THORNBURG MORTGAGE FUNDING CORP
S-3, 1998-09-30
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>
 
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
                                                             REGISTRATION NO. 33
================================================================================

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                             --------------------      
                                   FORM S-3
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
                              THORNBURG MORTGAGE
                              FUNDING CORPORATION
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


          DELAWARE                                               85-0455611
  (STATE OR JURISDICTION OF                                   (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)

                             119 EAST MARCY STREET
                          SANTA FE, NEW MEXICO 87501
                                (505) 989-1900
         (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

                         INCORPORATING SERVICES, LTD.
                             15 EAST NORTH STREET
                          DOVER, DELAWARE 09903-0899
                                (800) 346-4646
     (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)

      THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATION TO:

                           MICHAEL B. JEFFERS, ESQ.
                      JEFFERS, WILSON, SHAFF & FALK, LLP
                      18881 VON KARMAN AVENUE, SUITE 1400
                           IRVINE, CALIFORNIA 92612
                                (949) 660-7700

               APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
          FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT AS DETERMINED BY MARKET CONDITIONS.

                             --------------------      
          If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.     [_]

          If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), other than securities
offered only in connection with dividend or interest reinvestment plans, check
the following box.    [X]

          If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.    [_]

          If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.  [_]

          If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]

<TABLE> 
<CAPTION> 
                                                      CALCULATION OF REGISTRATION FEE
=================================================================================================================================
                                                                        PROPOSED MAXIMUM       PROPOSED MAXIMUM       AMOUNT OF
                                                      AMOUNT TO BE     OFFERING PRICE PER     AGGREGATE OFFERING     REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED    REGISTERED(1)         UNIT(2)                PRICE(2)              FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>                    <C>                    <C>
Mortgage Backed Securities (Issuable in Series)        $50,000,000           100%                $50,000,000           $14,750
- ---------------------------------------------------------------------------------------------------------------------------------
     Total                                             $50,000,000           100%                $50,000,000           $14,750
=================================================================================================================================
</TABLE>

(1)  In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $50,000,000. Any
securities registered hereunder may be sold separately or in a combined
offering.
(2)  Estimated for the purpose of calculating the registration fee.
<PAGE>
 
                             SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998
     PROSPECTUS SUPPLEMENT
     (TO PROSPECTUS DATED SEPTEMBER 30, 1998)

                                     $[__]

                              (Aggregate Amount)

                           [TMFC] TRUST 199__ - ___
                                    Issuer

                    THORNBURG MORTGAGE FUNDING CORPORATION
                                   Depositor
 
                [Mortgage Backed] Securities, Series 199__ - __

                                _______________ 

     The [Mortgaged Backed] Securities, Series 199__ - __ will consist of the
following ____ classes:  ___________ (collectively, the "Offered
Securities").

<TABLE>
<CAPTION>
                      Class [ - ] Securities        Class [ - ] Securities        Class [  - ] Securities 
                      ----------------------        ----------------------        -----------------------  
<S>                   <C>                           <C>                           <C> 
Price                  $ [       ]                   $ [       ]                    $ [       ]            
Underwriting           $ [       ]                   $ [       ]                    $ [       ]            
Proceeds to Issuer     $ [       ]                   $ [       ]                    $ [       ]            
</TABLE>


The Securities represent [obligations of the Issuer secured by the Issuer's
assets/beneficial ownership of the Issuer's assets] and are not insured or
guaranteed, except as set forth in this Prospectus Supplement, by any
governmental agency, the Depositor, or any affiliate of the Depositor.

                                _______________ 

PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-__ HEREIN AND BEGINNING ON PAGE __ IN THE ACCOMPANYING
PROSPECTUS.

                                _______________ 

NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                                _______________ 

THIS PROSPECTUS SUPPLEMENT MAY BE USED TO OFFER AND SELL THE SECURITIES ONLY IF
ACCOMPANIED BY THE PROSPECTUS.

                                _______________ 

The Securities are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
delivery of the Securities will be made in book-entry form only though the
facilities of The Depository Trust Company, CEDEL Bank, societe anonyme and/or
the Euroclear System on or about ___________  , 1998 (the "Closing Date"). The
Securities will be offered in Europe and the United States of America.

                                _______________ 

                                 [Underwriter]
<PAGE>
 
     IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS

     We provide information to you about the Securities in two separate
documents that progressively provide more detail: (a) the accompanying
Prospectus, which provides general information, some of which may not apply to
your Securities and (b) this Prospectus Supplement, which describes the specific
terms of your Securities.

     IF THE TERMS OF YOUR SECURITIES VARY BETWEEN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS
PROSPECTUS SUPPLEMENT.

     We include cross-references in this Prospectus Supplement and the
accompanying Prospectus to captions in these materials where you can find
further related discussions.  The following Table of Contents, and the Table of
Contents included in the accompanying Prospectus, provide the pages on which
these captions are located.

     You can find a listing of the pages where capitalized terms used in this
Prospectus Supplement and the accompanying Prospectus are defined under the
caption "Index of Certain Definitions" beginning on page S-___ in this document
and under the caption "Index of Certain Definitions" beginning on page _____ in
the accompanying Prospectus.
<PAGE>
 
                               TABLE OF CONTENTS

                                                                  Page
                                                                  ----


<PAGE>
 
- --------------------------------------------------------------------------------

                                    SUMMARY

          Because this is a summary, it does not contain all of the information
that may be important to you. You should read the entire Prospectus Supplement,
the accompanying Prospectus and the attached Exhibits carefully before you
decide to purchase the Securities. Certain capitalized terms used and not
otherwise defined herein shall have the meanings ascribed thereto elsewhere in
this Prospectus Supplement. See "Index of Certain Definitions" on page S-___ of
this Prospectus Supplement for the location of the definitions of certain
capitalized terms.


Depositor............................     Thornburg Mortgage Funding
                                          Corporation, a Delaware corporation
                                          (the "Depositor" or the "Company").
                                          The Company's principal executive
                                          offices are located at _____________.
                                          The Company's telephone number is
                                          ________________. The Company is a
                                          wholly-owned limited purpose finance
                                          subsidiary of Thornburg Mortgage Asset
                                          Corporation ("TMA" or the "Seller").

Issuer...............................     ___________ Trust, 199__-___ (the
                                          "Issuer" or the "Trust"). The
                                          Depositor formed the Issuer for the
                                          sole purpose of creating and issuing
                                          the Offered Securities and engaging in
                                          related transactions.

Title of Offered Securities..........     The Trust is offering through this
                                          Prospectus Supplement and will issue
                                          the following classes of Securities:
                                          ________________[(i) Class A-1
                                          Securities, (ii) Class M-1 and Class 
                                          M-2 Securities, and (iii) Class B
                                          Securities] (collectively, the
                                          "Offered Securities").

Non-Offered Securities...............     The Trust will also issue the
                                          following classes of Securities, which
                                          the Trust is not offering through this
                                          Prospectus Supplement and the
                                          accompanying Prospectus: [(Class X
                                          Securities, and (ii) Class R
                                          Securities] (collectively, the "Non-
                                          Offered Securities"). The Non-Offered
                                          Securities represent an interest in
                                          the Trust Fund Assets that is
                                          subordinate to the Offered Securities.

Cut-Off Date.........................     The last date upon which Mortgage
                                          Loans will be included in the related
                                          mortgage pool (_______________, 1998).

Closing Date.........................     The date that the Trust anticipates
                                          selling the Offered Securities
                                          (_________, 1998).

Master Servicer......................     [       ] (the "Master Servicer").

Description of Offered Securities         The Offered Securities will represent
                                          a beneficial ownership interest in the
                                          Trust Fund Assets of the Issuer or the
                                          Trust Fund Assets will be collateral
                                          security for the Offered Securities.
                                          In either instance, the Trust Fund
                                          Assets will support the Offered
                                          Securities. The Offered Securities may
                                          include one or more classes of senior
                                          securities (collectively, the "Senior
                                          Securities") and one or more classes
                                          of
                                             
                                       1
                                             
- --------------------------------------------------------------------------------


<PAGE>
 
- --------------------------------------------------------------------------------

                                          subordinate securities (collectively,
                                          the "Subordinated Securities").

                                          The Class __ Securities' unpaid
                                          principal balance will accrue interest
                                          at an annual rate equal to __%.

                                          The Class __ Securities' unpaid
                                          principal balance will accrue interest
                                          at an annual rate equal to __%.

                                          The Class __ Securities' unpaid
                                          principal balance will accrue interest
                                          at an annual rate equal to __%.

                                          The Trust will use the following
                                          methods to determine the distribution
                                          amounts for each Distribution Date
                                          (defined below):

                                          Class __:

                                          Class __:

                                          Class __:

Distributions on Offered Securities       Beginning in ____________, 19__, each
                                          month the applicable Trustee will
                                          distribute principal and interest
                                          payments to you on your Security
                                          (each, a "Distribution Date"). The
                                          applicable Trustee will distribute
                                          funds on each Distribution Date from
                                          the funds available in the
                                          Distribution Account (defined below).
                                          We will allocate interest and
                                          principal distributions to each
                                          Security class as follows:

                                          Class __:

                                          Class __:

                                          Class __:


Redemption of Bonds; Early
Termination..........................

         A.  Special Redemption......     If certain events occur, the Trust may
                                          be required to redeem, in whole or in
                                          part, the Offered Securities or a
                                          Security Class. For example, if the
                                          Trust receives substantial principal
                                          payments on the Mortgage Collateral,
                                          then the applicable Trustee may
                                          determine that the Trust should redeem
                                          all or a portion of a Security Class.
                                          For a more detailed discussion see
                                          "Description of Securities--Redemption
                                          of Securities--Special Redemption" in
                                          this Prospectus Supplement.

         B.  Optional Redemption.....     If certain events occur, the Trust, at
                                          its option, may redeem the Offered
                                          Securities or an entire Security
                                          Class. For example, if the Depositor
                                          exercises its option to purchase the
                                          Trust Fund Assets, the Trust may
                                          redeem the Offered Securities
                                          supported by the Trust Fund Assets.
                                          For a more

                                       2

- --------------------------------------------------------------------------------
<PAGE>
 
- --------------------------------------------------------------------------------

                                          detailed discussion see "Description
                                          of Securities--Redemption of
                                          Securities--Optional Redemption" in
                                          this Prospectus Supplement.

         C.  Early Termination.......     The Trust may terminate the Offered
                                          Securities earlier than anticipated if
                                          certain events occur. For example, if
                                          the Bond comprising the Trust Fund
                                          Assets is redeemed in full prior to
                                          its scheduled maturity, the Trust will
                                          distribute final payments to the
                                          Securityholders and terminate the
                                          Offered Securities. For a more
                                          detailed discussion see "Description
                                          of Securities--Early Termination" in
                                          this Prospectus Supplement.

Trust Fund Assets....................     The Trust Fund Assets will be
                                          collateral security for the Offered
                                          Securities or the Offered Securities
                                          will represent a beneficial ownership
                                          interest in the Trust Fund Assets. In
                                          either instance, the Trust Fund Assets
                                          will support the Offered Securities.
                                          The Issuer may change the composition
                                          of the Trust Fund Assets if the
                                          substitute Mortgage Collateral meets
                                          certain criteria. See "Trust Fund
                                          Assets--Substitution of Mortgage
                                          Collateral" in the Prospectus. One or
                                          more of the following assets will
                                          comprise the Trust Fund Assets:

         A.  Mortgage Loans..........     The Depositor will pledge and assign
                                          to the Issuer a pool of Mortgage Loans
                                          secured by first or junior lien
                                          mortgages or deeds of trust on one- to
                                          four-family residential properties.
                                          See "Trust Fund Assets--Mortgage
                                          Collateral" for a description of the
                                          Mortgage Loans.

         B. Agency Securities........     Mortgaged-backed, mortgage
                                          participation and/or mortgage pass-
                                          through certificates ("Agency
                                          Certificates") issued by the
                                          Government National Mortgage
                                          Association ("GNMA"), the Federal
                                          National Mortgage Association ("FNMA")
                                          and/or the Federal Home Loan Mortgage
                                          Corporation ("FHLMC") (individually,
                                          an "Agency") may be included in the
                                          Trust Fund Assets.

         C. Non-Agency Securities....     Pass-through certificates representing
                                          beneficial interests in mortgage loans
                                          and/or collateralized obligations
                                          secured by mortgage loans of an issuer
                                          that is not an Agency (Non-Agency
                                          Securities) may be included in the
                                          Trust Fund Assets.

Bond and Distribution Accounts.......     The Master Servicer, and/or the
                                          applicable Servicers, will collect all
                                          principal and interest payments,
                                          including prepayments, on the Mortgage
                                          Collateral. The Master Servicer will
                                          deposit the funds collected, less any
                                          amount required to be paid to the
                                          applicable Trustee, into an account
                                          (the "Bond Account"). Prior to the __
                                          day of each month, the Master Servicer
                                          will transfer an amount from the Bond
                                          Account to an account established with
                                          the applicable Trustee (the
                                          "Distribution Account"). The amount
                                          the Master Servicer transfers to the
                                          Distribution Account shall, to the
                                          extent funds are available, be equal
                                          to the amount the applicable Trustee
                                          will distribute to the Securityholders
                                          on the __ day of each month (the
                                          "Payment Date").

                                       3

- --------------------------------------------------------------------------------
<PAGE>
 
- --------------------------------------------------------------------------------

Pre-Funding Accounts.................     The Issuer's assets will include the
                                          funds on deposit in an account (a 
                                          "Pre-Funding Account") to purchase
                                          additional Mortgage Collateral. See
                                          "Trust Fund Assets--Pre-Funding
                                          Account."

Credit Enhancement...................     The Mortgage Collateral may include
                                          credit enhancements. The type,
                                          characteristics and amount of credit
                                          enhancement will be: (1) determined
                                          based on Mortgage Loan characteristics
                                          and (2) established pursuant to each
                                          Rating Agency's requirements. See
                                          "Credit Enhancement." Credit
                                          enhancement may include one or more of
                                          the following rights or assets:

         A.  Subordination...........     The Issuer may issue one or more
                                          Senior Security Classes and one or
                                          more Subordinated Security Classes.
                                          Subordinated Securityholders' rights
                                          to receive principal and/or interest
                                          payments will be subordinated to the
                                          Senior Securityholders' rights to
                                          receive such payments to the extent
                                          described herein. Subordination will
                                          decrease the risk that Senior
                                          Securityholders will not receive the
                                          full amount of their principal and/or
                                          interest payments. The Offered
                                          Securities will be Senior Securities.

         B.  Reserve Funds...........     The Issuer may establish one or more
                                          accounts with the applicable Trustee
                                          and deposit into such accounts, cash,
                                          certificates of deposit, letters of
                                          credit, surety bonds, guaranteed
                                          investment contracts, reinvestment
                                          income or any combination of the
                                          foregoing (the "Reserve Funds"). The
                                          applicable Trustee may use Reserve
                                          Funds to pay principal and/or interest
                                          if funds are not otherwise available.

         C.  Mortgage Pool
              Insurance Policy.......     The Issuer may obtain and maintain a
                                          mortgage pool insurance policy or
                                          policies (the "Mortgage Pool Insurance
                                          Policy"). A Mortgage Pool Insurance
                                          Policy, although limited in scope,
                                          will insure the Issuer against certain
                                          losses due to payment defaults on the
                                          Mortgage Loans.

         D.  Special Hazard
              Insurance Policy.......     The Issuer may obtain and maintain a
                                          special hazard insurance policy or
                                          policies (the "Special Hazard
                                          Insurance Policy") covering the
                                          Mortgage Property. A Special Hazard
                                          Insurance Policy will insure the
                                          Issuer against losses caused by
                                          certain hazards not otherwise covered
                                          by standard hazard insurance policies.

         E.  Bankruptcy Bond.........     The Issuer may obtain and maintain a
                                          bankruptcy bond or bonds (the
                                          "Bankruptcy Bond") to cover certain
                                          losses resulting from bankruptcy court
                                          action in connection with a Mortgage
                                          Loan.

                                       4

- --------------------------------------------------------------------------------
<PAGE>
 
- --------------------------------------------------------------------------------

         F. Bond Insurance Policies,  
             Surety Bonds and


             Guarantees..............     The Issuer may obtain and maintain
                                          insurance policies or surety bonds
                                          (each, a "Bond Insurance Policy") to
                                          guarantee timely principal and
                                          interest payments and cover other
                                          defaults and loss risks on the
                                          Mortgage Loans.

         G. Letter of Credit.........     The Issuer may use letters of credit
                                          to protect against various types of
                                          loss, including losses due to
                                          delinquent payments, bankruptcy and
                                          denial of insurance. Letters of credit
                                          are ordinarily issued by commercial
                                          banks.

         H. Over-Collateralization...     The Issuer may over-collateralize the
                                          Securities. Over-collateralization
                                          occurs when the Mortgage Collateral's
                                          aggregate principal balance exceeds
                                          the Securities' aggregate principal
                                          balance.

         I. Minimum Principal
            Payment Agreement........     The Issuer may enter into an agreement
                                          with an institution pursuant to which
                                          the institution will provide funds to
                                          enable the Issuer to make scheduled
                                          principal payments on the Offered
                                          Securities.

         J. Derivative Arrangements..     The Issuer may use derivative
                                          arrangements to support payments on
                                          the Securities. A derivative
                                          arrangement is a contract or
                                          agreement, the price of which is
                                          directly dependent upon the value of
                                          one or more underlying assets.
                                          Derivatives involve rights or
                                          obligations based on the underlying
                                          asset, but do not necessarily result
                                          in a transfer of the underlying asset.

Advances.............................     The Master Servicer or a Servicer may
                                          be obligated as part of its servicing
                                          responsibilities to advance funds it
                                          deems recoverable to cover delinquent
                                          scheduled payments on the Mortgage
                                          Collateral. Neither the Company nor
                                          any of its affiliates will be
                                          responsible for making such Advances.

Tax Status of the Securities.........     The Offered Securities, other than
                                          Offered Securities which are Pass-
                                          Through Securities, are treated as
                                          debt for Federal income tax purposes.
                                          See "Federal Income Tax
                                          Considerations" in the accompanying
                                          Prospectus.

Use of Proceeds......................     The Issuer will apply the net proceeds
                                          from the Security sales to the
                                          purchase or acquisition of the related
                                          Mortgage Collateral or to general
                                          corporate purposes. The Company will
                                          acquire by purchase the Trust Fund
                                          Assets from TMA (or an affiliate).

Ratings..............................     The Securities will be rated in one of
                                          the four highest rating categories by
                                          at least one nationally recognized
                                          statistical rating organization, or in
                                          one of the two highest if the
                                          Securities are Certificates. Ratings
                                          will address the likelihood that you
                                          will be paid principal and interest
                                          when due. For more detailed
                                          information regarding the ratings
                                          assigned to

                                       5

- --------------------------------------------------------------------------------
<PAGE>
 
- --------------------------------------------------------------------------------

                                          the Securities, see "Summary of 
                                          Terms--Ratings" and "Ratings"in the
                                          accompanying Prospectus.

Legal Investment.....................     Security Classes that qualify as
                                          "mortgage-related securities" will be
                                          legal investments for certain types of
                                          institutional investors to the extent
                                          provided in the Secondary Mortgage
                                          Market Enhancement Act of 1984
                                          ("SMMEA"), subject to any other
                                          regulations that may govern such
                                          institutional investors' investments.

ERISA Matters........................     The Employee Retirement Income
                                          Security Act of 1974, as amended
                                          ("ERISA"), and Section 4975 of the
                                          Code impose restrictions on employee
                                          benefit plans subject to ERISA or
                                          plans or arrangements subject to
                                          Section 4975 of the Code ("Plans") and
                                          on persons who are parties in interest
                                          or disqualified persons ("parties in
                                          interest") with respect to such Plans.

Absence of Active Public
Trading Market.......................     The Securities will not be listed on
                                          an exchange or quoted in an automated
                                          quotation system of a registered
                                          securities association. As a result,
                                          we do not expect that there will be an
                                          active public trading market for the
                                          Securities. This will limit your
                                          investment's liquidity. If you sell
                                          your Security, it may be at a
                                          discount.

Risk Factors.........................     For a discussion of the risks
                                          associated with investing in the
                                          Securities, see "Risk Factors"
                                          starting on page S-____ herein and in
                                          the accompanying Prospectus.

                                       6

- --------------------------------------------------------------------------------
<PAGE>
 
                                 RISK FACTORS

         Investing in the Securities is very risky. You should be able to bear a
complete loss of your investment. You should carefully consider the following
factors, among others.

PREPAYMENTS ON THE MORTGAGE COLLATERAL    The timing and amounts of principal
WILL AFFECT YOUR SECURITY                 payments, including prepayments, on
                                          the Mortgage Collateral will affect
                                          your Security's weighted average life
                                          and yield to maturity. "Weighted
                                          average life" means the average length
                                          of time, weighted by principal, that
                                          will elapse from the date we issue
                                          your Security to the date we repay to
                                          you each dollar of principal. "Yield
                                          to maturity" means your effective rate
                                          of return expressed as an interest
                                          rate if you hold your Security to
                                          maturity.

                                          Numerous factors affect the timing of
                                          principal payments. In general, if
                                          prevailing interest rates fall
                                          significantly below the mortgage rates
                                          borne by the Mortgage Collateral, then
                                          we are likely to experience an
                                          increase in prepayments on the
                                          Mortgage Collateral. Conversely, a
                                          rise in prevailing interest rates is
                                          likely to decrease prepayments on the
                                          Mortgage Collateral. Prepayments on
                                          the Mortgage Collateral will shorten
                                          the weighted average life of your
                                          Security and reduce your yield to
                                          maturity. You may be unable to
                                          reinvest payments received on your
                                          Security in securities of comparable
                                          quality or with similar yields.

RISKS ASSOCIATED WITH PAYMENT             The actual yield that you realize 
CHARACTERISTICS                           from your Security Class may vary from
                                          the anticipated yield for your class
                                          depending on the following factors:

                                             .    whether your Security was
                                                  purchased at a discount or
                                                  premium;

                                             .    whether payments you will
                                                  receive on your Security are
                                                  sensitive to the rate of
                                                  principal payments, including
                                                  prepayments, on the related
                                                  Mortgage Collateral; and

                                             .    whether the rate of principal
                                                  payments on the related
                                                  Mortgage Collateral is
                                                  sensitive to changes in the
                                                  prevailing interest rates.
LIMITED ABILITY TO RESELL
SECURITY                                  Prior to this Offering there has been
                                          no market for your Security. A
                                          secondary market for your Security may
                                          not develop. If a secondary market
                                          does develop, it might not continue or
                                          it might not be sufficiently liquid to
                                          allow you to resell your Security.
                                          Changes in the prevailing interest
                                          rate may affect your Security's market
                                          value. If prevailing interest rates
                                          rise, your Security's market value may
                                          reflect a discount from the purchase
                                          price you paid.

                                       7
<PAGE>
 
                                          The liquidity of your Security may be
                                          reduced if your Security was issued in
                                          book entry form because an investor
                                          may unwilling to purchase your
                                          Security if he cannot obtain a
                                          physical certificate. See "--Effects
                                          of Book-Entry Registration" herein.

                                          We do not intend to apply with any
                                          exchange or registered securities
                                          association for the listing or quoting
                                          of the Securities.

RISKS RELATING TO THE MORTGAGE LOANS

SELLERS OF THE MORTGAGE LOANS WILL MAKE   The Trust purchased or acquired the 
LIMITED REPRESENTATIONS                   Mortgage Loans comprising the Mortgage
                                          Collateral from TMA. TMA acquired the
                                          Mortgage Loans from various sellers.
                                          In most instances, each seller made
                                          certain representations and warranties
                                          regarding the Mortgage Loans it sold
                                          to TMA. If a seller materially
                                          breaches a representation or warranty,
                                          the seller will be obligated to:

                                             .    cure the breach;

                                             .    repurchase the affected
                                                  Mortgage Loan;

                                             .    in some instances, replace the
                                                  affected Mortgage Loan; or

                                             .    indemnify the Trust for
                                                  certain enumerated losses.

                                          The Trust cannot guaranty that the
                                          seller will honor its obligation. If
                                          the seller does not honor its
                                          obligation, the Master Servicer may
                                          enter into a settlement arrangement
                                          with the seller. A seller's failure to
                                          fully honor its obligation may result
                                          in losses on the Mortgage Loans which
                                          may adversely affect the yield to
                                          maturity on your Security. The Trust
                                          may use credit enhancements to
                                          minimize the amount of your loss.

                                          Neither the Company nor the Master
                                          Servicer will have any obligation to
                                          repurchase a Mortgage Loan if a seller
                                          fails to honor its obligation. 

Some Mortgage Loans May Be Purchased      In limited circumstances, TMA has
"As Is"                                   purchased Mortgage Loans from the
                                          Resolution Trust Corporation and other
                                          thrift or banking institutions without
                                          representations and warranties. For
                                          example, TMA has purchased seasoned
                                          Mortgage Loans (e.g., Mortgage Loans
                                          at least five years old) in connection
                                          with the termination of an
                                          unaffiliated issuer's securitization.
                                          If one of these Mortgage Loans
                                          defaults, the Master Servicer will not
                                          have any remedy against the seller.
                                          Consequently, you may experience
                                          reduced or delayed interest or
                                          principal payments, particularly if
                                          your Security is part of a
                                          subordinated class. See the
                                          description of "Trust Fund Assets."

                                       8
<PAGE>
 
EFFECT OF UNDERWRITING STANDARDS OF       The Mortgage Loans supporting your
UNAFFILIATED ORIGINATORS                  your Security have been acquired,
                                          either directly or indirectly, by the
                                          Depositor from various Sellers.
                                          Generally, the Mortgage Loans have
                                          been originated in accordance with
                                          TMA's underwriting standards. See
                                          "Mortgage Loan Acquisition-
                                          Underwriting Standards" in the
                                          Prospectus. TMA conducts a limited
                                          review to verify that the Mortgage
                                          Loans were originated in compliance
                                          with its standards. A full credit
                                          review is also conducted on select
                                          Mortgage Loans by third party
                                          contractors. TMA, however, is unable
                                          to verify that every Mortgage Loan was
                                          originated and continues to remain in
                                          compliance with its standards.
                                          Mortgage Loans for which compliance
                                          cannot be verified may suffer losses
                                          which could be greater than losses
                                          suffered on Mortgage Loans for which
                                          compliance was verified. The yield to
                                          maturity on your Security could be
                                          adversely affected by losses on
                                          unverified Mortgage Loans. 

PROPERTY VALUES MAY BE AFFECTED BY        A decline in the value of the
VARIOUS FACTORS                           Mortgage Properties securing the
                                          Mortgage Loans could adversely affect
                                          your Security. Mortgaged Property's
                                          value could decline as a result of,

                                             .    an overall decline in the
                                                  residential real estate market
                                                  in the region where the
                                                  Mortgaged Property is located;

                                             .    the failure of the borrower to
                                                  adequately maintain the
                                                  Mortgaged Property in good
                                                  condition; or

                                             .    the occurrence of a natural
                                                  disaster which is not covered
                                                  or adequately covered by
                                                  insurance, such as an
                                                  earthquake or flood.

                                          If the Mortgaged Property values
                                          decline, delinquencies, foreclosures
                                          and losses on the Mortgaged Loans may
                                          increase. Such delinquencies would
                                          adversely affect the timing and amount
                                          of payments to Securityholders,
                                          especially Subordinated
                                          Securityholders. 

DELAYS IN COLLECTING PROCEEDS DUE TO      If a Mortgage Loan goes into default,
LIQUIDATION OF THE MORTGAGE PROPERTIES    we could experience delays and
                                          additional expenses in liquidating the
                                          Mortgage Loan due to state foreclosure
                                          laws where the Mortgage Property is
                                          located. In addition, some state laws
                                          preclude deficiency judgments
                                          following a nonjudicial sale of a
                                          Mortgaged Property. This could limit
                                          the amount of our recovery upon
                                          foreclosure. These restrictions could
                                          impede the Master Servicer's ability
                                          to foreclose on or sell the Mortgage
                                          Property or obtain net proceeds, after
                                          deducting legal costs, delinquent
                                          taxes and other expenses, sufficient
                                          to repay the outstanding principal and
                                          interest on the Mortgage Loan. This
                                          could reduce or delay the scheduled
                                          payments on your Security,
                                          particularly if your Security is a
                                          subordinated class.

                                       9
<PAGE>
 
EXPENSES OF LIQUIDATION DO NOT VARY WITH  The amount of liquidation expenses 
THE AMOUNT OF THE MORTGAGE LOAN           incurred by a Servicer bears no 
                                          relation to the outstanding principal
                                          balance of the Mortgage Loan at the
                                          time of default. Liquidation expenses
                                          as a percentage of the outstanding
                                          principal balance will be greater on
                                          defaulted Mortgage Loans with small
                                          remaining principal balances as
                                          compared to defaulted Mortgage Loans
                                          with larger remaining principal
                                          balances. 

THE SECURITY OF JUNIOR LIENS IS           Although the Mortgage Loans primarily
SUBORDINATE TO THE SENIOR LIENS           consist of loans secured by a first
                                          priority mortgage lien or deed of
                                          trust, some Mortgage Loans may be
                                          secured by junior mortgages. If the
                                          Trust has a junior mortgage, it will
                                          receive proceeds from any liquidation,
                                          insurance or condemnation proceeding
                                          only after the senior mortgage holders
                                          have been paid in full, including any
                                          related foreclosure costs. In
                                          addition, the Trust will be unable to
                                          foreclose upon its junior mortgage
                                          unless it:

                                             .    pays the entire amount due to
                                                  the senior mortgage holders
                                                  prior to foreclosure, or

                                             .    agrees to make payments to the
                                                  senior mortgage holders if the
                                                  borrower has defaulted on the
                                                  senior mortgage.

                                          In either instance, the Trust will not
                                          have any source of funds to make such
                                          payments. The Master Servicer or
                                          Servicer may advance funds to the
                                          Trust if deemed recoverable and
                                          prudent. If the applicable
                                          jurisdiction prohibits deficiency
                                          judgments, or the Trust is unable to
                                          realize upon a deficiency judgement,
                                          the Trust will experience losses when
                                          the proceeds from a foreclosure are
                                          insufficient to satisfy all senior
                                          liens. This result may adversely
                                          affect your Security.

                                          The default rate on junior Mortgage
                                          Loans may be greater than the default
                                          rate on Mortgage Loans secured by
                                          first liens on comparable properties.

CREDIT CONSIDERATIONS AND RISK

PAYMENTS ON YOUR SECURITY WILL BE MADE    Although your Security will be the 
FROM LIMITED SOURCES                      Trust's obligation, the Trust will not
                                          have significant assets other than
                                          those comprising our Trust Fund
                                          Assets. Payments that the Trust is
                                          obligated to make to you will come
                                          solely from the Trust Fund Assets. You
                                          will not have recourse to the Company,
                                          TMA or any other person if the Trust
                                          fails to make any payments to you. In
                                          addition, after making a scheduled
                                          payment to you and other required
                                          payments, the Trust may promptly
                                          release or disburse excess funds to
                                          the Company, TMA, any credit
                                          enhancement provider or other entitled
                                          person. The disbursed funds will no
                                          longer be available for making
                                          payments on your Security. You must
                                          rely solely on the payments the Trust
                                          receives on the Mortgage Collateral,
                                          any security the Trust has given you,
                                          and any available credit enhancement.
                                          See "Credit Enhancement."

                                      10
<PAGE>
 
YOU WILL NOT HAVE RECOURSE AGAINST THE    Your Security does not represent an 
COMPANY OR TMA                            interest in or obligation of the
                                          Company or TMA. The Company may have
                                          the obligation to repurchase certain
                                          Mortgage Loans if it made
                                          representations and warranties
                                          regarding those loans. The Company,
                                          however, does not have, and is not
                                          expected to have, significant assets.
                                          If the Company breaches a
                                          representation or warranty, it may not
                                          be able to repurchase the Mortgage
                                          Loan unless it can enforce a
                                          corresponding obligation from TMA or
                                          the Mortgage Loan originator, or it
                                          has established a Reserve Fund or
                                          similar credit enhancement for
                                          repurchases. 

LIMITATIONS OF DIRECT OR INDIRECT         While Agency Securities are 
BACKING OF SECURITIES                     guaranteed by government sponsored
                                          entities, only the guarantee by GNMA
                                          of GNMA Certificates is backed by the
                                          full faith and credit of the United
                                          States. The guarantees by FNMA of FNMA
                                          Certificates and FHLMC or FHLMC
                                          Certificates are backed only be FNMA,
                                          a federally chartered, privately owned
                                          corporation, or FHLMC, a federally
                                          chartered corporation controlled by
                                          the Federal Home Loan Banks. Neither
                                          the United States nor any United
                                          States agency is obligated to finance
                                          or assist either FNMA or FHLMC. See
                                          "Trust Fund Assets--Agency
                                          Securities." The guarantees of GNMA,
                                          FNMA or FHLMC, guarantee the payments
                                          of principal and interest on their
                                          respective Agency Securities, and do
                                          not guarantee the payment of principal
                                          and interest on your Security. 

SALE OF MORTGAGE COLLATERAL MAY RESULT    The Trust cannot guaranty that the 
IN A DEFICIENCY                           proceeds from any Mortgage Collateral
                                          sale will be sufficient to pay to you
                                          the entire principal and interest
                                          outstanding on your Security in the
                                          event of a default under the
                                          Indenture. Insufficient proceeds may
                                          be due to an increase in prevailing
                                          interest rates which would cause the
                                          Trust to sell the Mortgage Collateral
                                          at a discount. It is unlikely that the
                                          Trust will have sufficient other
                                          assets to make up for any deficiency.

                                          If your Security's maturity is
                                          accelerated due to a default under the
                                          Indenture, the Trustee may, at the
                                          direction of the Securityholders,
                                          refrain from selling the Mortgage
                                          Collateral. Instead, the Trustee may
                                          continue to apply payments received on
                                          the Mortgaged Collateral to the
                                          payments due to you in accordance with
                                          the terms of your Security. 

LOSSES ON THE MORTGAGE COLLATERAL MAY     Your Security class may be subordinate
FIRST AFFECT SUBORDINATED CLASSES         to other Security classes as to the
                                          payment of principal and/or interest.
                                          The Trust intends for subordination to
                                          reduce the risk to senior
                                          Securityholders. The amount of
                                          subordination, however, will be
                                          limited. If principal payments on your
                                          Security class are lower in priority
                                          to principal payments on other
                                          Security classes,

                                             .    you will bear significant
                                                  losses on the Mortgage
                                                  Collateral prior to any senior
                                                  Securityholders; and

                                      11
<PAGE>
 
                                             .    claims under credit
                                                  enhancements may exceed
                                                  specified limits prior to
                                                  repayment of your principal.

LIMITATIONS, REDUCTION AND SUBSTITUTION   Your Security may be subject to one 
OF CREDIT ENHANCEMENT                     or more of the following credit
                                          enhancements:

                                             .    cash accounts;
                                             .    insurance policies;
                                             .    surety bonds;
                                             .    guaranteed investment 
                                                  contracts; 
                                             .    cross-collateralization; 
                                             .    reinvestment income; 
                                             .    guarantees; 
                                             .    letters of credit; or 
                                             .    derivative arrangements.

                                          See "Credit Enhancement."

                                          Although credit enhancement is
                                          intended to reduce your risk of
                                          delinquent payments, you may still
                                          suffer losses on your Security
                                          because:

                                             .    the credit enhancement amount
                                                  may be limited;

                                             .    the credit enhancement amount
                                                  may be subject to periodic
                                                  reduction in accordance with a
                                                  schedule or formula;

                                             .    the credit enhancement amount
                                                  could be depleted under
                                                  certain circumstances prior to
                                                  your having received full
                                                  payment on your Security; or

                                             .    the credit enhancement does
                                                  not cover the specified loss,
                                                  such as loss due to the loan
                                                  originator's fraud or
                                                  negligence.

                                          In addition, the Trustee may be able
                                          to reduce, terminate or substitute all
                                          or a portion of the credit enhancement
                                          for your Security, provided the Rating
                                          Agency determines that your Security's
                                          rating will not be adversely affected.

                                          There also is a risk that actual
                                          defaults, delinquencies and losses on
                                          the Mortgage Collateral will exceed
                                          the assumptions used in calculating
                                          the amount of credit enhancement we
                                          obtained. See "Ratings" herein.


SECURITIES MAY BE ADVERSELY AFFECTED BY   At the time you purchase your 
DELINQUENT LOANS                          Security, the Mortgage Collateral may
                                          contain Mortgage Loans that are either
                                          past due or non-performing. You should
                                          consider the affect that inclusion of
                                          these Mortgage Loans may have on the
                                          Mortgage

                                      12
<PAGE>
 
                              Collateral's default and prepayment rates and on
                              your Security's yield.

EFFECT OF BANKRUPTCY AND      For legal and bankruptcy purposes, TMA and the
INSOLVENCY                    Depositor will each treat the transfer between
                              them of the Mortgage Collateral as a sale. The
                              transfer of the Mortgage Collateral from the
                              Depositor to the Issuer will be treated by each
                              party as a sale for accounting purposes. If the
                              transfer to the Depositor is treated as a sale,
                              the Trust Fund Assets, in the event TMA becomes
                              bankrupt, should not be considered part of TMA's
                              bankruptcy estate and would not be available to
                              TMA's creditors. The bankruptcy trustee or a
                              creditor, however, could attempt to recharacterize
                              the sale as a borrowing by TMA secured by of a
                              pledge of the Trust Fund Assets. A similar
                              analysis is applicable to the transfer of the
                              Trust Fund Assets from the Depositor to the
                              Issuer. In either case, if the transfer is
                              recharacterized as a pledge of the Trust Fund
                              Assets to secure a borrowing, either the Depositor
                              or the Trust will have a perfected security
                              interest in the related Mortgage Collateral. If
                              this should occur, a court could prevent the
                              Issuer from making timely or complete payments to
                              you on your Security.


EFFECT OF THE MASTER          If the Master Servicer should become bankrupt or  
SERVICER'S BANKRUPTCY         insolvent, the bankruptcy trustee or receiver may
                              have the power to prevent the applicable Trustee
                              or the Securityholders from appointing a successor
                              Master Servicer. The Master Servicer may commingle
                              cash collection with its own funds prior to each
                              Distribution Date only for a period not to exceed
                              [10] days. If, due to bankruptcy or insolvency,
                              the Master Servicer commingles cash collections
                              for ten or more days, the Applicable Trustee will
                              not have of a perfected security interest in the
                              commingled cash collections. The commingled cash
                              would therefore become part of the Master
                              Servicer's bankruptcy estate, which would delay or
                              prevent the Applicable Trustee from making
                              contractual payments due on your Security.


EFFECT OF BORROWER'S          Federal bankruptcy laws and other Federal and     
BANKRUPTCY ON ABILITY TO      state laws providing relief to debtors may        
REALIZE MORTGAGE COLLATERAL   interfere with or affect the Issuer's ability to  
                              realize upon its lien or security in the Mortgage 
                              Collateral. Under the Federal bankruptcy laws, the
                              Issuer would have to obtain the bankruptcy court's
                              permission to foreclose on a Mortgaged Property.  
                              The bankrupt debtor may propose a plan which would
                              reduce the secured portion of our Mortgage Loan to
                              an amount equal to the Mortgaged Property's value,
                              making us a general unsecured creditor for the    
                              balance of the Mortgage Loan. The debtor's plan   
                              also may seek to reduce the amount of the debtor's
                              monthly payments to us on the Mortgage Loan,      
                              change the Mortgage Loan's interest rate, or alter
                              the Mortgage Loan's payment schedule. Bankruptcy  
                              proceedings could therefore delay our receipt,    
                              and/or reduce the amount, of collections on the   
                              Mortgage Collateral supporting your Security. 
                              
                                      13 
<PAGE>
 
ENVIRONMENTAL RISKS           Real property pledged as security to a lender may
                              be subject to environmental risks. Various state
                              laws provide that under the laws of certain
                              states, property contamination may give rise to a
                              lien on the property to assure the costs of
                              cleanup. In several states, such a lien has
                              priority over the lien of an existing mortgage
                              against the property. In addition, some state's
                              laws and the Federal Comprehensive Environmental
                              Response Compensation and Liability Act of 1980
                              ("CERCLA"), provide that a lender may be liable
                              for the costs of addressing releases or threatened
                              releases of hazardous substances on a property,
                              regardless of whether the environmental damage or
                              threat was caused by a prior owner. Such costs
                              could result in a loss to the holders of one or
                              more Classes of a Series of Securities. A lender
                              also risks such liability when foreclosing upon a
                              contaminated property. See "Certain Legal Aspects
                              of Mortgage Loans--Environmental Risks" herein.

RATINGS OF THE SECURITIES

RATINGS ARE NOT A             The Offered Securities have been rated by the    
RECOMMENDATION TO PURCHASE    Rating Agencies. The ratings were based upon,    
THE SECURITIES.               among other factors, the Mortgage Collateral's   
                              value and applicable credit enhancements. Each   
                              rating represents the applicable Rating Agency's 
                              assessment solely of the likelihood that you will
                              receive payments to which you are entitled under 
                              the Indenture. You should not view the ratings as
                              a recommendation to purchase, hold or sell       
                              Securities.                                       
                              
RATINGS MAY BE LOWERED OR     A Rating Agency may lower or withdraw its rating
WITHDRAWN.                    of your Security in the future due to various   
                              factors, including:                             
                                                                              
                                   .    a decrease in the value of the Trust  
                                        Fund Asset; 

                                   .    changes in credit enhancement; or
                                                                              
                                   .    adverse changes to a credit enhancement
                                        provides financial condition or debt  
                                        rating.                                
                              
THE ANALYSIS PERFORMED BY     The amount, type and nature of credit enhancement
RATING AGENCIES IS LIMITED.   for a particular class of Security will be       
                              determined by the Rating Agencies. Each Rating   
                              Agency has established its own criteria based upon
                              certain actual analysis and assumptions. The     
                              Rating Agencies do not guarantee that the data   
                              they use accurately reflects the characteristics 
                              of the Mortgage Collateral nor that a Rating     
                              Agency's analysis and assumptions can accurately 
                              predict the performance of the Mortgage          
                              Collateral. The Mortgage Collateral's performance
                              may be adversely affected by economic and other
                              factors not considered by the Rating Agencies.

EFFECT OF SECURITIES ISSUED   If a Security is issued in book-entry form, you  
IN BOOK-ENTRY FORM            will not be recognized as a Securityholder under 
                              the related Agreement and you may only exercise  
                              the rights of a securityholder 

                                      14
<PAGE>
 
                              indirectly through the DTC and its participants.
                              Not having a physical certificate may affect,
                              
                                   .    the liquidity of your Security in any
                                        secondary trading market; and

                                   .    your ability to pledge your Security.

                              You may also experience delays in the receipt of
                              principal and interest payments made to you
                              because the payments must be routed through the
                              DTC. See "Description of Securities-- Book-Entry
                              Securities"

CONSEQUENCES OF OID DISCOUNT  Deferred Interest Securities will be, and certain
SECURITIES                    other Securities may be, issued with OID for    
                              Federal income tax purposes. If your Security is
                              issued with OID you will be required to include 
                              OID in ordinary gross income for Federal income 
                              tax purposes as it accrues, even though you have
                              not yet received the cash attributable to such  
                              income. See "Federal Income Tax Considerations--
                              Original Issue Discount" and "--Market Discount"
                              herein.                                          
                              
                                      15
<PAGE>
 
                                USE OF PROCEEDS

      The [Depositor] will apply the net proceeds received from the sale of the
[Offered Certificates] to the purchase or acquisition of the [Underlying
Bond/Mortgage Loans.]

                               TRUST FUND ASSETS

GENERAL

      The Trust Fund Assets supporting the Offered Securities will consist
primarily of mortgage collateral (the "Mortgage Collateral") acquired, directly
or indirectly, from third party originators including of one or more of the
following: (i) adjustable-rate, first or junior lien mortgage loans secured by
one- to four-family residential properties (the "Floating Rate Mortgage Loans")
(ii) fixed-rate, first or junior lien mortgage loans secured by one- to
four-family residential properties (the "Fixed Rate Mortgage Loans") and,
together with the Floating Rate Mortgage Loans, the "Mortgage Loans"), (iii)
mortgage pass-through securities (the "Agency Securities" or "Agency
Certificates") issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") (iv) privately issued
non-agency pass-through securities ("Non-Agency Securities") representing an
undiluted interest in a pool of mortgage loans, (Agency Securities and
Non-Agency Securities are sometimes referred to collectively as "Pass-Through
Securities"), (v) to a limited extent, adjustable rate junior Mortgage Loans, or
(vi) a combination of Agency Certificates and/or Non-Agency Securities and
Mortgage Loans. [In certain instances, the Mortgage Loans may, in addition to
the Mortgaged Property, be secured by additional collateral which may consist of
mortgages on real property, pledged securities or cash collateral.] The Trust
Fund Assets may also include certain cash accounts, insurance policies, surety
bonds, guaranteed investment contracts, cross-collateralization, reinvestment
income, guaranties, letters of credit or derivative arrangements to the extent
described herein and in the Prospectus.

      [The Trust Fund Assets for the Offered Certificates will consist primarily
of one or more Bonds representing the right to receive all or substantially all
of the payments on the Mortgage Collateral securing such Offered Bonds. Each
Series of Certificates will accordingly be supported by the Mortgage Collateral
and other items included in the Trust Fund Assets for the related Bonds.]

      The Mortgage Collateral supporting the Offered Securities will serve as
Trust Fund Assets only for the Offered Securities, except to the extent that any
Mortgage Pool Insurance Policies, Special Hazard Insurance Policies, Bankruptcy
Bonds or other form of credit enhancement specified herein may be pledged or
transferred to support more than other series of securities offered by the
Issuer. See "Credit Enhancement" herein.

THE MORTGAGE COLLATERAL

      Under the Mortgage Loan Purchase Agreement, [TMA] will make certain
representations, warranties and covenants to the Depositor relating to, among
other things, the due execution and enforceability of the Mortgage Loan Purchase
Agreement and certain characteristics of the Mortgage Loans and, subject to the
limitations described below under "--Assignment of the Mortgage Loans," will be
obligated to purchase or substitute a similar mortgage loan for any Mortgage
Loan as to which there exists deficient documentation or an uncured material
breach of any such representations, warranty or covenant. See "Mortgage Loan
Acquisition Program-- Representations by Sellers; Repurchases" in the
Prospectus. The Company will in turn assign all of its rights under the Mortgage
Loan Purchase Agreement to the Issuer. Under the Indenture, the Issuer will
pledge all its rights, title and interest in and to such representations,
warranties and covenants (including TMA's repurchase obligation) to the
_________ for the benefit of the Securityholders. The Issuer will make no
representations or warranties with respect to the Mortgage Loans and will have
no obligation to repurchase or substitute Mortgage Loans with deficient
documentation or which are otherwise defective. The obligations of [TMA] with
respect to the Securities are limited to [TMA's] obligation to repurchase or
substitute Mortgage

                                      16
<PAGE>
 
Loans with deficient documentation or which are otherwise defective under the
Mortgage Loan Purchase Agreement.

      Certain information with respect to the Mortgage Collateral is set forth
below. Prior to the Closing Date, Mortgage Loans may be removed from the
Mortgage Collateral and other Mortgage Loans may be substituted therefor. The
Depositor believes that the information set forth herein with respect to the
Mortgage Loans as presently constituted is representative of the characteristics
of the Mortgage Loans as they will be constituted at the Closing Date, although
certain characteristics of the Mortgage Loans in the Mortgage Collateral may
vary. The final Mortgage Collateral will be filed as an exhibit to the final
form of the Agreements filed on Form 8-K following the Closing Date. Unless
otherwise indicated, information presented below expressed as a percentage
(other than the rates of interest) are approximate percentages based on the
Stated Principal Balances of the Mortgage Loans as of the Cut-off Date.

      As of the Cut-off Date, the aggregate of the Stated Principal Balances of
the Mortgage Loans is expected to be approximately $_____ , subject to a
permitted variance of no greater than 5% (the "Cut-off Date Principal Balance").
[The Mortgage Loans provide for the amortization of the amount financed over a
series of substantially equal monthly payments.] All of the Mortgage Loans
provide for payments due on the first day of each month (the "Due Date"). At
origination, substantially all of the Mortgage Loans had stated terms to
maturity of __________ years. Scheduled monthly payments made by the Mortgagors
on the Mortgage Loans ("Scheduled Payments") either earlier or later than the
scheduled Due Dates thereof will not affect the amortization schedule or the
relative application of such payments to principal and interest. [Mortgagors may
prepay their Mortgage Loans at any time without penalty.]

      Each Mortgage Loan will bear interest at a [fixed] [adjustable] Mortgage
Rate. [Each Mortgage Loan will bear interest at a Mortgage Rate, subject to
annual adjustment on the first day of the month specified in the related
Mortgage Note (each such date, an "Adjustment Date"), equal to the sum, rounded
to the nearest ________ of one percentage point (_______ %), of (i) _________
(the "Index") as made available by the and most recently available as of days
prior to the Adjustment Date and (ii) a fixed percentage amount specified in the
related Mortgage Note (the "Margin") provided, however, that the Mortgage Rate
will not increase or decrease by more than _________ percentage points (_____
%), except for ______________ Mortgage Loans, representing approximately _____%
of the Cut-off Date Principal Balance which will not increase or decrease by
more than percentage points (_____%), on the first Adjustment Date or more than
_________ percentage points (______%) on any Adjustment Date thereafter (the
"Periodic Rate Cap"). The Index with respect to any Bond Interest Rate and any
Distribution Date shall be the Index in effect as of the first day of the month
preceding the month in which such Distribution Date occurs.]

      [All of the Mortgage Loans provide that over the life of the Mortgage Loan
the Mortgage Rate will in no event increase by more than the Mortgage Rate fixed
at origination plus a fixed number of percentage points specified in the related
Mortgage note (such rate, the "Maximum Rate"). None of the Mortgage Loans are
subject to minimum Mortgage Rates. Effective with the first payment due on a
Mortgage Loan after each related Adjustment Date, the Scheduled Payment will be
adjusted to an amount which will pay interest at the adjusted rate and fully
amortize the then-outstanding principal balance of the Mortgage Loan over its
remaining term. If the Index ceases to be published or is otherwise unavailable,
the Master Servicer will select an alternative index based upon comparable
information.]

      Each Mortgage Loan is, by its terms, assumable in connection with a
transfer of the related Mortgaged Property if the proposed transferee submits
certain information to the Master Servicer required to enable it to evaluate the
transferee's ability to repay the Mortgage Loan and if the Master Servicer
reasonably determines that the security for the Mortgage Loan would not be
impaired by the assumption. See "RISK FACTORS" herein and in the Prospectus.

      Each Mortgage Loan was originated on or after __________, 19___.

                                      17
<PAGE>
 
      The latest stated maturity date of any Mortgage Loan is __________, 20__.
The earliest stated maturity date of any Mortgage Loan is ____________, 20__.

      [As of the Cut-off Date, no Mortgage Loan was delinquent more than days]

      [None of the Mortgage Loans are subject to buydown agreements.] [No
Mortgage Loan provides for deferred interest or negative amortization.]

      No Mortgage Loan had a Loan-to-Value Ratio at origination of more than __
%. [Except for Mortgage Loans, representing approximately __% as of the Cut-off
Date Principal Balance,] each Mortgage Loan with a Loan-to-Value Ratio at
origination of greater than 80% is covered by a primary mortgage insurance
policy (each a "Primary Mortgage Insurance Policy") issued by a mortgage
insurance company acceptable to the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") or any nationally
recognized statistical rating organization, which policy provides coverage of a
portion of the original principal balance of the related Mortgage Loan equal to
the product of the original principal balance thereof and a fraction, the
numerator of which is the excess of the original principal balance of the
related Mortgage Loan over 75% of the lesser of the appraised value and selling
price of the related Mortgage Property and the denominator of which is the
original principal balance of the related Mortgage Loan, plus accrued interest
thereon and related foreclosure expenses. No such Primary Mortgage Insurance
Policy will be required with respect to any such Mortgage Loan after the date on
which the related Insurance Policy will be required with respect to any such
Mortgage Loan after the date on which the related Loan-to-Value Ratio is 80% or
less or, based on a new appraisal, the principal balance of such Mortgage Loan
represents 80% or less of the new appraised value. See" Underwriting Standards"
herein and in the Prospectus.

      The "Loan-to-Value Ratio" of a Mortgage Loan at any given time is a
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at the date of determination and the
denominator of which is (a) in the case of a purchase, the lesser of the selling
price of the Mortgaged Property and its appraised value determined in an
appraisal obtained by the originator at origination of such Mortgage Loan, or
(b) in the case of a refinance, the appraised value of the Mortgaged Property at
the time of such refinance. No assurance can be given that the value of any
Mortgaged Property has remained or will remain at the level that existed on the
appraisal or sales date. If residential real estate values generally or in a
particular geographic area decline, the Loan-to-Value Ratios might not be a
reliable indicator of the rates of delinquencies, foreclosures and losses that
could occur with respect to such Mortgage Loans.

      The following information sets forth in tabular format certain
information, as of the Cut-off Date, as to the Mortgage Loans. Other than with
respect to rates of interest, percentages (approximate) are stated by Stated
Principal Balance of the Mortgage Loans as of the Cut-off Date and have been
rounded in order to total 100%.

                                      18
<PAGE>
 
<TABLE> 
<CAPTION> 
                  Current Mortgage Rates(1)                                              Maximum Rates(1)
- -------------------------------------------------------------      -------------------------------------------------------------
                                       Aggregate                                                         Aggregate
                          Number of    Principal    Percent                               Number of      Principal     Percent
    Range of Current      Mortgage      Balance        of                Range of          Mortgage       Balance         of
   Mortgage Rates (%)       Loans     Outstanding     Pool           Maximum Rates (%)      Loans       Outstanding      Pool
- ------------------------ ----------- ------------- ----------      --------------------- ------------  -------------  ----------
<S>                      <C>         <C>           <C>             <C>                   <C>           <C>            <C> 


                                                                                         ------------  -------------  ---------- 
                                                                        Total..........  
                                                                                         ============  =============  ==========
                                                                   ____________
                                                                   (1) As of the Cut-off Date, the weighted average Maximum Rate 
                                                                       of the Mortgage Loans was approximately _____% per annum

                         ----------- ------------- ----------
     Total.............. 
                         =========== ============= ==========
</TABLE> 

____________
(1) As of the Cut-off Date, the weighted average Mortgage Rate 
    of the Mortgage Loans was approximately ___% per annum.

<TABLE> 
<CAPTION> 
                                                                                       Current Mortgage Loan                       
                        Gross Margins(1)                                                Principal Balances(1)                      
- -----------------------------------------------------------------     -------------------------------------------------------------
                              Number of     Aggregate                                                       Aggregate              
                              Mortgage      Principal    Percent             Range of         Number of     Principal     Percent  
                                Loans        Balance       of         Current Mortgage Loan    Mortgage      Balance         of    
 Range of Gross Margins (%)                Outstanding    Pool        Principal Balances ($)    Loans      Outstanding      Pool   
- ---------------------------- -----------  ------------- ---------     ---------------------- ------------ -------------- ---------- 
<S>                          <C>          <C>           <C>           <C>                    <C>          <C>            <C> 
                                                                                                                                   
                                                                                                                                   
                             -----------  ------------- ---------                            ------------ -------------- ---------- 

     Total..............                                                Total...........                                           
                             ===========  ============= =========                            ============ ============== ==========
                                                                                                                                   
____________                                                            ____________                                               
(1) As of the Cut-off Date, the weighted average Gross Margin of        (1) As of the Cut-off Date, the average current Mortgage   
    the Mortgage Loans was approximately _____%.                            Loans principal balance was approximately $______.      

</TABLE> 

                                      19
<PAGE>
 
<TABLE> 
<CAPTION> 
                 Minimum Mortgage Rates (1)                                    State Distribution of Mortgaged Properties*        
- ------------------------------------------------------------          --------------------------------------------------------------
                                         Aggregate                                                          Aggregate             
 Range of Minimum       Number of        Principal     Percent                                Number of     Principal     Percent 
interest Rates (%)      Mortgage          Balance         of                                  Mortgaged      Balance         of   
                          Loans         Outstanding      Pool                State              Loans      Outstanding      Pool  
- ------------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>          <C>              <C>              <C>                    <C>          <C>            <C> 
                                                                                                                                  
                                                                                                                                  
                                                                                                                                  
                                                                                                                                  
                                                                                                                                   
                                                                                                                                   
                        -----------  -------------    ---------                               -----------  -------------  --------- 

     Total..........                                                      Total...........                                
                        ===========  =============    =========                               ===========  =============  =========

____________                                                            ____________                                               
(1) As of the Cut-off Date, the weighted average Minimum Rate of        (1) Other includes ___ states which have a concentration of 

    the Mortgage Loans was approximately _____%.                            less than ___%.                                       
</TABLE> 
    

<TABLE>
<CAPTION>
                    Loan-to-Value Ratio(1)                                              Initial Fixed Rate Period                  
- -----------------------------------------------------------------     -------------------------------------------------------------
                               Number       Aggregate                                                       Aggregate              
                                 of         Principal    Percent                              Number of     Principal     Percent  
 Range of Loan-to-Value       Mortgage       Balance       of          Initial Fixed Rate      Mortgage      Balance         of    
        Ratio (%)               Loans      Outstanding    Pool           Period-(Months)        Loans      Outstanding      Pool   
- -----------------------------------------------------------------     ------------------------------------------------------------- 
<S>                          <C>          <C>           <C>           <C>                    <C>          <C>            <C>      
                                                                                                                                   
                                                                                                                                   
                             -----------  ------------- ---------                            ------------ -------------- ---------- 

     Total..............                                                Total...........                                           
                             ===========  ============= =========                            ============ ============== ==========
</TABLE>        

____________         
(1)  As of the Cut-off Date, the weighted average Loan-to-Value Ratio of the
     Mortgage Loans was approximately _____%.


                                      20
<PAGE>
 
<TABLE>
<CAPTION>
       Next Adjustment Date - Non-2/28 Mortgage Loans                          Remaining Months to Stated Maturity(1)       
- -----------------------------------------------------------------     -------------------------------------------------------------
                                         Aggregate                                                          Aggregate             
                             Number of   Principal     Percent                                Number of     Principal     Percent 
  Next Adjustment            Mortgage     Balance         of                                  Mortgaged      Balance         of   
        Date                   Loans    Outstanding      Pool             Remaining Term        Loans      Outstanding      Pool  
- -----------------------------------------------------------------     -------------------------------------------------------------
<S>                          <C>        <C>            <C>            <C>                     <C>          <C>            <C>      
                                                                                                                                  
                                                                                                                                  
                                                                                                                                  
                                                                     
                                                                                            ------------ -------------- ----------
                                                                       Total
                                                                                            ============ ============== ========== 
                             -----------  ------------- ---------                                                                   
     Total
                             ===========  ============= =========       ____________                                                
                                                                        (1) As of the Cut-off Date, the weighted average remaining  
                                                                            months to scheduled maturity was approximately ___      
                                                                            months.                                                 
                                                                        
                                                                        
</TABLE>

<TABLE> 
<CAPTION>                                                           
               Type of Mortgaged Properties                         
- -----------------------------------------------------------------   
                               Number       Aggregate               
                                 of         Principal    Percent    
                              Mortgage       Balance       of       
     Occupancy Type             Loans      Outstanding    Pool      
- -----------------------------------------------------------------   
<S>                          <C>          <C>           <C>        
                                                                    
                                                                    
                             -----------  ------------- ---------   
     Total
                             ===========  ============= =========   
</TABLE> 
                                                                    
                                      21
<PAGE>
 
ASSIGNMENT OF THE MORTGAGE LOANS

     Pursuant to the _______ Agreement, the Depositor on the Closing Date will
sell, transfer, assign, set over and otherwise convey without recourse to the 
____________ in trust for the benefit of the Securityholders all right, title
and interest of the Depositor in and to each Mortgage Loan and all right, title
and interest in and to all other assets included in the Trust Fund Assets,
including all principal and interest received on or with respect to the Mortgage
Loans on and after the Cut-off Date, exclusive of principal due prior to the 
Cut-off Date and interest accruing prior to ________, 199_.

     In connection with such transfer and assignment, the Depositor will deliver
on the Closing Date the following documents (collectively constituting the
"Trustee's Mortgage File") with respect to each Mortgage Loan:

          (i)    the original Mortgage Note, endorsed without recourse in the
     following form: "Pay to the order of ____ without recourse," with all
     intervening endorsements that show a complete chain of endorsement from the
     originator to ___________;

          (ii)   the original recorded Mortgage;

          (iii)  a duly executed assignment of the Mortgage to _______________, 
     as trustee under Agreement dated as of ___________, _______ Trust, Series
     199_-_ without recourse"; in recordable form, as described in the _________
     Agreement;

          (iv)   the original recorded assignment or assignments of the Mortgage
     together with all interim recorded assignments of such Mortgage;

          (v)    the original or copies of each assumption, modification,
     written assurance or substitution agreement, if any; and

          (vi)   the original or duplicate original lender's title policy and
     all riders thereto or, in the event such original title policy has not been
     received from the insurer, such original or duplicate original lender's
     title policy and all riders thereto shall be delivered within one year of
     the Closing Date.

     Assignments of the Mortgage Loans to the __________ (or its nominee) will
be recorded in the appropriate public office for real property records, except
in states (such as California) as to which an opinion of counsel is delivered to
the effect that such recording is not required to protect the _____________ 
interests in the Mortgage Loan against the claim of any subsequent transferee or
any successor to or creditor of the Depositor or the Seller. As to any Mortgage
Loan, the recording requirement exception described in the preceding sentence is
applicable only so long as the related Mortgage File is maintained in the
possession of the _____ in one of the states to which such exception applies. In
the event any such assignment is delivered to the __________ in blank and the
related Mortgage File is released by the ____________ pursuant to applicable
provisions of the _______________ Agreement, the ________________ shall complete
such assignment as provided in subparagraph (iii) above prior to any such
release. In the event such recording is required to protect the interest of the
_____________ in the Mortgage Loans, the Master Servicer is required to cause
each previously unrecorded assignment to be submitted for recording.

     The __________ will review the Mortgage Loan documents [on or prior to the
Closing Date] and will hold such documents in trust for the benefit of the
Securityholders. After the Closing Date, if any document is found to be missing
or defective in any material respect, the ____________ is required to notify the
Loan Seller and the Seller in writing. If the Loan Seller or the Seller cannot
or does not cure such omission or defect within 90 days of its receipt of notice
from the Trustee, [the Loan Seller] is required to repurchase the related

                                      22
<PAGE>
 
Mortgage Loan from the Trust Fund Assets at a price (the "Purchase Price") equal
to [_]% of the Stated Principal Balance thereof plus accrued and unpaid interest
thereon, at a rate equal to the difference between the Mortgage Rate and the
Servicing Fee Rate (the "Net Mortgage Rate") (or, if ______________ is no longer
the Master Servicer, at the applicable Mortgage Rate) to the first day of the
month in which the Purchase Price is to be distributed to Securityholders.
Rather than repurchase the Mortgage Loan as provided above, [the Loan Seller or
the Seller] may remove such Mortgage Loan (a "Deleted Mortgage Loan") from the
Trust Fund Assets and substitute in its place another Mortgage Loan of like kind
(a "Replacement Mortgage Loan"); however, such substitution is only permitted
within two years after the Closing Date, and may not be made unless an opinion
of counsel is provided to the effect that such substitution would not disqualify
the [REMIC/FASIT] status or result in a prohibited transaction under the Code.
Any Replacement Mortgage Loan generally will, on the date of substitution, among
other characteristics set forth in the ____________ Agreement, (i) have a Stated
Principal Balance, after deduction of the principal portion of the scheduled
payment due in the month of substitution, not in excess of, and not less than
[_]% of, the Stated Principal Balance of the Deleted Mortgage Loan (the amount
of any shortfall to be deposited by [the Loan Seller or the Seller] in the
Security Account not later than the succeeding Determination Date and held for
distribution to the holders of the Security on the related Distribution Date),
(ii) have a Maximum Mortgage Rate not more than [_]% per annum higher or lower
than the Maximum Mortgage Rate of the Deleted Mortgage Loan, (iii) have a
Minimum Mortgage Rate not more than [_]% per annum higher or lower than the
Minimum Mortgage Rate of the Deleted Mortgage Loan, (iv) have the same Mortgage
Index and Periodic Rate Cap as the Deleted Mortgage Loan and a Gross Margin not
more than [_]% per annum higher or lower than that of the Deleted Mortgage Loan,
(v) have the same or higher credit quality characteristics than that of the
Deleted Mortgage Loan, (vi) be accruing interest at a rate not more than [_]%
per annum higher or lower than that of the Deleted Mortgage Loan, (vii) have a
Combined Loan-to-Value Ratio or Loan-to-Value Ratio, as applicable, no higher
than that of the Deleted Mortgage Loan, (viii) have a remaining term to maturity
not greater than (and not more than one year less than) that of the Deleted
Mortgage Loan, (ix) not permit conversion of the Mortgage Rate from a fixed rate
to a variable rate or vice versa, (x) provide for a prepayment charge on terms
substantially similar to those of the prepayment charge, if any, of the Deleted
Mortgage Loan, (xi) constitute the same occupancy type as the Deleted Mortgage
Loan, and (xii) comply with all of the representations and warranties set forth
in the Pooling and Servicing Agreement as of the date of substitution. This
cure, repurchase or substitution obligation constitutes the sole remedy
available to the Securityholders, the ___________ or the Depositor for omission
of, or a material defect in, a Mortgage Loan document.

RE-UNDERWRITING STANDARDS

     Prior to bidding on a pool of Mortgage Loans, TMA analyzes the pool to
determine the quality of the underwriting standards employed by the originators,
and the credit worthiness of the borrowers and the Mortgaged Property. TMA also
analyzes the pool's characteristics for undue risks due to geographic
concentration, borrower and collateral types, and the percentage of large loans.
In the process of screening the pool based on those criteria, TMA uses an
adverse selection approach to generate a list of loans for further review,
generally consisting of from 10% to 100% of the Mortgage Loans in the pool. Once
TMA's bid has been accepted, TMA will select from the pool those loans likely to
present a risk of default (an "adverse selection"). A TMA employee, together
with an independent underwriter, will review each Mortgage Loan file represented
on the adverse selection list and in appropriate cases will view the property.

UNDERWRITING STANDARDS

     TMA acquires the Mortgage Loans both directly from unaffiliated Sellers in
negotiated purchases and through the secondary mortgage markets. All Mortgage
Loans will have been originated by entities that satisfy the criteria for
originators of Mortgage Loans that are eligible for inclusion in "mortgage
related securities." Each Seller will represent and warrant that all Mortgage
Loans originated and/or sold by it to TMA or one of TMA's affiliates will have
been underwritten in accordance with standards consistent with those utilized by
mortgage lenders generally during the period of origination. Underwriting
standards are applied by or on behalf of a lender to evaluate the borrower's
credit standing and repayment ability, and the value and adequacy of the 

                                      23
<PAGE>
 
related Mortgaged Property as collateral. In general, a prospective borrower
applying for a loan is required to fill out a detailed application designed to
provide to the underwriting officer pertinent credit information. As part of the
description of the borrower's financial conditions, the borrower generally is
required to provide a current list of assets and liabilities and a statement of
income and expenses, as well as an authorization to apply for a credit report
which summarizes the borrower's credit history with local merchants and lenders
and any record of bankruptcy. In most cases, an employment verification is
obtained from an independent source (typically the borrower's employer) which
verification reports, among other things, the length of employment with that
organization, the current salary, and whether it is expected that the borrower
will continue such employment in the future. If a prospective borrower is self-
employed, the borrower may be required to submit copies of signed tax returns.
The borrower may also be required to authorize verification of deposits at
financial institutions where the borrower has demand or savings accounts. See
"Mortgage Loan Acquisition Program" in the accompanying Prospectus.


                         DESCRIPTION OF THE SECURITIES

[DESCRIPTION OF THE BONDS

GENERAL

     The Bonds will be issued pursuant to the Indenture.  Set forth below are
summaries of the specific terms and provisions pursuant to which the Bonds will
be issued.  The following summaries are subject to, and are qualified in their
entirety by reference to, the provisions of the Indenture.  When particular
provisions or terms used in the Indenture are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.

     The [TMFC] Trust [199 - ], [_________________] (the "Bonds"), will consist
of the Class A-1 Bonds (the "Senior Bonds") and the Class B-1 and Class B-2
Bonds (collectively, the "Subordinated Bonds").  The Bond Issuer will also issue
the Investor Certificate (the "Investor Certificate") as described herein.  The
Senior Bonds and the Class B-1 Bonds are collectively referred to herein as the
"Offered Bonds."  Only the Offered Bonds are offered hereby.  The Classes of
Offered Bonds will have the respective Bond Interest Rates described on the
cover hereof. The Class B-2 Bonds and the Investor Certificate will bear
interest at the Bond Interest Rate and Certificate Interest Rate, respectively,
described herein.

     The "Class Principal Amount" of (a) the Senior Bonds (the "Senior Class
Principal Amount") as of any Distribution Date is the Original Senior Class
Principal Amount reduced by all amounts previously distributed to holders of the
Senior Bonds as payments of principal, (b) the Class B-1 Bonds (the "Class B-1
Principal Amount") as of any Distribution Date is the lesser of (i) the
aggregate of the Stated Principal Balances of the Mortgage Loans, less the
Senior Class Principal Amount immediately prior to such date, and (ii) the
Original Class B-1 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-1 Bonds as payments of principal and (c)
the Class B-2 Bonds (the "Class B-2 Principal Amount") as of any Distribution
Date is the lesser of (i) the aggregate of the Stated Principal Balances of the
Mortgage Loans, less the sum of the Senior Class Principal Amount and the Class
B-1 Principal Amount, in each case immediately prior to such date, and (ii) the
Original Class B-2 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-2 Bonds as payments of principal.  The
Senior Bonds will have an original Senior Class Principal Amount of $ (the
"Original Senior Class Principal Amount"), the Class B-1 Bonds will have an
original Class B-1 Principal Amount of $__________ (the "Original Class B-1
Principal Amount") and the Class B-2 Bonds will have an original Class B-2
Principal Amount of $__________ (the "Original Class B-2 Principal Amount").
The "Invested Amount" of the Investor Certificate as of any Distribution Date is
the lesser of (i) the aggregate of the Stated Principal Balances of the Mortgage
Loans, less the sum of (x) the Senior Class Principal Amount, (y) the Class B-1
Principal Amount and (z) the Class B-2 Principal Amount, in each case
immediately prior to such date, and (ii) the Original Invested Amount reduced by
all amounts previously distributed to the holder of the Investor Certificate in
reduction of the Invested Amount.  The Investor Certificate will have an
original Invested Amount of approximately $____________ (the "Original Invested
Amount").

PAYMENTS ON MORTGAGE LOANS; ACCOUNTS

     On or prior to the Closing Date, the Master Servicer will establish and
maintain or cause to be established and maintained a separate account or
accounts for the collection of payments on the Mortgage Loans (the "Bond
Account").  On or prior to the Closing Date, the Bond Trustee will establish an
account (the "Distribution Account"), which will be maintained with the Bond
Trustee in trust for the benefit of the Bondholders.  On or prior to the
business day immediately preceding each Distribution Date, the Master Servicer
will withdraw from the Bond Account the Bond Distribution Amount for such
Distribution Date, to the extent of Available Funds on deposit therein, and will
deposit such amount in the Distribution Account. The "Bond Distribution Amount"
for any Distribution Date will equal the sum of (i) the Senior Interest Payment
Amount, (ii) the Senior Principal Payment Amount, (iii) the Class

                                      24
<PAGE>
B-1 Interest Payment Amount, (iv) the Class B-1 Principal Payment Amount, (v)
the Class B-2 Interest Payment Amount and (vi) the Class B-2 Principal Payment
Amount (as each such term is defined herein). Funds credited to the Bond Account
or the Distribution Account may be invested at the direction of the Company for
the benefit and at the risk of the Company in Permitted Investments, as defined
in the Master Servicing Agreement, that are scheduled to mature on or prior to
the business day preceding the next Distribution Date.

PAYMENTS

     Payments on the Bonds will be made by the Bond Trustee on [the _____th day
of each month], or if such day is not a business day, on the first business day
thereafter, commencing in _____________, 199__ (each, a "Distribution Date"), to
the persons in whose names such Bonds are registered at the close of business on
the last business day of the month preceding the month of such Distribution Date
(the "Record Date").

     Payments on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable bond
register or, in the case of a Bondholder who holds 100% of a Class of Bonds or
who holds Bonds with an aggregate initial Class Principal Amount of $1,000,000
or more and who has so notified the Bond Trustee in writing in accordance with
the Indenture, by wire transfer in immediately available funds to the account of
such Bondholder at a bank or other depository institution having appropriate
wire transfer facilities; provided, however, that the final payment in
retirement of the Bonds will be made only upon presentment and surrender of such
Bonds at the Corporate Trust Office of the Bond Trustee.

     As more fully described herein, payments will be made on each Distribution
Date from Available Funds in the following order of priority: (i) to interest on
the Senior Bonds; (ii) to principal of the Senior Bonds; (iii) to interest on
the Class B-1 Bonds; (iv) to principal of the Class B-1 Bonds; (v) to interest
on the Class B-2 Bonds; (vi) to principal of the Class B-2 Bonds; (vii) to
interest on the Investor Certificate; (viii) to principal of the Investor
Certificate; and (ix) to the holder of the Investor Certificate, all remaining
Available Funds, subject to certain limitations set forth herein under " --
Principal."

     "Available Funds" with respect to any Distribution Date will be equal to
the sum of (i) all scheduled installments of interest (net of the related
Expense Fees) and principal due [on the Due Date in the month] in which such
Distribution Date occurs and received prior to the related Determination Date,
together with any Advances in respect thereof; (ii) all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such proceeds are not applied to
the restoration of the related Mortgaged Property or released to the Mortgagor
in accordance with the applicable Servicer's or the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other cash
amounts received and retained in connection with the liquidation of defaulted
Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds"), during the
[month] preceding the month of such Distribution Date (in each case, net of
unreimbursed expenses incurred in connection with a liquidation or foreclosure
and unreimbursed Advances, if any); (iii) all partial or full prepayments
received during the [month] preceding the month of such Distribution Date; and
(iv) amounts received with respect to such Distribution Date as the Substitution
Adjustment Amount or purchase price in respect of a Deleted Mortgage Loan or a
Mortgage Loan purchased by [TMA] [or by the Master Servicer or the Company] as
of such Distribution Date, reduced by amounts in reimbursement for Advances
previously made and other amounts as to which the applicable Servicer or the
Master Servicer is entitled to be reimbursed pursuant to the Master Servicing
Agreement.

INTEREST

     The Bond Interest Rate for each Class of Bonds for each Distribution Date
(each, a "Bond Interest Rate") is described herein or on the cover hereof. On
each Distribution Date, to the extent of funds available therefor, each Class of
Bonds and the Investor Certificate will be entitled to receive an amount
allocable to interest as described below (as to each such Class or the Investor
Certificate, as applicable, the "Interest Payment Amount") with respect to the
related Interest Accrual Period. With respect to each Distribution Date, the
"Interest Accrual Period" for each Class of Bonds and the Investor Certificate
will be the [calendar month] preceding the month of such Distribution Date.

                                      25
<PAGE>
     The Interest Payment Amount for the Senior Bonds (the "Senior Interest
Payment Amount") will be equal to the sum of (i) interest at the Senior Bond
Interest Rate on the Senior Class Principal Amount, and (ii) the sum of the
amounts, if any, by which the amount described in clause (i) above on each prior
Distribution Date exceeded the amount actually distributed as interest on such
prior Distribution Dates and not subsequently distributed. The Interest Payment
Amount for the Class B-1 Bonds (the "Class B-1 Interest Payment Amount") will be
equal to the sum of (i) interest at the Class B-1 Bond Interest Rate on the
Class B-1 Principal Amount, (ii) interest at the Class B-1 Bond Interest Rate on
any Class B-1 Principal Carryover Shortfall, (iii) the sum of the amounts, if
any, by which the sum of the amounts described in clauses (i) and (ii) above on
each prior Distribution Date exceeded the amount actually distributed as
interest on such prior Distribution Dates and not subsequently distributed (the
"Class B-1 Interest Carryover Shortfall") and (iv) interest at the Class B-1
Bond Interest Rate on any Class B-1 Interest Carryover Shortfall (to the extent
permitted by applicable law). The Interest Payment Amount for the Class B-2
Bonds (the "Class B-2 Interest Payment Amount") will be equal to the sum of (i)
interest at the Class B-2 Bond Interest Rate on the Class B-2 Principal Amount,
(ii) interest at the Class B-2 Bond Interest Rate on any Class B-2 Principal
Carryover Shortfall, (iii) the sum of the amounts, if any, by which the sum of
the amounts described in clauses (i) and (ii) above on each prior Distribution
Date exceed the amount actually distributed as interest on such prior
Distribution Dates and not subsequently distributed (the "Class B-2 Interest
Carryover Shortfall") and (iv) interest at the Class B-2 Bond Interest Rate on
any Class B-2 Interest Carryover Shortfall (to the extent permitted by
applicable law). The Interest Payment Amount for the Investor Certificate (the
"Certificate Interest Payment Amount") will be equal to interest at the
Certificate Interest Rate on the Invested Amount. The Senior Bonds will not be
entitled to interest on any Senior Interest Payment Amount not paid when due
prior to such time as the Bonds are declared immediately due and payable upon
the occurrence of an Event of Default as described herein under " --Priority of
Payments and Allocation of Shortfalls." The Investor Certificate will not be
entitled to interest on any Certificate Interest Payment Amount not paid when
due.

     The interest payable on any Distribution Date as described above, but not
the entitlement thereto, for each Class of Bonds will be reduced by their
respective proportionate amounts of "Net Interest Shortfalls" for such
Distribution Date, if any, based on the amount of interest each Class of Bonds
would otherwise be entitled to receive on such Distribution Date before taking
into account any reduction in such amounts resulting from such Net Interest
Shortfalls.  With respect to any Distribution Date, the "Net Interest Shortfall"
is equal to the amount by which the sum of (i) the amount of interest which
would otherwise have been received with respect to any Mortgage Loan that was
the subject of a Relief Act Reduction and (ii) any Prepayment Interest
Shortfalls, in each case during the calendar month preceding the month of such
Distribution Date, exceeds the sum of (i) the Master Servicing Fee for such
period and (ii) the amounts otherwise payable on such Distribution Date to the
holder of the Investor Certificate as described in clauses "seventh", "eighth"
and "ninth" under " -- Priority of Payments and Allocation of Shortfalls" below.
A "Relief Act Reduction" is a reduction in the amount of monthly interest
payment on a Mortgage Loan pursuant to the Soldiers' and Sailors' Civil Relief
Act of 1940.  See "Certain Legal Aspects of Mortgage Loans --Soldiers and
Sailors' Civil Relief Act" in the Prospectus.  A "Prepayment Interest Shortfall"
is the amount by which interest paid by a borrower in connection with a
prepayment of principal on a Mortgage Loan is less than one month's interest at
the related Mortgage Rate on the Stated Principal Balance of such Mortgage Loan.

     Accrued interest to be paid on any Distribution Date will be calculated, in
the case of each Class of Bonds and the Investor Certificate, on the basis of
the related Class Principal Amount or Invested Amount, as applicable,
immediately prior to such Distribution Date.  Interest will be calculated and
payable on the basis of a 360-day year divided into twelve 30-day months.

PRINCIPAL

     General.  All payments and other amounts received in respect of principal
of the Mortgage Loans will be allocated among the Senior Bonds, the Subordinated
Bonds and the Investor Certificate.

     Senior Principal Payment Amount.  On each Distribution Date, the Available
Funds remaining after payment of interest with respect to the Senior Bonds, up
to the amount of the Senior Principal Payment Amount for such Distribution Date,
will be distributed as principal of the Senior Bonds.  The "Senior Principal
Payment Amount" for any Distribution Date will equal the Senior Percentage of
the sum of (a) the principal portion of the Scheduled

                                      26
<PAGE>
Payment due on each Mortgage Loan [on the related Due Date], (b) the principal
portion of the purchase price of each Mortgage Loan that was purchased by [TMA]
or another person pursuant to the Mortgage Loan Purchase Agreement (as defined
herein) [or any optional purchase by the Master Servicer or the Company of a
defaulted Mortgage Loan] as of such Distribution Date, (c) the Substitution
Adjustment Amount in connection with any Deleted Mortgage Loan received with
respect to such Distribution Date, (d) any Insurance Proceeds or Liquidation
Proceeds allocable to recoveries of principal of Mortgage Loans that are not yet
Liquidated Mortgage Loans received during the [calendar month] preceding the
month of such Distribution Date, (e) with respect to each Mortgage Loan that
became a Liquidated Mortgage Loan during the [calendar month] preceding the
month of such Distribution Date, the Stated Principal Balance of such Mortgage
Loan, and (f) all partial and full principal prepayments by borrowers received
during the [calendar month] preceding the month of such Distribution Date.

     "Stated Principal Balance" means, as to any Mortgage Loan and Due Date, the
unpaid principal balance of such Mortgage Loan as of such Due Date, as specified
in the amortization schedule at the time relating thereto (before any adjustment
to such amortization schedule by reason of any moratorium or similar waiver or
grace period), after giving effect to any previous partial principal prepayments
and Liquidation Proceeds received and to the payment of principal due on such
Due Date and irrespective of any delinquency in payment by the related
Mortgagor.  The "Pool Principal Balance" with respect to any Distribution Date
equals the aggregate of the Stated Principal Balances of the Mortgage Loans
outstanding on the Due Date in the month preceding the month of such
Distribution Date.

     The "Senior Percentage" for any Distribution Date is the percentage
equivalent of a fraction the numerator of which is the Senior Class Principal
Amount immediately prior to such date and the denominator of which is the sum of
(i) the Senior Class Principal Amount, (ii) the Class B-1 Principal Amount,
(iii) the Class B-2 Principal Amount and (iv) the Invested Amount, in each case
immediately prior to such date.  The "Class B-1 Percentage" for any Distribution
Date is the percentage equivalent of a fraction the numerator of which is the
Class B-1 Principal Amount immediately prior to such date and the denominator of
which is the sum of (i) the Senior Class Principal Amount, (ii) the Class B-1
Principal Amount, (iii) the Class B-2 Principal Amount and (iv) the Invested
Amount, in each case immediately prior to such date.  The "Class B-2 Percentage"
for any Distribution Date is the percentage equivalent of a fraction the
numerator of which is the Class B-2 Principal Amount immediately prior to such
date and the denominator of which is the sum of (i) the Senior Class Principal
Amount, (ii) the Class B-1 Principal Amount, (iii) the Class B-2 Principal
Amount and (iv) the Invested Amount, in each case immediately prior to such
date.  The "Investor Percentage" for any Distribution Date will be calculated as
the difference between 100% and the sum of the Senior Percentage, the Class B-1
Percentage and the Class B-2 Percentage for such date.

     Subordinated Principal Payment Amount.  On each Distribution Date, to the
extent of Available Funds therefor, the Class B-1 and Class B-2 Principal
Payment Amounts for such Distribution Date will be distributed as principal of
the Class B-1 and Class B-2 Bonds, respectively.  The "Class B-1 Principal
Payment Amount" and the "Class B-2 Principal Payment Amount" for any
Distribution Date will equal the sum of (i) the Class B-1 Percentage or the
Class B-2 Percentage, as applicable, of the sum of (a) the principal portion of
the Scheduled Payment due on each Mortgage Loan [on the related Due Date], (b)
the principal portion of the purchase price of each Mortgage Loan that was
purchased by [TMA] or another person pursuant to the Mortgage Loan Purchase
Agreement [or by the Master Servicer in connection with any optional purchase by
the Master Servicer or the Company of a defaulted Mortgage Loan] as of such
Distribution Date, (c) the Substitution Adjustment Amount in connection with any
Deleted Mortgage Loan received with respect to such Distribution Date, (d) any
Insurance Proceeds or Liquidation Proceeds allocable to recoveries of principal
of Mortgage Loans that are not yet Liquidated Mortgage Loans received during the
[calendar month] preceding the month of such Distribution Date, (e) with respect
to each Mortgage Loan that became a Liquidated Mortgage Loan during the
[calendar month] preceding the month of such Distribution Date, the Stated
Principal Balance of such Mortgage Loan and (f) all partial and full principal
prepayments by borrowers received during the [calendar month] preceding the
month of such Distribution Date and (ii) any Class B-1 Principal Carryover
Shortfall or Class B-2 Principal Carryover Shortfall, as the case may be.  The
"Class B-1 Principal Carryover Shortfall" for any Distribution Date will equal
the excess of (a) the Original Class B-1 Principal Amount reduced by all amounts
previously distributed to holders of the Class B-1 Bonds as payments of
principal or Class B-1 Principal Carryover Shortfall, over (b) the Class B-1
Principal Amount immediately prior to such date.  The "Class B-2 Principal
Carryover Shortfall" for any Distribution Date will equal the excess of (a) the
Original Class B-2 Principal Amount reduced by all amounts previously
distributed to holders of the Class B-2 Bonds as payments of

                                      27
<PAGE>
principal or Class B-2 Principal Carryover Shortfall, over (b) the Class B-2
Principal Amount immediately prior to such date.

     Invested Amount Payment.  On each Distribution Date, to the extent of
Available Funds therefor, the Invested Amount Payment for such Distribution Date
will be distributed in reduction of the Invested Amount of the Investor
Certificate.  The "Invested Amount Payment" for any Distribution Date will equal
the sum of (i) the Investor Percentage of the sum of (a) the principal portion
of the Scheduled Payment due on each Mortgage Loan [on the related Due Date],
(b) the principal portion of the purchase price of each Mortgage Loan that was
purchased by TMA or another person pursuant to the Mortgage Loan Purchase
Agreement (as defined herein)[or any optional purchase by the Master Servicer or
the Company of a defaulted Mortgage Loan] as of such Distribution Date, (c) the
Substitution Adjustment Amount in connection with any Deleted Mortgage Loan
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgage Loans received during the [calendar month]
preceding the month of such Distribution Date, and (e) all partial and full
principal prepayments by borrowers received during the [calendar month]
preceding the month of such Distribution Date, and (ii) with respect to each
Mortgage Loan that became a Liquidated Mortgage Loan during the [calendar month]
preceding the month of such Distribution Date, the Liquidation Proceeds
allocable to principal received with respect to such Mortgage Loan, after
application of such amounts pursuant to clause (e) of the definition of Senior
Principal Payment Amount, clause (e) of the definition of Class B-1 Principal
Payment Amount and clause (e) of the definition of Class B-2 Principal Payment
Amount.

PRIORITY OF PAYMENTS AND ALLOCATION OF SHORTFALLS

     Prior to the declaration that the Bonds are due and payable, on any
Distribution Date Available Funds will be applied in the following order of
priority:

     first, to the Senior Interest Payment Amount;

     second, to the Senior Principal Payment Amount;

     third, to the Class B-1 Interest Payment Amount;

     fourth, to the Class B-1 Principal Payment Amount;

     fifth, to the Class B-2 Interest Payment Amount;

     sixth, to the Class B-2 Principal Payment Amount;

     seventh, to the Certificate Interest Payment Amount;

     eighth, to the Invested Amount Payment; and

     ninth, to the holder of the Investor Certificate, the balance of any
Available Funds remaining in the Bond Account.

     If a Realized Loss results in the Stated Principal Balances of the Mortgage
Loans declining in an amount greater than the sum of (i) the payments of
principal on the Senior Bonds, (ii) the payments of principal on the Class B-1
Bonds, (iii) the payments of principal on the Class B-2 Bonds and (iv) the
payment in reduction of the Invested Amount, the Senior Percentage, the Class B-
1 Percentage, the Class B-2 Percentage and the Investor Percentage may shift (as
a result of their methods of computation as described above under " --
Principal") such that funds available in the Distribution Account for payments
of principal on each future Distribution Date may be allocated in a higher ratio
to the Offered Bonds as a result of such shortfall.  This shift of the Senior
Percentage, the Class B-1 Percentage, the Class B-2 Percentage and the Investor
Percentage may cause the Offered Bonds to amortize more rapidly, and the Class
B-2 Bonds and the Investor Certificate to amortize more slowly, than would
otherwise have been the case in the absence of such shortfalls. An investor
should consider the risk that, in the case of any Offered Bond purchased

                                      28
<PAGE>
at a discount, a slower than anticipated rate of principal payments on the
Mortgage Loans could result in an actual yield to such investor that is lower
than the anticipated yield and, in the case of any Offered Bond purchased at a
premium, a faster than anticipated rate of principal payments on the Mortgage
Loans could result in an actual yield to such investor that is lower than the
anticipated yield. In addition, an investor in the Offered Bonds should consider
the risk that there can be no assurance that investors in the Offered Bonds will
be able to reinvest the payments thereon at yields equaling or exceeding the
yields on such Bonds. It is possible that yields on any such reinvestments will
be lower, and may be significantly lower, than the yields on the Offered Bonds.
See "Risk Factors --Prepayments on the Mortgage Collateral will Affect Your
Security" herein and "Risk Factors -- Prepayment and Yield Considerations;
Reinvestment Risk" in the Prospectus.  In general, a "Realized Loss" means, with
respect to a Liquidated Mortgage Loan, the amount by which the remaining unpaid
principal balance of the related Mortgage Loan exceeds the amount of Liquidation
Proceeds applied to the principal balance of the related Mortgage Loan. A
"Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the Master
Servicer has determined that all recoverable liquidation and insurance proceeds
have been received.

     Under the Indenture, an Event of Default will not occur solely due to the
occurrence of Shortfalls that affect only the Subordinated Bonds until all the
Senior Bonds have been paid in full and then only if Shortfalls on the
Subordinated Bonds have not been paid.  In addition, an Event of Default by
reason of any Shortfalls that affect the Senior Bonds will occur on any
Distribution Date only when the Pool Principal Balance is less than the
principal amount of the Senior Bonds outstanding after application of all
available amounts on deposit in the Distribution Account on such Distribution
Date.  Nevertheless, at any time following an Event of Default arising from a
Shortfall affecting the Senior Bonds, the holders of outstanding Bonds, whether
Senior Bonds or Subordinated Bonds, representing more than 50% in principal
amount of all Bonds then outstanding, may declare the Bonds due and payable or
take any other action pursuant to the terms of the Indenture.  Until the Bonds
have been declared due and payable following an Event of Default, the holders of
the Subordinated Bonds may not request the Bond Trustee to take any action,
other than the application of available funds in the Distribution Account to pay
principal and interest as provided herein, and may not otherwise cause any
action to be taken to enforce the obligation of the Bond Issuer to pay principal
and interest on the Subordinated Bonds.  Additionally, prior to the Bonds being
declared due and payable following an Event of Default, the Senior Bonds will
not accrue interest in any form on the interest component of any Shortfall
attributable to the Senior Bonds. Should an Event of Default occur, payments
will be allocated on each Distribution Date in accordance with the priorities
described herein under " -- Principal", which would otherwise be applicable on
such Distribution Date had an Event of Default not occurred.  See "The
Agreements" in the Prospectus.

STATED MATURITY

     The Stated Maturity for each Class of Bonds is the date determined by the
Company which is _____ years after the Distribution Date immediately following
the latest maturity date of any Mortgage Loan.  The Stated Maturity of each
Class of Bonds is ____________, 20___.

STRUCTURING ASSUMPTIONS

     Unless otherwise specified, the information in the tables in this
Prospectus Supplement has been prepared on the basis of the following assumed
characteristics of the Mortgage Loans and the following additional assumptions
(collectively, the "Structuring Assumptions"): (i) the Mortgage Pool consists of
one Mortgage Loan with the following characteristics:
<TABLE>
<CAPTION>
 
                                                                     Remaining
                                                     Original Term     Term
                                     Net Mortgage     in Maturity   to Maturity
Principal Balance Mortgage Rate          Rate         (In Months)   (In Months)
- -------------------------------      --------------  -------------  ------------  
<S>                                  <C>             <C>            <C>           
$                                         %               %
</TABLE>

                                      29
<PAGE>
(ii) the Mortgage Loans prepay at the specified constant Prepayment Assumptions,
(iii) no defaults in the payment by Mortgagors of principal of and interest on
the Mortgage Loans are experienced, (iv) scheduled payments on the Mortgage
Loans are received on the first day of each month commencing in the calendar
month following the Closing Date and are computed prior to giving effect to
prepayments received on the last day of the prior month, (v) prepayments are
allocated as described herein without giving effect to loss and delinquency
tests, (vi) there are no Net Interest Shortfalls and prepayments represent
prepayments in full of individual Mortgage Loans and are received on the last
day of each month, commencing in the calendar month of the Closing Date, (vii)
the scheduled monthly payment for each Mortgage Loan has been calculated based
on the assumed mortgage loan characteristics described in item (i) above such
that each such mortgage loan will amortize in amounts sufficient to repay the
principal balance of such assumed mortgage loan by its remaining term to
maturity, (viii) the initial Class Principal Amount or Invested Amount, as
applicable, of each Class of Bonds and the Investor Certificate, respectively,
is as set forth on the cover page hereof [and under "Summary -- Securities Other
than the Offered Bonds" herein], (ix) interest accrues on each Class of Bonds
and the Investor Certificate at the applicable interest rate described on the
cover hereof or described herein, (x) payments in respect of the Bonds and the
Investor Certificate are received in cash on the ____th day of each month
commencing in the calendar month following the Closing Date, (xi) the closing
date of the sale of the Offered Bonds is ___________, 199___, (xii) [TMA] is not
required to purchase or substitute for any Mortgage Loan and (xiii) [the Master
Servicer or the Company does not exercise any option to purchase any Mortgage
Loans described herein under " -- Optional Purchase of Defaulted Loans"] and the
Bond Issuer does not exercise any option to redeem the Bonds as described herein
under " -- Redemption at the Option of the Bond Issuer."  While it is assumed
that each of the Mortgage Loans prepays at the specified constant Prepayment
Assumptions, this is not likely to be the case.  Moreover, discrepancies exist
between the characteristics of the actual Mortgage Loans which will be delivered
to the Bond Trustee and characteristics of the Mortgage Loans assumed in
preparing the tables herein.

     Prepayments of mortgage loans commonly are measured relative to a
prepayment standard or model.  The model used in this Prospectus Supplement (the
"Prepayment Assumption") represents an assumed rate of prepayment each month
relevant to the then outstanding principal balance of a pool of mortgage loans.
The Prepayment Assumption does not purport to be either an historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans. A 100% Prepayment Assumption assumes a Constant
Prepayment Rate ("CPR") of ____% per annum of the then outstanding principal
balance of such mortgage loans in the first month of the life of the mortgage
loans and an additional ____% per annum in each month thereafter until the
___________month.  Beginning in the __________ month and in each month
thereafter during the life of such mortgage loans, a 100% Prepayment Assumption
assumes a CPR of ____% per annum each month. As used in the tables below, a
____% Prepayment Assumption assumes a prepayment rate equal to ____% of the
Prepayment Assumption.  Correspondingly, a ____% Prepayment Assumption assumes a
prepayment rate equal to ____% of the Prepayment Assumption, and so forth.

[OPTIONAL PURCHASE OF DEFAULTED LOANS

     The Master Servicer or the Company may, at its option, purchase from the
Bond Issuer any Mortgage Loan which is delinquent in payment by _____ days or
more.  Any such purchase will be at a price equal to 100% of the Stated
Principal Balance of such Mortgage Loan plus accrued interest thereon at the
applicable Mortgage Rate from the date through which interest was last paid by
the related Mortgagor or advanced to the first day of the month in which such
amount is to be distributed.]

WEIGHTED AVERAGE LIVES OF THE OFFERED BONDS

     The weighted average life of an Offered Bond is determined by (a)
multiplying the amount of the reduction, if any, of the Class Principal Amount
of such Bond on each Distribution Date by the number of years from the date of
issuance to such Distribution Date, (b) summing the results and (c) dividing the
sum by the aggregate amount of the reductions in Class Principal Amount of such
Bond referred to in clause (a).

     For a discussion of the factors which may influence the rate of payments
(including prepayments) of the Mortgage Loans, see "Risk Factors -- Prepayments
on the Mortgage Collateral Will Affect Your Security" herein and "Risk Factors -
- - Prepayment and Yield Considerations" in the Prospectus.

                                      30
<PAGE>
     In general, the weighted average lives of the Offered Bonds will be
shortened if the level of prepayments of principal of the Mortgage Loans
increases.  However, the weighted average lives of the Offered Bonds will depend
upon a variety of other factors, including the timing of changes in such rate of
principal payments and the priority sequence of distributions of principal of
the Classes of Bonds.  See "Description of the Bonds -- Principal" herein.

     The interaction of the foregoing factors may have different effects on the
Senior Bonds and the Class B-1 Bonds and the effects on any Class may vary at
different times during the life of such Class.  Accordingly, no assurance can be
given as to the weighted average life of any Class of Offered Bonds.  Further,
to the extent the prices of the Offered Bonds represent discounts or premiums to
their respective original Class Principal Amounts, variability in the weighted
average lives of such Classes of Bonds will result in variability in the related
yields to maturity.  For an example of how the weighted average lives of the
Classes of Offered Bonds may be affected at various constant Prepayment
Assumptions, see the Decrement Tables below.

DECREMENT TABLES

     The following tables indicate the percentages of the initial Class
Principal Amounts of the Classes of Offered Bonds that would be outstanding
after each of the dates shown at various constant Prepayment Assumptions and the
corresponding weighted average lives of such Classes.  The tables have been
prepared on the basis of the Structuring Assumptions.  It is not likely that (i)
all of the Mortgage Loans will have the characteristics assumed, (ii) all of the
Mortgage Loans will prepay at the constant Prepayment Assumptions specified in
the tables or at any constant Prepayment Assumption or (iii) all of the Mortgage
Loans will prepay at the same rate.  Moreover, the diverse remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal payments
than indicated in the tables at the specified constant Prepayment Assumptions,
even if the weighted average remaining term to maturity of the Mortgage Loans is
consistent with the remaining terms to maturity of the Mortgage Loans specified
in the Structuring Assumptions.


            PERCENT OF INITIAL CLASS PRINCIPAL AMOUNTS OUTSTANDING

                               [DECREMENT TABLES]



REDEMPTION AT THE OPTION OF THE BOND ISSUER

     The Bonds may be redeemed in whole, but not in part, at the Bond Issuer's
option, on any Distribution Date on or after the earlier of (a) _______ years
after the initial issuance of the Bonds and (b) the Distribution Date on which
the sum of (i) the Senior Class Principal Amount (ii) the Class B-1 Principal
Amount, (iii) the Class B-2 Principal Amount and (iv) the Invested Amount, after
giving effect to payments to be made on such Distribution Date, is or less of
the aggregate of the Stated Principal Balances of the Mortgage Loans as of the
Cut-off Date, at a redemption price equal to 100% of the unpaid principal amount
of such Bonds (including, in the case of the Class B-1 or Class B-2 Bonds, any
unpaid Class B-1 or Class B-2 Principal Carryover Shortfall), plus accrued and
unpaid interest at the applicable Bond Interest Rate through the month preceding
the month in which such optional redemption date occurs.  The Bonds are not
otherwise subject to call or redemption at the option of the Bond Issuer nor are
they subject to special redemption.  See "Description of the Securities --
Redemption at the Option of the Issuer" in the Prospectus.

     Notice of any redemption to be made at the option of the Bond Issuer must
be given by the Bond Issuer to the Bond Trustee not less than 30 days prior to
the redemption date and must be mailed by the Bond Issuer or the Bond Trustee to
affected Bondholders at least ten days prior to the redemption date.

                                      31
<PAGE>
CONTROLLING CLASS UNDER THE INDENTURE

     For the purposes described in the Prospectus under the headings "The
Agreements -- Modification of Agreement," " -- Events of Default" and "Rights
upon Events of Default," the "Controlling Class" shall be the Class A-1
Bondholders or, if the Class A-1 Bonds are no longer outstanding, the holders of
the most senior Class of Subordinated Bonds then outstanding.

BOOK-ENTRY BONDS

     The Offered Bonds will be book-entry Bonds (each, a Class of "Book-Entry
Bonds").  Persons acquiring beneficial ownership interests in the Offered Bonds
("Bond Owners") may elect to hold their Offered Bonds through the Depository
Trust Company ("DTC") in the United States, or CEDEL or Euroclear (in Europe) if
they are participants of such systems, or indirectly through organizations which
are participants in such systems.  The Book-Entry Bonds will be issued in one or
more certificates which equal the aggregate principal amount of the Offered
Bonds and will initially be registered in the name of Cede & Co., the nominee of
DTC. CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective depositaries which in turn will hold such
positions in customers' securities accounts in the depositaries' names on the
books of DTC.  Citibank, N.A., will act as depositary for CEDEL and The Chase
Manhattan Bank will act as depositary for Euroclear (in such capacities,
individually the "Relevant Depositary" and collectively the "European
Depositaries"). Investors may hold such beneficial interests in the Book-Entry
Bonds in minimum denominations representing Class Principal Amounts of $_______
and in multiples of $1,000 in excess thereof. Except as described below, no
person acquiring a Book-Entry Bond (each, a "beneficial owner") will be entitled
to receive a physical certificate representing such Offered Bond (a "Definitive
Bond").  Unless and until Definitive Bonds are issued, it is anticipated that
the only "Bondholders" of the Offered Bonds will be Cede & Co., as nominee of
DTC. Bond Owners will not be Bondholders as that term is used in the Indenture.
Bond Owners are only permitted to exercise their rights indirectly through the
participating organizations that utilize the services of DTC, including
securities brokers and dealers, banks and trust companies and clearing
corporations and certain other organizations ("Participants") and DTC.

     The beneficial owner's ownership of a Book-Entry Bond will be recorded on
the records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains the beneficial
owner's account for such purpose.  In turn, the Financial Intermediary's
ownership of such Book-Entry Bond will be recorded on the records of DTC (or of
a participating firm that acts as agent for the Financial Intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a DTC participant, and on the records of
CEDEL or Euroclear, as appropriate).

     Bond Owners will receive all payments of principal of, and interest on, the
Offered Bonds from the Bond Trustee through DTC and DTC participants.  While the
Offered Bonds are outstanding (except under the circumstances described below),
under the rules, regulations and procedures creating and affecting DTC and its
operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Offered Bonds and is
required to receive and transmit payments of principal of, and interest on, the
Bonds.  Participants and indirect participants which have indirect access to the
DTC system, such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly ("Indirect Participants"), with whom Bond Owners have accounts
with respect to Offered Bonds are similarly required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Bond Owners.  Accordingly, although Bond Owners will not possess certificates,
the Rules provide a mechanism by which Bond Owners will receive payments and
will be able to transfer their interest.

     Bond Owners will not receive or be entitled to receive certificates
representing their respective interests in the Bonds, except under the limited
circumstances described below. Unless and until Definitive Bonds are issued,
Bond Owners who are not Participants may transfer ownership of Offered Bonds
only through Participants and Indirect Participants by instructing such
Participants and Indirect Participants to transfer Offered Bonds, by book-entry
transfer, through DTC for the account of the purchasers of such Offered Bonds,
which account is maintained with their respective Participants.  Under the Rules
and in accordance with DTC's normal procedures, transfers of

                                      32
<PAGE>
ownership of Offered Bonds will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited.  Similarly, the
Participants and Indirect Participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Bond Owners.

     Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date.  Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day.  Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
herein) or Euroclear Participant (as defined herein) to a DTC Participant will
be received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.  For information relating to tax documentation procedures
relating to the Offered Bonds, see "Federal Income Tax Consequences --
Withholding with Respect to Certain Foreign Investors" and " -- Backup
Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures -- Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto (to be added by Amendment).

     Transfers between Participants will occur in accordance with DTC Rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.

     Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time).  The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day fund settlement applicable to
DTC.  CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.

     DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC.  In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Bonds, whether held for
its own account or as nominee for another person.  In general, beneficial
ownership of Book-Entry Bonds will be subject to the rules, regulations and
procedures governing DTC and DTC participants as in effect from time to time.

     CEDEL is incorporated under the laws of Luxembourg as a professional
depository.  CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates.  Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars.  CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing.  CEDEL interfaces with domestic markets in several
countries.  As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute.  CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.  Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.

     Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash.  Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic

                                      33
<PAGE>
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described above.  Euroclear is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York ("Morgan"
and in such capacity, the "Euroclear Operator"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by Morgan, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Belgian Cooperative.  The Belgian Cooperative establishes policy for
Euroclear on behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other
professional financial intermediaries.  Indirect access to Euroclear is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly.

     The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System.  As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.

     Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
"Terms and Conditions").  The Terms and Conditions govern transfers of
securities and cash within Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments with respect to securities in Euroclear.
All securities in Euroclear are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts.  The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding through
Euroclear Participants.

     Payments on the Book-Entry Bonds will be made on each Distribution Date by
the Bond Trustee to DTC. DTC will be responsible for crediting the amount of
such payments to the accounts of the applicable DTC participants in accordance
with DTC's normal procedures.  Each DTC participant will be responsible for
disbursing such payments to the beneficial owners of the Book-Entry Bonds that
it represents and to each Financial Intermediary for which it acts as agent.
Each such Financial Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Bonds that it represents.

     Under a book-entry format, beneficial owners of the Book-Entry Bonds may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Bond Trustee to Cede & Co., as nominee of DTC. Payments with
respect to Offered Bonds held through CEDEL or Euroclear will be credited to the
cash accounts of CEDEL Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary.  Such payments will be subject to tax reporting in
accordance with relevant United States tax laws and regulations.  See "Federal
Income Tax Consequences -- Withholding with Respect to Certain Foreign
Investors" and " -- Backup Withholding" in the Prospectus. Because DTC can only
act on behalf of Financial Intermediaries, the ability of a beneficial owner to
pledge Book-Entry Bonds to persons or entities that do not participate in the
depository system, or otherwise take actions in respect of such Book-Entry Bond,
may be limited due to the lack of physical certificates for such Book-Entry
Bonds.  In addition, issuance of the Offered Bonds in book-entry form may reduce
the liquidity of such Offered Bonds in the secondary market since certain
potential investors may be unwilling to purchase Offered Bonds for which they
cannot obtain physical certificates.

     Monthly and annual reports on the Bond Issuer will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting DTC or the Relevant Depositary, and to the Financial
Intermediaries to whose DTC accounts the Book-Entry Bonds of such beneficial
owners are credited.

     DTC has advised the Issuer and the Bond Trustee that, unless and until
Definitive Bonds are issued in respect of the Offered Bonds, DTC will take any
action permitted to be taken by the holders of the Book-Entry Bonds under the
Indenture only at the direction of one or more Financial Intermediaries to whose
DTC accounts the Book-Entry Bonds are credited, to the extent that such actions
are taken on behalf of Financial Intermediaries whose holdings include such 
Book-Entry Bonds. CEDEL or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Bondholder under the Indenture on
behalf of a CEDEL Participant or Euroclear Participant only in accordance with
its relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect

                                      34
<PAGE>
such actions on its behalf through DTC. DTC may take actions, at the direction
of the related Participants, with respect to some Offered Bonds which conflict
with actions taken with respect to other Offered Bonds.

     Definitive Bonds will be issued to beneficial owners of the Book-Entry
Bonds, or their nominees rather than to DTC, only if (a) DTC or the Bond Issuer
advises the Bond Trustee in writing that DTC is no longer willing, qualified or
able to discharge properly its responsibilities as nominee and depositary with
respect to the Book-Entry Bonds and the Bond Issuer or the Bond Trustee is
unable to locate a qualified successor or (b) the Bond Issuer, at its sole
option, elects to terminate a book-entry system through DTC.

     Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Bond Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of the
Definitive Bonds.  Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Bonds and instructions for re-
registration, the Bond Trustee will issue Definitive Bonds, and thereafter the
Bond Trustee will recognize the holders of such Definitive Bonds as Bondholders
under the Indenture.

     Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered Bonds among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.

     None of the Master Servicer, the Company, the Bond Issuer or the Bond
Trustee will have any responsibility for any aspect of the records relating to
or payments made on account of beneficial ownership interests of the Book-Entry
Bonds held by Cede & Co., as nominee of DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.

     For a description of the procedures generally applicable to the Book-Entry
Securities, see "Description of the Securities -- Book-Entry Securities" in the
Prospectus.]

[DESCRIPTION OF THE CERTIFICATES

GENERAL

     The Certificates will be issued pursuant to a Trust Agreement, dated as of
___________________ (the "Trust Agreement"), between the Depositor and the
Certificate Trustee. The form of Trust Agreement has been filed as an exhibit to
the Registration Statement of which the Prospectus Supplement and the Prospectus
is a part.  The following is a summary of the material terms of the Offered
Certificates.  Reference is made to the Prospectus for important additional
information regarding the terms and conditions of the Trust Agreement and the
Certificates. When particular provisions or terms used in the Trust Agreement
are referred to, the actual provisions (including definitions of terms) are
incorporated by reference.

     The [Mortgage-Backed Certificates], Series 1998-__ (the "Certificates")
will consist of the Class A-1 Certificates and the Class X Certificates (the
"Class A-1 Certificates" and the "Class X Certificates," respectively, and
collectively, the "Senior Certificates"), three classes of subordinated
certificates (the "Class M-1 Certificates," the "Class B-1 Certificates" and the
"Class B-2 Certificates, "respectively and collectively, the "Subordinate
Certificates"), and the Class O Certificates (the "Ownership Certificates").
Only the Senior Certificates and the Class M-1 Certificates (the "Offered
Certificates") are offered hereby.

     The Senior Certificates in the aggregate will evidence an initial
beneficial ownership interest of approximately ____% in the Trust Fund Assets,
the Class M-1 Certificates in the aggregate will evidence approximately ____% of
the undivided interest in the principal balance of the Trust Fund Assets and the
Class B-1 and Class B-2 Certificates evidence in the aggregate the remaining
____% undivided interest in the principal balance of the Trust Fund Assets.  The
Class X Certificates will have no principal balance, are entitled only to a
portion of the interest on the Mortgage Loans and are not entitled to any
distributions of principal.  The Ownership Certificates will not have a Class
Certificate Balance and will not bear interest.

                                      35
<PAGE>
     The Class A-1 Certificates will be issuable in (book-entry) (fully
registered) form only.  [The Class A-1 Certificates will be issued in minimum
dollar denominations of $_______ and integral multiples of $_______ in excess
thereof.]  The Class X [and Class M-1] Certificates will be issued in fully
registered certificated form in minimum dollar denomination of $________ and
integral multiples of $________ in excess thereof.  A single certificate of each
Class may be issued in any amount in excess of the minimum denomination.

PAYMENTS ON MORTGAGE LOANS; ACCOUNTS

     On or prior to the Closing Date, the Master Servicer will establish an
account (the "Bond Account") with the Bond Trustee, which shall be maintained
(as a separate trust account) by the Master Servicer in trust for the benefit of
Certificateholders.  Funds credited to the Bond Account may be invested for the
benefit and at the risk of the Master Servicer in Eligible Investments, as
defined in the Indenture, that are scheduled to mature on or prior to the
business day preceding the next Distribution Date.  On each Distribution Date,
the Master Servicer shall withdraw from the Bond Account the amount of Available
Funds and shall deposit such Available Funds in an account established and
maintained with the Certificate Trustee on behalf of Certificateholders (the
"Distribution Account").

PRIORITY OF DISTRIBUTIONS AMONG CERTIFICATES

     As more fully described herein, distributions will be made on the
Certificates on each Distribution Date from Available Funds in the following
order of priority: (i) to interest on each Class of Senior Certificates, (ii) to
principal on the Class A-1 Certificates, up to the maximum amount of principal
to be distributed on the Class A-1 Certificates on such Distribution Date, (iii)
to interest on the Class M-1 Certificates, (iv) to principal on the Class M-1
Certificates, up the maximum amount of principal to be distributed on such Class
on such Distribution Date, and (v) to interest on and then principal of each
other Class of Subordinate Certificates, up to the maximum amount of interest
and principal to be distributed on such Class on such Distribution Date [and
subject to certain limitations set forth below under "Principal."]

DISTRIBUTIONS

     Distributions of principal and interest to holders of the Offered
Certificates will be made on each Distribution Date to the extent of Available
Funds to holders of record of such Offered Certificates on (the last day of the
preceding month,) (the "Record Date") except that the final distribution in
respect of any Class of Offered Certificates will be made only upon presentation
and surrender of such Certificates at the office or agency appointed by the
Certificate Trustee for that purpose in ______________________.

     Distributions of interest and principal to holders of Subordinate
Certificates will be subordinate to distributions of interest on and principal
of the Senior Certificates and distributions of interest and principal to
holders of the Class B-1 and Class B-2 Certificates will be subordinate to
distributions of interest on and principal of the Class M-1 Certificates.  See "
- -- Allocation of Losses" and "Credit Enhancement."

     The aggregate amount of funds available in the Distribution Account on a
Distribution Date for distribution on the Certificates is equal to "Available
Funds."  Available Funds for any Distribution Date is the amount received with
respect to such Distribution Date from the Underlying Bond, which amount, prior
to a Bond Event of Default, will be equal to the sum of (i) all scheduled
installments of interest (net of related Expense Fees) and principal due on the
first day of the month in which such Distribution Date occurs and received prior
to the related Determination Date together with any Advances in respect thereof,
(ii) all insurance and liquidation proceeds (net of related expenses) received
during the month preceding such Distribution Date, (iii) all partial or full
prepayments received during the month preceding such Distribution Date and (iv)
the amount required to be paid in respect of a Mortgage Loan that became
required to be repurchased or substituted during the month preceding such
Distribution Date, reduced by amounts in reimbursement for Advances previously
made and other amounts as to which the Master Servicer or a servicer is entitled
to be reimbursed from the Bond Account pursuant to the Master Servicing
Agreement.  See "Trust Fund Assets -- Assignment of the Mortgage Loans" herein.

                                      36
<PAGE>
     The Certificate Trustee will forward with each distribution on a
Distribution Date to each Offered Certificateholder a statement or statements
setting forth, among other things, (i) the amount of such distribution allocable
to principal and (ii) the amount of such distribution allocable to interest.
Such amounts will be expressed as a dollar amount per $1,000 of Class
Certificate Balance.  See "Description of the Securities -- Reports to
Securityholders" in the Prospectus for a detailed description of the information
to be included in such statements.

INTEREST

     On each Distribution Date, each Class of Offered Certificates, to the
extent of Available Funds on such Distribution Date applied in the order
described above under " -- Priority of Distributions among Certificates," will
be entitled to receive an amount allocable to interest equal to the sum of (i)
one month's interest at the applicable Pass-Through Rate on the Class
Certificate Balance or Class X Notional Amount, as the case may be, and (ii) the
sum of the amounts, if any, by which the amount described in clause (i) above on
each prior Distribution Date exceeded the amount actually distributed as
interest on such prior Distribution Dates and not subsequently distributed
("Unpaid Interest Amounts").  [Interest will be calculated and payable on the
basis of a 360-day year divided into twelve 30-day months.]

     The interest entitlement described above for each Class of Offered
Certificates will be reduced by (i) such Class of Certificates allocable share
of "Net Interest Shortfalls" with respect to such Distribution Date, which is
equal to the amount of interest any Class of Certificateholders would otherwise
have been entitled to receive with respect to any Mortgage Loan that was the
subject of (a) a Relief Act Reduction (or (b) after the coverage provided by the
Subordinate Certificates is exhausted for such type of loss, a Special Hazard
Loss, Fraud Loss or a Bankruptcy Loss,) and (ii) such Class' pro rata share of
Net Prepayment Interest Shortfalls.  A "Relief Act Reduction" is a reduction in
the amount of monthly interest payment on a Mortgage Loan pursuant to the
Soldiers' and Sailors' Civil Relief Act of 1940.  See "Certain Legal Aspects of
Mortgage Loans -- Soldiers' and Sailors' Civil Relief Act" in the Prospectus.
"Net Prepayment Interest Shortfall" is the amount by which the aggregate of
Prepayment Interest Shortfalls during the calendar month immediately preceding
the month in which the related Due Date occurs exceeds the aggregate amount of
the Master Servicing Fee for such period.  A "Prepayment Interest Shortfall" is
the amount by which interest at the Net Mortgage Rate received in connection
with a prepayment of principal on a Mortgage Loan is less than one month's
interest at the Net Mortgage Rate on the Principal Balance of the related
Mortgage Loan that is prepaid.  Each Class' pro rata share of such Net
Prepayment Interest Shortfalls will be based on the amount of interest such
Class of Certificates otherwise would have been entitled to receive.

     In the event that, on a particular Distribution Date, Available Funds on
such Distribution Date applied in the order described above under " -- Priority
of Distributions among Certificates," are not sufficient to make a full
distribution of interest to holders of the Offered Certificates, interest will
be distributed on such Class or Classes of Offered Certificates of equal
priority in proportion to the amount of interest each such Class or Classes
would otherwise have been entitled to receive in the absence of such shortfall.
The amount of any resulting shortfall will be carried forward and added to the
amount holders of each such Class of Offered Certificates will be entitled to
receive on the next Distribution Date.  Such a shortfall could occur, for
example, if losses realized on the Mortgage Loans were exceptionally high or
were concentrated in a particular month.  Any such amount so carried forward
will not bear interest.

PRINCIPAL

     On each Distribution Date, the Class A-1 Certificates will be entitled to
receive a amount allocable to principal equal to the lesser of (x) Available
Funds reduced by the amount of interest distributed on the Senior Certificates
on such Distribution Date and (y) the sum of (i) the Class A-1 Percentage of (a)
all scheduled payments of principal due on each Mortgage Loan on the Due Date
for such Mortgage Loan in the month in which such Distribution Date occurs, (b)
the Principal Balance of each Mortgage Loan that became a Liquidated Mortgage
Loan during the month preceding the month of such Distribution Date, (c) the
Pool Principal Balance of each Mortgage Loan that was repurchased by TMA or
another person as of such Distribution Date pursuant to the Mortgage Loan
Purchase Agreement, (d) certain amounts that may be required to be paid in
connection with any substitution of Mortgage Loans and (e) any net insurance or
liquidation proceeds received during the month preceding the month of 

                                      37
<PAGE>
such Distribution Date allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgage Loans and (ii) the Class A-1 Prepayment
Percentage of all partial principal prepayments and of all principal prepayments
in full ("Principal Prepayments") received during such preceding month.

     On each Distribution Date, the Class M-1 Certificates will be entitled to
receive an amount allocable to principal equal to the lesser of (x) Available
Funds reduced by the amount of interest and principal distributed on the Senior
Certificates and interest on the Class M-1 Certificates, in each case on such
Distribution Date and (y) the sum of (i) the applicable Subordinate Percentage
Allocation of the sum of the amounts calculated pursuant to clauses (a) through
(e) in the preceding paragraph for such Distribution Date and (ii) the
applicable Subordinate Prepayment Percentage Allocation of all Principal
Prepayments received during the preceding month.

     "Principal Balance" of a Mortgage Loan as of any Due Date is the unpaid
principal balance of such Mortgage Loan as specified in the amortization
schedule at the time relating thereto (before any adjustment to such schedule by
reason of moratorium or similar waive or grace period) for such Due Date, after
giving effect to any previous partial payments and to the payment of principal
due on such Due Date and irrespective of any delinquency in payment by the
Mortgagor.  The "Pool Principal Balance" will equal the aggregate of the
Principal Balances of all Mortgage Loans.  The "Due Date" for a Mortgage Loan is
the first day of each calendar month on which the scheduled installment of
principal and interest with respect thereto is due.

     The "Class A-1 Percentage" for any Distribution Date is the percentage
obtained by dividing the sum of the Class Certificate Balance of the Class A-1
Certificates immediately prior to such date by the aggregate of the Class
Certificate Balances of all Classes of Certificates immediately prior to such
date.  The "Subordinate Percentage" for any Distribution Date is the percentage
calculated as the difference between 100% and the Class A-1 Percentage for such
date.

     The "Subordinate Percentage Allocation" for any Distribution Date and Class
of Subordinate Certificates, is equal to a fraction, the numerator of which is
the related Class Certificate Balance immediately prior to such date and the
denominator of which is the aggregate of the Class Certificate Balances of all
Subordinate Certificates immediately prior to such date.

     The "Class A-1 Prepayment Percentage" for any Distribution Date occurring
during the five years beginning on the first Distribution Date will, except as
provided below, equal 100%.  Thereafter, the Class A-1 Prepayment Percentage
will be subject to gradual reduction as described in the following paragraph.
This disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Class A-1
Certificates while, in the absence of Realized Losses, increasing the interest
in the principal balance of the Mortgage Loans evidenced by the Subordinate
Certificates.  Increasing the respective interest of the Subordinate
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the subordination provided by the Subordinate Certificates.

     The "Class A-1 Prepayment Percentage" for any Distribution Date occurring
on or after the fifth anniversary of the first Distribution Date will be as
follows: for any Distribution Date in the first year thereafter, the Class A-1
Percentage for such Distribution Date plus 70% of the Subordinate Percentage for
such Distribution Date; for any distribution Date in the second year thereafter,
the Class A-1 Percentage for such Distribution Date plus 60% of the Subordinate
Percentage for such Distribution Date; for any Distribution Date in the third
year thereafter, the Class A-1 Percentage for such Distribution Date plus 40% of
the Subordinate Percentage for such Distribution Date; for any Distribution Date
in the fourth year thereafter, the Class A-1 Percentage for such Distribution
Date plus 20% of the Subordinate Percentage for such Distribution Date; and for
any Distribution Date thereafter, the Class A-1 Percentage for such Distribution
Date (unless on any of the foregoing Distribution Dates the Class A-1 Percentage
exceeds the initial Class A-1 Percentage, in which case the Class A-1 Prepayment
Percentage for such Distribution Date will once again equal 100%).
Notwithstanding the foregoing, no reduction to the Senior Prepayment Percentage
will occur if [(i) as of the first Distribution Date as to which any such
reduction applies, the dollar amount of all monthly payments on the Mortgage
Loans due in each of the preceding six months that are delinquent 60 days or
more exceeds a monthly average of ____% of all monthly payments due in such
month (including for this purpose any Mortgage Loans in foreclosure and Mortgage
Loans with respect to which the related Mortgaged Property has been 

                                      38
<PAGE>
acquired by the Mortgage Pool), or (ii) cumulative Realized Losses with respect
to the Mortgage Loans exceed (a) with respect to the Distribution Date in
___________, (____%) of the Class Certificate Balance of the Subordinate
Certificates as of the Cut-off Date (the "Original Subordinate Principal
Balance"), (b) with respect to the Distribution Date in _______, (____%) of the
Original Subordinate Principal Balance, (c) with respect to the Distribution
Date in __________, (____%) of the Original Subordinate Principal Balance, (d)
with respect to the Distribution Date in _________, (____%) of the Original
Subordinate Principal Balance, and (e) with respect to the Distribution Date in
_________, (____%) of the Original Subordinate Principal Balance.]

     The "Subordinate Prepayment Percentage" for any Distribution Date is 100%
minus the Senior Prepayment Percentage for such Distribution Date.  The
"Subordinate Prepayment Percentage Allocation" for any Distribution Date and
Class of Subordinate Certificates, is equal to the product of the Subordinate
Prepayment Percentage and a fraction, the numerator of which is the related
Class Certificate Balance immediately prior to such date and the denominator of
which is the aggregate of the Class Certificate Balances of all Subordinate
Certificates immediately prior to such date.

     If on any Distribution Date the allocation to the Class of Certificates
then entitled to principal of full and partial principal prepayments and other
amounts in the percentages required above would reduce the outstanding Class
Certificate Balance of such Class below zero, the distribution to such Class of
Certificates will be limited to the amount necessary to reduce the related Class
Certificate Balance to zero and any remaining portion thereof will be
distributed to the Class of Certificates next entitled to distributions of
principal.

ALLOCATION OF LOSSES

     On each Distribution Date, any Realized Loss on a Mortgage Loan, other than
any Excess Loss, that results in a reduction of the principal balance of the
Underlying Bond without a corresponding cash principal payment, will be
allocated first, sequentially, to the Class B-2, Class B-1 and Class M-1
Certificates, in that order, in each case until the respective Class Certificate
Balance thereof is reduced to zero, and thereafter to the Class A-1
Certificates.

     On each Distribution Date, Excess Losses will be allocated pro rata among
the Class A-1 Certificates and the Subordinate Certificates based upon their
respective Class Certificate Balances.

     In general, a "Realized Loss" means, with respect to a Liquidated Mortgage
Loan, the amount by which the remaining unpaid principal balance of the Mortgage
Loan exceeds the amount of liquidation proceeds applied to the principal balance
of the Mortgage Loan.  "Excess Losses" are (i) Special Hazard Losses in excess
of the Special Hazard Loss Coverage Amount, (ii) Bankruptcy Losses in excess of
the Bankruptcy Loss Coverage Amount and (iii) Fraud Losses in excess of the
Fraud Loss Coverage Amount.  "Bankruptcy Losses" are losses that are incurred as
a result of Debt Service Reductions and Deficient Valuations.  "Special Hazard
Losses" are Realized Losses in respect of Special Hazard Mortgage Loans.  "Fraud
Losses" are losses sustained on a Liquidated Mortgage Loan by reason of a
default arising from fraud, dishonesty or misrepresentation.  See "Credit
Enhancement -- Subordination of Subordinate Certificates" herein.

     A "Liquidated Mortgage Loan" is a defaulted Mortgage Loan as to which the
Master Servicer has determined that all recoverable liquidation and insurance
proceeds have been received.  A "Special Hazard Mortgage Loan" is a Liquidated
Mortgage Loan as to which the ability to recover the full amount due thereunder
was substantially impaired by a hazard not insured against under a standard
hazard insurance policy of the type described in the Prospectus under "Credit
Enhancement -- Special Hazard Insurance Policies."  See "Credit Enhancement --
Subordination of Subordinate Certificates" herein.

     The "Class Certificate Balance" of any Class of Certificates as of any
Distribution Date is the initial Class Certificate Balance thereof, reduced by
the sum of (i) all amounts previously distributed to holders of such Class as
payments of principal and (ii) the amount of Realized Losses and Excess Losses
allocated to such Class, as described above.

                                      39
<PAGE>
TERMINATION; OPTIONAL TERMINATION

     The circumstances under which the obligations created by the Trust
Agreement will terminate in respect of the Certificates are described in
"Description of the Securities -- Early Termination" and "The Agreements --
Termination of Trust Agreement" in the Prospectus.  At its option, the Bond
Issuer may redeem the Underlying Bond at par and thereby effect early retirement
of the Certificates, on any Distribution Date on which the Pool Principal
Balance is less than 10% of the Cut-off Date Pool Principal Balance.  In
addition, the Depositor may exercise its option to repurchase the Trust Fund
Assets on any Distribution Date on which the Pool Principal Balance is less than
10% of the Cut-off Date Pool Principal Balance.  The repurchase price for such
Trust Fund Assets must be at least equal to the principal balance of outstanding
Certificates, plus accrued interest.  Distributions in respect of any such
optional termination will be paid to Certificateholders in order of their
priority of distribution as described under " --Priority of Distributions Among
Certificates."  In no event will the trust created by the Trust Agreement
continue beyond the later of (a) the repurchase described above, (b) the
expiration of 21 years from the death of the survivor of the person named in the
Trust Agreement and (c) ____________________________________.  The termination
of the trust will be effected in a manner consistent with applicable federal
income tax regulations [and the status of the Trust Fund Assets as a FASIT.]]

LAST SCHEDULED DISTRIBUTION DATE

     The Last Scheduled Distribution Date for each Class of Offered Certificates
is the latest date on which the Class Certificate Balance is expected to be
reduced to zero, and has been calculated on the basis of the assumptions
described below under "Prepayment and Yield Considerations -- Assumptions
Relating to Tables" except for the following additional assumptions: (describe).
Since the rate of distributions in reduction of the Class Certificate Balance on
each Class of Offered Certificates will depend on the rate of payment (including
prepayments) of the Mortgage Loans as well as the frequency and severity of
losses experienced by the Mortgage Pool, the Class Certificate Balance of any
such Class could reach zero significantly earlier or later than its Last
Scheduled Distribution Date.  The rate of payments on the Mortgage Loans will
depend on their particular characteristics, as well as on prevailing interest
rates from time to time and other economic factors, and no assurance can be
given as to the actual payment experience of the Mortgage Loans.

[CONTROLLING CLASS OF CERTIFICATES

     For the purposes described in the Prospectus under the headings "The
Agreements -- Modification of Agreements," " -- Events of Default" and "Rights
upon Events of Default," the "Controlling Class" shall be the Class A-1
Bondholders or, if the Class A-1 Bonds are no longer outstanding, the Class B-1
Bondholders.]

[BOOK-ENTRY CERTIFICATES

     The Offered Certificates will be book-entry Certificates (the "Book-Entry
Certificates").  The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate principal balance of each such Class of
Offered Certificates which will be held by a nominee of The Depository Trust
Company (together with any successor depository selected by the Depositor, the
"Depository").  Beneficial interests in the Book-Entry Certificates will be
indirectly held by investors through the book-entry facilities of the
Depository, as described herein.  Investors may hold such beneficial interests
in the Book-Entry Certificates in minimum denominations of [$1,000] and in
integral multiples in excess thereof, except that one Book-Entry Certificate of
each such Class may be issued in an amount which is not an integral multiple of
[$1,000].  The Depositor has been informed by the Depository that its nominee
will be CEDE & Co. ("CEDE").  Accordingly, CEDE is expected to be the holder of
record of the Book-Entry Certificates.  Except as described below, no person
acquiring a Book-Entry Certificate (each, a "beneficial owner") will be entitled
to receive a physical certificate representing such Certificate (a "Definitive
Certificate").

     The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose.  In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of the Depository (or of a participating firm that acts as agent

                                      40
<PAGE>
for the Financial Intermediary, whose interests will in turn be recorded on the
records of the Depository, if the beneficial owner's Financial Intermediary is
not a Depository participant).  Therefore, the beneficial owner must rely on the
foregoing procedures to evidence its beneficial ownership of a Book-Entry
Certificate.  Beneficial ownership of a Book-Entry Certificate may only be
transferred by compliance with the procedures of such Financial Intermediaries
and Depository participants.

     The Depository is a limited purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "Clearing
Corporation" within the meaning of the Uniform Commercial Code as in effect in
the State of New York and a "Clearing Agency" registered pursuant to Section 17A
of the Securities Exchange Act of 1934, as amended.  The Depository performs
services for its participants, some of which (and/or their representatives) own
the Depository.  In accordance with its normal procedures, the Depository is
expected to record the positions held by each Depository participant in the
Book-Entry Certificates, whether held for its own account or as a nominee for
another person.  In general, beneficial ownership of Book-Entry Certificates
will be subject to the rules, regulations and procedures governing the
Depository and Depository participants as in effect from time to time.

     Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to the Depository.  The Depository will be
responsible for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the Depository's normal
procedures.  Each Depository participant will be responsible for disbursing such
payments to the beneficial owners of the Book-Entry Certificates that it
represents and to each Financial Intermediary for which it acts as agent.  Each
such Financial Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Certificates that it represents.

     Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Trustee to CEDE.  Because the Depository can only act on
behalf of Financial Intermediaries, the ability of a beneficial owner to pledge
Book-Entry Certificates to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Certificates in the secondary
market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.

     None of the Depositor, TMA or the Certificate Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
CEDE, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.  In the event of the
insolvency of the Depository, a Depository participant or an indirect Depository
participant in whose name Book-Entry Certificates are registered, the ability of
the Beneficial Owners of such Book-Entry Certificates to obtain timely payment
may be impaired.

     Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be CEDE, as
nominee of the Depository.  Beneficial owners of the Book-Entry Certificates
will not be Certificateholders, as that term is used in the Trust Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries and the
Depository. Monthly and annual reports on the Mortgage Pool provided by the
Master Servicer to CEDE, as nominee of the Depository, may be made available to
beneficial owners upon request, in accordance with the rules, regulations and
procedures creating and affecting the Depository, and to the Financial
Intermediaries to whose Depository accounts the Book-Entry Certificates of such
beneficial owners are credited.

     The Depository has advised the Depositor and the Certificate Trustee that,
unless and until Definitive Certificates are issued, the Depository will take
any action permitted to be taken by the holders of the Book-Entry Certificates
under the Trust Agreement only at the direction of one or more Financial
Intermediaries to whose Depository accounts the Book-Entry Certificates are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates.

                                      41
<PAGE>
     Definitive Certificates will be issued to beneficial owners of the Book-
Entry Certificates, or their nominees, rather than to the Depository, only if
(a) the Depository or the Depositor advises the Certificate Trustee in writing
that the Depository is no longer willing, qualified or able to discharge
properly its responsibilities as nominee and depository with respect to the
Book-Entry Certificates and the Depositor or the Certificate Trustee is unable
to locate a qualified successor; (b) the Depositor, at its sole option, elects
to terminate a book-entry system through the Depository; or (c) after the
occurrence of a Certificate of Event of Default, beneficial owners having
Percentage Interests aggregating not less than 51% of all Percentage Interests
evidenced by each Class of the Book-Entry Certificates advise the Certificate
Trustee and the Depository through the Financial Intermediaries in writing that
the continuation of a book-entry system through the Depository (or a successor
thereto) is no longer in the best interests of beneficial owners.

     Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Certificate Trustee will be required to notify all
beneficial owners of the occurrence of such event and the availability through
the Depository of Definitive Certificates.  Upon surrender by the Depository of
the global certificate or certificates representing the Book-Entry Certificates
and instructions for re-registration, the Certificate Trustee will issue the
Definitive Certificates, and thereafter the Certificate Trustee will recognize
the holders of such Definitive Certificates as Certificateholders under the
Trust Agreement.]

THE TRUSTEE

     ___________________________ will be the Trustee under the Trust Agreement.
The Depositor and _______________________ may maintain other banking
relationships in the ordinary course of business with the Trustee.  Offered
Certificates may be surrendered at the Corporate Trust Office of the Trustee
located at ______________________________________, Attention: _______________,
or at such other addresses as the Trustee may designate from time to time.]

[DESCRIPTION OF THE UNDERLYING BOND

GENERAL

     The Underlying Bond will be issued by the Bond Issuer pursuant to an
Indenture dated as of ___________ between the Bond Issuer and
_____________________ as Bond Trustee.  The payments of principal and interest
on the Underlying Bond will be the primary source for distributions on the
Certificates.  The Underlying Bond is payable solely from the limited assets of
the Bond Issuer.

BOND DISTRIBUTIONS

     Distributions on the Underlying Bond will be made by the Bond Trustee on
the __________ day of each month, or if such day is not a business day, on the
first business day thereafter, commencing on ________________ (each a "Bond
Distribution Date").

     Distributions on each Bond Distribution Date will be made by wire transfer
in immediately available funds to the Distribution Account; provided, however,
that the final payment in retirement of the Underlying Bond will be made only
upon presentment and surrender of such Underlying Bond at the Corporate Trust
Office of the Bond Trustee.

     "Available Funds" for the Bond Distribution Date will generally be equal to
the sum of (i) the aggregate amount of scheduled payments on the Mortgage Loans
due on the related Due Date and received by the Master Servicer on or prior to
the related Withdrawal Date (net of the related Servicing Fees), (ii) any
amounts representing miscellaneous fees and collections, including assumption
fees collected from Mortgagors, to the extent not paid to the Master Servicer or
any Servicer, and any amounts payable by the Master Servicer or the Company as
reimbursement of any investment losses, (iii) any unscheduled payments and
receipts on the Mortgage Loans, received during the calendar month preceding the
month of such Bond Distribution Date including all proceeds of any primary
mortgage guaranty insurance policies and any other insurance policies with
respect to the Mortgage Loans, to the extent such

                                      42
<PAGE>
proceeds are not applied to the restoration of the related Mortgaged Property or
released to the Mortgagor in accordance with the applicable Servicer's or the
Master Servicer's normal servicing procedures (collectively, "Insurance
Proceeds"), all other cash amounts received and retained in connection with the
liquidation of defaulted Mortgage Loans, by foreclosure or otherwise
("Liquidation Proceeds"), (in each case, net of unreimbursed expenses incurred
in connection with a liquidation or foreclosure), all partial or full
prepayments received during such month and compensating interest paid by the
applicable Servicer or Master Servicer if and to the extent provided for by the
Servicing Agreement or Master Servicing Agreement, respectively, (iv) amounts
received with respect to such Bond Distribution Date as the purchase price in
respect of a Defective Mortgage Loan or Delinquent Mortgage Loans repurchased by
[TMA] or any Substitution Adjustment Amount in respect of a Defective Mortgage
Loan that has been substituted for in lieu of repurchase by [TMA], and the
proceeds of any purchase of a Mortgage Loan by a Servicer as a result of a
breach of a representation, warranty or covenant by such Servicer or of any
other such purchase by a Servicer to the extent otherwise required or permitted
under the applicable Servicing Agreement, and (v) all Advances made for such
Bond Distribution Date in respect of the Mortgage Loans, in each case net of
amounts reimbursable therefrom to the Master Servicer or any Servicer for
Advances made with respect to prior Bond Distribution Dates and net of such
amount as may be necessary to reimburse the Master Servicer or the Bond Trustee
for certain costs and expenses (including any indemnification expenses) owed to
either pursuant to the Master Servicing Agreement or the Indenture but only up
to an amount set forth in the Master Servicing Agreement (the "Capped Amount").
With respect to any Bond Distribution Date, the "Due Date" is the first day of
the month in which such Bond Distribution Date occurs; the "Due Period" is the
period beginning on the second day of the preceding calendar month and ending on
the Due Date in the current calendar month; and a "Withdrawal Date" is the date
the Master Servicer transfers Available Funds from the Bond Account to the
Distribution Account.

     As more fully described below, the Available Funds for each Bond
Distribution Date will be distributed by the Bond Trustee at the direction of
the Master Servicer in the following order of priority, to the payment of the
following amounts for such Bond Distribution Date: first, the fee payable to the
Bond Trustee under the Indenture and [TMA] under the Management Agreement,
second, the Interest Payment Amount, third, the amount of any Bondholders'
Interest Carryover, if applicable, fourth, the Basic Principal Amount, fifth,
the Excess Cashflow Principal Amount, sixth, such amount as may be necessary to
reimburse either the Master Servicer or the Bond Trustee for any amounts that
would otherwise have been payable to it for costs and expenses but were in
excess of the Capped Amount and seventh, any remaining amounts for such Bond
Distribution Date to the holder of the Investor Certificate.  The amount of
Available Funds for any Bond Distribution Date after payment of the fees set
forth in clause, first, above, is referred to herein as the "Net Available
Funds" for such Bond Distribution Date.

BOND INTEREST

     The Bond Interest Rate on the Underlying Bond for each Bond Distribution
Date is described herein under [ "Summary of Terms -- Bond Interest Rate."]
Notwithstanding such description, if as of any Bond Distribution Date the Bond
Interest Rate as described under [ "Summary of Terms -- Bond Interest Rate"] for
such Bond Distribution Date exceeds the Weighted Average Net Mortgage Rate for
the related Due Period, then the Bond Interest Rate for the related Interest
Accrual Period will be equal to the Weighted Average Net Mortgage Rate (unless
such Bond Distribution Date would be the seventh consecutive Bond Distribution
Date on which the Bond Interest Rate would be equal to the Weighted Average Net
Mortgage Rate, in which case, the Bond Interest Rate would be calculated as
described under [ "Summary of Terms -- Bond Interest Rate."]  If the Bond
Interest Rate for any Bond Distribution Date is based on the Weighted Average
Net Mortgage Rate, the excess of (a) the amount of interest on the Underlying
Bond that would have accrued in respect of the related Interest Accrual Period
had interest been calculated based on LIBOR (subject to the fixed-rate cap) over
(b) the amount of interest on the Underlying Bond actually accrued in respect of
such Interest Accrual Period based on the Weighted Average Net Mortgage Rate,
such excess, together with the unpaid portion of any such excess from prior Bond
Distribution Dates (and interest accrued thereon, at the applicable rate
calculated based on LIBOR (subject to the fixed-rate cap)) is referred to as the
"Bondholders' Interest Carryover."  Any Bondholders' Interest Carryover will be
payable on the Bond Distribution Date when incurred or on any subsequent Bond
Distribution Date to the extent that the Net Available Funds for such Bond
Distribution Date are sufficient after distribution of the Interest Payment
Amount for the Underlying Bond, as described herein under " -- Bond
Distributions" above.

                                      43
<PAGE>
     On each Bond Distribution Date, the Underlying Bond will be entitled to
receive an amount allocable to interest (the "Interest Payment Amount") equal to
the sum of (i) interest at the Bond Interest Rate for the related Interest
Accrual Period for the Underlying Bond on the then outstanding Principal Balance
for such Bond immediately prior to such Bond Distribution Date, and (ii) the sum
of the amounts, if any, by which the amount described in clause (i) above on
each prior Bond Distribution Date exceeded the amount actually distributed as
interest on the Underlying Bond on such prior Bond Distribution Date and not
subsequently distributed, together with, to the extent permitted by applicable
law, interest on the amount described in clause (ii) at the related Bond
Interest Rate.  With respect to each Bond Distribution Date, the "Interest
Accrual Period" will be the period commencing on the immediately preceding Bond
Distribution Date (or, in the case of the first Interest Accrual Period,
commencing on the Closing Date) and ending on the date immediately preceding
such Bond Distribution Date.

     Accrued interest to be paid on any Bond Distribution Date will be
calculated on the basis of the then outstanding Principal Balance for the
Underlying Bond immediately prior to such Bond Distribution Date.  Interest will
be calculated and payable on the basis of a 360-day year divided into twelve 30-
day months.

LIBOR RATE DETERMINATION

     On the second business day prior to the commencement of each Interest
Accrual Period after the initial Interest Accrual Period for the Underlying Bond
(each a "LIBOR Rate Determination Date"), the Master Servicer will determine
LIBOR.

     "LIBOR" means, as of any LIBOR Rate Determination Date, the rate for
deposits in United States dollars for a period equal to the relevant Interest
Accrual Period (commencing to the first day of such Interest Accrual Period)
which appears in the Telerate Page 3750 as of 11:00 a.m., London time, on such
date.  If such rate does not appear on Telerate Page 3750, the rate for that day
will be determined on the basis of the rates at which deposits in United States
dollars are offered by the Reference Banks at approximately 11:00 a.m., London
time, on that day to prime banks in the London interbank market for a period
equal to the relevant Interest Accrual Period (commencing on the first day of
such Interest Accrual Period).  The Master Servicer will request the principal
London office of each of the Reference Banks to provide a quotation of its rate.
If at least two such quotations are provided, the rate for that day will be the
arithmetic mean of the quotations.  If fewer than two quotations are provided as
requested, the rate for that day will be the arithmetic mean of the rates quoted
by major banks in The City of New York, selected by the Master Servicer, at
approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading European banks for a period equal to the relevant
Interest Accrual Period (commencing on the first day of such Interest Accrual
Period).

     "Telerate Page 3750" means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on that
service of the purpose of displaying comparable rates or prices) and "Reference
Banks" means leading banks selected by the Trustee and engaged in transactions
in Eurodollar deposits in the international Eurocurrency market.

     The Bond Interest Rate for the first Bond Distribution Date will equal
____% per annum.

     The establishment of LIBOR (or an alternative index) by the Master Servicer
and the Master Servicer's subsequent calculation of the Bond Interest Rate on
the Underlying Bond for the Interest Accrual Period, in the absence of willful
misconduct, bad faith or manifest error, will be final and binding.  The Bond
Interest Rate on the Underlying Bond for any applicable Interest Accrual Period
may be obtained by telephoning the Master Servicer at _____________.

BOND PRINCIPAL

     On each Bond Distribution Date, the "Principal Payment Amount" will equal
the sum for such Bond Distribution Date of the Basic Principal Amount and the
Excess Cash Flow Principal Amount, if any.  In no event will the Principal
Payment Amount with respect to any Bond Distribution Date be greater than the
then outstanding Bond Principal Balance of the Underlying Bond.

                                      44
<PAGE>
     The "Basic Principal Amount" for any Bond Distribution Date will be equal
to the lesser of (a) the Net Available Funds remaining after distribution of the
Interest Payment Amount and any Bondholders' Interest Carryover for such Bond
Distribution Date, (b) the Principal Distributable Amount for such Bond
Distribution Date and (c) the amount necessary, if any, to reduce the Bond
Principal Balance to the Targeted Principal Balance for such Bond Distribution
Date.

     The "Principal Distributable Amount" for any Bond Distribution Date will be
equal to the sum of:

          (i) the principal portion of all scheduled monthly payments on the
     Mortgage Loans received or Advanced (as defined herein) on the Mortgage
     Loans with respect to the related Due Date;

          (ii) the principal portion of all proceeds received with respect to
     such Bond Distribution Date of (x) the repurchase of a Defective Mortgage
     Loan (or, in the case of a substitution, certain amounts representing a
     principal adjustment) or a Delinquent Mortgage Loan by [TMA] or (y) any
     Mortgage Loan purchased by the applicable Servicer to the extent required
     or permitted under the applicable Servicing Agreement, during the preceding
     calendar month; and

          (iii) the principal portion of all other unscheduled collections
     received during the second preceding calendar month (or deemed to be
     received during such month) (including, without limitation, full and
     partial principal prepayments made by the respective Mortgagors,
     Liquidation Proceeds and Insurance Proceeds), to the extent not distributed
     in the preceding month.

          The "Targeted Principal Balance" for any Bond Distribution Date will
     mean the Bond Principal Balance that is equal to (x) the Pool Principal
     Balance with respect to such Bond Distribution Date minus (y) the Specified
     Overcollateralization Amount for such Bond Distribution Date.

     The "Specified Overcollateralization Amount" will be an amount to be
determined pursuant to the Master Servicing Agreement.  For each Bond
Distribution Date, the Specified Overcollateralization Amount will adjust
pursuant to the parameters set forth in the Master Servicing Agreement and such
parameters may themselves be amended without the consent of the Bondholder or
the Bond Trustee by agreement of the Bond Issuer with the advice of tax counsel.

     The "Excess Cash Flow Principal Amount" for any Bond Distribution Date will
be equal to the lesser of (i) the Net Monthly Excess Cashflow, if any, for such
Bond Distribution Date and (ii) the amount necessary, if any, after application
of the Basic Principal Amount for such Bond Distribution Date, to reduce the
Bond Principal Balance to the Targeted Principal Balance for such Bond
Distribution Date.  The "Net Monthly Excess Cashflow" for any Bond Distribution
Date is equal to the amount of Net Available Funds, if any, remaining after
payment of (i) the Interest Payment Amount, (ii) the amount of any Bondholders'
Interest Carryover, and (iii) the Basic Principal Amount.

INVESTOR CERTIFICATE PAYMENT

     No payments shall be made on the Investor Certificate on any Bond
Distribution Date on which funds available to pay principal on the Bond are
insufficient to reduce the Bond Principal Balance to the Targeted Principal
Balance, i.e., at any time at which the Overcollateralization Amount is less
than the Specified Overcollateralization Amount. Conversely, on any Bond
Distribution Date on which Net Available Funds remain after payment of the
amount, if any, required to reduce the Bond Principal Balance to the Targeted
Principal Balance for such Bond Distribution Date, and, if applicable, the
payment of any Bondholders' Interest Carryover, and the payment of costs and
expenses to the Master Servicer and the Bond Trustee, respectively, in excess of
the respective Capped Amount such remaining Net Available Funds shall be
distributed to the holder of the Investor Certificate, which shall initially be
the Company.  Any amounts so distributed shall have been released from the lien
of the Indenture and shall no longer be available to make payments on the
Underlying Bond.

BOND CREDIT ENHANCEMENT

                                      45
<PAGE>
     OVERCOLLATERALIZATION RESULTING FROM CASHFLOW STRUCTURE

     As described under " -- Bond Principal" above, after the Closing Date,
principal distributions on the Underlying Bond will be made on each Bond
Distribution Date, to the extent of funds available therefor, in amounts up to
the amount necessary to maintain the Overcollateralization Amount at a level
equal to the Specified Overcollateralization Amount.

     The Indenture provides that, on any Bond Distribution Date, all unscheduled
collections on account of principal with respect to Mortgage Loans during the
calendar month preceding the calendar month in which such Bond Distribution Date
occurs will be distributed on the Underlying Bond on such Bond Distribution
Date.  If any Mortgage Loan becomes a Liquidated Mortgage, the Liquidation
Proceeds related thereto and allocated to principal may be less than the
principal balance of the related Mortgage Loan, the amount of any such
insufficiency is generally defined as a "Realized Loss." The principal balance
of any Mortgage Loan after it becomes a Liquidated Mortgage Loan shall equal
zero.  The Indenture does not contain any rule which requires that the amount of
any Realized Loss be distributed to the Bondholder on the Bond Distribution Date
which immediately follows the event of loss, i.e., the Indenture does not
require the current recovery of losses by the Underlying Bondholder.  However,
the occurrence of a Realized Loss will reduce the Overcollateralization Amount
and may therefore increase the required principal distribution on the Underlying
Bond to the extent that such reduction causes the Overcollateralization Amount
to be less than the Specified Overcollateralization Amount.  The effect of the
foregoing is to allocate losses to overcollateralization by reducing payments on
the Mortgage Loans which the holder of the Investor Certificate would otherwise
receive.

     EXCESS SPREAD

     "Excess Spread" refers to the positive spread that may exist between the
Weighted Average Net Mortgage Rate and the Bond Interest Rate.  Whether at any
time any such positive spread exists will depend on a variety of factors,
including the relationship of the movements in the indices applicable to the
Mortgage Loans and that applicable to the Underlying Bond, over which no
prediction can be made or assurance given.

STATED MATURITY

     The Stated Maturity for the Underlying Bond is the date determined by the
Company which is the Bond Distribution Date immediately following the latest
maturity date of any Mortgage Loans.  The Stated Maturity of the Underlying Bond
is ______________.

BOND REDEMPTION

     The Underlying Bond may be redeemed in whole, but not in part, at the Bond
Issuer's option, on any Bond Distribution Date on or after the earlier of (a)
years after the Closing Date and (b) the Bond Distribution Date after which the
Pool Principal Balance with respect to such Bond Distribution Date is ____% or
less of the Initial Pool Principal Balance, at a redemption price equal to 100%
of the unpaid Bond Principal Balance, plus accrued and unpaid interest thereon
at the Bond Interest Rate (the "Redemption Price"). In addition, the Redemption
Price would include any then outstanding Bondholders' Interest Carryover. If the
Bond Issuer does not exercise its option to redeem the Underlying Bond on the
first Payment Date on which it is permitted to do so, on the next succeeding
Bond Distribution Date, (a) the Bond Interest Rate will be increased for the
remainder of the life of the Underlying Bond to the less of (i) a per annum
floating rate equal to LIBOR for the related Interest Accrual Period plus ____%
and (ii) ____% per annum.

     [The Underlying Bond will be subject to mandatory redemption and retirement
by the Bond Issuer at the Redemption Price in the event that the Master Servicer
or the Company exercises its option to purchase all of the remaining Mortgage
Loans. Such option may be exercised by the Master Servicer (or if the Master
Servicer fails to exercise such option, by the Company) on any Bond Distribution
Date after the Bond Distribution Date with respect to which the Pool Principal
Balance is equal to ____% or less of the Initial Pool Principal Balance at a
price determined pursuant to the Master Servicing Agreement, which price shall
not be less than the amount necessary to

                                      46
<PAGE>
redeem the Underlying Bond at the Redemption Price, provided, however, that the
Master Servicer or the Company will notify the Bond Issuer of the intent to
exercise the option and the Bond Issuer will have 90 days during which it may
exercise its right to sell the remaining Mortgage Loans and mandatorily redeem
the Underlying Bond.]

     See "Description of the Securities -- Redemption of Bonds -- Optional
Redemption" in the Prospectus.


                      PREPAYMENT AND YIELD CONSIDERATIONS

GENERAL

     Because principal payments on the Mortgage Loans will be distributed to
Certificateholders, the rate of principal payments on the Offered Securities,
the aggregate amount of each interest payment on the interest bearing Offered
Securities and the yield to maturity of Offered Securities purchased at a price
other than par are directly related to the rate of prepayments of principal on
the Mortgage Loans.  The principal payments on the Mortgage Loans may be in the
form of scheduled principal payments (for this purpose, the term "principal
prepayment" includes prepayments and any other recovery of principal in advance
of its scheduled Due Date, including liquidation due to default, casualty,
condemnation and the like).  Any such prepayments will result in distributions
to holders of the Offered Securities of amounts which would otherwise be
distributed over the remaining term of the Mortgage Loans.  The rate at which
mortgage loans in general prepay may be influenced by a number of factors,
including general economic conditions, mortgage market interest rates,
availability of mortgage funds and homeowner mobility. In general, if prevailing
interest rates fall significantly below the interest rates on the Mortgage
Loans, the Mortgage Loans are likely to prepay at higher rates than if
prevailing rates remain at or above the interest rates on the Mortgage Loans.
Conversely, if interest rates rise above the interest rates on the Mortgage
Loans, the rate of prepayment would be expected to decrease.

     The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors, even if the average rate of principal prepayments
is consistent with the expectations of investors.  In general, the earlier the
payment of principal of the Mortgage Loans the greater  the effect on an
investor's yield to maturity.  As a result, the effect on an investor's yield of
principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Offered Securities will not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments.  The yield on the Class X
Securities will be highly sensitive to the rate and timing of prepayments on the
Mortgage Loans.  A rapid rate of principal prepayments on the Mortgage Loans (as
defined below) may have a material negative effect on the yield of the Class X
Securities.  Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Offered
Securities.  See "--Yield on Class X Securities" herein.

     As described herein under "Description of the Securities -- Principal," the
Class A-1 Prepayment Percentage of Principal Prepayments and excluding for this
purpose, liquidations due to default, casualty, condemnation and the like, will
be initially distributed to the Class A-1 Securities.  This may result in all
(or a disproportionate percentage) of such principal prepayments being
distributed to holders of the Class A-1 Securities and none (or less than their
pro rata share) of such principal prepayments being distributed to holders of
Subordinate Securities during the periods of time described in the definition of
"Class A-1 Prepayment Percentage."

     [Mortgagors are permitted to prepay the Mortgage Loans, in whole or in
part, at any time without penalty.] The rate of payment of principal may also be
affected by any repurchase of the Mortgage Loans permitted or required by the
Master Servicing Agreement and the Mortgage Loan Purchase Agreement.  See "Trust
Fund Assets -- The Mortgage Pool -- Assignment of the Mortgage Loans" and
"Description of the Securities -- Termination; Optional Termination" herein.

     Each monthly interest payment on a Mortgage Loan will be calculated as the
product of one-twelfth of the applicable Mortgage Rate at the time of such
calculation and the then unpaid principal balance on such Mortgage Loan. The Net
Mortgage Rate with respect to each Mortgage Loan will be similarly calculated on
a loan-by-loan basis, by subtracting from the applicable Mortgage Rate the
related Expense Rate.

                                      47
<PAGE>
     The effective yield to holders of interest bearing Offered Securities will
be reduced slightly below the yield otherwise produced by the applicable Pass-
Through Rate because, while interest will accrue from the first day of each
month, the distribution of such interest will not be made until the ________th
day of the month following the month of accrual.

     [Substantially all] of the Mortgage Loans will include due-on-sale clauses
which allow the holder of the Mortgage Loan to demand payment in full of the
remaining principal balance upon sale or certain transfers of the property
securing such Mortgage Loan.  The Master Servicer, or the applicable servicer,
will enforce "due-on-sale" clauses to the extent permitted by applicable law.
Each Mortgage Note which contains "Due-on-sale" provisions permits the holder of
the Mortgage Note to accelerate the maturity of the Mortgage Loan upon
conveyance by the Mortgagor of the underlying Mortgage Property.  The Master
Servicer, or the applicable servicer, will enforce any "due-on-sale" clause to
the extent it has knowledge of the conveyance or proposed conveyance of the
underlying Mortgaged Property and reasonably believes that it is entitled to do
so under applicable law; provided, however, that the Master Servicer or any such
servicer will not take any action in relation to the enforcement of any "due-on-
sale" provisions which would impair or threaten to impair any recovery under any
related Primary Mortgage Insurance Policy.  Acceleration of Mortgage Loans as a
result of enforcement of such "due-on-sale" provisions in connection with
transfers of the related Mortgage Properties or the occurrence of certain other
events resulting in acceleration would affect the level of prepayments on the
Mortgage Loans, thereby affecting the weighted average lives of the Classes of
the Offered Securities.

     [See "Description of the Securities -- Termination; Optional Termination"
herein for a description of the Board Issuer's right to redeem the Underlying
Bond and the Master Servicer's option to repurchase the Mortgage Loans.  TMA may
be required to repurchase Mortgage Loans because of defective documentation or
material breaches in its representations and warranties with respect to such
Mortgage Loans.  Any such repurchases will shorten the weighted average lives of
the Classes of Offered Securities.]

     [Although each of the Mortgage Loans bears interest at an adjustable
Mortgage Rate, the [semi-annual] [annual] adjustments of the Mortgage Rate for
any Mortgage Loan will not exceed the Periodic Rate Cap and the Mortgage Rate
will in no event exceed the Maximum Rate for such Mortgage loan, regardless of
the level of interest rates generally or the rate otherwise produced by the
Index and the Gross margin.]  [In addition, such adjustments will be subject to
rounding to the nearest one-eighth of 1%.

ASSUMPTIONS RELATING TO TABLES

     The Decrement Tables have been prepared on the basis of the following
assumptions (the "Assumptions"'): [described assumptions].  Although the
characteristics of the mortgage loans for the Decrement Tables have been
prepared on the basis of the characteristics of the Mortgage Loans which are
expected to be in the Pool, there is no assurance that the Assumptions will
reflect the actual characteristics or performance of the Mortgage Loans or that
the performance of the Offered Securities will conform to the results set forth
in the tables.

WEIGHTED AVERAGE LIVES OF THE OFFERED SECURITIES

     Weighted average life refers to the average amount of time that will elapse
from the date of issuance of an Offered Certificate until each dollar in
reduction of the Class Certificate Balance thereof is distributed to the
investor. The weighted average lives of such Classes of Offered Securities will
be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayments" includes prepayments and
liquidations due to default, casualty, condemnation and the like), the timing of
changes in such rate of payments and the priority sequence of distributions of
principal of such Offered Certificate, The interaction of the foregoing factors
may have different effect on each Class of Offered Securities and the effects on
any such Class may vary at different times during the life of such Class.
Accordingly, no assurance can be given as to the weighted average life of any
such Class of Offered Securities. For an example of the weighted average lives
of the Offered Securities are affected by the foregoing factors at various
constant percentages of PSA, see the Decrement Tables below.

                                      48
<PAGE>

     Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model.  The model used in this Prospectus Supplement is
the Prepayment Standard Assumption ("PSA"), which represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such mortgage loans.  A prepayment
assumption of 100% PSA assumes constant prepayment rates of 0.2% per annum of
the then outstanding principal balance of such mortgage loans in the first month
of the life of the mortgage loans and an additional 0.2% per annum in each month
thereafter until the thirtieth month.  Beginning in the thirtieth month and in
each month thereafter during the life of the mortgage loans, 100% PSA assumes a
constant prepayment rate of 6% per annum each month.  As used in the table
below, "0% PSA" assumes prepayment rates equal to 0% of PSA, i.e., no
prepayments.  Correspondingly, "125% PSA" assumes prepayment rates equal to 125%
of PSA, and so forth.  PSA does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool mortgage loans, including the Mortgage Loans.  The Depositor believes
that no existing statistics of which it is aware provide a reliable basis for
holders of Offered Securities to predict the amount or the timing of receipt of
prepayments on the Mortgage Loans.

     The Decrement Tables set forth below have been prepared on the basis of the
Assumptions described above under "-Assumptions Relating to Tables."  There will
be discrepancies between the characteristics of the actual Mortgage Loans
included in the Pool and the characteristics of the Mortgage Loans assumed in
preparing the Decrement Tables.  Any such discrepancy may have any effect upon
the percentages of initial Class Securities Balances outstanding set forth in
the Decrement Tables (and the weighted average lives of the Offered Securities).
In addition, to the extent that the Mortgage Loans that actually are included in
the Mortgage Pool have characteristics that differ from those assumed in
preparing the following Decrement Tables, the Class Securities Balance of any
such Class of Offered Securities will be reduced to zero earlier or later than
indicated by such Decrement Tables.

     Furthermore, the information contained in the Decrement Tables with respect
to the weighted average life of any Offered Certificate is not necessarily
indicative of the weighted average life of such Class of Offered Securities that
might be calculated or projected under different or varying prepayment
assumptions.

     It is not likely that (i) all of the Mortgage Loans will have the Mortgage
Rates or remaining terms to maturity assumed or (ii) the Mortgage Loans will
prepay at the indicated percentage of PSA until maturity.  In addition, the
diverse remaining terms to maturity of the Mortgage Loans (which includes many
recently originated Mortgage Loans) could produce slower or faster distributions
in reduction of Class Certificate Balances than indicated in the Decrement Table
at the various percentages of PSA specified.

     Based upon the foregoing assumptions, the following Decrement Tables
indicate the projected weighted average life of each Class of the Offered
Securities and set forth the percentages of the initial Class Certificate
Balance of each such Class that would be outstanding after each of the dates
shown at various constant percentages of the PSA.

                                      49
<PAGE>
                                DECREMENT TABLES
      PERCENTAGE OF INITIAL CLASS CERTIFICATE BALANCE OUTSTANDING FOR THE
    OFFERED SECURITIES AT THE RESPECTIVE PERCENTAGES OF PSA SET FORTH BELOW:

<TABLE> 
<CAPTION> 
DISTRIBUTION DATE                 CLASS A-1                CLASS M-1
- -----------------           ---------------------    ---------------------
                            %    %    %    %    %    %    %    %    %    %
                            -    -    -    -    -    -    -    -    -    -
<S>                         <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C> 

Initial Class Certificate
    Balance...............



Weighted Average Life ( in
  years)..................
Years to Maturity.........
</TABLE> 
 
(1)  The weighted average life of an Offered Certificate is determined by (i)
     multiplying the amount of each distribution of the Class Certificate
     Balance thereof by the number of years from the date of the issuance of the
     Offered Certificate to the related Distribution Date, (ii) adding the
     results and (iii) dividing the sum by the initial Class Certificate Balance
     of the Offered Securities of such Class.

YIELD ON CLASS X SECURITIES

     The significance of the effects of prepayments on the Class X Securities is
illustrated in the following table entitled "Sensitivity of the Class X
Securities to Prepayments," which shows the pre-tax yield (on a corporate bond
equivalent basis ) to holders of such Securities under different constant
percentages of the Prepayment Assumption. The yields of such Securities set
forth in the following table were calculated using the assumptions specified
above for the Decrement Tables and assuming that the purchase price of the Class
X Securities is approximately ______% for 100% of such Class of Securities and
such Securities are purchase on [date].

     AS INDICATED IN THE FOLLOWING TABLE, THE YIELD TO INVESTORS IN THE CLASS X
SECURITIES WILL BE HIGHLY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE MORTGAGE LOANS (ESPECIALLY THOSE WITH HIGH NET MORTGAGE
RATES), WHICH GENERALLY CAN BE PREPAID AT ANY TIME.  ON THE BASIS OF THE
ASSUMPTIONS DESCRIBED ABOVE, THE YIELD TO MATURITY ON THE CLASS X SECURITIES
WOULD BE 0% IF PREPAYMENTS WERE TO OCCUR AT A CONSTANT RATE OF APPROXIMATELY   %
OF THE PREPAYMENT ASSUMPTION.  USING SUCH ASSUMPTION, IF THE ACTUAL PREPAYMENT
RATE OF THE MORTGAGE LOANS WERE TO EXCEED THE FOREGOING RATE FOR AS LITTLE AS
ONE MONTH (WHILE EQUALING SUCH RATE FOR ALL OTHER MONTHS), INVESTORS IN THE
CLASS X SECURITIES WOULD NOT RECOVER FULLY THEIR INITIAL INVESTMENTS.

     It is not likely that the Mortgage Loans will prepay at a constant rate
until maturity or that all of the Mortgage Loans will prepay at the same rate or
that they will have the characteristics assumed.  There can be no assurance that
the Mortgage Loans will prepay at any of the rates shown in the table or at any
other particular rate. The timing of changes in the rate of prepayments may
affect significantly the yield realized by a holder of a Class X Certificate and
there can be no assurance that the pre-tax yield to an investor in the Class X
Securities will correspond to any of the pre-tax yields shown herein.  Each
investor must make its own decision as to the appropriate prepayment assumptions
to be used in deciding whether or not to purchase a Class X Certificate.

                                      50
<PAGE>
                           SENSITIVITY OF THE CLASS X
                          CERTIFICATES TO PREPAYMENTS
                          (PRE-TAX YIELDS TO MATURITY)

                                      % OF PREPAYMENT ASSUMPTION
                                      --------------------------
                              50%   75%  100% 125% 200%
                              ---   ---  ---- ---- ----

Pre-Tax Yields to Maturity... %     %    %    %    %

     The yields set forth in the preceding table were calculated by determining
the monthly discount rates which, when applied to the assumed stream of cash
flows to be paid on the Class X Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class X Certificates indicted above and converting such monthly rates to
corporate bond equivalent rates.  Such calculation does not take into account
variations that may occur in the interest rates at which investors may be able
to reinvest funds received by them as payments of interest on the Class X
Certificates and consequently does not purport to reflect the return on any
investment in the Class X Certificates when such reinvestment rates are
considered.

                               CREDIT ENHANCEMENT

SUBORDINATION OF SUBORDINATED CERTIFICATES

     The rights of Subordinate Certificateholders to receive distributions with
respect to the Mortgage Loans will be subordinated to such rights of Senior
Certificateholders, and the rights of the holders of the Class B-1 and Class B-2
Certificates to receive such distributions will be further subordinated to such
rights of the Mezzanine Certificates, in each case only to the extent described
herein.  The subordination of the Subordinate Certificates to the Senior
Certificates and the subordination of the Class B-1 and Class B-2 Certificates
to the Mezzanine Certificates is intended to increase the likelihood of receipt,
respectively, by Senior Certificateholders and Mezzanine Certificateholders,
respectively, of the maximum amount to which they are entitled on any
Distribution Date and to provide such holders protection against Realized
Losses, other than Excess Losses.

     In addition, the Subordinate Certificates will provide limited protection
against Special Hazard Losses, Bankruptcy Losses and Fraud Losses up to the
Special Hazard Loss Coverage Amount, Bankruptcy Loss Coverage Amount and Fraud
Loss Coverage Amount, respectively, as described below.  However, in certain
circumstances the amount of available subordination may be exhausted and
shortfalls in distributions on the Certificates may result. Holders of the
Senior Certificates will bear their proportionate share of any losses realized
on the Mortgage Loans in excess of the available subordination amount.

     The Subordinated Certificates will provide protection to the Classes of
Certificates of higher relative  priority against (i) Special Hazard Losses in
an initial amount expected to be up to approximately $_________ (the "Special
Hazard Loss Coverage Amount"), (ii) Bankruptcy Losses in an initial amount
expected to be up to approximately $__________ (the "Bankruptcy Loss Coverage
Amount") and (iii) Fraud Losses in an initial amount expected to be up to
approximately $_________ (the "Fraud Loss Coverage Amount").

     The Special Hazard Loss Coverage Amount will be reduced, from time to time,
to be an amount equal on any Distribution Date to the lesser of [(a) the
greatest of (i) 1% of the aggregate of the principal balances of the Mortgage
Loans, (ii) twice the principal balance of the largest Mortgage Loan and (iii)
the aggregate principal balances of the Mortgage Loans secured by Mortgage
Properties located in the single [California] postal zip code area having the
highest aggregate principal balance of any such zip code area and (b) the
Special Hazard Loss Coverage Amount as of the Closing Date less the amount, if
any, of losses attributable to Special Hazard Mortgage Loans incurred since the
Closing Date.]  All principal balances for the purpose of this definition will
be calculated as of the first day of the month preceding such Distribution Date
after giving effect to scheduled installments of principal and interest on the
Mortgage Loans then due, whether or not paid.

                                      51
<PAGE>
     The Fraud Loss Coverage Amount will be reduced, from time to time, by the
amount of Fraud Losses allocated to the Certificates.  In addition, on each
anniversary of the Cut-off Date, the Fraud Loss Coverage Amount will be reduced
as follows:  [(a) on the first and second anniversaries of the Cut-off Date, to
an amount equal to the excess of ____% of the Cut-off Date Pool Principal
Balance over the cumulative amount of Fraud Losses allocated to the
Certificates, (b) on the third and fourth anniversaries of the Cut-off Date, to
an amount equal to the excess of ____% of the Cut-off Date Pool Principal
Balance over the cumulative amount of Fraud Losses allocated to the Certificates
and (c) on the fifth anniversary of the Cut-off Date, to zero.]

     The Bankruptcy Loss Coverage Amount will be reduced, from time to time, by
the amount of Bankruptcy Losses allocated to the Certificates.

     The amount of coverage provided by the Subordinate Certificates for Special
Hazard Losses, Bankruptcy Losses and Fraud Losses may be canceled or reduced
from time to time for each of the risks covered, provided that the then current
ratings of the Certificates assigned by the Rating Agencies are not adversely
affected thereby.  [In addition, a reserve fund or other form of credit support
may be substituted for the protection provided by the Subordinated Certificates
for Special Hazard Losses, Bankruptcy Losses and Fraud Losses.]

     As used herein, a "Deficient Valuation" is a bankruptcy proceeding whereby
the bankruptcy court may establish the value of the Mortgaged Property at an
amount less than the then outstanding principal balance of the Mortgage Loan
secured by such Mortgaged Property or may reduce the outstanding principal
balance of a Mortgage Loan.  In the case of a reduction in the value of the
related Mortgaged Property, the amount of the secured debt could be reduced to
such value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property by the bankruptcy court.
In addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction (a "Debt Service
Reduction") of the amount of the monthly payment on the related Mortgage Loan.
Notwithstanding the foregoing, no such occurrence shall be considered a Debt
Service Reduction or Deficient Valuation so long as the Master Servicer is
pursuing any other remedies that may be available with respect to the related
Mortgage Loan and (i) such Mortgage Loan is not in default with respect to
payments due thereunder or (ii) scheduled monthly payments of principal and
interest are being advanced by the Master Servicer without giving effect to any
Debt Service Reduction.

     [Other Types of Credit Enhancement, if any.]

     [Credit enhancement for the Senior Bonds will be provided by the
Subordinated Bonds and by the Investor Certificate.  Credit enhancement for the
Class B-1 Bonds will be provided by the Class B-2 Bonds and by the Investor
Certificate.  Credit enhancement for the Class B-2 Bonds will be provided by the
Investor Certificate.  The rights of holders of the Subordinated Bonds and the
Investor Certificate to receive payments with respect to the Mortgage Loans will
be subordinated to such rights of the holders of the Senior Bonds, the rights of
the holders of the Class B-2 Bonds and the Investor Certificate will be
subordinated to such rights of the holders of the Class B-1 Bonds, and the
rights of the holder of the Investor Certificate will be subordinated to such
rights of the holders of the Class B-2 Bonds, in each  case only to the extent
described herein.

     The subordination of (i) the Subordinated Bonds and the Investor
Certificate to the Senior Bonds, (ii) the Class B-2 Bonds and the Investor
Certificate to the Class B-1 Bonds and (iii) the Investor Certificate to the
Class B-2 Bonds are each intended to increase the likelihood of timely receipt
by the holders of Bonds with higher relative payment priority of the maximum
amount to which they are entitled on any Distribution Date and to provide such
holders protection against losses resulting from defaults on Mortgage Loans to
the extent described herein.  However, the amount of protection afforded by
subordination may be exhausted and Shortfalls in payment on the Offered Bonds
could result.  Any losses realized on the Mortgage Loans in excess of the
related available subordination amount will result in losses on the Offered
Bonds.  See "Description of the Bonds--Priority of Payments and Allocation of
Shortfalls" herein]

                                      52
<PAGE>
                        SERVICING OF THE MORTGAGE LOANS


THE MASTER SERVICER

___________ will act as the Master Servicer. The principal executive offices of
_______ are located at _____________________________.

     The Master Servicer will be responsible for servicing the Mortgage Loans in
accordance with the terms set forth in a master servicing agreement (the "Master
Servicing Agreement") among the Issuer, the Master Servicer and the [applicable
Trustee.] The Master Servicer may perform certain of its servicing obligations
under the Master Servicing Agreement through one or more servicers (each, a
"Servicer") pursuant to one or more mortgage servicing agreements (each, a
"Servicing Agreement"). The Master Servicer will administer and supervise the
performance of each Servicer, who may in turn be administering and supervising
the performance of the subservicers of the Mortgage Loans. Notwithstanding any
such servicing arrangements, the Master Servicer will remain liable for its
servicing duties and obligations under the Master Servicing Agreement.


SERVICING AND COLLECTION PROCEDURES

     On or prior to the Closing Date, the Master Servicer will enter into a
separate Servicing Agreement with each Servicer to perform as an independent
contractor, servicing functions for the Master Servicer subject to its
supervision. Such servicing functions will include collection and remittance of
principal and interest payments, administration of mortgage escrow accounts,
collection of certain insurance claims and, if necessary, foreclosure. The
Master Servicer may permit a Servicers to contract with subservicers to perform
some or all of the Servicer's servicing duties, but the Servicer will not
thereby be released from its obligations under the related Servicing Agreement.
The Master Servicer also may enter into subservicing agreements directly with an
affiliate of a Servicer or permit a Servicer to transfer its servicing rights
and obligations to a third party. In such instances, the affiliate or third
party, as the case may be, will perform servicing functions comparable to those
normally performed by the Servicer as described above, and the Servicer will not
be obligated to perform such servicing functions. When used herein with respect
to servicing obligations, the term Servicer includes any such affiliate or third
party. The Master Servicer may perform certain supervisory functions with
respect to servicing by the Services directly or through an 

                                      53
<PAGE>
 
agent or independent contractor and the Master Servicer will be responsible for
administering and servicing the Mortgage Loans pursuant to the Master Servicing
Agreement.

     On or before the related Closing Date, the Master Servicer will establish
one or more accounts into which each Servicer will remit collections on the
Mortgage Loans serviced by it (net of the Servicer's related servicing
compensation). For purposes of the Master Servicing Agreement, _______________, 
as Master Servicer, will be deemed to have received any amounts with respect to
the Mortgage Loans that are received by a Servicer regardless of whether such
amounts are remitted by the Servicer to the Master Servicer. The Master Servicer
has reserved the right to remove the Servicer servicing any Mortgage Loans in
the event such Servicer defaults under its Servicing Agreement and will exercise
that right if the Master Servicer considers such removal to be in the best
interest of the Securityholders. In the event that the Master Servicer removes a
Servicer, the Master Servicer will continue to be responsible for servicing the
related Mortgage Loans.


FORECLOSURE, DELINQUENCY AND LOSS EXPERIENCE

     The following table summarizes the foreclosure, delinquency and loss
experience, respectively, of the Master Servicer's mortgage loans as of 
______________. The delinquency percentages may be affected by the size and
relative lack of seasoning of the servicing portfolio because many of such loans
were not outstanding long enough to give rise to some or all of the periods of
delinquency indicated in the chart below. Accordingly, the information should
not be considered as a basis for assessing the likelihood, amount, or severity
of delinquency or losses on the applicable Mortgage Loans, and no assurances can
be given that the delinquency or bankruptcy experience presented in the table
below will be indicative of such experience on such Mortgage Loans. The sum of
the columns below may not equal the total indicated due to rounding.


                 DELINQUENCY STATUS AS OF _____________ /(1)/


<TABLE> 
<CAPTION> 
                                             Dollars        Percent       Units      Percent  
                                             -------        -------       -----      -------
          <S>                           <C>              <C>            <C>          <C> 
          Current....................   $                         %                             
          30-59 days .................                                                                 
          60-89 days .................                                                                 
          90+ days ...................                                                                 
          Foreclosures ...............                                                                 
          Delinquent Bankruptcy.......                                                                 
          Current Bankruptcy..........                                                                 
                                        ==============   ==========     ========     ======= 
             Total....................  $                         %                             
                                        ==============   ==========     ========     ======= 
          Net Loss/2/.................  $                      ---           ---          --
                                        ==============   
</TABLE> 

- ----------
(1) Delinquencies are reported on a contractual basis. 
(2) There is no material difference between gross loss and net loss.

     There can be no assurance that factors beyond the Master Servicer's
control, such as national or local economic conditions or downturn in the real
estate markets in which the Mortgaged Properties are located, will not result in
increased rates of delinquencies and foreclosure losses in the future.

SERVICING COMPENSATION AND PAYMENT OF EXPENSES

     The Expense Fees with respect to the Mortgage Loans are payable out of the
interest payments on each Mortgage Loan. The Expense Fees will vary from
Mortgage Loan to Mortgage Loan. The rate at which the Expense Fees accrue (the
"Expense Fee Rate") will range from _____% to ___% per annum, in each case of
the Stated Principal Balance of the related Mortgage Loan. As of the Cut-off
Date, the weighted average Expense Fee Rate equaled approximately __%. The
Expense Fees consist of (a) master servicing compensation payable to the Master
Servicer in respect of its master servicing activities (the "Master Servicing
Fee"), (b) servicing compensation payable to the Servicers in respect of their
servicing activities (the "Servicing Fee"), and [(c) fees

                                      54
<PAGE>
 
payable to the applicable Trustee in respect of its activities as trustee under
the Indenture and fees of the Certificate Trustee under the Trust Agreement].
The Master Servicing Fee will be ____% per annum of the Stated Principal Balance
of each Mortgage Loan. The Servicing Fee payable to each Servicer will vary by
Mortgage Loan and will range from ____% to ____% per annum, in each case of the
Stated Principal Balance of the related Mortgage Loan serviced by such Servicer.
The Master Servicer is obligated to pay certain ongoing expenses associated with
the Mortgage Loans and incurred by the Master Servicer in connection with its
responsibilities under the Master Servicing Agreement and such amounts will be
paid by the Master Servicer out of the Master Servicing Fee. The amount of the
Master Servicing Fee is subject to adjustment with respect to prepaid Mortgage
Loans, as described herein under "-Adjustment to Master Servicing Fee and
Invested Amount in Connection with Certain Prepaid Mortgage Loans." The Master
Servicer or the related Servicer will also be entitled to receive late payment
fees, assumption fees and other similar charges. [The Master Servicer will be
entitled to receive all reinvestment income earned on amounts on deposit in the
Bond Account and the Distribution Account.] The Net Mortgage Rate of a Mortgage
Loan is the Mortgage Rate thereof minus the related Expense Fee Rate.


Adjustment to Servicing Fee and Invested Amount in Connection with Certain
Prepaid Mortgage Loans

     When a borrower prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates ("Due Dates"), the borrower is required to pay
interest on the amount prepaid only to the date of prepayment. [Principal
prepayments received from the 2nd day through the 15th day of a month are
included in the related distribution on the 25th day of the same month, and
accordingly no shortfall in interest otherwise distributable to holders of the
Offered Certificates results. Conversely, Principal Prepayments received from
the 16th day of a month to the first day of the following month are not
distributed until the 25th day of such following month, and accordingly an
interest shortfall (a "Prepayment Interest Shortfall") would result. The period
from the 16th day of the month prior to a Distribution Date (or, in the case of
the first Distribution Date, from the Cut-off Date) to and including the 15th
day of the month in which such Distribution Date occurs is herein referred to as
the "Prepayment Period."] In order to mitigate the effect of any such shortfall
in interest distributions to Securityholders on any Distribution Date, one-half
of the amount of the Servicing Fee otherwise payable to the Master Servicer for
such month (the "Compensating Interest") shall, to the extent of such shortfall,
be deposited by the Master Servicer in the Security Account for distribution to
Securityholders entitled thereto on such Distribution Date. However, any such
reduction in the Servicing Fee will be made only to the extent of one-half of
the Servicing Fee otherwise payable to the Master Servicer with respect to
Scheduled Payments on Mortgage Loans having the Due Date to which such
Distribution Date relates. Any such deposit by the Master Servicer will be
reflected in the distributions to Securityholders entitled thereto made on the
Distribution Date on which the Principal Prepayment received would be
distributed.

Advances

     Subject to the following limitations, the Master Servicer will be required
to advance its own funds, or funds in the Security Account that are not required
to be distributed on such Distribution Date, in an amount equal to the aggregate
of payments of principal and interest on the Mortgage Loans (adjusted to the
applicable Net Mortgage Rate) that were due on the related Due Date and
delinquent on the related Determination Date, together with an amount equivalent
to interest (adjusted to the applicable Net Mortgage Rate) deemed due on each
Mortgage Loan as to which the related Mortgaged Property has been acquired by
the Master Servicer through foreclosure or deed-in-lieu of foreclosure in
connection with a defaulted Mortgage Loan ("REO Property"), such latter amount
to be calculated after taking into account any rental income from such Mortgaged
Property (any such advance, an "Advance," and the date of any such Advance, as
described herein, a "Master Servicer Advance Date").

     Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Securities rather than to guarantee or insure against
losses. The Master Servicer is obligated to make Advances with respect to
delinquent payments of principal of or interest on each Mortgage Loan (with such
payments of interest adjusted to the related Net Mortgage Rate) to the extent
that such Advances are, in its judgment, reasonably recoverable from future
payments and collections or insurance payments or proceeds of liquidation of

                                      55
<PAGE>
 
the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
distribution to the Securityholders on the related Distribution Date. [Any
failure by a Servicer to advance funds as required under the related Servicing
Agreement will constitute a default thereunder, in which case the Master
Servicer will be obligated to make any such advance in accordance with the terms
of the Master Servicer Agreement.] Any failure by the Master Servicer to make an
Advance as required under the Master Servicing Agreement will constitute an
event of default thereunder, in which case the ________________, as successor
master servicer, or such other entity as may be appointed as successor master
servicer, will be obligated to make any such Advance in accordance with the
terms of the Master Servicing Agreement.[Subject to the terms of the Bond
Insurance Policy, the Bond Insurance Policy will provide protection to the
Senior Bondholders against any shortfall resulting from delinquencies as to
which a required Advance is not made as described above or is determined to be
non-recoverable to the extent such short-falls is not otherwise covered by
Available Funds.]


                        FEDERAL INCOME TAX CONSEQUENCES

     Due to the complexity of the Federal Income Tax Rules applicable to Offered
Securities and the considerable uncertainty that exists with respect to many
aspects of those rules, potential investors should consult their own tax
advisors regarding the tax treatment of the acquisition, ownership and
disposition of the Offered Securities.

     Refer to discussion in the accompanying Prospectus.


                                 ERISA MATTERS

     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 subject to the prohibited
transaction provisions of the Code or the fiduciary responsibility provisions of
the Employee Retirement Income Security Acto of 1974 ("ERISA") (collectively, a
"Plan"), should consider (i) whether the ownership of the Securities is in
accordance with the documents and instruments governing the Plan, (ii) whether
the ownership of the Securities is inconsistent 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, (iii) 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 (iv) the need to value the assets of the Plan annually.

     In connection with item (iii) above, if the Securities are deemed to be
equity interests in the Issuer and no statutory, regulatory or administrative
exemption applies, the Issuer could be considered to hold plan assets by reason
of a Plan's investment in the Securities. If the Issuer were deemed to hold plan
assets, the fiduciary of an investing Plan may face liability for violation of
the rules under ERISA and the Code defining "prohibited transactions." However,
if the equity participation in the Securities by Plan investors is not
"significant," then the Issuer will not be deemed to hold plan assets. Equity
participation is not "significant" if at all times less than 25 percent of the
value of each class of Securities is held by Plans, individual retirement
accounts and other employee benefit plans not subject to ERISA. Consequently, in
order to insure that equity participation by Plans is not significant,
Securities may not be purchased by any Plan unless such Plan receives prior
written consent from the Company. Acceptance of Securities by a purchaser shall
be deemed to be (i) a representation from the purchaser that (a) it is not an
employee benefit plan subject to Section 406 of ERISA or a plan or arrangement
subject to Section 4975 of the Code, nor a person action on behalf of any such
plan or arrangement to effect purchase or (b) its purchase has been expressly
consented to by the Company and (ii) if the purchaser is an insurance company, a
representation that the purchaser is an insurance company which is purchasing
Securities with funds contained in and "insurance company 

                                      56
<PAGE>
 
general account" (as such term is defined in Section V(e) or Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60") and that the purchase and
holding of such Securities are covered by PTCE 95-60.


                                    RATINGS

     It is a condition to the issuance of Offered Securities that the Offered
Securities be rated [Aaa] and [AAA] by _______________ and _____________, 
respectively, [and that the Underlying Bond be rated no lower than one of the
four highest rating categories by each such firm.]

     Ratings on mortgage pass-through certificates address the likelihood of
receipt by Securityholder payments required under the [Trust Agreement.].


     _____________'s and ______________'s ratings take into consideration the
credit quality of the Mortgage Collateral including any credit enhancement
providers, structural and legal aspects associated with the Offered Securities,
and the extent to which the payment stream of the Mortgage Collateral is
adequate to make payments required under the Offered Securities._____________'s
and ______________ 's ratings on the Offered Securities do not, however,
constitute a statement regarding frequency of prepayments on the Mortgage
Collateral or address the remote possibility that, in the event of the
insolvency of TMA or the Depositor, the sale of the Offered Securities may be
recharacterized as a financing and that as a result of such recharacterization,
the Senior Securities may be accelerated. The ratings also do not address the
possibility that, as a result of principal payments, holders of the Securities
may receive a lower than anticipated yield and that in extreme cases, holders of
stripped pass-through certificates, such as the Class X Certificates, may fail
to recoup their initial investments.

     The Depositor has not requested a rating of any class of Offered Securities
by any rating agency other that ________________ and ____________. However,
there can be no assurance as to whether any other rating agency will rate the
Offered Securities, or if it does, what rating would be assigned by such other
rating agency. The rating assigned by any such other rating agency to a class of
Offered Securities may be lower than the ratings assigned by ________________
and __________________.

     The rating of the Offered Securities should be evaluated independently from
similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at anytime by the assigning rating agency.

                             PLAN OF DISTRIBUTION

     Subject to the terms and conditions set forth in the Underwriting Agreement
and ________________, (the "Underwriter"), the Depositor has agreed to sell to
the Underwriter, and the Underwriter has agreed to purchase from the Depositor,
the Underwritten Securities. Distribution of the Underwritten Securities will be
made by the Underwriter from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. In connection
with the sale of the Underwritten Securities, the Underwriter may be deemed to
have received compensation from the Depositor in the form of the underwriting
discounts.

     [The Depositor proposes to offer the Class A-1 Certificates with original
principal balance of $____ for sale to TMA in a privately negotiated 
transaction. TMA will initially pledge its Class A-1 Certificates to [name of
lender] to secure indebtedness. TMA or its pledgees, donees, transferees or
other successors in interest may, from time to time, offer such Class A-1
Certificates for sale to the public in negotiated transactions or otherwise at
varying prices to be determined at the time of sale.]

     The Depositor has been advised by the Underwriter that it intends to make a
market in the Offered Securities but has no obligation to do so. There can be no
assurance that a secondary market for the Offered Securities will develop or, if
it does develop, that it will continue.

     [The Underlying Bond will be held by the Certificate Trustee as part of the
Trust Fund Assets and hence may be deemed to be indirectly offered and sold to
investors in the Securities.]

                                      57
<PAGE>
 
     The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.

                                 LEGAL MATTERS

     The validity of the Securities and certain federal income tax and ERISA
matters will be passed upon for the Issuer by Jeffers, Wilson, Shaff & Falk,
LLP, Irvine, California. _____________________ will act as counsel for the 
underwriters.

                                      58
<PAGE>
 
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS OR OTHER INFORMATION THAT WE HAVE REFERRED YOU TO. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDED YOU WITH INFORMATION THAT IS DIFFERENT. THIS
PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE OR JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
THE OFFER OR SALE IS NOT PERMITTED. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY. UNTIL , ALL DEALERS THAT EFFECT
TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.


              TABLE OF CONTENTS

            PROSPECTUS SUPPLEMENT

Incorporation of Certain Documents by Reference            PAGE
                                                           ----                
Summary..............................................
Risk Factors.........................................
The Issuer...........................................
Description of the Bonds.............................
Credit Enhancement...................................
Trust Fund Assets....................................
Servicing of the Mortgage Loans......................
Use of Proceeds......................................
Federal Income Tax Considerations....................
ERISA Matters........................................
Method of Distribution...............................
Legal Matters........................................
Ratings..............................................
Index of Defined Terms...............................
                                 
                     PROSPECTUS

Prospectus Supplement................................
Available Information................................
Incorporation of Certain Documents by Reference......
Summary..............................................
Risk Factors.........................................
Introduction.........................................
THE ISSUERS..........................................
Use of Proceeds......................................
Mortgage Loan Acquisition............................
Description of the Bonds.............................
Trust Fund Assets....................................
Credit Enhancement...................................
Servicing of the Mortgage Loans......................
The Agreements.......................................
Certain Legal Aspects of Mortgage Loans..............
Federal Income Tax Considerations....................
State Tax Considerations.............................
Legal Investment.....................................
ERISA Matters........................................
Rating...............................................
Plan of Distribution.................................
Legal Matters........................................
Index of Certain Definitions.........................


                    [SECURITIES]



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

         ------------------------------------
                     
                     PROSPECTUS
                     SUPPLEMENT
                    

                    [UNDERWRITER]


                   _________, 1998
<PAGE>
 
                 SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998

PROSPECTUS

                    THORNBURG MORTGAGE FUNDING CORPORATION
                                   DEPOSITOR
                                  $50,000,000
                              (AGGREGATE AMOUNT)
                          MORTGAGE BACKED SECURITIES
                             (ISSUABLE IN SERIES)

                             _____________________

         Thornburg Mortgage Funding Corporation, a Delaware corporation (the
"Company" or "Depositor"), proposes to establish one or more trusts to issue and
sell from time to time under this Prospectus and related Prospectus Supplements
one or more Series of Collateralized Mortgage Bonds (the "Bonds") and/or
Mortgage Backed Certificates (the "Certificates" and, together with the Bonds,
the "Securities"). This Prospectus covers up to $50,000,000 in aggregate
offering price of Securities. Each Series of Bonds will be secured by the assets
of a trust ("Trust Fund Assets") and each Series of Certificates will evidence
beneficial ownership of the Trust Fund Assets in the related trust. The Trust
Fund Assets supporting each Series of Securities will consist primarily of
mortgage collateral (the "Mortgage Collateral") acquired from third party
originators consisting of one or more of the following: (i) adjustable-rate,
first lien mortgage loans secured by one- to four-family residential properties
(the "Floating Rate Mortgage Loans") (ii) fixed-rate, first lien mortgage loans
secured by one- to four-family residential properties (the "Fixed Rate Mortgage
Loans" and, together with the Floating Rate Mortgage Loans, the "Mortgage
Loans"), (iii) mortgage pass-through securities (the "Agency Securities" or
"Agency Certificates") issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") (iv) privately issued
non-agency pass-through securities ("Non- Agency Securities") representing an
undivided interest in a pool of mortgage loans, (Agency Securities and
Non-Agency Securities are sometimes referred to collectively as "Pass-Through
Securities"), (v) to a limited extent, adjustable rate junior mortgage loans or
(vi) a combination of Agency Certificates and/or Non-Agency Securities and
Mortgage Loans. Each Series of Securities will be supported by the Mortgage
Collateral and other items included in the Trust Fund Assets for such Series of
Securities. The Trust Fund Assets for a Series of Securities may also include
certain cash accounts, insurance policies, surety bonds, guaranteed investment
contracts, cross- collateralization, reinvestment income, guaranties, letters of
credit or derivative arrangements to the extent described herein and in the
related Prospectus Supplement. Certain capitalized terms used and not otherwise
defined herein shall have the meanings ascribed thereto elsewhere in this
Prospectus. See "Index of Certain Definitions" on page _____ of this Prospectus
for the location of the definitions of certain capitalized terms.

         Each Series of Securities will consist of one or more Classes. Interest
on the Securities will accrue at a fixed rate, a variable rate or a combination
thereof, as determined in the manner specified in the related Prospectus
Supplement. Principal payments on each Class of a Series will be made in the
manner specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, one or more Classes of Securities of a Series may
be entitled to receive payments of principal, interest or any combination
thereof prior to one or more other Classes of Securities of such Series either
for the life of such Securities or during certain periods. A Series of
Securities may include one or more Classes entitled to (i) principal
distributions, with disproportionate, nominal or no interest distributions or
(ii) interest distributions, with disproportionate, nominal or no principal
distributions. In addition, a Series of Securities may include one or more
Classes of Securities that are senior in right of payment to one or more other
Classes of such Series. Any credit enhancement for a Series of Securities will
be as specified in the related Prospectus Supplement.

         The rate of payment of the principal of each Class of Securities will
generally depend, among other things, on the rate of payment (including
prepayments) of the Mortgage Collateral pledged as security or underlying such
Class of Securities. Consequently, the actual maturity of any Class of
Securities could occur substantially sooner than its Stated Maturity. Each
Series of Securities may be redeemed under the circumstances described herein
and in the related Prospectus Supplement. In certain cases, a Series of
Securities may be titled "Mortgage-Backed Callable Securities" depending on the
terms of any redemption or early termination provisions of such Series.

         FOR A DISCUSSION OF THE MATERIAL RISK FACTORS RELATING TO INVESTMENTS
IN THE BONDS, SEE "RISK FACTORS" COMMENCING ON PAGE _____ OF THIS PROSPECTUS.

 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.

         Each Series of Securities will be issued by a separate trust (each, an
"Issuer") established by the Company, will represent obligations solely of such
Issuer and will not be insured or guaranteed by GNMA, FNMA or FHLMC or any other
governmental agency or instrumentality or by the Company, any affiliate of the
Company, or, unless otherwise specified in the related Prospectus Supplement,
any other person or entity. No Issuer of any Series of Securities is expected to
have significant assets other than those pledged as collateral for such Series
of Securities. Prior to issuance, there will have been no market for the
Securities of any Series, and there can be no assurance that a secondary market
for any Securities will develop or, if it does develop that it will continue or
provide Securityholders with a sufficient level of liquidity of investment. This
Prospectus may not be used to consummate sales of a Series of Securities unless
accompanied by a Prospectus Supplement.

         Bonds of each Series will be characterized for federal income tax
purposes as debt instruments. See "Federal Income Tax Considerations" herein. If
so specified in the related Prospectus Supplement, one or more elections will be
made to treat the Trust Fund Assets (or specified portions thereof) evidenced by
a Series of Certificates as a "financial asset securitization investment trust"
(a "FASIT") or to treat a trust as a "real estate mortgage investment conduit"
(a "REMIC"), for federal income tax purposes.

         Offers of the Securities of any Series may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "PLAN OF DISTRIBUTION" herein and in the related Prospectus
Supplement.
                              September 30, 1998.
<PAGE>
 
         UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES COVERED BY SUCH PROSPECTUS SUPPLEMENT,
WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE REQUIRED TO
DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.


                             PROSPECTUS SUPPLEMENT

         The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities, if applicable: (i) information concerning the Issuer of
such Series of Securities; (ii) the principal amount and the interest rate, or
the method to be used to determine the interest rate, of each Class of such
Series of Securities; (iii) certain characteristics of the Mortgage Collateral
included in the Trust Fund Assets supporting such Series of Securities and, if
applicable, information as to any insurance policies, surety bonds, guaranties,
derivative arrangements, cross-collateralization, reinvestment income,
guaranteed investment contracts or letters of credit, and the amount and source
of any Reserve Fund or other cash account for the Securities of such Series;
(iv) the circumstances, if any, under which the Securities of such Series are
subject to special redemption or optional redemption; (v) the Stated Maturity of
each Class of Securities of such Series; (vi) the method used to calculate the
aggregate amount of principal required to be applied to the Securities of such
Series on each Payment Date and the priority in which such payments will be
applied among the Classes of Securities of such Series; (vii) the principal
amount of each Class of Securities of such Series that would be outstanding on
specified Payment Dates if the Mortgage Loans or the mortgage loans underlying
the Certificates, as the case may be, pledged as security for such Securities,
were prepaid at various assumed rates; (viii) the Payment Dates and the Assumed
Reinvestment Rate for such Series of Securities; (ix) information as to the
nature and extent of subordination with respect to any Class of Securities of
such Series that is subordinate in right of payment to any other Class; (x) any
minimum principal payment requirements and the terms of any related minimum
principal payment agreement with respect to such Series of Securities; (xi)
additional information with respect to the plan of distribution of the
Securities of such Series; and (xii) information as to the Master Servicer and
the Bond Trustee or Certificate Trustee for such Series.


                             AVAILABLE INFORMATION

         The Depositor has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Securities. This Prospectus,
which forms a part of the Registration Statement, and the Prospectus Supplement
relating to each Series of Securities contain summaries of the material terms of
the documents referred to herein and therein, but do not contain all of the
information set forth in the Registration Statement pursuant to the Rules and
Regulations of the Commission. For further information, reference is made to
such Registration Statement and the exhibits thereto. Such Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional
Offices located as follows: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, Seven World
Trade Center, New York, New York 10048. The Commission also maintains a Web site
at http://www.sec.gov from which such Registration Statement and exhibits may be
obtained.

         No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.


                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     All documents  subsequently  filed by or on behalf of the Securities Issuer
referred  to in the  accompanying  Prospectus  Supplement  with  the  Commission
pursuant to Section 13(a),  13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the  "Exchange  Act"),  after the date of this  Prospectus and
prior to the termination of any offering of the Securities issued by such Issuer
shall be deemed to be  incorporated  by reference in this Prospectus and to be a
part of this Prospectus from the date of the filing 
<PAGE>
 
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for all purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. None of the Company, the Master Servicer
or the Trustee for any Series intends to file with the Commission periodic
reports with respect to the related Issuer following completion of the reporting
period required by Rule 15d-1 or Regulation 15D under the Exchange Act, but the
related Issuer may elect to continue reporting in its sole discretion.

         The Trustee or such other entity specified in the related Prospectus
Supplement on behalf of any Issuer will provide without charge to each person to
whom this Prospectus is delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above that have been
or may be incorporated by reference in this Prospectus (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Such requests should be directed to the Corporate Trust Office of
the Trustee or the address of such other entity specified in the accompanying
Prospectus Supplement. Included in the accompanying Prospectus Supplement is the
name, address, telephone number and, if available, facsimile number of the
office or contact person at the Corporate Trust Office of the Trustee or such
other entity.
<PAGE>
 
                               Table of Contents

<TABLE> 
<CAPTION>   
                                                                                                               Page
<S>                                                                                                            <C> 
SUMMARY  .........................................................................................................1

RISK FACTORS.....................................................................................................19
         Prepayment..............................................................................................19
         Risks Associated with Payment Characteristics of Classes of Securities..................................19
         Limited Liquidity of Investment.........................................................................19
         Risks Associated with Nature of Mortgage Loans..........................................................20
         Credit Considerations and Risks.........................................................................22
         Bankruptcy and Insolvency Risks.........................................................................24
         Environmental Risks.....................................................................................25
         Ratings of the Securities...............................................................................25
         Effects of Book-Entry Registration......................................................................26
         Pre-Funding Accounts May Result in Reinvestment Risk....................................................26
         Pre-Funding Accounts May Adversely Affect Investment....................................................27
         Consequences of OID Discount Securities.................................................................27

INTRODUCTION.....................................................................................................28

THE ISSUERS......................................................................................................29
         General  ...............................................................................................29
         The Company.............................................................................................30

USE OF PROCEEDS..................................................................................................30

MORTGAGE LOAN ACQUISITION........................................................................................30
         Re-Underwriting Standards...............................................................................30
         Underwriting Standards..................................................................................30
         Quality Control.........................................................................................32
         Representations by Sellers; Repurchases.................................................................32

TRUST FUND ASSETS................................................................................................33
         General  ...............................................................................................33
         The Mortgage Loans......................................................................................34
         Agency Securities.......................................................................................37
         Non-Agency Securities...................................................................................42
         Substitution of Mortgage Collateral.....................................................................43
         Optional Purchase of Defaulted Mortgage Loans...........................................................44
         Bond and Distribution Accounts..........................................................................44
         Pre-Funding Account.....................................................................................45

DESCRIPTION OF THE SECURITIES....................................................................................46
         General  ...............................................................................................46
         Distributions on Securities.............................................................................48
         Redemption of Securities................................................................................50
         Early Termination.......................................................................................50
         Call Protection and Guarantees..........................................................................51
         Weighted Average Life of the Securities.................................................................51
         Categories of Classes of Securities.....................................................................52
         Reports to Securityholders..............................................................................55
         Book-Entry Securities...................................................................................56
</TABLE> 
<PAGE>
 
<TABLE> 
<S>                                                                                                              <C> 
CREDIT ENHANCEMENT...............................................................................................59
         General  ...............................................................................................59
         Subordination...........................................................................................59
         Reserve Funds...........................................................................................60
         Mortgage Pool Insurance Policies........................................................................61
         Special Hazard Insurance Policies.......................................................................62
         Bankruptcy Bonds........................................................................................63
         Bond Insurance Policies, Surety Bonds and Guaranties....................................................63
         Letter of Credit........................................................................................63
         Over-Collateralization..................................................................................64
         Cross-Collateralization.................................................................................64
         Excess Spread...........................................................................................64
         Minimum Principal Payment Agreement.....................................................................64
         Derivative Arrangements.................................................................................65

SERVICING OF THE MORTGAGE LOANS..................................................................................66
         General  ...............................................................................................66
         Payments on Mortgage Loans..............................................................................67
         Collection Procedures...................................................................................67
         Junior Mortgages........................................................................................69
         Servicing and Other Compensation and Payment of Expenses................................................69
         Prepayments.............................................................................................69
         Evidence as to Compliance...............................................................................70
         Advances and Other Amounts Payable by Master Servicer...................................................70
         Resignation of Master Servicer..........................................................................71
         Stand-by Master Servicer................................................................................71
         Special Servicing Agreement.............................................................................71
         Certain Matters Regarding the Master Servicer and the Company...........................................71
         Servicing Defaults......................................................................................72
         Rights Upon Servicing Default...........................................................................72
         Amendment of Master Servicing Agreement.................................................................72

THE AGREEMENTS...................................................................................................73
         Modification of Agreement...............................................................................73
         Events of Default.......................................................................................74
         Rights Upon Events of Default...........................................................................74
         Certain Indenture Covenants of the Issuer...............................................................75
         Issuer's Annual Compliance Statement....................................................................75
         Bond Trustee's Annual Report............................................................................75
         Satisfaction and Discharge of Indenture.................................................................75
         Termination of Trust Agreement..........................................................................75
         The Trustee.............................................................................................75

CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS..........................................................................76
         General  ...............................................................................................76
         Junior Mortgages........................................................................................76
         Foreclosure/Repossession................................................................................76
         Rights of Redemption....................................................................................78
         Anti-Deficiency Legislation and Other Limitations on Lenders............................................78
         Environmental Risks.....................................................................................79
         Due-on-Sale Clauses.....................................................................................80
         Enforceability of Prepayment Charges and Late Payment Fees..............................................80
         Applicability of Usury Laws.............................................................................81
         Soldiers' and Sailors' Civil Relief Act.................................................................81
         Subordinate Financing...................................................................................81

FEDERAL INCOME TAX CONSIDERATIONS................................................................................82
         Classification of the Issuer and the Bonds..............................................................82
</TABLE> 
<PAGE>
 
<TABLE> 
<S>                                                                                                              <C> 
         Taxation of the REMIC and its Holders...................................................................83
         Taxation of the FASIT and its Holders...................................................................87
         Tax Status as a Grantor Trust...........................................................................89
         Interest and Original Issue Discount....................................................................92
         Premium  ...............................................................................................94
         Election to Treat All Interest as Original Issue Discount...............................................94
         Realized Losses.........................................................................................94
         Sale or Redemption......................................................................................94
         Market Discount.........................................................................................95
         Withholding with Respect to Certain Foreign Investors...................................................96
         Backup Withholding......................................................................................96

STATE TAX CONSIDERATIONS.........................................................................................97

LEGAL INVESTMENT.................................................................................................97

ERISA MATTERS....................................................................................................98
         General  ...............................................................................................98
         Prohibited Transactions.................................................................................98

RATINGS  .......................................................................................................100

PLAN OF DISTRIBUTION............................................................................................101

LEGAL MATTERS...................................................................................................101

INDEX OF CERTAIN DEFINITIONS....................................................................................102
</TABLE> 
<PAGE>
 
                                    SUMMARY

     The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the related
Prospectus Supplement with respect to the Series of Securities offered thereby
and to the related Agreements (as defined herein). Certain capitalized terms
used and not otherwise defined herein shall have the meanings ascribed thereto
elsewhere in this Prospectus. See "Index of Certain Definitions" on page ___ of
this Prospectus for the location of the definitions of certain capitalized
terms.

Securities Offered.................     The Securities offered hereby will be
                                        Collateralized Mortgage Bonds (the
                                        "Bonds") and Mortgage-Backed
                                        Certificates (the "Certificates"). Each
                                        series of Securities will be supported
                                        by or, in the case of Pass-Through
                                        Securities, will evidence an ownership
                                        interest in Trust Fund Assets consisting
                                        primarily of mortgage collateral (the
                                        "Mortgage Collateral") comprised of one
                                        or more of the following: (i) fixed-
                                        rate, first or junior lien mortgage
                                        loans secured by one- to four-family
                                        residential properties (the "Fixed Rate
                                        Mortgage Loans"), (ii) floating-rate,
                                        first or junior lien mortgage loans
                                        secured by one-to four-family
                                        residential properties (the "Floating
                                        Rate Mortgage Loans" and, together with
                                        the Fixed Rate Mortgage Loans, the
                                        "Mortgage Loans"), (iii) mortgage pass-
                                        through securities (the "Agency
                                        Securities") issued or guaranteed by the
                                        Government National Mortgage Corporation
                                        ("GNMA"), the Federal National Mortgage
                                        Corporation ("FNMA") or the Federal Home
                                        Loan Mortgage Corporation ("FHLMC"),
                                        (iv) privately issued mortgage pass-
                                        through certificates ("Private
                                        Securities"), or (v) a combination of
                                        Agency Securities, Private Securities
                                        and Mortgage Loans. The Mortgage Loans
                                        primarily will be secured by one-to 
                                        four-family residential properties or
                                        other properties as described in
                                        "Mortgage Loan Acquisition--the Mortgage
                                        Loans." In certain limited circumstances
                                        if set forth in the related Prospectus
                                        Supplement, in addition to the Mortgaged
                                        Properties, the Mortgage Loans may be
                                        secured by additional collateral
                                        consisting of mortgage liens on other
                                        real property, pledges securities or
                                        cash equivalents. The Trust Fund Assets
                                        for a Series of Securities may also
                                        include certain cash accounts, insurance
                                        policies, surety bonds, guaranteed
                                        investment contracts, cross-
                                        collateralization, reinvestment income,
                                        guaranties or letters of credit to the
                                        extent described herein and in the
                                        related Prospectus Supplement. See
                                        "Trust Fund Assets" herein.

                                        Bonds may be issued from time to time in
                                        one or more Series pursuant to
                                        Indentures (as defined herein) between
                                        each Issuer and a bank or trust company
                                        acting as trustee (the "Bond Trustee")
                                        for the holders of the Bonds of each
                                        Series (the "Bondholders") under the
                                        relevant Indenture. The Certificates may
                                        be issued from time to time in one or
                                        more Series pursuant to Trust Agreements
                                        (as defined herein) (Indentures and
                                        Trust Agreements are collectively
                                        referred to herein as "Agreements")
                                        between the depositor and a bank or
                                        trust company acting as trustee (the
                                        "Certificate Trustee") for the holders
                                        of the Certificates of each series (the
                                        "Certificateholders"). (Unless otherwise
                                        specified, the term "Trustee" refers to
                                        either a Certificate Trustee or a Bond
                                        Trustee, as applicable.) Each Series of
                                        Securities will consist of one or more
                                        Classes which 

                                       1
<PAGE>
 
                                        may include one or more Classes of
                                        "Deferred Interest Securities" upon
                                        which interest will accrue at a faster
                                        rate than anticipated payments are due
                                        before the maturity date, or some
                                        earlier date, of such Security. A Series
                                        of Securities may include one or more
                                        Classes of Senior Securities
                                        (collectively, the "Senior Securities")
                                        and one or more Classes of Subordinated
                                        Securities (collectively, the
                                        "Subordinated Securities"). Unless
                                        otherwise specified in the related
                                        Prospectus Supplement, the Securities
                                        represent obligations solely of the
                                        Issuer and are not insured or guaranteed
                                        by any other person or entity. See
                                        "Description of the Securities" herein.
                                        Securities of a Class may differ from
                                        Securities of other Classes of the same
                                        Series in the amounts allocated to and
                                        the priority of principal payments and
                                        interest rate and in such other manner
                                        as specified in the related Prospectus
                                        Supplement. A Series of Securities may
                                        include one or more Classes of
                                        Securities entitled to (i) principal
                                        distributions, with disproportionate,
                                        nominal or no interest distributions or
                                        (ii) interest distributions, with
                                        disproportionate, nominal or no
                                        principal distributions. A Series of
                                        Securities may be insured or guaranteed
                                        as to payment of principal and interest
                                        by a third-party insurer or guarantor,
                                        or secured by certain cash accounts,
                                        insurance policies, surety bonds,
                                        guaranteed investment contracts, cross-
                                        collateralization, reinvestment income,
                                        guaranties, letters of credit or
                                        derivative arrangements, in each case to
                                        the extent provided herein and in the
                                        related Prospectus Supplement.

Issuers............................     The Issuer with respect to each Series
                                        of Securities will be a trust
                                        established by Thornburg Mortgage
                                        Funding Corporation, a Delaware
                                        corporation (the "Company"), for the
                                        sole purpose of issuing such Series of
                                        Securities and engaging in transactions
                                        relating thereto. The Company is a
                                        wholly owned limited purpose finance
                                        subsidiary of Thornburg Mortgage Asset
                                        Corporation ("TMA"). TMA, a Maryland
                                        corporation, has elected to be taxed as
                                        a real estate investment trust under the
                                        Internal Revenue Code of 1986, as
                                        amended (the "Code"). Each trust that is
                                        formed to act as an Issuer will be
                                        created pursuant to a deposit trust
                                        agreement between the Company, acting as
                                        depositor (in such capacity, the
                                        "Depositor"), and a bank, trust company,
                                        or other fiduciary acting as owner
                                        trustee (the "Owner Trustee"). Each
                                        trust will be established by the Company
                                        solely for the purpose of issuing one
                                        Series of Securities and engaging in
                                        transactions relating thereto. Neither
                                        TMA, the Company nor any of their
                                        respective affiliates will guarantee or
                                        otherwise be obligated to make payments
                                        on the Securities. The Securities will
                                        be obligations solely of their
                                        respective Issuers. The assets of each
                                        such Issuer, other than those pledged as
                                        collateral for the Securities it issues,
                                        are not expected to be significant. See
                                        "The Issuers" herein.

Master Servicer....................     The entity or entities named as Master
                                        Servicer (each, a "Master Servicer") in
                                        the related Prospectus Supplement will
                                        act as master servicer with respect to
                                        all of the Mortgage Loans included in
                                        the Trust Fund Assets supporting a
                                        Series of Securities pursuant to an
                                        agreement (each, a "Master Servicing

                                       2
<PAGE>
 
                                        Agreement") among the Master Servicer,
                                        the related Issuer and the related
                                        Trustee. The Master Servicer will
                                        directly service the Mortgage Loans or
                                        will administer and supervise the
                                        performance of the entities primarily
                                        responsible for servicing the Mortgage
                                        Loans (each, a "Servicer"), who may in
                                        turn be administering and supervising
                                        the performance of one or more
                                        subservicers of such Mortgage Loans, and
                                        will be obligated to perform the
                                        obligations of a terminated Servicer or
                                        appoint a successor Servicer. See
                                        "Servicing of the Mortgage Loans"
                                        herein.

Special Servicer...................     If specified in the related Prospectus
                                        Supplement, the Company may appoint a
                                        special servicer (each, a "Special
                                        Servicer") to service, make certain
                                        decisions and take various actions with
                                        respect to delinquent or defaulted
                                        Mortgage Loans included in the Trust
                                        Fund Assets for the applicable Series of
                                        Securities. See "Servicing of the
                                        Mortgage Loans -- Special Servicing
                                        Agreement" herein.

Description of Securities..........     Each Security will be secured by or
                                        represent a beneficial ownership
                                        interest in the Trust Fund Assets of the
                                        related Issuer. (In either case, the
                                        Trust Fund Assets, or a portion thereof,
                                        support a Class or Series of
                                        Securities.) The Securities of any
                                        Series may be issued in one or more
                                        classes as specified in the related
                                        Prospectus Supplement. A Series of
                                        Securities may include one or more
                                        Classes of senior Securities
                                        (collectively, the "Senior Securities")
                                        and one or more Classes of subordinate
                                        Securities) (collectively, the
                                        "Subordinated Securities"). Certain
                                        Series or Classes of Securities may be
                                        supported in addition by insurance
                                        policies or other forms of credit
                                        enhancement, in each case as described
                                        under "Credit Enhancement" herein and in
                                        the related Prospectus Supplement.

                                        One or more Classes of Securities of
                                        each Series (i) may be entitled to
                                        receive distributions allocable only to
                                        principal, only to interest or to any
                                        combination thereof; (ii) may be
                                        entitled to receive distributions only
                                        of prepayments of principal throughout
                                        the lives of the Securities or during
                                        specified periods; (iii) may be
                                        subordinated in the right to receive
                                        distributions of scheduled payments of
                                        principal, prepayments of principal,
                                        interest or any combination thereof to
                                        one or more other Classes of Securities
                                        of such Series throughout the lives of
                                        the Securities or during specified
                                        periods; (iv) may be entitled to receive
                                        such distributions only after the
                                        occurrence of events specified in the
                                        related Prospectus Supplement; (v) may
                                        be entitled to receive distributions in
                                        accordance with a schedule of formula or
                                        on the basis of collections from
                                        designated portions of the related Trust
                                        Fund Assets; (vi) as to Securities
                                        entitled to distributions allocable to
                                        interest, may be entitled to receive
                                        interest at a fixed rate or a rate that
                                        is subject to change from time to time;
                                        and (vii) as to Securities entitled to
                                        distributions allocable to interest, may
                                        be entitled to distributions allocable
                                        to interest only after the occurrence of
                                        events specified in the related
                                        Prospectus Supplement and may accrue
                                        interest until such events occur, in
                                        each case as specified in the related
                                        Prospectus Supplement. The timing and
                                        amounts of such

                                       3
<PAGE>
 
                                        distributions may vary among Classes or
                                        over time, as specified in the related
                                        Prospectus Supplement.
Distributions on the Securities....     Distributions on the Securities entitled
                                        thereto will be made monthly, quarterly,
                                        semi-annually or at such other intervals
                                        and on the dates specified in the
                                        related Prospectus Supplement (each, a
                                        "Distribution Date") out of the payments
                                        received in respect to the related Trust
                                        Fund Assets or other assets pledged for
                                        the benefit of the Securities as
                                        described under "Credit Enhancement"
                                        herein to the extent specified in the
                                        related Prospectus Supplement. The
                                        amount allocable to payments of
                                        principal and interest on any
                                        Distribution Date will be determined as
                                        specified in the related Prospectus
                                        Supplement. The Prospectus Supplement
                                        for a Series of Securities will describe
                                        the method for allocating distributions
                                        among Securities of different classes as
                                        well as the method for allocating
                                        distributions among Securities for any
                                        particular Class.

                                        The aggregate original principal balance
                                        of the Securities will not exceed the
                                        aggregate distributions allocable to
                                        principal that such Securities will be
                                        entitled to receive. The Securities will
                                        have an aggregate original principal
                                        balance equal to the aggregate unpaid
                                        principal balance of the Trust Fund
                                        Assets as of the related Cut-Off Date
                                        and will bear interest in the aggregate
                                        at a rate equal to the interest rate
                                        borne by the underlying Mortgage Loans
                                        net of the aggregate servicing fees and
                                        any other amounts specified in the
                                        related Prospectus Supplement or at such
                                        other interest rate as may be specified
                                        in such Prospectus Supplement.

                                        The rate at which interest will be
                                        passed through or paid to holders of
                                        each Class of Securities entitled
                                        thereto may be a fixed rate or a rate
                                        that is subject to change from time to
                                        time from the time and for the periods,
                                        in each case, as specified in the
                                        related Prospectus Supplement. Any such
                                        rate may be calculated on a loan-by-loan
                                        or weighted average basis or calculated
                                        base on a notional amount, in each case,
                                        as described in the related Prospectus
                                        Supplement.

Redemption of Bonds; Early
Termination........................     The Securities of each Series will be
                                        redeemable and subject to early
                                        termination under the circumstances
                                        described below. If the Series of
                                        Securities is redeemable or subject to
                                        early termination when the outstanding
                                        principal amount of the Securities is
                                        greater than the specified Cut-off Date
                                        Principal Balance described in the
                                        related Prospectus Supplement, such
                                        Series will be titled Mortgage-Backed
                                        Callable Securities.

     A. Special Redemption.........     The Securities of a Series or a Class
                                        may be subject to special redemption, in
                                        whole or in part, as specified in the
                                        related Prospectus Supplement. Pursuant
                                        to a special redemption, the Issuer will
                                        be required to redeem, on the dates
                                        specified in such Prospectus Supplement,
                                        at 100% of their unpaid principal
                                        amount, plus accrued interest,
                                        outstanding Securities of a Series or
                                        Class if, as a result of substantial
                                        payments of principal on the Mortgage
                                        Collateral supporting such Series or
                                        Class of Securities, the Trustee
                                        determines, based on the assumptions

                                       4
<PAGE>
 
                                        specified in the appropriate Agreement,
                                        that in the absence of such special
                                        redemption the amount of cash expected
                                        to be on deposit in the Bond Account on
                                        the next Payment Date for such Series of
                                        Securities would be insufficient to make
                                        required payments on the Securities of
                                        such Series on such Payment Date. Any
                                        such redemption will not exceed the
                                        principal amount of Securities that
                                        would otherwise be required to be paid
                                        on the next Payment Date out of the
                                        principal payments and prepayments so
                                        received. See "Description of the
                                        Securities--Special Redemption" herein.
                                        Principal payments on a special
                                        redemption will be applied to Securities
                                        of a Series in accordance with the
                                        priorities specified in the related
                                        Prospectus Supplement.

     B. Optional Redemption........     If so provided in the related Prospectus
                                        Supplement, the Securities of each
                                        Series may be subject to redemption at
                                        the option of the Issuer. The Prospectus
                                        Supplement for each Series will specify
                                        the circumstances, if any, under which
                                        the Securities of such Series may be so
                                        redeemed, the manner of effecting such
                                        redemption, the conditions to which such
                                        redemption are subject and the
                                        redemption prices for each Class of
                                        Securities to be redeemed (which will be
                                        no lower than 100% of the principal
                                        amount of outstanding Securities, plus
                                        accrued interest). See "Description of
                                        the Securities -- Optional Redemption"
                                        herein.

                                        The Master Servicer or other party
                                        specified in the related Prospectus
                                        Supplement may have the option to
                                        purchase the remaining Trust Fund Assets
                                        supporting a Series of Securities,
                                        subject to the principal balance of such
                                        Trust Fund Assets being less than the
                                        percentage specified in the related
                                        Prospectus Supplement of the aggregate
                                        principal balance of the Trust Fund
                                        Assets and property acquired other
                                        person will be at a price specified in
                                        the related Prospectus Supplement (which
                                        will be no lower than 100% of the
                                        principal amount of outstanding
                                        Securities, plus accrued interest). The
                                        exercise of such right may cause the
                                        Issuer to call for redemption of all or
                                        a portion of the related Series of
                                        Securities supported by such Trust Fund
                                        Assets.

     C. Early Termination..........     If the Series of Bonds or Certificates
                                        included in the Trust Fund Assets for a
                                        Series of Securities is redeemed in full
                                        pursuant to a special redemption or
                                        optional redemption, the related Series
                                        of Securities will be retired earlier
                                        than would otherwise be the case. In
                                        addition, the Depositor may have the
                                        option to purchase the remaining Trust
                                        Fund Assets supporting a Series of
                                        Securities, subject to the principal
                                        balance of such Trust Fund Assets being
                                        less than the percentage specified in
                                        the related Prospectus Supplement of the
                                        Trust Fund Assets at the Cut-off Date
                                        for the Series. The purchase price for
                                        such remaining Trust Fund Assets will be
                                        at least equal to 100% of the aggregate
                                        principal balance of the outstanding
                                        Securities, together with accrued
                                        interest thereon. In any such event, the
                                        related Issuer of such Series of
                                        Securities will be terminated and
                                        Securityholders will receive final
                                        distributions as described in the
                                        related Prospectus Supplement.

                                       5
<PAGE>
 
Trust Fund Assets..............         Each Series of Securities will be
                                        separately supported by one or more of
                                        the types of Trust Fund Assets set forth
                                        below. Unless otherwise provided in the
                                        related Prospectus Supplement, the
                                        Issuer may substitute other Mortgage
                                        Collateral for the Mortgage Collateral
                                        originally included in the Trust Fund
                                        Assets for the Securities of a Series so
                                        long as the substitute Mortgage
                                        Collateral meets certain criteria. See
                                        "Trust Fund Assets -- Substitution of
                                        Mortgage Collateral" herein.

         A.  Mortgage Loans......       In connection with the issuance of a
                                        Series of Securities secured or
                                        supported in whole or in part by
                                        Mortgage Loans, the Issuer will pledge
                                        and assign to the applicable Trustee a
                                        pool of Mortgage Loans secured by first
                                        or junior mortgages or deeds of trust on
                                        one- to four-family residential
                                        properties. It is expected that all or a
                                        substantial portion of the Mortgage
                                        Loans for each Series of Securities will
                                        have been acquired by the Company from
                                        TMA for transfer to the Issuer of such
                                        Series and that such Mortgage Loans
                                        generally will be non-conforming
                                        Mortgage Loans underwritten to satisfy
                                        FNMA or FHLMC (together with GNMA an
                                        "Agency") criteria except for loan
                                        principal amount which, in the case of
                                        non-conforming Mortgage Loans, would
                                        exceed Agency criteria. TMA acquires
                                        mortgage loans in the normal course of
                                        its business in the secondary mortgage
                                        market or from entities who have
                                        originated or otherwise acquired such
                                        mortgage loans. Neither TMA nor any of
                                        its affiliates originates or services
                                        mortgage loans. None of the Mortgage
                                        Loans will represent obligations of TMA.

                                        As described above, a Series of
                                        Certificates supported in whole or in
                                        part by Mortgage Loans will evidence an
                                        interest either (a) in one or more Bonds
                                        secured by such loans or (b) a pass-
                                        through ownership interest in the
                                        Mortgage Loans. For a Series of
                                        Certificates supported by Bonds secured
                                        by Mortgage Loans, following the pledge
                                        and assignment of such Mortgage Loans to
                                        the Bond Trustee, the Bonds secured by
                                        the Mortgage Loans will be deposited
                                        into the Issuer of such Series of
                                        Certificates by the Depositor. See
                                        "Trust Fund Assets -- The Mortgage
                                        Loans" herein.

         B.  General Attributes of
             Mortgage Loans.......      The payment terms of the Mortgage Loans
                                        securing a Series of Bonds and/or
                                        supporting a Series of Securities, will
                                        be described in the related Prospectus
                                        Supplement and may include any of the
                                        following features or combinations
                                        thereof or other features described in
                                        the related Prospectus Supplement:

                                        (i) Interest may be payable at a fixed
                                        rate, a rate adjustable from time to
                                        time in relation to an index (which will
                                        be specified in the related Prospectus
                                        Supplement), a rate that is fixed for a
                                        period of time or under certain
                                        circumstances and is followed by an
                                        adjustable rate, a rate that otherwise
                                        varies from time to time, or a rate that
                                        is convertible from an adjustable rate
                                        to a fixed rate. Changes to an
                                        adjustable rate may be subject to
                                        periodic limitations, maximum rates,
                                        minimum rates or a combination of such
                                        limitations. Accrued interest may be
                                        deferred and added to the principal of a
                                        loan for such periods

                                       6
<PAGE>
 
                                        and under such circumstances as may be
                                        specified in the related Prospectus
                                        Supplement. The loan agreement or
                                        promissory note (the "Mortgage Note") in
                                        respect of a Mortgage Loan may provide
                                        for the payment of interest at a rate
                                        lower than the interest rate (the
                                        "Mortgage Rate") specified in such
                                        Mortgage Note for a period of time or
                                        for the life of the loan, and the amount
                                        of any difference may be contributed
                                        from funds supplied by a third party.

                                        (ii) Principal may be payable on a level
                                        debt service basis to fully amortize the
                                        loan over its term, may be calculated on
                                        the basis of an assumed amortization
                                        schedule that is significantly longer
                                        than the original term to maturity or on
                                        an interest rate that is different from
                                        the interest rate on the Mortgage Loan
                                        or may not be amortized during all or a
                                        portion of the original term. Payment of
                                        all or a substantial portion of the
                                        principal may be due on maturity
                                        ("balloon payments"). Principal may
                                        include interest that has been deferred
                                        and added to the principal balance of
                                        the Mortgage Loan.

                                        (iii) Monthly payments of principal and
                                        interest may be fixed for the life of
                                        the loan, may increase over a specified
                                        period of time or may change from period
                                        to period. Mortgage Loans may include
                                        limits on periodic increases or
                                        decreases in the amount of monthly
                                        payments and may include maximum or
                                        minimum amounts of monthly payments.

                                        (iv) The Mortgage Loans generally may be
                                        prepaid at any time without payment of
                                        any prepayment fee, unless otherwise
                                        specified in the related Prospectus
                                        Supplement. If so specified in the
                                        related Prospectus Supplement,
                                        prepayments of principal may be subject
                                        to a prepayment fee, which may be fixed
                                        for the life of any such Mortgage Loan
                                        or may decline over time, or may be
                                        prohibited for the life of any such
                                        Mortgage Loan or for certain periods
                                        ("lockout periods"). Certain Mortgage
                                        Loans may permit prepayments after
                                        expiration of the applicable lockout
                                        period and may require the payment of a
                                        prepayment fee in connection with any
                                        such subsequent prepayment. All or a
                                        portion of any prepayment fee may be
                                        payable as additional interest on the
                                        Securities, if so specified in the
                                        related Prospectus Supplement. Other
                                        Mortgage Loans may permit prepayments
                                        without payment of a fee unless the
                                        prepayment occurs during specified time
                                        periods. The Mortgage Loans may include
                                        "due-on-sale" clauses which permit the
                                        mortgagee to demand payment of the
                                        entire Mortgage Loan in connection with
                                        the sale or certain transfers of the
                                        related Mortgaged Property (as defined
                                        below). Other Mortgage Loans may be
                                        assumable by persons meeting then
                                        applicable underwriting standards. See
                                        "Mortgage Loan Acquisition --
                                        Underwriting Standards" herein.

                                        (v) The real property constituting
                                        security for repayment of a Mortgage
                                        Loan (each, a "Mortgaged Property") may
                                        be located in any one of the fifty
                                        states, the District of Columbia, Guam,
                                        Puerto Rico or, any other territory of
                                        the United States as may be specified in
                                        the related Prospectus Supplement.

                                       7
<PAGE>
 
                                        Unless otherwise specified in the
                                        related Prospectus Supplement, all of
                                        the Mortgage Loans will be covered by
                                        standard hazard insurance policies
                                        insuring against losses due to fire and
                                        various other causes. The Mortgage Loans
                                        will be covered by Primary Mortgage
                                        Insurance Policies (as defined herein)
                                        to the extent provided in the related
                                        Prospectus Supplement. See "Trust Fund
                                        Assets -- The Mortgage Loans" herein.

         C.  Agency Securities..        Agency Securities supporting a Series of
                                        Securities will consist of (i) fully
                                        modified pass-through mortgage-backed
                                        certificates guaranteed as to timely
                                        payment of principal and interest by
                                        GNMA ("GNMA Certificates"), (ii)
                                        certificates ("Guaranteed Mortgage Pass-
                                        Through Certificates") issued and
                                        guaranteed as to timely payment of
                                        principal and interest by the FNMA
                                        ("FNMA Certificates"), (iii) mortgage
                                        participation certificates issued and
                                        guaranteed as to timely payment of
                                        interest and, unless otherwise specified
                                        in the related Prospectus Supplement,
                                        ultimate payment of principal by the
                                        FHLMC ("FHLMC Certificates"), (iv)
                                        stripped mortgage-backed securities
                                        representing an undivided interest in
                                        all or a part of either the principal
                                        distributions (but not the interest
                                        distributions) or the interest
                                        distributions (but not the principal
                                        distributions) or in some specified
                                        portion of the principal and interest
                                        distributions (but not all of such
                                        distributions) on certain GNMA, FNMA or
                                        FHLMC Certificates and, unless otherwise
                                        specified in the related Prospectus
                                        Supplement, guaranteed to the same
                                        extent as the underlying securities, (v)
                                        another type of pass-through certificate
                                        issued or guaranteed by GNMA, FNMA or
                                        FHLMC and described in the related
                                        Prospectus Supplement or (vi) a
                                        combination of such Agency Securities.
                                        All GNMA Certificates will be backed by
                                        the full faith and credit of the United
                                        States. No FHLMC or FNMA Certificates
                                        will be backed, directly or indirectly,
                                        by the full faith and credit of the
                                        United States. See "Trust Fund Assets --
                                        Agency Securities" herein.

         D. Non-Agency Securities       Trust Fund Assets for a Series may
                                        consist, in whole or in part, of pass-
                                        through Non-Agency Securities issued by
                                        an issuer that is not an Agency, which
                                        include (i) pass-through certificates
                                        representing beneficial interests in
                                        Mortgage Loans or (ii) collateralized
                                        obligations secured by Mortgage Loans.
                                        Such pass-through certificates or
                                        collateralized obligations will have
                                        previously been (i) offered and
                                        distributed to the public pursuant to an
                                        effective registration statement or (ii)
                                        purchased in a transaction not involving
                                        any public offering from a person who is
                                        not an affiliate of the issuer of such
                                        securities at the time of sale (nor an
                                        affiliate thereof at anytime during the
                                        three preceding months); provided, that
                                        a period of two years has elapsed since
                                        the later of the date such securities
                                        were acquired from the related issuer or
                                        an affiliate thereof. Although
                                        individual Mortgage Loans may be insured
                                        or guaranteed by the United States or an
                                        agency or instrumentality thereof, they
                                        need not be, and the Non-Agency
                                        Securities themselves will not be, so
                                        insured or guaranteed. See "Trust Fund
                                        Assets -- Non-Agency Securities."
                                        Payments on the Non-Agency Securities
                                        will be distributed directly to the
                                        related Trustee as registered owner of
                                        such Non-Agency Securities.

                                       8
<PAGE>
 
                                        The related Prospectus Supplement for a
                                        Series will specify (on an approximate
                                        basis, as described above, and as of the
                                        date specified in the related Prospectus
                                        Supplement) to the extent relevant and
                                        to the extent such information is
                                        reasonably available to the Depositor
                                        and the Depositor reasonably believes
                                        such information to be reliable: (i) the
                                        aggregate approximate principal amount
                                        and type of any Non-Agency Securities to
                                        be included in the Trust Fund Assets for
                                        such Series; (ii) certain
                                        characteristics of the supporting
                                        Mortgage Loans; (iii) the maximum
                                        original term-to-stated maturity of the
                                        Non-Agency Securities; (iv) the weighted
                                        average term-to-stated maturity of the
                                        Non-Agency Securities; (v) the pass-
                                        through or certificate rate or ranges
                                        thereof for the Non-Agency Securities;
                                        (vi) the sponsor or depositor of the 
                                        Non-Agency Securities, the Servicer of
                                        the Non- Agency Securities and the
                                        trustee of the Non-Agency Securities;
                                        (vii) certain characteristics of
                                        enhancement, if any, such as reserve
                                        funds, insurance policies, letters of
                                        credit or guarantees, relating to the
                                        Mortgage Loans underlying the Non-Agency
                                        Securities, or to such Non-Agency
                                        Securities themselves; (viii) the terms
                                        on which the underlying Mortgage Loans
                                        may or are required to be repurchased
                                        prior to stated maturity; and (ix) the
                                        terms on which substitute underlying
                                        Mortgage Loans may be delivered to
                                        replace those initially deposited with
                                        the applicable Trustee. See "Trust Fund
                                        Assets --Non-Agency Securities" herein.
                                                      
         E.  Bond and Distribution
         Accounts.................      All scheduled monthly principal and
                                        interest payments and all prepayments
                                        received with respect to the Mortgage
                                        Collateral for a Series of Securities,
                                        other than amounts not required to be
                                        remitted to the applicable Trustee, such
                                        as amounts retained by the Master
                                        Servicer, any Servicer or any
                                        subservicer of Mortgage Loans as
                                        servicing compensation, to pay certain
                                        insurance premiums or to reimburse the
                                        Master Servicer or any Servicer for
                                        certain advances it has made, will be
                                        remitted to an account (the "Bond
                                        Account") to be established as an
                                        Eligible Account (as defined herein) on
                                        the closing date for the sale of such
                                        Series of Securities (the "Closing
                                        Date"). All principal and interest
                                        distributions received from the Mortgage
                                        Collateral and remitted to the Bond
                                        Account, other than amounts, if any,
                                        subsequently withdrawn to reimburse the
                                        Master Servicer or any Servicer for
                                        certain non-recoverable advances it has
                                        made, together with (i) the amount of
                                        cash, if any, initially deposited in the
                                        Bond Account by the Issuer, (ii) if
                                        applicable, all amounts withdrawn from
                                        any related Reserve Funds, (iii) any
                                        Insurance Proceeds and Liquidation
                                        Proceeds (as such terms are defined
                                        herein) and (iv) if so specified in the
                                        related Prospectus Supplement, all
                                        reinvestment income earned thereon, will
                                        be available for transfer to the
                                        Distribution Account (as defined herein)
                                        for application to the payment of the
                                        principal of, and interest on, such
                                        Series of Securities as described in the
                                        related Prospectus Supplement.

                                        On or prior to the Closing Date, the
                                        applicable Trustee will establish an
                                        account (the "Distribution Account")
                                        which shall be an Eligible Account (as
                                        defined herein) maintained with the

                                       9
<PAGE>
 
                                        applicable Trustee for the benefit of
                                        the Securityholders of the related
                                        Series. On or prior to a date specified
                                        in the related Prospectus Supplement and
                                        preceding each related Payment Date
                                        (each, an "Account Deposit Date"), the
                                        Master Servicer shall withdraw from the
                                        Bond Account the amount required to be
                                        distributed to Securityholders on such
                                        Payment Date (the "Distribution
                                        Amount"), to the extent of funds
                                        available for such purpose on deposit
                                        therein, and will deposit such amount in
                                        the Distribution Account.

                                        Any funds remaining in the Bond Account
                                        on a Payment Date, other than amounts
                                        not constituting Available Funds, if so
                                        specified in the related Prospectus
                                        Supplement, after (i) the reimbursement
                                        of the Master Servicer and/or any
                                        Servicer for non-recoverable advances
                                        made by it, (ii) each required payment
                                        of interest and principal to
                                        Securityholders of the related Series
                                        has been paid in full, (iii) if
                                        applicable, any Reserve Fund has been
                                        funded in the manner described in the
                                        related Prospectus Supplement and (iv)
                                        the payment of certain expenses relating
                                        to such Series of Securities, will be
                                        subject to withdrawal upon the order of
                                        the Issuer. See "Trust Fund Assets --
                                        Bond and Distribution Accounts" and
                                        "Servicing of the Mortgage Loans"
                                        herein.

Pre-Funding Accounts...........         If so specified in the related
                                        Prospectus Supplement, the assets of the
                                        Issuer will include the funds on deposit
                                        in an account (a "Pre-Funding Account")
                                        which will be used to purchase
                                        additional Mortgage Collateral during a
                                        period specified in such Prospectus
                                        Supplement (such period, the "Funding
                                        Period"). See "Trust Fund Assets -- Pre-
                                        Funding Accounts" herein.

Credit Enhancement.............         The Mortgage Collateral supporting a
                                        Series of Securities or one or more
                                        Classes within a Series may have the
                                        benefit of one or more types of credit
                                        enhancement as described herein and more
                                        fully in the related Prospectus
                                        Supplement. The protection against
                                        losses afforded by any such credit
                                        enhancement may be limited. The type,
                                        characteristics and amount of credit
                                        enhancement will be determined based on
                                        the characteristics of the Mortgage
                                        Loans underlying or comprising the
                                        Mortgage Collateral and will be
                                        established on the basis of requirements
                                        of each Rating Agency. In addition, one
                                        or more Classes of Securities of a
                                        Series may be guaranteed as to payment
                                        of principal and interest by a third
                                        party insurer or guarantor, to the
                                        extent provided in the related
                                        Prospectus Supplement. See "Credit
                                        Enhancement" herein.

         A.  Subordination....          A Series of Securities may consist of
                                        one or more Classes of Senior Securities
                                        and one or more Classes of Subordinated
                                        Securities. The rights of the holders of
                                        the Subordinated Securities of a Series
                                        (the "Subordinated Securityholders") to
                                        receive payments of principal and/or
                                        interest (or any combination thereof)
                                        will be subordinated to such rights of
                                        the holders of the Senior Securities of
                                        the same Series (the "Senior
                                        Securityholders") to the extent
                                        described in the related 

                                       10
<PAGE>
 
                                     Prospectus Supplement. This subordination
                                     is intended to enhance the likelihood of
                                     regular receipt by the Senior
                                     Securityholders of the full amount of their
                                     scheduled payments of principal and/or
                                     interest. The protection afforded to the
                                     Senior Securityholders of a Series by means
                                     of the subordination feature will be
                                     accomplished by (i) the preferential right
                                     of such holders to receive, prior to any
                                     payment being made on the related
                                     Subordinated Securities, the amounts of
                                     principal and/or interest due them on each
                                     Payment Date out of the funds available for
                                     payment on such date in the related
                                     Distribution Account and, to the extent
                                     described in the related Prospectus
                                     Supplement, by the right of such holders to
                                     receive future payments that would
                                     otherwise have been payable to the
                                     Subordinated Securityholders; or (ii) as
                                     otherwise described in the related
                                     Prospectus Supplement. If so specified in
                                     the related Prospectus Supplement,
                                     subordination may apply only in the event
                                     of certain types of losses not covered by
                                     other forms of credit support, such as
                                     hazard losses not covered by standard
                                     hazard insurance policies or losses due to
                                     the bankruptcy or fraud of the borrower.
                                     The related Prospectus Supplement will set
                                     forth information concerning, among other
                                     things, the amount of subordination of a
                                     Class or Classes of Subordinated Securities
                                     in a Series, the circumstances in which
                                     such subordination will be applicable and
                                     the manner, if any, in which the amount of
                                     subordination will decrease over time. See
                                     "Credit Enhancement --Subordination"
                                     herein.

     B.  Reserve Funds...........    If so specified in the related Prospectus
                                     Supplement, the Issuer will deposit in one
                                     or more Reserve Funds to be established
                                     with the applicable Trustee, as the case
                                     may be, cash, certificates of deposit,
                                     letters of credit, surety bonds, guaranteed
                                     investment contracts, reinvestment income
                                     or any combination thereof, which may be
                                     used by the Trustee to make payments on
                                     such Series of Securities to the extent
                                     funds are not otherwise available. The
                                     related Prospectus Supplement will specify
                                     the manner of funding the related Reserve
                                     Fund and the conditions under which the
                                     amounts in any such Reserve Fund will be
                                     used to make payments to holders of
                                     Securities of a particular Class or
                                     released from the lien of the related
                                     Agreement. See "Credit Enhancement --
                                     Reserve Funds" herein.

     C.  Mortgage Pool
         Insurance Policy .......    If so specified in the related Prospectus
                                     Supplement, a mortgage pool insurance
                                     policy or policies (the "Mortgage Pool
                                     Insurance Policy") may be obtained and
                                     maintained for a Series of Securities
                                     supported by Mortgage Loans, which shall be
                                     limited in scope, covering defaults on such
                                     Mortgage Loans in an initial amount equal
                                     to a specified percentage of the aggregate
                                     principal balance of all Mortgage Loans
                                     included in the related mortgage pool as of
                                     the first day of the month of issuance of
                                     the related Series of Securities or such
                                     other date as is specified in the related
                                     Prospectus Supplement (the "Cut-off Date").
                                     See

                                       11
<PAGE>
 
                                     "Credit Enhancement --Mortgage Pool
                                     Insurance Policies" herein.

     D.  Special Hazard
         Insurance Policy........    If so specified in the related Prospectus
                                     Supplement, a special hazard insurance
                                     policy or policies (the "Special Hazard
                                     Insurance Policy") may be obtained and
                                     maintained for a Series of Securities
                                     secured by Mortgage Loans, covering certain
                                     physical risks that are not otherwise
                                     insured against by standard hazard
                                     insurance policies. Each Special Hazard
                                     Insurance Policy will be limited in scope
                                     and will cover losses pursuant to the
                                     provisions of each such Special Hazard
                                     Insurance Policy as described in the
                                     related Prospectus Supplement. See "Credit
                                     Enhancement -- Special Hazard Insurance
                                     Policies" herein.

     E.  Bankruptcy Bond.........    If so specified in the related Prospectus
                                     Supplement, a bankruptcy bond or bonds (the
                                     "Bankruptcy Bond") may be obtained for a
                                     Series of Securities secured by Mortgage
                                     Loans to cover certain losses resulting
                                     from action that may be taken by a
                                     bankruptcy court in connection with a
                                     Mortgage Loan. The level of coverage and
                                     the limitations in scope of each Bankruptcy
                                     Bond will be specified in the related
                                     Prospectus Supplement. See "Credit
                                     Enhancement -- Bankruptcy Bonds" herein.

     F.  Bond Insurance Policies,
         Surety Bonds and
         Guarantees..............    If so specified in the related Prospectus
                                     Supplement, credit enhancement for one or
                                     more Classes of Securities of a Series may
                                     be provided by insurance policies or surety
                                     bonds (each, a "Bond Insurance Policy")
                                     issued by one or more insurance companies
                                     or sureties. Such bond guarantee insurance
                                     or surety bond will guarantee timely
                                     payments of interest and/or full payment of
                                     principal on the basis of a schedule of
                                     principal payments set forth in or
                                     determined in the manner specified in the
                                     related Prospectus Supplement. If specified
                                     in the related Prospectus Supplement, one
                                     or more surety bonds, insurance policies or
                                     third-party guarantees may be used to
                                     provide coverage for the risks of default
                                     or types of losses set forth in such
                                     Prospectus Supplement. See "Credit
                                     Enhancement -- Bond Insurance Policies,
                                     Surety Bonds and Guarantees" herein.

     G.  Letter of Credit........    If so specified in the related Prospectus
                                     Supplement, credit enhancement may be
                                     provided for a Series of Securities
                                     supported by Mortgage Loans by one or more
                                     letters of credit. A letter of credit may
                                     provide limited protection against certain
                                     losses in addition to or in lieu of other
                                     credit enhancement, such as losses
                                     resulting from delinquent payments on the
                                     Mortgage Loans supporting the related
                                     Series of Securities or supporting the
                                     related Series of Securities, losses from
                                     risks not covered by standard hazard
                                     insurance policies, losses due to
                                     bankruptcy of a borrower and application of
                                     certain provisions of the federal
                                     Bankruptcy Code, and losses due to denial
                                     of insurance 
                                     

                                       12
<PAGE>
 
                                     coverage due to misrepresentations made in
                                     connection with the origination or sale of
                                     a Mortgage Loan. The Issuer of the letter
                                     of credit (the "L/C Bank") will be
                                     obligated to honor demands with respect to
                                     such letter or credit, to the extent of the
                                     amount available thereunder to provide
                                     funds under the circumstances and subject
                                     to such conditions as are specified in the
                                     related Prospectus Supplement. The
                                     liability of the L/C Bank under its letter
                                     of credit will be reduced by the amount of
                                     unreimbursed payments thereunder.

     H.  Over-Collateralization      If so specified in the related Prospectus
                                     Supplement, credit enhancement may consist
                                     of over-collateralization whereby the
                                     aggregate principal balance of the related
                                     Mortgage Collateral exceeds the aggregate
                                     principal balance of the Securities of the
                                     related Series. Such over-collateralization
                                     may exist on the related Closing Date or
                                     develop thereafter as a result of the
                                     application of a portion of the interest
                                     payment on the Mortgage Collateral, as an
                                     additional payment in respect of principal
                                     to reduce the principal balance of a
                                     certain Class or Classes of Securities of
                                     such Series and, thus, accelerate the rate
                                     of payment of principal on such Class or
                                     Classes of Securities. See "Credit
                                     Enhancement-- Over-Collateralization"
                                     herein.

     I.  Cross-Collateralization     If so specified in the related Prospectus
                                     Supplement, separate Classes of a Series
                                     may be supported by separate groups of
                                     Mortgage Collateral. In such case, credit
                                     support may be provided by a cross-
                                     collateralization feature which requires
                                     that payments be made with respect to
                                     Securities secured or supported by one or
                                     more groups of Mortgage Collateral prior to
                                     payments to Subordinated Securities secured
                                     or supported by other groups of Mortgage
                                     Collateral within the same Series. See
                                     "Credit Enhancement -- Cross-
                                     Collateralization" herein.

                                     If so specified in the related Prospectus
                                     Supplement, the coverage provided by one or
                                     more of the forms of credit enhancement
                                     described in this Prospectus may apply
                                     concurrently to two or more separate Series
                                     of Securities. If applicable, the related
                                     Prospectus Supplement will identify the
                                     Series of Securities to which such credit
                                     enhancement relates and the manner of
                                     determining the amount of coverage provided
                                     to such Series of Securities thereby and of
                                     the application of such coverage to the
                                     identified Series of Securities. See
                                     "Credit Enhancement --Cross-
                                     Collateralization" herein.

     J.  Minimum Principal
         Payment Agreement           If so specified in the related Prospectus
                                     Supplement, an Issuer may enter into an
                                     agreement with an institution pursuant to
                                     which such institution will provide such
                                     funds as may be necessary to enable such
                                     Issuer to make principal payments on the
                                     Securities of the related Series at a
                                     minimum rate set forth in such Prospectus
                                     Supplement. See "Credit Enhancement --
                                     Minimum Principal Payment Agreement"
                                     herein.

                                       13
<PAGE>
 
     K. Derivative Arrangements      If so specified and to the extent described
                                     in the related Prospectus Supplement, one
                                     or more derivative arrangements may be used
                                     to support payments on the Securities. A
                                     derivative arrangement is a contract or
                                     agreement, the price of which is directly
                                     dependent upon (i.e., "derived from") the
                                     value of one or more underlying assets.
                                     Derivatives involve rights or obligations
                                     based on the underlying asset, but do not
                                     necessarily result in a transfer of the
                                     underlying asset. Derivative arrangements
                                     include swap agreements, interest rate
                                     swaps, interest rate caps, interest rate
                                     floors, interest rate collars and currency
                                     swap agreements. See "Credit Enhancement --
                                     Derivative Arrangements" herein.

Advances.........................    Unless otherwise provided in the related
                                     Prospectus Supplement, the Master Servicer
                                     or a Servicer may be obligated as part of
                                     its servicing responsibilities to make
                                     certain advances that in its good faith
                                     judgment it deems recoverable with respect
                                     to delinquent scheduled payments on the
                                     Mortgage Collateral comprising the Trust
                                     Fund Assets supporting the related
                                     Securities. Neither the Company nor any of
                                     its affiliates will have any responsibility
                                     to make such advances. Advances made by a
                                     Master Servicer are reimbursable generally
                                     from subsequent recoveries in respect of
                                     such Mortgage Loans and otherwise to the
                                     extent described herein and in the related
                                     Prospectus Supplement. If and to the extent
                                     provided in the Prospectus Supplement for
                                     any Series of Securities, the Master
                                     Servicer will be entitled to receive
                                     interest on its outstanding advances,
                                     payable from amounts in the related Trust
                                     Fund Assets. The Prospectus Supplement for
                                     any Series of Securities evidencing an
                                     interest in Trust Fund Assets that include
                                     Certificates will describe any
                                     corresponding advancing obligation of any
                                     person in connection with such
                                     Certificates. See "Servicing of the
                                     Mortgage Loans -- Advances and other
                                     Amounts Payable by Master Servicer" and
                                     "Advances" in the related Prospectus
                                     Supplement. In the event the Master
                                     Servicer or Servicer fails to make a
                                     required Advance, the Trustee may be
                                     obligated to advance such amounts otherwise
                                     required to be advanced by the Master
                                     Servicer or Servicer. See "Servicing of
                                     Mortgage Loans -- Advances and Other
                                     Amounts Payable by Master Servicer" and " 
                                     -- Advances in the Related Prospectus
                                     Supplement" herein.

Tax Status of the Securities.....    The Bonds, when beneficially owned by
                                     someone other than TMA or one of its
                                     qualified real estate investment trust
                                     ("REIT") subsidiaries (as defined in
                                     section 856(i) of the Code), will
                                     constitute indebtedness for federal income
                                     tax purposes and not an ownership interest
                                     in the Issuer or the Collateral. See
                                     "Federal Income Tax Considerations" herein
                                     and in the related Prospectus Supplement
                                     for information concerning the material
                                     federal tax considerations of an investment
                                     in the Bonds.

                                     If a REMIC or FASIT election is made,
                                     Securities representing regular interests
                                     in a REMIC or FASIT will generally be
                                     taxable

                                       14
<PAGE>
 
                                     to holders in the same manner as evidences
                                     of indebtedness issued by the REMIC or
                                     FASIT. Stated interest, regardless of
                                     whether the interest is currently paid or
                                     deferred, on such regular interests will be
                                     taxable as ordinary income and taken into
                                     account using the accrual method of
                                     accounting, regardless of the holder's
                                     normal accounting method.

                                     If so specified in the related Prospectus
                                     Supplement, the Trust Fund for a Series
                                     will be treated as a grantor trust and will
                                     not be classified as an association taxable
                                     as a corporation for federal income tax
                                     purposes, and Securityholders of such
                                     Series ("Pass- Through Securities") will be
                                     treated as owning directly rights to
                                     receive certain payments of interest or
                                     principal, or both, on the Mortgage
                                     Collateral held in the Trust Fund for such
                                     Series. All income with respect to a
                                     Stripped Security will be accounted for as
                                     original issue discount ("OID") and, unless
                                     otherwise specified in the related
                                     Prospectus Supplement, will be reported by
                                     the applicable Trustee on a accrual basis,
                                     which may be prior to the receipt of cash
                                     associated with such income.

                                     If so specified in the Prospectus
                                     Supplement, the Trust Fund will be treated
                                     as a partnership for purposes of federal
                                     and state income tax. Each Noteholder, by
                                     the acceptance of a Note of a given series,
                                     will agree to treat such Note as
                                     indebtedness; and each Certificateholder,
                                     by the acceptance of a Certificate of a
                                     given Series, will agree to treat the
                                     related Trust Fund as a partnership in
                                     which such Certificateholder is a partner
                                     for federal income and state tax purposes.
                                     Alternative characterizations of such Trust
                                     Fund and such Certificates are possible,
                                     but would not result in materially adverse
                                     tax consequences to Certificateholders. See
                                     "Federal Income Tax Considerations."

                                     Certain Classes of Securities may be issued
                                     with OID that must be included in income
                                     before the corresponding interest payments
                                     are made. A Securityholder should be aware
                                     that the Code and the Treasury regulations
                                     promulgated thereunder do not adequately
                                     address certain issues relevant to
                                     prepayable debt securities, such as the
                                     Securities.

Use of Proceeds..................    The net proceeds to be received from the
                                     sale of the Securities of each Series will
                                     be applied by the Company to the purchase
                                     or acquisition of the related Mortgage
                                     Collateral or will be used by the Company
                                     for general corporate purposes. The
                                     Mortgage Collateral included in the Trust
                                     Fund Assets supporting a Series of
                                     Securities will either be contributed to
                                     the Company's capital by TMA (or an
                                     affiliate) or acquired by purchase by the
                                     Company from TMA (or an affiliate) and
                                     deposited with the Issuer of such Series by
                                     the Company. See "Use of Proceeds" herein.

Ratings..........................    It is a condition to the issuance of each
                                     Series of Securities that the Securities of
                                     such Series to be offered hereunder be
                                     rated in one of the four highest (two
                                     highest if the Securities are Certificates)
                                     rating categories by at least one
                                     nationally recognized statistical rating
                                     organization. Ratings of Securities 

                                       15
<PAGE>
 
                                     will address the likelihood of the payment
                                     of principal and interest thereon pursuant
                                     to their terms. For more detailed
                                     information regarding the ratings assigned
                                     to any Class of a particular Series of
                                     Securities, see "Summary of Terms --
                                     Ratings" and "Ratings" in the related
                                     Prospectus Supplement.

Legal Investment.................    The Prospectus Supplement for each Series
                                     of Securities will specify which, if any,
                                     of the Classes of Securities offered
                                     thereby will constitute "mortgage related
                                     securities" for purposes of the Secondary
                                     Mortgage Market Enhancement Act of 1984
                                     ("SMMEA"). Classes of Securities that
                                     qualify as "mortgage-related securities"
                                     will be legal investments for certain types
                                     of institutional investors to the extent
                                     provided in SMMEA, subject, in any case, to
                                     any other regulations that may govern
                                     investments by such institutional
                                     investors. See "Legal Investment" herein.

ERISA Matters....................    The Employee Retirement Income Security Act
                                     of 1974, as amended ("ERISA"), and Section
                                     4975 of the Code impose certain
                                     restrictions on employee benefit plans
                                     subject to ERISA or plans or arrangements
                                     subject to Section 4975 of the Code
                                     ("Plans") and on persons who are parties in
                                     interest or disqualified persons ("parties
                                     in interest") with respect to such Plans.
                                     The Prospectus Supplement for each Series
                                     of Securities will discuss the potential
                                     applicability of ERISA and Section 4975 of
                                     the Code, the availability of exemptions
                                     therefrom and any limitations on investment
                                     in any Class of such Securities by Plans.
                                     Investments by Plans are also subject to
                                     ERISA's general fiduciary requirements,
                                     including the requirement of investment
                                     prudence and diversification and the
                                     requirement that a Plan's investments be
                                     made in accordance with the documents
                                     governing the Plan.

Absence of Active Public
Trading Market...................    Unless otherwise specified in the related
                                     Prospectus Supplement, the Securities are
                                     not expected to be listed on an exchange or
                                     quoted in an automated quotation system of
                                     a registered securities association. As a
                                     result, it is not expected that there will
                                     be an active public trading market for the
                                     Securities. This may limit the liquidity of
                                     an investment in the Securities and result
                                     in any sale by a Securityholder to be at a
                                     discount from the purchase price.

Risk Factors.....................    For a discussion of the material risks
                                     associated with an investment in the
                                     Securities, see "Risk Factors" commencing
                                     on page ___ herein and in the related
                                     Prospectus Supplement.

                                       16
<PAGE>
 
                                 RISK FACTORS

     Investors should consider, among other things, the following factors in
connection with an investment in the Securities.

PREPAYMENT AND YIELD CONSIDERATIONS; REINVESTMENT RISK

     The rate of payments of principal, including prepayments (including for
this purpose prepayments resulting from refinancing or liquidations of the
Mortgage Loans and Pass-Through Securities included in the Trust Fund Assets,
due to defaults, casualties, condemnations and repurchases by the Issuer or TMA
or other Seller or purchases by the Master Servicer or the Company), on the
Mortgage Collateral supporting a Series of Securities will directly affect the
weighted average life of such Series of Securities. The "weighted average life"
of a Security refers to the average length of time, weighted by principal, that
will elapse from the date of issuance to the date each dollar of principal is
repaid to the investor. The yields to maturity and weighted average lives of the
Securities will be affected primarily by the amount and timing of principal
payments received on or in respect of the Mortgage Collateral supporting the
related Series of Securities. The "yield to maturity" of a Security refers to
the investment rate of return on such security if held to maturity.

     The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. The rate of payment of principal,
including prepayments, on Mortgage Collateral, may be influenced by a variety of
economic, geographic, social, tax, legal and other factors.  In general, if
prevailing interest rates fall significantly below the mortgage rates borne by
the Mortgage Collateral, such Mortgage Collateral is likely to be subject to
higher prepayment rates than if prevailing interest rates remain at or above the
rates on the Mortgage Collateral. Conversely, if prevailing interest rates rise
appreciably above the interest rates on the Mortgage Collateral underlying the
Mortgage Collateral, such Mortgage Collateral is likely to experience a lower
prepayment rate than if prevailing interest rates remain at or below the
interest rates on the Mortgage Collateral.  However, there can be no assurance
that such will be the case.  Prepayments on the Mortgage Collateral will shorten
the weighted average life of the Securities supported by the Mortgage Collateral
relating to such Securities.  Securityholders may be unable to reinvest such
payments in securities of comparable quality having interest rates similar to
those borne by such Securities.  It is possible that yields on any such
reinvestments will be lower, and may be significantly lower, than the yields on
such Securities.

RISKS ASSOCIATED WITH PAYMENT CHARACTERISTICS OF CLASSES OF SECURITIES

     The extent to which the yields to maturity of the Classes of Securities may
vary from the anticipated yields will depend upon the degree to which such
Classes of Securities are purchased at a discount or premium, the degree to
which the timing of payments thereon is sensitive to the rate of payments of
principal, including prepayments, on the related Mortgage Collateral and the
degree to which the level of payments thereon is sensitive to shifts in interest
rates. The timing of changes in the rate of prepayments on such Mortgage
Collateral may significantly affect an investor's actual yield to maturity, even
if the average rate of principal payments is consistent with an investor's
expectation. The timing of increases and decreases in interest rates may
significantly affect an investor's actual yield to maturity, even if the average
level of interest rates over the term of the Security is as expected. Categories
of Classes of Securities that may be more sensitive to such factors include the
Support Classes, Inverse Floating Rate Classes, Interest Only Classes, and
Principal Only Classes. The Prospectus Supplement relating to a Series of
Securities will discuss in greater detail the effect of the rate and timing of
principal payments (including prepayments), delinquencies and losses on the
yield, weighted average lives and maturities of the Classes of such Series of
Securities.

LIMITED LIQUIDITY OF INVESTMENT

     Prior to issuance, there has been no market for the Securities of any
Series, and there can be no assurance that a secondary market for any Securities
will develop or, if it does develop, that it will provide Securityholders with

                                       17
<PAGE>
 
a sufficient level of liquidity of investment or will continue while Securities
of such Series remain outstanding. In addition, the market value of Securities
of any Series may fluctuate with changes in prevailing rates of interest and
prepayments, spreads and other factors. Consequently, the sale of Securities by
a Securityholder in any secondary market that may develop may be at a discount
from the purchase price. Issuance of the Securities of a Series in bookentry
form may also reduce the liquidity of such Securities since investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates. See " -- Effects of Book-Entry Registration" herein. No Issuer is
expected to apply to have the Securities issued by it listed on any exchange or
quoted in an automated quotation system of a registered securities association.

RISKS ASSOCIATED WITH NATURE OF MORTGAGE LOANS

     LIMITED REPRESENTATIONS BY AND AGAINST THE SELLER. In connection with most
of the Mortgage Collateral, each Seller will have made representations and
warranties in respect of the Mortgage Loans sold by such Seller and included in
the Trust Fund Assets to support a Series of Securities. In the event of a
material breach of a Seller's representation or warranty, unless otherwise
specified in the related Prospectus Supplement, the related Seller will be
obligated to cure the breach or repurchase the Mortgage Loan or, if permitted,
replace such Mortgage Loan as described below or indemnify the Issuer for
certain enumerated issues. However, there can be no assurance that a Seller will
honor its obligation to cure, repurchase or, if permitted, replace any Mortgage
Loan as to which such a breach of a representation or warranty arises. A
Seller's failure or refusal to honor its repurchase, substitution or
indemnification obligations could lead to losses that, to the extent not covered
by credit enhancement, may adversely affect the yield to maturity of the
Securities.

     In instances where a Seller is unable, or disputes its obligation, to
repurchase affected Mortgage Loans, the Master Servicer may negotiate and enter
into one or more settlement agreements with such Seller that could provide for,
among other things, the repurchase of only a portion of the affected Mortgage
Loan.  Any such settlement could lead to losses on the Mortgage Loans which
would be borne by the related Securities.  Neither the Company nor the Master
Servicer will be obligated to repurchase a Mortgage Loan if a Seller defaults on
its obligation to do so, and no assurance can be given that the Sellers will
carry out such purchase obligations.  Such a default by a Seller is not a
default by the Company or by the Master Servicer.  Any Mortgage Loan not so
repurchased or substituted for shall remain in the related Trust Fund and any
losses related thereto shall be allocated to the related credit enhancement, to
the extent available, and otherwise to one or more classes of the related series
of Securities.

     Unless otherwise provided in the related Prospectus Supplement, all of the
representations and warranties of a Seller in respect of a Mortgage Loan will
have been made as of the date on which such Mortgage Loan was purchased from the
Seller by or on behalf of the Company; the date as of which such representations
and warranties were made will be a date prior to the date of initial issuance of
the related series of Securities. A substantial period of time may have elapsed
between the date as of which the representations and warranties were made and
the later date of initial issuance of the related series of Securities.
Accordingly, the Seller's repurchase obligation (or, if specified in the related
Prospectus Supplement, limited replacement option) will not arise if, during the
period commencing on the date of sale of a Mortgage Loan by the Seller, an event
occurs that would have given rise to such obligation had the event occurred
prior to sale of the affected Mortgage Loan. The occurrence of events during
this period that are not covered by a Seller's repurchase obligation could lead
to losses that, to the extent not covered by credit enhancement, may adversely
affect the yield to maturity of the Securities.

     MORTGAGE LOANS PURCHASED "AS IS" WITHOUT REPRESENTATIONS BY OR AGAINST THE
SELLER. TMA has in limited circumstances purchased Mortgage Loans without
representations or warranties from or against the Seller or the originator of
the Mortgage Loans. Such Mortgage Loans primarily were purchased from the
Resolution Trust Corporation or from thrift institutions unable or unavailable
to provide such representations and warranties. Such Mortgage Loans typically
are loans seasoned for at least five years and acquired without representations
or warranties in connection with the termination of securitizations of
unaffiliated issuers. TMA made its decision to purchase such Mortgage Loans on
the basis of seasoning and payment history. In the event of a default on such a
Mortgage Loan, the Servicer or Master Servicer would be unable to cause the
Seller of such a Mortgage Loan to repurchase the Mortgage Loan and the defaulted
Mortgage Loan would remain in the Trust Fund Assets. In that case, the

                                       18
<PAGE>
 
Securityholders, especially the holders of the Subordinated Classes of
Securities supported by such Trust Fund Assets could experience reduced or
delayed interest or principal payments. See the description of "Trust Fund
Assets" in the related Prospectus Supplement.

     RISKS OF UNDERWRITING STANDARDS OF UNAFFILIATED ORIGINATORS. Mortgage Loans
supporting any Series of Securities will have been purchased by the Company,
either directly or indirectly by TMA from various Sellers. Such Mortgage Loans
will generally have been originated in accordance with underwriting standards
acceptable to the Company and generally described herein under "Mortgage Loan
Acquisition-Underwriting Standards" as more particularly described in the
underwriting criteria included in the related Prospectus Supplement. TMA
performs a limited review to verify compliance of the Seller of Mortgage Loans
with TMA underwriting standards. TMA subjects selected Mortgage Loans to full
credit underwriting review and relies on third party contractors to verify
compliance with limited underwriting standards as to other Mortgage Loans.
Nevertheless, there can be no assurance that Mortgage Loans included in the
Trust Fund Assets supporting a Class of Securities will at all times remain in
compliance with TMA's underwriting standards. The Company also relies upon
representations and warranties of each Seller that the Mortgage Loans comply
with the underwriting standards. To the extent the underwriting criteria or any
Mortgage Loan's compliance therewith cannot be verified, the Mortgage Loans
might suffer losses greater than they would had the Company or an affiliate
thereof verified the underwriting standards. Any such losses, to the extent not
covered by credit enhancement, may adversely affect the yield to maturity of the
Securities.

     FACTORS WHICH MAY ADVERSELY AFFECT PROPERTY VALUES.  There are several
factors that could adversely affect the value of Mortgaged Properties such that
the outstanding balance of the related Mortgage Loans would equal or exceed the
value of the Mortgaged Properties. Among the factors that could adversely affect
the value of the Mortgaged Properties are an overall decline in the residential
real estate market in the areas in which the Mortgaged Properties are located or
a decline in the general condition of the Mortgaged Properties as a result of
failure of borrowers to maintain adequately the Mortgaged Properties or of
natural disasters that are not necessarily covered by insurance, such as
earthquakes and floods. If such a decline occurs, the actual rates of
delinquencies, foreclosures and losses on the Mortgage Loans could be higher
than those currently experienced in the mortgage lending industry in general.
Losses on such Mortgage Loans that are not otherwise covered by the credit
enhancement described in the applicable Prospectus Supplement will be borne by
the holder of one or more classes of Securities of the related Series.

     DELAYS DUE TO LIQUIDATION.  Even assuming that the Mortgaged Properties
provide adequate security for the Mortgage Loans, substantial delays could be
encountered in connection with the liquidation of defaulted Mortgage Loans and
corresponding delays could occur in the receipt of related proceeds by
Securityholders. An action to foreclose on a Mortgaged Property securing a
Mortgage Loan is regulated by state statutes and rules and is subject to many of
the delays and expenses of other lawsuits if defenses or counterclaims are
interposed, sometimes requiring several years to complete. Furthermore, in some
states an action to obtain a deficiency judgment is not permitted following a
nonjudicial sale of a Mortgaged Property. In the event of a default by a
borrower, these restrictions, among other things, may impede the ability of the
appropriate Servicer to foreclose on or sell the Mortgaged Property or to obtain
liquidation proceeds sufficient to repay all amounts due on the related Mortgage
Loan. In addition, such Servicer will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted Mortgage Loans and not yet repaid, including legal fees
and costs of legal action, real estate taxes and maintenance and preservation
expenses. As a result, scheduled payments to Securityholders, especially holders
of Subordinated Classes of Securities supported by Trust Fund Assets that
include defaulted Mortgage Loans, could be reduced or delayed.

     DISPROPORTIONATE EFFECT OF LIQUIDATION EXPENSES.  Liquidation expenses with
respect to defaulted Mortgage Loans do not vary directly with the outstanding
principal balance of the Mortgage Loan at the time of default. Therefore,
assuming that a servicer took the same steps in realizing upon a defaulted
Mortgage Loan having a small remaining principal balance as it would in the case
of a defaulted Mortgage Loan having a large remaining principal balance, the
amount realized after expenses of liquidation would be smaller as a percentage
of the outstanding principal balance of the small Mortgage Loan than would be
the case with the defaulted loan having a large remaining principal balance.

                                       19
<PAGE>
 
     NATURE OF SECURITY PROVIDED BY JUNIOR LIENS. TMA's Mortgage Loans primarily
consist of Mortgage Loans secured by a first priority mortgage lien or deed of
trust. However, certain Mortgage Loans may be secured by junior liens on the
related Mortgaged Properties. As to Mortgage Loans secured by second mortgages,
the proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding balance of such Mortgage Loans only to the
extent that the claims of such senior mortgages have been satisfied in full,
including any related foreclosure costs. In addition, the holder of a Mortgage
Loan secured by a junior mortgage may not foreclose on the Mortgaged Property
unless it forecloses subject to the senior mortgages, in which case it must
either pay the entire amount due on the senior mortgages to the senior
mortgagees at or prior to the foreclosure sale or undertake the obligation to
make payments on the senior mortgages in the event the mortgagor is in default
thereunder. The Issuer will not have any source of funds to satisfy the senior
mortgages or make payments due to the senior mortgagees, although the Master
Servicer or Servicer may, at its option, advance such amounts to the extent
deemed recoverable and prudent. In the event that such proceeds from a
foreclosure or similar sale of the related Mortgaged Property are insufficient
to satisfy all senior liens and the Mortgage Loan in the aggregate, the Issuer,
as the holder of the junior lien, and, accordingly, Securityholders of one or
more Classes, to the extent not covered by credit enhancement, are likely to (i)
incur losses in jurisdictions in which a deficiency judgment against the
borrower is not available, and (ii) incur losses if any deficiency judgment
obtained is not realized upon. In addition, the rate of default of junior
mortgage loans may be greater than that of mortgage loans secured by first liens
on comparable properties.

CREDIT CONSIDERATIONS AND RISKS

     LIMITED SOURCE OF PAYMENTS. The Company does not have, nor is it expected
to have, any significant assets. Although the Securities will be obligations of
their respective Issuers, no Issuer is expected to have significant assets other
than those included in the Trust Fund Assets for the Series of Securities issued
by it. Unless otherwise provided in the related Prospectus Supplement, the
Securities of a Series will be payable solely from the Trust Fund Assets that
support such Series and will not have any claim against or security interest in
the assets supporting any other Series. There will be no recourse to the Company
or TMA, or any other person for any failure to make payments on the Securities.
In addition, at the times set forth in the related Prospectus Supplement,
certain Mortgage Collateral and/or any balance remaining in the Bond Account for
a Series of Securities immediately after making all payments due on such
Securities, after making any other payments specified in the related Prospectus
Supplement, may be promptly released or remitted to the Company, TMA, any credit
enhancement provider or any other person entitled thereto and will no longer be
available for making payments on such Securities. Consequently, investors in the
Securities of a Series must rely solely upon payments of principal and interest
on the Mortgage Collateral included in the Trust Fund Assets supporting such
Series, the security therefor and the sources of credit enhancement identified
in the related Prospectus Supplement to provide for payments on such Securities.

     NO RECOURSE TO COMPANY OR TMA.  The Securities will not represent an
interest in or obligation of the Company or TMA or any affiliate thereof. The
only obligations, if any, of the Company with respect to the Mortgage Collateral
or the Securities of any Series will be pursuant to certain representations and
warranties. The Company does not have, and is not expected in the future to
have, any significant assets with which to meet any obligation to repurchase
Mortgage Collateral with respect to which there has been a breach of any
representation or warranty. If, for example, the Company were required to
repurchase a Mortgage Loan, its only sources of funds to make such repurchase
would be from funds obtained (i) from the enforcement of a corresponding
obligation, if any, on the part of TMA or other Seller, or (ii) to the extent
provided in the related Prospectus Supplement, from a Reserve Fund or similar
credit enhancement established to provide funds for such repurchases.

     The only obligations of TMA or other Seller with respect to the Mortgage
Collateral or the Securities of any Series will be pursuant to certain
representations and warranties.  TMA or such other Seller may be required to
repurchase or substitute for any Mortgage Loan with respect to which such
representations and warranties are breached. There is no assurance, however,
that TMA or such other Seller will have the financial ability to effect any such
repurchase or substitution.

     LIMITATIONS OF DIRECT OR INDIRECT BACKING FOR SECURITIES.  Agency
Securities are guaranteed by government sponsored entities but only the
guarantee by GNMA of GNMA Certificates is entitled to the full faith and credit
of

                                       20
<PAGE>
 
the United States. The guarantees by FNMA and FHLMC of FNMA Certificates and
FHLMC Certificates, respectively, are backed only by the credit of FNMA, a
federally chartered, privately owned corporation or by the credit of FHLMC, a
federally chartered corporation controlled by the Federal Home Loan Banks.
Neither the United States nor any agency thereof will be obligated to finance
the operations of FNMA or FHLMC or to assist either FNMA or FHLMC in any other
way. See "Trust Fund Assets -- Agency Securities" herein. Although payment of
principal of, and interest on, any Agency Security directly or indirectly
supporting all or part of a Series of Securities will be guaranteed by either
GNMA, FNMA or FHLMC, such guarantee will run only to such Agency Security and
will not guarantee the payment of principal or interest on the Securities of
such Series.

     DEFICIENCY ON SALE OF MORTGAGE COLLATERAL. Upon an Event of Default (as
defined herein) under the Indenture with respect to such Series, there is no
assurance that the proceeds from any sale of the Mortgage Collateral would be
sufficient to pay in full the outstanding principal amount on the related Series
of Securities together with interest accrued thereon. The market value of such
Mortgage Collateral generally will fluctuate with changes in prevailing rates of
interest. Consequently, such Mortgage Collateral may be liquidated at a
discount, in which case the proceeds of liquidation might be less than the
aggregate outstanding principal amount and interest payable on the related
Securities of such Series. Although the Securities will be obligations of their
respective Issuers, no Issuer is expected to have significant assets other than
those included in the Trust Fund Assets for the Series of Securities issued by
it. It is therefore unlikely that the Issuer will have sufficient other assets
available for payment of any such deficiency. If, following an Event of Default,
a Series of Securities has been declared to be due and payable, the applicable
Trustee may, in its discretion, but subject to the direction of the
Securityholders, refrain from selling the Mortgage Collateral for such Series of
Securities and continue to apply amounts received on the collateral to payments
due on the Securities of such Series in accordance with their terms,
notwithstanding the acceleration of the maturity of such Securities. See "The
Agreements -- Rights Upon Events of Default" herein.

     EFFECT OF SUBORDINATION.  If so specified in the related Prospectus
Supplement, the rights of the holders of one or more Classes of Subordinated
Securities will be subordinate to the rights of one or more Classes of Senior
Securities of such Series to payments of principal and/or interest (or any
combination thereof) to the extent specified in the related Prospectus
Supplement.  Although subordination is intended to reduce the risk to holders of
Senior Securities of delinquent payments or ultimate losses, the amount of
subordination will be limited.  In addition, if principal payments on one or
more Classes of Securities of a Series are made in a specified order of
priority, any limits with respect to the aggregate amount of claims under any
related credit enhancement may be exhausted before the principal of the lower
priority Classes of Securities of such Series has been repaid.  As a result, the
impact of significant losses on the Mortgage Collateral may be borne first by
any Class of Subordinated Securities of a Series and thereafter by the Classes
of Senior Securities of such Series, in each case to the extent described in the
related Prospectus Supplement.

     LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT.  The
Prospectus Supplement for a Series of Securities will describe any credit
enhancement for such Series, which may include cash accounts, insurance
policies, surety bonds, guaranteed investment contracts, cross-
collateralization, reinvestment income, guarantees, letters of credit or
derivative arrangements to the extent described herein and therein. Although
credit enhancement is intended to reduce the risk of delinquent payments or
losses to holders of Securities entitled to the benefit thereof, the amount of
such credit enhancement will be limited, as set forth in the related Prospectus
Supplement, and may be subject to periodic reduction in accordance with a
schedule or formula or otherwise decline, and could be depleted under certain
circumstances prior to the payment in full of the related Series of Securities,
and as a result Securityholders of the related Series may suffer losses.
Moreover, such credit enhancement may not cover all potential losses or risks.
For example, credit enhancement may or may not cover fraud or negligence by a
loan originator or other parties. In addition, the Trustee will generally be
permitted to reduce, terminate or substitute all or a portion of the credit
enhancement for any Series of Securities, provided each applicable Rating Agency
indicates that the then-current rating of the Securities of such Series will not
be adversely affected. See "Credit Enhancement" herein.

     The amount of applicable credit enhancement supporting one or more Classes
of Securities of a Series, including the subordination of one or more Classes of
Securities, will be determined on the basis of criteria established by each
Rating Agency providing ratings for such Classes of Securities based on, among
other things, 

                                       21
<PAGE>
 
assumptions regarding levels of defaults, delinquencies and losses. There can be
no assurance that the default, delinquency and loss experience on the related
Mortgage Collateral will not exceed such assumed levels. See " --Rating of the
Securities" herein.

     DELINQUENT LOANS MAY ADVERSELY AFFECT INVESTMENT. Certain of the Mortgage
Loans included in the Mortgage Collateral supporting a Series of Securities may
be past due or non-performing as of the related Cut-off Date. Investors should
consider the risk that the inclusion of such loans in the Mortgage Collateral
for a Series of Securities may affect the rate of defaults and prepayments on
such Mortgage Collateral and the yield on the Securities of such Series.

BANKRUPTCY AND INSOLVENCY RISKS

     EFFECTS OF BANKRUPTCY OF TMA OR DEPOSITOR. TMA and the Depositor will treat
the transfer of the Mortgage Collateral comprising or supporting the Trust Fund
Assets by TMA to the Depositor as a true sale for legal and bankruptcy purposes.
The Depositor and each Issuer will treat the transfer of Trust Fund Assets from
the Depositor to such Issuer as a sale for accounting purposes. As a sale of the
Trust Fund Assets by TMA to the Depositor, the Trust Fund Assets would not be
part of TMA's bankruptcy estate and would not be available to TMA's creditors.
However, in the event of the insolvency of TMA, it is possible that the
bankruptcy trustee or a creditor of TMA may attempt to recharacterize the sale
of the Trust Fund Assets as a borrowing by TMA, secured by a pledge of the Trust
Fund Assets. Similarly, as a sale of the Trust Fund Assets by the Depositor to
an Issuer, the Trust Fund Assets would not be part of the Depositor's bankruptcy
estate and would not be available to the Depositor's creditors. However, in the
event of the insolvency of the Depositor, it is possible that the bankruptcy
trustee or a creditor of the Depositor may attempt to recharacterize the sale of
the Trust Fund Assets as a borrowing by the Depositor, secured by a pledge of
the Trust Fund Assets. In either case, in the event the transfer is
recharacterized as a pledge, the Depositor or the Issuer, as the case may be,
will have a perfected security interest in the related Mortgage Collateral.
Nonetheless, a court could prevent timely payments of amounts due on the
Securities and result in a reduction of payments due on the Securities.

     EFFECTS OF BANKRUPTCY OF THE MASTER SERVICER.  In the event of a bankruptcy
or insolvency of the Master Servicer, the bankruptcy trustee or receiver may
have the power to prevent the Trustee or the Securityholders from appointing a
successor Master Servicer. The time period during which cash collections may be
commingled with the Master Servicer's own funds prior to each Distribution Date
will be specified in the related Prospectus Supplement. In the event of the
insolvency of the Master Servicer and if such cash collections are commingled
with the Master Servicer's own funds for at least ten days, the applicable
Trustee, despite contractual requirements to the contrary, may not have a
perfected interest in such collections since such collections would not have
been deposited in a segregated account within ten days after the collection
thereof, and the inclusion thereof in the bankruptcy estate of the Master
Servicer may result in delays in payment and failure to pay amounts due on the
Securities of the related Series.

     EFFECTS OF BANKRUPTCY OF OBLIGORS ON THE MORTGAGE COLLATERAL. In addition,
federal and state statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage lender to realize upon its security. For
example, in a proceeding under the federal Bankruptcy Code, a lender may not
foreclose on a mortgaged property without the permission of the bankruptcy
court. The rehabilitation plan proposed by the debtor may reduce the secured
indebtedness to the value of the mortgaged property as of the date of the
commencement of the bankruptcy, rendering the lender a general unsecured
creditor for the difference, and also may reduce the monthly payments due under
such mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. The effect of any such proceedings under the federal
Bankruptcy Code, including but not limited to any automatic stay, could result
in delays in receiving payments on the Mortgage Collateral supporting a Series
of Securities and possible reductions in the aggregate amount of such payments.

                                       22
<PAGE>
 
ENVIRONMENTAL RISKS

     Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, such a lien has priority over the lien of an existing
mortgage against such property. In addition, under the laws of some states and
under the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or
"operator", for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by a prior
owner. Such costs could result in a loss to the holders of one or more Classes
of a Series of Securities. A lender also risks such liability on foreclosure of
the related property. See "Certain Legal Aspects of Mortgage Loans --
Environmental Risks" herein.

RATINGS OF THE SECURITIES

     RATINGS NOT A RECOMMENDATION. It will be a condition to the issuance of a
Class of Securities offered hereby that they be rated in one of the four highest
rating categories by each Rating Agency (the two highest rating categories, if
the Securities are Certificates) identified as rating such Class in the related
Prospectus Supplement. Any such rating would be based on, among other things,
the adequacy of the value of the related Mortgage Collateral and any credit
enhancement with respect to such Class and will represent such Rating Agency's
assessment solely of the likelihood that holders of such Class of Securities
will receive payments to which such Securityholders are entitled under the
Indenture. Such rating will not constitute an assessment of the likelihood that
principal prepayments on mortgages underlying the related Mortgage Collateral
will be made, the degree to which the rate of such prepayments might differ from
that originally anticipated or the likelihood of early optional termination of
the Series of Securities. Such rating shall not be deemed a recommendation to
purchase, hold or sell Securities, inasmuch as it does not address market price
or suitability for a particular investor. Such rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause such investor to experience a lower than anticipated yield or
that an investor purchasing a Securities at a significant premium might fail to
recoup its initial investment under certain prepayment scenarios.

     RATINGS MAY BE LOWERED OR WITHDRAWN.  There is also no assurance that any
such rating will remain in effect for any given period of time or may not be
lowered or withdrawn entirely by the applicable Rating Agency in the future if
in its judgment circumstances so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the assets of the
Issuer or any credit enhancement with respect to a Series of Securities, such
rating might also be lowered or withdrawn because of, among other reasons, an
adverse change in the financial or other condition of a credit enhancement
provider or a change in the rating of such credit enhancement provider's long
term debt.

     LIMITATIONS OF ANALYSIS PERFORMED BY RATING AGENCIES.  The amount, type and
nature of credit enhancement, if any, established with respect to a Class of
Securities of a Series will be determined on the basis of criteria established
by each Rating Agency. Such criteria are sometimes based upon an actuarial
analysis of the behavior of similar loans in a larger group. Such analysis is
often the basis upon which each Rating Agency determines the amount of credit
enhancement required with respect to each such Class. There can be no assurance
that the historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a large
pool of similar loans accurately predicts the delinquency, foreclosure or loss
experience of any particular pool of mortgages underlying the Mortgage
Collateral. No assurance can be given that the values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related mortgages. If the residential real estate markets
should experience an overall decline in values such that the outstanding
principal balances of the mortgages underlying the Mortgage Collateral
supporting a particular Series of Securities and any secondary financing on the
related Mortgaged Properties become equal to or greater than the value of the
Mortgaged Properties, the rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the mortgage lending industry.
In addition, adverse economic

                                       23
<PAGE>
 
conditions (which may or may not affect real property values) may affect the
timely payment by mortgagors of scheduled payments of principal and interest on
the Mortgage Collateral and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Mortgage Collateral included in the
Trust Fund Assets supporting a Series of Securities. To the extent that such
losses are not covered by credit enhancement, such losses will be borne, at
least in part by the holders of one or more Classes of Securities of the related
Series.

EFFECTS OF BOOK-ENTRY REGISTRATION

     BOOK-ENTRY REGISTRATION. Prior to issuance, there will have been no market
for the Securities of any Series, and there can be no assurance that a secondary
market for any Securities will develop or, if it does develop, that it will
provide Securityholders with a sufficient level of liquidity of investment or
will continue while Securities of such Series remain outstanding. In addition,
the market value of any Series of Securities may fluctuate with changes in
prevailing rates of interest and prepayments, spreads and other factors.
Consequently, the sale of Securities by a Securityholder in any secondary market
that may develop may be at a discount from their purchase price. Issuance of a
Series of Securities in book-entry form may also reduce the liquidity of such
Securities since investors may be unwilling to purchase Securities for which
they cannot obtain physical certificates. See "Description of the Securities --
Book-Entry Registration" herein. None of the Securities are expected to be
listed on any exchange and no public market is expected to develop for the
Securities.

     LIMITED LIQUIDITY.  If the Securities of a Series are issued in book-entry
form, such registration may reduce the liquidity of such Securities in the
secondary trading market since investors may be unwilling to purchase Securities
for which they cannot obtain physical certificates. Since transactions in book-
entry Securities can be effected only through the Depository Trust Company
("DTC") in the United States, CEDEL or Euroclear in Europe, participating
organizations and Financial Intermediaries (as defined herein), the ability of a
Securityholder to pledge a book-entry Bond to persons or entities that do not
participate in the DTC, CEDEL or Euroclear systems may be limited due to lack of
a physical certificate representing such Securities.  Security purchasers will
not be recognized as Securityholders as such term is used in the related
Agreement, and Security purchasers will be permitted to exercise the rights of
Securityholders only indirectly through DTC and its Participants.

     POTENTIAL DELAYS IN PAYMENTS.  In addition, Securityholders may experience
some delay in their receipt of distributions of interest and principal on book-
entry Securities since distributions are required to be forwarded by the
applicable Trustee to DTC and DTC will then be required to credit such
distributions to the accounts of depository participants which thereafter will
be required to credit them to the account of Securityholders either directly or
indirectly through Financial Intermediaries.  See "Description of the Securities
- -- Book-Entry Securities" herein.

PRE-FUNDING ACCOUNTS MAY RESULT IN REINVESTMENT RISK

     If so specified in the related Prospectus Supplement, on the related
Closing Date the Depositor will deposit cash in an amount (the "Pre-Funded
Amount") specified in such Prospectus Supplement into an account (the "Pre-
Funding Account"). The Pre-Funded Amount will be used to purchase additional
Mortgage Collateral ("Subsequent Mortgage Collateral") during a period from the
related Closing Date to a date not more than one year after such Closing Date
(such period, the "Funding Period") from the Depositor (which, in turn, will
acquire such Subsequent Mortgage Collateral from TMA). The Pre-Funding Account
will be maintained with the applicable Trustee for the related Series of
Securities and is designed solely to hold funds to be applied by the Trustee
during the Funding Period to pay to the Depositor the purchase price for any
Subsequent Mortgage Collateral. Monies on deposit in the Pre-Funding Account
will not be available to cover losses on or in respect of the related Mortgage
Collateral. To the extent that the entire Pre-Funded Amount has not been applied
to the purchase of Subsequent Mortgage Collateral by the end of the related
Funding Period, any amounts remaining in the Pre-Funding Account will be
distributed as a prepayment of principal to Securityholders on the Distribution
Date immediately following the end of the Funding Period in the amounts and
pursuant to the priorities set forth in the related Prospectus Supplement. Any
reinvestment risk resulting from such prepayment will be borne entirely by the
holders of one or more Classes of the related Series of Securities. See "Trust
Fund Assets -- Pre-Funding Account" herein.

                                       24
<PAGE>
 
PRE-FUNDING ACCOUNTS MAY ADVERSELY AFFECT INVESTMENT

     The ability of the Issuer to acquire Subsequent Mortgage Collateral during
the Funding Period will be dependent upon the ability of the Depositor to
acquire Subsequent Mortgage Collateral that satisfies the requirements described
in the related Prospectus Supplement. Although such Subsequent Mortgage
Collateral must satisfy the characteristics described in the related Prospectus
Supplement, such Subsequent Mortgage Collateral may have certain different
characteristics, including, without limitation, a more recent origination date
than the initial Mortgage Collateral. As a result, the addition of such
Subsequent Mortgage Collateral pursuant to the Pre-Funding Account may adversely
affect the performance of the related Securities. See "Trust Fund Assets -- Pre-
Funding Account" herein.

CONSEQUENCES OF OID DISCOUNT SECURITIES

     All of the Deferred Interest Securities will be, and certain of the other
Securities may be, issued with OID for federal income tax purposes. A holder of
a Security issued with OID will be required to include OID in ordinary gross
income for federal income tax purposes as it accrues, in advance of receipt of
the cash attributable to such income. Accrued but unpaid interest on the
Deferred Interest Securities generally will be treated as OID for this purpose.
See "Federal Income Tax Considerations -- Original Issue Discount" and " --
Market Discount" herein.

                                       25
<PAGE>
 
                                 INTRODUCTION

     Thornburg Mortgage Funding Corporation, a Delaware corporation (the
"Company"), proposes to establish one or more trusts to issue and sell
Securities from time to time under this Prospectus and related Prospectus
Supplements. The Company is a limited purpose finance corporation whose capital
stock is wholly owned by Thornburg Mortgage Asset Corporation ("TMA"). TMA, a
Maryland corporation, has elected to be treated as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code"). The
Company was formed for the sole purpose of acting as the depositor of one or
more trusts to be formed for the purpose of issuing the Securities offered
hereby and by the related Prospectus Supplements. Each trust that is formed to
act as an Issuer will be created pursuant to an agreement between the Company
acting as depositor (in such capacity, the "Depositor"), and a bank, trust
company or other fiduciary, acting as owner trustee (the "Owner Trustee"). Each
trust will be established solely for the purpose of issuing one Series of
Securities and engaging in transactions relating thereto. Each Series of
Securities will be separately supported by the Trust Fund Assets consisting of
the Mortgage Collateral described in the Prospectus Supplement relating to such
Series, which Trust Fund Assets will constitute the only significant assets
available to make payments on the Securities of such Series. Accordingly, the
investment characteristics of a Series of Securities will be determined by the
Trust Fund Assets supporting such Series and will not be affected by the
identity of the obligor with respect to such Series of Securities. The term
"Issuer," as used herein, with respect to a Series of Securities refers to the
trust established by the Company for the sole purpose of issuing such Series of
Securities.

     Each Series of Bonds will be issued pursuant to a separate Indenture (the
"Indenture") between the Issuer of such Series and a bank or trust company
acting as trustee for the holders of such Bonds (the "Bond Trustee"). Each
series of Certificates will be issued pursuant to a separate Trust Agreement
(the "Trust Agreement") between the Depositor and a bank or trust company acting
as trustee (the "Certificate Trustee"). The Agreements and Trust Agreements for
Series of Securities offered hereby are referred to herein collectively as
"Agreements" and individually as an "Agreement." The terms Owner Trustee, Bond
Trustee and Certificate Trustee are used herein generally as "Trustee". The
terms Owner Trustee, Bond Trustee and Certificate Trustee are used herein
generally as "Trustee". A form of each Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. Each final
Agreement relating to each Series of Securities will be filed with the
Securities and Exchange Commission as soon as practicable following the issuance
of such Series of Securities.

                                       26
<PAGE>
 
                                  THE ISSUERS

GENERAL

     The Mortgage Collateral comprising the Trust Fund Assets supporting a
Series of Securities will have been deposited with the Issuer of such Series by
the Company which, in turn, will have either (i) received such collateral from
TMA (or an affiliate) as a contribution to the Company's capital or (ii)
acquired such collateral by purchase from TMA (or an affiliate) or another
entity or entities (in such capacity, each a "Seller"), as provided in the
related Prospectus Supplement, in exchange for the net proceeds from the
issuance of such Series plus the beneficial interest in the Issuer issuing such
Series. (References herein to TMA in its capacity as Seller shall be deemed to
include any affiliate of TMA acting in such capacity.) TMA acquires Mortgage
Loans in the normal course of its business from persons who have originated or
otherwise acquired such Mortgage loans. However, TMA and its affiliates
generally do not originate or service mortgage loans. TMA generally engages sub-
servicers with respect to Mortgage Loans that TMA acquires on a servicing-
released basis. None of the Mortgage Loans will represent an obligation of TMA.

     Any trust established to act as Issuer of a Series of Securities will be
created pursuant to a trust agreement between the Company and a bank, trust
company or other fiduciary acting as trustee. Under the terms of each trust
relating to a series of Bonds (a "Bond Issuer"), the Company initially will
retain the entire beneficial interest in the trust created thereunder unless
otherwise specified in the related Prospectus Supplement. The Company may
thereafter sell or assign all or a portion of such beneficial ownership to
another entity or entities unless prohibited from doing so by the related trust
agreement. The beneficial owners of each Bond Issuer will have no liability for
the obligations of the Issuer under the Bonds issued by it and holders of Bonds
of each Series will be deemed to have released the holders of beneficial
interest from any claim, liability or obligation on or with respect to the
Bonds. Each Bond Issuer will be managed by TMA. Under the terms of each trust
agreement creating a trust relating to a Series of Certificates (a "Certificate
Issuer"), the Company may retain or sell all of a portion of any Class of such
Series of Certificates.

     In connection with the issuance of each Series of Bonds, the related
Mortgage Collateral will be deposited by the Company with the Issuer of such
Series and pledged by such Issuer to the Bond Trustee under the related
Indenture to secure such Series of Bonds. The Agreements with respect to each
Series of Bonds will prohibit the incurrence of further indebtedness by the
Issuer of such Series of Bonds. The Bond Trustee will hold the Mortgage
Collateral for a Series of Bonds as security pledged only for that Series, and
holders of the Bonds of that Series will be entitled to the benefits of such
security pursuant to the terms of the Indenture.

     In connection with the issuance of each Series of Certificates, the Company
will deposit one or more Series of Bonds created for such purpose into the
issuer of such Series of Certificates by assigning the Bonds to the Certificate
Trustee under the related Trust Agreement for such Series of Certificates.  The
Trust Agreement with respect to such Series will prohibit the issuance of
additional Series of Certificates by that Issuer.  The Certificate Trustee will
hold the Bonds so designated as part of the Trust Fund Assets for such Series of
Certificates and the holders of such Series of Certificates will have beneficial
ownership of such Trust Fund Assets pursuant to the terms of the Trust
Agreement.

     Each trust agreement will provide that the related trust may not conduct
any activities other than those related to the issuance and sale of the
Securities of the particular Series issued by it and such other limited
activities as may be required in connection with reports and distributions to
holders of beneficial interests in the trust. No trust agreement will be subject
to amendment without the prior written consent of the Bond Trustee or
Certificate Trustee for the related Series, which consent may not be
unreasonably withheld if such amendment would not adversely affect the interests
of the Securityholders of such Series.

                                       27
<PAGE>
 
THE COMPANY

     The Company was incorporated in the State of Delaware on October ____,
1998 and is a limited purpose finance subsidiary of TMA. The Company is a
qualified real estate investment trust subsidiary.  TMA is a publicly owned real
estate investment trust. The Company's principal executive offices are located
at 119 East Marcy Street, Santa Fe, New Mexico 87501.  The Company's telephone
number is (505) 984-0200.

     TMA has agreed with the Company that TMA will not file or cause to be filed
any voluntary petition in bankruptcy against the Company or any trust created by
it until at least one year after the date on which the Securities have been paid
in full, if at all.

                                USE OF PROCEEDS

     The net proceeds to be received from the sale of the Securities of each
Series will be applied by the Company to the purchase or acquisition of the
related Trust Fund Assets or the payment of expenses incurred in connection with
the issuance of Securities and otherwise incurred in connection with the conduct
of the Company's operations.

                       MORTGAGE LOAN ACQUISITION PROGRAM

     The Mortgage Loans supporting any series of Securities will be deposited in
the related Trust by the Company, as Depositor. Such Mortgage Loans will be
acquired by the Company from TMA or its affiliates. TMA acquires the Mortgage
Loans both directly from unaffiliated Sellers in negotiated purchases and
through the secondary mortgage markets. TMA generally acquires pools of Mortgage
Loans having an aggregate principal amount of between $2 million and $400
million. All Mortgage Loans will have been originated by entities that satisfy
the criteria for originators of loans that are eligible for inclusion in
"mortgage related securities."

RE-UNDERWRITING STANDARDS

     Prior to bidding on a pool of Mortgage Loans, TMA analyzes the pool to
determine the quality of the underwriting standards employed by the originators,
and the credit worthiness of the borrowers and the Mortgaged Property. TMA also
analyzes the pool's characteristics for undue risks due to geographic
concentration, borrower and collateral types, and the percentage of large loans.
In the process of screening the pool based on those criteria, TMA uses an
adverse selection approach to generate a list of loans for further review,
generally consisting of from 10% to 100% of the Mortgage Loans in the pool. Once
TMA's bid has been accepted, TMA will select from the pool those loans likely to
present a risk of default (an "adverse selection"). A TMA employee, together
with an independent underwriter, will review each Mortgage Loan file represented
on the adverse selection list and in appropriate cases will view the property.

UNDERWRITING STANDARDS

     Unless otherwise specified in the related Prospectus Supplement, each
Seller either will represent and warrant that all Mortgage Loans originated
and/or sold by it to TMA or one of its affiliates will have been underwritten in
accordance with standards consistent with those utilized by mortgage lenders
generally during the period of origination or, except for the size of the
Mortgage Loan, substantially in accordance with the requirements of FNMA or
FHLMC. Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the value and
adequacy of the related Mortgaged Property as collateral. In general, a
prospective borrower applying for a Mortgage loan is required to fill out a
detailed application designed to provide to the underwriting officer pertinent
credit information. As part of the description of the borrower's financial
conditions, the borrower generally is required to provide a current list of
assets and liabilities and a

                                       28
<PAGE>
 
statement of income and expenses, as well as an authorization to apply for a
credit report which summarizes the borrower's credit history with local
merchants and lenders and any record of bankruptcy. In most cases, an employment
verification is obtained from an independent source (typically the borrower's
employer) which verification reports, among other things, the length of
employment with that organization, the current salary, and whether it is
expected that the borrower will continue such employment in the future. If a
prospective borrower is self-employed, the borrower may be required to submit
copies of signed tax returns. The borrower may also be required to authorize
verification of deposits at financial institutions where the borrower has demand
or savings accounts.

     The Company may elect to have the borrower's credit report reviewed, and a
credit score produced, by an independent credit-scoring firm, such as FICO. The
Company has not engaged FICO or discussed any such engagement with FICO. Credit
scores estimate, on a relative basis, which borrowers are most likely to default
on mortgage loans. Lower scores imply higher default risks relative to higher
scores. FICO scores are empirically derived from historical credit bureau data
and represent a numerical weighing of a borrower's credit characteristics over a
two-year period. A FICO score is generated through the statistical analysis of a
number of credit-related characteristics or variables. Common characteristics
include the following: the number of credit lines (trade lines), payment
history, past delinquencies, severity of delinquencies, current levels of
indebtedness, types of credit and length of credit history. Attributes are the
specific values of each characteristic. A scoreboard (the model) is created with
weights or points assigned to each attribute. An individual mortgage loan
applicant's credit score is derived by summing together the attribute weights
for the applicant.

     In determining the adequacy of the Mortgaged Property as collateral, an
appraisal is made of each property considered in financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed and to identify any items that
have not been completed. The appraisal is based on the market value of
comparable homes, the estimated rental income (if considered applicable by the
appraiser) and the cost of replacing the home. The value of the property being
financed, as indicated by the appraisal, must be such that it currently
supports, and is anticipated to support in the future, the outstanding loan
balance. The maximum Loan-to-Value Ratio is generally not expected to exceed
95%. Mortgage Loans with Loan-to-Value Ratios in excess of 80% at origination
may be covered by private mortgage insurance insuring the balance thereof. The
method of calculation the "Loan-to-Value" of a Mortgage Loan will be described
in the Prospectus Supplement for a Series of Securities supported by Mortgage
Loans. In addition, if set forth in the related Prospectus Supplement, certain
Mortgage Loans with loan-to-value ratios in excess of 80% may be secured by
additional collateral such as pledged securities accounts, cash equivalents, or
mortgages on other real property owned by the borrowers or other parties.

     Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (determined on the basis of
the monthly payments due in the year of origination) and other expenses related
to the Mortgaged Property (such as property taxes and hazard insurance) and (ii)
to meet monthly housing expenses and other financial obligations and monthly
living expenses. The maximum housing expense to income ratio referred to in (i)
is generally not expected to exceed 40% and the maximum debt to income ratio
described in (ii) is generally not expected to exceed 55%. The underwriting
standards applied by Sellers may be varied in appropriate cases where factors
such as low Loan-to-Value Ratios or other favorable credit issues exist.

     The Depositor expects that a portion of the Mortgage Loans it purchases
will be "jumbo" loans, i.e., mortgage loans that exceed the maximum balance for
purchase by FNMA or FHLMC.  Under current regulations, the maximum principal
balance allowed on mortgage loans eligible for purchase by FNMA or FHLMC ranges
from $227,150 ($340,725 for mortgage loans secured by mortgaged properties
located in either Alaska or Hawaii) for one-unit to $436,600 ($645,900 for
mortgage loans secured by mortgaged properties located in either Alaska or
Hawaii) for four-unit residential loans.  The maximum loan amount is generally
not expected to exceed $1,500,000 in the case of any of the foregoing types of
mortgage loans.

                                       29
<PAGE>
 
     A lender may originate mortgage loans under a reduced documentation
program. A reduced documentation program is designed to facilitate the loan
approval process and thereby improve the lender's competitive position among
other loan originators. Under a reduced documentation program, relatively more
emphasis is placed on property underwriting and a credit score than on a credit
underwriting. In that situation, certain underwriting documentation concerning
income and employment verification is waived.

     In the case of a mortgage loan secured by a leasehold interest in a real
property, the title to which is held by a third party lessor, generally, the
Seller will be required to represent and warrant, among other things, that the
remaining term of the lease and any sublease is at least 10 years longer term of
the mortgage loan.

     Certain of the types of mortgage loans which may be included in the
Mortgage Collateral are recently developed and may involve additional
uncertainties not present in traditional types of mortgage loans. For example,
certain of such Mortgage Loans are may provide for escalating or variable
payments by the mortgagor or obligor. These types of Mortgage Loans are
underwritten on the basis of a judgment that a mortgagors or obligors will have
the ability to make monthly payments required initially. In some instances,
however, a mortgagor's or obligor's income may not be sufficient to permit
continued loan payments as such payments increase. These types of mortgage loans
may also be underwritten primarily upon the basis of Loan-to-Value Ratios or
other favorable credit factors rather than on the borrower's credit standing or
income ratios.

QUALITY CONTROL

     The Depositor's parent, TMA, has developed a quality control program to
monitor the quality of mortgage loan underwriting at the time of acquisition and
on an ongoing basis. In general, Mortgage Loans purchased by TMA will be subject
to this quality control program.

     The legal document custodian of the Mortgage Loans will review each
Mortgage Loan acquired to verify the existence and completeness of the
information contained in the mortgage notes, security instruments and other
pertinent legal documents in the file.    See "Re-Underwriting Standard" above.

REPRESENTATIONS BY SELLERS; REPURCHASES

     In general, Sellers of Mortgage Loans will have made representations and
warranties in respect of the Mortgage Loans sold by such Seller and included in
the Mortgage Collateral supporting a Series of Securities. In connection with
the certain Mortgage Loans, or described in the related Prospectus Supplement,
the Seller may represent that to the best of Seller's knowledge, the hazard
insurance is in full force and effect. Such representations and warranties
generally include, among other things: (i) that title insurance (or in the case
of Mortgaged Properties located in areas where such policies are generally not
available, an attorney's certificate of title) and any required hazard insurance
policy and Primary Mortgage Insurance Policy (as defined herein) were effective
at the origination of each Mortgage Loan, and that each policy (or certificate
of title as applicable) remained in effect on the date of purchase of the
Mortgage Loan from the Seller by or on behalf of the Company; (ii) that the
Seller had good title to each such Mortgage Loan and such Mortgage Loan was
subject to no offsets, defenses, counterclaims or rights of rescission except to
the extent that any buydown agreement described herein may forgive certain
indebtedness of the obligors on such Pledged Mortgages (each, a "Mortgagor");
(iii) that each mortgage loan constituted a valid first or junior lien, as the
case may be, on the Mortgaged Property (subject only to permissible title
insurance exceptions, if applicable, and certain other exceptions described in
the Pooling and Servicing Agreement) and that the Mortgaged Property was free
from material damage and to the best of Seller's knowledge, was in good repair;
(iv) that there were no delinquent tax or assessment liens against the Mortgaged
Property (in connection with certain Mortgage Loans, as described in the related
Prospectus Supplement, such representation may be qualified to be based on the
best of the Seller's knolwedge.); (v) that no required payment on a mortgage
loan was 60 or more days delinquent at any time during the twelve months prior
to the date that TMA purchased the Mortgage Loan or the cut-off date set forth
in the related Mortgage Loan Purchase Agreement supporting a related Series of
Securities; and (vi) that each mortgage loan was made in compliance with, and is
enforceable under, all applicable local, state and federal laws and regulations
in all material respects.

                                       30
<PAGE>
 
     In general, if the Seller cannot cure a breach of any representation or
warranty made by it in respect of a Mortgage Loan that materially and adversely
affects the interests of the Securityholders in such related Class of Securities
within 90 days after notice of such breach, then such Seller will be obligated
to either (i) substitute a similar mortgage loan for such Mortgage Loan under
the conditions and within the time period specified in the related Prospectus
Supplement or (ii) repurchase such Mortgage Loan from the Issuer at a price (the
"Purchase Price") equal to 100% of the outstanding principal balance thereof as
of the date of the repurchase plus accrued interest thereon to the first day of
the month following the month in which such Mortgage Loan is repurchased at the
Mortgage Rate (less any unreimbursed advances or amount payable as related
servicing and/or master servicing compensation if the Seller is the Servicer
Master Servicer with respect to such Mortgage Loan). The Master Servicer will be
required under the applicable Master Servicing Agreement and applicable Mortgage
Loan Purchase Agreement to enforce this obligation for the benefit of the
applicable Trustee and the Securityholders, following the practices it would
employ in its good faith business judgment were it the owner of such Mortgage
Loan. These substitution or repurchase obligations will generally constitute the
sole remedies available to Securityholders or the applicable Trustee for a
breach of representation by a Seller. The Seller may be obligated to indemnify
the Issuer for certain enumerated lossed caused by the breach of the
representation or warranty. In addition, with respect to certain Mortgage Loans,
as set forth in therelated Prospectuys Supplement, the Seller may be obligated
to remedy a breach of a respresentation or warranty, notwithstanding that the
representation or warranty was made to the best of Seller's knowledge.

     TMA has in limited circumstances purchased Mortgage Loans without
representations or warranties from or against the Seller or the originator of
the Mortgage Loans. Such Mortgage Loans primarily were purchased from the
Resolution Trust Corporation or from thrift or banking institutions unable or
unavailable to provide such representations and warranties. Such Mortgage Loans
typically are loans seasoned for at least five years and acquired without
representations or warranties in connection with the termination of Mortgage
Pool securitizations of unaffiliated issuers. TMA made its decision to purchase
such Mortgage Loans on the basis of seasoning and payment history. In the event
of a default on such a Mortgage Loan, the Servicer would be unable to cause the
seller of such a Mortgage Loan to repurchase and the defaulted Mortgage Loan
would remain in the Trust Fund Assets. In that case, the Securityholders,
especially the holders of the Subordinated Classes of Securities supported by
such Trust Fund Assets could experience reduced or delayed interest or principal
payments. See the description of "Trust Fund Assets" in the related Prospectus
Supplement.

                               TRUST FUND ASSETS

GENERAL

     The Trust Fund Assets supporting each Series of Securities will consist of
collateral (the "Collateral") comprised of (i) the Mortgage Collateral included
in the Trust Fund Assets relating to such Series of Securities, (ii) funds on
deposit in the Bond Account and the Distribution Account under the Indenture for
such Series of Securities representing payments and prepayments on Mortgage
Collateral, including, to the extent applicable, all payments which may become
due under any applicable hazard, mortgage guaranty, mortgagor bankruptcy, title
insurance and bond insurance policies (collectively, the "Insurance Proceeds")
and the proceeds (the "Liquidation Proceeds") of foreclosure or settlement of
defaulted Mortgage Loans each as required to be remitted to the applicable
Trustee, (iii) cash, certificates of deposit, letters of credit, surety bonds,
reinvestment income, guaranteed investment contract or any combination thereof
in the aggregate amount, if any, specified in the related Prospectus Supplement
to be deposited by the Issuer in a related Reserve Fund, (iv) the amount of
cash, if any, specified in the related Prospectus Supplement, to be initially
deposited by the Issuer in the related Bond Account, (v) certain cash accounts,
insurance policies, surety bonds, reinvestment income, guarantees, letters of
credit, cross-collateralization or derivative arrangements, as specified herein
and in the related Prospectus Supplement, (vi) to the extent applicable, the
reinvestment income on all of the foregoing, (vii) the Issuer's rights under the
Mortgage Loan Purchase Agreement with respect to the Series of Securities,
(viii) amounts (excluding any reinvestment income thereon) deposited in the
related early remittance account, if any, under the Indenture for such Series of
Securities, and (ix) the issuer's rights under certain of the Mortgage Pool
Insurance Policies and/or Bond Insurance Policies obtained for such Series of

                                       31
<PAGE>
 
Securities. Scheduled payments on the Mortgage Collateral securing a Series of
Bonds and amounts, in any, initially deposited in the related Bond Account,
together with, to the extent applicable, amounts available to be withdrawn from
any related Reserve Fund, will be sufficient to make timely payments of interest
on the Bonds of such Series and to retire each Class of Bonds comprising such
Series not later than the Stated Maturity of such Class of Bonds specified in
the related Prospectus Supplement.

     The Trust Fund Assets for each Series of Certificates will consist
primarily of one or more Bonds representing the right to receive all or
substantially all of the payments on the Mortgage Collateral securing such
Series of Bonds. Each Series of Certificates will accordingly be supported by
the Mortgage Collateral and other items included in the Trust Fund Assets for
the related Series of Bonds.

     Each Prospectus Supplement relating to a Series of Securities will include
information as to (i) the approximate aggregate principal amount of the Mortgage
Collateral supporting such Series and whether the Mortgage Collateral consists
of Mortgage Loans, GNMA Certificates, FNMA Certificates, FHLMC Certificates or
some combination of Mortgage Loans Non-Agency Securities and Agency Securities
and (ii) the approximate weighted average terms to maturity of such Mortgage
Collateral.

     The Mortgage Collateral supporting each Series of Securities will serve as
Trust Fund Assets only for the Series of Securities, except to the extent that
any Mortgage Pool Insurance Policies, Special Hazard Insurance Policies,
Bankruptcy Bonds or other form of credit enhancement specified herein, if
specified in the related Prospectus Supplement may be pledged or transferred to
support more than one Series of Securities.  See "Credit Enhancement" herein.

     The following is a brief description of the Mortgage Collateral expected to
be included in the Trust Fund Assets for a Series of Securities. If specific
information respecting the Mortgage Collateral is not known at the time the
related Series of Securities initially is offered, more general information of
the nature described below will be provided in the related Prospectus
Supplement, and specific information will be set forth in a report on Form 8-K
to be filed with the Securities and Exchange Commission within fifteen days
after the initial issuance of such Securities (the "Detailed Description"). A
schedule of the Mortgage Collateral relating to such Series of Securities will
be attached to the applicable Agreement upon issuance of the Securities.

THE MORTGAGE LOANS

     GENERAL. All of the Mortgage Loans will be transferred to the Company by
TMA (or an affiliate) or acquired by the Company or from another Seller will be
serviced either by the Seller or a Servicer contracted by TMA, and will be
master serviced by the Master Servicer specified in the related Prospectus
Supplement. See "Servicing of the Mortgage Loans" herein. Mortgage Loans
contributed to or acquired by the Company will have been originated in
accordance with the underwriting criteria specified under "Mortgage Loan
Acquisition --Underwriting Standards" herein and in the related Prospectus
Supplement. The Mortgage Loans supporting a Series of Securities will consist
primarily of loans secured by first liens on one- to four-family residential
properties. These Mortgage Loans may consist of conventional Mortgage Loans that
comply with requirements for inclusion in certain programs sponsored by the
FHLMC or FNMA, and FHA Loans and VA Loans. TMA primarily acquires nonconforming
first priority Mortgage Loans from Sellers. The nonconforming Mortgage Loans
will be conventional Mortgage Loans that vary in one or more respects from the
requirements for participation in FHLMC or FNMA programs. See "Certain Legal
Aspects of Mortgage Loans -- General" herein. The real property constituting
security for repayment of a Mortgage Loan (each, a "Mortgaged Property") may be
located in any one of the fifty states, the District of Columbia, Guam, Puerto
Rico, or any other territory of the United States as specified in the related
Prospectus Supplement. Mortgage Loans with certain Loan-to-Value Ratios as of
the date of the Company's acquisition may be covered wholly or partially by
primary mortgage insurance policies (each, a "Primary Mortgage Insurance
Policy"). The existence, extent and duration of any such coverage will be
described in the applicable Prospectus Supplement.

     

                                       32
<PAGE>
 
     Unless otherwise specified in the related Prospectus Supplement, all of the
Mortgage Loans supporting a Series of Securities will have monthly payments due
on the first day of each month. Such monthly installments on each such Mortgage
Loan, net of (i) applicable servicing compensation and master servicing
compensation, (ii) amounts retained by the Master Servicer and/or Servicer (as
defined herein) to be applied to the payment of premiums for certain Mortgage
Pool Insurance Policies and, if applicable, bond insurance policies and (iii)
amounts retained to reimburse the Master Servicer and/or Servicer for certain
advances it has made, will be payable to the Trustee by the Master Servicer on
or before the monthly remittance date specified in the Prospectus Supplement
relating to the Series of Bonds secured by such Mortgage Loans (each, a
"Remittance Date").  See "Servicing of the Mortgage Loans -- Payments on
Mortgage Loans" and " -- Advances and Other Amounts Payable by Master Servicer"
herein.  The payment terms of the Mortgage Loans supporting a Series of
Securities will be described in the related Prospectus Supplement and may
include any of the following features or combination thereof or other features
described in the related Prospectus Supplement:

     (a)  Interest may be payable at a fixed rate, a rate adjustable from time
          to time in relation to an index (which will be specified in the
          related Prospectus Supplement), a rate that is fixed for a period of
          time or under certain circumstances and is followed by an adjustable
          rate, a rate that otherwise varies from time to time, or a rate that
          is convertible from an adjustable rate to a fixed rate. Changes to an
          adjustable rate may be subject to periodic limitations, maximum rates,
          minimum rates or a combination of such limitations as set forth in the
          related Mortgage Note. Accrued interest may be deferred and added to
          the principal of a Mortgage Loan for such periods and under such
          circumstances as may be specified in the related Prospectus
          Supplement. A Mortgage Note may provide for the payment of interest at
          a rate lower than the Mortgage Rate specified in such Mortgage Note
          for a period of time or for the life of the Mortgage Loan and the
          amount of any difference may be contributed from funds supplied by the
          seller of the Mortgaged Property or another source. A Mortgage Note
          may also provide for the conversion, at a specified time, of the
          applicable interest rate from an adjustable rate to a fixed rate at
          the election of the borrower. The borrower will typically pay a fee in
          order to exercise such option.

     (b)  Principal may be payable on a level debt service basis to fully
          amortize the Mortgage Loan over its term, may be calculated on the
          basis of an assumed amortization schedule that is significantly longer
          than the original term to maturity or on an interest rate that is
          different from the Mortgage Rate or may not be amortized during all or
          a portion of the original term. Payment of all or a substantial
          portion of the principal may be due on maturity ("balloon payments").
          Principal includes any interest that has been deferred and added to
          the principal balance of the Mortgage Loan.

     (c)  Monthly payments of principal and interest may be fixed for the life
          of the Mortgage Loan, may increase over a specified period of time or
          may change from period to period. The terms of a Mortgage Loan may
          include limits on periodic increases or decreases in the amount of
          monthly payments and may include maximum or minimum amounts of monthly
          payments.

     (d)  The Mortgage Loans may be prepaid (i) at any time without the payment
          of any prepayment fee or (ii) subject to a prepayment fee, which may
          be fixed for the life of any such Mortgage Loan or may decline over
          time. In some cases, prepayment may be prohibited for the life of the
          Mortgage Loan or for certain periods ("lockout periods"). Certain
          Mortgage Loans may permit prepayments after expiration of the
          applicable lockout period and may require the payment of a prepayment
          fee in connection with any such subsequent prepayment. Other Mortgage
          Loans may permit prepayments without payment of a fee unless the
          prepayment occurs during specified time periods. The Mortgage Loans
          may include "due-on-sale" clauses that permit the mortgagee to demand
          payment of the entire Mortgage Loan in connection with the sale or
          certain transfers of the related Mortgaged Property. Other Mortgage
          Loans may be assumable by persons meeting the then applicable
          underwriting standards. See "Mortgage Loan Acquisition -- Underwriting
          Standards" herein. Enforcement of the provisions of the Mortgage Loans
          is subject to applicable local law.

                                       33
<PAGE>
 
     The Mortgage Collateral supporting a Series of Securities may include
certain Mortgage Loans ("Buydown Loans") that include provisions whereby a third
party partially subsidizes the monthly payments of the Mortgagors during the
early years of such Mortgage Loans, the difference to be made up from a fund (a
"Buydown Fund") contributed by such third party at the time of origination of
the Mortgage Loan. A Buydown Fund will be in an amount equal either to the
discounted value or full aggregate amount of future payment subsidies. The
underlying assumption of buydown plans is that the income of the Mortgagor will
increase during the buydown period as a result of normal increases in
compensation and inflation, so that the Mortgagor will be able to meet the full
mortgage payments at the end of the buydown period. To the extent that this
assumption as to increased income is not fulfilled, the possibility of defaults
on Buydown Loans is increased. The related Prospectus Supplement will contain
information with respect to any Buydown Loan concerning limitations on the
interest rate paid by the Mortgagor initially, on annual increases in the
interest rate and on the length of the buydown period.

     Mortgage Loans will consist primarily of mortgage loans secured by first
mortgage liens or deeds of trust on one-to four-family residential properties.
Under certain circumstances, TMA may in the future acquire Mortgage Loans
secured by junior liens.  If provided in the related Prospectus Supplement,
certain of the Mortgage Loans may be secured by junior liens where the related
senior liens ("Senior Liens") are not to be included as part of the Mortgage
Collateral.  Holders of such Mortgage Loans secured by junior liens are subject
to the risk that adequate funds will not be received in connection with a
foreclosure of the related Senior Liens to satisfy fully both the Senior Liens
and the Mortgage Loans.  In the event that a holder of a Senior Lien forecloses
on a Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens.  The claims of the holders
of the Senior Liens will be satisfied in full out of proceeds of the liquidation
of the related Mortgaged Property, if such proceeds are sufficient, before the
Issuer as holder of the junior lien receives any payments in respect of the
Mortgage Loan.  If the Master Servicer or a Servicer were to foreclose on any
such Mortgage Loan, it would do so subject to any related Senior Liens.  In
order for the debt related to the Mortgage Loan to be paid in full at such sale,
a bidder at the foreclosure sale of such Mortgage Loan would have to bid an
amount sufficient to pay off all sums due under the Mortgage Loan and the Senior
Liens or purchase the Mortgaged Property subject to the Senior Liens.  In the
event that such proceeds from a foreclosure or similar sale of the related
Mortgaged Property are insufficient to satisfy all Senior Liens and the Mortgage
Loan in the aggregate, the Issuer, as the holder of the junior liens, and,
accordingly, holders of one or more Classes of the Securities of the related
Series, bear (i) the risk of delay in distributions while a deficiency judgment
against the borrower is obtained and (ii) the risk of loss if the deficiency
judgment is not realized upon.  Moreover, deficiency judgments may not be
available in certain jurisdictions or the Mortgage Loan may be nonrecourse.  In
addition, a junior mortgagee may not foreclose on the property secured by a
junior mortgage unless it forecloses subject to the senior mortgages.  At
present TMA does not acquire significant amounts of Mortgage Loans secured by
junior liens but may increase its acquisition of junior mortgages in the future.
At a minimum, TMA will require Loan-to-Value Ratios of 80% or lower and a FICO
score greater than 680 for the borrower with respect to Mortgage Loans secured
by junior liens.

     The Mortgaged Properties relating to Mortgage Loans will consist of
detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units, units in
housing cooperatives, individual units in planned unit developments and certain
other dwelling units.  Such Mortgaged Properties may include vacation and second
homes and investment properties. In addition, the Mortgaged Properties may be
owned by the borrower in fee simple or may be leasehold interests.  In the case
of leasehold interests, the term of the leasehold will exceed the scheduled
maturity of the Mortgage Loans by at least ten years, or such other period
specified in the related Prospectus Supplement.

     Each Prospectus Supplement will contain information, as of the date of such
Prospectus Supplement and to the extent then specifically known to the Company,
with respect to the Mortgage Loans supporting the related Series of Securities,
including (i) the aggregate outstanding principal balance and the average
outstanding principal balance of the Mortgage Loans as of the date included in
the Mortgage Collateral supporting the related Series of Securities, (ii) the
types of property securing the Mortgage Loans, (iii) the original terms to
maturity of the Mortgage Loans, 

                                       34
<PAGE>
 
(iv) the earliest origination date and latest maturity date of any of the
Mortgage Loans, (v) the maximum and minimum per annum Mortgage Rates and (vi)
the geographical distribution of the Mortgage Loans.

     No assurance can be given that values of the Mortgaged Properties as of the
date of acquisition by the Company will remain constant throughout the life of
the Mortgage Loans. If the residential real estate market should experience an
overall decline in property values such that the outstanding principal balances
of the Mortgage Loans, and any secondary financing on the Mortgaged Properties,
supporting a Series of Securities become equal to or greater than the value of
the Mortgaged Properties, the actual rates of delinquencies, foreclosures and
losses could be higher than those now generally experienced in the mortgage
lending industry. In addition, adverse economic conditions and other factors
(which may or may not affect real property values) may affect the timely payment
by Mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to any Mortgage Collateral. To the extent that such losses
are not covered by subordination provisions, any other credit enhancement or
alternative arrangements described herein and in the related Prospectus
Supplement, such losses will be borne, at least in part, by the holders of the
Securities of the related Series.

     ASSIGNMENT OF MORTGAGE LOANS TO TRUSTEE.  Assignments of the mortgages or
deeds of trust in recordable form, naming the Trustee as assignee, will be
executed and, subject to release for recording purposes, delivered to the
Trustee along with certain other original documents evidencing the Mortgage
Loans, including the related Mortgage Notes. The original mortgage documents
will be held by the Trustee or its custodian, except to the extent released to
the Master Servicer or any Servicer from time to time in connection with its
respective servicing activities. In the event an assignment of a Mortgage Loan
to the Trustee is deemed necessary and is not recorded or the opinion referred
to above is not delivered to the Trustee within the period specified in the
related Prospectus Supplement, TMA, may, if required by the Trustee in
accordance with the terms of the Indenture, be obligated to (i) purchase such
Mortgage Loan at a price equal to the outstanding principal balance thereof on
the date of such purchase plus accrued and unpaid interest thereon to the first
day of the month following the month in which such Mortgage Loan is purchased
and deposit such amount in the Bond Account for such Series of Securities or
(ii) if permitted by the applicable provisions of the Indenture and the Mortgage
Loan Purchase Agreement with respect to such Series of Securities, replace such
Mortgage Loan with an eligible substitute mortgage loan (an "Eligible Substitute
Mortgage Loan").  See " -- Substitution of Mortgage Collateral" herein.

     The Master Servicer will service the Mortgage Loans, either directly or
through other mortgage servicing institutions ("Servicers"), pursuant to a
Master Servicing Agreement (as defined herein), and will receive a fee for such
services. See "Mortgage Loan Acquisition" and "Servicing of the Mortgage Loans"
herein. With respect to Mortgage Loans serviced by the Master Servicer through a
Servicer, the Master Servicer will remain liable for its servicing obligations
under the related Master Servicing Agreement as if the Master Servicer alone
were servicing such Mortgage Loans.  The Master Servicer will receive fees as
specified in the related Master Servicing Agreement and the Servicers will
receive fees in accordance with the applicable Servicing Agreement.

     The obligations of the Master Servicer with respect to the Mortgage Loans
will consist principally of its contractual master servicing obligations under
the related Master Servicing Agreement (including its obligation to enforce the
obligations of the Servicers) as more fully described herein under "Mortgage
Loan Acquisition--Representations by Sellers; Repurchases" and its obligation to
make certain cash advances in the event of delinquencies in payments on or with
respect to the Mortgage Loans in the amounts described herein under "Servicing
of the Mortgage Loans--Advances and Other Amounts Payable by Master Servicer"
herein. The obligations of the Master Servicer to make advances may be subject
to limitations, to the extent provided herein and in the related Prospectus
Supplement.

                                       35
<PAGE>
 
AGENCY SECURITIES

     GENERAL.  The Agency Securities supporting a Series of Securities will
consist of (i) fully modified pass-through mortgage-backed certificates
guaranteed as to timely payment of principal and interest by the Government
National Mortgage Association ("GNMA Certificates"), (ii) certificates
("Guaranteed Mortgage Pass-Through Certificates") issued and guaranteed as to
timely payment of principal and interest by the Federal National Mortgage
Association ("FNMA Certificates"), (iii) mortgage participation certificates
issued and guaranteed as to timely payment of interest and, unless otherwise
specified in the related Prospectus Supplement, ultimate payment of principal by
the Federal Home Loan Mortgage Corporation ("FHLMC Certificates"), (iv) stripped
mortgage-backed securities representing an undivided interest in all or a part
of either the principal distributions (but not the interest distributions) or
the interest distributions (but not the principal distributions) or in some
specified portion of the principal and interest distributions (but not all of
such distributions) on certain GNMA, FNMA or FHLMC Certificates and, unless
otherwise specified in the related Prospectus Supplement, guaranteed to the same
extent as the underlying securities, (v) another type of pass-through
certificate issued or guaranteed by GNMA, FNMA or FHLMC and described in the
related Prospectus Supplement or (vi) a combination of such Agency Securities.

     GNMA CERTIFICATES.  GNMA is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development. Section
306(g) of Title III of the National Housing Act of 1934, as amended (the
"Housing Act"), authorizes GNMA to guarantee the timely payment of the principal
of, and interest on, GNMA Certificates that represent an interest in a pool of
mortgage loans insured by the FHA under the Housing Act or Title V of the
Housing Act of 1949 ("FHA Loans"), or partially guaranteed by the VA under the
Servicemen's Readjustment Act of 1944, as amended, or Chapter 37 of Title 38,
United States Code ("VA Loans").

     Section 306(g) of the Housing Act provides that "the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection." In order to meet
its obligations under such guaranty, GNMA may, under Section 306(d) of the
Housing Act, borrow from the United States Treasury in an unlimited amount which
is at any time sufficient to enable GNMA to perform its obligations under its
guaranty.

     Each GNMA Certificate pledged to secure a Series of Securities (which may
be issued under either the GNMA I program (each such certificate, a "GNMA I
Certificate") or the GNMA II program (each such certificate, a "GNMA II
Certificate")) will be a "fully modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking company or other financial
concern ("GNMA Issuer") approved by GNMA or by FNMA as a seller-servicer of FHA
Loans and/or VA Loans. The mortgage loans underlying the GNMA Certificates will
consist of FHA Loans and/or VA Loans. Each such mortgage loan is secured by a
one- to four-family or multifamily residential property. GNMA will approve the
issuance of each such GNMA Certificate in accordance with a guaranty agreement
(a "Guaranty Agreement") between GNMA and the GNMA Issuer. Pursuant to its
Guaranty Agreement, a GNMA Issuer will be required to advance its own funds in
order to make timely payments of all amounts due on each such GNMA Certificate
if the payments received by the GNMA Issuer on the FHA Loans or VA Loans
underlying each such GNMA Certificate are less than the amounts due on each such
GNMA Certificate.

     The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States. Each such GNMA Certificate will have an
original maturity of not more than 30 years (but may have original maturities of
substantially less than 30 years). Each such GNMA Certificate will be based on
and backed by a pool of FHA Loans or VA Loans secured by one- to four-family
residential properties and will provide for the payment by or on behalf of the
GNMA Issuer to the registered holder of such GNMA Certificate of scheduled
monthly payments of principal and interest equal to the registered holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payment on each FHA Loan or VA Loan underlying such GNMA Certificate,
less the applicable servicing and guaranty fee, which together equal the
difference between the interest on the FHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any 

                                       36
<PAGE>
 
prepayments of principal on the FHA Loans or VA Loans underlying such GNMA
Certificate and liquidation proceeds in the event of a foreclosure or other
disposition of any such FHA Loans or VA Loans.

     If a GNMA Issuer is unable to make the payments on a GNMA Certificate as it
becomes due, it must promptly notify GNMA and request GNMA to make such payment.
Upon notification and request, GNMA will make such payments directly to the
registered holder of such GNMA Certificate. In the event no payment is made by a
GNMA Issuer and the GNMA Issuer fails to notify and request GNMA to make such
payment, the holder of such GNMA Certificate will have recourse only against
GNMA to obtain such payment. The  Securities Trustee or its nominee, as
registered holder of the GNMA Certificates included in the Trust Fund Assets
supporting a Series of Securities will have the right to proceed directly
against GNMA under the terms of the Guaranty Agreements relating to such GNMA
Certificates for any amounts that are not paid when due.

     All mortgage loans underlying a particular GNMA I Certificate must have the
same interest rate (except for pools of mortgage loans secured by manufactured
homes) over the term of the loan. The interest rate on such GNMA I Certificate
will equal the interest rate on the mortgage loans included in the pool of
mortgage loans underlying such GNMA I Certificate, less one-half percentage
point per annum of the unpaid principal balance of the mortgage loans.

     Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).

     Regular monthly installment payments on each GNMA Certificate included in
the Trust Fund Assets supporting a Series of Bonds will be comprised of interest
due as specified on such GNMA Certificate plus the scheduled principal payments
on the FHA Loans or VA Loans underlying such GNMA Certificate due on the first
day of the month in which the scheduled monthly installments on such GNMA
Certificate are due. Such regular monthly installments on each such GNMA
Certificate are required to be paid to the registered holder by the 15th day of
each month in the case of a GNMA I Certificate and are required to be mailed to
the registered holder by the 20th day of each month in the case of a GNMA II
Certificate. Any principal prepayments on any FHA Loans or VA Loans underlying a
GNMA Certificate included in the Trust Fund Assets supporting a Series of
Securities or any other early recovery of principal on such loans will be passed
through to the registered holder of such GNMA Certificate.

     GNMA Certificates included in the Trust Fund Assets may be backed by
graduated payment mortgage loans or by Buydown Loans for which funds will have
been provided (and deposited into escrow accounts) for application to the
payment of a portion of the borrowers' monthly payments during the early years
of such mortgage loan. Payments due the registered holders of GNMA Certificates
backed by pools containing Buydown Loans will be computed in the same manner as
payments derived from other GNMA Certificates and will include amounts to be
collected from both the borrower and the related escrow account. The graduated
payment mortgage loans will provide for graduated interest payments that, during
the early years of such mortgage loans, will be less than the amount of stated
interest on such mortgage loans. The interest not so paid will be added to the
principal of such graduated payment mortgage loans and, together with interest
thereon, will be paid in subsequent years. The obligations of GNMA and of a GNMA
Issuer will be the same irrespective of whether the GNMA Certificates are backed
by graduated payment mortgage loans or Buydown Loans. No statistics comparable
to the FHA's prepayment experience on level payment, non-"buydown" mortgage
loans are available in respect of graduated payment or Buydown Loans. GNMA
Certificates related to a Series of Bonds may he held in book-entry form.

     The GNMA Certificates supporting a Series of Securities, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.

     FNMA CERTIFICATES.  FNMA is a federally chartered and privately owned
corporation organized and existing under the Federal National Mortgage
Association Charter Act, as amended. FNMA originally was established in 1938 

                                       37
<PAGE>
 
as a United States government agency to provide supplemental liquidity to the
mortgage market and was transformed into a stockholder-owned and privately-
managed corporation by legislation enacted in 1968.

     FNMA provides funds to the mortgage market primarily by purchasing mortgage
loans from lenders, thereby replenishing their funds for additional lending.
FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital-surplus to capital-short areas.

     FNMA Certificates are Guaranteed Mortgage Pass-Through Certificates
representing fractional undivided interests in a pool of mortgage loans formed
by FNMA. Each mortgage loan generally must meet the applicable standards of the
FNMA purchase program. Mortgage loans comprising a pool are either provided by
FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program.

     Mortgage loans underlying the FNMA Certificates included in the Trust Fund
Assets supporting a Series of Securities will consist of conventional loans, FHA
Loans or VA Loans. Original maturities of substantially all of the conventional,
level payment mortgage loans underlying a FNMA Certificate are expected to be
between either 8 to 15 years or 20 to 40 years. The original maturities of
substantially all of the fixed rate, level payment FHA Loans or VA Loans are
expected to be 30 years.

     Mortgage loans underlying a FNMA Certificate may have annual interest rates
that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate is equal to the lowest interest rate of
any mortgage loan in the related pools, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Under a
regular servicing option (pursuant to which the mortgagee or each other servicer
assumes the entire risk of foreclosure losses), the annual interest rates on the
mortgage loans underlying a FNMA Certificate will be between 50 basis points and
250 basis points greater than is its annual pass-through rate and under a
special servicing option (pursuant to which FNMA assumes the entire risk for
foreclosure losses), the annual interest rates on the mortgage loans underlying
a FNMA Certificate will generally be between 55 basis points and 255 basis
points greater than the annual FNMA Certificate pass-through rate. One "basis
point" is equal to one-hundredth of a percentage point (0.01%). If specified in
the related Prospectus Supplement, FNMA Certificates may be backed by adjustable
rate mortgages.

     FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guaranties are obligations solely of FNMA and are not backed by, or entitled
to, the full faith and credit of the United States. Although the Secretary of
the Treasury of the United States has discretionary authority to lend FNMA up to
$2.25 billion outstanding at any time, neither the United States nor any agency
thereof is obligated to finance FNMA's operations or to assist FNMA in any other
manner. If FNMA were unable to satisfy its obligations, distributions to holders
of FNMA Certificates would consist solely of payments and other recoveries on
the underlying mortgage loans and accordingly, monthly distributions to holders
of FNMA Certificates would be affected by delinquent payments and defaults on
such mortgage loans.

     FNMA Certificates evidencing interests in pools of mortgage loans formed on
or after May 1, 1985 (other than FNMA Certificates backed by pools containing
graduated payment mortgage loans or mortgage loans secured by multifamily
projects) are available in book-entry form only. Distributions of principal and
interest on each FNMA Certificate will be made by FNMA on the 25th day of each
month to the persons in whose name the FNMA Certificate is entered in the books
of the Federal Reserve Banks (or registered on the FNMA Certificate register in
the case of fully registered FNMA Certificates) as of the close of business on
the last day of the preceding month. With respect to FNMA Certificates issued in
book-entry form, distributions thereon will be made by wire, and with respect to
fully registered FNMA Certificates, distributions thereon will be made by check.

                                       38
<PAGE>
 
     The FNMA Certificates supporting a Series of Securities, and the related
underlying mortgage loans, may have characteristics and terms different from
those described above. Any such different characteristics and terms will be
described in the related Prospectus Supplement.

     FHLMC CERTIFICATES.  FHLMC is a corporate instrumentality of the United
States created pursuant to Title III of the Emergency Home Finance Act of 1970,
as amended (the "FHLMC Act"). The common stock of FHLMC is publicly traded.
FHLMC was established primarily for the purpose of increasing the availability
of mortgage credit for the financing of urgently needed housing. It seeks to
provide an enhanced degree of liquidity for residential mortgage investments
primarily by assisting in the development of secondary markets for conventional
mortgages. The principal activity of FHLMC currently consists of the purchase of
first lien, conventional mortgage loans or participation interests in such
mortgage loans and the sale of the mortgage loans or participation so purchased
in the form of guaranteed mortgage securities, primarily FHLMC Certificates.
FHLMC is confined to purchasing, so far as practicable, mortgage loans that it
deems to be of such quality, type and class as to meet generally the purchase
standards imposed by private institutional mortgage investors.

     Each FHLMC Certificate represents an undivided interest in a pool of
mortgage loans that may consist of first lien Conventional Loans, FHA Loans or
VA Loans. FHLMC Certificates are sold under the terms of a Mortgage
Participation Certificate Agreement. A FHLMC Certificate may be issued under
either FHLMC's Cash Program or Guarantor Program.

     Mortgage loans underlying the FHLMC Certificates supporting a Series of
Securities will generally consist of mortgage loans with original terms to
maturity of between 10 and 40 years. Each such mortgage loan must meet the
applicable standards set forth in the FHLMC Act. A FHLMC Certificate group may
include whole loans, participation interests in whole loans and undivided
interests in whole loans and/or participation comprising another FHLMC
Certificate group. Under the Guarantor Program, any such FHLMC Certificate group
may include only whole loans or participation interests in whole loans.

     FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable certificate interest rate on the registered holder's pro rata share
of the unpaid principal balance outstanding on the underlying mortgage loans in
the FHLMC Certificate group represented by such FHLMC Certificate, whether or
not received. FHLMC also guarantees to each registered holder of a FHLMC
Certificate collection by such holder of all principal on the underlying
mortgage loans, without any offset or deduction, to the extent of such holder's
pro rata share thereof, but does not, except if and to the extent specified in
the related Prospectus Supplement for a Series of Bonds, guarantee the timely
payment of scheduled principal. Under FHLMC's Gold PC Program, FHLMC guarantees
the timely payment of principal based on the difference between the pool factor
published in the month preceding the month of distribution and the pool factor
published in such month of distribution. Pursuant to its guaranties, FHLMC
indemnifies holders of FHLMC Certificates against any diminution in principal by
reason of charges for property repairs, maintenance and foreclosure. FHLMC may
remit the amount due on account of its guaranty of collection of principal at
any time after default on an underlying mortgage loan, but not later than (i) 30
days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of any
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans that it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor and FHLMC has not adopted standards which
require that the demand be made within any specified period.

     FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guaranty are obligations solely of FHLMC and are not backed by, or entitled to,
the full faith and credit of the United States. If FHLMC were unable to satisfy
such obligations, distributions to holders of FHLMC 

                                       39
<PAGE>
 
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
FHLMC Certificates would be affected by delinquent payments and defaults on such
mortgage loans.

     Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial prepayments of principal and principal received by FHLMC by virtue of
condemnation, insurance, liquidation or foreclosure and repurchases of the
mortgage loans by FHLMC or the seller thereof. FHLMC is required to remit each
registered FHLMC Certificateholder's pro rata share of principal payments on the
underlying mortgage loans, interest at the FHLMC pass-through rate and any other
sums such as prepayment fees, within 60 days of the date on which such payments
are deemed to have been received by FHLMC.

     Under FHLMC's Cash Program, there is no limitation on the amount by which
interest rates on the mortgage loans underlying a FHLMC Certificate may exceed
the pass-through rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans from sellers at specified percentages
of their unpaid principal balances, adjusted for accrued or prepaid interest,
which when applied to the interest rate of the mortgage loans and participation
purchased results in the yield (expressed as a percentage) required by FHLMC.
The required yield, which includes a minimum servicing fee retained by the
servicer, is calculated using the outstanding principal balance. The range of
interest rates on the mortgage loans and participation in a FHLMC Certificate
group under the Cash Program will vary since mortgage loans and participation
are purchased and assigned to a FHLMC Certificate group based upon their yield
to FHLMC rather than on the interest rate on the underlying mortgage loans.
Under FHLMC's Guarantor Program, the pass-through rate on a FHLMC Certificate is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guaranty income as agreed upon between the seller and FHLMC.

     FHLMC Certificates duly presented for registration of ownership on or
before the last business day of a month are registered effective as of the first
day of the month. The first remittance to a registered holder of a FHLMC
Certificate will be distributed so as to be received normally by the 15th day of
the second month following the month in which the purchaser became a registered
holder of such FHLMC Certificate. Thereafter, such remittance will be
distributed monthly to the registered holder so as to be received normally by
the 15th day of each month. The Federal Reserve Bank of New York maintains book-
entry accounts with respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, and makes payments of principal and interest each month to the
registered holders thereof in accordance with such holders' instructions.

NON-AGENCY SECURITIES

     GENERAL.  Trust Fund Assets supporting a Series of Securities may consist,
in whole or in part, of (a) Non-Agency Securities that include pass-through
certificates representing beneficial interests in loans of that type that would
otherwise be eligible to be Mortgage Loans (the "Underlying Loans") or (b)
collateralized obligations secured by Underlying Loans.  Such pass-through
certificates or collateralized obligations will have previously been (i) offered
and distributed to the public pursuant to an effective registration statement or
(ii) purchased in a transaction not involving any public offering from a person
who is not an affiliate of the issuer of such securities at the time of sale
(nor an affiliate thereof at any time during the two preceding months); provided
a period of three years elapsed since the later of the date the securities were
acquired from the issuer or an affiliate thereof.  Although individual
Underlying Loans may be insured or guaranteed by the United States or an agency
or instrumentality thereof; they need not be, and Non-Agency Securities
themselves will not be, so insured or guaranteed.

     Non-Agency Securities will have been issued pursuant to a pooling and
servicing agreement, a trust agreement or similar agreement (a "PS Agreement").
The seller/servicer of the Underlying Loans will have entered into the PS
Agreement with the trustee under such PS Agreement (the "PS Trustee").  The PS
Trustee or its agent, or a custodian, will possess the Underlying Loans.
Underlying Loans will be serviced by a servicer (the "PS Servicer") directly or
by one or more sub-servicers who may be subject to the supervision of the PS
Servicer.

                                       40
<PAGE>
 
     The sponsor of the Non-Agency Securities (the "PS Sponsor") will be a
financial institution or other entity engaged  generally in the business of
lending; a public agency or instrumentality of a state, local or federal
government; or a limited purpose corporation organized for the purpose of, among
other things, establishing trusts and acquiring and selling loans to such
trusts, and selling beneficial interest in such trusts.  If so specified in the
Prospectus Supplement, the PS Sponsor may be an affiliate of the Depositor.  The
obligations of the PS Sponsor will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust.  Unless otherwise specified in the related trust or any of the
Non-Agency Securities issued under the  PS Agreement, the PS Sponsor will have
guaranteed any of the assets conveyed to the related trust or any of the Non-
Agency Securities issued under the PS Agreement.  Additionally, although the
Underlying Loans may be guaranteed by an agency or instrumentality of the United
States, the Non-Agency Securities themselves will not be so guaranteed.

     Distribution of principal and interest will be made on the Non-Agency
Securities on the dates specified in the related Prospectus Supplement.  The
Non-Agency Securities may be entitled to receive nominal or no principal
distributions or nominal or interest distributions.  Principal and interest
distributions will be made on the Non-Agency Securities by the PS Servicer.  The
PS Sponsor or the PS Servicer may have the right to repurchase the Underlying
Loans after a certain date or under other circumstances specified in the related
Prospectus Supplement.

     The Underlying Loans may be fixed rate, level payment, fully amortizing or
adjustable rate loans or loans having balloon or other irregular payment
features.  Such underlying Loans will be secured by mortgage liens or deeds of
trust on residential properties.

     CREDIT SUPPORT RELATING TO NON-AGENCY SECURITIES.  Credit support in the
form of Reserve Funds, subordination of other Non-Agency Securities issued under
the PS Agreement, guarantees, cash, collateral accounts, Security Policies or
other types of credit support may be provided with respect to the Underlying
Loans or with respect to the Non-Agency Securities themselves.  The type,
characteristics and amount of credit support will be a function of certain
characteristics of the Underlying Loans and other factors and will have been
established for the Non-Agency Securities on the basis of requirements of the
national statistical rating organization that rated the Non-Agency Securities.

     ADDITIONAL INFORMATION.  The Prospectus Supplement relating to a Series of
Securities for which the Trust Fund Assets include Non-Agency Securities will
specify (such disclosure may be on an approximate basis and will be as of the
date specified in the related Prospectus Supplement), to the extent relevant and
the extent such information is reasonably available to the Depositor and the
Depositor reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Non-Agency Securities to be
included in the Trust Fund Assets supporting such Series of Securities; (ii)
certain characteristics of the Underlying Loans, including (a) the payment
features of such Underlying Loans (i.e., whether they are Closed-End Loans
and/or Revolving Credit Line Loans, whether they are fixed rate or adjustable
rate and whether they provide for fixed level payments of other payment
features); (b) the approximate aggregate Principal Balance, if known, of such
Underlying Loans insured or guaranteed by a governmental entity; (c) the
servicing fee or range of servicing fees with respect to the Underlying Loans;
(d) the minimum and maximum stated maturities of such Underlying Loans at
origination; (e) the lien priority of such Underlying Loans and (f) the
delinquency status and year of origination of such Underlying Loans (iii) the
maximum original term-to-stated maturity of the Non-Agency Securities; (iv) the
weighted average term-to-stated maturity of the Non-Agency Securities; (v) the
pass-through or certificate rate or ranges thereof for the Non-Agency
Securities; (vi) the PS Sponsor, the PS Servicer (if other than the PS Sponsor)
and the PS Trustee for such Non-Agency Securities; (viii) certain
characteristics of credit support if any, such as Reserve Funds, Security
Policies or guarantees relating to such Loans underlying the Non-Agency
Securities or to such Non-Agency Securities themselves; (viii) the terms of
which Underlying Loans, may or are required to, be purchased prior to their
stated maturity or the stated maturity of the Non-Agency Securities; and (ix)
the terms on which Underlying Loans may be substituted for those originally
underlying the Non-Agency Securities.  If information of the nature described
above representing the Non-Agency Securities is not known to the Depositor at
the time the Securities are initially offered, approximate or more general
information of the nature described above will be provided in the Prospectus
Supplement and the additional information, it available, will be set forth in a
Current Report on Form 8-K to be 

                                       41
<PAGE>
 
available to investors on the date of issuance of the related Series and to be
filed with the Commission within 15 days of the initial issuance of such
Securities.

SUBSTITUTION OF MORTGAGE COLLATERAL

     Substitution of Mortgage Collateral (the "Substitute Collateral") will be
permitted in the event of breaches of representations and warranties with
respect to any original Mortgage Collateral or in the event the documentation
with respect to any Mortgage Collateral is determined by the Bond Trustee to be
incomplete. The period during which such substitution will be permitted
generally will be indicated in the Prospectus Supplement for a Series of
Securities. The Prospectus Supplement for a Series of Securities will describe
the conditions upon which Mortgage Collateral may be substituted for Mortgage
Collateral initially supporting such Series.

OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS

     If so provided in the related Prospectus Supplement, the Master Servicer,
the Seller and/or the Company may, at its option, purchase from the Issuer any
Mortgage Loan which is delinquent in payment by more than the number of days
specified in such Prospectus Supplement, at a price specified in such Prospectus
Supplement.

BOND AND DISTRIBUTION ACCOUNTS

     A separate Bond Account will be established with the Trustee for each
Series of Securities for receipt of (i) all interest and principal payments
(including, to the extent applicable, any required advances by the Master
Servicer and any Servicers) and all prepayments on the Mortgage Collateral
securing such Series required to be remitted to the Bond Trustee (including, to
the extent applicable, Insurance Proceeds required to be remitted to the Bond
Trustee and Liquidation Proceeds); (ii) the amount of cash, if any, withdrawn
from any related Reserve Fund; and (iii) if so specified in the related
Prospectus Supplement, the reinvestment income on all of the foregoing. On or
prior to the date specified in the related Prospectus Supplement (each, a
"Distribution Account Deposit Date"), the Master Servicer shall withdraw from
the Bond Account the Optional Distribution Amount for such Payment Date, to the
extent of funds available for such purpose on deposit therein, and will deposit
such amount in the Distribution Account.

     The Bond Trustee will invest the funds in the Bond Account and the
Distribution Account in Permitted Investments maturing no later than the next
Payment Date for the related Series of Securities.  "Permitted Investments" may
include (i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each applicable Rating Agency, or such lower rating which will not result in
a change in the rating then assigned to each related Series of Securities by
each applicable Rating Agency, (iii) commercial paper or finance company paper
which is then receiving the highest commercial or finance company paper rating
of each applicable Rating Agency, or such lower rating as will not result in a
change in the rating then assigned to each related Series of Securities by each
applicable Rating Agency; (iv) certificates of deposit, demand or time deposits,
or bankers' acceptances issued by any depository institution or trust company
incorporated under the laws of the United States or of any state thereof and
subject to supervision and examination by federal and/or state banking
authorities, provided that the commercial paper and/or long term unsecured debt
obligations of such depository institution or trust company (or in the case of
the principal depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company, but only
if Moody's Investors Service, Inc. ("Moody's") is not an applicable Rating
Agency) are then rated one of the two highest long-term and the highest short-
term ratings of each such Rating Agency for such securities, or such lower
ratings as will not result in a change in the rating then assigned to each
related Series of Securities by each Rating Agency; (v) demand or time deposits
or certificates of deposit issued by any bank or trust company or savings
institution to the extent such deposits are fully insured by the FDIC; (vi)
guaranteed reinvestment agreements issued by any bank, insurance company or
other corporation containing, at the time of the issuance of such agreements,
such terms and conditions as will not result in a change in the rating then
assigned to each related Series of Securities by each applicable Rating Agency;
(vii) repurchase obligations with 

                                       42
<PAGE>
 
respect to any security described in clauses (i) and (ii) above, in either case
entered into with a depository institution or trust company (acting as
principal) described in clause (iv) above; (viii) securities (other than
stripped bonds, stripped coupons or instruments sold at a purchase price in
excess of 115% of the face amount thereof) bearing interest or sold at a
discount issued by any corporation incorporated under the laws of the United
States or any state thereof which, at the time of such investment, have one of
the two highest ratings of each applicable Rating Agency (except if the Rating
Agency is Moody's, such rating shall be the highest commercial paper rating of
Moody's for any such securities), or such lower rating as will not result in a
change in the rating then assigned to each related Series of Securities by each
applicable Rating Agency, as evidenced by a signed writing delivered by each
such Rating Agency; (ix) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time such interests
are held in such fund has the highest applicable rating by each applicable
Rating Agency or such lower rating as will not result in a change in the rating
then assigned to each related Series of Securities by each such Rating Agency;
and (x) short term investment funds sponsored by any trust company or national
banking association incorporated under the laws of the United States or any
state thereof which on the date of acquisition has been rated by each applicable
Rating Agency in their respective highest applicable rating category or such
lower rating as will not result in a change in the rating then assigned to each
related Series of Securities by each such Rating Agency; provided that no such
instrument shall be a Permitted Investment if such instrument evidences the
right to receive interest only payments with respect to the obligations
underlying such instrument; and provided, further, that no investment specified
in clause (ix) or clause (x) above shall be a Permitted Investment for any Pre-
Funding Account or any related Capitalized Interest Account (as defined herein).
If a letter of credit is deposited with the Bond Trustee, such letter of credit
will be irrevocable, will name the Bond Trustee, in its capacity as trustee for
the Securityholders, as the sole beneficiary and will be issued by a bank
acceptable to each applicable Rating Agency.

     Unless an Event of Default or an event which if not timely cured will
constitute an Event of Default with respect to a Series of Securities has
occurred and is continuing, funds remaining in the related Bond Account
following a Payment Date for such Securities (other than certain amounts not
constituting Available Funds if so specified in the related Prospectus
Supplement or any funds required to be deposited in a related Reserve Fund) will
be subject to withdrawal upon the order of the Issuer free from the lien of the
Indenture.

PRE-FUNDING ACCOUNT

     If so specified in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Bond Trustee on behalf of the related Securityholders, into which the Depositor
will deposit cash in an amount equal to the Pre-Funded Amount on the related
Closing Date. The Pre-Funding Account will be maintained with the Bond Trustee
for the related Series of Security and is designed solely to hold funds to be
applied by such Bond Trustee during the Funding Period to pay to the Depositor
the purchase price for Subsequent Mortgage Collateral. Prior to inclusion in the
Collateral supporting a Series of Securities, in accordance with the provisions
of the related Indenture, the Subsequent Mortgage Collateral will be subject to
review by the same parties as reviewed the initial Mortgage Collateral.
Specifically, the Bond Trustee will be required to perform a document review and
an independent firm will certify the fair value of the Subsequent Mortgage
Collateral. In addition, the Issuer will be required to deliver to the Bond
Trustee a legal opinion to the effect that all Indenture requirements have been
met for including the Subsequent Mortgage Collateral in the Collateral.

     Monies on deposit in the Pre-Funding Account will not be available to cover
losses on or in respect of the related Mortgage Collateral. The Pre-Funded
Amount will not exceed 50% of the initial aggregate principal amount of the
Securities of the related Series. The Pre-Funded Amount will be used by the
related Bond Trustee to purchase Subsequent Mortgage Collateral from the
Depositor from time to time during the Funding Period. The Funding Period, if
any, for a Series of Securities will begin on the related Closing Date and will
end on the date specified in the related Prospectus Supplement, which in no
event will be later than the date that is one year after the related Closing
Date. Monies on deposit in the Pre-Funding Account may be invested in Permitted
Investments (as such term is defined above under "--Bond and Distribution
Accounts") under the circumstances and in the manner described in the related
Agreement. Earnings on investment of funds in the Pre-Funding Account will be
deposited into the related Bond Account or such other trust account as is
specified in the related Supplement and losses will be charged 

                                       43
<PAGE>
 
against the funds on deposit in the Pre-Funding Account. Any amounts remaining
in the Pre-Funding Account at the end of the Funding Period will be paid to the
related Securityholders in the manner and priority specified in the related
Prospectus Supplement, as a prepayment of principal of the related Securities.
Certain information with respect to the Subsequent Mortgage Collateral will be
filed with the Commission on Form 8-K within fifteen days after the date such
Subsequent Mortgage Collateral is conveyed to the related Trust.

     In addition, if so specified in the related Prospectus Supplement, on the
related Closing Date the Depositor will deposit in an account (the "Capitalized
Interest Account") cash in such amount as is necessary to cover anticipated
shortfalls in interest on the related Series of Securities that may arise as a
result of utilization of the Pre-Funding Account as described above. The
Capitalized Interest Account shall be maintained with the Bond Trustee for the
related Series of Securities and is designed solely to cover the above-mentioned
interest shortfalls. Monies on deposit in the Capitalized Interest Account will
not be available to cover losses on or in respect of the related Mortgage
Collateral. To the extent that the entire amount on deposit in the Capitalized
Interest Account has not been applied to cover shortfalls in interest on the
related Series of Securities by the end of the Funding Period, any amounts
remaining in the Capitalized Interest Account will be paid to the Depositor.


                         DESCRIPTION OF THE SECURITIES

     Each Series of Securities will be issued pursuant to an indenture
("Indenture") between the related Issuer and the entity named in the related
Prospectus Supplement as Trustee with respect to such Series, and the related
Mortgage Loans will be serviced by the Master Servicer pursuant to a Master
Servicing Agreement. A form of Indenture and Master Servicing Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. Each Series of Certificates including interests for which a REMIC or
FASIT election is made will be issued pursuant to a separate agreement (a "Trust
Agreement") between the Depositor and the Certificate Trustee.

     A form of Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.

     The Indentures, Pooling and Servicing Agreements and Trust Agreements for
the Series of Securities offered hereby are referred to collectively as
"Agreements" and individually as an "Agreement." The provisions of each
Agreement will vary depending upon the nature of the Securities to be issued
thereunder and the nature of the related Trust Fund Assets. The following are
descriptions of the material provisions which may appear in each Agreement. The
descriptions are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Agreement for each Series of Securities. The
Depositor will provide a copy of the Agreement (without exhibits) relating to
any Series without charge upon written request of a holder of record of a
Security of such Series addressed to Thornburg Mortgage Funding Corporation, 119
East Marcy Street, Santa Fe, New Mexico 87501.

                                       44
<PAGE>
 
GENERAL

     Unless otherwise described in the related Prospectus Supplement, the
Securities of each Series will be issued in book-entry or fully registered form,
in the authorized denominations specified in the related Prospectus Supplement,
will, in the case of Certificates, evidence specified beneficial ownership
interests in, and in the case of Bonds, be secured by, the related Trust Fund
Assets pursuant to the terms of each Agreement and will not be entitled to
payments in respect of the assets included in any other Issuer established by
the Depositor. Unless otherwise specified in the Prospectus Supplement, the
Securities will not represent obligations of the Depositor or any affiliate of
the Depositor. The assets of each Issuer will consist of, to the extent provided
in the related Agreement, (i) the Trust Fund Assets as are subject to the
related Agreement (exclusive of any amounts specified in the related Prospectus
Supplement ("Retained Interest")), including all payments of interest and
principal received with respect to the Mortgage Loans after the Cut-off Date (to
the extent not applied in computing the principal balance of such Mortgage Loans
as of the Cut-off Date (the "Cut-off Date Principal Balance")); (ii) such assets
as from time to time are required to be deposited in the related Account, as
described below under "Trust Fund Assets -- Bond and Distribution Accounts";
(iii) property which secured a Mortgage Loan and which is acquired on behalf of
the Securityholders by foreclosure or deed in lieu of foreclosure and (iv) any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement. If so specified in the related
Prospectus Supplement, Trust Fund Assets may also include one or more of the
following: reinvestment income on payments received on the Trust Fund Assets, a
Reserve Account, a mortgage pool insurance policy, a special hazard insurance
policy, a bankruptcy bond, one or more letters of credit, a surety bond,
guaranties or similar instruments.

     Each Series of Securities will be issued in one or more Classes. Each Class
of Bonds of a Series will be secured by, and each Class of Certificates of a
Series will evidence beneficial ownership of, a specified percentage (which may
be 0%) or portion of future interest payments and a specified percentage (which
may be 0%) or portion of future principal payments on, the related Trust Fund
Assets. A Series of Securities may include one or more Classes that are senior
in right to payment to one or more other Classes of Securities of such Series.
Certain Series or Classes of Securities may be covered by insurance policies,
surety bonds or other forms of credit enhancement, in each case as described
under "Credit Enhancement" herein and in the related Prospectus Supplement. One
or more Classes of Securities of a Series may be entitled to receive
distributions of principal, interest or any combination thereof. Distributions
on one or more Classes of a Series of Securities may be made prior to one or
more other Classes, after the occurrence of specified events, in accordance with
a schedule or formula or on the basis of collections from designated portions of
the related Trust Fund Assets, in each case as specified in the related
Prospectus Supplement. The timing and amounts of such distributions may vary
among Classes or over time as specified in the related Prospectus Supplement.

     Distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the applicable
Trustee on each Distribution Date (i.e., monthly, quarterly, semi-annually or at
such other intervals and on the dates as are specified in the related Prospectus
Supplement) in proportion to the percentages specified in the related Prospectus
Supplement. Distributions will be made to the persons in whose names the
Securities are registered at the close of business on the dates specified in the
related Prospectus Supplement (each, a "Record Date"). Distributions will be
made in the manner specified in the related Prospectus Supplement to the persons
entitled thereto at the address appearing in the register maintained for
Securityholders (the "Security Register"); provided, however, that the final
distribution in retirement of the Securities will be made only upon presentation
and surrender of the Securities at the office or agency of the applicable
Trustee or other person specified in the notice to Securityholders of such final
distribution.

     The Securities will be transferable and exchangeable at the Corporate Trust
Office of the applicable Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Securities of any Series, but the Trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.

                                       45
<PAGE>
 
     Under current law the purchase and holding of a Class of Securities
entitled only to a specified percentage of payments of either interest or
principal or a notional amount of other interest or principal on the related
Mortgage Loans or a Class of Securities entitled to receive payments of interest
and principal on the Mortgage Loans only after payments to other Classes or
after the occurrence of certain specified events by or on behalf of any employee
benefit plan or other retirement arrangement (including individual retirement
accounts and annuities, Keogh plans and collective investment funds in which
such plans, accounts or arrangements are invested) subject to provisions of
ERISA or the Code may result in prohibited transactions within the meaning of
ERISA and the Code. See "ERISA Matters." Unless otherwise specified in the
related Prospectus Supplement, the transfer of Securities of such a Class will
not be registered unless the transferee (i) represents that it is not, and is
not purchasing on behalf of, any such plan, account or arrangement or (ii)
provides an opinion of counsel satisfactory to the applicable Trustee and the
Depositor that the purchase of Securities of such a class by or on behalf of
such plan, account or arrangement is permissible under applicable law and will
not subject the applicable Trustee, the Master Servicer or the Depositor to any
obligation or liability in addition to those undertaken in the Agreements.  In
the absence of a private prohibited transaction exemption for a particular
underwriter, as will be discussed if applicable in the related Prospectus
Supplement, ownership by plans subject to the prohibited transaction rules of
ERISA and the Code will have to be limited to less than 25 percent of each Class
of Securities.  See "ERISA Matters."

DISTRIBUTIONS ON SECURITIES

     General.  In general, the method of determining the amount of distributions
on a particular Series of Securities will depend on the type of credit support,
if any, that is used with respect to such Series. See "Credit Enhancement." Set
forth below are descriptions of various methods that may be used to determine
the amount of distributions on the Securities of a particular Series. The
Prospectus Supplement for each Series of Securities will describe the method to
be used in determining the amount of distributions on the Securities of such
Series.

     Distributions allocable to principal and interest on the Securities will be
made by the applicable Trustee out of, and only to the extent of, funds in the
related Distribution Account, including any funds transferred from the Bond
Account and any Reserve Account (a "Reserve Account"). As between Securities of
different classes and as between distributions of principal (and, if applicable,
between distributions of Principal Prepayments, as defined below, and scheduled
payments of principal) and interest, distributions made on any Distribution Date
will be applied as specified in the related Prospectus Supplement. The
Prospectus Supplement will also describe the method for allocating distributions
among Securities of a particular class.

     Available Funds.  All distributions on the Securities of each Series on
each Distribution Date will be made from the Available Funds described below, in
accordance with the terms described in the related Prospectus Supplement and
specified in the applicable Agreement. "Available Funds" for each Distribution
Date will generally equal the amount on deposit in the related Bond Account on
such Distribution Date (net of related fees and expenses payable by the related
Issuer) other than amounts to be held therein for distribution on future
Distribution Dates.

     Payments of Interest.  The Securities of each Class will bear interest on
their unpaid principal amounts from the date and at the rates per annum
specified or determined in the manner set forth in the related Prospectus
Supplement (calculated on the basis of a 360-day year of twelve 30-day months
unless otherwise specified in the related Prospectus Supplement) until the
principal amount of the Securities of such Class is paid in full. Interest on a
Series of Securities or on a Class of Securities within a Series may accrue at a
fixed rate, a variable rate or a combination thereof, as determined or reset in
the manner specified in the related Prospectus Supplement. Interest on the
Securities other than Deferred Interest Securities will be due and payable on
the Payment Dates specified in the related Prospectus Supplement. Payments of
interest on each Class of Deferred Interest Securities will commence as
specified in the related Prospectus Supplement. Prior to such time, interest on
such Class of Deferred Interest Securities will accrue and the amount of
interest so accrued will be added to the principal thereof on each Payment Date.
Such Class of Deferred Interest Securities will thereafter accrue interest on
the outstanding principal amount thereof as so adjusted. Each such payment or
accrual of interest will include all interest accrued either to, but not
including, the related Payment Date or through a date prior to such Payment Date
as specified in the related 

                                       46
<PAGE>
 
Prospectus Supplement. In the latter case, the effective yield to the
Securityholders will be reduced to a level below the yield that would apply if
interest were accrued to, but not including, the respective Payment Date.

     A Series of Securities or one or more Classes of Securities within a Series
may bear interest at a variable rate (the "Floating Rate Securities") which may
have an interest rate cap or an interest rate floor, or both, as specified in
the related Prospectus Supplement. The interest payment dates on Floating Rate
Securities will be set forth in the related Prospectus Supplement and may not be
the same as the interest payment dates for the other Securities of such Series,
but may be either more or less frequent. The variable interest rate formula for
any Series or Class of Floating Rate Securities will generally be based off a
financial index recognized in the national or international financial markets.
The Prospectus Supplement for any Series or Class within a Series of Floating
Rate Securities will set forth the initial interest rate, the index upon which
adjustments thereto will be computed, the formula for such computation, the
intervals at which such computations will be made, the maximum and minimum
interest rates, if any, and other characteristics common to such Securities.

     Payments of Principal.  Principal payments on each Series of Securities
will be made on each Payment Date in an amount equal to the sum of (a) if
specified in the related Prospectus Supplement, the amount of interest, if any,
accrued but not then payable on the Deferred Interest Securities of such Series
from the prior Payment Date or, if specified in the related Prospectus
Supplement, from a date prior to such prior Payment Date and (b) either (i) the
percentage or percentages specified in the related Prospectus Supplement of the
funds available for such purpose ("Available Funds") for such Payment Date or
(ii) the sum of (x) an amount determined by reference to the aggregate decline
in the Bond Values of the Mortgage Collateral supporting such Series of
Securities in the related Due Period and (y) the amount, if any, of the Spread
specified in such Prospectus Supplement. The Prospectus Supplement for each
Series of Securities will specify the manner in which the Available Funds or the
Bond Values, as applicable, will be determined. The aggregate amount of
principal payments required to be made on a Series of Securities on any Payment
Date will be reduced by the principal amount of the Securities of such Series
redeemed pursuant to any special redemption and certain optional redemptions
occurring subsequent to the preceding Payment Date. See "Redemption of
Securities -- Special Redemption" and " -- Optional Redemption" herein.

     The Bond Value of Mortgage Collateral supporting the Securities  of a
Series represents the principal amount of Securities of such Series that, based
on certain assumptions and irrespective of prepayments on such Mortgage
Collateral, can be supported by scheduled distributions on such Mortgage
Collateral, together with (depending on the method used to determine the Bond
Value of the Mortgage Collateral) the reinvestment earnings thereon at the rate
described in the related Prospectus Supplement (the "Assumed Reinvestment Rate")
and, if applicable, the cash available to be withdrawn from a related Reserve
Fund, if any. For convenience of calculation with respect to each Series of
Securities, Non-Agency Securities and Agency Securities (together "Mortgage
Securities") supporting securing a Series of Securities that are backed by a
pool of mortgage loans sharing similar payment characteristics, or Mortgage
Loans which supporting a Series of Securities and share similar payment
characteristics, may be aggregated into one or more groups (each, a "Collateral
Group") each of which will be assigned an aggregate Bond Value.

     If so specified in the related Prospectus Supplement, the aggregate Bond
Value of a Collateral Group consisting of Mortgage Loans or Mortgage Agency
Securities sharing similar payment characteristics will be calculated as if such
Mortgage Loans or the mortgage loans underlying such Mortgage Securities
constituted a single mortgage loan having such of the payment characteristics of
such Mortgage Loans or of the mortgage loans underlying the Agency Securities
included in such Collateral Group as would result in the lowest Bond Value being
assigned to the Mortgage Loans or Mortgage Securities included in such
Collateral Group. There are a number of alternative means of determining the
Bond Value of a mortgage loan or of collateral backed by mortgage loans,
including determinations based on the discounted present value of the remaining
scheduled distributions on such mortgage loans and determinations based on the
relationship of the interest rate borne by such mortgage loans and by the
related Bonds. If applicable, the Prospectus Supplement for a Series of
Securities will specify the method or methods used to determine the Bond Values
of the Collateral Groups supporting such Series of Securities. The aggregate of
the Bond Values on any Payment Date of all such Collateral Groups will be at
least equal to the outstanding principal amount of the Securities of such
Series.

                                       47
<PAGE>
 
     If applicable, the Assumed Reinvestment Rate for a Series of Securities
will be described in the related Prospectus Supplement and may be any rate
permitted by each applicable Rating Agency or a rate provided under a guaranteed
investment contract, surety bond or similar arrangement satisfactory to each
applicable Rating Agency. If the Assumed Reinvestment Rate is so provided, the
related Prospectus Supplement will describe the terms of such arrangement.

     Unless the related Prospectus Supplement provides otherwise, the Spread, if
applicable, for each Series of Securities   as of any Payment Date will be the
excess, if any, of the sum of (i) all distributions received with respect to the
Mortgage Collateral supporting such Series of Securities in the related Due
Period, (ii) the reinvestment income thereon and (iii) amounts which are
required or are permitted to be withdrawn from a Reserve Fund, if any, less the
sum of (i) all interest payable on the Securities of such Series on such Payment
Date, (ii) the Basic Principal Payment required to be made on such Series of
Securities  on such Payment Date and (iii) an amount reflecting the redemption
price of any Securities of such Series redeemed during the related Due Period
and the expenses accrued by the Issuer during the related Due Period relating to
the administration of such Series of Securities.

     Payments of principal will be allocated among the Classes of Securities
comprising a Series in the manner specified in the related Prospectus Supplement
and, with respect to a particular Class of Securities, will be applied on a pro
rata basis, unless otherwise specified in the related Prospectus Supplement.
Each Class of Securities will be scheduled to be fully paid no later than the
Stated Maturity for such Class of Securities specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, holders of one
or more Classes of Securities of a Series may have the right, at their option,
to receive full payment in respect of such Securities prior to Stated Maturity,
in each case to the extent and under the circumstances specified in their
related Prospectus Supplement.

REDEMPTION OF SECURITIES

     Special Redemption.  If so specified in the related Prospectus Supplement,
the Securities of each Series or Class may be subject to special redemption, in
whole or in part, under the circumstances and in the manner described below or
in the related Prospectus Supplement. If applicable, the Issuer will be required
to redeem, on the day of any month specified in the related Prospectus
Supplement, outstanding Securities of a Series in the amount described below if,
as a result of substantial payments of principal on the Mortgage Collateral
supporting such Series of Securities or low reinvestment yields, or both, the
Trustee determines, based on the procedures and assumptions specified in the
applicable Agreement, that, in the absence of such special redemption, the
amount of cash to be on deposit in the related Bond Account on the next Payment
Date for such Series of Securities would be insufficient to make required
payments on the Securities of such Series on such Payment Date. The amount of
Securities required to be so redeemed will not exceed the distributions on the
Mortgage Collateral such Series of Securities received during the Due Period
that would otherwise be required to be applied to the payment of principal of
such Series of Securities on the following Payment Date.

     All payments of principal pursuant to any special redemption will be made
in the priority and manner specified in the related Prospectus Supplement.
Securities of the same Class will be redeemed in the manner specified in the
related Prospectus Supplement. Notice of any such redemption must be mailed by
the Issuer or the Trustee at least five days prior to the special redemption
date.  The redemption price required to be paid for any Class of Securities to
be so redeemed will be equal to 100% of the principal amount thereof together
with accrued interest.

     Optional Redemption.  If so provided in the related Prospectus Supplement,
the Securities of any Class of a Series may be subject to redemption at the
option of the Issuer. Unless otherwise provided in the related Prospectus
Supplement, notice of any such redemption must be given by the Issuer to the
Trustee not less than 30 days prior to the redemption date and must be mailed by
the Issuer or the Trustee to affected Securityholders at least five days prior
to the redemption date.  The Prospectus Supplement for each Series will specify
the circumstances, if any, under which the Securities of such Series may be so
redeemed, the manner of effecting such redemption, the conditions to which such
redemption are subject and the redemption prices for each Class of Securities to
be redeemed.  The Depositor, Master Servicer or other party specified in the
related Prospectus Supplement, may have 

                                       48
<PAGE>
 
the option to purchase the remaining Trust Fund Assets supporting a Series of
Securities, subject to the principal balance of the related Trust Fund Assets
supporting a Series of Securities, subject to the principal balance of the
related Trust Fund Assets being less than the percentage specified in the
related Prospectus Supplement of the aggregate principal balance of the Trust
Fund Assets at the Cut-off Date for the Series. Any such purchase of Trust Fund
Assets and property acquired in respect of Trust Fund Assets evidenced by a
Series of Securities by the Master Servicer on such other person will be at a
price specified in the related Prospectus Supplement (which will be no lower
than 100% of the principal amount of outstanding Securities, plus accrued
interest). The exercise of such right may cause the Issuer to call for
redemption of all or a portion of the related series of Securities supported by
such Trust Fund Assets.

EARLY TERMINATION

     If in the case of Bonds secured by Certificates, the Series of Bonds
included in the Trust Fund Assets for a Series of Certificates are redeemed in
full pursuant to a special redemption or optional redemption, the related Series
of Certificates will be retired earlier than would otherwise be the case. In
addition, the Depositor may have the option to purchase the remaining
outstanding Securities or the Trust Fund Assets supporting a Series of
Certificates, subject to the principal balance of such Trust Fund Assets being
less than the percentage specified in the related Prospectus Supplement of the
Trust Fund Assets at the Cut-off Date for the Series. The purchase price for
such remaining outstanding Securities or the Trust Fund Assets will be at least
equal to 100% of the aggregate principal balance of the outstanding
Certificates, together with accrued interest thereon. In any such event, the
related Issuer of such Series of Certificates may be terminated and
Certificateholders will receive final distributions as described in the related
Prospectus Supplement.  There will be no continuing direct or indirect liability
of the Issuer or the Certificateholders as sellers of the Trust Fund Assets.

CALL PROTECTION AND GUARANTEES

     The Issuer also may, at its option, obtain for any Series of Securities one
or more guarantees from a company or companies acceptable to each applicable
Rating Agency, which guarantees may provide for (i) call protection (which may
include yield maintenance) for any Class of Securities of such Series or (ii) a
guarantee of a certain prepayment rate with respect to some or all of the
Mortgage Loans underlying such Series. Any call protection or guarantees may
affect the weighted average life of the Securities of such Series.

WEIGHTED AVERAGE LIFE OF THE SECURITIES

     All of the Mortgage Loans supporting a Series of Securities will consist of
mortgage loans which are neither insured nor guaranteed by any governmental
agency ("Conventional Loans"). See "Trust Fund Assets -- The Mortgage Loans"
herein. The mortgage loans underlying FHLMC Certificates and FNMA Certificates
supporting a Series of Securities will consist of either Conventional Loans, FHA
Loans (as defined herein) or VA Loans (as defined herein), or any combination
thereof. The mortgage loans underlying the GNMA Certificates supporting a Series
of Securities will consist of FHA Loans or VA Loans. Each Mortgage Loan and each
Agency Security (also referred to as "Agency Certificates") will provide by its
terms for monthly payments of principal and interest in the amounts described in
"Trust Fund Assets -- The Mortgage Loans," and " -- Agency Securities."

     Since the aggregate amount of the principal payment required to be made on
a Series of Securities on a Payment Date will depend on the amount of the
principal payments (including for this purpose prepayments resulting from
refinancing or liquidations due to defaults, casualties, condemnations and
repurchases by the Issuer or TMA or other Seller or purchases by the Master
Servicer or the Company) received on the related Mortgage Loans or Agency
Certificates, as the case may be, in the related Due Period, the prepayment
experience on the underlying mortgage loans (with respect to a Series of Bonds
secured by Agency Certificates) or on the Mortgage Loans (with respect to a
Series of Securities by Mortgage Loans) will affect (i) the weighted average
life of each Class of Securities and (ii) the extent to which such Class is paid
prior to its Stated Maturity. The prepayment experience on the Mortgage Loans
which support a Series of Securities may be affected by recoveries on
foreclosures or other liquidations of Mortgage Loans and by losses from defaults
and delinquencies on Mortgage Loans. See "Servicing 

                                       49
<PAGE>
 
of The Mortgage Loans" herein. The weighted average life of each outstanding
Class of Securities also may be affected by the actual reinvestment income
earned on the payments on the Mortgage Collateral, if applicable, if a portion
of the Spread is paid as a principal payment on such Securities and by the
exercise by the Issuer of its right to substitute other Mortgage Collateral for
the Mortgage Collateral originally pledged as security for such Securities.
Although any substitute Mortgage Collateral will have payment terms anticipated
to result in a cash flow substantially similar to, but in no event less than,
the anticipated cash flow of the Mortgage Collateral it replaces, such
substitutions may, individually or in the aggregate, affect the weighted average
life of such Securities. See "Trust Fund Assets -- Substitution of Mortgage
Collateral" herein. Further, the weighted average life of each Class of a Series
of Securities supported by FNMA Certificates may be affected by the exercise by
FNMA of its right to repurchase the mortgage loans backing such FNMA
Certificates, as described under "Trust Fund Assets--Agency Securities" herein.
The Stated Maturity for each Class of Securities is the date determined by the
Company to fall a specified period after the date on which the principal thereof
will be fully paid, assuming (i) timely receipt of scheduled payments (with no
prepayments) on the Mortgage Collateral, (ii) if applicable, such scheduled
payments are reinvested at the Assumed Reinvestment Rate for such Series, (iii)
no Mortgage Collateral is substituted by the Issuer or the Seller in place of
the Mortgage Collateral initially included in the Trust Fund Assets supporting
such Securities and (iv) if applicable, no portion of the Spread is applied to
the payment of the Securities, unless the related Prospectus Supplement provides
otherwise, in which event such Stated Maturities will be based on the
assumptions specified in such Prospectus Supplement. If so provided in the
related Prospectus Supplement, holders of one or more Classes of Securities of a
Series may have the right, at their option, to receive full payment in respect
of such Securities prior to Stated Maturity, in each case to the extent and
subject to the conditions specified in such Prospectus Supplement.

     The rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, geographic, social and other factors including,
without limitation, homeowner mobility, economic conditions, the presence and
enforceability of "due-on-sale" clauses, mortgage market interest rates and the
availability of mortgage funds, and no assurance can be given as to the actual
prepayment experience of the Mortgage Collateral. In general, however, if
interest rates vary significantly from those prevailing when the Mortgage Loans
or the mortgage loans underlying the Mortgage Securities initially included in
the Trust Fund Assets supporting a Series of Securities were originated, such
Mortgage Loans and mortgage loans are likely to be subject to higher or lower
principal prepayments than if interest rates remain at or near those prevailing
when such Mortgage Loans and mortgage loans were originated. It should be noted
that certain Mortgage Securities initially included in the Trust Fund Assets
supporting  Series of Securities may be backed by mortgage loans with different
interest rates, and, similarly, that not all of the Mortgage Loans supporting a
Series of Securities are likely to bear the same interest rate. Accordingly, the
prepayment experience of these Mortgage Securities and Mortgage Loans will to
some extent be a function of the mix of interest rates of the underlying
mortgage loans and of the Mortgage Loans. Furthermore, the stated certificate
rate on certain Agency Certificates may be less than the weighted average
interest rate of the underlying mortgage loans. See "Trust Fund Assets" herein.

CATEGORIES OF CLASSES OF SECURITIES

     The Securities of any Series may be comprised of one or more Classes. Such
Classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Securities may identify the Classes which
comprise such Series by reference to the following categories.

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<PAGE>
 
CATEGORIES OF CLASSES                         DEFINITION
- ---------------------                         ----------

                                            PRINCIPAL TYPES

Accretion Directed...............    A Class that receives principal payments
                                     from the accreted interest from specified
                                     Classes of Interest Securities. For
                                     example, if the interest accrues unpaid on
                                     a Class of Interest Securities in a given
                                     is $100, the cash saved by not paying such
                                     interest in the current period is used to
                                     pay principal of $100 on an Accretion
                                     Directed Class. The amount of accrued and
                                     unpaid interest on the Class of Deferred
                                     Interest Securities is added to the
                                     principal balance of such Class. An
                                     Accretion Directed Class may receive
                                     principal payments from principal paid on
                                     the underlying Trust Fund Assets for the
                                     related Series.

Component Securities.............    A Class consisting of "Components." The
                                     Components of a Class of Component
                                     Securities may have different principal
                                     and/or interest payment characteristics but
                                     together constitute a single Class. Each
                                     Component of a Class of Component
                                     Securities may be identified as falling
                                     into one or more of the categories of this
                                     chart.

Notional Amount Securities.......    A Class having little or no principal
                                     balance and bearing interest on the related
                                     notional amount. The notional amount is
                                     used for purposes of the determination of
                                     interest distributions.

Planned Principal Class or
Planned Amortization Class
(also sometimes referred
to as "PACs")....................    A Class that is designated to receive
                                     principal payments using a predetermined
                                     principal balance schedule derived by
                                     assuming two constant prepayment rates for
                                     the underlying Trust Fund Assets. These two
                                     rates are the endpoints for the
                                     "structuring range" for the Planned
                                     Principal Class. For example, if a
                                     structuring range for the PAC is set at
                                     constant prepayment rates generally between
                                     15% and 25%, that Class generally will
                                     receive a predetermined principal amount
                                     (as set forth on the schedule included in
                                     the related Prospectus Supplement) on
                                     rfgeach distribution date with respect to
                                     which the constant prepayment rate on the
                                     underlying Trust Fund Assets falls between
                                     15% and 25%. To the extent the prepayment
                                     experience of the Trust Fund Assets is less
                                     than 15%, an amount of principal less than
                                     the scheduled amount may be paid, and to
                                     the extent the prepayment experience is
                                     higher than 25%, additional amounts of
                                     principal may be distributed to the PAC
                                     holders. The Planned Principal Classes in
                                     any Series of Securities may be subdivided
                                     into different categories (e.g., Primary
                                     Planned Principal Classes, Secondary
                                     Planned Principal Classes and so forth)
                                     having different effective structuring
                                     ranges and different principal payment
                                     priorities. The structuring range for the
                                     Secondary Planned Principal Class of a
                                     Series of Securities will be narrower than
                                     that for the Primary Planned Principal
                                     Class of such Series.

Sequential Pay...................    Classes that receive principal payments in
                                     a prescribed sequence, that do not have
                                     predetermined principal balance schedules
                                     and that under all circumstances receive
                                     payments of principal from the first

                                       51
<PAGE>
 
                                     Distribution Date on which they receive
                                     principal until they are retired. A single
                                     Class that receives principal payments
                                     before or after all other Classes in the
                                     same Series of Securities may be identified
                                     as a Sequential Pay Class.

Support Class (also sometimes 
 referred to as "Companion 
 Classes").......................    A Class that receives principal payments on
                                     any Distribution Date only if scheduled
                                     payments have been made on specified
                                     Planned Principal Classes and/or Targeted
                                     Principal Classes. For example, if a Series
                                     of Securities has a PAC with a structuring
                                     range generally between 15% and 25%
                                     constant prepayment rate, for any given
                                     period if the underlying Trust Fund Assets
                                     generally prepay at a 15% constant
                                     prepayment rate there will be just enough
                                     principal collected to satisfy the
                                     scheduled principal payable to the PAC
                                     holders. In that case, the Support Class
                                     for such Series would receive little or no
                                     principal for that period. On the other
                                     hand, if the underlying Trust Fund Assets
                                     generally experience a 25% constant
                                     prepayment rate for a given period, more
                                     principal will be collected than is needed
                                     to satisfy the PAC scheduled payment and
                                     such principal will be paid to the Support
                                     Class holders.

Targeted Principal Class or
Targeted Amortization Class
(also sometimes referred
to as "TACs")....................    A Class that is designated to receive
                                     principal payments using a predetermined
                                     principal balance schedule derived by
                                     assuming a single constant prepayment rate
                                     for the underlying Trust Fund Assets. For
                                     example, a principal schedule could be
                                     created based on the underlying Trust Fund
                                     Assets generally prepaying at a 20%
                                     constant prepayment rate for the life of
                                     the assets. The TAC holders would then
                                     generally receive the scheduled principal
                                     amount if the actual prepayment rate for a
                                     given period was 20%. To the extent the
                                     actual prepayment rate is less than 20%,
                                     the TAC holders may receive less than the
                                     scheduled amount, and to the extent the
                                     actual prepayment rate is greater, they may
                                     receive more than the scheduled amount.

                                             INTEREST TYPES

Deferred Interest................    A Class that accretes the amount of accrued
                                     interest otherwise distributable on such
                                     Class, which amount will be added as
                                     principal to the principal balance of such
                                     Class on each applicable Date. Such
                                     accretion may continue until some specified
                                     event has occurred or until such Deferred
                                     Interest Class is retired.

Fixed Rate.......................    A Class with an interest rate that is fixed
                                     throughout the life of the Class.

Floating Rate....................    A Class with an interest rate that resets
                                     periodically based upon a designated index
                                     and that varies directly with changes in
                                     such index.

Inverse Floating Rate............    A Class with an interest rate that resets
                                     periodically based upon a designated index
                                     and that varies inversely with changes in
                                     such index.

                                       52
<PAGE>
 
Interest Only....................    A Class that receives some or all of the
                                     interest payments made on the underlying
                                     Trust Fund Assets and little or no
                                     principal. Interest Only Classes have a
                                     nominal principal balance and/or a notional
                                     amount. A nominal principal balance
                                     represents actual principal that will be
                                     paid on the Class. It is referred to as
                                     nominal since it is extremely small
                                     compared to other Classes. A notional
                                     amount is the amount used as a reference to
                                     calculate the amount of interest due on an
                                     Interest Only Class.

Variable Rate....................    A Class with an interest rate that resets
                                     periodically and is calculated by reference
                                     to the rate or rates of interest applicable
                                     to specified assets or instruments (e.g.,
                                     the Mortgage Rates borne by the underlying
                                     Mortgage Loans).

Principal Only...................    A Class that does not bear interest and is
                                     entitled to receive only distributions in
                                     respect of principal.

Partial Deferred Interest........    A Class that accretes a portion of the
                                     amount of accrued interest thereon, which
                                     amount will be added to the principal
                                     balance of such Class on each applicable
                                     Distribution Date, with the remainder of
                                     such accrued interest to be distributed
                                     currently as interest on such Class. Such
                                     accretion may continue until a specified
                                     event has occurred or until such Partial
                                     Deferred Interest Class is retired.

REPORTS TO SECURITYHOLDERS

     Prior to or concurrently with each distribution on a Distribution Date the
Master Servicer or the applicable Trustee will furnish to each Securityholder of
record of the related Series a statement setting forth, to the extent applicable
to such Series of Securities, among other things:

          (i)    the amount of such distribution allocable to principal,
     separately identifying the aggregate amount of any Principal Prepayments
     and if so specified in the related Prospectus Supplement, any applicable
     prepayment penalties included therein;

          (ii)   the amount of such distribution allocable to interest;

          (iii)  the amount of any Advance;

          (iv)   the aggregate amount (a) otherwise allocable to the
     Subordinated Securityholders on such Distribution Date, and (b) withdrawn
     from the Reserve Account, if any, that is included in the amounts
     distributed to the Senior Securityholders;

          (v)    the outstanding principal balance or notional amount of each
     Class of the related Series after giving effect to the distribution of
     principal on such Distribution Date;

          (vi)   the percentage of principal payments on the Mortgage Loans
     (excluding prepayment), if any, which each such Class will be entitled to
     receive on the following Distribution Date;

          (vii)  the percentage of Principal Prepayments on the Mortgage Loans,
     if any, which each such Class will be entitled to receive on the following
     Distribution Date;

          (viii) the related amount of the servicing compensation retained or
     withdrawn from the Bond Account by the Master Servicer, and the amount of
     additional servicing compensation received by the 

                                       53
<PAGE>
 
     Master Servicer attributable to penalties, fees, excess Liquidation
     Proceeds and other similar charges and items;

          (ix)   the number and aggregate principal balances of Mortgage Loans
     (A) delinquent (exclusive of Mortgage Loans in foreclosure) (1) 1 to 30
     days, (2) 31 to 60 days, (3) 61 to 90 days and (4) 91 or more days and (B)
     in foreclosure and delinquent (1) 1 to 30 days, (2) 31 to 60 days, (3) 61
     to 90 days and (4) 91 or more days, as of the close of business on the last
     day of the calendar month preceding such Distribution Date;

          (x)    the book value of any real estate acquired through foreclosure
     or grant of a deed in lieu of foreclosure;

          (xi)   the applicable interest rate, if adjusted from the date of the
     last statement, of any such Class expected to be applicable to the next
     distribution to such Class;

          (xii)  if applicable, the amount remaining in any Reserve Account at
     the close of business on the Distribution Date;

          (xiii) the applicable interest rate as of the day prior to the
     immediately preceding Distribution Date; and

          (xiv)  any amounts remaining under letters of credit, Pool policies or
     other forms of credit enhancement.

     Where applicable, any amount set forth above may be expressed as a dollar
amount per single Security of the relevant Class specified in the related
Prospectus Supplement. The report to Securityholders for any Series of
Securities may include additional or other information of a similar nature to
that specified above.

     In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the applicable Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record during
a portion of such calendar year, for the applicable portion of such year and (b)
such other customary information as may be deemed necessary or desirable for
Securityholders to prepare their tax returns.

BOOK-ENTRY SECURITIES

     As described in the related Prospectus Supplement, if not issued in fully
registered form, one or more Classes of Securities of any Series (each, a Class
of "Book-Entry Securities") will be registered as book-entry certificates.
Persons acquiring beneficial ownership interests in the Securities
("Securityholders") will hold their Securities through the Depository Trust
Company ("DTC") in the United States, or CEDEL or Euroclear (in Europe) if they
are participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Securities will be issued in one or
more certificates which equal the aggregate principal balance of the Securities
and will initially be registered in the name of Cede & Co., the nominee of DTC.
CEDEL and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in CEDEL's and Euroclear's names on the
books of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank, N.A., will act as depositary for CEDEL and The Chase Manhattan Bank
will act as depositary for Euroclear (in such capacities, individually the
"Relevant Depositary" and collectively the "European Depositaries"). Except as
described below, no person acquiring a Book-Entry Security (each, a "beneficial
owner") will be entitled to receive a physical certificate representing such
Security (a "Definitive Security"). Unless and until Definitive Securities are
issued, it is anticipated that the only "Securityholders" of the Securities will
be Cede & Co., as nominee of DTC. Securityholders are only permitted to exercise
their rights indirectly through Participants and DTC.

                                       54
<PAGE>
 
     The beneficial owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant, and on
the records of CEDEL or Euroclear, as appropriate).

     Securityholders will receive all distributions of principal of, and
interest on, the Securities from the applicable Trustee through DTC and DTC
participants. While the Securities are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Securities and is required to receive and transmit distributions
of principal of, and interest on, the Securities. Participants and indirect
participants with whom Securityholders have accounts with respect to Securities
are similarly required to make book-entry transfers and receive and transmit
such distributions on behalf of their respective Securityholders. Accordingly,
although Securityholders will not possess certificates, the Rules provide a
mechanism by which Securityholders will receive distributions and will be able
to transfer their interest.

     Securityholders will not receive or be entitled to receive certificates
representing their respective interests in the Securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Securityholders who are not Participants may transfer ownership of
Securities only through Participants and indirect participants by instructing
such Participants and indirect participants to transfer Securities, by book-
entry transfer, through DTC for the account of the purchasers of such
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing
Securityholders.

     Because of time zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
CEDEL Participants on such business day. Cash received in CEDEL or Euroclear as
a result of sales of securities by or through a CEDEL Participant (as defined
herein) or Euroclear Participant (as defined herein) to a DTC Participant will
be received with value on the DTC settlement date but will be available in the
relevant CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.

     Transfers between Participants will occur in accordance with DTC Rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.

     Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day fund settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.

     CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, 

                                       55
<PAGE>
 
thereby eliminating the need for physical movement of certificates. Transactions
may be settled in CEDEL in any of 28 currencies, including United States
dollars. CEDEL provides to its CEDEL Participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces with
domestic markets in several countries. As a professional depository, CEDEL is
subject to regulation by the Luxembourg Monetary Institute. CEDEL participants
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a CEDEL Participant, either directly
or indirectly.

     Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above.  Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York ("Morgan" and in such capacity, the
"Euroclear Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Belgian Cooperative"). All operations are
conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Belgian Cooperative. The Belgian Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.

     Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. As such, it is regulated and examined
by the Board of Governors of the Federal Reserve System and the New York State
Banking Department, as well as the Belgian Banking Commission.

     Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law (collectively, the
"Terms and Conditions"). The Terms and Conditions govern transfers of securities
and cash within Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in Euroclear. All securities
in Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear Operator
acts under the Terms and Conditions only on behalf of Euroclear Participants,
and has no record of or relationship with persons holding through Euroclear
Participants.

     Under a book-entry format, beneficial owners of the Book-Entry Securities
may experience some delay in their receipt of payments, since such payments will
be forwarded by the Bond Trustee to Cede & Co., as nominee of DTC. Distributions
with respect to Securities held through CEDEL or Euroclear will be credited to
the cash accounts of CEDEL Participants or Euroclear Participants in accordance
with the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Considerations --Withholding With Respect to Certain Foreign
Investors" and " -- Backup Withholding" herein. Because DTC can only act on
behalf of Financial Intermediaries, the ability of a beneficial owner to pledge
Book-Entry Securities to persons or entities that do not participate in the
depository system may be limited due to the lack of physical certificates for
such Book-Entry Securities. In addition, issuance of the Book-Entry Securities
in book-entry form may reduce the liquidity of such Securities in the secondary
market since certain potential investors may be unwilling to purchase Securities
for which they cannot obtain physical certificates.

     Monthly and annual reports on the Issuer will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules, regulations and 

                                       56
<PAGE>
 
procedures creating and affecting DTC, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Securities or such beneficial owners are
credited.

     DTC has advised the Bond Trustee and Certificate Trustee that, unless and
until Definitive Securities are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Securities under the applicable Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Securities are credited, to the extent that such actions
are taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Securities. CEDEL or the Euroclear Operator, as the case may be, will
take any other action permitted to be taken by a Securityholder under the
applicable Agreement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf through
DTC. DTC may take actions with respect to some Securities, at the direction of
the related Participants, which conflict with actions taken with respect to
other Securities.

     Upon the occurrence of any of the events described in the immediately
preceding paragraph, the applicable Trustee will be required to notify all
beneficial owners of the occurrence of such event and the availability through
DTC of the Definitive Securities. Upon surrender by DTC of the global
certificate or certificates representing the Book-Entry Securities and
instructions for re-registration, the Security Trustee will issue Definitive
Securities, and thereafter the Security Trustee will recognize the holders of
such Definitive Securities as Securityholders under the applicable Agreement.

     Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.

     None of the Master Servicer, the Depositor, the Issuer, the Bond Trustee or
the Certificate Trustee will have any responsibility for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Book-Entry Securities held by Cede & Co., as nominee of DTC, or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.


                              CREDIT ENHANCEMENT

GENERAL

     Credit enhancement may be provided with respect to one or more Classes of a
Series of Securities or with respect to the related Mortgage Collateral for the
purpose of (i) maintaining timely payments or providing additional protection
against losses on the Collateral securing such Series of Securities, (ii) paying
administrative expenses or (iii) establishing a minimum reinvestment rate on the
payments made in respect of such Collateral or principal payment rate on such
Collateral. Credit enhancement may be in the form of the subordination of one or
more Classes of such Securities, the establishment of one or more Reserve Funds,
use of a Mortgage Pool Insurance Policy, a Special Hazard Insurance Policy,
Bankruptcy Bond, cash account, insurance policy, surety bond, guaranteed
investment contract, cross-collateralization, reinvestment income, guaranty,
letter of credit or derivative arrangement as described herein and in the
related Prospectus Supplement, or any combination of the foregoing. Unless
otherwise specified in the related Prospectus Supplement, no credit enhancement
will provide protection against all risks of loss or guarantee repayment of the
entire principal balance of the Bonds and interest thereon. If losses occur
which exceed the amount covered by credit enhancement or which are not covered
by the credit enhancement, Securityholders will bear their allocable share of
any deficiencies.

SUBORDINATION

     If so specified in the related Prospectus Supplement, a Series of
Securities may consist of one or more Classes of Senior Securities and one or
more Classes of Subordinated Securities. The rights of the holders of the

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<PAGE>
 
Subordinated Securities of a Series (the "Subordinated Securityholders") to
receive payments of principal and/or interest (or any combination thereof) will
be subordinated to such rights of the holders of the Senior Securities of the
same Series (the "Senior Securityholders") to the extent described in the
related Prospectus Supplement. This subordination is intended to enhance the
likelihood of regular receipt by the Senior Securityholders of the full amount
of their scheduled payments of principal and/or interest. The protection
afforded to the Senior Securityholders of a Series by means of the subordination
feature will be accomplished by (i) the preferential right of such holders to
receive, prior to any payment being made on the related Subordinated Securities,
the amounts of principal and/or interest due them on each Payment Date out of
the funds available for payment on such date in the related Distribution Account
and, to the extent described in the related Prospectus Supplement, by the right
of such holders to receive future payments that would otherwise have been
payable to the Subordinated Securityholders; or (ii) as otherwise described in
the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, subordination may apply only in the event of certain types of losses
not covered by other forms of credit support, such as hazard losses not covered
by standard hazard insurance policies or losses due to the bankruptcy or fraud
of the borrower. The related Prospectus Supplement will set forth information
concerning, among other things, the amount of subordination of a Class or
Classes of Subordinated Securities in a Series, the circumstances in which such
subordination will be applicable and the manner, if any, in which the amount of
subordination will decrease over time.

     If so specified in the related Prospectus Supplement, delays in receipt of
scheduled payments on the Mortgage Collateral and losses with respect to the
Mortgage Collateral will be borne first by the various Subordinated Classes of a
Series of Securities and thereafter by the various Classes of Senior Securities,
in each case under the circumstances and subject to the limitations specified in
such Prospectus Supplement. The aggregate payments in respect of delinquent
payments on the Mortgage Collateral over the lives of the Securities or at any
time, the aggregate losses in respect of Mortgage Collateral which must be borne
by the Subordinated Securities by virtue of subordination and the amount of
payments otherwise distributable to the Subordinated Security holders that will
be distributable to Senior Securityholders on any Payment Date may be limited as
specified in the related Prospectus Supplement. If aggregate payments in respect
of delinquent payments on the Mortgage Collateral or aggregate losses in respect
of such Mortgage Collateral were to exceed the amount specified in the related
Prospectus Supplement, Senior Securityholders would experience losses on the
Securities.

     If so specified in the related Prospectus Supplement, various Classes of
Senior Securities and Subordinated Securities may themselves be subordinate in
their right to receive certain payments to other Classes of Senior and
Subordinated Securities, respectively.

     As between Classes of Senior Securities and as between Classes of
Subordinated Securities, payments may be allocated among such Classes (i) in
accordance with a schedule or formula, (ii) in relation to the occurrence of
events or (iii) otherwise, in each case as specified in the related Prospectus
Supplement. As between Classes of Subordinated Securities, payments to Senior
Securityholders on account of delinquencies or losses and payments to the
Reserve Fund will be allocated as specified in the related Prospectus
Supplement.

RESERVE FUNDS

     If so specified in the related Prospectus Supplement, the Issuer will
deposit in one or more accounts to be established with the applicable Trustee
(each, a "Reserve Fund") cash, certificates of deposit, letters of credit,
surety bonds, guaranteed investment contracts or any combination thereof, which
may be used by the Trustee to make payments on such Series of Securities to the
extent funds are not otherwise available. Reserve Funds will be established if
they are deemed by the Issuer to be required to assure timely payment of
principal of, and interest on, its Series of Securities or are otherwise
required as a condition to the rating of such Securities by any Rating Agency,
or if the Issuer chooses to reduce the likelihood of a special redemption of
such Securities. The applicable Trustee will invest any cash in any Reserve Fund
in Permitted Investments maturing no later than the dates specified in the
related Prospectus Supplement. If a letter of credit is deposited with the
applicable Trustee, such letter of credit will be irrevocable, will name the
applicable Trustee, in its capacity as trustee for the Securityholders, as the
sole beneficiary and will be issued by a bank acceptable to each Rating Agency.
If a surety bond is deposited with the

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<PAGE>
 
applicable Trustee, such surety bond will represent an obligation of an
insurance company or other corporation whose credit standing is acceptable to
each Rating Agency and will provide that the Trustee may exercise all of the
rights of the Issuer under such surety bond without the necessity of the taking
of any action by the Issuer. Following each Payment Date for such Series of
Securities, amounts may be withdrawn from the related Reserve Funds and remitted
to the Issuer free from the lien of the applicable Agreement under the
conditions and to the extent specified in the related Prospectus Supplement.
Additional information concerning any Reserve Fund securing a Series of
Securities, including without limitation the manner in which such Reserve Fund
shall be funded and the conditions under which the amounts on deposit therein
will be used to make payments to holders of Securities of a particular Class of
the related Series will be set forth in the related Prospectus Supplement.

MORTGAGE POOL INSURANCE POLICIES

     If so specified in the related Prospectus Supplement, a separate mortgage
pool insurance policy or policies ("Mortgage Pool Insurance Policy") may be
obtained for a Series of Securities supported by Mortgage Loans and issued by
the insurer (the "Pool Insurer") named in such Prospectus Supplement. Each
Mortgage Pool Insurance Policy will, subject to the limitations described below,
cover loss by reason of default in payment on the related Mortgage Loans in an
amount equal to a percentage specified in such Prospectus Supplement of the
aggregate principal balance of such Mortgage Loans on the Cut-off Date which are
not covered as to their entire outstanding principal balances by Primary
Mortgage Insurance Policies. As more fully described below, the Master Servicer
will present claims thereunder to the Pool Insurer on behalf of itself, the
Trustee and the Securityholders. The Mortgage Pool Insurance Policies, however,
are not blanket policies against loss, since claims thereunder may be made only
respecting particular defaulted Mortgage Loans and only upon satisfaction of
certain conditions precedent described below. Unless otherwise specified in the
related Prospectus Supplement, the Mortgage Pool Insurance Policies will not
cover losses due to a failure to pay or denial of a claim under a Primary
Mortgage Insurance Policy.

     Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in effect
for the defaulted Mortgage Loan and a claim thereunder has been submitted and
settled; (ii) hazard insurance on the related Mortgaged Property has been kept
in force and real estate taxes and other protection and preservation expenses
have been paid; (iii) if there has been physical loss or damage to the Mortgaged
Property, it has been restored to its physical condition (reasonable wear and
tear excepted) at the time of issuance of the policy; and (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear of
liens except certain permitted encumbrances. Upon satisfaction of these
conditions, the Pool Insurer will have the option either (a) to purchase the
Mortgaged Property at a price equal to the principal balance of the related
Mortgage Loan plus accrued and unpaid interest at the Mortgage Rate to the date
of such purchase and certain expenses incurred by the Master Servicer on behalf
of the applicable Trustee and Securityholders or (b) to pay the amount by which
the sum of the principal balance of the defaulted Mortgage Loan plus accrued and
unpaid interest at the Mortgage Rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an approved sale of
the Mortgaged Property, in either case net of certain amounts paid or assumed to
have been paid under the related Primary Mortgage Insurance Policy. If any
Mortgaged Property is damaged, and proceeds, if any, from the related standard
hazard insurance policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the damaged property to a condition sufficient to permit
recovery under the Mortgage Pool Insurance Policy, the Master Servicer will not
be required to expend its own funds to restore the damaged property unless it
determines that (i) such restoration will increase the proceeds to
Securityholders on liquidation of the Mortgage Loan after reimbursement of the
Master Servicer for its expenses and (ii) such expenses will be recoverable by
it through proceeds of the sale of the Mortgaged Property or proceeds of the
related Mortgage Pool Insurance Policy or any related Primary Mortgage Insurance
Policy.

     Unless otherwise specified in the related Prospectus Supplement, no
Mortgage Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies do not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. A
failure of coverage

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<PAGE>
 
attributable to one of the foregoing events might result in a breach of the
related Seller's representations described above and, in such event, might give
rise to an obligation on the part of such Seller to repurchase the defaulted
Mortgage Loan if the breach cannot be cured by such Seller. No Mortgage Pool
Insurance Policy will cover (and many Primary Mortgage Insurance Policies do not
cover) a claim in respect of a defaulted Mortgage Loan occurring when the
servicer of such Mortgage Loan, at the time of default or thereafter, was not
approved by the applicable insurer.

     Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Mortgage Pool Insurance Policy will be
reduced over the life of the related Securities by the aggregate dollar amount
of claims paid less the aggregate of the net amounts realized by the Pool
Insurer upon disposition of all foreclosed properties. The amount of claims paid
will include certain expenses incurred by the Master Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of payment of the claim,
unless otherwise specified in the related Prospectus Supplement. Accordingly, if
aggregate net claims paid under any Mortgage Pool Insurance Policy reach the
original policy limit, coverage under that Mortgage Pool Insurance Policy will
be exhausted and any further losses will be borne by the Securityholders.

SPECIAL HAZARD INSURANCE POLICIES

     If so specified in the related Prospectus Supplement, a separate Special
Hazard Insurance Policy may be obtained for a Series of Securities supported by
Mortgage Loans and will be issued by the insurer (the "Special Hazard Insurer")
named in such Prospectus Supplement. Each Special Hazard Insurance Policy will,
subject to limitations described below, protect holders of the related
Securities from (i) loss by reason of damage to Mortgaged Properties caused by
certain hazards (including earthquakes and, to a limited extent, tidal waves and
related water damage or as otherwise specified in the related Prospectus
Supplement) not insured against under the standard form of hazard insurance
policy for the respective states in which the Mortgaged Properties are located
or under a flood insurance policy (unless the Mortgaged Property is located in a
federally designated flood area) and (ii) loss caused by reason of the
application of the coinsurance clause contained in standard hazard insurance
policies. No Special Hazard Insurance Policy will cover losses occasioned by
fraud or conversion by either Trustee or Master Servicer, war, insurrection,
civil war, certain governmental action, errors in design, faulty workmanship or
materials (except under certain circumstances), nuclear or chemical reaction,
flood (if the Mortgaged Property is located in a federally designated flood
area), nuclear or chemical contamination and certain other risks. The amount of
coverage under any Special Hazard Insurance Policy will be specified in the
related Prospectus Supplement. Each Special Hazard Insurance Policy will provide
that no claim may be paid unless hazard and, if applicable, flood insurance on
the property securing the Mortgage Loan have been kept in force and other
protection and preservation expenses have been paid.

     Subject to the foregoing limitations, and unless otherwise specified in the
related Prospectus Supplement, each Special Hazard Insurance Policy will provide
that where there has been damage to property securing a foreclosed Mortgage Loan
(title to which has been acquired by the insured) and to the extent such damage
is not covered by the standard hazard insurance policy or flood insurance
policy, if any, maintained by the mortgagor or the Master Servicer, the Special
Hazard Insurer will pay the lesser of (i) the cost of repair or replacement of
such property or (ii) upon transfer of the property to the Special Hazard
Insurer, the unpaid principal balance of such Mortgage Loan at the time of
acquisition of such property by foreclosure or deed in lieu of foreclosure, plus
accrued interest to the date of claim settlement and certain expenses incurred
by the Master Servicer with respect to such property. If the unpaid principal
balance of a Mortgage Loan plus accrued interest and certain expenses is paid by
the Special Hazard Insurer, the amount of further coverage under the related
Special Hazard Insurance Policy will be reduced by such amount less any net
proceeds from the sale of the property. Any amount paid as the cost of repair of
such property will further reduce coverage by such amount. So long as a Mortgage
Pool Insurance Policy remains in effect, the payment by the Special Hazard
Insurer of the cost of repair or of the unpaid principal balance of the related
Mortgage Loan plus accrued interest and certain expenses will not affect the
total insurance proceeds paid to Bondholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard Insurance Policy
and Mortgage Pool Insurance Policy.

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<PAGE>
 
     To the extent specified in the related Prospectus Supplement, the Master
Servicer may deposit cash, an irrevocable letter of credit or a guaranteed
investment contract in a special trust account to provide protection in lieu of
or in addition to that provided by a Special Hazard Insurance Policy. The amount
of any Special Hazard Insurance Policy or of the deposit to the special trust
account in lieu thereof relating to such Bonds may be reduced so long as any
such reduction will not result in a downgrading of the rating of such Bonds by
any applicable Rating Agency.

BANKRUPTCY BONDS

     If so specified in the related Prospectus Supplement, a bankruptcy bond or
bonds (the "Bankruptcy Bond") may be obtained for a Series of Securities
supported by Mortgage Loans to cover losses resulting from proceedings under the
federal Bankruptcy Code with respect to a Mortgage Loan will be issued by an
insurer named in such Prospectus Supplement. Each Bankruptcy Bond will cover, to
the extent specified in the related Prospectus Supplement, certain losses
resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid interest on
the amount of such a principal reduction from the date of the filing of a
bankruptcy petition. The required amount of coverage under each Bankruptcy Bond
will be set forth in the related Prospectus Supplement. Coverage under a
Bankruptcy Bond may be canceled or reduced by the Master Servicer if such
cancellation or reduction would not adversely affect the then current rating or
ratings of the related Bonds. See "Certain Legal Aspects of the Mortgage Loans -
- - Anti-deficiency Legislation and Other Limitations on Lenders" herein.

     To the extent specified in the related Prospectus Supplement, the Master
Servicer may deposit cash, an irrevocable letter of credit or a guaranteed
investment contract in a special trust account to provide protection in lieu of
or in addition to that provided by a Bankruptcy Bond. The amount of any
Bankruptcy Bond or of the deposit to the special trust account in lieu thereof
relating to such Securities may be reduced so long as any such reduction will
not result in a downgrading of the then current rating of such Securities by any
such Rating Agency.

BOND INSURANCE POLICIES, SURETY BONDS AND GUARANTIES

     If specified in the related Prospectus Supplement, deficiencies in amounts
otherwise payable on Securities of a Series or certain Classes thereof will be
covered by insurance policies and/or surety bonds provided by one or more
insurance companies or sureties. Such instruments may cover, with respect to one
or more Classes of Securities of the related Series, timely payments of interest
and/or full payments of principal on the basis of a schedule of principal
payments set forth in or determined in the manner specified in the related
Prospectus Supplement. In addition, if specified in the related Prospectus
Supplement, a Series of Securities may also be covered by insurance or
guaranties for the purpose of (i) maintaining timely payments or providing
additional protection against losses on the Mortgage Collateral supporting such
Series, (ii) paying administrative expenses or (iii) establishing a minimum
reinvestment rate on the payments made in respect of such Mortgage Collateral or
principal payment rate on such Mortgage Collateral. Such arrangements may
include agreements under which Securityholders are entitled to receive amounts
deposited in various accounts held by the applicable Trustee upon the terms
specified in such Prospectus Supplement. A copy of any such instrument for a
Series will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed within 15 days of issuance of the Securities of the related
Series.

LETTER OF CREDIT

     If so specified in the related Prospectus Supplement, credit enhancement
may be provided by a letter of credit. The letter of credit, if any, with
respect to a Series of Securities will be issued by the bank or financial
institution specified in the related Prospectus Supplement (the "L/C Bank").
Under the letter of credit, the L/C Bank will be obligated to honor drawings
thereunder in an aggregate fixed dollar amount, net of unreimbursed payments
thereunder, equal to the percentage specified in the related Prospectus
Supplement of the aggregate principal balance of the Mortgage Collateral
supporting the related Series of Securities on the related Cut-off Date or of
one or more Classes of Securities (the "L/C Percentage"). If so specified in the
related Prospectus Supplement, the letter of credit may permit drawings in the
event of losses not covered by insurance policies or other credit support, such
as losses arising from damage not covered by standard hazard insurance policies,
losses resulting from the bankruptcy of a 

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<PAGE>
 
borrower and the application of certain provisions of the federal Bankruptcy
Code, or losses resulting from denial of insurance coverage due to
misrepresentations in connection with the origination of a Mortgage Loan. The
amount available under the letter of credit will, in all cases, be reduced to
the extent of the unreimbursed payments thereunder. The obligations of the L/C
Bank under the letter of credit for each Series of Securities will expire at the
date specified in the related Prospectus Supplement. A copy of the letter of
credit for a Series, if any, will be filed with the Commission as an exhibit to
a Current Report on Form 8-K to be filed within 15 days of issuance of the
Securities of the related Series.

OVER-COLLATERALIZATION

     If so specified in the related Prospectus Supplement, credit enhancement
may consist of over-collateralization whereby the aggregate principal balance of
the related Mortgage Collateral exceeds the aggregate principal balance of the
Securities of the related Series. Such over-collateralization may exist on the
related Closing Date or develop thereafter as a result of the application of a
portion of the interest payments on each Mortgage Loan or Certificate, as the
case may be, as an additional payment in respect of principal to reduce the
principal balance of a certain Class or Classes of Securities and, thus,
accelerate the rate of payment of principal on such Class or Classes of
Securities.

CROSS-COLLATERALIZATION

     If so specified in the related Prospectus Supplement, separate groups of
Mortgage Collateral may support separate Classes of the related Series of
Securities. In such case, credit support may be provided by a cross-
collateralization feature which requires that payments be made with respect to
Securities supported by one or more groups of Mortgage Collateral prior to
distributions to Subordinated Securities secured by one or more other groups of
Mortgage Collateral. Cross-collateralization may be provided by (i) the
allocation of certain excess amounts generated by one or more groups of Mortgage
Collateral to one or more other groups of Mortgage Collateral or (ii) the
allocation of losses with respect to one or more groups of Mortgage Collateral,
to one or more other groups of Mortgage Collateral. Such excess amounts will be
applied and/or such losses will be allocated to the Class or Classes of
Subordinated Securities of the related Series then outstanding having the lowest
rating assigned by any applicable Rating Agency or the lowest payment priority,
in each case to the extent and in the manner more specifically described in the
related Prospectus Supplement. The Prospectus Supplement for a Series which
includes a cross-collateralization feature will describe the manner and
conditions for applying such cross-collateralization feature.

EXCESS SPREAD

     "Excess Spread" refers to the positive spread that may exist to the extent
specified in the related Prospectus Supplement between the weighted average of
the interest rates (less servicing or other applicable fees) on the Mortgage
Collateral and the weighted average of the interest rates.  Whether at any time
any such positive spread exists will depend on a variety of factors, including,
with respect to a Series of Securities with respect to which both the Securities
and the Mortgage Collateral bear interest at adjustable rates, the relationship
of the movements in the indices applicable to the Mortgage Collateral and those
applicable to the Securities, over which no prediction can be made or assurance
given.

     If so specified in the related Prospectus Supplement, the coverage provided
by one or more of the forms of credit enhancement described in this Prospectus
may apply concurrently to two or more separate Series of Securities. If
applicable, the related Prospectus Supplement will identify the Series of
Securities to which such credit enhancement relates and the manner of
determining the amount of coverage provided to such Series of Securities thereby
and of the application of such coverage to the identified Series of Securities.

MINIMUM PRINCIPAL PAYMENT AGREEMENT

     If so specified in the related Prospectus Supplement, an Issuer may enter
into an agreement with an institution pursuant to which such institution will
provide such funds as may be necessary to enable such Issuer to 

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<PAGE>
 
make principal payments on the Securities of the related Series at a minimum
rate set forth in such Prospectus Supplement.

DERIVATIVE ARRANGEMENTS

     If so specified in the related Prospectus Supplement, credit enhancement
may be provided with respect to one or more Classes of Securities of a Series or
with respect to the Mortgage Collateral supporting a Series of Securities in the
form of one or more derivative arrangements. A derivative arrangement is a
contract or agreement, the price of which is directly dependent upon (i.e.,
"derived from") the value of one or more underlying assets, including
securities, equity indices, debt instruments, commodities, other derivative
instruments, or any agreed upon pricing index or arrangement (e.g., the movement
over time of the Consumer Price Index or interest rates). Derivatives involve
rights or obligations based on the underlying asset, but do not necessarily
result in a transfer of the underlying asset. Derivative arrangements include
swap agreements, interest rate swaps, interest rate caps, interest rate floors,
interest rate collars and currency swap agreements. A "swap agreement" is a
contractual agreement providing for a series of exchanges of principal and/or
interest in the same or different currencies. At a more general level, the term
"swap agreement" includes the exchange of fixed-for-floating payments on a given
quantity of a specified commodity, security or other asset. An "interest rate
swap" is a swap agreement between two parties to engage in a series of exchanges
of interest payments on the same notional principal amount denominated in the
same currency based, respectively, on variable and fixed rates of interest. An
"interest rate cap" is an agreement providing for multi-period cash settled
options on interest rates. The cap purchaser receives a cash payment whenever
the reference rate exceeds the ceiling rate on a fixing date. An "interest rate
floor" is an agreement providing for a multi-period interest rate option that
provides a cash payment to the holder of the option whenever the reference rate
is below the floor on a fixing date. An "interest rate collar" is an agreement
providing for a combination of an interest rate cap and an interest rate floor
such that a cap is purchased and a floor is sold or vice versa. The effect of an
interest rate collar is to place upper and lower bounds on the cost of funds. A
"currency swap agreement" is a swap agreement between two parties for the
exchange of a future series of interest and principal payments in which one
party pays in one currency and the other party pays in a different currency. The
exchange rate is fixed over the life of the currency swap agreement.

     The derivative arrangements described above will support the payments on
the Securities to the extent and under the conditions specified in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, no credit enhancement will provide protection against all risks of
loss or guarantee repayment of the entire principal balance of the Securities
and interest thereon. If losses occur which exceed the amount covered by credit
enhancement or which are not covered by the credit enhancement, Securityholders
will bear their allocable share of any deficiencies.

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<PAGE>
 
                        SERVICING OF THE MORTGAGE LOANS

GENERAL

     The Master Servicer of the Mortgage Loans, supporting a Series of
Securities will be responsible for servicing such Mortgage Loans in accordance
with the terms set forth in a master servicing agreement (the "Master Servicing
Agreement") among the Issuer, the Master Servicer and the applicable Trustee.
The Master Servicer with respect to a Series of Securities will be identified in
the related Prospectus Supplement.  The Master Servicer may perform certain of
its servicing obligations under the Master Servicing Agreement through one or
more servicers (each, a "Servicer") pursuant to one or more mortgage servicing
agreements (each, a "Servicing Agreement"). Notwithstanding any such servicing
arrangements, unless otherwise provided in the related Prospectus Supplement,
the Master Servicer will remain liable for its servicing duties and obligations
under the Master Servicing Agreement.

     No Servicing Agreement will contain any terms inconsistent with the related
Master Servicing Agreement. For Mortgage Loans acquired from TMA, each Servicing
Agreement will typically be a contract solely between TMA and the Servicer.  TMA
will assign all of its rights under each Servicing Agreement to the Depositor
under the related Mortgage Loan Purchase Agreement and such rights will be
assigned to the applicable Trustee pursuant to the Indenture.  The Master
Servicing Agreement relating to a Series of Securities will provide that the
Master Servicer and, if for any reason such Master Servicer is no longer the
Master Servicer of the related Mortgage Loans, the applicable Trustee or any
successor Master Servicer must recognize the Servicer's rights and obligations
under such Servicing Agreement.  As an independent contractor, each Servicer
will perform servicing functions for the Mortgage Loans including collection and
remittance of principal and interest payments, administration of mortgage escrow
accounts, collection of certain insurance claims and, if necessary, foreclosure.

     The Master Servicer may permit Servicers to contract with subservicers to
perform some or all of the Servicer's servicing duties, but the Servicer will
not thereby be released from its obligations under the related Servicing
Agreement. The Master Servicer also may enter into servicing contracts directly
with an affiliate of a Servicer or permit a Servicer to transfer its servicing
rights and obligations to a third party. In such instances, the affiliate or
third party, as the case may be, will perform servicing functions comparable to
those normally performed by the Servicer as described above, and the Servicer
will not be obligated to perform such servicing functions. When used herein with
respect to servicing obligations, the term Servicer includes any such affiliate
or third party. The Master Servicer may perform certain supervisory functions
with respect to servicing by the Servicers directly or through an agent or
independent contractor.

     On or before the related Closing Date, the Master Servicer will establish
an account into which each Servicer will remit collections on the Mortgage Loans
serviced by it (net of the Servicer's related servicing compensation, amounts
retained to pay certain insurance premiums and amounts retained by such Servicer
as reimbursement for certain advances it has made). For purposes of the Master
Servicing Agreement, the Master Servicer will be deemed to have received any
amounts with respect to the Mortgage Loans that are received by a Servicer
regardless of whether such amounts are remitted by the Servicer to the Master
Servicer. To the extent permitted under the underlying mortgage documents, the
Master Servicer will have the right under the Master Servicing Agreement to
remove the Servicer servicing any Mortgage Loans in the event such Servicer
defaults under its Servicing Agreement and will exercise that right if the
Master Servicer considers such removal to be in the best interest of the
Securityholders. In the event that the Master Servicer removes a Servicer, the
Master Servicer will continue to be responsible for servicing the related
Mortgage Loans. With respect to certain Mortgage Loans with a Loan-To-Loan-
Ratio in excess of 80% for which additional collateral secures the Mortgage
Loan, as set forth in the related Prospectus Supplement, the Master Services may
not have the ability to terminate the Services with respect to the servicing and
administration of such Mortgage Loans.

     A form of Master Servicing Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.  The Master
Servicing Agreement or Pooling and Servicing Agreement with respect to a Series
of Securities supported  by Mortgage Loans will be assigned to the applicable
Trustee as security for such Series. The following summaries describe certain
provisions of the form of Master Servicing Agreement. The 

                                       64
<PAGE>
 
summaries are qualified in their entirety by reference to the form of Master
Servicing Agreement. Where particular provisions or terms used in the form of
Master Servicing Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summaries.

PAYMENTS ON MORTGAGE LOANS

     Pursuant to the Master Servicing Agreement with respect to a Series of
Securities, the Master Servicer will be required to establish and maintain the
Bond Account as a separate Eligible Account or Eligible Accounts into which it
will deposit or cause to be deposited on a daily basis, or such other basis as
may be specified in the related Prospectus Supplement, payments of principal and
interest (net of servicing compensation, amounts retained to pay certain
insurance premiums and amounts retained by the Master Servicer or any Servicer
as reimbursement for certain advances it has made) received with respect to the
related Mortgage Loans. Such amounts will include principal prepayments, certain
Insurance Proceeds, Condemnation Proceeds and Liquidation Proceeds and amounts
paid by the Servicer or the Company in connection with any optional purchase by
the Servicer or the Company of any defaulted Mortgage Loans.  Condemnation
Proceeds include all awards or settlements in respect of a taking of all or part
of a Mortgaged Property, whether permanent or temporary, by power of eminent
domain or condemnation or threat thereof.

     An "Eligible Account" is an account either (i) maintained with a depository
institution the short-term debt obligations of which (or in the case of a
depository institution that is the principal subsidiary of a holding company,
the short-term debt obligations of which, but only if Moody's is not an
applicable Rating Agency) are rated in one of the two highest short-term rating
categories by each applicable Rating Agency, (ii) an account or accounts the
deposits in which are fully insured by either the BIF or SAIF, (iii) an account
or accounts the deposits in which are insured by the BIF or SAIF to the limits
established by the FDIC, and the uninsured deposits in which are otherwise
secured such that, as evidenced by an opinion of counsel, the Securityholders
have a claim with respect to the funds in the Bond Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
depository institution with which the Bond Account is maintained, (iv) a trust
account or accounts maintained with the trust department of a federal or a state
chartered depository institution or trust company, acting in a fiduciary
capacity or (v) an account or accounts otherwise acceptable to each applicable
Rating Agency. The collateral eligible to secure amounts in the Bond Account is
limited to Permitted Investments. A Bond Account may be maintained as an
interest bearing account or the funds held therein may be invested pending each
succeeding Payment Date in Permitted Investments. If so specified in the related
Prospectus Supplement, the Master Servicer or its designee will be entitled to
receive any such interest or other income earned on funds in the Bond Account as
additional compensation and will be obligated to deposit in the Bond Account the
amount of any loss immediately as realized.

     Pursuant to the Master Servicing Agreement, the Master Servicer will be
required to remit to the applicable Trustee (to the extent not previously
remitted), on or before each Distribution Account Deposit Date, the applicable
Distribution Amount for the related Payment Date for deposit in the Distribution
Account for such Series of Bonds maintained with the applicable Trustee.

     Any amounts received by the Master Servicer as Insurance Proceeds
Condemnation Proceeds, or as Liquidation Proceeds, net of any expenses and other
amounts reimbursable to the Master Servicer pursuant to the Master Servicing
Agreement, will (unless applied to the repair or restoration of a Mortgaged
Property) be deemed to be payments received with respect to the Mortgage Loans
securing the related Series of Securities and will be deposited in the related
Bond Account.

     Prior to each Payment Date for a Series of Securities, the Master Servicer
will furnish to the Security Trustee a statement setting forth certain
information with respect to payments received with respect to the Mortgage
Loans.

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<PAGE>
 
COLLECTION PROCEDURES

     The Master Servicer, directly or through one or more Servicers, will make
reasonable efforts to collect all payments called for under the Mortgage Loans
and will, consistent with each Master Servicing Agreement and any Mortgage Pool
Insurance Policy, Primary Mortgage Insurance Policy and Bankruptcy Bond or
alternative arrangements, follow such collection procedures as are customary
with respect to mortgage loans that are comparable to the Mortgage Loans.
Consistent with the above, the Master Servicer or applicable Servicer may, in
its discretion, (i) waive any assumption fee, late payment or other charge in
connection with a Mortgage Loan and (ii) to the extent not inconsistent with the
coverage of such Mortgage Loan by a Mortgage Pool Insurance Pool Policy, Primary
Mortgage Insurance Policy or Bankruptcy Bond or alternative arrangements, if
applicable, arrange with a Mortgagor a schedule for the liquidation of
delinquencies running for no more than 180 days (unless a longer period is
specified in the related Prospectus Supplement) after the applicable due date
for each payment. To the extent the Master Servicer is obligated to make or to
cause to be made advances, such obligation will remain during any period of such
an arrangement.

     Unless otherwise specified in the related Prospectus Supplement, in any
case in which property securing a Mortgage Loan has been, or is about to be,
conveyed by the Mortgagor, the Master Servicer will, to the extent it has
knowledge of such conveyance or proposed conveyance, exercise or cause to be
exercised its rights to accelerate the maturity of such Mortgage Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such rights
is permitted by applicable law and will not impair or threaten to impair any
recovery under any related Primary Mortgage Insurance Policy. If these
conditions are not met or if the Master Servicer reasonably believes it is
unable under applicable law to enforce such due-on-sale clause, the Master
Servicer will enter into or cause to be entered into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, pursuant to which such person becomes liable for repayment
of the Mortgage Loan and, to the extent permitted by applicable law, the
Mortgagor also remains liable thereon. If a Mortgaged Property is sold or
transferred, the Master Servicer will be required promptly to notify the
applicable Trustee and the respective issuers of any hazard insurance policies,
mortgagor bankruptcy insurance and mortgage insurance policies to assure that
all required endorsements to each insurance policy are obtained and that
coverage under each such policy will remain in effect after the occurrence of
such sale or transfer. Any fee collected by or on behalf of the Master Servicer
for entering into an assumption agreement will be retained by or on behalf of
the Master Servicer as additional servicing compensation if pursuant to the
terms of the related Servicing Agreement the Servicer may be entitled to retain
such fees.  See "Certain Legal Aspects of Mortgage Loans -- "Due-on-sale"
Clauses" herein. In connection with any such assumption, the terms of the
related Mortgage Loan may not be changed.

     With respect to Cooperative Loans, any prospective purchaser will generally
have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of Mortgage
Loans" herein. This approval is usually based on the purchaser's income and net
worth and numerous other factors. Although the Cooperative's approval is
unlikely to be unreasonably withheld or delayed, the necessity of acquiring such
approval could limit the number of potential purchasers for those shares and
otherwise limit the ability to sell and realize the value of those shares.

     In general, a "tenant-stockholder" (as defined in Code Section 216(b)(2))
of a corporation that qualifies as a "cooperative housing corporation" within
the meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such Section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders
(as defined in Code Section 216(b)(2)). By virtue of this requirement, the
status of a corporation for purposes of Code Section 216(b)(1) must be
determined on a year-to-year basis. Consequently, there can be no assurance that
Cooperatives relating to the Cooperative Loans will qualify under such Section
for any particular year. In the event that such a Cooperative fails to qualify
for one or more years, the value of the collateral securing any related
Cooperative Loans could be

                                       66
<PAGE>
 
significantly impaired because no deduction would be allowable to tenant-
stockholders under Code Section 216(a) with respect to those years. In view of
the significance of the tax benefits accorded tenant-stockholders of a
corporation that qualifies under Code Section 216(b)(1), the likelihood that
such a failure would be permitted to continue over a period of years appears
remote.

JUNIOR MORTGAGES

     In the case of Mortgage Loans secured by junior liens on the related
Mortgaged Properties, the Master Servicer will be required to file (or cause to
be filed) of record a request for notice of any action by a superior lienholder
under the Senior Lien for the protection of the related Trustee's interest,
where permitted by local law and whenever applicable state law does not require
that a junior lienholder be named as a party defendant in foreclosure
proceedings in order to foreclose such junior lienholder's equity of redemption.
The Master Servicer also will be required to notify any superior lienholder in
writing of the existence of the Mortgage Loan and request notification of any
action (as described below) to be taken against the Mortgagor or the Mortgaged
Property by the superior lienholder. If the Master Servicer is notified that any
superior lienholder has accelerated or intends to accelerate the obligations
secured by the related Senior Lien, or has declared or intends to declare a
default under the mortgage or the promissory note secured thereby, or has filed
or intends to file an election to have the related Mortgaged Property sold or
foreclosed, then the Master Servicer will be required to take, on behalf of the
related Issuer, whatever actions are necessary to protect the interests of the
related Securityholders, and/or to preserve the security of the related Mortgage
Loan. The Master Servicer will generally be required to advance the necessary
funds to cure the default or reinstate the superior lien, if such advance is in
the best interests of the related Securityholders and the Master Servicer
determines such advances are recoverable out of payments on or proceeds of the
related Mortgage Loan.

SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES

     The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Securities will be
equal to the percentage per annum described in the related Prospectus Supplement
(which may vary under certain circumstances) of the outstanding principal
balance of each Mortgage Loan supporting such Series of Securities and such
compensation will be retained by it from collections of interest on such
Mortgage Loan (the "Master Servicing Fee"). As compensation for its servicing
duties, any Servicer or subservicer will generally be entitled to a monthly
servicing fee as described in the related Prospectus Supplement. In addition,
the Master Servicer, any Servicer or any subservicer will retain as additional
compensation all prepayment charges, assumption fees and late payment charges,
to the extent collected from Mortgagors, and any benefit that may accrue as a
result of the investment of funds in the applicable Bond Account (unless
otherwise specified in the related Prospectus Supplement).

     The Master Servicer will pay or cause to be paid certain ongoing expenses
associated with each Series of Securities and incurred by it in connection with
its responsibilities under the related Master Servicing Agreement, including,
without limitation, payment of any fee or other amount payable in respect of any
credit enhancement arrangements, payment of the fees and disbursements of the
applicable Trustee, any custodian appointed by the Bond Trustee, the certificate
registrar and any paying agent, and payment of expenses incurred in enforcing
the obligations of Servicers and Sellers. The Master Servicer will be entitled
to reimbursement of expenses incurred in enforcing the obligations of Servicers
under certain limited circumstances. In addition, as indicated in the preceding
section, the Master Servicer will be entitled to reimbursement of expenses
incurred by it in connection with any defaulted Mortgage Loan as to which it has
determined that all recoverable Liquidation Proceeds and Insurance Proceeds have
been received (a "Liquidated Mortgage"), and in connection with the restoration
of Mortgaged Properties, such right of reimbursement being prior to the rights
of Securityholders to receive any related Liquidation Proceeds or Insurance
Proceeds.

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<PAGE>
 
PREPAYMENTS

     In general, when a borrower prepays a mortgage loan between due dates, the
borrower is required to pay interest on the amount prepaid only to the date of
prepayment and not thereafter. In the event such prepayments, together with
other prepayments (including for this purpose prepayments resulting from
refinancing or liquidations of the Mortgage Loans or the mortgage loans
underlying the Certificates, as the case may be, due to defaults, casualties,
condemnations, repurchases by the Seller, the Issuer or TMA or purchases thereof
by the Master Servicer or the Company), result in a shortfall in the amount of
interest available on a Payment Date for the Securities of a Series, the Master
Servicer may be required to cover the shortfall, but only if and to the extent
specified in the related Prospectus Supplement.

EVIDENCE AS TO COMPLIANCE

     Each Master Servicing Agreement and Indenture will provide that on or
before a specified date in each year, a firm of independent certified public
accountants will furnish a statement to the Issuer and the Bond Trustee to the
effect that, on the basis of the examination by such firm conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers, the audit program for mortgages serviced for FHLMC or such
other procedures as may be specified in the related Prospectus Supplement, the
servicing by or on behalf of the Master Servicer of Mortgage Loans under
agreements substantially similar to each other (including the related Master
Servicing Agreement) was conducted in compliance with such agreements except for
any significant exceptions or errors in records that, in the opinion of the
firm, the audit program for mortgages serviced for FHLMC, the Uniform Single
Attestation Program for Mortgage Bankers or such other procedure, requires it to
report. In rendering its statement such firm may rely, as to matters relating to
the direct servicing of Mortgage Loans by Servicers, upon comparable statements
for examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers, the Audit Program for Mortgages
serviced for FHLMC or such other procedure, (rendered within one year of such
statement) of firms of independent certified public accountants with respect to
the related Servicer.

     Each Master Servicing Agreement and Indenture will also provide for
delivery to the Issuer and the Bond Trustee, on or before a specified date in
each year, of an annual statement signed by two officers of the Master Servicer
to the effect that the Master Servicer has fulfilled its obligations under the
Master Servicing Agreement throughout the preceding year.

     Copies of the annual accountants' statement and the statement of officers
of the Master Servicer may be obtained by Securityholders of the related Series
without charge upon written request to the Issuer at its principal executive
offices.

ADVANCES AND OTHER AMOUNTS PAYABLE BY MASTER SERVICER

     Subject to any limitations set forth in the related Prospectus Supplement,
each Master Servicing Agreement will require the Master Servicer to advance on
or before each Payment Date (from its own funds, funds advanced by Servicers or
funds held in the Bond Account for future distribution to Securityholders), an
amount equal to the aggregate of payments of principal and interest that were
delinquent on the related Determination Date, subject to the Master Servicer's
determination that such advances will be recoverable out of late payments by
obligors on the Mortgage Collateral, Liquidation Proceeds, Insurance Proceeds or
otherwise.

     In making Advances, the Master Servicer will endeavor to maintain a regular
flow of scheduled interest and principal payments to Securityholders, rather
than to guarantee or insure against losses. If Advances are made by the Master
Servicer from cash being held for future distribution to Securityholders, the
Master Servicer will replace such funds on or before any future Payment Date to
the extent that funds in the applicable Bond Account on such Payment Date would
be less than the amount required to be available for distributions to
Securityholders on such date. Any Advances will be reimbursable to the Master
Servicer out of recoveries on the specific Mortgage Collateral with respect to
which such Advances were made (e.g., late payments made by the related obligors,
any related 

                                       68
<PAGE>
 
Insurance Proceeds, Certified Proceeds, Liquidation Proceeds or proceeds of any
Mortgage Loan repurchased pursuant to the related Master Servicing Agreement).
In addition, Advances by the Master Servicer (and any advances by a Servicer)
also will be reimbursable to the Master Servicer (or Servicer) from cash
otherwise distributable to Securityholders to the extent that the Master
Servicer determines that any such Advances previously made are not ultimately
recoverable as described in the immediately preceding sentence. The Master
Servicer also will be obligated to make Advances, to the extent recoverable out
of Insurance Proceeds, Condemnation Proceeds, Liquidation Proceeds or otherwise,
in respect of certain taxes and insurance premiums not paid by Mortgagors on a
timely basis. Funds so advanced are reimbursable to the Master Servicer to the
extent permitted by the Master Servicing Agreement. If specified in the related
Prospectus Supplement, the obligations of the Master Servicer to make Advances
may be supported by a cash advance reserve fund, a surety bond or a letter of
credit, in each case as described in such Prospectus Supplement.

RESIGNATION OF MASTER SERVICER

     A Master Servicer may not resign from its obligations and duties under a
Master Servicing Agreement or assign or transfer such duties or obligations
except (i) upon a determination that its duties thereunder are no longer
permissible under applicable law or (ii) upon a sale of its servicing rights
with respect to the Mortgage Loans with the prior written consents of the
applicable Trustee, the Issuer and any applicable Mortgage Insurer. No such
resignation will become effective until the applicable Trustee, as Stand-by
Master Servicer, or a Successor Master Servicer (as such terms are defined
below) has assumed the Master Servicer's obligations and duties under such
Master Servicing Agreement.

     Each Master Servicing Agreement will provide that such a successor master
servicer (the "Successor Master Servicer") must be satisfactory to the Issuer,
the applicable Trustee and any applicable Mortgage Insurer, in the exercise of
their reasonable discretion and must be approved to act as a mortgage servicer
for FHLMC or FNMA.

STAND-BY MASTER SERVICER

     If so specified in the related Prospectus Supplement, the applicable
Trustee will act as stand-by Master Servicer (the "Stand-by Master Servicer")
with respect to each Series of Securities supported by Mortgage Loans. As Stand-
by Master Servicer, the applicable Trustee will succeed to the rights and
obligations of the Master Servicer with respect to the Mortgage Loans securing
such Series upon a default by the Master Servicer or upon resignation by the
Master Servicer until the appointment of a Successor Master Servicer.

SPECIAL SERVICING AGREEMENT

     The Company may appoint a Special Servicer to undertake certain
responsibilities with respect to certain defaulted Mortgage Loans securing a
Series. The Special Servicer may engage various independent contractors to
perform certain of its responsibilities, provided, however, the Special Servicer
remains fully responsible and liable for all its requirements under the special
servicing agreement (the "Special Servicing Agreement"). As may be further
specified in the related Prospectus Supplement, the Special Servicer, if any,
may be entitled to various fees, including, but not limited to, (i) a monthly
engagement fee applicable to each Mortgage Loan, (ii) a special servicing fee,
or (iii) a performance fee applicable to each liquidated Mortgage Loan, in each
case calculated as set forth in the related Prospectus Supplement.

CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE COMPANY

     Each Master Servicing Agreement will provide that neither the Master
Servicer, the Company, the Owner Trustee nor any director, officer, employee or
agent of the Master Servicer, the Company or the applicable Trustee will be
under any liability to the related Securityholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the Master
Servicing Agreement, or for errors in judgment; provided, however, that none of
the Master Servicer, the Company, the applicable Trustee or any such person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance 

                                       69
<PAGE>
 
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. Each Master Servicing Agreement will further provide that the
Master Servicer, the Company, the applicable Trustee and any director, officer,
employee or agent of the Master Servicer, the Company or the applicable Trustee
will be entitled to indemnification by the related Issuer and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the Master Servicing Agreement or the Securities, other
than any loss, liability or expense related to any specific Mortgage Collateral
(except any such loss, liability or expense otherwise reimbursable pursuant to
the Master Servicing Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or negligence in the performance of
duties thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, each Master Servicing Agreement will provide that
neither the Master Servicer, the Company nor the applicable Trustee will be
under any obligation to appear in, prosecute or defend any legal action which is
not incidental to its respective responsibilities under the Master Servicing
Agreement and which in its opinion may involve it in any expense or liability.
The Master Servicer, the Company or the applicable Trustee may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Master Servicing Agreement and the rights and duties of the
parties thereto and the interests of the Securityholders thereunder. In such
event, the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the related Issuer, and the
Master Servicer, the Company or the Owner Trustee, as the case may be, will be
entitled to be reimbursed therefor out of funds otherwise distributable to
Securityholders.

     Any person into which the Master Servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Master
Servicing Agreement, provided that such person is qualified to sell mortgage
loans to, and service mortgage loans on behalf of, FNMA or FHLMC as the case may
be and if applicable and further provided that such merger, consolidation or
succession does not adversely affect the then current rating or ratings of the
Securities of such Series.

SERVICING DEFAULTS

     Events of default under the Master Servicing Agreement (each, a "Servicing
Default") for a Series of Securities will include (i) any failure of the Master
Servicer to deposit in the Bond Account or remit to the applicable Trustee any
required payment (other than an Advance) which continues unremedied for one
business day after the giving of written notice of such failure to the Master
Servicer by the applicable Trustee or the Issuer; (ii) any failure by the Master
Servicer to make an Advance as required under the Master Servicing Agreement,
unless cured as specified therein; (iii) any failure by the Master Servicer duly
to observe or perform in any material respect any of its other covenants or
agreements in the Master Servicing Agreement which continues unremedied for
thirty days (or in the case of a failure to pay insurance premiums which
continues unremedied for a shorter period of days) after the giving of written
notice of such failure to the Master Servicer by the applicable Trustee or the
Issuer; and (iv) certain events of insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceeding and certain actions by or on
behalf of the Master Servicer indicating its insolvency, reorganization or
inability to pay its obligations.

RIGHTS UPON SERVICING DEFAULT

     If a Servicing Default under a Master Servicing Agreement shall have
occurred and be continuing, the applicable Trustee may terminate all of the
rights and obligations of the Master Servicer under such Master Servicing
Agreement, including the Master Servicer's rights to receive any Master
Servicing Fees.  Upon such termination, the applicable Trustee, as Stand-by
Master Servicer, or any Successor Master Servicer duly appointed by the
applicable Trustee will succeed to all the responsibilities, duties and
liabilities of the Master Servicer under such Master Servicing Agreement and
will be entitled to similar compensation arrangements.  Neither the Issuer nor
the applicable Trustee shall have any right to waive any Servicing Default,
except under certain circumstances specified in the Master Servicing Agreement.

AMENDMENT OF MASTER SERVICING AGREEMENT

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<PAGE>
 
     A Master Servicing Agreement with respect to any Series of Securities
supported by Mortgage Loans may not be amended, changed, modified, terminated or
discharged, except by an instrument in writing signed by all parties thereto,
and with prior written notice to any applicable Mortgage Insurer.

                                       71
<PAGE>
 
                                THE AGREEMENTS

     The following is a general summary of certain provisions of the applicable
Agreements (including the applicable Indenture and Trust Agreement) for each
Series of Securities not described elsewhere in this Prospectus. The summaries
are qualified in their entirety by reference to the provisions of the
Agreements. Where particular provisions or terms used in the Agreement are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries. The Agreement relating to
each Series of  Securities will be filed with the Securities and Exchange
Commission within fifteen days of the closing of the sale of such Series of
Securities.  In connection with the following summaries, it should be noted that
for each Series of Securities issued in the form of Certificates, any actions or
votes required or permitted to be taken by Bondholders under the Indenture for
the Bonds included in the Trust Fund Assets for such Series of Certificates will
be authorized to be taken by Certificateholders of such Series, as beneficial
holders of the Bonds.

MODIFICATION OF AGREEMENT

     With the consent of the holders of not less than 66 2/3% of the then
outstanding principal amount of the Class of Securities of the related Series
specified in the related Prospectus Supplement to be the "Controlling Class,"
the application Trustee and the Issuer may execute an amendment indenture to add
provisions to, or change in any manner or eliminate any provisions of, the
Agreement with respect to the Securities of such Series or modify (except as
provided below) in any manner the rights of the Securityholders.

     Without the consent of the holder of each outstanding Security affected,
however, no such amendment shall (a) change the Stated Maturity of the principal
of, or any installment of interest on, any Security or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto, or change the earliest date on which any Security may be
redeemed at the option of the Issuer, or any place of payment where, or the coin
or currency in which, any affected Security or any interest thereon is payable,
or impair the right to institute suit for the enforcement of the provisions of
the Agreement regarding payment, (b) reduce the percentage of the aggregate
amount of the outstanding Security, the consent of the holders of which is
required for any such supplemental indenture, or the consent of the holders of
which is required for any waiver of compliance with certain provisions of the
Indenture or certain defaults thereunder and their consequences provided for in
the Agreement, (c) modify the provisions of the Agreement specifying the
circumstances under which such a supplemental indenture may not change the
provisions of the Agreement without the consent of each outstanding Security
affected thereby, or the provisions of the Indenture with respect to certain
remedies available in an Event of Default (as defined herein), except to
increase any percentage specified therein or to provide that certain other
provisions of the Agreement cannot be modified or waived without the consent of
the holder of each outstanding Security  affected thereby, (d) modify or alter
the provisions of the Agreement defining when Securities are outstanding, (e)
permit the creation of any lien (other than certain permitted liens) ranking
prior to or on a parity with the lien of the Agreement with respect to any part
of the property subject to lien under the Agreement, or terminate the lien of
the Agreement on any property at any time subject thereto or deprive the holder
of any Security of the security afforded by the lien of the Agreement (other
than in connection with a permitted substitution of Mortgage Collateral) or (f)
modify any of the provisions of the Agreement in such manner as to affect the
calculation of the debt service requirement for any Security  or the rights of
the Securityholders to the benefits of any provisions for the mandatory
redemption of Securities contained therein.

     The Issuer and the applicable Trustee may also enter into amendments,
without obtaining the consent of Securityholders (i) to cure any ambiguity; (ii)
to correct a defective provision or correct or supplement any provision therein
which may be inconsistent with any other provision therein; (iii) to make any
other revisions with respect to matters or questions arising under the
Agreements which are not inconsistent with the provisions thereof; or (iv) to
comply with any requirements imposed by the Code or any regulation thereunder,
provided, however, that no such amendments (except those pursuant to clause
(iv)) will adversely affect in any material respect the interest of any
Securityholder of that Series.  An amendment will be deemed no to adversely
affect in any material respect the interests of the Securityholders if the
applicable Trustee receives a letter from each Rating Agency requested to rate a
class or classes of Securities of such Series stating that such amendment will
not result in the downgrading or withdrawal of the respective ratings then
assigned to such Securities.

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<PAGE>
 
EVENTS OF DEFAULT

     An event of default (an "Event of Default") with respect to any Series of
Securities is defined in the applicable Agreement as being: (a) the failure (i)
to pay any principal of, or interest on, any Securities of such Series then due,
(ii) if applicable, to call for special redemption any Securities that are
required to be so redeemed or (iii) to pay the redemption price of any
Securities called for redemption; (b) a default in the observance of certain
negative covenants in the applicable Agreement; (c) a default in the observance
of any other covenant of the Issuer, and the continuation of any such default
for a period of 30 days after notice thereof is given to the Issuer by the
Trustee or by the holders of more than 50% in outstanding principal amount of
the Controlling Class of Securities of such Series; (d) any representation or
warranty made by the Issuer in the Indenture or in any certificate delivered
pursuant thereto being incorrect in a material respect as of the time made, and
the circumstances in respect of which such representation or warranty is
incorrect are not cured within 30 days after notice thereof is given to the
Issuer by the Trustee or by the holders of more than 50% in outstanding
principal amount of the Controlling Class of Securities of such Series; or (e)
certain events of bankruptcy, insolvency, receivership or reorganization of the
Issuer.

RIGHTS UPON EVENTS OF DEFAULT

     In case an Event of Default shall occur and be continuing with respect to a
Series of Securities, the Trustee or holders of more than 50% in outstanding
principal amount of the Controlling Class of Securities of such Series may
declare the principal of such Series of Securities to be due and payable. Such
declaration may under certain circumstances be rescinded by the holders of a
majority in principal amount of the outstanding Securities of such Series.

     Upon an Event of Default the Trustee may, in its discretion, sell the
Mortgage Collateral included in the Trust Fund Assets supporting such Series, in
which event the Securities of such Series will be payable pro rata, without
regard to their Stated Maturities, or in such other manner as is specified in
the related Prospectus Supplement, out of the collections on, or the proceeds
from the sale of, such Collateral and will, to the extent permitted by
applicable law, bear interest at the interest rate specified in the Indenture.
If so specified in the related Prospectus Supplement, following an Event of
Default, if a Series of Securities has been declared to be due and payable, the
Bond Trustee may, in its discretion, refrain from selling the Collateral,
including the Mortgage Collateral, for such Series and continue to apply all
amounts received on the Collateral to payments due on the Securities of such
Series in accordance with their terms, notwithstanding the acceleration of the
maturity of such Securities.

     In case an Event of Default shall occur and be continuing, the Trustee
shall be under no obligation to expend or risk its own funds or otherwise incur
any financial liability in the performance of its duties under the Indenture if
it has reasonable grounds for believing that it has not been assured of adequate
security or indemnity. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount outstanding of the Controlling Class of outstanding Securities
of a Series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Securities of
such Series; and the holders of a majority in principal amount of the
Controlling Class of Securities of a Series then outstanding may, in certain
cases, waive any default with respect thereto, except a default in payment of
principal or interest or a default in respect of a covenant or provision of the
applicable Agreements that cannot be modified without the consent of each holder
of the Securities affected.

     No Securityholder will have the right to institute any proceeding with
respect to the applicable Agreements, unless (a) Securityholder previously has
given to the Trustee written notice of an Event of Default, (b) the holders of
more than 50% in outstanding principal amount of the Controlling Class of Class
of Securities of the Series have made written request upon the Trustee to
institute such proceedings in its own name as Trustee and have offered the
Trustee indemnity in full, (c) the Trustee has for 60 days neglected or refused
to institute any such proceeding and (d) no direction inconsistent with such
written request has been given to the Bond Trustee during such 60-day period by
the holders of a majority in principal amount of the outstanding Securities of
such Series, but the Securityholder has a right which is absolute and
unconditional to receive payments of principal and interest on or after the due
dates thereof and to institute suit for the enforcement thereof.

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CERTAIN INDENTURE COVENANTS OF THE ISSUER

     Each Issuer covenants in the applicable Agreement, among other matters,
that it will not (a) sell, exchange or otherwise dispose of any portion of the
Mortgage Collateral supporting a Series of Securities except as expressly
permitted by the applicable Agreement or the Master Servicing Agreement, (b)
amend the Issuer's trust agreement without the consent of the holders of 66 2/3%
in outstanding principal amount of each Class of Securities affected thereby or
(c) incur, assume or guarantee any indebtedness other than in connection with
the issuance of the Securities.  Each Bond Issuer's applicable Agreement
provides that the trust shall not have the power to perform any act or engage in
any business whatsoever except to issue and administer the Securities of a
Series, to receive and own the Collateral, to maintain and administer the
Mortgage Collateral, to pledge the Mortgage Collateral to support such
Securities pursuant to the Indenture and to take certain other actions
incidental thereto.  Each Issuer's trust agreement prohibits the amendment of
the Agreement if the Trustee thereof determines that such amendment will
adversely affect any right, duty or liability of, or immunity or indemnity in
favor of, the Trustee under the Issuer's Deposit Trust Agreement, or will cause
or result in any conflict with or breach of any terms of, or default under, the
charter documents or bylaws of such trustee or any document to which such
trustee is a party.

ISSUER'S ANNUAL COMPLIANCE STATEMENT

     The Issuer will be required to file annually with the applicable Trustee a
written statement as to fulfillment of its obligations under the related
applicable Agreement.

BOND TRUSTEE'S ANNUAL REPORT

     The Bond Trustee will be required to mail each year to all Securityholders
a brief report relating to its eligibility and qualifications to continue as the
Bond Trustee under the Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness
owing by the Issuer to the Bond Trustee in its individual capacity, the property
and funds physically held by the Bond Trustee as such, and any action taken by
it which materially affects the Bonds and which has not been previously
reported.

SATISFACTION AND DISCHARGE OF INDENTURE

     The Agreements will be discharged with respect to the Mortgage Collateral
supporting the Securities of a Series upon the delivery to the Security Trustee
for cancellation of all of the Securities of such Series or, with certain
limitations, upon deposit with the Security Trustee of funds sufficient for the
payment in full of all of the Securities of such Series.

TERMINATION OF TRUST AGREEMENT

     Unless otherwise specified in the related Trust Agreement, the obligations
created by each Trust Agreement for each Series of Securities will terminate
upon the payment to the related Securityholders of all amount held in the bond
account or by the Master Servicer and required to be paid to them pursuant to
such Agreement following the earlier of (i) the final payment of or other
liquidation of the last of the Trust Fund Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Trust Fund
Assets and (ii) if specified in the related Prospectus Supplement, the purchase
by the holder of the FASIT ownership interest or REMIC residual interest or any
other party specified to have such rights (see "Federal Income Tax
Considerations" below), of all the remaining Trust Fund Assets and all property
acquired in respect of such trust Fund Assets.

THE TRUSTEE

     The applicable Trustee under each Agreement will be identified in the
related Prospectus Supplement.  Any entity selected to serve as a Trustee may
have normal banking relationships with the Depositor, the Master Servicer and
any of their respective affiliates.

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                    CERTAIN LEGAL ASPECTS OF MORTGAGE LOANS

     The following discussion contains general summaries of certain legal
aspects of mortgage loans. Because such legal aspects are governed primarily by
applicable state law (which laws may differ substantially from state to state),
the summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which Mortgaged
Properties may be located. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Mortgage Loans.

GENERAL

     The Mortgage Loans will consist of notes and either mortgages, deeds of
trust, security deeds or deeds to secure debts, depending upon the prevailing
practice in the state in which the underlying Mortgaged Property is located.
Deeds of trust are used almost exclusively in California instead of mortgages. A
mortgage creates a lien upon the real property encumbered by the mortgage, which
lien is generally not prior to the lien for real estate taxes and assessments.
Priority between mortgages depends on their terms and generally on the order of
recording with a state or county office. There are two parties to a mortgage:
the mortgagor, who is the borrower and owner of the mortgaged property; and the
mortgagee, who is the lender. Under a mortgage instrument, the mortgagor
delivers to the mortgagee (i) a note or bond evidencing the loan and (ii) the
mortgage. Although a deed of trust is similar to a mortgage, a deed of trust has
three parties: the borrower-property owner, called the trustor (similar to a
mortgagor); a lender (similar to a mortgagee) called the beneficiary; and a
third-party grantee called the trustee. Under a deed of trust, the borrower
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure payment of the obligation. A
security deed and a deed to secure debt are special types of deeds which
indicate on their face that they are granted to secure an underlying debt. By
executing a security deed or deed to secure debt, the grantor conveys title to,
as opposed to merely creating a lien upon, the subject property to the grantee
until such time as the underlying debt is repaid. The trustee's authority under
a deed of trust, the mortgagee's authority under a mortgage and the grantee's
authority under a security deed or deed to secure a debt are governed by law,
and, with respect to some deeds of trust, the directions of the beneficiary.

JUNIOR MORTGAGES

     Certain of the Mortgage Loans may be secured by junior mortgages or deeds
of trust, which are junior to senior mortgages or deeds of trust which are not
part of the Mortgage Collateral. The rights of the Securityholders as the
holders of a junior deed of trust or a junior mortgage are subordinate in lien
priority and in payment priority to those of the holder of the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive and apply hazard insurance and condemnation proceeds and,
upon default of the mortgagor, to cause a foreclosure on the property. Upon
completion of the foreclosure proceedings by the holder of the senior mortgage
or the sale pursuant to the deed of trust, the junior mortgagee's or junior
beneficiary's lien will be extinguished unless the junior lienholder satisfies
the defaulted senior loan or asserts its subordinate interest in a property in
foreclosure proceedings. See " -- Foreclosure/Repossession" below.

     Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the rights to
perform the obligation itself. Generally, all sums so expended by the mortgagee
or beneficiary become part of the indebtedness secured by the mortgage or deed
of trust. To the extent a senior mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.

FORECLOSURE/REPOSSESSION

     DEED OF TRUST.  Foreclosure of a deed of trust is generally accomplished by
a non-judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states,
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In addition to any notice requirements
contained in a deed of trust, in some states, such as California, the trustee
must record a notice of 

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default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of any notice of default and notice of sale, to
any successor in interest to the borrower-trustor, to the beneficiary of any
junior deed of trust and to certain other persons. In some states, including
California, the borrower-trustor has the right to reinstate the loan at any time
following default until shortly before the trustee's sale. In general, the
borrower, or any other person having a junior encumbrance on the real estate,
may, during a statutorily prescribed reinstatement period, cure a monetary
default by paying the entire amount in arrears plus other designated costs and
expenses incurred in enforcing the obligation. Generally, state law controls the
amount of foreclosure expenses and costs, including attorney's fees, which may
be recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, including California, published for a specific period of time in
one or more newspapers. In addition, some state laws require that a copy of the
notice of sale be posted on the property and sent to all parties having an
interest of record in the real property. In California, the entire process from
recording a notice of default to a non-judicial sale usually takes four to five
months.

     MORTGAGES.  Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In some states, mortgages may also be foreclosed by
advertisement, pursuant to a power of sale provided in the mortgage.

     Although foreclosure sales are typically public sales, frequently no third
party purchaser bids in excess of the lender's lien because of the difficulty of
determining the exact status of title to the property, the possible
deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan, accrued and unpaid interest and the expenses of foreclosure in which event
the mortgagor's debt will be extinguished, or the lender may purchase for a
lesser amount in order to preserve its right against a borrower to seek a
deficiency judgment in states where such judgment is available. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burden of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender will
commonly obtain the services of a real estate broker and pay the broker's
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. See "Trust Fund Assets" herein.

     A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those mortgage loans which are
junior mortgage loans, if the lender purchases the property, the lender's title
will be subject to all senior liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied first
to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of junior
mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds are
generally payable to the mortgagor or trustor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeds.

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     Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. For the most part, these
cases have upheld the notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust does not involve sufficient state
action to afford constitutional protection to the borrower.

RIGHTS OF REDEMPTION

     In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienholder are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, including California, this right of redemption applies
only to sales following judicial foreclosure, and not to sales pursuant to a
non-judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon a payment of the foreclosure
purchase price, accrued interest and taxes. In some states, the right to redeem
is an equitable right. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run.

ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS

     Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, including California, statutes limit the right of the beneficiary or
mortgagee to obtain a deficiency judgment against the borrower following
foreclosure or sale under a deed of trust. A deficiency judgment is a personal
judgment against the former borrower equal in most cases to the difference
between the amount due to the lender and the current fair market value of the
property at the time of the foreclosure sale. As a result of these prohibitions,
it is anticipated that in most instances the Master Servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments against
defaulting mortgagors.

     Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.

     In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property. Finally, other statutory provisions limit any deficiency judgment
against the former borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a beneficiary
or a mortgagee from obtaining a large deficiency judgment against the former
borrower as a result of low or no bids at the foreclosure sale.

     In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon its security. For example, in a
proceeding under the federal Bankruptcy Code, a lender may not foreclose on a
mortgaged property without the permission of the bankruptcy court. In certain
instances, a rehabilitation plan proposed by the debtor may reduce the secured
indebtedness to the value of the mortgaged property as of the date of the
commencement of the bankruptcy, rendering the lender a general unsecured
creditor for the difference, and also may reduce the monthly payments due under
such mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. The effect of any such proceedings under the federal
Bankruptcy Code, including 

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but not limited to any automatic stay, could result in delays in receiving
payments on the Mortgage Loans securing a Series of Bonds and possible
reductions in the aggregate amount of such payments.

     The federal tax laws provide priority to certain tax liens over the lien of
a mortgage or secured party. Numerous federal and state consumer protection laws
impose substantive requirements upon mortgage lenders in connection with the
origination, servicing and enforcement of mortgage loans. These laws include the
federal Truth-in-Lending Act, Real Estate Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act and
related statutes and regulations. These federal and state laws impose specific
statutory liabilities upon lenders who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the loans.

     Generally, Article 9 of the UCC governs foreclosure on Cooperative shares
and the related proprietary lease or occupancy agreement. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.

ENVIRONMENTAL RISKS

     Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states, such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the United States Environmental Protection Agency ("EPA") may impose
a lien on property where the EPA has incurred cleanup costs. However, a CERCLA
lien is subordinate to pre-existing, perfected security interests.

     Under the laws of some states, and under CERCLA, it is conceivable that a
secured lender may be held liable as an "owner or operator" for the costs of
addressing releases or threatened releases of hazardous substances at a
Mortgaged Property even though the environmental damage or threat was caused by
a prior or current owner or operator or a third-party. CERCLA imposes liability
for such costs on any and all "responsible parties," including "owners or
operators." However, CERCLA excludes from the definition of "owner or operator"
a secured creditor "who without participating in the management of the
facility," holds indicia of ownership primarily to protect its security interest
(the "secured creditor exclusion"). Thus, if a lender's activities begin to
encroach on the actual management of a contaminated facility or property, the
lender may incur liability as an "owner or operator" under CERCLA. Similarly, if
a lender forecloses and takes title to a contaminated facility or property, the
lender may incur CERCLA liability in various circumstances, including, but not
limited to, when it holds the facility or property as an investment (including
leasing the facility or property to a third party), or fails to market the
property in a timely fashion.

     Whether actions taken by a lender would constitute participation in the
management of a mortgaged property, or the business of a borrower, so as to
render the secured creditor exemption unavailable to a lender has been a matter
of judicial interpretation of the statutory language, and court decisions have
been inconsistent. In 1990, the Court of Appeals for the Eleventh Circuit
suggested that the mere capacity of the lender to influence a borrower's
decisions regarding disposal of hazardous substances was sufficient
participation in the management of the borrower's business to deny the
protection of the secured creditor exemption to the lender.

     This ambiguity appears to have been resolved by the enactment of the Asset
Conservation, Lender Liability and Deposit Insurance Protection Act of 1996,
which was signed into law by President Clinton on September 30, 1996.  Such
legislation provides that in order to be deemed to have participated in the
management of a mortgaged property, a lender must actually participate in the
operational affairs of the property or the borrower. The legislation also
provides that participation in the management of the property does not include
"merely having the capacity to influence, or unexercised right to control"
operations. Rather, a lender will lose the protection of the secured creditor
exemption only if it exercises decision-making control over the day-to-day
management of all operational functions of the mortgaged property.

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<PAGE>
 
     If a lender is or becomes liable, it can bring an action for contribution
against any other "responsible parties," including a previous owner or operator,
who created the environmental hazard, but those persons or entities may be
bankrupt or otherwise judgment proof. The costs associated with environmental
cleanup may be substantial. It is conceivable that such costs arising from the
circumstances set forth above would become a liability of the Issuer and
occasion a loss to Securityholders.

     CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act ("RCRA"), which regulates underground petroleum storage tanks
(except heating oil tanks). The EPA has adopted a lender liability rule for
underground storage tanks under Subtitle I of RCRA. Under such rule, a holder of
a security interest in an underground storage tank or real property containing
an underground storage tank is not considered an operator of the underground
storage tank as long as petroleum is not added to, stored in or dispensed from
the tank. In addition, under the Asset Conservation, Lender Liability and
Deposit Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. It should be noted, however, that liability for
cleanup of petroleum contamination may be governed by state law, which may not
provide for any specific protection for secured creditors.

     Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans or the mortgage loans underlying the Agency
Securities, as the case may be, were originated, no environmental assessment or
a very limited environmental assessment of the Mortgage Properties or the real
property constituting security for such mortgage loans, respectively, was
conducted.

DUE-ON-SALE CLAUSES

     Unless otherwise provided in the related Prospectus Supplement, each
Mortgage Loan will contain a due-on-sale clause which will generally provide
that if the mortgagor or obligor sells, transfers or conveys the Mortgaged
Property, the loan may be accelerated by the mortgagee. In recent years, court
decisions and legislative actions have placed substantial restriction on the
right of lenders to enforce such clauses in many states. For instance, the
California Supreme Court in August 1978 held that due-on-sale clauses were
generally unenforceable. However, the Garn-St Germain Depository Institutions
Act of 1982 (the "Garn-St Germain Act"), subject to certain exceptions, preempts
state constitutional, statutory and case law prohibiting the enforcement of due-
on-sale clauses. As a result, due-on-sale clauses have become generally
enforceable except in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the "window period" under the Garn-St
Germain Act which ended in all cases not later than October 15, 1982, and (ii)
originated by lenders other than national banks, federal savings institutions
and federal credit unions. FHLMC has taken the position in its published
mortgage servicing standards that, out of a total of eleven "window period
states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have
enacted statutes extending, for various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.

     As to loans secured by an owner-occupied residence, the Garn-St Germain Act
sets forth nine specific instances in which a mortgagee covered by the Garn-St
Germain Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred. The
inability to enforce a due-on-sale clause may result in transfer of the related
Mortgaged Property to an uncreditworthy person, which could increase the
likelihood of default or may result in a mortgage bearing an interest rate below
the current market rate being assumed by a new home buyer, which may affect the
average life of the Mortgage Loans and the number of Mortgage Loans which may
extend to maturity.

<PAGE>
ENFORCEABILITY OF PREPAYMENT CHARGES AND LATE PAYMENT FEES

     Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific 

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limitations upon the late charges which a lender may collect from a borrower for
delinquent payments. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid.

     Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans with respect
to prepayments on loans secured by liens encumbering owner-occupied residential
properties. Since many of the Mortgaged Properties will be owner-occupied, it is
anticipated that prepayment charges may not be imposed with respect to many of
the Mortgage Loans. The absence of such a restraint on prepayment, particularly
with respect to Fixed Rate Mortgage Loans having higher interest rates, may
increase the likelihood of refinancing or other early retirement of such loans
or contracts. Late charges and prepayment fees are typically retained by
servicers as additional servicing compensation.

APPLICABILITY OF USURY LAWS

     Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V"), provides that state usury
limitations shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is authorized to
issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized the states to reimpose
interest rate limits by adopting, before April 1, 1983, a law or constitutional
provision which expressly rejects an application of the federal law. In
addition, even where Title V is not so rejected, any state is authorized by the
law to adopt a provision limiting discount points or other charges on mortgage
loans covered by Title V. Certain states have taken action to reimpose interest
rate limits and/or to limit discount points or other charges.

SOLDIERS' AND SAILORS' CIVIL RELIEF ACT

     Generally, under the terms of the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended (the "Relief Act"), a borrower who enters military service
after the origination of such borrower's mortgage loan (including a borrower who
is a member of the National Guard or is in reserve status at the time of the
origination of the mortgage loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such borrower's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such interest rate limitation could have an effect,
for an indeterminate period of time, on the ability of the Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. Any shortfall
in interest collections resulting from the application of the Relief Act could
result in losses to the Securityholders. In addition, the Relief Act imposes
limitations which would impair the ability of the Master Servicer to foreclose
on an affected Mortgage Loan during the borrower's period of active duty status.
Thus, in the event that such a Mortgage Loan goes into default, there may be
delays and losses occasion by the inability to realize upon the Mortgaged
Property in a timely fashion.

SUBORDINATE FINANCING

     When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceeds by the senior lender.

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                       FEDERAL INCOME TAX CONSIDERATIONS

     The following is a summary of the anticipated material federal income tax
considerations of the purchase, ownership and disposition of the Securities.
This summary has been reviewed by Jeffers, Wilson, Shaff & Falk, LLP, counsel to
the Company and the Issuer, and, to the extent that it states legal conclusions,
represents the opinion of such counsel, subject to the limitations and
qualifications set forth herein and in the applicable Prospectus Supplement.  In
particular, based on certain factual representations on behalf of the Company
relating to the issuance, terms and treatment of the Bonds, and when applicable,
the timely election of FASIT or REMIC treatment, as described in the related
Prospectus Supplement and based on the assumptions of the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to tax counsel as originals, the conformity to original
documents of all documents submitted to tax counsel as certified, conformed or
other copies, and the authenticity of the originals of such copies, counsel is
of the opinion that (a) the Bonds issued by the Issuer will be treated as
indebtedness for federal income tax purposes, and (b), in connection with a
series of Securities issued as FASIT or REMIC interests, that the applicable
Issuer will be classified as a FASIT or REMIC, as applicable, for federal income
tax purposes.  The summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), regulations, rulings and decisions in effect as of the
date of this Prospectus, all of which are subject to change. The summary does
not purport to address federal income tax considerations applicable to all
categories of investors, some of which may be subject to special rules. In
addition, the summary is limited to investors who will hold the Securities as
"capital assets" (generally, property held for investment) as defined in Section
1221 of the Code. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Securities. As applied to any
particular Class of Securities, the summary is subject to further discussion or
explanation as provided in the related Prospectus Supplement.

CLASSIFICATION OF THE ISSUER AND THE BONDS

     No regulations, published rulings or judicial decisions discuss the
characterization for federal income tax purposes of securities with terms
substantially the same as the Bonds. Upon the issuance of each Series of Bonds,
however, Jeffers, Wilson, Shaff & Falk, LLP, counsel to the Issuer, will advise
the Issuer that in its opinion such Bonds will be treated for federal income tax
purposes as indebtedness and not as an ownership interest in the Trust Fund
Assets of the Issuer, or an equity interest in the Issuer or in a separate
association taxable as a corporation.

     Under the taxable mortgage pool ("TMP") rules in the Code, certain entities
that issue debt secured by real estate mortgages are subject to special tax
treatment that can result in entity level federal income taxation. An entity
will be classified as a TMP if it does not make an election to be classified as
a "real estate mortgage investment conduit" (a "REMIC") and (i) substantially
all of its assets consist of debt obligations and more than 50% of such debt
obligations are real estate mortgages or interests therein, (ii) the entity
issues debt obligations with two or more maturities and (iii) payments on the
debt obligations issued by it bear a relationship to payments received on the
debt obligations owned by it. In certain situations, pools of assets within an
entity can also be treated as separate TMPs.

     Where specified in the applicable Prospectus Supplement, the Issuer will
elect to be classified as a REMIC. The Company intends to structure all
issuances of Bonds, so as to not constitute a TMP. However, it is possible that
the Issuer or a portion of the Issuer relating to a specific pool of Mortgage
Collateral and the Securities related thereto could be treated as a TMP if no
REMIC or FASIT election is made with respect to the Trust Fund Assets.  If an
Issuer were classified as a TMP, it is anticipated that it would nonetheless
qualify as a "qualified REIT subsidiary" (within the meaning of Section 856 (i)
of the Code) and thus would not be subject to entity level federal income taxes.
If so, only TMA or its shareholders would be required to include in income any
"excess inclusion income" generated by the TMP. On the other hand, if the Issuer
were classified as a TMP but did not maintain its status as a "qualified REIT
subsidiary", it would not be permitted to be included in the consolidated
federal income tax return of any other corporation and its net income would be
subject to entity level federal income taxes. Each Prospectus Supplement will
specify whether or not the Issuer for that Series of Bonds is expected to be
classified as a TMP. No assurance can be given that any Issuer classified as a
TMP will continue to qualify as a "qualified REIT subsidiary" or that TMA will
continue to qualify as a REIT for federal income tax purposes.

     Securities issued by an Issuer for which a REMIC election is made or which
are issued as "Pass-Through Securities" will qualify as "real estate assets" and
the income paid by such Series of Securities will generate income 

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that will be treated as "interest on obligations secured by mortgage on real
property" within the meaning of Section 856 of the Code. See "Taxation of the
REMIC and its Holders" and "Tax Status as a Grantor Trust" below.

     Because the Securities issued as Bonds will be treated as indebtedness of
the Issuer for federal income tax purposes, (i) Bonds held by a thrift
institution taxed as a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v), (ii) interest on Bonds held by a real
estate investment trust will not be treated as "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B), and Bonds will not constitute "real estate
assets" or "Government securities" within the meaning of Code Section
856(c)(5)(A), and (iii) Bonds held by a regulated investment company will not
constitute "Government securities" within the meaning of Code Section
851(b)(4)(A)(i).

TAXATION OF THE REMIC AND ITS HOLDERS

     GENERAL.  If a REMIC election is made with respect to a Series of
Securities, the arrangement by which the Securities of that Series are issued
will be treated as a REMIC as long as all of the provisions of the applicable
Agreement are complied with and the statutory and regulatory requirements are
satisfied. Securities will be designated as "Regular Interests" or "Residual
Interests" in a REMIC, as specified in the related Prospectus Supplement.

     Except to the extent specified otherwise in a Prospectus Supplement, if a
REMIC election is made with respect to a Series of Securities, in the opinion of
Counsel (i) Securities held by a domestic building and loan association will
constitute "a regular or a residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) (assuming that at least 95% of the REMIC's
assets consist of cash, government securities, "loans secured by an interest in
real property," and other types of assets described in section 7701(a)(19)(C) of
the Code; and (ii) Securities held by a real estate investment trust will
constitute "real estate assets" within the meaning of Code section 856(c)(4)(A),
and income with respect to the Securities will be considered "interest on
obligations secured by mortgages on real property or on interest in real
property" within the meaning of Code Section 856(c)(4)(a); and income with
respect to the Securities will be considered "interest on obligations secured by
mortgages on a real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B) (assuming, for both purposes, that at least
95% of the REMIC's assets are qualifying assets). If less than 95% of the
REMIC's assets consist of assets described in (i) or (ii) above, then a Security
will qualify for the tax treatment described in (i) or (ii) in the proportion
that such REMIC assets are qualifying assets.

     REMIC EXPENSES, SINGLE CLASS REMICS.  As a general rule, all of the
expenses of a REMIC will be taken into account by holders of the Residual
Interest Securities. In the case of a "single class REMIC," however, the
expenses will be allocated, under Treasury regulations, among the
Securityholders of the Regular Interest Securities and the Securityholders of
the Residual Interest Securities on a daily basis in proportion to the relative
amounts of income accruing to each Securityholder on that day. In the case of a
holder of a Regular Interest Security who is an individual or a "pass-through
interest holder" (including certain pass-through entities but not including real
estate investment trusts), such expenses will be deductible only to the extent
that such expenses, plus other "miscellaneous itemized deductions" of the
Securityholder, exceed 2% of such Securityholder's adjusted gross income. Such
expense may also be subject to the general limit on "excess itemized
deductions." The reduction or disallowance of this deduction may have a
significant impact on the yield of the Regular Interest Security to such a
Securityholder. In general terms, a single class REMIC is one that either (i)
would qualify, under existing Treasury regulations, as a grantor trust if it
were not a REMIC (treating all interest as ownership interests, even if they
would be classified as debt for federal income tax purposes) or (ii) is similar
to such a trust and that is structured with the principal purpose of avoiding
the single class REMIC rules. Unless otherwise specified in the related
Prospectus Supplement, the expenses of the REMIC will be allocated to
Securityholders of the related residual interest Securities.

     TAXATION OF THE REMIC.  Although a REMIC is a separate entity for federal
income tax purposes, a REMIC is not really subject to entity-level tax. Rather,
the taxable income or net loss of a REMIC is taken into account by the Holders
of residual interests. As described above, the regular interests are generally
taxable as debt of the REMIC.

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     The taxable income or net loss of a REMIC is determined under an accrual
method of accounting and in the same manner as is in the case of an individual,
with certain adjustments. In general, the taxable income or net loss will be the
difference between (i) the gross income produced by the REMIC's assets,
including stated interest and any OID and market discount on mortgage loans and
deductions including stated interest and OID accrued on Regular Interest
Securities, amortization of any premium with respect to the Loans, and servicing
fees and other expenses of the REMIC. A holder of a Residual Interest Security
that is an individual or a "pass-through interest holder" (including certain
pass-through entities, but not including real estate investment trusts) will be
unable to deduct servicing fees payable on the loans or other administrative
expenses of the REMIC for a given taxable year, to the extent that such
expenses, when aggregated with such Holder's other miscellaneous itemized
deductions for that year, do not exceed two percent of such Holder's adjusted
gross income.

     Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of OID income on such loans will be equivalent to the
method under which Securityholders of Pay-Through Securities accrue (i.e., under
the constant yield method taking into account the Prepayment Assumption). The
REMIC will deduct OID on the Regular Interest in the same manner that the
Securityholders of the Regular Interest Securities include such OID in income, a
REMIC that acquires loans at a market discount must include such market discount
in income currently, as it accrues on a constant interest basis.

     For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the Startup
Day (generally, the day that the interests are issued). That aggregate basis
will be allocated among the assets of the REMIC in proportion to their
respective market values.

     Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of OID income on such loans will be equivalent to the
method under which Securityholders of Pay-Through Securities accrue OID (i.e.,
under the constant yield method taking into account the Prepayment Assumption).
The REMIC will deduct OID on the Regular Interest Securities in the same manner
that the Securityholders of the Regular Interest Securities include such OID in
income, but without regard to the de minimis rules. See "Interest and Original
Issue Discount" below. However, a REMIC that acquires loans at a market discount
must include such market discount in income currently, as it accrues, on a
constant interest basis. See "Market Discount" below.

     To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the life
of the loans (taking in to account the Prepayment Assumption) on a constant
yield method. The REMIC expects to take the position that such premium may be
recovered in proportion to the payments of loan principal.

     PROHIBITED TRANSACTION AND CONTRIBUTIONS TAX.  The REMIC will be subject to
a 100% tax on any net income derived from a "prohibited transaction." For this
purpose, net income will be calculated without taking into account any losses
from prohibited transactions or any deductions attributable to any prohibited
transactions that resulted in a loss. In general, prohibited transactions
include: (i) subject to limited exceptions, the sale or other disposition of any
qualified mortgage transferred to the REMIC; (ii) subject to a limited
exception, the sale or other disposition of a cash flow investment; (iii) the
receipt of any income from assets not permitted to be held by the REMIC pursuant
to the Code; or (iv) the receipt of any fees or other compensation for services
rendered by the REMIC. It is anticipated that a REMIC will not engage in any
prohibited transactions in which it would recognize a material amount of net
income. In addition, subject to a number of exceptions, a tax is imposed at the
rate of 100% on amounts contributed to a REMIC after the close of the three-
month period beginning on the Startup Day. The Securityholders of Residual
Interest Securities will generally be responsible for the payment of any such
taxes imposed on the REMIC. To the extent not paid by such Securityholders or
otherwise, however, such taxes will be paid out of the Trust Fund and will be
allocated pro rata to all outstanding Classes of Securities of such REMIC.

     TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES.  The holder of a
certificate representing a residual interest (a "Residual Interest Security")
will take into account the "daily portion" of the taxable income or net loss of
the REMIC for each day during the taxable year on which such holder held the
Residual Interest Security.  The daily portion is determined by allocating to
each day in any calendar quarter its ratable portion of the taxable income or
net loss of 

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the REMIC for such quarter, and by allocating that amount among the taxable
income or net loss of the REMIC for such quarter, and by allocating that amount
among the holders (on such day) of the Residual Interest Securities in
proportion to their respective holdings on such day.

     The holder of a Residual Interest Security must report its proportionate
share of the taxable income of the REMIC whether or not it receives cash
distributions from the REMIC attributable to such income or loss. The reporting
of taxable income without corresponding distributions could occur, for example,
in certain REMIC issues in which the loans held by the REMIC were issued or
acquired at a discount, since mortgage prepayments cause recognition of discount
income, while the corresponding portion of the prepayment could be used in whole
or in part to make principal payments on REMIC Regular Interests issued without
any discount or at an insubstantial discount (if this occurs, it is likely that
cash distributions will exceed taxable income in later years). Taxable income
may also be greater in earlier years of certain REMIC issues as a result of the
fact that interest expense deductions, as a percentage of outstanding principal
on REMIC Regular Interest Securities, will typically increase over time as lower
yielding Securities are paid, whereas interest income with respect to loans will
generally remain constant over time as a percentage of loan principal.

     In any event, because the holder of a residual interest is taxed on the net
income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond or
instrument.

     LIMITATION ON LOSSES.  The amount of the REMIC's net loss that a holder may
take into account currently is limited to the holder's adjusted basis at the end
of the calendar quarter in which such loss arises. A holder's basis in a
Residual Interest Security will initially equal such holder's purchase price,
and will subsequently be increased by the amount of the REMIC's taxable income
allocated to the holder, and decreased (but not below zero) by the amount of
distributions made and the amount of the REMIC's net loss allocated to the
holder. Any disallowed loss may be carried forward indefinitely, but may be used
only to offset income of the REMIC generated by the same REMIC. The ability of
holders of Residual Interest Securities to deduct net losses may be subject to
additional limitations under the Code, as to which such holders should consult
their tax advisers.

     DISTRIBUTIONS.  Distributions on a Residual Interest Security (whether at
their scheduled times or as a result of prepayments) will generally not result
in any additional taxable income or loss to a holder of a Residual Interest
Security. If the amount of such payment exceeds a holder's adjusted basis in the
Residual Interest Security, however, the holder will recognize gain (treated as
gain from the sale of the Residual Interest Security) to the extent of such
excess.

     SALE OF EXCHANGE.  A holder of a Residual Interest Security will recognize
gain or loss on the sale or exchange of a Residual Interest Security equal to
the difference, if any, between the amount realized and such holder's adjusted
basis in the Residual Interest Security at the time of such sale or exchange.
Except to the extent provided in regulations, which have not been issued, any
loss upon disposition of a Residual Interest Security will be disallowed if the
selling holder acquires any residual interest in a REMIC or similar mortgage
pool within six months before or after such disposition.

     EXCESS INCLUSIONS.  The portion of the REMIC taxable income of a holder of
a Residual Interest Security consisting of "excess inclusion" income may not be
offset by other deductions or losses, including net operating losses, on such
holder's federal income tax return. Further, if the holder of a Residual
Interest Security is an organization subject to the tax on unrelated business
income imposed by Code Section 511, such holder's excess inclusion will be
treated as unrelated business taxable income of such holder. In addition, under
Treasury regulations yet to be issued, if a real estate investment trust, a
regulated investment company, a common trust fund, or certain cooperatives were
to own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity) would
be treated as excess inclusion income. If a Residual Security is owned by a
foreign person, excess inclusion income is subject is subject to withholding tax
at a rate of 30%, which may not be reduced by treaty, is not eligible for
treatment as "portfolio interest" and is subject to certain additional
limitations. See "Withholding with Respect to Certain Foreign Investors."
Section 593 institutions ("thrift institutions") may not use net operating
losses and other allowable deductions to offset their excess inclusion income
from Residual Interest Securities that have "significant value" within the
meaning of the REMIC regulations.

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     In addition, the Code provides three rules for determining the effect on
excess inclusions on the alternative minimum taxable income of a residual
holder. First, alternative minimum taxable income for such residual Holder is
determined without regard to the special rule that taxable income cannot be less
than excess inclusions. Second, a residual holder's alternative minimum taxable
income for a tax year cannot be less than excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deductions must be
computed without regard to any excess inclusions.

     The excess inclusion portion of a REMIC's income is generally equal to the
excess, if any, of REMIC taxable income for the quarterly  period allocable to a
Residual Interest Security, over the daily accruals for such quarterly period of
(i) 120% of the long term applicable federal rate on the Startup Day multiplied
by (ii) the adjusted issue price of such Residual Interest Security at the
beginning of such quarterly period. The adjusted issue price of such Residual
Interest Security at the beginning of each calendar quarter will equal its issue
price (calculated in a manner analogous to the determination of the issue price
of a Regular Interest), increased by the aggregate of the daily accruals for
prior calendar quarters, and decreased (but not below zero) by the amount of
loss allocated to a holder and the amount of distributions made on the Residual
Interest Security before the beginning of the quarter. The long-term federal
rate, which is announced monthly by the Treasury Department, is an interest rate
that is based on the average market yield of outstanding marketable obligations
of the United States government having remaining maturities in excess of nine
years.

     In certain circumstances for federal tax purposes, transfers of Residual
Securities must be disregarded.  See " -- Restrictions on Ownership and Transfer
of Residual Interest Securities" and " -- Withholding with Respect to Certain
Foreign Investors" below.

     RESTRICTIONS ON OWNERSHIP AND TRANSFER OF RESIDUAL INTEREST SECURITIES.  As
a condition to qualification as a REMIC, reasonable arrangements must be made to
prevent the ownership of a REMIC residual interest by any "Disqualified
Organization." Disqualified Organizations include the United States, any State
or political subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the foregoing, a rural
electric or telephone cooperative described in Section 1381(a)(2)(C) of the
Code, or any entity exempt from federal income tax, if such entity is not
subject to tax on its unrelated business income. Accordingly, the applicable
Agreements will prohibit Disqualified Organizations from owning a Residual
Interest Security. In addition, no transfer of a Residual Interest Security will
be permitted unless the proposed transferee shall have furnished to the Trustee
an affidavit representing and warranting that it is neither a Disqualified
Organization nor an agent or nominee acting on behalf of a Disqualified
Organization.

     If a Residual Interest Security is transferred to a Disqualified
Organization, a substantial tax will be imposed on the transferor of such
Residual Interest Security at the time of the transfer. In addition, if a
Disqualified Organization holds an interest in a pass-through entity (including,
among others, a partnership, trust, real estate investment trust, regulated
investment company, or any person holding as nominee) that owns a Residual
Interest Security , the pass-through entity will be required to pay an annual
tax on its allocable share of the excess inclusion income of the REMIC.

     If a Residual Interest Security is a "noneconomic residual interest," as
described below, a transfer of a Residual Interest Security to a United States
person will be disregarded for all federal tax purposes unless no significant
purpose of the transfer was to impede the assessment or collection of tax. A
Residual Interest Security is a "noneconomic residual interest" unless, at the
time of the transfer (i) the present value of the expected future distributions
on the Residual Interest Security at least equals the product of the present
value of the anticipated excess inclusions and the highest rate of tax for the
year in which the transfer occurs and (ii) the transferor reasonably expect that
the transferee will receive distributions from the REMIC at or after the time at
which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. If a transfer of a Residual Interest is
disregarded, the transferor would be liable for any federal income tax imposed
upon taxable income derived by the transferee from the REMIC. The Treasury
Regulations provide no guidance as to how to determine if a significant purpose
of a transfer is to impede the assessment or collection of tax. A similar type
of limitation exists with respect to certain transfers of residual interests by
foreign persons to United States persons "--Withholding with Respect to Certain
Foreign Investors."

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     MARK TO MARKET RULES.  Prospective purchasers of a REMIC Residual Interest
Security should be aware that the applicable Treasury Regulations provide that a
REMIC Residual Interest Security acquired after January 3, 1995 cannot be 
marked-to-market. Prospective purchasers of a REMIC Residual Interest Security
should consult their tax advisors regarding the possible application of those
Treasury Regulations.

     ADMINISTRATIVE MATTERS.  The REMIC's books must be maintained on a calendar
year basis and the REMIC must file an annual federal income tax return and must
elect REMIC status on its first tax return. The REMIC will also be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination of any adjustments to, among other things, items of
REMIC income, gain loss, deduction, or credit, by the Service in a unified
administrative proceeding.

TAXATION OF THE FASIT AND ITS HOLDERS

     If a FASIT election is made with respect to a Series of Securities and such
Series is issued, treated and maintained as the Company has determined herein
and in the related Prospectus Supplement, then the arrangement by which the
Securities of that Series are issued will be treated as a FASIT. The regular
FASIT interests will be treated as debt for federal income tax purposes.

     Section 860H through 860L of the Code (the "FASIT Provisions") provide for
an entity for federal income tax purposes known as a "financial asset
securitization investment trust" (a "FASIT"). Although the FASIT Provisions of
the Code became effective on September 1, 1997, no Treasury regulations or other
administrative guidance have been issued with respect to those provisions.
Accordingly, definitive guidance cannot be provided with respect to many aspects
of the tax treatment of FASIT regular interest holders. Investors should also
note that the FASIT discussion contained herein constitutes only a summary of
the U.S. federal income tax considerations to holders of FASIT interests. With
respect to each Series of FASIT regular interest, the related Prospectus
Supplement will provide a detailed discussion regarding the federal income tax
considerations associated with the particular transaction.

     FASIT interests will be classified as either FASIT regular interests, which
generally will be treated as debt for federal income tax purposes, or FASIT
ownership interests, which generally are not treated as debt for such purposes,
but rather as representing rights and responsibilities with respect to the
taxable income or loss of the related FASIT. The Prospectus supplement for each
Series of Securities will indicate which Securities of such Series will be
designated as regular interests, and which, if any, will be designated as the
ownership interest.

     QUALIFICATION AS A FASIT.  An Issuer will qualify as a FASIT if (i) a FASIT
election is in effect, (ii) certain tests concerning (A) the composition of the
FASIT's assets and (B) the nature of the investors' interests in the FASIT are
met on a continuing basis, and (iii) the Issuer is not a regulated investment
company as defined in Section 851(a) of the Code.

     ASSET COMPOSITION.  For an Issuer to be eligible for FASIT status,
substantially all of the Issuer's Trust Fund Assets must consist of "permitted
assets" as of the close of the 90th day after the closing date and at all times
thereafter (the "FASIT Qualification Test").  Permitted assets include (i) cash
or cash equivalents, (ii) debt instruments with fixed interest rate or variable
rate based on a qualified index, terms that would qualify as a regular interests
if issued by a REMIC, (iii) foreclosure property, (iv) certain hedging
instruments (generally interest and currency rate swaps and credit enhancement
contracts) that are reasonably required to (v) contract rights to acquire
qualifying debt instruments or qualifying hedging instruments, (vi) FASIT
regular interest, and (vii) REMIC regular interests. Permitted assets do not
include any debt instruments issued by the holder of the FASIT's ownership
interest or by any person related to such holder. Neither the Company nor TMA
will be permitted to hold ownership interests in a FASIT.

     INTERESTS IN A FASIT.  In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements. All
of the interests in a FASIT must belong to either of the following: (i) one or
more classes of regular interest or (ii) a single class of ownership interest
that is held by a fully taxable domestic C Corporation (and not by a REIT such
as TMA).

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     A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater than
thirty years, (iii) it entitles its holder to a specified principal amount, (iv)
the issue price of the interest does not exceed 125% of its stated principal
amount, (v) the yield to maturity of the interest is less than the applicable
federal rate published by the Service for the month of the issue, plus 5%, and
(vi) if it pays interest, such interest is payable at either (A) a fixed rate
with respect to the principal amount of the regular interest or (B) a
permissible variable rate with respect to such principal amount.  Permissible
variable rates for FASIT regular interests are the same as those REMIC regular
interests (certain qualified floating rates and weighted average rates.)
Interest will be considered to be based on a permissible variable rate if
generally, (1) such interest is unconditionally payable at least annually, (2)
the issue price of the debt instruments does not exceed the total noncontingent
principal payments and (3) interest is based on a "qualified floating rate," and
"objective rate," or a combination of "qualified floating rates" that do not
operate in a manner that significantly accelerates or defers interest payments
on such FASIT regular interest.

     If an interest in a FASIT fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v) in the immediately preceding paragraph, but
otherwise meets all requirements to be treated as FASIT, it may still qualify as
a type of regular interest known as a "High-Yield Interest."  In addition, if
any interest in FASIT fails to meet the requirement of cause (vi), but the
interest payable on the interest consists of a specified portion of the interest
payments on permitted assets and that portion does not vary over the life of the
security, the interest will also qualify as a High-Yield Interest.  A High-Yield
Interest may be held only by domestic C Corporations that are fully subject to
corporate income tax ("Eligible Corporations"), FASITs, and dealers in
securities who acquire such interest as inventory, rather than for investment.
In addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from such interest. See " -- Taxation of High-Yield
Interests."

     CONSEQUENCES OF DISQUALIFICATION.  If an Issuer fails to comply with one or
more ongoing requirements for FASIT status during any taxable year, the Code
provides that its FASIT status may be lost for that year and thereafter. If
FASIT status is lost, the treatment of the former FASIT and interests therein
for federal income tax purposes is uncertain. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a corporate
tax on all or portion of the FASIT's income for the period of time in which
requirements for FASIT status are not satisfied.

     TREATMENT OF FASIT REGULAR SECURITIES.  Payments received by holders of
FASIT regular interest generally will be accorded the same tax treatment under
the Code as payments received on other taxable debt instruments. Holders of
FASIT regular interests must report income from such Securities under an accrual
method of accounting, even if they otherwise would have used the cash receipts
and disbursements method. If the FASIT regular interest is sold, the holder
generally will recognize gain or loss upon the sale. See "Sale or Redemption
below" above.
 
     TAXATION OF HIGH-YIELD INTERESTS.  High-Yield Interests are subject to
special rules regarding eligibility of holders of such interest, and the ability
of such holders to offset income derived from those interests with losses. High-
Yield Interests only may be hold by Eligible Corporations, other FASITs, and
dealers in securities who acquire such interests as inventory. If a securities
dealer (other than an Eligible Corporation) initially acquires a High-Yield
Interest as inventory, but later begins to hold it for investment, the dealer
will be subject to an excise tax equal to the income from the High-Yield
Interest multiplied by the highest corporate income tax rate. In addition,
transfers of High-Yield Interests to disqualified holders will be disregarded
for federal income tax purposes, and the transferor will continue to be treated
as the holder of the High-Yield Interest.

     The holder of a High-Yield Interest may not use non-FASIT current losses or
net operating loss carryforwards or carrybacks to offset income derived from the
High-Yield Interest, for either regular federal income tax purposes or for
alternative minimum tax purposes.  In addition, the FASIT provisions contain an
anti-abuse rule that imposes corporate income tax on income derived from a FASIT
regular interest that his held by a pass-through entity (other than another
FASIT) that issues debt or equity securities backed by the FASIT regular
interest and that have the same features as High-Yield Interests.

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<PAGE>
 
     TAXATION OF FASIT OWNERSHIP SECURITIES.  A FASIT ownership interest
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT ownership interest determines its taxable income by taking into account
all assets, liabilities, and items of income, gain, deduction, loss, and credit
of a FASIT. In general, the character of the income to the holder of a FASIT
ownership interest will be the same as the character of such income to the
FASIT, except that any tax-exempt interest income taken into account by the
holder of a FASIT ownership interest is treated as ordinary income. In
determining that taxable income, the holder of a FASIT ownership interest must
determine the amount of interest, OID, market discount, and premium recognized
with respect to the FASIT's assets and the FASIT regular interest issued by the
FASIT according to a constant yield methodology and under an accrual method of
accounting. In addition, holders of FASIT Ownership Securities are subject to
the same limitations on their ability to use losses to offset income from their
FASIT regular interests as are holders of High-Yield Interest.

     Rules similar to the wash sale rules applicable to REMIC residual interests
also will apply to FASIT ownership interests. Accordingly, losses on
dispositions of a FASIT ownership generally will be disallowed where within six
months before or after the disposition, the seller of such interest acquires any
other FASIT ownership interest that is economically comparable in the disposed
FASIT ownership interest. In addition, if any security that it is sold or
contributed to a FASIT by the holders of the related FASIT ownership interest
was required to be marked-to-market under Section 475 of the Code by such
holder, then Section 475 of the Code generally will continue to apply to such
securities. Special valuation rules generally require that the value of debt
instruments that are not traded on an established securities market be
determined by calculating the present value of the reasonably expected payments
under the instrument using a discount rate of 120% of the applicable Federal
rate, compounded semi-annually, until another discount rate is issued by
regulations.

     The holder of a FASIT ownership interest will be subject to a tax equal to
100% of the net income derived by the FASIT from any "prohibited transaction."
Prohibited transactions include (i) the receipt of income derived from assets
that are not permitted assets, (ii) certain dispositions of permitted assets,
(iii) the receipt of any income derived from any loan originated by a FASIT, and
(iv) in certain cases, the receipt of income representing a servicing fee or
other compensation.  Any Series of Securities for which a FASIT election is made
generally will be structured in order to avoid application of the prohibited
transaction tax.

TAX STATUS AS A GRANTOR TRUST

     GENERAL.  As further specified in the related Prospectus Supplement, if a
REMIC or FASIT election is not made and the Trust Fund is not structured as a
partnership, the Trust Fund relating to a Series of Securities will be
classified for federal income tax purposes as a grantor trust under Subpart E,
Part 1 of Subchapter J of the Code and not as an association taxable as a
corporation (the Securities of such a Series are referred to as "Pass-Through
Securities"). In some Series there will be no separation of the principal and
interest payments on the mortgage loans. In such circumstances, the holder of
the Pass-Through Security will be considered to have purchased a pro rata
undivided interest in each of the mortgage loans. In other cases ("Stripped
Securities"), sale of the Securities will produce a separation in the ownership
of all or a portion of the principal payments from all or a portion of the
interest payments on the mortgage loans. 

     Each Security holder must report on its federal income tax return its share
of the gross income derived from the Mortgage Collateral (not reduced by the
amount payable as fees to the applicable Trustee and the Servicer and similar
fees (collectively, the "Servicing Fee"), at the same time and in the same
manner as such items would have been reported under the Securityholder's tax
accounting method had it held its interest in the Mortgage Collateral directly,
received directly its share of the amounts received with respect to the Mortgage
Collateral, and paid directly its share of the Servicing Fees. In the case of
Pass-Through Securities other than Stripped Securities, such income will consist
of a pro rata share of all of the income derived from all of the Mortgage
Collateral, such income will consist of a pro rate share of the income derived
from each stripped bond or stripped coupon in which the Securityholder owns an
interest. The Security holder will generally be entitled to deduct such
Servicing Fees under Section 162 or Section 212 of the Code to the extent that
such Servicing Fees represent "reasonable" compensation for the services
rendered by the applicable Trustee and the Servicer (or third parties that are
compensated for the performance of services). In the case of a noncorporate
Securityholder, however, Servicing Fees (to the extent not 

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<PAGE>
 
otherwise disallowed) will be deductible in computing such Securityholder's
regular tax liability only to the extent that such fees, when added to other
miscellaneous itemized deductions, exceed two percent of adjusted gross income,
may not be deductible to any extent in computing such Securityholder's
alternative minimum tax liability and may be subject to the limitation on excess
itemized deductions.

     DISCOUNT OR PREMIUM ON PASS-THROUGH SECURITIES.  The Securityholder's
purchase price of a Pass-Through Security is to be allocated among the Mortgage
Collateral in proportion to their fair market values, determined as of the time
of purchase of the Securities. In the typical case, the Trustee (to the extent
necessary to fulfill its reporting obligations) will treat the Mortgage
Collateral as having a fair market value proportional to the share of the
aggregate Principal Balances of all of the mortgage loans that it represents,
since the Securities, unless otherwise specified in the related Prospectus
Supplement, will have a relatively uniform interest rate and other common
characteristics. To the extent that the portion of the purchase price of a Pass-
Through Security allocated to a mortgage loan (other than to a right to receive
any accrued interest thereon and any undistributed principal payments) is less
than or greater than the portion of the Principal Balance of the mortgage loan
allocable to the Security, the interest in the mortgage loan allocable to the
Pass-Through Security will be deemed to have been acquired at a discount or
premium, respectively.

     The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a mortgage loan with OID in
excess of a prescribed de minimis amount or a Stripped Security, a
Securityholder will be required to report as interest income in each taxable
year its share of the amount of OID that accrues during that year in the manner
described above. OID with respect to a mortgage loan could arise, for example,
by virtue of the financing of points by the originator of the mortgage loan, or
by virtue of the charging of points by the originator of the mortgage loan in an
amount greater than a statutory de minimis exception, in circumstances under
which the points are not currently deductible pursuant to applicable Code
provisions. Any market discount or premium on a mortgage loan will be includible
in income, generally in the manner described above, except that in the case of
Pass-Through Securities, market discount is calculated with respect to the
mortgage loan underlying the Certificate, rather than with respect to the
Security. A Securityholder that acquires an interest in a mortgage loan
originated after July 18, 1984 with more than a de minimis amount of market
discount (generally, the excess of the principal amount of the loan over the
purchaser's allocable purchase price) will be required to include accrued market
discount in income in the manner set forth above. "--Market Discount" and
"Premium" below.

     In the case of market discount on a Pass-Through Security attributable to
mortgage loans originated on or before July 18, 1984, the Securityholder
generally will be required to allocate the portion of such a discount that is
allocable to a loan among the principal payments on the loan and to include the
discount allocable to each principal payment in ordinary income at the time such
principal payment is made.  Such treatment would generally result in discount
being included in income at a slower rate than discount would be required to be
included in income using the method described in the preceding paragraph.

     STRIPPED SECURITIES.  A Stripped Security may represent a right to receive
only a portion of the interest payments on the mortgage loans, a right to
receive only principal payments on the mortgage loans, or a right to receive
certain payments of both interest and principal.  Certain Stripped Securities
("Ratio Strip Securities") may represent a right to receive differing
percentages of both the interest and principal on each mortgage loan.  Pursuant
to Section 1286 of the Code, the separation of ownership of the right to receive
some or all of the interest payments on an obligation from ownership of the
right to receive some or all of the principal payments results in the creation
of "stripped bonds" with respect to principal payments and "stripped coupons"
with respect to interest payments. Section 1286 of the Code applies to OID rules
to stripped bonds and stripped coupons.  For purposes of computing OID, a
stripped bond or a stripped coupon is treated as a debt instrument issued on the
date that such stripped interest is purchased with an issue price equal to its
purchase price or, if more than one stripped interest is purchased, the ratable
share of the purchase price allocable to such stripped interest.

     Servicing fees in excess of reasonable services fees (the "excess servicing
fee") will be treated under the stripped bond rules.  If the excess servicing
fee is less than 100 basis points (i.e., 1% interest on the Loan's Principal

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<PAGE>
 
Balance) or the Securities are initially sold with a de minimis discount
(assuming no prepayment assumption is required), any non-de minimis discount
arising from a subsequent transfer of the Securities should be treated as market
discount.  The Service appears to require that reasonable servicing fees be
calculated on a Loan by Loan basis, which  could result in some mortgage loans
being treated as having more than 100 basis points of interest stripped off,
causing such a mortgage loan to be a stripped bond with OID.

     The Code, regulations and administrative judicial decisions provide no
direct guidance as to how the interest and OID rules are to apply to Stripped
Securities and other Pass-Through Securities.  Under the method described above
for Pay-Through Securities (the "Cash Flow Bond Method"), a prepayment
assumption is used and periodic recalculations are made that take into account
with respect to each accrual period the effect of prepayments during such
period. However, the Code does not specifically cover instruments such as the
Stripped Securities, which technically represent ownership interests in the
underlying mortgage loans, rather than being debt instruments "secured by" those
loans. Nevertheless, it is believed that the Cash Flow Bond Method is a
reasonable method of reporting income for such Securities, and it is expected
that OID will be reported on that basis unless otherwise specified in the
related Prospectus Supplement. In applying the calculation to Pass-Through
Securities, the Trustee will treat all payments to be received by a Pass-Through
Security holder with respect to the underlying mortgage loans as payments on a
single installment obligation. The Service could, however, assert that OID must
be calculated separately for each mortgage loan underlying a Pass-Through
Security.

     Under certain circumstances, if the mortgage loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Pass-Through Security holder's recognition of income. If, however,
the mortgage loans prepay at a rate slower than the Prepayment Assumption, in
some circumstances the use of this method may decelerate a Pass-Through Security
holder's recognition of income.

     Although Counsel is of the opinion that the foregoing conclusions are
correct under current law, the characterizations of the Stripped Securities
described are not the only possible interpretations of the applicable Code
provisions. Among other possibilities, the Service could contend that (i) in
certain Series, each non-Interest Weighted Security is composed of an unstripped
undivided ownership interest in Loans and an installment obligation consisting
of stripped principal payments; (ii) the non-Interest Weighted Securities are
subject to the contingent payment provisions of the Proposed Regulations; or
(iii) each Interest Weighted Stripped Security is composed of an unstripped
undivided ownership interest in Loans and an installment obligation consisting
of stripped interest payments. Given the variety of alternatives for treatment
of the Stripped Securities and the different federal income tax considerations
that result from each alternative, potential purchasers are urged to consult
their own tax advisers regarding the proper treatment of the Securities for
federal income tax purposes.

     Character as Qualifying Loans.  In the case of Stripped Securities, there
is no specific legal authority existing regarding whether the character of the
Securities, for federal income tax purposes, will be the same as the Loans.  The
Service could take the position that the character of the mortgage loans is not
carried over to the Pass-Through Securities in such circumstances.  Pass-Through
Securities will be, and, although the matter is not free from doubt, Stripped
Securities should be considered to represent "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code, and "loans secured by an interest
in real property" within the meaning of Section 7701(1)(19)(C)(v) of the Code;
and interest income attributable to the Securities should be considered to
represent "interest on obligations secured by mortgages on real property or on
interest in real property" within the meaning of Section 856(c)(3)(B) of the
Code.  Reserves or funds underlying the Securities may cause a proportionate
reduction in the above-described qualifying status categories of Securities.

INTEREST AND ORIGINAL ISSUE DISCOUNT

     GENERAL.  The Prospectus Supplement for each Series of Securities will
disclose whether any Class of such Securities is anticipated to be issued with
OID within the meaning of Code Section 1273(a). Interest on any Class of
Securities other than OID will be includible in income by the Holder thereof in
accordance with such Securityholder's applicable method of accounting.
Securityholders of any Class of Securities having OID must generally include
original issue discount in ordinary gross income for federal income tax purposes
as it accrues, in 

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<PAGE>
 
advance of receipt of the cash attributable to such income. Each Issuer will
indicate on the face of each Security issued by it information concerning the
application of the OID rules to such Security and certain other information that
may be required. The Issuer will report annually to the Service and to holders
of record of Securities of such Class information with respect to the OID
accruing on such Securities during the reporting period.

     Rules governing OID are set forth in Code Sections 1271 through 1273, 1275
and 1281 through 1283. In addition, the discussion of federal income tax
considerations set forth below is based in part on the OID Regulations. The Code
or the OID Regulations either do not address, or are subject to varying
interpretations with respect to, several issues relevant to obligations, such as
the Securities, that are subject to prepayment. Therefore, there is some
uncertainty as to the manner in which the OID rules of the Code will be applied
to the Securities.

     ORIGINAL ISSUE DISCOUNT DEFINED.  In general, each Security will be treated
as a single installment obligation for purposes of determining the OID
includible in a Securityholder's income. The amount of original issue discount
on such a Security is the excess of the stated redemption price at maturity of
the Security over its issue price. The issue price of a Security is the initial
offering price to the public at which a substantial amount of the Securities of
that Class are first sold to the public (excluding bond houses, brokers,
underwriters or wholesalers), generally as set forth on the cover page of the
Prospectus Supplement for a Series of  Securities. (The portion of the initial
offering price which consists of interest accrued on the Securities from the
date of issuance to the Closing Date may, at the option of the Securityholder,
be subtracted from the issue price of the Securities and treated as an offset of
interest received on the first Payment Date.) The stated redemption price at
maturity of a Securities is equal to the total of all payments to be made on the
Securities other than "qualified stated interest payments." "Qualified stated
interest payments" are payments on the Security which are paid at least annually
and are based on either a fixed rate or a "qualified variable rate." Under the
regulations, interest is treated as payable at a "qualified variable rate" and
not as contingent interest if, generally, (i) such interest is unconditionally
payable at least annually, (ii) the issue price of the Security  does not exceed
the total noncontingent principal payments and (iii) interest is based on a
"qualified floating rate," an "objective rate," or a combination of "qualified
floating rates" that do not operate in a manner that significantly accelerates
or defers interest payments on such Security. Generally, the stated redemption
price at maturity of a Security (other than a Deferred Interest Bond or a
Payment Lag Bond, as defined below) is its stated principal amount; the stated
redemption price at maturity of a Deferred Interest Bond is the sum of all
payments (regardless of how denominated) scheduled to be received on such
Security under the Tax Prepayment Assumption (as defined below). Any payment of
interest that is not a qualified stated interest payment is a "contingent
interest payment." The related Prospectus Supplement will discuss whether the
payments of interest on a Security are qualified stated interest payments and
the treatment for federal income tax purposes of any contingent interest
payments.

     DE MINIMIS ORIGINAL ISSUE DISCOUNT.  Notwithstanding the general definition
of original issue discount above, any OID with respect to a Security will be
considered to be zero if such discount is less than 0.25% of the stated
redemption price at maturity of the Security multiplied by its weighted average
life (a "de minimis" amount). The weighted average life of a Security for this
purpose is the sum of the following amounts (computed for each payment included
in the stated redemption price at maturity of the Bond): (i) the number of
complete years (rounded down for partial years) from the Closing Date until the
date on which each such payment is scheduled to be made under the Tax Prepayment
Assumption, multiplied by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the Security's stated redemption
price at maturity.  Securityholders generally must report de minimis original
issue discount pro rata as principal payments are received, and such income will
be capital gain if the Security is held as a capital asset. However, accrual
method holders may elect to accrue all interest on a Security, including de
minimis OID and market discount and as adjusted by any premium, under a constant
yield method.

     ACCRUAL OF ORIGINAL ISSUE DISCOUNT.  The amount and rate of accrual of OID
must be calculated based on a reasonable assumed prepayment rate for the
Mortgage Loans, the mortgage loans underlying the Certificates and/or other
Mortgage Collateral securing the Security (the "Tax Prepayment Assumption") and
to prescribe a method for adjusting the amount and rate of accrual of such
discount. However, if such mortgage loans prepay at a rate slower than the Tax
Prepayment Assumption, no deduction for original issue discount previously
accrued, based on the Tax 

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<PAGE>
 
Prepayment Assumption, is allowed. The Tax Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. It is anticipated that the regulations will require that the Tax
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such Securities. The related Prospectus Supplement
for each Series of Securities will specify the Tax Prepayment Assumption
determined by the Issuer for the purposes of determining the amount and rate of
accrual of original issue discount. No representation is made that the Mortgage
Collateral will prepay at the Tax Prepayment Assumption or at any other rate.

     Generally, a Securityholder must include in gross income the sum of the
"daily portions," as determined below, of the original issue discount that
accrues on a Security for each day the  Securityholder holds that Security,
including the purchase date but excluding the disposition date. In the case of
an original holder of a Security, a calculation will be made of the portion of
the original issue discount that accrues during each successive period (or
shorter period from date of original issue) (an "accrual period") that ends on
the day in the calendar year corresponding to each of the Payment Dates on the
Securities (or the date prior to each such date). This will be done, in the case
of each full accrual period, by adding (A) the present value at the end of the
accrual period of all remaining payments to be received (based on (i) the yield
to maturity of the Security at the issue date, (ii) events (including actual
prepayments) that have occurred prior to the end of the accrual period, and
(iii) the Tax Prepayment Assumption) and (B) any payments received during such
accrual period, other than payments of qualified stated interest, and
subtracting from that total the "adjusted issue price" of the Securities at the
beginning of such accrual period. The adjusted issue price of a Security at the
beginning of the initial accrual period is its issue price; the adjusted issue
price of a Security at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to the accrual period and reduced by the
amount of any payment other than a payment of qualified stated interest made at
the end of or during that accrual period.  The OID accrued during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period.  With respect to an initial
accrual period shorter than a full accrual period, the daily portions of OID
must be determined according to any reasonable method, provided that such method
is consistent with the method used to determine yield on the class of
Securities.

     With respect to any Security that is a Variable Rate Debt Instrument, the
sum of the daily portions of original issue discount that is includible in the
holder's gross income is determined under the same principles described above,
with the following modifications: the yield to maturity on the Securities should
be calculated as if the interest index remained at its value as of the issue
date of such Securities. Because the proper method of adjusting accruals of OID
on a Variable Rate Debt Instrument as a result of prepayments is uncertain,
holders of such instruments should consult their own tax advisors regarding the
appropriate treatment of such Securities for federal income tax purposes.

     Purchasers of Securities with the above key features for which the period
between the Closing Date and the first Payment Date does not exceed the Payment
Date Interval would nevertheless pay upon purchase of the Securities an
additional amount of accrued interest as compared with the accrued interest that
would be paid if interest accrued from Payment Date to Payment Date. This
accrued interest (together with any accrued interest with respect to which the
Securityholder chooses not to treat as an offset to interest paid on the first
Payment Date, as described above) should be treated for federal income tax
purposes as part of the initial purchase price of the Securities. Securities
described in this paragraph issued or purchased at a discount would be treated
as being issued or purchased at a smaller discount or at a premium, and such
Securities issued or purchased at a premium would be treated as being issued or
purchased at a larger premium.

     SUBSEQUENT PURCHASERS.  A subsequent purchaser of a Deferred Interest
Security or a subsequent purchaser of any other Security issued with OID who
purchases the Security at a cost less than the remaining stated redemption price
at maturity, will also be required to include in gross income for all days
during his or her taxable year on which such Security is held, the sum of the
daily portions of OID on the Security. In computing the daily portions of OID
with respect to a Security for such a subsequent purchaser, however, the daily
portion for any day shall be reduced by the amount that would be the daily
portion for such day (computed in accordance with the rules set forth above)
multiplied by a fraction, the numerator of which is the amount, if any, by which
the price paid by such holder for 

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<PAGE>
 
the Security exceeds its adjusted issue price (the "acquisition premium"), and
the denominator of which is the amount by which the remaining stated redemption
price at maturity exceeds the adjusted issue price.

PREMIUM

     A holder who purchases a Security at a cost greater than its stated
redemption price at maturity generally will be considered to have purchased the
Security at a premium, which it may elect to amortize as an offset to interest
income on such Security (and not as a separate deduction item) on a constant
yield method. Under applicable regulations, bond premium is to be accrued in the
same manner as market discount. Accordingly, it appears that the accrual of
premium on a Class of Securities of a Series will be calculated using the
prepayment assumption used in pricing such Class. If a holder makes an election
to amortize premium on a Security, such election will apply to all taxable debt
instruments (including all REMIC and FASIT regular interests and all pass-
through certificates representing ownership interests in a trust holding debt
obligations) held by the holder at the beginning of the taxable year in which
the election is made, and to all taxable debt instruments acquired thereafter by
such holder, and will be irrevocable without the consent of the Service.
Purchasers who pay a premium for the Securities should consult their tax
advisers regarding the election to amortize premium and the method to be
employed.

ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT

     The Treasury Regulations permit a holder of a Security to elect to accrue
all interest, discount (including de minimis market or OID) and premium in
income as interest, based on a constant yield method for Securities acquired on
or after April 4, 1994. If such an election were to be made with respect to a
Security with market discount, the holder of the Security would be deemed to
have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such holder of
the Securities acquires during the year of the election or thereafter.
Similarly, a holder of a Security that makes this election for a Security that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such holder owns or acquires. The election to accrue interest,
discount and premium on a constant yield method with respect to a Security is
irrevocable.

REALIZED LOSSES

     Securityholders generally are required to accrue interest and original
issue discount with respect to the Securities without giving effect to any
reductions in distributions attributable to defaults or delinquencies on the
Mortgage Collateral until it can be established that any such reductions
ultimately will not be recoverable. Although a Securityholder will eventually be
entitled to recognize a loss or reduce income attributable to the Securities if
distribution reductions are ultimately not recovered, the law is unclear with
respect to the timing and the character thereof and mismatches may result that
further compound the economic losses associated with reduced distributions on
the Securities.

SALE OR REDEMPTION

     If a Security is sold, the seller will recognize gain or loss equal to the
difference between the amount realized on the sale and the seller's adjusted
basis in the Security. Such adjusted basis generally will equal the cost of the
Security to the seller, increased by any OID and market discount included in the
seller's gross income with respect to the Security and reduced by payments,
other than payments of qualified stated interest, previously received by the
seller and by any amortized premium. If a Securityholder is a bank, thrift or
similar institution described in Section 582(c) of the Code, gain or loss
realized on the sale or exchange of a Security will be taxable as ordinary
income or loss. Any such gain or loss recognized by any other seller will be
capital gain or loss, provided that the Security is held by the seller as a
"capital asset" (generally, property held for investment) within the meaning of
Code Section 1221.

MARKET DISCOUNT

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<PAGE>
 
     The Securities are subject to the market discount provisions of Code
Sections 1276 through 1278. These rules provide that if a subsequent holder of a
Security purchases it at a market discount, some or all of any principal payment
or of any gain recognized upon the disposition of the Security will be taxable
as ordinary interest income. Market discount on a Security means the excess, if
any, of (1) the sum of its issue price and the aggregate amount of original
issue discount includible in the gross income of all holders of the Security
prior to the acquisition by the subsequent holder (presumably adjusted to
reflect prior principal payments), over (2) the price paid by the holder for the
Security. Market discount on a Security will be considered to be zero if such
discount is less than .25% of the stated redemption price at maturity of such
Security multiplied by its weighted average life, which presumably would be
calculated in a manner similar to weighted average life (described above),
taking into account distributions (including prepayments) prior to the date of
acquisition of such Security by the subsequent purchaser. If market discount on
a Security is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on such
Security and when each such distribution is made, gain equal to the discount
allocated to such distribution will be recognized.

     Any principal payment (whether a scheduled payment or a prepayment) or any
gain on the disposition of a market discount bond is to be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment or disposition. The amount of accrued market discount for
purposes of determining the tax treatment of subsequent principal payments or
dispositions of the Securities is to be reduced by the amount so treated as
ordinary income.

     The Code grants authority to the U.S. Treasury to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. The Service has
issued a procedure under which the holder of a market discount bond may elect to
accrue market discount either on the basis of a constant interest rate or the
daily ratable accrual basis. Under the constant yield to maturity method the
Securityholder treats market discount as if it were OID. Under the daily ratable
accrual method the Securityholder divides the market discount by the number of
days from the holder's acquisition date of the Security until the stated
maturity of the Security and accrues the daily portion of the market discount.
For purposes of calculating market discount under any of the above methods in
the case of instruments (such as the Securities) that provide for payments that
may be accelerated by reason of prepayments of other obligations securing such
instruments, the same prepayment assumption applicable to calculating the
accrual of OID shall apply. Regulations are to provide similar rules for
computing the accrual of amortizable bond premium on instruments payable in more
than one principal installment. As an alternative to the inclusion of market
discount in income on the foregoing basis, the holder may elect to include such
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter. In
addition, accrual method holders may elect to accrue all interest on a Security,
including de minimis OID and market discount and as adjusted by any premium,
under a constant yield method.

     A subsequent holder of a Security who acquired the Security at a market
discount also may be required to defer, until the maturity date of the Security
or the earlier disposition of the Security in a taxable transaction, the
deduction of a portion of the amount of interest that the holder paid or accrued
during the taxable year on indebtedness incurred or maintained to purchase or
carry the Security in excess of the aggregate amount of interest (including OID)
includible in his or her gross income for the taxable year with respect to such
Security. The amount of such net interest expense deferred in a taxable year may
not exceed the amount of market discount accrued on the Security for the days
during the taxable year on which the subsequent holder held the Security, and
the amount of such deferred deduction to be taken into account in the taxable
year in which the Security is disposed of in a transaction in which gain or loss
is not recognized in whole or in part is limited to the amount of gain
recognized on the disposition. This deferral rule does not apply to a holder
that elects to include market discount in income currently as it accrues on all
market discount instruments acquired by such holder in that taxable year or
thereafter.

     Because the regulations with respect to market discounts have not been
issued, it is impossible to predict what effect those regulations when issued
might have on the tax treatment of a Securities purchased at a discount in the
secondary market.

                                       94
<PAGE>
 
WITHHOLDING WITH RESPECT TO CERTAIN FOREIGN INVESTORS

     Pursuant to Code Sections 871(h), 881(c), 1441(c)(9) and 1442(a), interest
and OID income received with respect to the Securities by Securityholders who
are nonresident alien individuals, foreign corporations or other non-United
States persons unrelated to the Issuer ("foreign persons") generally will not be
subject to the 30% withholding tax imposed by Code Sections 1441 and 1442 on
certain income of foreign persons, provided the procedural requirements of Code
Section 871(h)(5) are met. The 30% withholding tax will apply, however, in
certain situations where contingent interest is paid or the Service determines
that withholding is required in order to prevent tax evasion by United States
persons.

     If the 30% withholding tax is applicable, interest payments made to
Securityholders who are foreign persons will be subject to withholding. In
addition, a tax equal to 30% of the OID accrued with respect to such Security
since the last payment of interest thereon will be withheld from each interest
payment made to a foreign person. The Code provides, for purposes of determining
the amount of OID subject to the withholding tax on foreign persons, that OID
accrues at a constant interest rate pursuant to the rules applicable to United
States persons described above, rather than on a straight-line basis as under
previous law.

     Securityholders to whom withholding with respect to foreign persons applies
also will be subject to a 30% tax on a portion of the gain, if any, recognized
upon the payment by the Issuer of principal on a Security or upon the sale or
exchange of a Security. Code Sections 871 and 881 provide, for purposes of
determining the amount of OID subject to the withholding tax, that the 30% tax
will apply to the amount of gain not in excess of the OID that accrued, on a
constant interest basis, while the foreign person held the OID (reduced by the
accrued OID on account of which the tax had already been withheld).

     The 30% withholding tax imposed on a foreign person is subject to reduction
or elimination under applicable tax treaties and does not apply if the interest,
OID or gain treated as ordinary income, as the case may be, is effectively
connected with the conduct by such foreign person of a trade or business within
the United States. Foreign persons who hold a Security should consult their tax
advisors regarding their qualification for reduced rate of, or exemption from,
withholding and the procedure for obtaining such a reduction or exemption.

BACKUP WITHHOLDING

     "Backup withholding" of tax at a rate of 31% in certain circumstances on
"reportable payments," which include payments of principal, interest and OID
(determined in any case as if the Securityholder were the original holder of the
Security), but not market discount, on a Security and of the proceeds of the
disposition of a Security. Persons subject to the requirement to backup withhold
include, in certain circumstances, the Issuer, the paying agent of the Issuer, a
person who collects a payment of interest or original issue discount as a
custodian or nominee on behalf of the Securityholder, and a "broker" (as defined
in applicable Treasury regulations) through which the Securityholder receives
the proceeds of the retirement or other disposition of a Security. Backup
withholding applies only if the Securityholder, among other things, (1) fails to
furnish a social security number or other taxpayer identification number ("TIN")
to the person subject to the requirement to backup withhold, (2) furnishes an
incorrect TIN to such person, (3) fails to report properly interest or dividends
or (4) under certain circumstances, fails to provide to such person a certified
statement, signed under penalty of perjury, that the TIN furnished is the
correct number and that such Securityholder is not subject to backup
withholding.

     Backup withholding will not apply, however, with respect to certain
payments made to Securityholders, including payments to certain exempt
recipients (such as corporations and tax-exempt organizations) and to certain
foreign persons.  Securityholders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.

     Each Issuer will report to the Securityholders and the Service for each
calendar year the amount of any "reportable payments" by the Issuer during such
year and the amount of tax withheld, if any, with respect to payments on the
Securities issued by it.

                                       95
<PAGE>
 
     DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.


                           STATE TAX CONSIDERATIONS

     In addition to the federal income tax considerations described above under
"Federal Income Tax Considerations," potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition of
the Securities. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various state tax
consequences of an investment in the Securities.


                               LEGAL INVESTMENT

     The Prospectus Supplement for each Series of Securities will specify which,
if any, of the Classes of Securities offered thereby will constitute "mortgage
related securities" for purposes of SMMEA. Classes of Securities that qualify as
"mortgage related securities" will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, life insurance companies and pension funds)
created pursuant to or existing under the laws of the United States or any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any of such entities with respect to "mortgage related securities,"
the Securities will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such legislation affect the
validity of any contractual commitment to purchase, hold or invest in
Securities, or require the sale or other disposition of Securities, so long as
such contractual commitment was made or such Securities were acquired prior to
the enactment of such legislation.

     SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related Securities, and national
banks may purchase Securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
Section 24 (Seventh), subject in each case to such regulations as the applicable
federal authority may prescribe. In this connection, federal credit unions
should review the National Credit Union Administration ("NCUA") Letter to Credit
Unions No. 96, as modified by Letter to Credit Unions No. 108, which includes
guidelines to assist federal credit unions in making investment decisions for
mortgage related securities, and the NCUA's regulation "Investment and Deposit
Activities" (12 C.F.R. Part 703) (whether or not the Class of Securities under
consideration for purchase constitutes a "mortgage related security").

     All depository institutions considering an investment in the Securities
(whether or not the Class of Securities under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on Securities
Activities (to the extent adopted by their respective regulators) (the "Policy
Statement"), setting forth, in relevant part, certain securities trading and
sales practices deemed unsuitable for an institution's investment portfolio, and
guidelines for (and restrictions on) investing in mortgage derivative products,
including "mortgage related securities" that are "high-risk mortgage securities"
as 

                                       96
<PAGE>
 
defined in the Policy Statement. According to the Policy Statement, such "high-
risk mortgage securities" include securities such as Securities not entitled to
distributions allocated to principal or interest, or Subordinated Securities.
Under the Policy Statement, it is the responsibility of each depository
institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a "high-risk
mortgage security," and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.

     The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
that may restrict or prohibit investment in securities that are not "interest
bearing" or "income paying."

     There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities or to purchase
Securities representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining whether
and to what extent the Securities constitute legal investments for such
investors.


                                 ERISA MATTERS

GENERAL

     The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and section 4975 of the Code impose certain restrictions on employee benefit
plans subject to ERISA or plans or arrangements subject to Section 4975 of the
Code ("Plans") and on persons who are parties in interest or disqualified
persons ("parties in interest") with respect to such Plans. Certain employee
benefit plans, such as governmental plans and church plans (if no election has
been made to be subject to the participation, vesting, and funding rules of
ERISA), are not subject to the restrictions of ERISA, and assets of such plans
may be invested in the Securities without regard to the ERISA considerations
described below, subject to other applicable federal and state law. However, any
such governmental or church plan which is qualified under section 401(a) of the
Code and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code. Any Plan
fiduciary that proposes to cause a Plan to acquire any of the Securities should
consult with its counsel with respect to the potential consequences under ERISA
and the Code of the Plan's acquisition and ownership of the Securities.
Investments by Plans are also subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan.

PROHIBITED TRANSACTIONS

     GENERAL.  Section 406 of ERISA prohibits parties in interest with respect
to a Plan from engaging in certain transactions (including loans) involving a
Plan and its assets unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA)
on parties in interest that engage in non-exempt prohibited transactions.

     PLAN ASSET REGULATION.  The United States Department of Labor ("Labor") has
issued regulations concerning the definition of what constitutes the assets of a
Plan for purposes of ERISA and the prohibited transaction provisions of the Code
(the "Plan Asset Regulation"). The Plan Asset Regulation describes the
circumstances under which the assets of an entity in which a Plan invests will
be considered to be "plan assets" such that any person who exercises control
over such assets would be subject to ERISA's fiduciary standards. Under the Plan
Asset Regulation, generally when a Plan invests in another entity, the Plan's
assets do not include, solely by reason of such investment, any of the
underlying assets of the entity.

                                       97
<PAGE>
 
     However, the Plan Asset Regulation provides that, if a Plan acquires an
"equity interest" in an entity (as described below) that is neither a "publicly-
offered security" (as defined therein) nor a security issued by an investment
company registered under the Investment Company Act of 1940, the assets of the
entity will be treated as assets of the Plan investor unless certain exceptions
apply. The Plan Asset Regulation states that the underlying assets of an entity
will not be considered "plan assets" if, immediately after the most recent
acquisition of any equity in the entity, whether from the issuer or an
underwriter, less than twenty-five (25%) percent of the value of each class of
equity interest is held by "benefit plan investors," individual retirement
accounts, and other employee plans not otherwise subject to ERISA (for example,
government plans). If the Securities were deemed to be equity interests and no
statutory, regulatory or administrative exemption applies, the Issuer could be
considered to hold plan assets by reason of a Plan's investment in the
Securities. Such plan assets would include an undivided interest in any assets
held by the Issuer. In such an event, the applicable Trustee and other persons,
in providing services with respect to the Issuer's assets, may be parties in
interest with respect to such Plans, subject to the fiduciary responsibility
provisions of Title I of ERISA, including the prohibited transaction provisions
of section 406 of ERISA, and section 4975 of the Code with respect to
transactions involving the Issuer's assets.

     Under the Plan Asset Regulation, the term "equity interest" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." Although the Plan Assets Regulation is silent with respect to the
question of which law constitutes "applicable local law" for this purpose, Labor
has stated that this determination should be made under the state law governing
interpretation of the instrument in question. In the preamble to the Plan Assets
Regulation, Labor declined to provide a precise definition of what features are
equity features or the circumstances under which such features would be
considered "substantial," noting that the question of whether a plan's interest
has substantial equity features is an inherently factual one, but that in making
a determination it would be appropriate to take into account whether the equity
features are such that a Plan's investment would be a practical vehicle for the
indirect provision of investment management services.  Labor has ruled that an
interest in a Trust that holds a pool of mortgages and issues pass-through
certificates is an equity interest and not an interest in indebtedness. Assuming
that the Securities would be deemed equity interests in the Issuer, if no
statutory, regulatory or administrative exemption applies, the Issuer could be
considered to hold plan assets by reason of a Plan's investment in the
Securities unless one of the exemptions discussed above is satisfied. Those
exemptions potentially include Prohibited Transaction Class Exemption ("PTCE")
90-1, regarding investments by insurance company pooled separate accounts, PTCE
91-38, regarding investments by bank collective investment funds, PTCE 84-14,
regarding transactions effected by a "qualified professional asset manager,"
PTCE 95-60, regarding investments by insurance company general accounts, PTCE 
96-23, regarding transactions effected by an "in-house asset manager" or PTCE 
97-34, relating to REMIC and FASIT interests offered through the underwriters
specified in that ruling. See the related Prospectus Supplement for a discussion
of applicable exemptions from plan asset treatment.

     REVIEW BY PLAN FIDUCIARIES.  Any Plan fiduciary considering whether to
purchase any Securities on behalf of a Plan should consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to such investment. Among other
things, before purchasing any Securities, a fiduciary of a Plan should make its
own determination as to whether the Issuer, is a party in interest with respect
to the Plan, the availability of the exemptive relief provided in the Plan Asset
Regulations and the availability of any other prohibited transaction exemptions.
The Prospectus Supplement for each Series of Securities will discuss the
potential applicability of ERISA and section 4975 of the Code, the availability
of exemptions therefrom and any limitations on investment in any Class of such
Securities by Plans.


                                    RATINGS

     It is a condition to the issuance of Securities of each Series offered
hereby and by the Prospectus Supplement that they shall have been rated in one
of the four highest and  in one of the two highest rating categories if such
Securities are Certificates, by the nationally recognized statistical rating
agency or agencies (each, a "Rating Agency") specified in the related Prospectus
Supplement.

                                       98
<PAGE>
 
     Any such rating would be based on, among other things, the adequacy of the
value of the Mortgage Collateral supporting a Series of Securities and any
credit enhancement with respect to such Class and will reflect such Rating
Agency's assessment solely of the likelihood that holders of a Class of
Securities will receive payments to which such Securityholders are entitled
under the related Securities. Such rating will not constitute an assessment of
the likelihood that principal prepayments on the related Mortgage Collateral
will be made, the degree to which the rate of such prepayments might differ from
that originally anticipated or the likelihood of early optional termination of
the Series of Securities. Such rating should not be deemed a recommendation to
purchase, hold or sell Securities, inasmuch as it does not address market price
or suitability for a particular investor. Each security rating should be
evaluated independently of any other security rating. Such rating will not
address the possibility that prepayment at higher or lower rates than
anticipated by an investor may cause such investor to experience a lower than
anticipated yield or that an investor purchasing a security at a significant
premium might fail to recoup its initial investment under certain prepayment
scenarios.

     There is also no assurance that any such rating will remain in effect for
any given period of time or that it may not be lowered or withdrawn entirely by
the applicable Rating Agency in the future if in its judgment circumstances in
the future so warrant. In addition to being lowered or withdrawn due to any
erosion in the adequacy of the value of the Mortgage Collateral supporting a
Series of Securities or any credit enhancement with respect to a Series of
Securities, such rating might also be lowered or withdrawn among other reasons,
because of an adverse change in the financial or other condition of a credit
enhancement provider or a change in the rating of such credit enhancement
provider's long term debt.

     The amount, type and nature of credit enhancement, if any, established with
respect to a Series of Securities will be determined on the basis of criteria
established by each Rating Agency rating Classes of such Series of Securities.
Such criteria are sometimes based upon an actuarial analysis of the behavior of
mortgage loans in a larger group. Such analysis is often the basis upon which
each Rating Agency determines the amount of credit enhancement required with
respect to each such Class. There can be no assurance that the historical data
supporting any such actuarial analysis will accurately reflect future experience
nor any assurance that the data derived from a large actuarial analysis will
accurately reflect future experience nor any assurance that the data derived
from a large pool of mortgage loans accurately predicts the delinquency,
foreclosure or loss experience of any particular pool of Mortgage Collateral. No
assurance can be given that values of any mortgaged properties securing the
Mortgage Loans supporting any Series of Securities, have remained or will remain
at their levels on the respective dates of origination of the related mortgage
loans. If the residential real estate markets should experience an overall
decline in property values such that the outstanding principal balances of the
Mortgage Collateral supporting a particular Series of Securities and any
secondary financing on the related Mortgaged Properties become equal to or
greater than the value of the mortgaged properties securing the mortgage loans
underlying any Certificates, as the case may be, the rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, adverse economic conditions (which
may or may not affect real property values) may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the Mortgage
Collateral and, accordingly, the rates of delinquencies, foreclosures and losses
with respect to any Mortgage Collateral securing a particular Series of Bonds.
To the extent that such losses are not covered by credit enhancement, such
losses will be borne, at least in part, by the holders of one or more Classes of
Securities.


                             PLAN OF DISTRIBUTION

     The Issuer may sell the Securities offered hereby either directly or
through an underwriter or underwriters or through underwriting syndicates
managed by an underwriter or underwriters. The Prospectus Supplement for each
Series will set forth the terms of the offering of such Series and of each Class
within such Series, including the name or names of the underwriters, the
proceeds to and their use by the Issuer, and either the initial public offering
price, the discounts and commissions to the underwriters and any discounts or
concessions allowed or reallowed to certain dealers or the method by which the
price at which the underwriters will sell the Securities will be determined.

                                       99
<PAGE>
 
     The Securities of a Series may be acquired by underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
underwriters will be subject to certain conditions precedent, and such
underwriters will be severally obligated to purchase all the Securities of a
Series described in the related Prospectus Supplement, if any are purchased. If
Securities of a Series are offered other than through underwriters, the related
Prospectus Supplement will contain information regarding the nature of such
offering and any agreements to be entered into between the Issuer and purchasers
of Securities of such Series.

     The place and time of delivery for the Securities of a Series in respect of
which this Prospectus is delivered will be set forth in the related Prospectus
Supplement.


                                 LEGAL MATTERS

     The validity of the Securities and certain federal income tax and ERISA
matters will be passed upon for the Issuer by Jeffers, Wilson, Shaff & Falk,
LLP, Irvine, California.

                                      100
<PAGE>
 
                         INDEX OF CERTAIN DEFINITIONS

     Set forth below is a list of certain terms used in this Prospectus,
together with the pages on which the terms are defined herein.

Account Deposit Date
Accretion Directed Class
Accrual period
Adjusted issue price
Advance
Agency Securities
Agreement
Agreements
Asset Conservation, Lender Liability and Deposit Insurance Protection Act of 
1990
Assumed Reinvestment Rate
Audit Program for Mortgages
Available Funds
Backup withholding
Balloon payments
Bankruptcy Bond
Bankruptcy Code Commission
Basic Principal Payment
Belgian Banking Commission
Belgian Cooperative
Beneficial owner
Benefit plan investors
Bond Account
Bond and Distribution Accounts
Bond Distribution Amount
Bond Insurance Policy
Bond Issuer
Bond Owners
Bond Trustee
Bond Value
Bond Values
Bondholders
Bonds
Book-Entry Bonds
Book-Entry Registration
Book-Entry Securities
Broker
Buydown Fund
Buydown Loans
C Corporations
Capital Assets
Capitalized Interest Account
Cash Flow Bond Method
Cash Program
CEDEL
CEDEL Participants
CERCLA
Certificate Trustee
Certficateholders

                                      101
<PAGE>
 
Certificates
Class
Classes
Closed-End Loans
Closing Date
Code
Collateral
Collateral Group
Commission
Company
Component Securities
Condemnation Proceeds
Contingent interest payment
Controlling Class
Conventional Loans
Cooperative Housing Corporation
Cooperative Loans
Cooperatives
Corporate Trust Office
Credit Enhancement
Cross-Collateralization
Currency Swap Agreement
Current Report
Cut-off Date
Cut-off Date Principal Balance
Deferred Interest Bonds
Deferred Interest Class
Deferred Interest Securities
Definitive Bond
Definitive Securities
Deposit Trust Agreement
Depositor
Derivative Arrangements
Detailed Description
Disqualified Organization
Distribution Account
Distribution Account Deposit Date
Distribution Date
DTC
"Due-on-sale" clauses
Due Period
Early Termination
Eligible Account
Eligible Accounts
Eligible Corporations
Eligible Substitute Mortgage Loan
EPA
Equal Credit Opportunity Act
ERISA
Euroclear
Euroclear Operator
Euroclear Participants
European Depositaries

                                      102
<PAGE>
 
Event of Default
Excess itemized deductions
Excess Spread
Exchange Act
Fair Credit Billing Act
Fair Credit Reporting Act
FASIT
FASIT Provisions
Federal Income Tax Considerations
Federal Reserve System
FHA Loans
FHLMC
FHLMC Act
FHLMC Certificates
Final Mark-to-Market Regulations
Financial Intermediary
Fixed Rate Class
Fixed Rate Mortgage Loans
Floating Rate Bonds
Floating Rate Class
Floating Rate Securities
Floating Rate Mortgage Loans
FNMA
FNMA Certificates
Foreclosure/Repossession
Foreign persons
Form 8-K
Fund Assets
Funding Period
Garn-St Germain Act
General Attributes of Mortgage Loans
GNMA
GNMA Certificates
GNMA I Certificate
GNMA II Certificate
GNMA Issuer
Government Securities
Guaranteed Mortgage Pass-Through Certificates
Guarantees
Guarantor Program
Guaranty Agreement
High-risk mortgage securities
High-Yield Interest
Holder
Holders
Housing Act
Indenture
In-house asset manager
Insurance Proceeds
Interest Only Classes
Interest Rate Cap
Interest Rate Floor
Interest Rate Swap

                                      103
<PAGE>
 
Inverse Floating Rate Classes
IRS
Issuer
JMPS
L/C Bank
L/C Percentage
Labor
Letter of Credit
Liquidated Mortgage
Liquidation Proceeds
Loan-to-Value Ratios
Lockout periods
Luxembourg Monetary Institute
Market Discount
Market Service Agreement Mortgage Loan Purchase Agreement
Master Servicer
Master Servicing Agreement
Master Servicing Fee
Minimum Principal Payment Agreement
Miscellaneous itemized deductions
Moody's
Morgan
Mortgage-Backed Callable Securities
Mortgage Collateral
Mortgage Loan Acquisition
Mortgage Loan Agency Securities
Mortgage Loans
Mortgage Note
Mortgage Pool Insurance Policy
Mortgage Rate
Mortgage Related Securities
Mortgaged Property
Mortgagor
NCUA
New York State Banking Department
Non-Interest Weighted Securities
Objective rate
OID
OID Regulations
Optional Redemption
Original Issue Discount
Over-Collateralization
Owner Trustee
Partial Deferred Interest Class
Participants
Parties in interest
Pass-through interest holder
Pass-Through Securities
Payment Date
Payment Date Interval
Payment Lag Bond
Pay-through Securities
Permitted Assets

                                      104
<PAGE>
 
Permitted Investments
Plan
Plan Asset Regulation
Plan Assets
Plan of Distribution
Planned Principal Class
Plans
PMBS Agreement
PMBS Issuer
PMBS Servicer
PMBS Trustee Policy Statement
Policy Statement
Pool
Pool Insurer
Pooling and Servicing Agreement
Portfolio interest
Pre-Funded Amount
Pre-Funding Account
Pre-Funding Amount
Prepayment Assumption
Primary Mortgage Insurance Policy
Principal Balance
Principal Only Classes
Non-Agency Securities
Prohibited transaction
Prohibited transactions
Proposed Regulations
Prospectus
Prospectus Supplement
PS Agreement
PS Sponsor
PS Trustee
PTCE
Purchase Price
Qualified floating rate
Qualified REIT subsidiary
Rating Agency
Ratings
Ratio Strip Securities
RCRA
Record Date
Real Estate Settlement Procedures Act
Registration Statement
Regular Interest Security
Regular Interests
REIT
Relevant Depositary
Relief Act
REMIC
Remittance Date
Reportable payments
Reserve Account
Reserve Factors

                                      105
<PAGE>
 
Reserve Fund
Reserve Funds
Residual Interest Securities
Residual Interest Security
Retained Interest
Revolving Credit Line Loans
Rules
Securities
Securities Act
Securities Offered
Security Owners
Security Register
Securityholder
Seller
Senior Bondholders
Senior Bonds
Senior Securities
Senior Security holders
Senior Liens
Sequential Pay Class
Series
Service
Servicer
Servicers
Servicing Agreement
Servicing Default
Servicing Fee
Significant Value
SMMEA
Special Hazard Insurance Policies
Special Hazard Insurance Policy
Special Hazard Insurer
Special Redemption
Special Servicer
Special Servicing Agreement
Spread
Stand-by Master Servicer
Startup Day
Stated Maturity
Stripped bonds
Stripped coupons
Stripped Securities
Stripped Security
Subordinated Bondholders
Subordinated Bonds
Subordinated Securities
Subordinated Securityholders
Subordination
Substitute Collateral
Substitution of Mortgage Collateral
Subsequent Mortgage Collateral
Substitute Collateral
Successor Master Servicer

                                      106
<PAGE>
 
Support Classes

Surety Bonds
Swap Agreement
Targeted Principal Class
Tax Prepayment Assumption
Tenant-stockholder
Terms and Conditions
Thrift institutions
TIN
Title V
TMA
TMP
Trust Agreements
Trust Fund
Trust Fund Assets
Trustee
Truth-in-Lending Act
UCC
Underlying Loans
Underwriting Standards
Uniform Single Attestation Program for Mortgage Bankers
Use of Proceeds
VA Loans
Variable Rate Class
Variable Rate Debt Instrument
Window period
Window period
Window period states

                                      107
<PAGE>
 
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.

                     ____________

                   TABLE OF CONTENTS

                                                      PAGE
                                                      ----
Prospectus Supplement.....................................
Incorporation of Certain Documents by Reference...........
Summary...................................................
Risk Factors..............................................
The Issuer................................................
Description of the Bonds..................................
Credit Enhancement........................................
Trust Fund Assets.........................................
Servicing of the Mortgage Loans...........................
Use of Proceeds...........................................
Federal Income Tax Considerations.........................
ERISA Matters.............................................
Method of Distribution....................................
Legal Matters.............................................
Ratings...................................................
Index of Defined Terms....................................

                      PROSPECTUS

Prospectus Supplement......................................
Available Information......................................
Incorporation of Certain Documents by Reference............
Summary....................................................
Risk Factors...............................................
Introduction...............................................
The Issuers................................................
Use of Proceeds............................................
Mortgage Loan Acquisition..................................
Description of the Bonds...................................
Trust Fund Assets..........................................
Credit Enhancement.........................................
Servicing of the Mortgage Loans............................
The Agreements.............................................
Certain Legal Aspects of Mortgage Loans....................
Federal Income Tax Considerations..........................
State Tax Considerations...................................
Legal Investment...........................................
ERISA Matters..............................................
Rating.....................................................
Plan of Distribution.......................................
Legal Matters..............................................
Index of Certain Definitions...............................




                     THORNBURG MORTGAGE
                     FUNDING CORPORATION
                         TRUST _____

                         19__-______



                       MORTGAGED BACKED
                          SECURITIES



             ------------------------------------
              
             ------------------------------------
                           PROSPECTUS



                          [UNDERWRITER]






                     ________, 1998
<PAGE>
 
                                    PART II

                    INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14.  Other Expenses of Issuance and Distribution.*


                  SEC Registration Fee...................... $14,750.00
                  Printing and Engraving Expenses...........  **
                  Accounting Fees and Expenses..............  **
                  Legal Fees and Expenses...................  **
                  Trustee Fees and Expenses.................  **
                  Blue Sky Fees and Expenses................  **
                  Rating Agency Fees........................  **
                  Miscellaneous.............................  **
                     Total..................................  **

- ----------

*        All amounts except the SEC Registration Fee are estimates of expenses
         incurred in connection with the issuance and distribution of a Series
         of Bonds in an aggregate principal amount assumed for these purposes to
         be equal to [$       ] of Bonds registered hereby.

**       To be filed by amendment
ITEM 15.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

         Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or other
such court shall deem proper. Section 145 further provides that to the extent a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in the defense of any action, suit or proceeding referred to
above or in the defense of any claim, issue or matter therein, he or she shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

         The Certificate of Incorporation and Bylaws of the Company provide, in
effect, that, to the extent and under the circumstances permitted by Section 145
of the General Corporation Law of Delaware, the Company shall indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding of the type described above by reason of the fact that he or
she is or was a director, officer, employee or agent of the Company.

         The Underwriting Agreement for any Series of Bonds may provide that the
Company and TMA will indemnify the related Underwriter or Underwriters against,
or make contributions to such Underwriter or Underwriters with respect to,
certain liabilities, including liabilities under the Securities Act of 1933.
<PAGE>
 
Item 16.  Exhibits.

   1.1    Form of Underwriting Agreement.*

   4.1    Form of Indenture in substantially the form to be entered into between
          each Issuer and the Bond Trustee. 4.2 Form of Deposit Trust Agreement
          in substantially the form to be entered into between the Company and
          the Owner Trustee creating each Issuer.*

   4.3    Form of Master Servicing Agreement in substantially the form to be
          entered into among each Issuer, the Bond Trustee and each Master
          Servicer.*

   5.1    Opinion of Jeffers, Wilson, Shaff & Falk, LLP regarding legality
          material tax matters.*

  23.1    Consent of Jeffers, Wilson, Shaff & Falk, LLP (included in Exhibit
          5.1).*

  24.1    Power of Attorney (included on page II-4).

  25.1    Statement of Eligibility and Qualification of Trustee under the Trust
          Indenture Act of 1939 for [____________________].*

          *    To be filed by amendment.
Item 17.  Undertakings.

         (a)   The undersigned Registrant hereby undertakes:

               (1)   To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:

               (i)   To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

               (ii)  To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent 
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.

               (iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;

          (2)  That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

          (3)  To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

     (b)  The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

     (f)  The undersigned registrant hereby undertakes to provide to the 
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the 
underwriter to permit prompt delivery to each purchaser.

     (h)  Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification

<PAGE>
 
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.

         (i)   The undersigned Registrant hereby undertakes that:

               (1)  For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(l) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to
be part of this Registration Statement as of the time it was declared effective.

               (2)  For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such Securities at that time
shall be deemed to be the initial bona fide offering thereof.

          (j)  The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Securities and Exchange
Commission under Section 305(b)(2) of the Trust Indenture Act.
<PAGE>
 
                                  SIGNATURES

          Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Fe, State of New Mexico, on September 30, 1998.

                                   THORNBURG MORTGAGE FUNDING CORPORATION


                                   By /s/ Larry A. Goldstone
                                     -----------------------
                                   Name: Larry A. Goldstone
                                   Title:President and Chief Operating Officer


                               POWER OF ATTORNEY

         KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Larry A. Goldstone, his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities as officers and directors of the Company and on the dates indicated.

         Signatures                        Title                   Date
         ----------                        -----                   ----

   /s/ LARRY A. GOLDSTONE            President, Chief        September 30, 1998
- ------------------------------       Operating Officer
       Larry A. Goldstone            and Director



  /s/ GARRETT THORNBURG              Director                September 30, 1998
  ------------------------------     
      Garrett Thornburg


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

<PAGE>
 
EXHIBIT INDEX

   1.1    Form of Underwriting Agreement.*
   4.1    Form of Indenture in substantially the form to be entered into between
          each Issuer and the Bond Trustee.* 
   4.2    Form of Trust Agreement in substantially the form to be entered into
          between Depositor and the Owner Trustee creating each Issuer.*
   4.3    Form of Master Servicing Agreement in substantially the form to be
          entered into among each Issuer, the Bond Trustee and each Master
          Servicer.*
   5.1    Opinion of Jeffers, Wilson, Shaff & Falk, LLP regarding legality and
          certain tax matters.* 
  23.1    Consent of Jeffers, Wilson, Shaff & Falk, LLP (included in Exhibit
          5.1).*
  24.1    Power of Attorney (included on page II-4).
  25.1    Statement of Eligibility and Qualification of Trustee under the Trust
          Indenture Act of 1939 for [_____________________].*
          * To be filed by amendment.


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