Rate. The margins on the warehouse line
agreements are based on the type of mortgage collateral used and the loan
amounts generally range from 75% to 92% of the fair market value of the
collateral.

The following tables set forth information regarding warehouse line
agreements as of March 31, 1998 and December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
AT MARCH 31, 1998
----------------------------------------
WAREHOUSE
TYPE OF LINE UNDERLYING MATURITY
COLLATERAL LIABILITY COLLATERAL DATE
---------- --------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Lender 1............................... Mortgages $ 132,546 $ 159,682 2/1/99
Lender 2............................... Mortgages 97,216 111,922 4/15/98
--------- ---------
Total warehouse line agreements and
collateral........................... $ 229,762 $ 271,604
========= =========
<CAPTION>
AT DECEMBER 31, 1997
----------------------------------------
WAREHOUSE
TYPE OF LINE UNDERLYING MATURITY
COLLATERAL LIABILITY COLLATERAL DATE
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Lender 1............................... Mortgages $ 81,845 $ 98,750 2/1/99
Lender 2............................... Mortgages 8,529 9,458 4/15/98
--------- ---------
Total warehouse line agreements and
collateral.......................... $ 90,374 $ 108,208
========= =========
</TABLE>

At March 31, 1998 and December 31, 1997, warehouse line agreements include
accrued interest payable of $1.0 million and $309,000, respectively.

F-15
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table presents certain information on warehouse line
agreements, excluding accrued interest payable (dollars in thousands):

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
FOR THE THREE (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -------------------
(UNAUDITED)
<S> <C> <C>
Maximum Month-End Outstanding Balance....... $ 229,762 $ 90,374
Average Balance Outstanding................. 130,512 20,447
Weighted Average Rate....................... 6.67% 6.82%
</TABLE>

12. REVERSE REPURCHASE AGREEMENTS

ICH entered into reverse repurchase agreements whereby ICH pledged specific
CMBSs as collateral to secure short-term loans. Interest is payable upon the
maturity of the loans. The interest rates on the loans are based on one-month
LIBOR plus a margin depending on the type of collateral provided by the
Company.

The following table sets forth information regarding reverse repurchase
agreements at March 31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-----------------------------------------
REVERSE
TYPE OF REPURCHASE UNDERLYING MATURITY
COLLATERAL LIABILITY COLLATERAL DATE
---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Lender 1............................. Securities $ 5,884 $ 6,925 4/28/98
Lender 2............................. Securities 2,768 4,238 5/4/98
Lender 3............................. Securities 795 810 4/28/98
------- --------
Total reverse repurchase agreements
and collateral.................... $ 9,447 $ 11,973
======= ========
<CAPTION>
AT DECEMBER 31, 1997
-----------------------------------------
REVERSE
TYPE OF REPURCHASE UNDERLYING MATURITY
COLLATERAL LIABILITY COLLATERAL DATE
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Lender 1............................. Securities $ 6,185 $ 7,137 1/21/98
Lender 2............................. Securities 831 1,037 1/2/98
Lender 3............................. Securities 2,825 4,708 1/30/98
------- --------
Total reverse repurchase agreements
and collateral.................... $ 9,841 $ 12,882
======= ========
</TABLE>

At March 31, 1998 and December 31, 1997, reverse repurchase agreements
included accrued interest payable of $20,000 and $48,000, respectively.

F-16
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments have been determined by
ICH using available market information and appropriate valuation
methodologies; however, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts ICH
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 15,908 $ 15,908
Investment securities available-for-sale............ 19,353 19,353
Residual interest in securitization, held-for-trad-
ing................................................ 9,936 9,936
Commercial Mortgages held-for-investment............ 62,790 62,867
Finance receivables................................. 95,711 95,711
CMO collateral...................................... 4,255 4,298
Due from affiliates................................. 1,592 1,592

LIABILITIES
Warehouse line agreements........................... 90,374 90,374
Reverse repurchase agreements....................... 9,841 9,841
Due to affiliates................................... 8,067 8,067
CMO borrowings...................................... 4,176 4,176
Short-term commitments to extend credit............. -- --
</TABLE>

The fair value estimates as of March 31, 1998 and December 31, 1997 are
based on pertinent information available to management as of that date.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these consolidated financial
statements since those dates and, therefore, current estimates of fair value
may differ significantly from the amounts presented herein.

The following describes the methods and assumptions used by ICH in
estimating fair values.

CASH AND CASH EQUIVALENTS

Fair value approximates carrying amount as these instruments are demand
deposits and money market mutual funds and do not present unanticipated
interest rate or credit concerns.

INVESTMENT SECURITIES AVAILABLE-FOR-SALE

Fair value is estimated based on quoted market prices from dealers and
brokers for similar types of mortgage-backed securities.

RESIDUAL INTEREST IN SECURITIZATION, HELD-FOR-TRADING

Fair value approximates carrying amount as the fair value was estimated by
discounting future cash flows using rates that the Company believes are
commensurate with the risk inherent in these investments, and consistent with
those that the Company believes would be utilized by an unaffiliated third
party for financial instruments with similar terms and remaining maturities.

F-17
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

COMMERCIAL MORTGAGES HELD-FOR-INVESTMENT

Fair value is determined based upon the Company's estimate of the proceeds
which would be realized in a securitized sale of the loans.

FINANCE RECEIVABLES

Fair value is determined based upon current market conditions and estimated
interest rates associated with similar financial instruments.

CMO COLLATERAL

Fair value is estimated based on quoted market prices from dealers and
brokers for similar types of mortgage loans.

DUE FROM / TO AFFILIATES

Fair value approximates carrying amount because of the short-term maturity
of the liabilities and do not present unanticipated interest rate or credit
concerns.

WAREHOUSE LINE AGREEMENTS

Fair value approximates carrying amount because of the short-term maturity
of the liabilities and do not present unanticipated interest rate or credit
concerns.

REVERSE REPURCHASE AGREEMENTS

Fair value approximates carrying amount because of the short-term maturity
of the liabilities and do not present unanticipated interest rate or credit
concerns.

CMO BORROWINGS

Fair values approximate carrying amount because of the variable interest
rate nature of the borrowings.

SHORT-TERM COMMITMENTS TO EXTEND CREDIT

The Company does not collect fees associated with its warehouse lines of
credit. Accordingly, these commitments do not have an estimated fair value.

14. RELATED PARTY TRANSACTIONS

CREDIT ARRANGEMENTS

During 1997, ICH maintained a warehouse financing facility with IWLG until
ICH obtained warehouse financing facilities with third-party lenders. In
February 1997, the warehouse financing facility was used to finance ICH's
purchase of $17.5 million of Commercial Mortgages from IFC with $16.6 million in
borrowings from IWLG. The interest rate on the warehouse financing facilities
were at the prime rate. For the period from January 15, 1997 (commencement of
operations) through March 31, 1997 and for the period from January 15, 1997
(commencement of operations) through December 31, 1997, ICH recorded interest
expense of $150,000 and $453,000, respectively, on the borrowings from IWLG.

In conjunction with the purchase of $17.5 million of Commercial Mortgages
from IFC, ICH borrowed $900,000 in short-term advances from IMH at an interest
rate of 8.00% per annum. In March 1997, ICH repaid the $900,000 in other
borrowings from IMH. Interest expense recorded by ICH related to other
borrowings with IMH for the period from January 15, 1997 (commencement of
operations) through March 31, 1997 was $53,000.

F-18
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In March 1997, ICH purchased a residual interest in securitization for $10.1
million from IFC which was financed by a promissory note with ICII. The
promissory note was repaid in March 1997 with cash from IMH's $15.0 million
investment.

In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby ICH agreed to advance to IMH up to maximum amount of $15.0 million.
The agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are at an interest rate and maturity to be determined at the time
of each advance with interest and principal paid monthly. As of March 31, 1998
and December 31, 1997, there were no outstanding balances under the credit
arrangement. Interest income recorded by ICH for the three months ended March
31, 1998 and for the period from January 15, 1997 (commencement of operations)
through December 31, 1997 related to such advances to IMH was approximately
$55,000 and $68,000, respectively.

In August 1997, ICH entered into a revolving credit arrangement with IMH
whereby IMH agreed to advance to ICH up to maximum amount of $15.0 million.
The agreement expires on August 8, 1998. Advances under the revolving credit
arrangement are at an interest rate and maturity to be determined at the time
of each advance with interest and principal paid monthly. As of March 31, 1998
and December 31, 1997, ICH's outstanding borrowings under the credit
arrangement was none and $9.1 million, respectively. Interest expense recorded
by ICH for the three months ended March 31, 1998 and for the period from
January 15, 1997 (commencement of operations) through December 31, 1997
related to such borrowings from IMH was approximately $43,000 and $55,000,
respectively.

In October 1997, ICH entered into a revolving credit arrangement with IFC
whereby ICH would advance to IFC up to a maximum amount of $15.0 million.
Advances under the revolving credit arrangement are at an interest rate and
maturity to be determined at the time of each advance with interest and
principal paid monthly. The revolving credit arrangement expired in December
1997 and as of December 31, 1997 there were no amounts outstanding.

ICCC maintains a warehouse financing facility with ICH up to a maximum
aggregate amount of $900.0 million. Advances under such warehouse facilities
bear interest at rates indexed to prime, which was 8.50% at March 31, 1998 and
December 31, 1997. As of March 31, 1998 and December 31, 1997, amounts
outstanding on ICCC's warehouse line agreements with ICH were $205.5 million
and $95.7 million, respectively. Interest income recorded by ICH related to
warehouse line agreements to ICCC for the three months ended March 31, 1998
and for the for period from January 15, 1997 (commencement of operations)
through December 31, 1997 was $2.5 million and $2.4 million, respectively.

During the normal course of business, ICH may advance or borrow funds on a
short-term basis with affiliated companies. Advances to affiliates are
reflected as "Due From Affiliates" while borrowings are reflected as "Due To
Affiliates" on the Company's balance sheet. These short-term advances and
borrowings bear interest at a fixed rate of 8.00% per annum. Interest income
recorded by ICH for the three months ended March 31, 1998 and for the period
from January 15, 1997 (commencement of operations) through December 31, 1997
related to short-term advances due from affiliates was $578,000 and $268,000,
respectively. Interest expense recorded by ICH for the three months ended March
31, 1998 and for the year ended December 31, 1997 related to short-term advances
due to affiliates was $288,000 and $45,000, respectively.

On December 31, 1997, the Company financed its 50% interest in a commercial
office building located in Newport Beach, California with a loan for $5.2
million from ICCC. Terms of the loan are for 25 years at an adjustable rate of
9.0% with current monthly principal and interest payments of $44,000. ICCC
received loan fees of $71,000 on the loan.

ORGANIZATIONAL TRANSACTIONS WITH IMH AND IFC

On February 3, 1997, certain officers and directors of the Company, as a
group, and IMH purchased 300,000 and 299,000 shares of common stock of ICH,
respectively. In addition, IMH purchased all of the non-voting

F-19
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

preferred stock of ICCC, which has a coupon which represents 95% of GAAP based
economic interest in ICCC entitling the holder to receive 95% of any dividend
or distribution made by ICCC, for $500,000. Certain of the Company's officers
purchased all of the outstanding shares of common stock of ICCC, which
represents 5% of GAAP based economic interest in ICCC entitling the holder to
receive 5% of any dividend or distribution of ICCC.

In March 1997, IMH loaned ICH $15.0 million evidenced by a promissory note
bearing interest at the rate of 8% per annum which was convertible into shares
of non-voting convertible preferred stock of ICH at the rate of one share of
ICH Preferred Stock for each $5.00 principal amount of said note. In addition,
IMH converted the aforementioned $15.0 million principal amount promissory
note into an aggregate of 3,000,000 shares of ICH Preferred Stock. All ICH
Preferred Stock was automatically converted upon the closing of ICH's IPO into
shares of ICH Common Stock determined by multiplying the number of shares of
ICH Preferred Stock to be converted by a fraction, the numerator of which is
$5.00 and the denominator which was $15.00. Notwithstanding the foregoing,
consistent with IMH's classification as a REIT, IMH is not entitled to have
converted into ICH Common Stock more than that number of shares of ICH
Preferred Stock whereby IMH would own, immediately after such conversion,
greater than 9.8% of the outstanding ICH Common Stock. Any shares of ICH
Preferred Stock not converted into ICH Common Stock upon the closing of the
IPO automatically converted into shares of ICH non-voting Class A Common Stock
at the same rate as the ICH Preferred Stock converted into ICH Common Stock on
said date. Shares of ICH Class A Common Stock converted into shares of ICH
Common Stock on a one-for-one basis and each such class of ICH Common Stock is
entitled to cash dividends on a pro rata basis. Upon any subsequent issuances
of ICH Common Stock or sales of ICH Common Stock held by IMH, shares of ICH
Class A Common Stock shall automatically convert into additional shares of ICH
Common Stock, subject to said 9.8% limitation.

In April 1997, IMH exchanged the 299,000 shares of ICH Common Stock held by
it for an equal number of shares of ICH Class A Common Stock.

Upon the closing of the IPO in August 1997, IMH contributed to ICH 100% of
the outstanding shares of non-voting preferred stock of ICCC in exchange for
95,000 shares of ICH Class A Stock. As of March 31, 1998, IMH owned 719,789
shares of ICH Common Stock and 674,211 shares of ICH Class A Stock.

CASH AND CASH EQUIVALENTS

As of March 31, 1998 and December 31, 1997, ICH had $18,000 and $12.5
million, respectively, of cash and cash equivalents on deposit with Southern
Pacific Bank ("SPB"), formerly Southern Pacific Thrift and Loan Association, a
subsidiary of ICII.

PURCHASE OF COMMERCIAL MORTGAGES

For the three months ended March 31, 1998 and for the period from January
15, 1997 (commencement of operations) through December 31, 1997, ICH purchased
$2.3 million and $58.5 million, respectively, of adjustable rate Commercial
Mortgages from ICCC at a net premium of $1,000 and $111,000, respectively.

STOCK COMPENSATION EXPENSE

Stock compensation expense of $2,697,000 recorded in March 1997 represents
the difference between the price at which ICH issued 300,000 shares of common
stock to directors and officers of IMH and ICH on February 3, 1997 ($.01 per
share) and the estimated fair value for financial reporting purposes of such
shares as determined by the Company's management, as of February 3, 1997
($9.00 per share).

F-20
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Fair value was based primarily on management's projection of the Company's
future cash flow and net income, as well as the lack of liquidity of the
shares at the date of issuance and the uncertainty of certain future events
regarding the development of the Company's business and organization structure
including, but not limited to, obtaining independent financing for the
organization and purchase of Commercial Mortgages, funding and closing
Commercial Loans, and developing a pipeline of future Commercial Loan
originations.

SUBMANAGEMENT AGREEMENT

IFC entered into a submanagement agreement with RAI under which, IMH and IFC
provides various services to ICH as RAI deems necessary, including facilities
and costs associated therewith, technology, human resources, management
information systems, general ledger accounts, check processing and accounts
payable, plus a 15% service charge. RAI charges ICH for these services based
upon usage which management believes is reasonable. Total cost allocations RAI
charged to ICH for the three months ended March 31, 1998 and for the period
from January 15, 1997 (commencement of operations) through December 31, 1997
were $111,000 and $525,000, respectively.

NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT

Pursuant to the Non-Compete Agreement executed on the date of the ICH IPO,
IMH will not acquire any commercial mortgages for a period of the earlier of
nine months from the closing of the ICH IPO or the date upon which ICH and/or
ICCC accumulates (for investment or sale) $300.0 million of Commercial
Mortgages or CMBSs. The non-compete agreement terminated in March 1998.

Pursuant to the Right of First Refusal Agreement by and among ICH, IMH, IFC,
ICCC and RAI, pursuant to which, in part, RAI will agree that any mortgage
loan or mortgage-backed security investment opportunity which is offered to it
on behalf of either ICH, IMH any affiliated REIT will first be offered to that
entity whose initial primary business as described in its initial public
offering documentation most closely aligns with such investment opportunity.

15. COMMITMENTS AND CONTINGENCIES

ICH is a party to financial instruments with off-balance-sheet risk in the
normal course of business. Such instruments include short-term commitments to
extend credit to borrowers under warehouse lines of credit which involve
elements of credit risk. In addition, ICH is exposed to credit loss in the
event of nonperformance by the counterparties to the various agreements
associated with loan purchases. However, ICH does not anticipate
nonperformance by such borrowers or counterparties. Unless noted otherwise,
ICH does not require collateral or other security to support such commitments.

The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
contract or notional amounts of forward contracts do not represent exposure to
credit loss. The Company controls the credit risk of its forward contracts
through credit approvals, limits and monitoring procedures.

In the ordinary course of business, ICCC is exposed to liability under
representations and warranties made to purchasers and insurers of mortgage
loans and the purchasers of servicing rights. Under certain circumstances,
ICCC is required to repurchase mortgage loans if there had been a breach of
representations or warranties. ICH has guaranteed the performance obligation
of ICCC under such representation and warranties related to loans included in
securitizations.

F-21
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

LEASE COMMITMENTS

ICH and ICCC, as tenants in common, lease approximately 18,000 square feet
of office space in Irvine, California, under a non-cancelable premises
operating lease for a term of 36 months expiring in November 2000. Minimum
premises rental commitments are as follows (in thousands):

<TABLE>
<S> <C>
1998............................................................. $ 511
1999............................................................. 511
2000............................................................. 468
------
Total lease commitments...................................... $1,490
======
</TABLE>

All rent expense associated with the lease is charged to ICCC as ICCC
employees occupy 100% of office space.

LOAN COMMITMENTS

ICH provides secured short-term non-recourse revolving financing to ICCC to
a maximum of $900.0 million to finance the acquisition of Commercial Mortgages
from the closing of the loans until sold to permanent investors. As of March
31, 1998 and December 31, 1997, ICH's outstanding balances on warehouse lines
to ICCC was $205.5 million and $95.7 million, respectively.

16. MANAGEMENT CONTRACT

As Manager of the Company, RAI, is entitled to receive for each fiscal
quarter, an amount equal to 25% of the Net Income of the Company, before
deduction of such compensation, in excess of the amount that would produce an
annualized Return on Equity equal to the daily average Ten Year U.S. Treasury
Rate plus 2% (the 25% Payment). The term "Return on Equity" is calculated for
any quarter by dividing the Company's Net Income for the quarter by its
Average Net Worth for the quarter. For such calculations, the "Net Income" of
the Company means the net income of the Company determined in accordance with
the Code before the Manager's compensation, the deduction for dividends paid
and any net operating loss deductions arising from losses in prior periods. A
deduction for all of the Company's interest expenses for borrowed money is
also taken in calculating Net Income. "Average Net Worth" for any period means
the arithmetic average of the sum of the gross proceeds from any offering of
its equity securities by the Company, before deducting any underwriting
discounts and commissions and other expenses and costs relating to the
offering, plus the Company's retained earnings less dividends declared
(without taking into account any losses incurred in prior periods) computed by
taking the daily average of such values during such period. The 25% Payment to
the Manager will be calculated quarterly in arrears before any income
distributions are made to stockholders for the corresponding period.

The Manager's fees will be calculated by the Manager within 60 days after
the end of each calendar quarter, with the exception of the fourth quarter for
which compensation will be computed within 30 days, and such calculation shall
be promptly delivered to the Company. The Company will be obligated to pay the
fee within 90 days after the end of each calendar quarter. For the three
months ended March 31, 1998, ICH accrued $162,000 in management fees. There
were no management fees paid to RAI during 1997.

In order to utilize the IMH infrastructure, RAI entered into a submanagement
agreement with IFC, the conduit operations of IMH, to provide substantially
all of the administrative services required by the Company including
facilities and costs associated therewith, technology, human resources,
management information systems, general ledger accounts, check processing and
accounts payable as RAI deems necessary. The Manager may also enter into
additional contracts with other parties, which may include IMH or its
affiliates, to provide any such services for the Manager, which third party
shall be approved by the Company's Board of Directors. RAI currently has a
total of four officers and three managers who participate in the oversight of
the Company's operations.

F-22
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

17. STOCK OPTION PLAN

The Company adopted a Stock Option and Awards Plan (the Stock Option and
Awards Plan) which provides for the grant of qualified incentive stock options
(ISOs), options not qualified (NQSOs) and deferred stock, restricted stock,
stock appreciation, and limited stock appreciation rights awards (Awards) and
dividend equivalent rights. The Stock Option Plan is administered by the Board
of Directors or a committee of directors appointed by the Board of Directors.
ISOs may be granted to the officers and key employees of the Company. NQSOs
and Awards may be granted to the directors, officers and key employees of the
Company or its subsidiary, and to the directors, officers and key employees of
ICCC.

The exercise price for any NQSO or ISO granted under the Stock Option and
Awards Plan may not be less than 100% (or 110% in the case of ISOs granted to
an employee who is deemed to own in excess of 10% of the outstanding Common
Stock) of the fair market value of the shares of Common Stock at the time the
NQSO or ISO is granted.

Under the Stock Option and Awards Plan, the Company may make loans available
to stock option holders in connection with the exercise of stock options
granted under the Stock Option and Awards Plan. If shares of Common Stock are
pledged as collateral for such indebtedness, the shares may be returned to the
Company in satisfaction of the indebtedness. If returned, the shares become
available for issuance in connection with future stock options and Awards
under the Stock Option and Awards Plan.

Unless previously terminated by the Board of Directors, the Stock Option and
Awards Plan will terminate in April of 2007. Options granted under the Stock
Option and Awards Plan will become exercisable as directed by the
administrator.

As of December 31, 1997, there were no options to purchase shares that had
been exercised and 420,250 shares were reserved for future grants under the
Stock Option and Awards Plan. Option transactions are summarized as follows:

<TABLE>
<CAPTION>
PERIOD FROM JANUARY 15, 1997
(COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1997
------------------------------
WEIGHTED-
NUMBER AVERAGE RANGE OF
OF EXERCISE EXERCISE
SHARES PRICE PRICES
------- --------- ------------
<S> <C> <C> <C>
Options outstanding at beginning of year....... -- $ -- $
Options granted................................ 222,250 15.41 15.00-18.88
Options exercised.............................. -- -- --
Options forfeited/cancelled.................... 10,000 15.00 15.00-18.88
-------
Options outstanding at end of period........... 212,250 15.43 15.00-18.88
=======
</TABLE>

In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation."
SFAS 123 permits the Company to either recognize as expense over the vesting
period, the fair market value of all stock based compensation awards on the
date of grant, or continue to apply the provisions of APB Opinion No. 25 and
provide pro forma disclosures of net income (loss) computed as if the fair
value based method as defined in SFAS 123 had been applied.

F-23
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company elected to continue to apply the APB Opinion 25 in accounting
for its Plan and, accordingly, no compensation cost has been recognized for
its stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options exercisable under SFAS No. 123, the Company's net earnings and
earnings per share would have decreased to the pro forma amounts indicated
below (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1997
-------------------
<S> <C>
Net earnings as reported.............................. $ 2,811
Pro forma net earnings................................ 2,280
Basic earnings per share as reported.................. 0.61
Diluted earnings per share as reported................ 0.61
Basic pro forma earnings per share.................... 0.49
Diluted pro forma earnings per share.................. 0.49
</TABLE>

The derived fair value of the options granted for the year ended December
31, 1997 was approximately $2.39 per share, using the Black-Scholes option
pricing model. The following assumptions for options granted in 1997 were as
follows: risk-free interest rate of 5.84%, dividend yield of 8.7%, expected
lives of three and ten years for 1997 and expected volatility of 37.2%.

18. STOCKHOLDERS' EQUITY

Common Stock and Class A Common Stock. The Company has authorized 46,000,000
shares of $.01 par value Common Stock (ICH Common Stock) and 4,000,000 shares
of $.01 par value Class A non-voting Common Stock (ICH Class A Stock). Each
share of ICH Common Stock is entitled to participate equally in dividends when
and as authorized by the Board of Directors and in the distribution of assets
of ICH upon liquidation. Each share of ICH Common Stock is entitled to one
vote, subject to the provisions of its Articles of Incorporation and
amendments thereto (Charter) regarding restrictions on transfer of stock, and
will be fully paid and nonassessable by ICH upon issuance. Shares of ICH
Common Stock have no preference, conversion, exchange, preemptive or
cumulative voting rights. The authorized stock of ICH may be increased and
altered from time to time in the manner prescribed by Maryland law upon the
affirmative vote of stockholders entitled to cast at least a majority of all
the votes entitled to be cast on the matter. The Charter authorizes the Board
of Directors to reclassify any unissued shares of ICH Common Stock in one or
more classes or series of stock. The ICH Class A Stock has the identical
preferences, conversion or other rights, restrictions, limitations as to
dividends or other distributions, qualifications or terms or conditions of
redemption as the ICH Common Stock except that the holders of shares of ICH
Class A Stock are not entitled to any voting rights. If ICH issues additional
shares of its Common Stock as a dividend on its outstanding Common Stock, ICH
shall simultaneously issue as a dividend on its outstanding ICH Class A Stock,
pro rata among the holders thereof, that number of shares of Class A Common
Stock equal to the number of shares of ICH Common Stock issued as a dividend
multiplied by a fraction, the numerator of which is the number of shares of
ICH Class A Stock outstanding immediately before the record date for the
payment of the ICH Class A Stock dividend and the denominator of which is the
number of shares of ICH Common Stock outstanding immediately before the record
date for the payment of the ICH Common Stock dividend.

Preferred Stock and Class A Convertible Preferred Stock. The Company
authorized 10,000,000 shares of $.01 par value Preferred Stock (Preferred
Stock), of which 4,000,000 shares were reclassified and designated Class A
Convertible Preferred Stock (ICH Preferred Stock). The Company's Charter
authorizes the Board of

F-24
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Directors to issue shares of Preferred Stock and to classify or reclassify any
unissued shares of Preferred Stock into one or more classes or series. The
Preferred Stock may be issued from time to time with such designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions of redemption as shall be determined by the Board of Directors
subject to the provisions of the Charter regarding restrictions on transfer of
stock. Preferred Stock is available for possible future financing of, or
acquisitions by, ICH and for general corporate purposes without further
stockholder authorization. The Preferred Stock, if issued, may have a
preference on dividend payments which could reduce the assets available to ICH
to make distributions to the common stockholders. Of the 10,000,000 shares of
Preferred Stock authorized, 4,000,000 shares are reclassified and designated
ICH Convertible Class A Preferred Stock. Commencing on December 31, 1997, each
holder of ICH Preferred Stock will be entitled to receive, out of any funds
legally available therefor, when and if declared, dividends at the quarterly
rate of $0.10 per share and no more, and thereafter quarterly on the last day
of March, June, September and December of each year that any ICH Preferred
Stock is outstanding. Such dividends will not be cumulative, and no rights
will accrue to holders of ICH Preferred Stock by reason of the fact that
dividends on such shares are not declared or paid in any prior quarter. In
determining whether a distribution (other than upon liquidation), by dividend,
redemption or other acquisition of shares or otherwise, is permitted under
Maryland law, amounts that would be needed, if the Company were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of shares of any class or series of stock whose
preferential rights upon dissolution are superior to those receiving the
distribution will not be added to the Company's total liabilities.

F-25
<PAGE>

IMPAC COMMERCIAL HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

19. IMPAC COMMERCIAL CAPITAL CORPORATION

The following condensed financial information summarizes the financial
position and results of operations of Impac Commercial Capital Corporation (in
thousands):

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................. $ 2,700 $ 2,273
Commercial Mortgages held for sale.................... 231,720 106,654
Due from affiliates................................... 837 1,538
Premises and equipment, net........................... 408 381
Other assets.......................................... 2,228 1,789
--------- ---------
$ 237,893 $ 112,635
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Warehouse line agreements............................. $ 223,815 $ 104,219
Due to affiliates..................................... 7,890 758
Other liabilities..................................... 2,263 3,255
--------- ---------
Total liabilities.................................... 233,968 108,232
--------- ---------
Shareholders' Equity:
Preferred Stock...................................... 2,875 2,875
Common Stock......................................... 1 1
Contributed capital.................................. 150 150
Retained earnings.................................... 899 1,377
--------- ---------
Total shareholders' equity........................... 3,925 4,403
--------- ---------
$ 237,893 $ 112,635
========= =========
</TABLE>

CONDENSED STATEMENTS OF OPERATIONS

F-26
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Impac Commercial Capital Corporation:

We have audited the accompanying balance sheet of Impac Commercial Capital
Corporation as of December 31, 1997, the related statements of operations and
cash flows for the periods from January 15, 1997 (commencement of operations)
through December 31, 1997 and from January 15, 1997 through March 31, 1997 and
the statement of changes in shareholders' equity for the period from January
15, 1997 through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Impac Commercial Capital
Corporation as of December 31, 1997, and the results of its operations and its
cash flows for the periods from January 15, 1997 through December 31, 1997 and
from January 15, 1997 through March 31, 1997 in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

Orange County, California
February 9, 1998

F-27
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

BALANCE SHEETS

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash.................................................. $ 2,700 $ 2,273
Commercial Mortgages held-for-sale.................... 231,720 106,654
Accrued interest receivable........................... 1,135 337
Deferred tax asset.................................... 924 924
Due from affiliates................................... 837 1,538
Premises and equipment, net........................... 408 381
Other assets.......................................... 169 528
--------- ---------
$ 237,893 $ 112,635
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Warehouse line agreements............................. $ 223,815 $ 104,219
Due to affiliates..................................... 7,890 758
Other liabilities..................................... 2,263 3,255
--------- ---------
Total liabilities................................... 233,968 108,232
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock; no par value; 50,000 shares
authorized; 9,500 shares issued and outstanding at
March 31, 1998 and December 31, 1997................ 2,875 2,875
Common stock; no par value; 50,000 shares authorized;
500 shares issued and outstanding at March 31, 1998
and December 31, 1997............................... 1 1
Contributed capital.................................. 150 150
Retained earnings.................................... 899 1,377
--------- ---------
Total shareholders' equity.......................... 3,925 4,403
--------- ---------
Commitments and contingencies
$ 237,893 $ 112,635
========= =========
</TABLE>

See accompanying notes to financial statements.

F-28
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

STATEMENTS OF OPERATIONS

(IN THOUSANDS)

See accompanying notes to financial statements.

F-29
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- ---------------- TOTAL
NUMBER OF PREFERRED NUMBER OF COMMON CONTRIBUTED RETAINED SHAREHOLDERS'
SHARES STOCK SHARES STOCK CAPITAL EARNINGS EQUITY
--------- --------- --------- ------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 15,
1997 (commencement of
operations)............ -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common
stock.................. -- -- 500 1 25 -- 26
Issuance of preferred
stock.................. 9,500 500 -- -- -- -- 500
Capital contribution.... -- 2,375 -- -- 125 -- 2,500
Net earnings for the pe-
riod from January 15,
1997 (commencement of
operations) through De-
cember 31, 1997........ -- -- -- -- -- 1,377 1,377
----- ------- --- ----- ----- ------ -------
Balance, December 31,
1997................... 9,500 2,875 500 1 150 1,377 4,403
----- ------- --- ----- ----- ------ -------
Net earnings for the
three months ended
March 31, 1998
(unaudited)............ -- -- -- -- -- (478) (478)
----- ------- --- ----- ----- ------ -------
Balance, March 31, 1998
(unaudited)............ 9,500 $ 2,875 500 $ 1 $ 150 $ 899 $ 3,925
===== ======= === ===== ===== ====== =======
</TABLE>

See accompanying notes to financial statements.

F-30
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JANUARY 15, 1997 JANUARY 15, 1997
FOR THE THREE (COMMENCEMENT OF (COMMENCEMENT OF
MONTHS ENDED OPERATIONS) THROUGH OPERATIONS) THROUGH
MARCH 31, 1998 MARCH 31, 1997 DECEMBER 31, 1997
-------------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net earnings (loss).... $ (478) $ (186) $ 1,377
Adjustments to recon-
cile net earnings
(loss) to net cash
used in operating ac-
tivities:
Depreciation........... 34 4 50
Benefit for deferred
taxes................. -- -- (924)
Stock compensation ex-
pense................. -- 25 150
Net change in Commer-
cial Mortgages held-
for-sale.............. (125,066) -- (106,654)
Net change in accrued
interest receivable... (798) -- (337)
Net change in due from
affiliates and due to
affiliates............ 7,833 (350) (780)
Net change in other as-
sets and liabilities.. (633) 140 2,727
--------- ------ ---------
Net cash provided by
(used in) operating
activities........... (119,108) (367) (104,391)
--------- ------ ---------
Cash flows from
investing activities:
Purchase of premises
and equipment......... (61) (134) (431)
--------- ------ ---------
Net cash used in in-
vesting activities... (61) (134) (431)
--------- ------ ---------
Cash flows from financ-
ing activities:
Net change in warehouse
line agreements....... 119,596 -- 104,219
Issuance of preferred
stock................. -- 500 500
Issuance of common
stock................. -- 1 1
Contributions from
ICH................... -- -- 2,375
--------- ------ ---------
Net cash provided by
financing activi-
ties................. 119,596 501 107,095
--------- ------ ---------
Net change in cash and
cash equivalents....... 427 -- 2,273
Cash and cash
equivalents at
beginning of period.... 2,273 -- --
--------- ------ ---------
Cash and cash
equivalents at end of
period................. $ 2,700 $ -- $ 2,273
========= ====== =========
Supplementary
information:
Interest paid......... $ 2,450 $ -- $ 2,276
Taxes paid............ -- -- 422
</TABLE>

See accompanying notes to financial statements.

F-31
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

THE FINANCIAL INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
IS UNAUDITED.

1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

Impac Commercial Capital Corporation (ICCC) is a newly formed California
corporation that commenced operations on January 15, 1997 as a separate
division of Impac Mortgage Holdings, Inc. (IMH). On the date of the
contribution in August 1997, ICCC became a subsidiary of ICH as ownership of
ICCC Preferred Stock was contributed by IMH to ICH. ICCC is a Commercial
Mortgage conduit organization which purchases and originates Commercial
Mortgages and subsequently securitizes or sells such Commercial Mortgages to
permanent investors, including ICH. ICCC services such Commercial Mortgages
for investors. The Conduit Operations operates three divisions: the
CondoSelect Division, the CommercialExpress Division, the ConduitExpress
Division.

CondoSelect Division. This division offers on a retail basis adjustable rate
financing to developers and project owners who have completed the development
of a condominium complex or the conversion of an apartment complex to a
condominium complex on property with a typical loan amount of $3.0 million to
$10.0 million. All originations, underwriting, processing and funding are
performed at ICCC's executive offices. The CondoSelect Division's Commercial
Mortgages are offered on a nationwide basis and sells Commercial Mortgages to
ICH.

CommercialExpress Division. This division originates Commercial Mortgages
for properties including general purpose apartment complexes, general retail
property such as shopping centers, super markets and department stores, light
industrial property, and office buildings (collectively, Commercial
Mortgages). The CommercialExpress Division offers smaller balance ($500,000 to
$1.5 million) fixed and adjustable rate Commercial Mortgage products to
developers and project owners for smaller properties and projects than those
funded by the ConduitExpress Division. Although processing and funding
operations relating to Commercial Mortgages are performed centrally at ICCC's
executive offices, the Company has targeted major metropolitan areas for the
opening of satellite offices for regional originations in 1998. A portion of
the adjustable rate Commercial Mortgages that are originated by the
CommercialExpress Division may be held in portfolio by the Long-Term
Investment Operations, while the balance thereof and a substantial portion of
the fixed rate Commercial Mortgages originated will be resold by the Conduit
Operations through REMIC securitizations.

ConduitExpress Division. This division originates Commercial Mortgages on a
retail basis and expects in the future to purchase Commercial Mortgages on a
bulk and flow basis. The ConduitExpress Division offers larger principal
balance ($1.5 million to $10.0 million) Commercial Mortgages for commercial
projects than those funded by the CommercialExpress Division. The
ConduitExpress Division offers adjustable rate and fixed rate programs offered
through specified correspondents who may be provided with Company-sponsored
warehouse facilities. In addition, the ConduitExpress Division purchases
Commercial Mortgages in bulk and on a flow basis from selected financial
institutions and mortgage bankers. A portion of the adjustable rate Commercial
Mortgages originated or purchased by this Division may be held in portfolio by
the Long-Term Investment Operations, while the balance thereof and a
substantial portion of the fixed rate Commercial Mortgages originated or
purchased will be resold through REMIC securitizations.

ORGANIZATIONAL TRANSACTIONS AND CONTRIBUTION TRANSACTION

On February 10, 1997, IMH purchased 9,500 shares of ICCC's outstanding non-
voting preferred stock, which has a coupon which represents 95% of GAAP based
economic interest in ICCC, entitling the holder to receive 95% of any dividend
or distribution made by ICCC, for $500,000. Certain of IMH's directors and
officers purchased all of the Company's outstanding common stock, which
represents 5% of GAAP based economic interest in ICCC entitling the holder to
receive 5% of any dividend or distribution made by ICCC for $26,000.

F-32
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Upon the closing date of ICH's IPO in August 1997, IMH contributed (the
Contribution) all of the outstanding non-voting preferred stock of ICCC to ICH
in exchange for 95,000 shares of ICH Class A Common Stock.

BASIS OF FINANCIAL STATEMENT PRESENTATION

The operations of ICCC are presented in the financial statements as a stand-
alone company. Interest has been charged on affiliated short-term advances at
the rate of 8% per annum and on warehouse line agreements at prime rate. Costs
and expenses of IMH have been allocated to ICCC in proportion to the services
provided, plus a 15% service charge.

Management of ICCC has made a number of estimates and assumptions relating
to the reporting of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.

GAIN ON SALE OF LOANS

ICCC recognizes gains or losses on sale of loans when the sales transaction
settles and the risks and rewards of ownership are determined to have passed
to the purchasing party. Gains or losses on sale of loans or securities to ICH
are deferred and amortized or accreted over the estimated life of the loans or
securities using the interest method.

INCOME TAXES

Income taxes are accounted for under the asset and liability method of
accounting for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

COMMERCIAL MORTGAGE SERVICING INCOME

Servicing income is reported as earned, principally on a cash basis when the
majority of the service process is completed.

2. CASH AND CASH EQUIVALENTS

3. COMMERCIAL MORTGAGES HELD-FOR-SALE

Commercial Mortgages held-for-sale are stated at the lower of cost or market
in the aggregate as determined by outstanding commitments from investors or
current investor yield requirements. Interest is recognized as revenue when
earned according to the terms of the Commercial Mortgages and when, in the
opinion of management, it is collectible. Nonrefundable fees and direct costs
associated with the origination or purchase of loans are deferred and
recognized when the loans are sold as gain or loss on sale of mortgage loans,
except

F-33
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

related to loans sold to ICH, which nonrefundable fees and costs fees are
deferred and recognized over the life of the loans using the interest method.

Substantially all Commercial Mortgages purchased by ICCC are fixed-rate or
adjustable-rate commercial mortgage loans secured by first liens on commercial
properties. During the three months ended March 31, 1998 and for the period
from January 15, 1997 (commencement of operations) through December 31, 1997,
ICCC acquired $124.9 million and $233.5 million, respectively, of Commercial
Mortgages and sold none and $73.4 million, respectively, of such loans to
third party investors and $2.3 million and $58.4 million, respectively, to
ICH. As of March 31, 1998 and December 31, 1997, Commercial Mortgages held-
for-sale were $231.7 million and $106.7 million, respectively, which included
$848,000 and $308,000, respectively, in deferred loan fees.

At March 31, 1998 and December 31, 1997, other liabilities included an
allowance for repurchases of $201,000.

4. PREMISES AND EQUIPMENT, NET

Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation on premises and equipment is recorded using the straight-line
method over the estimated useful lives of individual assets (three to seven
years).

Premises and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
1997 1997
------------ ---------------
(UNAUDITED)
<S> <C> <C>
Premises and equipment............................. $ 492 $ 431
Less accumulated depreciation...................... (84) (50)
----- -----
$ 408 $ 381
===== =====
</TABLE>

5. WAREHOUSE LINE AGREEMENTS

ICCC enters into warehouse line agreements with ICH and IMH to fund the
purchase of mortgage loans. Mortgage loans underlying warehouse line
agreements are delivered to dealers that arrange the transactions. ICCC has
entered into uncommitted warehouse line agreements with ICH to obtain
financing up to an aggregate of $900.0 million. The margins on the warehouse
line agreement are at 90% of the fair market value of the collateral. The
interest rates on the borrowings are indexed to the prime rate. ICCC has
entered into an uncommitted warehouse line agreement with IMH to provide
financing as needed. The margins on the warehouse line agreement are at 8% of
the fair market value of the collateral. The interest rates on the borrowings
are indexed to the prime rate.

F-34
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The following table sets forth information regarding warehouse line
agreements as of March 31, 1998 and December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
AT MARCH 31, 1998
---------------------------------------------
WAREHOUSE
TYPE OF LINE UNDERLYING
COLLATERAL LIABILITY COLLATERAL MATURITY DATE
---------- --------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ICH............................... Mortgages $ 205,545 $221,423 Uncommitted
IMH............................... Mortgages 18,270 19,681 Uncommitted
--------- --------
Total warehouse line agreements
and collateral................. $ 223,815 $241,104
========= ========
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------------------------------
WAREHOUSE
TYPE OF LINE UNDERLYING
COLLATERAL LIABILITY COLLATERAL MATURITY DATE
---------- --------- ---------- -------------
<S> <C> <C> <C> <C>
ICH............................... Mortgages $ 95,711 $103,280 Uncommitted
IMH............................... Mortgages 8,508 9,181 Uncommitted
-------- --------
Total warehouse line agreements
and collateral................. $104,219 $112,461
======== ========
</TABLE>

6. INCOME TAXES

The components of income taxes consist of the following (in thousands):

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1997
-------------------
<S> <C>
Current income taxes:
Federal................................................... $ 1,483
State..................................................... 463
-------
Total current income taxes.................................. 1,946
-------
Deferred income taxes:
Federal................................................... (723)
State..................................................... (201)
-------
Total deferred income taxes................................. (924)
-------
Total income taxes.......................................... $ 1,022
=======
</TABLE>

The Company's effective income taxes differ from the amount computed by
applying the federal income tax rate of 34% to income before income taxes as a
result of the following:

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 15, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
DECEMBER 31, 1997
-------------------
<S> <C>
Computed "expected" income taxes............................ $ 816
State taxes, net of federal................................. 173
Other....................................................... 33
-------
Total income taxes.......................................... $ 1,022
=======
</TABLE>

F-35
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The tax effects that give rise to significant portions of the deferred tax
assets and deferred tax liabilities at December 31, 1997 are presented below:

<TABLE>
<CAPTION>
AT DECEMBER 31,
1997
---------------
<S> <C>
Deferred tax assets:
Deferred revenue................................................ $ 551
Allowance for repurchases....................................... 90
Mark to market adjustment on loans held for sale................ 844
Deferred state liability........................................ 89
------
Total deferred tax assets....................................... 1,574

Deferred tax liability:
Mortgage servicing assets....................................... (650)
------
Net deferred tax asset........................................ $ 924
======
</TABLE>

The Company believes that the deferred tax asset will more likely than not
be realized due to the reversal of the deferred tax liability and expected
future taxable income. As of December 31, 1997, the current tax payable of
$1.5 million is included in other liabilities.

7. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments have been determined by
ICCC using available market information and appropriate valuation
methodologies, however, considerable judgment is necessarily required to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts ICCC
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.

<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents............................ $ 2,273 $ 2,273
Commercial Mortgages held-for-sale................... 106,654 112,461
Due from affiliates.................................. 1,538 1,538

Liabilities:
Warehouse line agreements............................ 104,219 104,219
Due to affiliates.................................... 758 758
Future contracts..................................... -- 510
Off balance-sheet loan commitments................... -- --
</TABLE>

F-36
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The fair value estimates as of December 31, 1997 are based on pertinent
information available to management as of that date. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for
purposes of these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.

The following describes the methods and assumptions used by ICCC in
estimating fair values.

CASH AND CASH EQUIVALENTS

Fair value approximates carrying amount as these instruments are demand
deposits and do not present unanticipated interest rate or credit concerns.

COMMERCIAL MORTGAGES HELD-FOR-SALE

Fair value is estimated based on quoted market prices from dealers and
brokers for similar types of mortgage loans.

DUE FROM / TO AFFILIATES

Fair value approximates carrying amount because of the short-term maturity
of the liabilities and do not present unanticipated interest rate or credit
concerns.

WAREHOUSE LINE AGREEMENTS

Fair value approximates carrying amount because of the short-term maturity
of the liabilities.

FUTURES CONTRACTS

Fair value is estimated based on quoted market prices from dealers and
brokers for similar types of instruments.

OFF BALANCE-SHEET LOAN COMMITMENTS

Fair value of commitments, including hedging position, is determined in the
aggregate counsel on current investor yield requirements.

8. EMPLOYEE BENEFIT PLANS

PROFIT SHARING AND 401(k) PLAN

ICCC does not have its own 401(k) or profit sharing plan. As such, employees
of ICCC participate in ICII's 401(k) plan. The 401(k) Plan provides that each
participant may contribute from 2% to 14% of his or her salary and the Company
will contribute to the participant's plan account at the end of each plan year
50% of the first 4% of salary contributed by a participant. Under the 401(k)
Plan, employees may elect to enroll on the first day of any month, provided
that they have been employed for at least six months.

F-37
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

deferral of 8%. Should discretionary contribution funds remain following the
allocation outlined above, any remaining Company matching funds would be
allocated as a 50% match of employee contributions, on the first 4% of the
employee's deferrals. Company matching contributions will be made as of
December 31st each year in the form of Company Common Stock. The Company
contributed matching and discretionary amounts to the plan for the three
months ended March 31, 1998 and for the period from January 15, 1997
(commencement of operations) through December 31, 1997 of $18,000 and $17,000,
respectively.

9. RELATED PARTY TRANSACTIONS

CREDIT ARRANGEMENTS

ICCC maintains a warehouse financing facility with ICH up to a maximum
aggregate amount of $900.0 million. Advances under such warehouse facilities
bear interest at rates indexed to prime, which was 8.50% at March 31, 1998 and
December 31, 1997. As of March 31, 1998 and December 31, 1997, amounts
outstanding on ICCC's warehouse lines with ICH were $205.5 million and $95.7
million, respectively. Interest expense recorded by ICCC related to warehouse
lines with ICH for the three months ended March 31, 1998 and for the period
from January 15, 1997 (commencement of operations) through December 31, 1997
was $2.5 million and $2.4 million, respectively.

ICCC maintains a warehouse financing facility with IMH of which $18.3
million and $8.5 million was outstanding on the warehouse line at March 31,
1998 and December 31, 1997. Interest expense recorded by ICCC related to
warehouse financing due to IMH for the three months ended March 31, 1998 and
for the period from January 15, 1997 (commencement of operations) through
December 31, 1997 was $193,000 and $262,000, respectively.

During the normal course of business, ICCC may advance or borrow funds on a
short-term basis with affiliated companies. Advances to affiliates are
reflected as "Due From Affiliates" while borrowings are reflected as "Due To
Affiliates" on ICCC's balance sheet. These short-term advances and borrowings
bear interest at a fixed rate of 8.00% per annum. Interest income recorded by
ICCC for the three months ended March 31, 1998 and for the period from January
15, 1997 (commencement of operations) through December 31, 1997 related to
short-term advances due from affiliates was $13,000 and $16,000, respectively.
Interest expense recorded by ICCC for the three months ended March 31, 1998
and for the period from January 15, 1997 (commencement of operations) through
December 31, 1997 related to short-term advances due to affiliates was
$200,000 and $113,000, respectively.

ORGANIZATIONAL TRANSACTIONS WITH IMH

On February 10, 1997, IMH purchased all of ICCC's outstanding non-voting
preferred stock, which has a coupon which represents 95% of GAAP based
economic interest in ICCC, entitling the holder to receive 95% of any dividend
or distribution made by ICCC, for $500,000. Certain of IMH's directors and
officers purchased all of the Company's outstanding common stock, which
represents 5% of GAAP based economic interest in ICCC entitling the holder to
receive 5% of any dividend or distribution made by ICCC.

Upon the closing of the ICH IPO, IMH contributed (the Contribution) all of
the outstanding non-voting preferred stock of ICCC to ICH in exchange for
95,000 shares of ICH Class A Common Stock.

COMMERCIAL MORTGAGE PURCHASES

In February 1997, ICCC brokered for ICH, the purchase of $17.5 million in
condominium conversion loans from IFC at the unpaid principal balance of the
loans. In conjunction with these purchases, ICCC recorded

F-38
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

nonrefundable brokerage fees that have been deferred, net of certain direct
costs, and are being amortized over the estimated life of the loans.

For the three months ended March 31, 1998 and for the period from January
15, 1997 (commencement of operations) through December 31, 1997, ICCC sold
$2.3 million and $58.4 million, respectively in principal balance of
adjustable rate Commercial Mortgages to ICH at a net premium of $1,000 and
$111,000, respectively.

STOCK COMPENSATION EXPENSE

Stock compensation expense of $25,000 represents the difference between the
price at which ICCC issued 500 shares of Common Stock to directors and
officers of IMH and ICH on February 10, 1997, and the net book value, which
the Company's management believes approximated the difference between fair
value and the amount of the 5% economic interest in ICCC purchased by the
common shareholders.

SUBMANAGEMENT AGREEMENT

IFC entered into a submanagement agreement with RAI under which, IMH and IFC
provide various services to ICCC as RAI deems necessary, including facilities
and costs associated therewith, technology, human resources, management
information systems, general ledger accounts, check processing and accounts
payable, plus a 15% service charge. RAI charges ICCC for these services based
upon usage which management believes is reasonable. Total cost allocations IFC
charged to ICCC for the three months ended March 31, 1998 and for the period
from January 15, 1997 (commencement of operations) through December 31, 1997
were $159,000 and $456,000, respectively.

NON-COMPETE AGREEMENT AND RIGHT OF FIRST REFUSAL AGREEMENT

Pursuant to the Non-Compete Agreement executed on the date of the ICH IPO,
IFC will not acquire any commercial mortgages for a period of the earlier of
nine months from the closing of the ICH IPO or the date upon which ICH and/or
ICCC accumulates (for investment or sale) $300.0 million of Commercial
Mortgages or CMBSs. The non-compete agreement terminated in March 1998.

10. COMMITMENTS AND CONTINGENCIES

FUTURE CONTRACTS

To remain competitive and control risk, ICCC uses futures, and options on
futures. The use of these instruments provides for increased liquidity, lower
transaction costs and more effective short term coverage than cash and
mortgage-backed securities. However, ICCC is vulnerable to the basis risk that
is inherent in cross-hedging. ICCC uses the buying and selling of futures
contracts on T-Bonds and Treasury Notes when the market is vulnerable to day
to day corrections. Executing hedges with these instruments allows ICCC to
more effectively hedge the risks of corrections or reverses in the market
without committing mandatory sales on mortgage-backed securities or cash. ICCC
utilizes these instruments on a short-term basis to fine tune its overall
hedge position at a lower cost. The unrealized gains and losses on the hedging
transactions are recorded as an adjustment to the basis of the loans. Gains
and losses are recognized upon the sale of loans.

F-39
<PAGE>

IMPAC COMMERCIAL CAPITAL CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company sells future contracts against five and ten year treasury notes
with major dealers in such securities. At March 31, 1998 and December 31,
1997, the Company had $220.3 million and $105.1 million, respectively, in
outstanding commitments to sell treasury notes.

SALES OF COMMERCIAL MORTGAGES

In the ordinary course of business, ICCC will be exposed to liability under
representations and warranties made to purchasers and insurers of Commercial
Mortgages. Under certain circumstances, ICCC will be required to repurchase
Commercial Mortgages if there has been a breach of representations or
warranties. In the opinion of management, the potential exposure related to
these representations and warranties will not have a material adverse effect
on the financial position and results of operations of the Company. A
provision has been made for this--to date, no dollars have been paid related
to repurchase provision.

LEASE COMMITMENTS

<TABLE>
<S> <C>
1998............................................................. $ 511
1999............................................................. 511
2000............................................................. 468
-------
Total lease commitments........................................ $ 1,490
=======
</TABLE>

All rent expense associated with the lease is charged to ICCC as ICCC
employees occupy 100% of office space.

F-40
<PAGE>

===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION OF AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 31
Price Range of Common Stock.............................................. 31
Dividend Policy and Distributions........................................ 32
Dividend Reinvestment Plan............................................... 33
Capitalization........................................................... 35
Selected Financial Data.................................................. 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Business................................................................. 45
Impac Commercial Holdings, Inc........................................... 64
RAI Advisors, LLC........................................................ 73
Relationships with Affiliates............................................ 77
Certain Transactions..................................................... 78
Shares Eligible for Future Sale.......................................... 83
Principal Stockholders................................................... 84
Description of Capital Stock............................................. 85
Underwriting............................................................. 89
Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws.................................................................. 90
Federal Income Tax Considerations........................................ 92
ERISA Investors.......................................................... 103
Legal Matters............................................................ 103
Experts.................................................................. 103
Glossary................................................................. 104
Index to Financial Statements............................................ F-1
</TABLE>
===============================================================================

===============================================================================
2,000,000 SHARES

IMPAC COMMERCIAL HOLDINGS, INC.

[LOGO OF IMPAC COMMERCIAL HOLDINGS, INC.]

COMMON STOCK

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

PROSPECTUS

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

PAINEWEBBER INCORPORATED

STIFEL, NICOLAUS & COMPANY
INCORPORATED

CIBC OPPENHEIMER

EVEREN SECURITIES, INC.

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

JUNE 22, 1998
================================================================================