Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): October 7, 2003

Commission File Number 1-13610

PMC COMMERCIAL TRUST

Former name, former address and former fiscal year, if changed since last report: NONE

 

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	Item 5. Other Events
	Item 7. Financial Statements and Exhibits
SIGNATURE
EX-10.27 Trust Indenture
EX-10.28 Servicing Agreement
EX-99.1 Press Release

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Item 5. Other Events

As discussed in the press release attached hereto as Exhibit 99.1, on October 7, 2003, PMC Commercial Trust (“PMC Commercial”) completed a structured loan sale transaction. PMC Commercial and PMC Capital, Inc. (“PMC Capital”), our affiliate, contributed variable-rate loans receivable of approximately $45.4 million and $57.8 million, respectively, to a special purpose entity (the “2003 Joint Venture”). The 2003 Joint Venture issued, through a private placement, approximately $92.9 million of its 2003 Loan-Backed Floating Rate Notes (the “2003 L.P. Notes”). The 2003 L.P. Notes, issued at par, which have a stated maturity in 2023 and bear interest, reset on a quarterly basis, at the 90 day LIBOR plus 1.25%, are collateralized by the loans receivable contributed by PMC Commercial and PMC Capital to the 2003 Joint Venture. The 2003 L.P. Notes were rated “Aaa” by Moody’s Investors Service, Inc.

As a result of the transaction, PMC Commercial received gross proceeds of approximately $40.9 million which was utilized to pay the costs of the transaction, fund the initial required reserve balance and repay the outstanding balance on its revolving credit facility. The remaining proceeds will be used to originate additional loans and for working capital.

Item 7. Financial Statements and Exhibits

(a)

Exhibits

 

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Table of Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 10, 2003

 

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                                 TRUST INDENTURE


                                     BETWEEN


                         PMC JOINT VENTURE, L.P. 2003-1,

                         A DELAWARE LIMITED PARTNERSHIP


                                       AND


                              THE BANK OF NEW YORK,

                                   AS TRUSTEE


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


                         DATED AS OF SEPTEMBER 16, 2003

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


                                   $92,893,169

                         PMC JOINT VENTURE, L.P. 2003-1

                         LOAN-BACKED FLOATING RATE NOTES


================================================================================




                                TABLE OF CONTENTS

(This Table of Contents is for convenience of reference only and is not a part
of the Trust Indenture.)



                                                                                                         Page
                                                                                                         ----
                                                                                                   
ARTICLE I       DEFINITIONS.................................................................................3

ARTICLE II      THE NOTES...................................................................................3

     2.1        Authorized Amount of Notes..................................................................3
     2.2        Issuance of Notes; Denominations; Form of Notes.............................................3
     2.3        Book-Entry-Only System......................................................................4
     2.4        Execution...................................................................................5
     2.5        Authentication..............................................................................5
     2.6        Delivery of Notes and Receipt of Loans......................................................6
     2.7        Payments of Principal of and Interest on Notes.............................................10
     2.8        Mutilated, Lost, Stolen or Destroyed Notes.................................................10
     2.9        Registration and Exchange of Notes; Persons Treated as Holders; Restrictions on
                Transfers of Notes.........................................................................11
     2.10       Destruction of Notes.......................................................................12

ARTICLE III     REPRESENTATIONS AND WARRANTIES; SUBSTITUTION OF LOANS......................................13

     3.1        Representations and Warranties of Issuer...................................................13
     3.2        Representations and Warranties With Respect to Loans.......................................14
     3.3        Repurchase and Substitution of Loans.......................................................18
     3.4        Release and Exchange of Loans..............................................................20

ARTICLE IV      REDEMPTION PROVISIONS......................................................................21

     4.1        Optional Redemption of the Notes...........................................................21
     4.2        Notice of Redemption.......................................................................21
     4.3        Redemption Payments........................................................................22
     4.4        Cancellation...............................................................................22

ARTICLE V       COVENANTS OF ISSUER........................................................................22

     5.1        Payment of Principal and Interest..........................................................22
     5.2        Performance of Covenants...................................................................22
     5.3        Instruments of Further Assurance...........................................................22
     5.4        Recording and Filing.......................................................................23
     5.5        Existence..................................................................................23
     5.6        Access to Records; Discussions With Officers...............................................23
     5.7        Notice of Material Events..................................................................23
     5.8        Maintenance of Licenses; Rating............................................................24
     5.9        Use of Funds...............................................................................24
     5.10       Negative Covenants of the Issuer...........................................................24
     5.11       Opinions as to Loans and Trust Estate......................................................26




                                       i




                                                                                                   
     5.12       Maintenance of Office......................................................................26
     5.13       Restrictions on Issuer's Actions...........................................................26
     5.14       Insurance Coverage.........................................................................28
     5.15       Financial Statements and Accountants' Reports..............................................28

ARTICLE VI      REVENUES AND ACCOUNTS......................................................................29

     6.1        Creation of Accounts.......................................................................29
     6.2        Deposits to the Collection Account.........................................................29
     6.3        Deposits in Spread Account; Permitted Withdrawals from Spread Account......................29
     6.4        Distributions..............................................................................30
     6.5        Moneys To Be Held in Trust.................................................................31
     6.6        Amounts Remaining in Funds and Accounts....................................................32
     6.7        Accounts and Reports.......................................................................32
     6.8        Tax Reporting..............................................................................32

ARTICLE VII     INVESTMENT OF MONEYS.......................................................................32

ARTICLE VIII    DISCHARGE OF INDENTURE.....................................................................33

ARTICLE IX      DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE
                AND NOTEHOLDERS............................................................................34

     9.1        Events of Default..........................................................................34
     9.2        Remedies; Rights of Noteholders............................................................35
     9.3        Right of Noteholders To Direct Proceedings.................................................36
     9.4        Appointment of Receivers...................................................................36
     9.5        Application of Moneys......................................................................36
     9.6        Remedies Vested in Trustee.................................................................37
     9.7        Rights and Remedies of Noteholders.........................................................37
     9.8        Termination of Proceedings.................................................................38
     9.9        Waivers of Events of Default...............................................................38

ARTICLE X       TRUSTEE....................................................................................39

     10.1       Acceptance of the Trusts...................................................................39
     10.2       Fees, Charges and Expenses of Trustee......................................................42
     10.3       Notice to Noteholders if Default Occurs....................................................42
     10.4       Intervention by Trustee....................................................................42
     10.5       Merger or Consolidation of Trustee.........................................................42
     10.6       Resignation by Trustee.....................................................................42
     10.7       Removal of Trustee.........................................................................43
     10.8       Appointment of Successor Trustee; Temporary Trustee........................................43
     10.9       Concerning Any Successor Trustee...........................................................43
     10.10      Designation and Succession of Paying Agents................................................44
     10.11      Appointment of Co-Trustee..................................................................44

ARTICLE XI      SUPPLEMENTAL INDENTURES....................................................................45

     11.1       Supplemental Indentures; Consent of Noteholders............................................45




                                       ii




                                                                                                   
     11.2       Copy of Supplemental Indentures............................................................47
     11.3       Amendments to Transaction Documents........................................................47

ARTICLE XII     MISCELLANEOUS..............................................................................47

     12.1       Consents, etc., of Noteholders.............................................................47
     12.2       Limitation of Rights; Non-recourse Obligations.............................................48
     12.3       Severability...............................................................................48
     12.4       Notices....................................................................................48
     12.5       Payments Due on Saturdays, Sundays and Holidays............................................48
     12.6       Counterparts...............................................................................48
     12.7       Applicable Provisions of Law...............................................................49
     12.8       Captions...................................................................................49




SCHEDULE 1           DEFINITIONS
SCHEDULE 2           FEES
EXHIBIT A            FORM OF NOTE
EXHIBIT B            LOAN SCHEDULE
EXHIBIT B-1          SUBSTITUTE LOAN SCHEDULE
EXHIBIT C            FORM OF MONTHLY TRUSTEE REPORT
EXHIBIT D-1          FORM OF TRANSFEREE'S LETTER
EXHIBIT D-2          FORM OF TRANSFEREE'S LETTER
EXHIBIT E            FORM OF RELEASE OF LIENS



                                      iii



                                 TRUST INDENTURE

         THIS TRUST INDENTURE (this "INDENTURE") is made and entered into as of
September 16, 2003 by and between PMC JOINT VENTURE, L.P. 2003-1, a Delaware
limited partnership (the "ISSUER"), and THE BANK OF NEW YORK, a New York banking
corporation, as trustee (the "TRUSTEE"), who did declare that they have made and
entered into, and do hereby make, enter into and effect, a Trust Indenture under
the following terms and conditions,

                                   WITNESSETH:

         WHEREAS, pursuant to its Limited Partnership Agreement and the
applicable provisions of Delaware law, the Issuer is authorized to issue notes
secured as provided herein and to enter into any agreements made in connection
therewith; and

         WHEREAS, the Issuer is hereby issuing its Loan-Backed Floating Rate
Notes (collectively, the "NOTES") and will use the proceeds from the sale of the
Notes to effect a pro rata distribution to its partners and deposit funds into
the Spread Account (as defined herein); and

         WHEREAS, the Issuer has authorized the issuance of the Notes pursuant
to and secured by this Indenture and the execution of this Indenture to secure
the Notes by a pledge of the Loans (as defined herein) and moneys held by the
Trustee; and

         WHEREAS, upon satisfaction of certain requirements contained herein and
simultaneously with the authentication and delivery of the Notes, the Issuer
will deliver and pledge the Loans to the Trustee to secure the obligations of
the Issuer under the Notes and hereunder, and the Trustee is instructed to
accept the deposit of the Loans from the Issuer, fund the Spread Account and to
release the net proceeds of the Notes to the Issuer.

                      NOW, THEREFORE, THIS TRUST INDENTURE

                                   WITNESSETH:

                                GRANTING CLAUSES

         The Issuer, in consideration of the premises and the acceptance by the
Trustee of the trusts hereby created and of the purchase and acceptance of the
Notes by the Holders thereof, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, to secure the payment
of the principal of and interest, when due, on the Notes according to their
tenor and effect and to secure the performance and observance by the Issuer of
all the covenants expressed or implied herein and in the Notes, does hereby
irrevocably pledge, set over and grant a security interest (which security
interest is hereby represented and warranted by the Issuer to be a first
priority perfected security interest) in and unto the Trustee, and its
successors in trust and assigns forever, for the securing of the performance of
the obligations of the Issuer hereinafter set forth, all right, title and
interest of the Issuer in, to and under:



TRUST INDENTURE - Page 1


         (a) the Loans, the Related Assets and any REO Property, including all
payments with respect thereto (other than the Prepayment Premiums) and escrow
deposits and fees, if any, and any interest, profits and other income derived
from the investment thereof and any and all insurance policies and Loan Files
related thereto;

         (b) any moneys, investments or investment property held or entitled to
be held by the Trustee under this Indenture, including, without limitation,
moneys held in the Collection Account and the Spread Account, any investments
therein and thereof and the security entitlements to all financial assets
credited thereto from time to time, and the interest, profits and other income
derived from the investment thereof;

         (c) all right, title and interest of the Issuer in, to and under the
Servicing Agreement, the Supervisory Servicing Agreement, the Contribution
Agreement and the other Transaction Documents, including all extensions and
renewals of their terms, if any, including, but without limiting the generality
of the foregoing, the present and continuing right to make claim for, collect
and receive any income, revenues, receipts, issues, profits, insurance proceeds
and other sums of money payable to or receivable by the Issuer under the
Servicing Agreement, the Supervisory Servicing Agreement, the Contribution
Agreement or the other Transaction Documents, whether payable pursuant to the
Servicing Agreement, the Supervisory Servicing Agreement, the Contribution
Agreement or the other Transaction Documents, or otherwise, to bring actions and
proceedings under the Servicing Agreement, the Supervisory Servicing Agreement,
the Contribution Agreement or the other Transaction Documents or for the
enforcement thereof, and to do any and all things which the Issuer is or may
become entitled to do under the Servicing Agreement, the Supervisory Servicing
Agreement, the Contribution Agreement or the other Transaction Documents;

         (d) any and all other real or personal property of every name and
nature from time to time hereafter by delivery or by writing of any kind
conveyed, mortgaged, pledged, assigned or transferred as and for additional
security hereunder by the Issuer, or by anyone on its behalf or with its written
consent, to the Trustee which is hereby authorized to receive any and all such
property at any and all times and to hold and apply the same subject to the
terms hereof; and

         (e) all proceeds of the above, and any proceeds thereof.

         TO HAVE AND TO HOLD all and singular the Trust Estate, whether now
owned or hereafter acquired, unto the Trustee and its respective successors in
trust and assigns forever;

         IN TRUST NEVERTHELESS, upon the terms and trusts herein set forth for
the equal and proportionate benefit and security of all present and future
Holders of the Notes without preference of any Note over any other, and for
enforcement of the payment of the Notes in accordance with their terms, and all
other sums payable hereunder or on the Notes and for the performance of and
compliance with the obligations, covenants and conditions of this Indenture, as
if all the Notes at any time outstanding had been authenticated, executed and
delivered simultaneously with the execution and delivery of this Indenture, all
as herein set forth;



TRUST INDENTURE - Page 2


         PROVIDED, HOWEVER, that if the Issuer, its successors or assigns shall
indefeasibly pay, or cause to be paid, the principal of and interest on the
Notes due or to become due thereon, at the times and in the manner mentioned in
the Notes according to the true intent and meaning thereof, and shall cause the
payments to be made as required under Article V hereof, or shall provide, as
permitted hereby, for the payment thereof by depositing with the Trustee the
entire amount due or to become due thereon, and shall keep, perform and observe
all the covenants and conditions pursuant to the terms of this Indenture to be
kept, performed and observed by it, and shall pay or cause to be paid to the
Trustee and any paying agent all sums of money due or to become due in
accordance with the terms and provisions hereof, then upon such final payments
this Indenture and the rights hereby and thereby granted shall cease, determine
and be void; otherwise this Indenture is to be and remain in full force and
effect;

         AND PROVIDED, FURTHER, the Trustee agrees to accept receipt of the
Loans and the Trustee Loan Files, and declares that it holds and will hold for
the benefit of the Noteholders such documents and the other documents
constituting a part of the Loans and the Trustee Loan Files delivered to it as
the Trustee upon the terms stated herein.

         THIS TRUST INDENTURE FURTHER WITNESSETH, and it is expressly declared,
that all Notes issued and secured hereunder are to be issued, authenticated and
delivered, and all said property, rights and interests, including, without
limitation, the amounts hereby assigned and pledged, are to be dealt with and
disposed of, under, upon and subject to the terms, conditions, stipulations,
covenants, agreements, trusts, uses and purposes hereinafter expressed, and the
Issuer has agreed and covenanted, and does hereby agree and covenant, with the
Trustee and with the respective Holders, from time to time or at any time, of
the Notes, or any part thereof, as follows:

                                   ARTICLE I

                                   DEFINITIONS

         All capitalized terms used herein and not otherwise defined herein
shall have the same meanings as set forth in Schedule 1 attached hereto.

                                   ARTICLE II

                                    THE NOTES

         2.1 AUTHORIZED AMOUNT OF NOTES. No Notes may be issued under the
provisions of this Indenture, except in accordance with this Article. Except as
provided in Sections 2.8 and 2.9 hereof, the total principal amount of Notes
that may be issued is hereby expressly limited to $92,893,169.

         2.2 ISSUANCE OF NOTES; DENOMINATIONS; FORM OF NOTES.

                  (a) The Notes shall be designated the "PMC Joint Venture, L.P.
2003-1 Loan-Backed Floating Rate Notes" and shall be issued in an initial
aggregate principal amount equal to $92,893,169.



TRUST INDENTURE - Page 3


         The Notes shall mature on the Maturity Date, and shall accrue interest
during each Interest Accrual Period at the Applicable Remittance Rate. The Notes
shall also accrue interest on the unpaid principal and, to the extent permitted
by applicable law, accrued interest to the extent that such amount has not been
distributed to the Noteholders when due at the Applicable Remittance Rate. The
Notes shall be non-recourse to the Issuer's partners and neither the Trustee nor
the Noteholders shall have any right to enforce the payment or performance of
the Issuer's obligations under this Indenture and the Notes against the partners
of the Issuer or their respective assets.

                  (b) The Notes will be available for purchase in book-entry
form only, except as otherwise provided herein, in minimum denominations of
$250,000 and integral multiples of $1,000 in excess thereof. One (1) Note may be
issued in an additional amount equal to the remainder of the aggregate stated
principal balance of the Notes on the Closing Date.

                  (c) The Notes issued under this Indenture shall be
substantially in the form set forth in Exhibit A hereto with such variations,
omissions and insertions as are permitted or required thereby and hereby.

         2.3 BOOK-ENTRY-ONLY SYSTEM.

                  (a) The Notes may be issued in the form of a separate single
authenticated Note in substantially the form of Exhibit A hereto. On the Closing
Date, if so directed by the Issuer in writing, the Notes shall be registered in
the Note Register in the name of DTC's Nominee. With respect to the Notes
registered in the Note Register in the name of DTC's Nominee, no Person other
than DTC shall receive an authenticated Note, and the Issuer, the Trustee and
the Servicers shall have no responsibility or obligation to any DTC Participant
or to any Beneficial Owner with respect to the following: (i) the accuracy of
the records of DTC or DTC's Nominee or any DTC Participant with respect to any
ownership interest in the Notes, (ii) the delivery to any DTC Participant, any
Beneficial Owner, or any other Person, other than DTC, of any notice with
respect to the Notes, including any notice of redemption, or (iii) the payment
to any DTC Participant, any Beneficial Owner, or any other Person, other than
DTC, of any amount with respect to the Notes. The Trustee shall make payments
with respect to the Notes only to or upon the written order of DTC and all such
payments shall be valid and effective fully to satisfy and discharge the
obligations with respect to the Notes to the extent of the sum or sums so paid.

                  (b) Upon receipt by the Issuer, the Trustee and the Servicers
of written notice from DTC to the effect that DTC is unable or unwilling to
discharge its responsibilities, the Trustee shall, at the expense of the Issuer,
issue, transfer and exchange Notes requested by DTC in appropriate amounts and,
whenever DTC requests the Issuer and the Trustee to do so, the Issuer and the
Trustee shall cooperate with DTC in taking appropriate action after reasonable
notice (i) to arrange for a substitute depository willing and able upon
reasonable and customary terms to maintain custody of the Notes or (ii) to make
available Definitive Notes registered in whatever name or names the Beneficial
Owners transferring or exchanging such Notes shall designate.



TRUST INDENTURE - Page 4


                  (c) Definitive Notes shall be issued to Beneficial Owners or
their respective nominees, if (i) the Issuer, at its option, elects to terminate
the book-entry system through DTC or its successors and assigns or (ii) after
the occurrence of an Event of Default or a Servicer Default with respect to the
Notes, the Required Noteholders advise the Trustee through DTC in writing that
the continuation of a book-entry system through DTC or its successors and
assigns with respect to the Notes is no longer in the best interests of the
Noteholders.

                  (d) Notwithstanding any other provision of this Indenture to
the contrary, so long as any Note is registered in the name of DTC or DTC's
Nominee, all payments with respect to such Note and all notices with respect to
such Note shall be made and given, respectively, to DTC as provided in a
representation letter in the form required by DTC acceptable to the Issuer and
the Trustee.

                  (e) In the event the Notes are issued in book-entry form with
DTC and until any such time that Definitive Notes are issued: (i) the Trustee
and the Issuer may deal with DTC as the authorized representative of the
Noteholders; (ii) the rights of the Noteholders shall be exercised only through
DTC and shall be limited to those established by law and agreement between the
Noteholders and DTC and/or direct participants of DTC; (iii) DTC will make
book-entry transfers among the direct participants of DTC and will receive and
transmit distributions of principal and interest on the Notes to such direct
participants; and (iv) the direct participants of DTC shall have no rights under
this Indenture under or with respect to any of the Notes held on their behalf by
DTC, and DTC may be treated by the Trustee and the Issuer and their respective
agents, employees, officers and directors as the absolute owner of the Notes for
all purposes whatsoever.

         2.4 EXECUTION. The Notes shall be executed on behalf of the Issuer with
the signature of any Authorized Officer of the General Partner and attested by
the signature of the Secretary or Assistant Secretary of the General Partner. In
case any officer of the General Partner of the Issuer whose signature shall
appear on the Notes shall cease to be such officer before the delivery of such
Notes, such signature shall nevertheless be valid and sufficient for all
purposes, the same as if he had remained in office until delivery.

         The Notes are negotiable instruments (subject to compliance with
applicable Securities Laws) and shall be solely the obligations of the Issuer.

         2.5 AUTHENTICATION. No Note shall be valid or obligatory for any
purpose or entitled to any security or benefit under this Indenture unless and
until a certificate of authentication on such Note shall have been duly executed
by the Trustee by manual signature, which execution shall be at the written
direction of the Issuer, and such executed certificate of the Trustee upon any
such Note shall be conclusive evidence that such Note has been authenticated and
delivered under this Indenture. The Trustee's certificate of authentication on
any Note shall be deemed to have been executed by it if signed by an Authorized
Officer or signatory of the Trustee, but it shall not be necessary that the same
officer or signatory sign the certificate of authentication on all of the Notes
issued hereunder. Except as provided in Sections 2.8 and 2.9(d), all Notes shall
be dated the date of their authentication.



TRUST INDENTURE - Page 5


         2.6 DELIVERY OF NOTES AND RECEIPT OF LOANS.

                  (a) After the execution and delivery of this Indenture, the
Issuer shall execute and deliver to the Trustee, and the Trustee shall
authenticate, the Notes and deliver the Notes to DTC for the benefit of the
Beneficial Owners, for the purchase price specified by the Issuer, as
hereinafter in this Section provided.

         Simultaneously with or prior to the delivery by the Trustee of all of
the Notes and the disbursement of a portion of the net proceeds of the issuance
of the Notes, there shall be received by the Trustee:

                           (i) A copy, duly certified by the General Partner of
the Issuer, of the resolutions of the managers of the General Partner
authorizing the issuance of the Notes by the Issuer and the execution and
delivery of this Indenture by the General Partner in it capacity as general
partner of the Issuer;

                           (ii) An original executed counterpart of each
Transaction Document;

                           (iii) A request and authorization to the Trustee on
behalf of the Issuer and signed by the General Partner of the Issuer to
authenticate and deliver such series of Notes to the purchasers therein
identified upon payment to the Trustee, but for the account of the Issuer, of a
sum specified in such request and authorization. The proceeds of such payment
shall be paid over to the Trustee and deposited as required by such request and
authorization in the various funds specified in, and pursuant to Article VI
hereof;

                           (iv) An Opinion of Counsel, satisfactory in form and
scope to the Trustee, that the Notes constitute debt of the Issuer for federal
income tax purposes;

                           (v) The documents with respect to the Loans described
in the Loan Schedule in accordance with paragraph (b) below;

                           (vi) A letter from Moody's indicating that the Notes
have been rated at least "Aaa;"

                           (vii) Certified copies of resolutions, organizational
documents, bylaws and incumbency certificates for PMC, PMCT, the Issuer and the
General Partner of the Issuer;

                           (viii) Opinions of Issuer's counsel, satisfactory in
form and scope to the Trustee and the Initial Purchaser, addressed to, among
others, the Trustee, the Initial Purchaser and the Beneficial Owners to the
effect that, among other things, and based upon the qualifications, assumptions
and reasoning stated therein:

                                    (A) (1) The contribution and assignment of

         the Loans (and related rights) by each of PMC and PMCT to the Issuer
         constitutes a "true sale" and will result in the Loans not being deemed
         property of PMC's or PMCT's estate, as applicable, pursuant to Section
         541 of the Bankruptcy Code (and based upon Lien search reports, there
         is no public record of any prior UCC financing statements covering such
         Loans, other than by entities which have authorized the filing of a UCC
         termination statement or



TRUST INDENTURE - Page 6


         other appropriate agreement(s) indicating the release of their security
         interests, or any notice of any federal tax Lien), and (2) based upon
         Lien search reports, the Trustee has a valid first priority perfected
         security interest in the Trust Estate as security for the Notes (and
         based upon Lien search reports, there is no public record of any prior
         UCC financing statements covering such Loans, other than by entities
         which have executed a UCC termination statement or other appropriate
         agreement(s) indicating the release of their security interests, or any
         notice of any federal tax Lien); and

                                    (B) in the event of a bankruptcy of PMC,
         PMCT or the General Partner of the Issuer, the assets and liabilities
         of the Issuer would not be substantively consolidated with the assets
         and liabilities of PMC, PMCT or the General Partner, as applicable.

                           (ix) Copies of properly prepared financing statements
         in sufficient form for filing, naming (A) PMC or PMCT, as the case may
         be, as seller, the Issuer as purchaser, and the Trustee as assignee of
         the purchaser to reflect the conveyance of the Loans to the Issuer, and
         (B) the Issuer as debtor and the Trustee as secured party, covering the
         Issuer's interest in the Trust Estate, as may be necessary or desirable
         to perfect the security interest of the Trustee (for the benefit of the
         Noteholders) in the Issuer's interest in the Trust Estate and copies of
         properly prepared and authorized releases in sufficient form for
         filing, indicating the release of any security interest by any third
         party in such assets; and

                           (x) Copies of UCC and tax and judgment Lien search
reports against PMC, PMCT and the Issuer.

         Any of the foregoing statements which are not, as of the Closing Date,
properly filed in the appropriate office as necessary to evidence the conveyance
of the Loans to the Issuer or perfect the security interest of the Trustee (for
the benefit of the Noteholders) in the Issuer's interest in the Trust Estate or
to effect the release of any security interest held by any third party in such
assets shall be mailed on the Closing Date by overnight mail to the
jurisdictions in which such statements are to be filed.

                  (b) In connection with the transfer and assignment of the
Loans to the Trustee, the Issuer does hereby deliver to, and deposit with, or
cause to be delivered to and deposited with, the Trustee the following documents
or instruments with respect to each Loan so transferred and assigned
(hereinafter referred to as the "TRUSTEE LOAN File"):

                           (i) the original Underlying Note showing a complete
chain of endorsement from the originator to the current holder (if other than
the originator) and endorsed by the originator or current holder by means of an
allonge as follows: "Pay to the order of The Bank of New York, as Trustee under
the Trust Indenture, dated as of September 16, 2003, for the benefit of the
holders of PMC Joint Venture, L.P. 2003-1 Loan-Backed Floating Rate Notes,
without recourse";

                           (ii) either: (A) the original Mortgage with evidence
of recording thereon, (B) with respect to a Loan for which the original Mortgage
was not returned after recordation, a copy of the Mortgage certified by the
appropriate recording officer to be true and



TRUST INDENTURE - Page 7


accurate, or (C) with respect to a Loan for which the original Mortgage has been
sent to the appropriate public official for recording and with respect to which
a certified copy of the Mortgage is not available from such public official, a
copy of the Mortgage certified as a true copy by an Authorized Officer of the
Issuer;

                           (iii) either: (A) the original executed assignments
of the Mortgage (which may be in the form of a blanket assignment in which case
the Issuer shall execute and deliver to the appropriate public office for
recording or filing within six (6) months after the Closing Date, an original
assignment of each Mortgage), showing a complete chain of assignment from the
originator to the current assignee (if other than the originator) and acceptable
for recording in the jurisdiction in which the applicable Mortgaged Property is
located, and from the originator or current assignee in the following form: "The
Bank of New York, as the Trustee under the Trust Indenture, dated as of
September 16, 2003" or (B) copies of such assignments certified as true copies
by an Authorized Officer of the Issuer where the original of such assignment has
been transmitted for recording, which such certification may be in the form of
one or more blanket certificates;

                           (iv) the original of each assumption, modification,
written assurance or substitution agreement, if any, or if an original is
unavailable, copies thereof certified by PMC or PMCT, as applicable, to be true
and complete;

                           (v) either (i) originals of any title insurance
policies relating to the Mortgaged Properties or (ii) copies of any title
insurance policies certified as true by PMC or PMCT, as applicable;

                           (vi) for all Loans, a blanket assignment of all
collateral securing the Loan, including without limitation, all rights under
applicable guarantees and insurance policies;

                           (vii) for all Loans, an irrevocable power of attorney
from PMC or PMCT, as applicable to the Trustee, delegable by the Trustee to the
Servicer and any successor servicer, to execute, deliver, file or record and
otherwise deal with the collateral for the Loans in accordance with the
Contribution Agreement and to prepare, execute and file or record UCC financing
statements and notices to insurers; and

                           (viii) for all Loans, a blanket UCC-1 financing
statement describing the Loans and identifying by type all collateral for the
Loans in the Loan Pool and naming the Trustee as Secured Party and the Issuer as
Debtor, such UCC-1 to be filed promptly following the Closing Date in the office
of the Secretary of State of Delaware.

         The Issuer will cause to be recorded or filed each assignment of a Loan
to the Trustee in the appropriate public office for real property records within
six (6) months after the Closing Date to protect the Trustee's interest in the
Loans against sale, further assignments, satisfaction or discharge by the
Servicer, PMC, PMCT, the Issuer or any third party. The Issuer shall confirm the
recordation or filing of the assignments of the loans in writing to the Trustee
and the Noteholders within thirty (30) days following such six (6) month period.



TRUST INDENTURE - Page 8


         For Loans which have been prepaid in full after the Cut-Off Date and
prior to the Closing Date, the Issuer, in lieu of delivering the above
documents, and with respect to all Monthly Payments and Principal Prepayments
received after the Cut-Off Date, herewith delivers to the Trustee an Officers'
Certificate to the effect that all amounts received in connection with such
payments which are required to be deposited in the Lockbox Account have been so
delivered to the Trustee and indicating the amount of any payment received with
respect to each such Loan.

         With respect to Loans for which the original Mortgage and related
assignment have been sent to the appropriate public official for recording, the
Issuer shall provide the original Mortgage and related assignments to the
Trustee promptly upon receipt from the public official after recording. Within
seven (7) months after the Closing Date, the Trustee shall certify that all such
original Mortgages and related assignments have been recorded and, if not,
shall, upon prior written consent of the Required Noteholders, demand repurchase
of the related Loan pursuant to Section 3.3.

                  (c) The Trustee, by execution and delivery hereof, subject to
the next preceding paragraph and the last paragraph of this Section,
acknowledges receipt of the documents and other property referred to in and
required to be delivered pursuant to this Section 2.6 and declares that the
Trustee holds and will hold all other property to be received pursuant to this
Indenture, in trust, for the benefit of all Holders.

         The Trustee further acknowledges that it has also received a
certificate from the Supervisory Servicer, a copy of which has been provided to
the Rating Agency and the Initial Purchaser, to the effect that, as to each Loan
listed in the Loan Schedule, (i) all documents constituting part of such Trustee
Loan File required to be delivered to the Trustee pursuant to this Indenture
have been delivered to the Trustee, (ii) such documents have been reviewed by it
as to form and appear to have been properly executed and regular on their face,
purport to be recorded or filed (as applicable), have not been torn, mutilated
or otherwise defaced and relate to such Loan and (iii) based on its examination
and only as to the foregoing, the information set forth in the Loan Schedule
accurately reflects information set forth in the Trustee Loan File, except for
exceptions detailed on the exhibit attached to such list. In performing such
review, the Supervisory Servicer may rely upon the purported genuineness and due
execution of any such document and on the purported genuineness of any signature
thereon. If at any time the Trustee finds any document or documents constituting
a part of a Trustee Loan File to be defective, or to be unrelated to the Loans
identified on the Loan Schedule, the Trustee shall promptly so notify the
Noteholders, the Issuer, the applicable Servicer, the Rating Agency, the Initial
Purchaser, PMCT and PMC, and the Trustee, as assignee under the Contribution
Agreement, shall make written demand upon PMC or PMCT, as applicable, to comply
with its obligation under Section 8 of the Contribution Agreement and shall send
copies of such written demand to the Noteholders, the Issuer, the applicable
Servicer and the Rating Agency. If PMC or PMCT, as applicable, fails to comply
with such obligation, the Trustee will give prompt written notice to the
Noteholders, the Supervisory Servicer and the Rating Agency, the Initial
Purchaser and the Trustee shall take such reasonable action as the Required
Noteholders direct in writing, at the expense of the applicable Servicer if such
Servicer is an Affiliate of the Issuer.



TRUST INDENTURE - Page 9


         2.7 PAYMENTS OF PRINCIPAL OF AND INTEREST ON NOTES.

                  (a) The person in whose name any Note is registered as of a
Record Date with respect to a Payment Date shall be entitled to receive the
interest and principal payable on such Payment Date notwithstanding the
cancellation of such Note upon any registration of transfer or exchange thereof
subsequent to such Record Date and prior to such Payment Date.

                  (b) The Notes shall bear interest from and including the
Closing Date. In all cases, interest shall be calculated on the basis of a
360-day year and the actual number of days elapsed during the period from and
including the immediately preceding Payment Date to but excluding such Payment
Date. Interest accrued on the Notes during an Interest Accrual Period will be
due and payable on the related Payment Date.

         Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon transfer of or exchange for or in lieu of
any other Note shall carry the rights to interest due and unpaid, and to become
due, which were carried by such other Note.

                  (c) Principal payments on the Notes shall be made on each
Payment Date as provided in Section 6.4 hereof. Principal payments on the Notes
shall be applied pro rata to all Notes.

                  (d) Payments to each Holder shall be made by wire transfer of
immediately available funds to the account of such Noteholder and without
presentation of the Note or the making of any notations thereon, if such
Noteholder shall have given the Trustee appropriate written notice of such
account, and changes (if any) to such instructions at least five (5) Business
Days prior to the Record Date immediately preceding the Payment Date.

         2.8 MUTILATED, LOST, STOLEN OR DESTROYED NOTES. In the event any Note
is mutilated, lost, stolen or destroyed, upon receipt by the Trustee of evidence
reasonably satisfactory to it of the ownership of the Note and in the absence of
notice to the Trustee that such Note has been acquired by a bona fide purchaser,
the Issuer shall execute and the Trustee shall authenticate and deliver a new
Note executed in the same manner as the Note being replaced, in the same
principal amount as the unpaid principal amount of such Note and dated the date
to which interest shall have been paid on such Note or, if no interest shall
have yet been so paid, dated the date of such Note, provided that, in the case
of any mutilated Note, such mutilated Note shall first be surrendered to the
Trustee, and, in the case of any lost, stolen or destroyed Note, there shall be
first furnished to the Trustee and the Issuer evidence of such loss, theft or
destruction reasonably satisfactory to the Trustee, together with any indemnity
satisfactory to each of them. Further, in the case of a past due or a matured,
lost, stolen or destroyed Note, the Trustee shall pay the face amount of such
past due or matured Note upon delivery to the Trustee of evidence of such loss,
theft or destruction reasonably satisfactory to the Trustee, together with any
indemnity satisfactory to each of them. Upon the execution of any new Note under
this Section 2.8, the Trustee may require the Holder to pay a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Trustee)
connected therewith. Any new Note issued pursuant to this Section 2.8 shall
constitute complete and indefeasible evidence of ownership of the Note, as if
originally issued, whether or not the lost, stolen or destroyed Note shall be
found at any time.



TRUST INDENTURE - Page 10


         2.9 REGISTRATION AND EXCHANGE OF NOTES; PERSONS TREATED AS HOLDERS;
RESTRICTIONS ON TRANSFERS OF NOTES.

                  (a) The Issuer shall cause books for the registration and for
the transfer of the Notes as provided in this Indenture to be kept by the
Trustee, who is hereby appointed as the initial Registrar. The Trustee hereby
accepts its appointment as initial Registrar and shall maintain the Note
Register. The Registrar may resign or be discharged or removed and a new
successor appointed in accordance with the procedures and requirements set forth
in Article X hereof with respect to the resignation, discharge or removal of the
Trustee and the appointment of a successor Trustee. The Registrar may appoint,
by a written instrument delivered to the Issuer, the Trustee, the Supervisory
Servicer, the Noteholders, the Servicer and the Holders, any other bank or trust
company to act as co-registrar under such conditions as the Registrar may
prescribe, provided that the Registrar shall not be relieved of any of its
duties or responsibilities hereunder by reason of such appointment. The
ownership of Notes shall be proved by the Note Register. The Trustee will keep
on file at the Corporate Trust Office of the Trustee a list of names and
addresses of the owners of all Notes as shown on the Register maintained by the
Trustee as Registrar.

         At reasonable times and under reasonable regulations established by the
Trustee, the Note Register may be inspected and copied by the Issuer, the
Supervisory Servicer, any Holder or any Beneficial Owner (or a designated
representative thereof).

                  (b) Prior to presentation of any Note for registration of
transfer, the Issuer and the Trustee shall treat the Person in whose name such
Note is registered as the owner and holder of such Note for all purposes
whatsoever, whether or not such Note shall be overdue, and the Issuer and the
Trustee or their agents shall not be affected by notice to the contrary.

                  (c) No transfer or sale of any Note shall be made unless the
registration requirements of the Act and any applicable state securities laws
are complied with, or such transfer or sale is exempt from the registration
requirements under said Act and laws. In the event that a transfer of any Note
is to be made, the Trustee shall require the Holder of such Note to deliver, at
its expense, a certificate in the form of Exhibit D-1 or Exhibit D-2 hereto, as
the case may be, or a certificate otherwise reasonably acceptable to and in form
and substance reasonably satisfactory to the Trustee that such transfer is being
made pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and laws.
If a certificate is not in the form of either Exhibit D-1 or Exhibit D-2 hereto,
the Trustee may request an Opinion of Counsel (which counsel may be in-house
counsel of the transferor or transferee) to establish compliance with such Act
or laws. The Opinion of Counsel shall not be an expense of the Trustee or the
Issuer. Neither the Issuer nor the Trustee is under an obligation to register
any such Note under said Act or any other Securities Law. Any Noteholder
desiring to effect a transfer under this Section 2.9(c) shall indemnify the
Trustee, PMC, PMCT and the Issuer against any liability that may result if the
transfer is not exempt from the registration requirements under the Act or
applicable state securities laws or if the transfer is not conducted in
accordance with such laws. In the event that any Note is transferred to a
transferee which is using funds to purchase the Note which constitute assets of
one or more employee benefit plans, such transferee shall advise the Issuer in
writing of such source of funds and the Issuer shall advise such transferee in
writing whether the Issuer is



TRUST INDENTURE - Page 11


or is not a party in interest with respect to any employee benefit plan
disclosed to the Issuer by such transferee. As used in this Section, the terms
"party-in-interest" and "employee benefit plan" shall have the respective
meanings assigned to them in ERISA.

                  (d) The holder of any Note, at its option, may in person or by
duly authorized attorney surrender the same for exchange at the Corporate Trust
Office and promptly thereafter and at the Issuer's expense, except as provided
in Section 2.9(e), receive in exchange therefor a new Note or Notes, each in the
denomination requested by such Holder (but not less than $250,000, or, if such
Holder shall be a Holder of less than $250,000 in aggregate principal amount of
Notes, such lesser amount), dated the date to which interest shall have been
paid on the Note so surrendered or, if no interest shall have yet been so paid,
dated the date of the Note so surrendered and registered in the name of such
Person or Persons as shall have been designated in writing by such Holder or its
attorney for the same principal amount as the then unpaid principal amount of
the Note so surrendered. Upon surrender for transfer of any Note at the
Corporate Trust Office of the Trustee, the Trustee shall authenticate and
deliver (upon satisfaction of the conditions stated above) in the name of the
transferee or transferees a new Note or Notes of authorized denomination for the
aggregate principal amount entitled to be received by such transferee or
transferees. Notes to be exchanged shall be surrendered at the Corporate Trust
Office of the Trustee and the Trustee shall authenticate and deliver in exchange
therefor the Note or Notes which the Noteholder making the exchange shall be
entitled to receive (upon satisfaction of the conditions stated above).

                  (e) All Notes presented for transfer, exchange, registration,
discharge from registration, redemption or payment (if so required by the Issuer
or the Trustee) shall be accompanied by a written instrument or instruments of
transfer or authorization for exchange, in form (and with guaranty of signature)
reasonably satisfactory to the Issuer and the Trustee, duly executed by the
registered Holder or by his duly authorized attorney.

         Notes shall be transferred or exchanged without cost to the Noteholder,
except for any stamp or other tax or governmental charge required to be paid
with respect to such transfer or exchange.

                  (f) New Notes delivered upon any transfer or exchange shall be
valid obligations of the Issuer, evidencing the same debt as the Notes
surrendered, shall be secured by this Indenture and shall be entitled to all of
the security and benefits hereof to the same extent as the Notes surrendered.

         2.10 DESTRUCTION OF NOTES. If any Note shall be delivered to the
Trustee for cancellation pursuant to this Indenture, upon payment of the final
principal amount and interest with respect to the Note represented thereby, or
for replacement pursuant to Section 2.8 hereof or transfer or exchange pursuant
to Section 2.9 hereof, such Note shall be canceled and destroyed by the Trustee
and counterparts of a certificate of destruction evidencing such destruction
shall be furnished by the Trustee to the Issuer.



TRUST INDENTURE - Page 12


                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES;
                              SUBSTITUTION OF LOANS

         3.1 REPRESENTATIONS AND WARRANTIES OF ISSUER. The Issuer represents and
warrants to the Trustee for the benefit of the Noteholders as follows:

                  (a) the Issuer is a limited partnership duly organized and
validly existing under the laws of the State of Delaware and has full power to
own its property, to carry on its business as presently conducted, to enter into
and perform its obligations under this Indenture and the other Transaction
Documents, and to create the trusts created pursuant hereto;

                  (b) the execution and delivery by the Issuer of the
Transaction Documents have been duly authorized by all necessary action on the
part of the Issuer;

                  (c) neither the execution and delivery of the Transaction
Documents by the Issuer, nor the consummation of the transactions herein or
therein contemplated, nor compliance by the Issuer with the provisions hereof or
thereof, will conflict with or result in a breach of, or constitute a default
under, any of the provisions of the certificate of limited partnership or the
partnership agreement of the Issuer or conflict with, result in a breach or
violation of or constitute a default under, the terms of any indenture or other
agreement or instrument to which the Issuer is a party or by which the Issuer is
bound, or any statute, order or regulation applicable to the Issuer of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Issuer;

                  (d) the execution, delivery and performance by the Issuer of
the Transaction Documents and the consummation of the transactions contemplated
hereby and thereby do not require the consent or approval of, the giving of
notice to, the registration with, or the taking of any other action in respect
of, any state, federal or other governmental authority or agency, except for
such consents or approvals which have been obtained on or before the Closing
Date;

                  (e) each Transaction Document has been duly executed and
delivered by the Issuer and, assuming due authorization, execution and delivery
by the other parties thereto, constitutes a legal, valid and binding obligation
of the Issuer enforceable against it in accordance with its terms (subject to
applicable bankruptcy and insolvency laws and other similar laws affecting the
enforcement of the rights of creditors generally and general principles of
equity);

                  (f) there are no actions, suits or proceedings pending or, to
the knowledge of the Issuer, threatened or likely to be asserted against or
affecting the Issuer, before or by any court, administrative agency, arbitrator
or governmental body (i) with respect to any of the transactions contemplated by
the Transaction Documents or (ii) with respect to any other matter which, in the
reasonable judgment of the Issuer will be determined adversely to the Issuer and
will, if determined adversely to the Issuer, materially and adversely affect it
or its business, assets, operations or condition, financial or otherwise, or
materially and adversely affect its ability to perform its obligations under the
Transaction Documents. The Issuer is not in default with respect to any order of
any court, administrative agency, arbitrator or governmental body so



TRUST INDENTURE - Page 13


as to materially and adversely affect the transactions contemplated by the
Transaction Documents;

                  (g) as of the Closing Date, the Issuer had good title to, and
was the sole owner of, each Loan and any other asset included in the Trust
Estate free and clear of all Liens, and, immediately upon the transfer and
assignment herein contemplated and taking possession of the Trustee Loan File,
the Trustee shall have a first priority perfected security interest in the Trust
Estate free and clear of all Liens; and

                  (h) the Issuer acquired title to the Loans in good faith,
without notice of any adverse claim.

         3.2 REPRESENTATIONS AND WARRANTIES WITH RESPECT TO LOANS.

                  (a) The Issuer hereby represents and warrants to the Trustee
for the benefit of the Noteholders as of the date hereof with respect to each
Loan as follows:

                           (i) Immediately prior to the collateral assignment of
the Loan to the Trustee, the Issuer had good title to, and was the sole owner
of, the Loan free and clear of all Liens. Except for the Issuer, no Person other
than the Trustee has any interest in the Mortgage, whether as mortgagee,
assignee, pledgee or otherwise. Immediately upon the collateral assignment of
the Loan and taking possession thereof, the Trustee will have a first priority
perfected security interest in each Loan, free and clear of all Liens.

                           (ii) The Loan was originated in the United States, in
a state where the originator of such Loan is qualified to transact such
business, in the ordinary course of its business, except to the extent that any
failure to be so qualified would not adversely affect the Loan or the Mortgage
or the transfer thereof or the enforceability of the Obligor's obligations
thereunder. The Issuer acquired title to the Loans in good faith, without notice
of any adverse claim.

                           (iii) The Loan has not been originated in, nor is
such Loan subject to the laws of, any jurisdiction under which the transfer and
assignment of such Loan to the Issuer would be unlawful, void or voidable.

                           (iv) The information set forth in the Loan Schedule
is true and correct in all material respects.

                           (v) The terms of the Underlying Note and the Mortgage
have not been impaired, waived, altered or modified in any respect, except by
written instruments, executed in accordance with the customary credit policies
of PMC or PMCT, as the case may be, which are reflected on the Loan Schedule. No
Obligor has been released, in whole or in part, except pursuant to the terms of
an assumption agreement which is part of the related Loan File and the terms of
which are reflected in the Loan Schedule.

                           (vi) The Underlying Note and the related Mortgage are
not subject to any right of rescission, setoff, abatement, diminution,
counterclaim or defense, including the defense of usury, nor will the operation
of any of the terms of the Underlying Note or the



TRUST INDENTURE - Page 14


Mortgage, or the exercise of any right thereunder in accordance with the terms
thereof, render the Underlying Note or the Mortgage unenforceable, in whole or
in part, or subject to any right of rescission, setoff, abatement, diminution,
counterclaim or defense, including the defense of usury, and no such right of
rescission, setoff, abatement, diminution, counterclaim or defense has been
asserted with respect thereto.

                           (vii) The Mortgage has not been satisfied, canceled
or subordinated, in whole or in part, or rescinded, and except as reflected on
the Loan Schedule, the Mortgaged Property has not been released from the Lien of
the Mortgage or the security interest of any applicable security agreement or
chattel mortgage, in whole or in part, nor has any instrument been executed that
would effect any such release, cancellation, subordination or rescission.

                           (viii) The Underlying Note and the Mortgage delivered
to the Trustee are genuine originals (except where certified copies of the
Mortgage have been delivered in accordance with this Indenture) and each is the
legal, valid and binding obligation of the maker thereof, enforceable in
accordance with its terms.

                           (ix) There has been no fraud, dishonesty,
misrepresentation or negligence on the part of the Issuer, the Independent
Managers or the General Partner or, to the Issuer's knowledge, on the part of
the originator, PMC, PMCT or the Obligor in connection with the origination of
any Loan or in connection with the transfer and assignment of such Loan to the
Issuer.

                           (x) As of the Closing Date, there was no material
default, breach, violation or event of acceleration existing under the Mortgage
or the Underlying Note and no event which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute such a
default, breach, violation or event of acceleration, and since the Cut-off Date
the Issuer had not waived any such default, breach, violation or event of
acceleration.

                           (xi) The Mortgage and the Underlying Note comply with
all requirements of applicable federal, state and local laws and regulations.
The origination and servicing of the Loan and the assignment of the Loan comply
with any and all applicable requirements of any applicable federal, state or
local law, including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity and
disclosure laws. To the Issuer's knowledge, each Mortgaged Property is in
compliance in all material respects with all applicable laws, zoning ordinances,
rules, covenants and restrictions affecting the construction, occupancy, use and
operation of such Mortgaged Property. To the Issuer's knowledge, all
inspections, licenses and certificates required, including certificates of
occupancy, whether by law, ordinance, regulation or insurance standards to be
made or issued with regard to the Mortgaged Property, have been obtained and are
in full force and effect.

                           (xii) To the Issuer's knowledge, each Loan was
originated or purchased in accordance with PMCT's or PMC's standard mortgage,
underwriting, origination and lending procedures. To the Issuer's knowledge, no
adverse selection criteria were utilized by PMC, PMCT or the Issuer in selecting
the Loans for inclusion in this transaction.



TRUST INDENTURE - Page 15


                           (xiii) No Loan is a 30-Day Delinquent Loan.

                           (xiv) The Issuer has not advanced funds or induced,
solicited or knowingly received any advance of funds from a party other than the
owner of the Mortgaged Property subject to the Mortgage, directly or indirectly,
for the payment of any amount required by the Loan.

                           (xv) To the Issuer's knowledge, there are no
delinquent taxes, ground rents, water charges, sewer rents, assessments
(including assessments payable in future installments) or other outstanding
charges affecting the related Mortgaged Property.

                           (xvi) The Mortgaged Property is located in the state
indicated on the Loan Schedule, and, except as reflected on the Loan Schedule,
consists of a single parcel of real property. The Mortgaged Property is in good
repair, is free of damage and waste that would materially and adversely affect
its value and such Mortgaged Property has not been materially damaged by fire,
wind or other cause, which damage has not been fully repaired or for which
insurance proceeds have not been received or are not expected to be received in
an amount sufficient to pay for such repairs.

                           (xvii) The Mortgage is a valid, subsisting and
enforceable first Lien on the Mortgaged Property, including all buildings on the
Mortgaged Property and all fixtures related thereto, and all additions,
alterations and replacements made at any time with respect to the foregoing,
except as reflected on the Loan Schedule. Such Lien is subject only to (1) the
Lien of current real property taxes and assessments not yet due and payable, (2)
covenants, conditions and restrictions, rights-of-way, easements and other
matters of the public record as of the date of recording, none of which
individually or in the aggregate materially interfere with the benefits of the
security intended to be provided by the Mortgage or the operation and use of the
related Mortgaged Property, and (3) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property. Any security agreement, chattel
mortgage or equivalent document related to and delivered in connection with the
Loan establishes and creates a valid, subsisting and enforceable first Lien and
first priority security interest on the property described therein, except as
reflected on the Loan Schedule. Except as reflected on the Loan Schedule, the
Underlying Note is not secured by any collateral except the Lien of the
corresponding Mortgage and the security interest of any applicable security
agreement or chattel mortgage referred to in this paragraph.

                           (xviii) The Mortgage contains provisions for the
acceleration of the payment of the unpaid principal balance of the Loan in the
event the related Mortgaged Property is sold without the prior written consent
of the Mortgagee thereunder.

                           (xix) The Issuer has no knowledge of any mechanics'
or similar liens or claims which have been filed for work, labor or material (or
any rights outstanding that under applicable law could give rise to such Lien)
affecting the Mortgaged Property which are or may be liens prior to, or equal or
on parity with, the Lien of the Mortgage.



TRUST INDENTURE - Page 16


                           (xx) The proceeds of the Loan have been fully
disbursed and there is no requirement for future advances thereunder, and any
and all requirements as to completion of any on-site or off-site improvements
and as to disbursements of any escrow funds therefor have been complied with.

                           (xxi) There is no proceeding pending for the total or
partial condemnation of the Mortgaged Property.

                           (xxii) The Mortgage contains customary provisions
such as to render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the security
provided thereby, including, (1) in the case of a Mortgage designated as a deed
of trust, by trustee's sale and (2) otherwise by judicial foreclosure or power
of sale. To the Issuer's knowledge, there is no homestead or other exemption
available to the Obligor which would interfere with the right to sell the
Mortgaged Property at a trustee's sale or the right to foreclose the Mortgage.

                           (xxiii) In the event the Mortgage constitutes a deed
of trust, a trustee, duly qualified under applicable law to serve as such, has
been properly designated and currently so serves and is named in the Mortgage,
and no fees or expenses are or will become payable by the Issuer or its
assignees to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Obligor.

                           (xxiv) The Loan is an Eligible Loan as of the Closing
Date.

                           (xxv) The form of endorsement of each Underlying Note
satisfies the requirement, if any, of endorsement in order to transfer all
right, title and interest of the party so endorsing, as noteholder or assignee
thereof, in and to that Underlying Note, and each form of assignment is in
recordable form and is sufficient to effect the assignment of and to transfer to
the assignee thereof, all right, title and interest under each Mortgage to which
that assignment relates.

                           (xxvi) Each document required under Section 2.6(b)
hereof to be delivered to the Trustee on behalf of the Issuer for each Loan
meets the requirements of Section 2.6(b) and has been or will be, on or before
the Closing Date, delivered to the Trustee.

                           (xxvii) A Phase I environmental report was prepared
with respect to each Mortgaged Property or part thereof constituting primary
collateral securing the Loan, other than the Mortgaged Properties indicated in
the Loan Schedule, prior to the date of this Agreement. To the Issuer's
knowledge, each Mortgaged Property was, as of its date of origination of the
Underlying Note and as of the Closing Date in material compliance with all
applicable environmental laws and regulations.

                           (xxviii) All escrow deposits, if any, and other
payments relating to each Loan have been delivered to the Servicer or its agent,
and all amounts required to be deposited by the Issuer or the related Obligor
have been deposited and there are no deficiencies with regard thereto.



TRUST INDENTURE - Page 17


                           (xxix) The Lien of each Mortgage is insured by an
ALTA lender's title insurance policy (or a binding commitment) or its
equivalent, as adopted in the applicable jurisdiction. Except as reflected on
the Loan Schedule, the policy (or such binding commitment) insures the
originator of such Loan, its successors and assigns, as to the first priority
Lien of the Mortgage in the original principal amount after all advances of
principal, subject only to permitted encumbrances, none of which, individually
or in the aggregate should interfere with the current use of the Mortgaged
Property or materially detract from the benefit of the first priority Lien of
the Mortgage. The originator of such Loan (including its successors and assigns)
is the sole named insured of the policy (or such binding commitment), and the
policy (or such binding commitment) is assignable to the Issuer without the
consent of or any notification to the insurer. No claims have been made under
such policy (or such binding commitment), and the Issuer has no knowledge of any
matter that would impair or diminish the coverage of such policy.

                           (xxx) Each Mortgaged Property is covered by insurance
policies providing (1) coverage against loss or damage sustained by fire and
extended perils included within the classification "All Risk of Physical Loss"
in an amount sufficient to prevent the Obligor from being deemed a co-insurer,
and to provide coverage of replacement or actual cost, consistent with industry
standards; and the policies contain a standard mortgagee clause naming the
mortgagee and its successors as mortgagees and loss payees; (2) flood insurance
(if any portion of the Mortgaged Property is located in an area identified by
the Federal Emergency Management Agency as having special hazards); and (3)
comprehensive general liability insurance in amounts as are generally required
by commercial mortgage lenders. The insurance policies contain clauses providing
they are not terminable and may not be reduced without 10 days prior written
notice to the mortgagee, and all premiums due and payable through the Closing
Date have been made. To the Issuer's knowledge, no notice of termination or
cancellation with respect to any such policies has been received by PMC or PMCT,
as applicable, which remains effective. The Mortgage obligates the Obligor to
maintain all such insurance at its cost and expense, and on the Obligor's
failure to do so, authorizes the holder of the Mortgage to maintain such
insurance and obtain reimbursement therefore from the Obligor

                           (xxxi) To the Issuer's knowledge, the Obligor has
good title to the Mortgaged Property.

                           (xxxii) The Issuer acknowledges that the Trustee, as
assignee of the Issuer with respect to the Contribution Agreement, may enforce
any right or remedy thereunder, including any right or remedy with respect to
breaches of the representations and warranties thereunder.

         3.3 REPURCHASE AND SUBSTITUTION OF LOANS.

                  (a) Upon discovery by either the Issuer, the Servicer, the
Trustee or the Supervisory Servicer of a breach of any of the representations
and warranties made by PMC or PMCT, as the case may be, pursuant to the
Contribution Agreement or made by the Issuer pursuant to Section 3.2 hereof, the
party discovering such breach shall give prompt written notice to the others, to
the Noteholders, to the Rating Agency and to PMC or PMCT, as the case may be,
and the Trustee, upon such discovery or receipt of such notice, shall make
written demand



TRUST INDENTURE - Page 18


upon the Issuer with respect to a breach of any of the representations or
warranties contained in Section 3.2 hereof to comply with this Section 3.3 or
upon PMC or PMCT, as the case may be, to comply with Section 8 or Section 13, as
applicable, of the Contribution Agreement. Within thirty (30) days of its
discovery or its receipt of notice of any breach or defect the Issuer, PMC or
PMCT, as the case may be, shall, at its option, (i) promptly cure such defect or
breach in all material respects, (ii) purchase or cause to be purchased the
affected Loan at a price equal to the Takeout Price, or (iii) if such defect or
breach occurs within two (2) years of the Closing Date, deliver to the Trustee,
in exchange for the affected Loan, a Substitute Loan, together with any related
Asset Substitution Shortfall. If the breach or defect has not been cured or a
Substitute Loan so delivered to the Trustee within thirty (30) days after such
discovery or receipt of notice, the Issuer, PMC or PMCT, as the case may be,
must purchase the Defective Loan within one (1) Business Day for an amount equal
to the Takeout Price.

                  (b) In the event a Loan becomes (i) 150 days contractually
past due, or (ii) a Charged-Off Loan, PMC or PMCT, as the case may be, may at
its option, but without obligation, purchase such Loan at a price equal to the
Takeout Price or cause or permit such Loan to be released from the Lien of this
Indenture in accordance with Section 3.4(a)(iii) hereof.

                  (c) In the event a Loan becomes a Refinancable Loan, the
applicable Servicer shall give prompt written notice to the Noteholders, the
Trustee, the other Servicer and the Supervising Servicer and PMC or PMCT, as the
case maybe, may at its option, but without obligation, purchase the Loan at a
price equal to the Takeout Price and cause or permit the Refinancable Loan to be
released from the Lien of this Indenture in accordance with Section 3.4(a)(iii)
hereof; provided, however, the aggregate principal balance of all Loans that
become Refinancable Loans and that may be purchased pursuant to this Section
shall not exceed 10% of the aggregate Cut-Off Date Principal Balance of all
Loans without the prior written consent of the Required Noteholders and in no
event shall exceed 20% of the aggregate Cut-Off Date Principal Balance of the
Loans on a cumulative basis.

                  (d) If PMC or PMCT, as the case may be, pursuant to Section 8
of the Contribution Agreement, or the Issuer, PMC or PMCT, as the case may be,
pursuant to paragraph (a) above, elects to cause one or more Substitute Loans to
be delivered to the Trustee in substitution for any one or more of the original
Loans, the Issuer, PMC or PMCT, as the case may be, shall deliver to the Trustee
the information required by the Substitute Loan Schedule with respect to the
Substitute Loan in substantially the form of Exhibit B-1 attached hereto and any
required documentation must be delivered pursuant to paragraph (e) below. A
Substitute Loan must (i) be an Eligible Loan; (ii) contractually require
interest payments to be made each month in an aggregate amount at least equal to
that of the Deleted Mortgage Loan; and (iii) have characteristics such that, as
of the Substitution Date (instead of as of the Closing Date), each of the
representations and warranties set forth in Section 3.2(a) and Sections 3.1(g)
and (h) hereof is true and correct in all material respects with respect to the
Substitute Loan. If the Substitute Loan has an outstanding Loan Principal
Balance (after application of the Monthly Payment due in the month of
substitution) which is less than the Takeout Price of the Deleted Mortgage
Loan(s) (an "Asset Substitution Shortfall"), the Person delivering the
Substitute Loan(s) must deliver to the Trustee on the Substitution Date
immediately available funds in the amount of any such Asset Substitution
Shortfall, which the Trustee shall deposit in the Collection Account on the
Substitution Date. In the case of a substitution pursuant to Section 3.3(a), the
Asset



TRUST INDENTURE - Page 19


Substitution Shortfall shall include the amounts described in clauses (ii),
(iii) and (iv) of the definition of Takeout Price.

                  (e) In connection with any such substitution, on the
Substitution Date, PMC, PMCT or the Issuer, as the case may be, shall deliver to
the Trustee (i) each Substitute Loan to be delivered on such date and (ii) the
amount of any Asset Substitution Shortfall relating to the Substitute Loan. In
addition, on the Substitution Date, PMC, PMCT or the Issuer, as the case may be,
shall deliver the related Trustee Loan File to the Trustee and the Servicer Loan
File to the Servicer with respect to each Substitute Loan.

                  (f) Upon such purchase or substitution, the Trustee shall
deliver to the Person purchasing the Loans or delivering the Substitute Loans,
the related Deleted Mortgage Loans and shall amend the Loan Schedule to reflect
the deletion of the Deleted Mortgage Loans and, if applicable, the addition of
the Substitute Loans and shall release the Deleted Mortgage Loans from the Lien
of this Indenture by executing and delivering to such Person the release in the
form of Exhibit E attached hereto.

                  (g) Pursuant to the Servicing Agreement, the applicable
Servicer shall prepare any instruments necessary for transfers pursuant to this
Section.

                  (h) Substitute Loans may not be delivered (and Defective Loans
may not be purchased) pursuant to this Section 3.3 on any date which is a
Determination Date.

         3.4 RELEASE AND EXCHANGE OF LOANS.

                  (a) The Trustee shall not release and discharge any Loan from
the Lien of this Indenture until the principal of and interest on the Notes
shall have been paid or duly provided for under this Indenture except as
follows:

                           (i) in accordance with the provisions of Section 3.3
hereof;

                           (ii) upon any Servicer's request provided that the
conditions to release have been met pursuant to Sections 3.10 and 4.4 of the
Servicing Agreement; and

                           (iii) on each Payment Date, the Trustee shall release
all Loans 150 days contractually past due, Charged-Off Loans and Refinancable
Loans from the Lien of this Indenture and deliver to the Issuer the deleted
Loans 150 days contractually past due, Charged-Off Loans and Refinancable Loans;
provided, however, that the Trustee shall release any Loans 150 days
contractually past due, Charged-Off Loan or Refinancable Loan from the Lien of
this Indenture only if (x) there then exists no Event of Default, (y) all
outstanding amounts due and payable with respect to the Loans 150 days
contractually past due, Charged-Off Loan or Refinancable Loan have been paid to
the Noteholders as Required Principal Distribution Amounts or the Takeout Price
has been paid for the Loans 150 days contractually past due, Charged-Off Loan or
Refinancable Loan, and (z) the amount on deposit in the Spread Account after
giving effect to such proposed release is at least equal to the Specified Spread
Account Requirement.



TRUST INDENTURE - Page 20


                  (b) The Trustee shall release a Loan from the Lien of this
Indenture by executing and delivering a release in the form of Exhibit E hereto,
to the Issuer with respect to such Loan. Upon release from the Lien of this
Indenture, the Issuer simultaneously shall distribute to its partners, or
otherwise dispose of, any Loan released pursuant to this Section 3.4. Upon
release from the Lien of this Indenture, the Trustee shall amend the Loan
Schedule to reflect the deletion of the Loans.

                  (c) Neither the Issuer nor the Trustee shall, without the
consent of the Holders of 100% of the principal amount of the Notes Outstanding,
sell, assign, transfer, pledge, distribute or otherwise dispose of the Loans as
a whole or in part after the Closing Date other than as provided in the
Transaction Documents.

                                   ARTICLE IV

                              REDEMPTION PROVISIONS

         4.1 OPTIONAL REDEMPTION OF THE NOTES. The Notes are subject to
redemption in whole, but not in part, at the option of the Issuer on any Payment
Date on or after the date on which the Outstanding Note Amount is less than 10%
of the Outstanding Note Amount on the Closing Date, at a redemption price equal
to 100% of the Outstanding Note Amount plus accrued and unpaid interest thereon
at the Remittance Rate to the redemption date. Following the occurrence of a
Redemption Trigger Event, the Notes will bear interest at a per annum rate equal
to the Remittance Rate, plus the Post Optional Redemption Remittance Margin.

         4.2 NOTICE OF REDEMPTION. When the Trustee shall receive written notice
from the Issuer of its election to redeem the Notes in accordance with Section
4.1 hereof, the Trustee shall, subject to Section 4.3 hereof and in accordance
with the provisions of this Indenture, give notice of the redemption of the
Notes not less than twenty (20) nor more than sixty (60) days prior to the date
fixed for redemption by certified mail, registered mail or overnight delivery to
the Holders of the Notes at the last address for each appearing on the Note
Register, in the name of the Issuer, which notice shall specify the following:
(a) the complete official name of the Notes, (b) the CUSIP number (if any) of
the Notes, (c) the date of such notice, (d) the issuance date for the Notes, (e)
the redemption price, the Applicable Remittance Rate and Maturity Date of the
Notes, (f) the redemption date, (g) the place or places where amounts due upon
such redemption will be payable, (h) that on the redemption date there shall
become due and payable upon each Note to be redeemed the amount of the
principal, together with interest accrued to the redemption date and (i) the
redemption agent name and address with a contact person and telephone number.
Notice having been so given by the Trustee, the redemption price and unpaid
interest accrued to the redemption date shall be due and payable on the
specified redemption date. The registered owner of $1,000,000 or more in
original principal amount of Notes may specify in writing to the Trustee one
additional address to which such notice of redemption shall be sent. Failure to
give such notice by mail to any Noteholder, or any defect therein, shall not
affect the validity of any proceedings for the redemption of other Notes.



TRUST INDENTURE - Page 21


         Upon the giving of notice and the payment of funds for redemption
pursuant to Section 4.3, the Trustee is hereby authorized and directed to apply
such funds to the payment of the Notes, together with accrued interest thereon
to the redemption date in accordance with the priorities set forth in Section
6.4 herein.

         4.3 REDEMPTION PAYMENTS. On or prior to the date specified for
redemption set forth in Section 4.2 hereof, the Issuer shall deposit with the
Trustee funds, which together with amounts then on deposit in the Collection
Account, are sufficient to pay on the redemption date, the principal of and
accrued and unpaid interest on the Notes, plus accrued and unpaid fees and
expenses of the Trustee, the Servicers and the Supervisory Servicer. If the
Trustee is required to redeem the Notes pursuant to Section 4.1, and subject to
and in accordance with the terms of this Article, the Trustee shall give notice
of the redemption in the manner prescribed by Section 4.2 hereof; provided,
however, that no such notice of redemption shall be given until the Trustee
holds, on the date notice is given pursuant to this Indenture, Available Moneys
in the amount necessary to pay, on the redemption date, the principal of and
interest on the Notes called for redemption.

         The Trustee shall apply moneys held in the Collection Account for the
redemption of Notes in accordance with the priorities set forth in Section 6.4
herein, and upon such redemption such Notes shall be canceled.

         4.4 CANCELLATION. All Notes which have been redeemed, paid or retired
or received by the Trustee for exchange shall not be reissued but shall be
canceled and destroyed by the Trustee in accordance with Article II hereof.

                                   ARTICLE V

                               COVENANTS OF ISSUER

         5.1 PAYMENT OF PRINCIPAL AND INTEREST. The Issuer covenants that it
will promptly pay the principal of and interest on every Note issued under this
Indenture at the place, on the dates and in the manner provided herein and in
said Notes according to the intent and meaning thereof.

         5.2 PERFORMANCE OF COVENANTS. The Issuer covenants that it will perform
at all times any and all covenants, undertakings, stipulations and provisions
contained in the Transaction Documents, in any and every Note executed,
authenticated and delivered hereunder and in all of its proceedings pertaining
hereto and comply with all material requirements of any law, rule or regulation
applicable to it.

         5.3 INSTRUMENTS OF FURTHER ASSURANCE. The Issuer agrees that the
Trustee may defend its rights to the payments and other amounts due under the
Loans for the benefit of the Holders against the claims and demands of all
persons whomsoever. The Issuer covenants that it will do, execute, acknowledge
and deliver, or cause to be done, executed, acknowledged and delivered, such
indentures supplemental hereto and such further acts, instruments and transfers
as the Trustee may reasonably require for the better assuring, transferring,
pledging, assigning and



TRUST INDENTURE - Page 22


confirming unto the Trustee all and singular the rights assigned hereby and the
amounts pledged hereby to the payment of the principal of and interest on the
Notes.

         5.4 RECORDING AND FILING. The Issuer will cause all financing
statements related to this Indenture and the Contribution Agreement, and such
other documents as may, in the Opinion of Independent Counsel reasonably
acceptable to the Trustee, be necessary to be kept and filed in such manner and
in such places as may be required by law in order to preserve and protect fully
the security of the Holders and the rights of the Trustee hereunder.

         5.5 EXISTENCE. The Issuer will take and fulfill, or cause to be taken
and fulfilled, all actions and conditions necessary to preserve and keep in full
force and effect its existence, rights and privileges as a limited partnership
and will not liquidate or dissolve, and it will take and fulfill, or cause to be
taken and fulfilled, all actions and conditions necessary to qualify, and to
preserve and keep in full force and effect its qualification to do business as a
foreign limited partnership in each jurisdiction in which the conduct of its
business or the ownership or leasing of its properties requires such
qualification, except to the extent that any failure to so qualify, or to so
preserve and keep in full force and effect such qualification, would not have a
material and adverse effect on the business, earnings, prospects, properties or
condition (financial or other) of the Issuer. The Issuer shall conduct its
business in accordance with the terms of its partnership agreement.

         5.6 ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS. The Issuer shall,
upon the request of the Trustee, a Noteholder, a Beneficial Owner, the
Supervisory Servicer or the Rating Agency, permit the Trustee, the Noteholders,
the Beneficial Owners, the Supervisory Servicer, the Rating Agency or their
designees or authorized agents:

                  (a) to inspect the books and records of the Issuer as they may
relate to the Notes, the Loans and the obligations of the Issuer under the
Transaction Documents; and

                  (b) to discuss the affairs, finances and accounts of the
Issuer with the General Partner.

         Such inspections and discussions shall be conducted during normal
business hours and shall not unreasonably disrupt the business of the Issuer,
PMCT or PMC. Such inspections shall be at the expense of the inspecting party,
or the party requesting the Trustee to conduct such inspection, unless an Event
of Default shall have occurred and then be continuing in which case, any such
inspection shall be at the expense of the Issuer. The books and records of the
Issuer will be maintained at the address of the Issuer designated herein for
receipt of notices, unless the Issuer shall otherwise advise the Trustee and the
Noteholders in writing.

         5.7 NOTICE OF MATERIAL EVENTS. The Issuer shall promptly and, in any
event, within five Business Days after the occurrence thereof, inform the
Trustee, the Noteholders, the Supervisory Servicer and the Rating Agency in
writing of the occurrence of any of the following:

                  (a) the submission of any material claim or the initiation of
any legal process, litigation or administrative or judicial investigation
against the Issuer;



TRUST INDENTURE - Page 23


                  (b) any change in the location of the Issuer's principal
office or any change in the location of the Issuer's books and records;

                  (c) the occurrence of any Event of Default, any "event of
default" under any other Transaction Document or the occurrence of any event or
condition which with the giving of notice or lapse of time or both would
constitute an Event of Default or "event of default" under any other Transaction
Document;

                  (d) the commencement or threat of any proceedings instituted
by or against the Issuer in any federal, state or local court or before any
governmental body or agency, or before any arbitration board, or the
promulgation of any proceeding or any proposed or final rule which, if adversely
determined, would result in a material adverse change with respect to the
Issuer;

                  (e) the commencement of any proceedings by or against the
Issuer under any applicable bankruptcy, reorganization, liquidation,
rehabilitation, insolvency or other similar law now or hereafter in effect or of
any proceeding in which a receiver, liquidator, conservator, trustee or similar
official shall have been, or may be, appointed or requested for the Issuer or
any of its assets.

                  (f) any merger, consolidation or sale of substantially all of
the assets of PMC or PMCT (except any acquisition by PMCT or PMC of the other,
merger or consolidation between PMC and PMCT or where PMC or PMCT, as
applicable, is the surviving entity) or the Issuer;

                  (g) any change in the Issuer's name, corporate or other
structure or jurisdiction of organization;

                  (h) any amendment or other modification of this Indenture, the
Servicing Agreement or any of the other Transaction Documents; or

                  (i) the final payment in full of the Notes.

         5.8 MAINTENANCE OF LICENSES; RATING. The Issuer shall maintain all
licenses, permits, charters and registrations which are material to the conduct
of its business. The Issuer shall at all times while the Notes are outstanding
cause the Rating Agency to maintain an ongoing monitoring rating with respect to
the Notes.

         5.9 USE OF FUNDS. Except for the distribution of the net proceeds
(other than amounts utilized to fund the Spread Account) from the sale of the
Notes pro rata to its partners and the distribution of funds and other assets
released from the Lien of this Indenture pursuant to its partnership agreement
which are contemplated and expressly permitted hereby, the Issuer shall apply
its funds only towards the payment of amounts due under the Notes and towards
the other sums payable by the Issuer under or in accordance with the Transaction
Documents.

         5.10 NEGATIVE COVENANTS OF THE ISSUER. The Issuer hereby agrees that as
long as any Notes remain Outstanding:



TRUST INDENTURE - Page 24


                  (a) No Amendments to Organization Documents. The Issuer shall
not amend, supplement or otherwise modify Section 2.3 of its partnership
agreement (or permit any of the foregoing). The Issuer shall not amend,
supplement or otherwise modify Sections 2.2, 8.1 or 9.1 or Articles V or VI of
its partnership agreement without the prior written consent of the Required
Noteholders.

                  (b) Limitation on Indebtedness. The Issuer shall not create,
incur or suffer to exist any indebtedness other than the Notes.

                  (c) No Subsidiaries. The Issuer shall not form, or cause to be
formed, any subsidiaries.

                  (d) Restrictions on Liens. The Issuer shall not (i) create,
incur or suffer to exist, or agree to create, incur or suffer to exist, or
consent to cause or permit in the future (upon the happening of a contingency or
otherwise) the creation, incurrence or existence of any Lien on the Loans or on
any of its assets except for Liens in favor of the Trustee or (ii) sign or file
under the Uniform Commercial Code of any jurisdiction any financing statement
which names the Issuer as a debtor, or sign any security agreement authorizing
any secured party thereunder to file such financing statement, except in each
case any such instrument solely securing the rights and preserving the Lien of
the Trustee.

                  (e) No Impairment of Rights. The Issuer shall not (i) take any
action, or fail to take any action, if such action or failure to take action may
interfere with the enforcement of any material rights, benefits or obligations
of the Trustee under the Transaction Documents; (ii) waive or alter any rights
with respect to the Loans (or any agreement or instrument relating thereto);
(iii) take any action, or fail to take any action, if such action or failure to
take action may interfere with the enforcement of any rights with respect to the
Loans; or (iv) fail to pay any tax, assessment, charge or fee with respect to
the Loans, or fail to defend any action, if such failure to pay or defend may
adversely affect the priority or enforceability of the Trustee's first priority
Lien on or perfected security interest in the Loans or the Issuer's right, title
or interest in the Loans.

                  (f) Limitation on Mergers, Etc. The Issuer shall not
consolidate with or merge with or into any Person or transfer all or any
material amount of its assets to any Person or liquidate or dissolve unless (i)
the Issuer shall have provided prior written notice thereof to the Noteholders,
together with an officer's certificate and an Opinion of Counsel to the effect
that such consolidation, merger or transfer complies with the terms of the
Transaction Documents and the Issuer's partnership agreement, and (ii) the
Required Noteholders have consented thereto in writing. The Issuer shall not
permit the General Partner, PMCT or PMC to sell, transfer, assign or otherwise
dispose of or convey its respective partnership interest in the Issuer.

                  (g) No Waiver, Amendments, Etc. The Issuer shall not waive,
modify or amend, or consent to any waiver, modification or amendment of, any of
the provisions of any of the Transaction Documents, except as expressly
permitted thereby.

                  (h) Restriction on Actions Under Partnership Agreement. The
Issuer shall not take any of the actions prohibited by Section 2.3 of its
partnership agreement.



TRUST INDENTURE - Page 25


                           (i) No Action Making Issuer a Taxable Mortgage Pool.
The Issuer shall not take any action or fail to take any action that would cause
the Issuer to be treated as a "taxable mortgage pool" as defined in Section
7701(i) of the Code.

         5.11 OPINIONS AS TO LOANS AND TRUST ESTATE.

                  (a) On the Closing Date, the Issuer shall furnish to the
Trustee an Opinion of Independent Counsel either stating that, in the opinion of
such counsel, such actions have been taken as are necessary to perfect and make
effective the Lien and first priority perfected security interest of (i) the
Issuer with respect to PMCT's and PMC's interest in the Loans in the event the
contribution of the Loans to the Issuer by PMC or PMCT pursuant to the
Contribution Agreement is recharacterized as a secured lending transaction, and
(ii) the Trustee, for the benefit of the Noteholders, created by this Indenture
with respect to the Trust Estate and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such liens and security interests effective. Such Opinion of Counsel shall
also describe the recording, filing, re-recording and refiling of this
Indenture, any supplemental indentures and any other requisite documents and the
execution and filing of any financing statements and continuation statements and
the taking of any other action that will, in the opinion of such counsel, be
required to maintain such liens and first priority perfected security interests.

                  (b) The Issuer shall furnish to the Trustee an Opinion of
Counsel on or before March 30 of each calendar year, commencing March 30, 2004,
either stating that, in the opinion of such counsel, such actions have been
taken as are necessary to maintain the liens and first priority perfected
security interests of the Issuer in the Loans (to the extent the contribution of
the Loans to the Issuer by PMC or PMCT pursuant to the Contribution Agreement is
recharacterized as a secured lending transaction) and of the Trustee created by
this Indenture with respect to the Trust Estate and reciting the details of such
action or stating that, in the opinion of such counsel, no such action is
necessary to maintain such liens and security interests. Such Opinion of Counsel
shall also describe the recording, filing, re-recording and refiling of this
Indenture, any supplemental indentures and any other requisite documents and the
execution and filing of any financing statements and continuation statements and
the taking of any other action that will, in the opinion of such counsel, be
required to maintain such liens and first priority perfected security interests
of this Indenture and the Contribution Agreement until March 30 in the following
calendar year.

         5.12 MAINTENANCE OF OFFICE. The Issuer will maintain at its office
located at its address shown in the definition of "Notice Address" an office
where notices, presentations and demands in respect of this Indenture and the
Notes may be given to and made upon it; provided, however, that it may, upon
fifteen (15) Business Days' prior written notice to the Noteholders and the
Trustee, move such office to any other location within the boundaries of the
continental United States of America.

         5.13 RESTRICTIONS ON ISSUER'S ACTIONS. The Issuer covenants and agrees,
until the cancellation and discharge of the Lien of this Indenture, to take any
and all actions to ensure that the Issuer will be recognized as a Person
separate from each of its Affiliates and that its assets and liabilities will
not be commingled with the assets and liabilities of any of its Affiliates. In
furtherance and not in limitation of the foregoing, the Issuer covenants and
agrees that:



TRUST INDENTURE - Page 26


                  (a) Until the cancellation and discharge of the Lien of this
Indenture, at least two (2) of the managers of the General Partner will be
persons who are not and have not been during the five (5) years preceding such
appointment (i) a stockholder (whether direct, indirect or beneficial), member,
partner, director, manager (except Independent Manager), officer or employee of
the General Partner, the Issuer or their Affiliates; (ii) affiliated with a
significant customer or supplier of the General Partner, the Issuer or their
Affiliates; (iii) a spouse, parent, sibling or child of any person described by
(i) or (ii) above; or (iv) a trustee, conservator or receiver of any Affiliate
(each such manager, an "INDEPENDENT MANAGER").

                  (b) Funds and other assets of the Issuer shall be separately
identified and segregated. All of the Issuer's assets shall at all times be held
by or on behalf of the Issuer, and, if held by another entity, shall at all
times be kept identifiable (in accordance with customary usages) as assets owned
by the Issuer. The Issuer shall maintain its own separate bank accounts, payroll
and books of account. In no event shall any of the Issuer's assets be held on
its behalf by any Affiliate.

                  (c) The Issuer shall pay from its assets all obligations of
any kind incurred by the Issuer (other than organizational expenses) and shall
maintain adequate capital in light of its contemplated business operations.

                  (d) All financial statements, accounting records and other
corporate documents of the Issuer shall be maintained at its office separate
from those of any Affiliate or any other Person.

                  (e) The Issuer shall observe all customary formalities
regarding its existence as a limited partnership and shall comply with its
agreement of limited partnership.

                  (f) The audited annual, consolidated balance sheets and income
statements of PMC and PMCT and the unaudited annual balance sheet and income
statement of the Issuer shall disclose, in accordance with and to the extent
required under generally accepted accounting principles, any transactions
between the Issuer and any Affiliate.

                  (g) All business transactions, other than those contemplated
by this Indenture, entered into by the Issuer with any Affiliate shall be on
terms and conditions that are not more or less favorable to the Issuer than the
terms and conditions that would be expected to have been obtained, under similar
circumstances, from unaffiliated persons. In addition, all such transactions
shall be approved by the Independent Managers. The Issuer shall not guarantee
any liabilities or obligations of any Affiliate, nor shall it assume any
indebtedness or other liabilities or obligations of any Affiliate or hold out
its credit as being available to satisfy the obligations of others.

                  (h) The Issuer shall at all times hold itself out to the
public (including any Affiliate's creditors) as a separate and distinct entity
operating under the Issuer's own name and the Issuer shall act solely on its own
name and through its own authorized partners, officers and agents and correct
any known misunderstanding regarding its separate identity.

                  (i) The Issuer shall pay out of its own funds fees, if any,
for its directors and salaries, if any, of its officers and employees, and shall
promptly reimburse any Affiliate for any



TRUST INDENTURE - Page 27


service provided to the Issuer by such Affiliate (other than the Servicers
pursuant to the terms of the Servicing Agreement) and shall allocate fairly and
reasonably any overhead for shared office space.

                  (j) Notwithstanding any other provision of the Issuer's
partnership agreement and any provision of law that otherwise so empowers the
Issuer, the Issuer shall not:

                           (i) engage in any business or activity other than as
set forth in the Issuer's agreement of limited partnership;

                           (ii) without the approval of a majority of the
managers of the General Partner, including all of the Independent Managers and
only upon the Issuer's insolvency, institute proceedings to be adjudicated a
bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against it, or file a petition seeking or consent to reorganization
or relief under any applicable federal or state law relating to bankruptcy, or
consent to the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Issuer or a substantial part of
its property, or make any assignment for the benefit of creditors, or admit in
writing its inability to pay its debts generally as they become due, or take any
corporate action in furtherance of any such action;

                           (iii) liquidate, in whole or in part; or

                           (iv) acquire, by redemption or otherwise, any of its
partnership interests during the period in which any Notes are Outstanding.

         5.14 INSURANCE COVERAGE. In the event the Trust Estate shall include
REO Property, the Issuer will notify the Trustee and the Noteholders in writing
no later than five (5) Business Days prior to the acquisition of such REO
Property. The Servicer will maintain liability and casualty insurance with
respect to the related Mortgaged Property in accordance with the terms of the
Servicing Agreement.

         5.15 FINANCIAL STATEMENTS AND ACCOUNTANTS' REPORTS. The Issuer shall
furnish or cause to be furnished to the Trustee, the Noteholders and the Rating
Agency:

                  (a) Annual Financial Statements. As soon as available, and in
any event within one hundred twenty (120) days after the close of each fiscal
year of the Issuer, the Issuer's financial statements as of the end of such
fiscal year; and

                  (b) Accountants' Reports. Promptly upon receipt thereof,
copies of any reports submitted to the Issuer by its independent accountants, if
any, in connection with any examination of the financial statements of the
Issuer.

         In addition to the foregoing, the Issuer shall furnish or cause to be
furnished to any Noteholder or any prospective purchaser of the Notes, upon the
written request of any Noteholder, any additional information required by Rule
144A(d)(4) under the Act.



TRUST INDENTURE - Page 28


                                   ARTICLE VI

                              REVENUES AND ACCOUNTS

         6.1 CREATION OF ACCOUNTS. On the Closing Date, the Trustee shall
establish the Collection Account and the Spread Account as non-interest bearing
trust accounts in its corporate trust department if the Trustee is a depository
institution that is not rated at least "P-1" or the equivalent by the Rating
Agency. The Collection Account shall be entitled "Collection Account--The Bank
of New York, as Trustee, in trust for registered Holders of $92,893,169 PMC
Joint Venture, L.P. 2003-1 Loan-Backed Floating Rate Notes" and the Spread
Account shall be entitled "Spread Account--The Bank of New York, as Trustee, in
trust for registered Holders of $92,893,169 PMC Joint Venture, L.P. 2003-1
Loan-Backed Floating Rate Notes." If the Trustee is a depository institution
rated at least "P-1" or the equivalent by the Rating Agency, the Collection
Account and the Spread Account may be established as deposit accounts. All
amounts credited to the Collection Account or the Spread Account shall be held
by the Trustee in trust for the Holders of the Notes until distribution of any
such amounts is authorized under this Indenture. All distributions, payments and
withdrawals from the Collection Account and the Spread Account shall be
determined in accordance with the related Determination Date Report.

         6.2 DEPOSITS TO THE COLLECTION ACCOUNT. There shall be deposited into
the Collection Account by the Trustee:

                  (a) so long as the Notes are Outstanding, on each Business
Day, all Collections deposited to the Lockbox Account;

                  (b) on the date of receipt thereof, any Takeout Price or Asset
Substitution Shortfall received pursuant to Section 3.3 hereof;

                  (c) on the date of receipt thereof, all income from investment
or reinvestment of amounts held in the Collection Account;

                  (d) on the relevant Payment Date, any amounts transferred from
the Spread Account pursuant to Section 6.3; and

                  (e) on the date of receipt thereof, any other amounts received
by the Trustee with respect to the Loans or the trusts created hereby,
including, without limitation, any amounts received pursuant to Section 4.3 to
redeem the Notes.

         6.3 DEPOSITS IN SPREAD ACCOUNT; PERMITTED WITHDRAWALS FROM SPREAD
ACCOUNT.

                  (a) The Trustee shall, promptly upon receipt, deposit in the
Spread Account:

                           (i) on the Closing Date, the Initial Deposit; and

                           (ii) on each Payment Date, from amounts then on
deposit in the Collection Account, the amount required to be deposited into the
Spread Account pursuant to Section 6.4(b) until the amount on deposit therein
equals the then applicable Specified Spread Account Requirement.



TRUST INDENTURE - Page 29


                  (b) Amounts on deposit in the Spread Account shall be
withdrawn by the Trustee in the manner set forth in subclause (c) below on each
Payment Date in the following order of priority:

                           (i) to deposit in the Collection Account an amount by
which (a) the Interest Distribution Amount, the Required Principal Distribution
Amount and the Carry Forward Amount, if any, exceed (b) the Amount Available for
such Payment Date; and

                           (ii) to the extent that the amount then on deposit in
the Spread Account after giving effect to any required transfers from the Spread
Account to the Collection Account on such Payment Date pursuant to clause (i)
above then exceeds the Specified Spread Account Requirement as of such Payment
Date (such excess, a "Spread Account Excess"), an amount equal to such Spread
Account Excess shall be deposited in the Collection Account prior to the making
of any distributions to the Servicers in reimbursement of Servicing Expenses on
such Payment Date;

         and also, in no particular order of priority:

                           (iii) to invest amounts on deposit in the Spread
Account in Eligible Investments pursuant to Article VII;

                           (iv) to withdraw any amount not required to be
deposited in the Spread Account or deposited therein in error; and

                           (v) to clear and terminate the Spread Account upon
the termination of this Indenture in accordance with the terms hereof.

                  (c) Any amounts which are required to be withdrawn from the
Spread Account pursuant to paragraph (b) above shall be withdrawn from the
Spread Account in the following order of priority: (i) first, from any
uninvested funds therein, and second, from the proceeds of the liquidation of
any investments therein pursuant to Article VII.

         6.4 DISTRIBUTIONS.

                  (a) The rights of the Noteholders to receive payments of
principal and interest on the Notes shall be as set forth in this Indenture.

                  (b) On each Payment Date, based on information contained in
the related Determination Date Report, the Trustee shall withdraw the Amount
Available from the Collection Account and make distributions thereof in the
following order of priority:

                           (i) First, to the Trustee, the Servicers, and the
Supervisory Servicer, if any, for payment of the Trustee's Fee, the Servicing
Fee, and the Supervisory Servicing Fee, if any;

                           (ii) Second, to the Noteholders, in an amount up to
the Regular Interest Distribution Amount;



TRUST INDENTURE - Page 30


                           (iii) Third, to the Noteholders, in an amount up to
the sum of (a) the Required Principal Distribution Amount and (b) the Carry
Forward Amount, if any;

                           (iv) Fourth, to the Spread Account, any remainder
unless and until the amount therein equals the Specified Spread Account
Requirement;

                           (v) Fifth, to the Noteholders, in an amount up to the
difference of (1) the Interest Distribution Amount, minus (2) the Regular
Interest Distribution Amount;

                           (vi) Sixth, to the Servicers, in reimbursement of
Servicing Expenses paid by the Servicers pursuant to Section 3.8 of the
Servicing Agreement and to the Trustee, Supervisory Servicer, Registrar and
Paying Agent in reimbursement of expenses incurred pursuant to the Transaction
Documents;

                           (vii) Seventh, provided no Event of Default then
exists, to the Issuer, in an amount sufficient to pay the administrative and
operating expenses of the Issuer, including without limitation, any unpaid
expenses and other amounts owed by the Issuer to the Trustee and Supervisory
Servicer and other administrative costs of maintaining the Trust Estate;
provided, however, in the event that an Event of Default then exists, no amount
shall be paid to the Issuer on such Payment Date pursuant to this clause
6.4(b)(vii); and

                           (viii) Eighth, provided no Event of Default or
Redemption Trigger Event then exists, to the Issuer any remaining amounts,
together with any permitted release from the Spread Account free and clear of
the Lien of this Indenture; provided, however, in the event that an Event of
Default then exists, no amount shall be paid to the Issuer on such Payment Date
pursuant to this clause 6.4(b)(viii); and provided further, notwithstanding the
foregoing, in the event a Redemption Trigger Event then exists, any remaining
amount that would have otherwise been paid to the Issuer on such Payment Date
pursuant to this clause 6.4(b)(viii) shall be paid to the Noteholders and
applied to the outstanding principal balance of the Notes until the Notes are
paid in full.

                  (c) All distributions made to the Noteholders will be made on
a pro rata basis among the Noteholders of record on the next preceding Record
Date based on each such Noteholder's percentage of the Outstanding Note Amount
represented by its respective Notes, and shall be made by wire transfer of
immediately available funds to the account of such Noteholder at a bank or other
entity having appropriate facilities therefor.

         6.5 MONEYS TO BE HELD IN TRUST. All moneys required to be deposited
with or paid to the Trustee for the account of any fund or account established
under any provision of this Indenture shall be held by the Trustee in trust and
not commingled with the funds or accounts of any other Person, and notice of the
redemption of which has been duly given, shall, while held by the Trustee,
constitute part of the Trust Estate and be subject to the security interest
created hereby. Any moneys (including, without limitation, Prepayment Premiums)
erroneously deposited in any fund or account established under this Indenture
shall be promptly returned to the Issuer and shall not constitute part of the
Trust Estate or be subject to the security interest granted hereby.



TRUST INDENTURE - Page 31


         6.6 AMOUNTS REMAINING IN FUNDS AND ACCOUNTS. Any amounts remaining in
any fund or account after full payment of the Notes, and all other amounts
required to be paid hereunder, shall be released to the Issuer.

         6.7 ACCOUNTS AND REPORTS. The Trustee, on behalf of the Issuer, shall
keep, or cause to be kept, proper books of record and account in which complete
and accurate entries shall be made of all its transactions relating to the Notes
and all funds and accounts established by or pursuant to this Indenture, which
shall at all reasonable times during regular business hours, be subject to the
inspection of the Issuer or of the Holders of an aggregate of not less than ten
percent in principal amount of Notes Outstanding or their representatives duly
authorized in writing.

         By the fifteenth (15th) day of each month or the next Business Day if
the 15th is not a Business Day, the Trustee shall furnish to the Issuer, the
Rating Agency and the Noteholders monthly statements in the form attached hereto
as Exhibit C (the "MONTHLY TRUSTEE REPORT") showing the beginning and ending
balances of and deposits to and withdrawals from and assets held in the
Collection Account and the Spread Account as of the close of business on the
last day of the preceding month. The Trustee shall also provide such other
information regarding the Trust Estate and the Issuer as may be reasonably
requested by the Rating Agency or any Noteholders to the extent the Trustee can
obtain such information without unreasonable effort or expense.

         6.8 TAX REPORTING. The Issuer shall be responsible for the preparation
and filing with the appropriate governmental agency of all tax returns and
reports ("TAX RETURNS") with respect to the Issuer. The Issuer shall cause a
copy of the completed and signed Tax Return (and a copy of any check delivered
in connection therewith in payment of any tax due) to be delivered to the
Trustee, at least five (5) Business Days prior to the required filing date,
after any additional time granted pursuant to any properly filed extensions. The
Trustee shall have no responsibility to verify the accuracy of the information
in any such Tax Return, may rely on the information included therein and shall
not have any liability for any inaccuracy or misstatement in such Tax Return.

                                  ARTICLE VII

                              INVESTMENT OF MONEYS

         Any moneys held as part of any fund or account shall be invested and
reinvested in Eligible Investments by the Trustee at the written direction of
the Servicers; provided, however, in the event that the Servicers at any time
fail to give or confirm such direction to the Trustee, the Servicers shall be
deemed to have directed the Trustee in writing to invest any moneys held as part
of any fund or account and not already invested in Eligible Investments, in a
money market fund meeting the requirements of clause (vi) of the definition of
"Eligible Investments." With respect to each investment made by the Trustee, the
Trustee shall make such investment in its name as Trustee and take such action
as shall be required from time to time to accomplish the transfer to the Trustee
the ownership thereof and all income thereon and all proceeds thereof, in good
faith and free and clear of any adverse claim. All such investments shall at all
times be a part of the fund or account from whence the moneys used to acquire
such investments shall have



TRUST INDENTURE - Page 32


come, and all income and profits on such investments shall be first used to
offset any investment losses in such fund, and then shall be credited as
provided in Article VI. All Eligible Investments shall mature no later than the
day prior to the next Payment Date, provided that any investments in money
market funds may mature on the applicable Payment Date. The Trustee shall sell
and reduce to cash a sufficient amount of such investments in the respective
fund or account whenever the cash balance therein is insufficient to pay the
amounts contemplated to be paid therefrom. The Trustee shall have no liability
or responsibility for the selection of investments or for any loss resulting
from any investment made in accordance with the provisions of this Article VII.
The Trustee shall have no liability with respect to losses incurred as a result
of the liquidation of any investment prior to its stated maturity or the failure
of the Servicers to provide timely written investment directions. The Trustee
shall not be liable for any investment made in accordance with the directions of
the Servicers or for keeping the funds fully invested at all times, provided
that the Trustee invests funds in a non-negligent manner in accordance with this
Article VII and the Servicers' directions.

                                  ARTICLE VIII

                             DISCHARGE OF INDENTURE

         If the Issuer shall (i) pay or cause to be paid to the Holders of the
Notes all outstanding principal and accrued and unpaid interest due thereon at
the times and in the manner stipulated therein, and shall pay or cause to be
paid to the Trustee all sums of moneys due according to the provisions hereof
(including the Trustee's reasonable fees and expenses and those of its
attorneys) and the Notes, and (ii) deliver to the Trustee an Officer's
Certificate and Opinion of Counsel stating that all conditions precedent under
the Indenture relating to the discharge of the Indenture have been complied
with, then these presents and the estate and rights hereby granted shall cease,
determine and be void, whereupon the Trustee shall cancel and discharge the Lien
of this Indenture, and execute and deliver to the Issuer such instruments in
writing as shall be requisite to cancel and discharge the Lien hereof, and
release, assign and deliver unto the Issuer any and all of the estate, right,
title and interest in and to any and all rights assigned or pledged to the
Trustee or otherwise subject to the Lien of this Indenture, including, but not
limited to, all moneys, securities and other property held in the Trust Estate.

         Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 9.2 hereof, the
obligations of the Trustee and each Paying Agent to the Issuer and to the
Holders of Notes under Section 10.10 hereof, the obligations of the Trustee to
the Holders of Notes under this Article VIII and the provisions of Article II
hereof with respect to lost, stolen, destroyed and mutilated Notes, registration
of transfers and exchanges of Notes, and rights to receive payments of principal
of the Notes and accrued and unpaid interest thereon shall survive.



TRUST INDENTURE - Page 33


                                   ARTICLE IX

                       DEFAULT PROVISIONS AND REMEDIES OF
                             TRUSTEE AND NOTEHOLDERS

         9.1 EVENTS OF DEFAULT. The happening of any one or more of the
following events shall constitute an "EVENT OF DEFAULT":

                  (a) default in the due and punctual payment of the entire
amount of any interest due and payable on any Note which continues unremedied
for five (5) Business Days;

                  (b) default in the due and punctual payment of (i) the
Required Principal Distribution Amount on any Payment Date which continues
unremedied for five (5) Business Days or (ii) the entire remaining principal
upon the redemption of the Notes pursuant to Section 4.1 or at the Maturity
Date;

                  (c) default in the performance or observance of any of the
covenants in Section 5.10 or 5.13;

                  (d) default in the performance or observance of any of the
covenants, agreements or conditions on the part of the Issuer contained in this
Indenture or in the Notes and not described in another paragraph of this Section
9.1, which failure shall continue for a period of thirty (30) days after the
earlier to occur of the date on which the Issuer obtained actual knowledge of
such failure or the date written notice of such failure, requiring the same to
be remedied, shall have been received by the Issuer from the Trustee or any
Holder, provided that, if such failure shall be of a nature that it cannot be
cured within thirty (30) days, such failure shall not constitute an Event of
Default hereunder if within such 30-day period the Issuer shall have given
notice to the Trustee and the Noteholders of the Notes of corrective action it
proposes to take, which corrective action is agreed in writing by the Trustee
and the Required Noteholders to be satisfactory and the Issuer shall thereafter
pursue such corrective action diligently until such default is cured but in no
event longer than ninety (90) days;

                  (e) any representation or warranty made by the Issuer under
this Indenture, or any representation or warranty made by the Issuer or any
Affiliate of the Issuer in any Transaction Document or in any certificate or
report furnished under this Indenture or any Transaction Document, shall prove
to be untrue or incorrect in any material respect and such breach is not cured
in all material respects within thirty (30) days after the date written notice
of such inaccuracy, requiring it to be remedied, is given to the Issuer by the
Trustee or any Holder;

                  (f) (i) the Issuer shall have asserted that any of the
Transaction Documents to which it is a party are not valid and binding on the
parties thereto; or (ii) any court, governmental authority or agency having
jurisdiction over any of the parties to any of the Transaction Documents or any
property thereof shall find or rule that any material provision of any of the
Transaction Documents is not valid and binding on the parties thereto;

                  (g) the General Partner or the Issuer shall fail to pay its
debts generally as they come due, or shall admit in writing its inability to pay
its debts generally, or shall make a general assignment for the benefit of
creditors, or shall institute any proceeding seeking to adjudicate the



TRUST INDENTURE - Page 34


General Partner or the Issuer insolvent or seeking a liquidation, or shall take
advantage of any insolvency act, or shall commence a case or other proceeding
naming the Issuer as debtor under the United States Bankruptcy Code or similar
law, domestic or foreign, or a case or other proceeding shall be commenced
against the General Partner or the Issuer under the United States Bankruptcy
Code or similar law, domestic or foreign, or any proceeding shall be instituted
against the General Partner or the Issuer seeking liquidation of the General
Partner's or the Issuer's assets and the General Partner or the Issuer, as
applicable, shall fail to take appropriate action resulting in the withdrawal or
dismissal of such proceeding within ninety (90) days or there shall be appointed
or the General Partner or the Issuer shall consent to, or acquiesce in, the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of the General Partner or the Issuer or the whole or any substantial
part of its properties or assets or the General Partner or the Issuer shall take
any corporate action in furtherance of any of the foregoing;

                  (h) the existence of any Event of Default by PMC or PMCT under
the Contribution Agreement, any Servicer Default under the Servicing Agreement
if the Servicer is PMC and/or PMCT or an Affiliate of PMC, PMCT or the Issuer,
and any Supervisory Servicer Default under the Supervisory Servicer Agreement if
the Supervisory Servicer is PMC, PMCT or an Affiliate of PMC, PMCT or the
Issuer; or

                  (i) the occurrence of an "event of default" under any other of
the Transaction Documents (other than an "event of default" by the Supervisory
Servicer or a Servicer Default if the Servicer is not an Affiliate of the
Issuer), after the satisfaction of any applicable notice provisions and the
expiration of any applicable cure periods.

         The Trustee shall give written notice to the Noteholders, the Rating
Agency and the U.S. Small Business Administration of any Event of Default within
five Business Days after the Trustee has actual knowledge of such Event of
Default.

         9.2 REMEDIES; RIGHTS OF NOTEHOLDERS. Upon the occurrence of an Event of
Default, the Trustee, upon the request of the Required Noteholders shall, pursue
any available remedy at law or in equity to enforce the payment of the principal
of and interest on the Notes then outstanding and all other amounts due and
owing under the Transaction Documents, including enforcement of any rights of
the Issuer under the Transaction Documents, Loans and any documents or
instruments related thereto.

         If an Event of Default described in Section 9.1(g) occurs, the
principal of all the Notes and all accrued and unpaid interest thereon shall
become immediately due and payable. The Trustee shall provide notice in writing
of such Event of Default to the Noteholders, the Servicer and the Supervisory
Servicer.

         If an Event of Default (other than an Event of Default described in
Section 9.1(g)) occurs and is continuing and if the Required Noteholders have
requested the Trustee to accelerate the Notes, the Trustee shall declare the
principal of all the Notes to be immediately due and payable, by a notice in
writing to the Issuer, the Noteholders, the Servicers and the Supervisory
Servicer (and to the Trustee if given by the Noteholders), and upon any such
declaration such principal and accrued and unpaid interest shall become
immediately due and payable.



TRUST INDENTURE - Page 35


         If an Event of Default shall have occurred, and if indemnified as
provided in Section 10.1(p) hereof, the Trustee shall, if directed in writing by
the Required Noteholders, be obligated to exercise one or more of the rights and
powers conferred by this Article IX, as the Trustee shall be directed by the
Required Noteholders.

         No remedy by the terms of this Indenture conferred upon or reserved to
the Trustee (or to the Noteholders) is intended to be exclusive of any other
remedy, but each and every such remedy shall be cumulative and shall be in
addition to any other remedy given to the Trustee or to the Noteholders of the
Notes hereunder or now or hereafter existing at law or in equity or by statute.

         No delay or omission to exercise any right or power accruing upon any
Event of Default shall impair any such right or power or shall be construed to
be a waiver of any such Event of Default or acquiescence therein; and every such
right and power may be exercised from time to time as often as may be deemed
expedient.

         No waiver of any Event of Default hereunder, whether by the Trustee or
by the Noteholders, shall extend to or shall affect any subsequent Event of
Default or shall impair any rights or remedies consequent thereon.

         9.3 RIGHT OF NOTEHOLDERS TO DIRECT PROCEEDINGS. Anything in this
Indenture to the contrary notwithstanding, the Required Noteholders shall have
the right, at any time, by an instrument or instruments in writing executed and
delivered to the Trustee, to direct the method and place of conducting all
proceedings to be taken in connection with the enforcement of the terms and
conditions of this Indenture, or for the appointment of a receiver or any other
proceedings hereunder or thereunder; provided that such direction shall not be
otherwise than in accordance with the provisions of law and of this Indenture.

         9.4 APPOINTMENT OF RECEIVERS. Upon the occurrence of an Event of
Default, and upon the filing of a suit or other commencement of judicial
proceedings to enforce the rights of the Trustee and of the Noteholders under
this Indenture, the Trustee shall be entitled, as a matter of right, to the
appointment of a receiver or receivers of the Trust Estate and of the revenues,
issues, earnings, income, products and profits thereof, pending such
proceedings, with such powers as the court making such appointment shall confer.

         9.5 APPLICATION OF MONEYS. All moneys received by the Trustee pursuant
to any right given or action taken under the provisions of this Article shall,
after payment of any fees and expenses, including any extraordinary fees and
expenses, due and payable to the Trustee and the Supervisory Servicer (so long
as the Supervisory Servicer is, the same corporate entity as the Trustee or an
Affiliate thereof) hereunder or under the Servicing Agreement or the Supervisory
Servicing Agreement, be deposited in the Collection Account and all moneys in
the Collection Account (other than moneys held for redemption of the Notes duly
called for redemption) shall be applied as follows:

                  FIRST--To the payment to the Persons entitled thereto of all
interest then due on the Notes, in the order of the maturity of such interest,
with interest on unpaid principal and, to the extent permitted by applicable
law, accrued interest at the Applicable Remittance Rate to the



TRUST INDENTURE - Page 36


extent such amount has not been distributed to the Noteholders when due, and, if
the amount available shall not be sufficient to pay in full said amount, then to
the payment ratably, according to the amounts due to the Persons entitled
thereto, without any discrimination or privilege;

                  SECOND-- To the payment to the Persons entitled thereto of any
unpaid principal of the Notes which shall have become due in order of maturity
and, if the amount available shall not be sufficient to pay in full such
principal due on any particular date, then to the payment ratably, according to
the amount of principal due on such date, to the Persons entitled thereto
without any discrimination or privilege;

                  THIRD--To be held for the payment to the Persons entitled
thereto as the same shall become due.

         Whenever moneys are to be applied pursuant to the provisions of this
Section, such moneys shall be applied at such times, and from time to time, as
the Trustee shall determine, having due regard for the amount of such moneys
available for application and the likelihood of additional moneys becoming
available for such application in the future. Whenever the Trustee shall apply
such funds, it shall fix the date upon which such application is to be made. The
Trustee shall give such notice as it may deem appropriate of the deposit with it
of any such moneys and of the fixing of any such date.

         Whenever all principal of and interest on all Notes and all other
amounts due and owing hereunder and under the Notes have been paid under the
provisions of this Section, any balance remaining in the Collection Account and
the Spread Account shall be released to the Issuer.

         9.6 REMEDIES VESTED IN TRUSTEE. All rights of action (including the
right to file proof of claims) under this Indenture or under any of the Notes
may be enforced by the Trustee without the possession of any of the Notes or the
production thereof in any trial or other proceeding related thereto and any such
suit or proceeding instituted by the Trustee shall be brought in its name as the
Trustee without the necessity of joining as plaintiffs or defendants any Holder
of the Notes, and any recovery of judgment shall be for the equal and ratable
benefit of the Holders of the Outstanding Notes.

         9.7 RIGHTS AND REMEDIES OF NOTEHOLDERS. No Holder of any Note shall
have any right to institute any suit, action or proceeding at law or in equity
for the enforcement of this Indenture or for the execution of any trust hereof
or for the appointment of a receiver or any other remedy hereunder or
thereunder, unless (a) an Event of Default has occurred of which the Trustee has
been notified by such Holder as provided in Section 10.1(l) hereof, or of which
by said subsection it is deemed to have notice, (b) the Holders of not less than
25% of the Outstanding Note Amount shall have given written notice to the
Trustee and shall have offered it reasonable opportunity either to proceed to
exercise the powers herein before granted or to institute such action, suit or
proceeding in their own name or names, (c) Noteholders have offered to the
Trustee indemnity as provided in Section 10.1(p) hereof, and (d) the Trustee
shall thereafter fail or refuse to exercise the powers herein before granted
within thirty (30) days thereafter, or to institute such action, suit or
proceeding in its own name; and such notification, request and offer of
indemnity are hereby declared in every case at the option of the Trustee to be
conditions precedent to the execution of the powers and trusts of this
Indenture, and to any action



TRUST INDENTURE - Page 37


or cause of action for the enforcement of this Indenture, or for the appointment
of a receiver or for any other remedy hereunder or thereunder; it being
understood and intended that no one or more Holders of the Notes shall have any
right in any manner whatsoever to affect, disturb or prejudice the Lien of this
Indenture by its, his or their action or to enforce any right hereunder except
in the manner herein provided, and that all proceedings at law or in equity
shall be instituted, had and maintained in the manner herein provided and for
the equal and ratable benefit of the Holders of all Notes Outstanding. However,
nothing contained in this Indenture shall affect or impair the right of any
Noteholders to enforce the payment of the principal of and interest on any Note
at and after the Maturity Date thereof, or the obligation of the Issuer to pay
the principal of and interest on each of the Notes issued hereunder to the
respective Holders thereof at the time, place, from the source and in the manner
in the Notes expressed.

         9.8 TERMINATION OF PROCEEDINGS. In case the Trustee shall have
proceeded to enforce any right under this Indenture by the appointment of a
receiver or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely, then and in
every such case the Issuer, the Trustee and the Noteholders shall be restored to
their former positions and rights hereunder and thereunder, respectively, with
regard to the property herein subject to this Indenture, and all rights,
remedies and powers of the Trustee shall continue as if no such proceedings had
been taken.

         9.9 WAIVERS OF EVENTS OF DEFAULT. The Trustee may waive any Event of
Default that has been remedied and any Event of Default (and its consequences)
relating to a default in the performance or observance of any covenant,
agreement or condition contained in the Indenture, or a breach of a
representation or warranty made by the Issuer in the Indenture or in any
certificate or report furnished under the Indenture, or the occurrence of any
"event of default" under the contracts and related documents governing the
transfer and servicing of the Loans and other matters relating to the issuance
of the Notes. The Trustee may waive any other Event of Default that has occurred
and is continuing only upon the written request of the Required Noteholders;
provided, however, that there shall not be waived (x) any Event of Default in
the payment of the principal of any outstanding Notes when due or (y) any
default in the payment when due of the interest on any such Notes unless, prior
to such waiver or rescission, all arrears of interest or all arrears of payments
of principal when due, with interest on overdue principal and, to the extent
permitted by applicable law, interest at the Applicable Remittance Rate, and all
expenses of the Trustee in connection with such Event of Default shall have been
paid or provided for, and in case of any such waiver or rescission, or in case
any proceedings taken by the Trustee on account of any such Event of Default
shall have been discontinued or abandoned or determined adversely, then and in
every such case the Issuer, the Trustee and the Noteholders shall be restored to
their former positions and rights hereunder, respectively, but no such waiver or
rescission shall extend to any subsequent or other Event of Default or impair
any right consequent thereon. Any waivers made by the Trustee pursuant to this
Section shall be in writing and shall specify the nature of the Event of Default
and the effective date of the waiver and the Trustee shall send a copy of all
such waivers to the Noteholders and the Rating Agency.



TRUST INDENTURE - Page 38


                                   ARTICLE X

                                     TRUSTEE

         10.1 ACCEPTANCE OF THE TRUSTS. The Trustee hereby accepts the trusts
imposed upon it by this Indenture, and agrees to perform said trusts and to
continue to perform, provided that the Trustee may, in accordance with Section
10.6 hereof, exercise its right to resign from the trusts created hereby; and
provided further that the acceptance by the Trustee of the trusts imposed under
this Indenture and the agreement to perform said trusts are subject to the
following express terms and conditions:

                  (a) The Trustee agrees to accept receipt, subject to review as
stated herein, of the Loans and other assets in the Trust Estate and declares
that it holds and will hold the Loans and other assets in the Trust Estate in
trust for the benefit of the Noteholders.

                  (b) The Trustee, prior to the occurrence of an Event of
Default and after the curing of all Events of Default which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Indenture, and no implied duties shall be read into this Indenture
against the Trustee. In case an Event of Default has occurred (which has not
been cured or waived), the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent man would exercise or use under the circumstances
in the conduct of his own affairs.

                  (c) The Trustee shall not be liable for its acts or omissions
in carrying out its duties hereunder, except for its own negligence or willful
misconduct. The Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts.

                  (d) The Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
directions of the Required Noteholders relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee under this Indenture.

                  (e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.

                  (f) The Trustee may execute any of the trusts or powers
hereunder and perform any of its duties hereunder either directly or by or
through agents or attorneys or a custodian or nominee and the Trustee shall not
be responsible for any misconduct or negligence on the part of any such party
appointed in good faith with due care by it hereunder. The Trustee may consult
with counsel, including Issuer's counsel, concerning all matters of trusts
hereof and the duties hereunder, and may in all cases pay such reasonable
compensation to all such attorneys, agents, receivers and employees as may
reasonably be employed in connection with the trusts hereof. The Trustee may act
or refrain from acting upon the opinion or advice of any



TRUST INDENTURE - Page 39


attorneys approved by the Trustee in the exercise of reasonable care. The
Trustee shall not be responsible for any loss or damage resulting from any
action or inaction in good faith in reliance upon such opinion or advice.

                  (g) The recitals contained herein and in the Notes, other than
the certificate of authentication, shall be taken as statements of the Issuer,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representation as to the validity or sufficiency of this Indenture or
of the Notes or of any Loans or related document. The Trustee shall not be
accountable for the use or application by the Issuer of any of the proceeds of
any of the Notes, or for the use or application of any funds deposited in or
withdrawn from the Collection Account or the Spread Account or any other account
by or on behalf of the Issuer. The Trustee shall not be responsible for the
accuracy or content of any resolution, certificate, statement, opinion, report,
document, order or other instrument furnished by the Issuer and accepted by the
Trustee in good faith, pursuant to this Indenture. The Trustee shall have no
duty to monitor the performance of the Issuer and Servicers, nor shall it have
any liability in connection with the malfeasance or nonfeasance by the Issuer
and Servicers except for its obligations under the Supervisory Servicing
Agreement; provided, however, if the Trustee has assumed the role of a Servicer
it shall be liable for its own malfeasance or nonfeasance in acting as Servicer.
The Trustee shall have no liability in connection with compliance by the Issuer
and Servicers with statutory or regulatory requirements related to the Indenture
and the Notes.

                  (h) The Trustee shall not be accountable for the use of any
Notes authenticated or delivered hereunder. The Trustee may in good faith buy,
sell, own and hold any of the Notes and may join in any action which any Holder
of Notes may be entitled to take with like effect as if the Trustee were not a
party to this Indenture. The Trustee may also engage in or be interested in any
financial or other transaction with the Issuer or any Holder, provided that if
the Trustee determines that any such relationship is in conflict with its duties
under this Indenture, it shall eliminate the conflict or resign as the Trustee.

                  (i) The Trustee may rely and shall be protected in acting or
refraining from acting to the extent such action or inaction is directed by any
notice, request, consent, certificate, order, affidavit, letter, telegram or
other paper or document believed to be genuine and correct and to have been
signed or sent by the proper person or persons. Any action taken by the Trustee
pursuant to this Indenture upon the request or authority or consent of any
person who at the time of making such request or giving such authority or
consent is the Holder of any Note, shall be conclusive and binding upon all
future Holders of the same Note and upon Notes issued in exchange therefor or in
place thereof.

                  (j) As to the existence or nonexistence of any fact or as to
the sufficiency or validity of any instrument, paper or proceeding, the Trustee
shall be entitled to rely upon a certificate signed by an Authorized Officer of
the Issuer as sufficient evidence of the facts therein contained and prior to
the occurrence of an Event of Default of which the Trustee has been notified as
provided in subsection (l) of this Section, or of which by said subsection it is
deemed to have notice, shall also be at liberty to accept a similar certificate
to the effect that any particular dealing, transaction or action is necessary or
expedient, but may, at its discretion, secure such further evidence deemed
necessary or advisable, but shall in no case be bound to secure the same. The
Trustee may accept a certificate of an Authorized Officer of the Issuer to



TRUST INDENTURE - Page 40


the effect that a resolution in the form therein set forth has been adopted by
the Issuer as conclusive evidence that such resolution has been duly adopted,
and is in full force and effect.

                  (k) The permissive right of the Trustee to do things
enumerated in this Indenture shall not be construed as a duty and it shall not
be answerable for other than its negligence or willful misconduct.

                  (l) The Trustee shall not be required to take or be charged
with notice or be deemed to have notice of any Event of Default hereunder,
except any Event of Default described in Sections 9.1(a) and (b) or the failure
of the Issuer to file with the Trustee any document required by this Indenture,
or of the Servicers to file with the Trustee any document required by the
Servicing Agreement to be so filed subsequent to the issuance of the Notes,
unless the Trustee shall be specifically notified in writing of such Event of
Default by the Issuer, the Servicers, the Supervisory Servicer or any Holder,
and all notices or other instruments required by this Indenture to be delivered
to the Trustee must, in order to be effective, be delivered at the Corporate
Trust Office of the Trustee, and, in the absence of such delivery, the Trustee
may conclusively assume there is no Event of Default except as aforesaid.

                  (m) At any and all reasonable times the Trustee, and its duly
authorized agents, attorneys, experts, engineers, accountants and
representatives, shall have the right fully to inspect any and all of the
property herein conveyed, including all books, papers and records of the Issuer
and the Servicers pertaining to the revenues and receipts under the Loans and
the Underlying Notes, and to take such notes from and in regard thereto as may
be desired.

                  (n) The Trustee shall not be required to give any bond or
surety in respect of the execution of the said trusts and powers or otherwise in
respect of the premises.

                  (o) Notwithstanding anything elsewhere in this Indenture
contained, the Trustee shall have the right, but shall not be required, to
demand, in respect of the authentication of any Notes, the withdrawal of any
cash, or any action whatsoever within the purview of this Indenture, any
showings, certificates, opinions, appraisals or other information, or corporate
action or evidence thereof, in addition to that by the terms hereof required as
a condition of such action by the Trustee deemed desirable for the purpose of
establishing the right of the Issuer to the authentication of any Notes, the
withdrawal of any cash, or the taking of any other action by the Trustee.

                  (p) Before taking the action referred to in Article IX hereof,
the Trustee may require that a satisfactory indemnity bond be furnished for the
reimbursement of all expenses to which the Trustee may be put and to protect it
against all liability, except liability which is adjudicated to have resulted
from its negligence or willful misconduct by reason of any action so taken.

                  (q) All moneys received by the Trustee or any Paying Agent
shall, until used or applied or invested as herein provided, be held in trust
for the purposes for which they were received and shall be segregated from other
funds and accounts and not commingled with any other funds.



TRUST INDENTURE - Page 41


         10.2 FEES, CHARGES AND EXPENSES OF TRUSTEE. The Trustee shall be
entitled to payment and reimbursement for the Trustee's Fee and all reasonable
counsel fees and other out-of-pocket expenses reasonably incurred by the Trustee
to third parties in connection with such services from moneys available therefor
in accordance with the priority set forth in Section 6.4 hereof and the Trustee
shall have the first Lien with right of payment prior to payment on any Note
upon the Trust Estate for the amount of the Trustee's Fee. The Trustee shall
have no claims against the Trust Estate for amounts owed to it hereunder other
than as specified above. The Issuer agrees to indemnify and hold the Trustee and
its officers, directors, agents and employees harmless from any loss, claim,
demand, liability or expense (including, without limitation, fees and expenses
of its attorneys) arising from or related to the acceptance of and performance
of its duties under this Indenture which do not result from the Trustee's
negligence or willful misconduct. This Section 10.2 shall survive the
termination of this Indenture or resignation or removal of the Trustee. Such
indemnity shall not be payable from the Trust Estate, except as provided in
Section 6.4, and the Trustee shall not institute any legal action, including a
bankruptcy proceeding against the Issuer to enforce such indemnity while the
Notes are outstanding.

         10.3 NOTICE TO NOTEHOLDERS IF DEFAULT OCCURS. If an Event of Default
occurs of which the Trustee is by Section 10.1(l) hereof required to take notice
or if notice of an Event of Default be given as in Section 10.1(l) hereof
provided, then the Trustee shall promptly, and in any event, within three
Business Days, give written notice thereof by overnight mail to the Holders of
all Notes Outstanding, shown by the list of Noteholders required by Section 2.9
hereof to be kept at the office of the Trustee.

         10.4 INTERVENTION BY TRUSTEE. In any judicial proceeding concerning the
issuance or the payment of the Notes to which the Issuer is a party and which in
the opinion of the Trustee and its counsel has a substantial bearing on the
interests of the Holders of the Notes, the Trustee may intervene on behalf of
Noteholders and shall do so if requested in writing by the owners of at least
25% of the Outstanding Note Amount, subject to receipt of satisfactory indemnity
as contemplated by Section 10.1(p).

         10.5 MERGER OR CONSOLIDATION OF TRUSTEE. Any corporation or association
into which the Trustee may be converted or merged, or with which it may be
consolidated, or to which it may sell or transfer its trust business and assets
as a whole or substantially as a whole, or any corporation or association
resulting from any such conversion, sale, merger, consolidation or transfer to
which it is a party, ipso facto, shall be and become successor Trustee hereunder
and vested with all of the title to the Trust Estate and all the trusts, powers,
discretions, immunities, privileges and all other matters as was its
predecessor, without the execution or filing of any instrument or any further
act, deed or conveyance on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided such successor Trustee accepts
the duties and responsibilities hereunder and is eligible pursuant to Section
10.9.

         10.6 RESIGNATION BY TRUSTEE. The Trustee and any successor Trustee may
at any time resign from the trusts hereby created by giving sixty (60) days'
written notice by registered or certified mail to the Issuer, the Servicers, the
Supervisory Servicer, the Noteholders, the Rating Agency and by first-class mail
(postage prepaid) to the Holders of the Notes and such resignation shall take
effect upon the appointment of a successor Trustee by the Issuer pursuant to



TRUST INDENTURE - Page 42


Section 10.8 and in accordance with Section 10.9 hereof. Upon receiving such
notice of resignation, the Issuer shall promptly appoint a successor Trustee
approved by the Servicers, such consent not to be unreasonably withheld or
delayed. If no successor Trustee shall have been so appointed and have accepted
appointment within sixty (60) days of the mailing of such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribed, appoint a successor Trustee.

         10.7 REMOVAL OF TRUSTEE. The Trustee may be removed at any time, by the
Issuer, provided no Event of Default then exists and is continuing, by an
instrument or concurrent instruments in writing delivered to the Trustee, the
Supervisory Servicer, the Rating Agency, and the Noteholders.

         10.8 APPOINTMENT OF SUCCESSOR TRUSTEE; TEMPORARY TRUSTEE. In case the
Trustee hereunder shall resign or be removed, or be dissolved, or shall be in
course of dissolution or liquidation, or otherwise become incapable of acting
hereunder, or in case it shall be taken under the control of any public officer
or officers, or of a receiver appointed by a court, a successor may be appointed
by the Issuer with the written consent of the Servicers, such consent not to be
unreasonably withheld or delayed, by an instrument in writing signed by the
Issuer and a copy of which shall be delivered personally or sent by registered
mail to the Noteholders. Nevertheless, in case of such vacancy, the Issuer by
resolution may appoint a temporary Trustee to fill such vacancy until a
successor Trustee shall be appointed in the manner above provided; and any such
temporary Trustee so appointed by the Issuer shall immediately and without
further act be superseded by the Trustee so appointed. Notice of the appointment
of a successor Trustee shall be given in the same manner as provided by Section
10.6 hereof with respect to the resignation of a Trustee; provided in each case
any successor Trustee shall meet the eligibility requirements of Section 10.9.

         10.9 CONCERNING ANY SUCCESSOR TRUSTEE. Every successor Trustee
appointed hereunder shall execute, acknowledge and deliver to its or his
predecessor and also to the Issuer, the Servicers, the Supervisory Servicer, the
Noteholders and the Rating Agency an instrument in writing accepting such
appointment hereunder, and thereupon such successor, without any further act,
deed or conveyance, shall become fully vested with all the estates, properties,
rights, powers, trusts, duties and obligations of its predecessors; but such
predecessor shall, nevertheless, on the written request of the Issuer, or of its
successor, execute and deliver an instrument transferring to such successor
Trustee all the estates, properties, rights, powers and trusts of such
predecessor hereunder; and every predecessor Trustee shall deliver all
securities and moneys held by it as the Trustee hereunder to its or his
successor, including, but not limited to, a transfer of the Loans and the
Trustee Loan Files. Should any instrument in writing from the Issuer be required
by any successor Trustee for more fully and certainly vesting in such successor
the estate, rights, powers and duties hereby vested or intended to be vested in
the predecessor, any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by the Issuer. The resignation of any
Trustee and the instrument or instruments removing any Trustee and appointing a
successor hereunder, together with all other instruments provided for in this
Article, shall be filed or recorded by the successor Trustee in each recording
office where this Indenture shall have been filed or recorded. Any successor
Trustee shall be required to (i) have corporate trust powers, (ii) have not less
than $100,000,000



TRUST INDENTURE - Page 43


in capital and surplus, (iii) be a member of the Federal Deposit Insurance
Corporation, and (iv) have a long-term unsecured debt rating from the Rating
Agency of at least "Baa3" or its equivalent, as applicable.

         10.10 DESIGNATION AND SUCCESSION OF PAYING AGENTS. The Paying Agent for
the Notes shall be the Trustee. Any bank or trust company with or into which any
Paying Agent may be merged or consolidated, or to which the assets and business
of such Paying Agent may be sold, shall be deemed the successor of such Paying
Agent for the purposes of this Indenture. If the position of Paying Agent shall
become vacant for any reason, the Issuer shall, within thirty (30) days
thereafter, appoint a bank or trust company having corporate trust powers and
having a long-term unsecured debt rating from the Rating Agency of at least
"Baa3" or its equivalent, as applicable, to fill such vacancy; provided,
however, that if the Issuer shall fail to appoint such Paying Agent within said
period, the Trustee shall make such appointment, subject to the foregoing
eligibility requirements. Other Paying Agents or fiscal agents may be appointed
pursuant to this Section 10.10 by the Issuer if in its discretion additional
Paying Agents or fiscal agents are deemed advisable.

         The Paying Agents shall enjoy the same protective provisions in the
performance of their duties hereunder as are specified in Section 10.1 hereof
with respect to the Trustee insofar as such provisions may be applicable.

         Notice of the appointment of additional Paying Agents or fiscal agents
shall be given in the same manner as provided by Section 10.8 hereof with
respect to the appointment of a successor Trustee.

         10.11 APPOINTMENT OF CO-TRUSTEE. It is the purpose of this Indenture
that there shall be no violation of any law of any jurisdiction denying or
restricting the right of banking corporations or associations to transact
business as the Trustee in such jurisdiction. It is recognized that, in case of
litigation under this Indenture, the Loans and, in particular, in case of the
enforcement thereof on default, or in case the Trustee deems that by reason of
any present or future law of any jurisdiction it may not exercise any of the
powers, rights or remedies herein granted to the Trustee or hold title to the
properties, in trust, as herein granted, or take any other action which may be
desirable or necessary in connection therewith, it may be necessary that the
Trustee appoint an additional individual or institution as a separate or
Co-Trustee.

         Therefore, the Trustee shall have the right to appoint one or more
persons to act as its Co-Trustee or Co-Trustees, jointly with the Trustee, of
all or any part of the Trust Estate, and to vest in such person or persons, in
such capacity, such title to the Trust Estate, or any part thereof, and, subject
to the other provisions of this Section 10.11, such powers, duties, obligation,
rights and trusts as the Trustee may consider necessary or desirable.

         Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the Co-Trustees, as effectively as if given
to each of them. Every instrument appointing any Co-Trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument or appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Indenture,
specifically



TRUST INDENTURE - Page 44


including every provision of this Indenture relating to the conduct of,
affecting the liability of, or affording protection to, the Trustee. Every such
instrument shall be filed with the Trustee.

         Any Co-Trustee may, at any time, constitute the Trustee, its agent or
attorney-in-fact, with full power and authority, to the extent not prohibited by
law, to do any lawful act under or in respect of this Agreement on its behalf
and in its name. If any Co-Trustee shall die, become incapable of acting, resign
or be removed, all of its estates, properties, rights, remedies and trusts shall
vest in and be exercised by the Trustee, to the extent permitted by law, without
the appointment of a new or successor Trustee. No Co-Trustee shall be required
to satisfy the eligibility requirements for a successor Trustee set forth in
Section 10.9 hereunder and no notice to the Noteholders of the appointment of a
Co-Trustee shall be required.

         In the event that the Trustee appoints an additional individual or
institution as a separate or Co-Trustee, each and every remedy, power, right,
claim, demand, cause of action, immunity, estate, title, interest and Lien
expressed or intended by this Indenture to be exercised by or vested in or
conveyed to the Trustee with respect thereto shall be exercisable by and vest in
such separate or Co-Trustee but only to the extent necessary to enable such
separate or Co-Trustee to exercise such powers, rights and remedies, and every
covenant and obligation necessary to the exercise thereof by such separate or
Co-Trustee shall run to and be enforceable by either of them.

         Should any instrument in writing from the Issuer be required by the
separate or Co-Trustee so appointed by the Trustee for more fully and certainly
vesting in and confirming to him or it such properties, rights, powers, trusts,
duties and obligations, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the Issuer. In case any
separate or Co-Trustee, or a successor to either, shall die, become incapable of
acting, resign or be removed, all the estates, properties, rights, powers,
trusts, duties and obligations of such separate or Co-Trustee, so far as
permitted by law, shall vest in and be exercised by the Trustee until the
appointment of a new Trustee or successor to such separate or Co-Trustee.

                                   ARTICLE XI

                             SUPPLEMENTAL INDENTURES

         11.1 SUPPLEMENTAL INDENTURES; CONSENT OF NOTEHOLDERS.

                  (a) The Issuer and the Trustee may, with notice to all of the
Noteholders and the Rating Agency, enter into an indenture or indentures
supplemental to this Indenture for the following purposes:

                           (i) To specify and determine any matters and things
relative to the Notes which are not contrary to or inconsistent with this
Indenture and which shall not materially adversely affect the interests of the
Noteholders;

                           (ii) To cure any defect, omission, conflict, or
ambiguity in this Indenture or between the terms and provisions hereof and any
other document executed or delivered in connection herewith;



TRUST INDENTURE - Page 45


                           (iii) To grant to or confer upon the Trustee for the
benefit of the Noteholders any additional rights, remedies, powers, authority,
or security which may lawfully be granted or conferred and which are not
contrary to or inconsistent with this Indenture as theretofore in effect;

                           (iv) To add to the covenants and agreements of the
Issuer in this Indenture other covenants and agreements to be observed by the
Issuer which are not contrary to or inconsistent with this Indenture as
theretofore in effect;

                           (v) To add to the limitations and restrictions in
this Indenture other limitations and restrictions to be observed by the Issuer
which are not contrary to or inconsistent with this Indenture as theretofore in
effect;

                           (vi) To confirm, as further assurance, any pledge
under, and the subjection to any claim, Lien or pledge created or to be created
by this Indenture of the revenues arising from the pledge of any moneys,
securities, funds or other parts of the Trust Estate;

                           (vii) To amend or modify any provisions of this
Indenture required by the Rating Agency to maintain the rating of the Notes;

                           (viii) To amend or modify any provisions of this
Indenture required by the Trustee, DTC or DTC's Nominee to facilitate the book
entry issuance of the Notes or the issuance of Definitive Notes as contemplated
herein; or

                           (ix) To amend or modify any provisions of this
Indenture, so long as such amendment or modification does not materially
adversely affect the interests of the Noteholders (which may be evidenced by an
Opinion of Independent Counsel delivered to the Trustee).

                  (b) The Issuer and the Trustee may, with the written consent
of the Required Noteholders and notice to all of the Noteholders and the Rating
Agency, enter into an indenture or indentures supplemental to this Indenture for
purposes other than those specified in Section 11.1(a); provided, however, that
nothing contained in this Section shall permit, or be construed as permitting,
without the consent of the Holders of all Notes Outstanding, any change of the
Maturity Date or other due date of the principal of or any installment of the
interest on any Note issued hereunder, or a reduction in the principal amount of
any Note or the Applicable Remittance Rate, or a privilege or priority of any
Note or Notes over any other Note or Notes, a reduction in the Outstanding Note
Amount required for consent to such supplemental indenture or for any waiver of
compliance with the provisions of this Indenture or Events of Default and their
consequences, any modification of this Section 11.1(b) or Section 11.1(c) or any
modification of this Indenture that would cause the Rating Agency to downgrade
the ratings of the Notes unless the Noteholders have unanimously consented to
such modification and downgrade.

                  (c) With respect to each supplemental indenture, the Trustee
shall be provided a certificate of an Authorized Officer of the Issuer and, if
requested by the Trustee, an Opinion of Counsel to the effect that the
supplemental indenture is duly authorized under this Article XI and all
conditions to its entry have been satisfied, and the Trustee shall be fully
protected in its



TRUST INDENTURE - Page 46


execution and delivery of the supplemental indenture in reliance on such
certificate and, if requested, by the Trustee, such opinion. If at any time the
Issuer shall request the Trustee to enter into any such supplemental indenture
for any of the purposes of Section 11.1(b), the Trustee shall, upon being
satisfactorily indemnified with respect to expenses, cause notice of the
proposed execution of such supplemental indenture to be mailed by registered or
certified mail to each Holder of a Note as shown on the list of Noteholders
required by Section 2.9 hereof. Such notice shall briefly set forth the nature
of the proposed supplemental indenture and shall include a copy of the proposed
supplemental indenture. If, within sixty (60) days or such longer period as
shall be prescribed by the Issuer following the final distribution of such
notice, the Required Noteholders at the time of the execution of any such
supplemental indenture shall have consented to and approved the execution
thereof as herein provided (other than where a unanimous consent is required as
described above), no owner of any Note shall have any right to object to any of
the terms and provisions contained herein, or the operation thereof, or in any
manner to question the propriety of the execution thereof, or to enjoin or
restrain the Trustee or the Issuer from executing the same or from taking any
action pursuant to the provisions thereof. Upon the execution of any
supplemental indenture as in this Section permitted and provided, this Indenture
shall be and be deemed to be modified and amended in accordance therewith.

         11.2 COPY OF SUPPLEMENTAL INDENTURES. The Trustee shall provide a copy
of any Supplemental Indenture executed to each of the Servicers, the Supervisory
Servicer, the Noteholders and the Rating Agency.

         11.3 AMENDMENTS TO TRANSACTION DOCUMENTS. The Trustee may not enter
into or consent to an amendment to any other Transaction Document, except as
expressly permitted therein, without the consent of the Required Noteholders.

                                  ARTICLE XII

                                  MISCELLANEOUS

         12.1 CONSENTS, ETC., OF NOTEHOLDERS. Any consent, request, direction,
approval, objection or other instrument required by this Indenture to be signed
and executed by the Noteholders may be in any number of concurrent writings of
similar tenor and may be signed or executed by such Noteholders in person or by
agent thereof appointed in writing. Proof of the execution of any such consent,
request, direction, approval, objection or other instrument or of the writing
appointing any such agent and of the ownership of Notes, if made in the
following manner, shall be sufficient for any of the purposes of this Indenture,
and shall be conclusive in favor of the Trustee and any Paying Agent with regard
to any action taken by it under such request or other instrument, namely:

                  (a) The fact and date of the execution by any person of any
such writing may be proved by the certificate of any officer in any jurisdiction
who by law has power to take acknowledgments within such jurisdiction that the
person signing such writing acknowledged before him the execution thereof, or by
an affidavit of any witness to such execution.



TRUST INDENTURE - Page 47


                  (b) The fact of ownership of Notes and the amount or amounts,
numbers and other identification of Notes, and the date of holding the same
shall be proved by the registration books of the Issuer maintained by the
Trustee pursuant to Section 2.9 hereof.

         12.2 LIMITATION OF RIGHTS; NON-RECOURSE OBLIGATIONS. With the exception
of rights herein expressly conferred, nothing expressed or mentioned in or to be
implied from this Indenture or the Notes is intended or shall be construed to
give to any Person other than the parties hereto, and the Holders of the Notes,
any legal or equitable right, remedy or claim under or in respect to this
Indenture or any covenants, conditions and provisions herein contained; this
Indenture and all of the covenants, conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and the Holders of the Notes as herein provided. THE NOTES ARE
NON-RECOURSE OBLIGATIONS OF THE ISSUER AND NEITHER THE TRUSTEE NOR THE
NOTEHOLDERS SHALL HAVE ANY RIGHTS TO ENFORCE THE PAYMENT OR PERFORMANCE OF THE
ISSUER'S OBLIGATIONS HEREUNDER OR UNDER THE TRANSACTION DOCUMENTS AGAINST THE
PARTNERS OR AFFILIATES OF THE ISSUER OR THEIR RESPECTIVE ASSETS. NO OFFICER,
AGENT OR EMPLOYEE OF THE ISSUER OR OF ANY AFFILIATE OF THE ISSUER, SHALL IN ANY
EVENT BE SUBJECT TO ANY PERSONAL LIABILITY FOR ANY PAYMENTS OR OTHER AMOUNTS DUE
IN RESPECT OF THE NOTES OR IN RESPECT OF ANY OBLIGATIONS OF THE PARTIES UNDER
ANY OF THE TRANSACTION DOCUMENTS.

         12.3 SEVERABILITY. If any one or more of the covenants, agreements,
provisions or terms of this Indenture shall be held invalid for any reason
whatsoever, then such covenants, agreements, provisions or terms shall be deemed
severable from the remaining covenants, agreements, provisions or terms of this
Indenture and shall in no way affect the validity or enforceability of the other
covenants, agreements, provisions or terms of this Indenture. The parties hereto
further agree that the holding by any court of competent jurisdiction that any
remedy pursued by the Trustee hereunder is unavailable or unenforceable shall
not affect in any way the ability of the Trustee to pursue any other remedy
available to it.

         12.4 NOTICES. Any notice, request, complaint, demand, communication or
other paper shall be in writing and sufficiently given if addressed to the
appropriate Notice Address and delivered by hand delivery or sent by nationally
recognized express courier, or mailed by registered mail, postage prepaid, or
transmitted by telecopy and shall be effective upon receipt, except when
telecopied, in which case, any such communication shall be effective upon
telecopy against receipt of answer back or written confirmation thereof. The
Issuer and the Trustee may, by notice given hereunder, designate any further or
different addresses to which subsequent notices, certificates or other
communications shall be sent.

         12.5 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. In any case where
the due date of interest on or principal of the Notes or the date fixed for
redemption of any Note shall be other than a Business Day, then payment of
interest or principal may be made on the next Business Day with the same force
and effect as if made on the due date or the date fixed for redemption.

         12.6 COUNTERPARTS. This Indenture may be simultaneously executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.



TRUST INDENTURE - Page 48


         12.7 APPLICABLE PROVISIONS OF LAW. THIS INDENTURE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.

         12.8 CAPTIONS. The captions or headings in this Indenture are for
convenience only and in no way define, limit or describe the scope or intent of
any provisions or Sections of this Indenture.



               [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]



TRUST INDENTURE - Page 49


         IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed
on its behalf by its General Partner and the Trustee, to evidence its acceptance
of the trusts created hereunder, has caused this Indenture to be executed as of
the date first written above.

                                              PMC JOINT VENTURE, L.P. 2003-1

                                              By: PMC Joint Venture LLC 2003-1,
                                                  its General Partner


                                              By: /s/ Jan F. Salit
                                                  ------------------------------
                                                  Jan F. Salit, Executive Vice
                                                  President

                                              THE BANK OF NEW YORK,
                                                 as Trustee


                                              By: /s/ Eric A. Lindahl
                                                  ------------------------------
                                              Name: /s/ Eric A. Lindahl
                                                    ----------------------------
                                              Title: Agent
                                                     ---------------------------




TRUST INDENTURE - Page 50

                               SERVICING AGREEMENT

                                  BY AND AMONG


                              THE BANK OF NEW YORK,
                       AS TRUSTEE AND SUPERVISORY SERVICER

                         PMC JOINT VENTURE, L.P. 2003-1,
                                    AS ISSUER

                                       AND

                                PMC CAPITAL, INC.
                                       AND
                              PMC COMMERCIAL TRUST,
                                  AS SERVICERS

                                   ----------

                         DATED AS OF SEPTEMBER 16, 2003

                                   ----------

                                   $92,893,169
                         PMC JOINT VENTURE, L.P. 2003-1
                         LOAN-BACKED FLOATING RATE NOTES





                                TABLE OF CONTENTS


                                                                                                             
ARTICLE I.              DEFINITIONS...............................................................................1

ARTICLE II.             REPRESENTATIONS, WARRANTIES AND COVENANTS.................................................1

         Section 2.1.      Representations and Warranties of Servicer. ...........................................1
         Section 2.2.      Covenants of Servicers.................................................................3
         Section 2.3.      Closing Certificate and Opinion........................................................5
         Section 2.4.      Fidelity Bond and Insurance............................................................5
         Section 2.5.      Access to Certain Documentation and Information Regarding the Loans....................6
         Section 2.6.      Merger or Consolidation................................................................6
         Section 2.7.      Indemnification........................................................................7

ARTICLE III.            GENERAL ADMINISTRATION AND SERVICING OF LOANS.............................................7

         Section 3.1.      General Duties of the Servicers........................................................7
         Section 3.2.      No Assignment or Delegation of Duties by Servicers.....................................8
         Section 3.3.      Establishment of Lockbox Account; Notices to Obligors; Deposits in Lockbox Account.....8
         Section 3.4.      Permitted Withdrawals from the Lockbox Account. .......................................9
         Section 3.5.      Payment of Taxes and Other Charges.....................................................9
         Section 3.6.      Collection of Certain Loan Payments...................................................10
         Section 3.7.      Limitation of Liability of Servicers' Officers and Others.............................10
         Section 3.8.      Servicing Compensation; Advances and Expenses.........................................10
         Section 3.9.      The Trustee's, the Noteholders' and Supervisory Servicer's Right To Examine Servicer
                           Records and Audit Operations..........................................................11
         Section 3.10.     Maintenance and Release of Loan Documentation; Satisfaction of Mortgages..............11
         Section 3.11.     Notice of Liens and Other Actions.....................................................14
         Section 3.12.     Waivers, Releases, Condemnations, Easements and Alterations...........................14
         Section 3.13.     Limitation on Liability of Servicers and Others.......................................14
         Section 3.14.     Property Address Change...............................................................14

ARTICLE IV.             SPECIFIC SERVICING PROCEDURES............................................................14

         Section 4.1.      Assumption Agreements.................................................................14
         Section 4.2.      Servicing Delinquent Accounts; Liquidation of Loans...................................15
         Section 4.3.      Foreclosure Expenses..................................................................18
         Section 4.4.      Title, Management and Disposition of REO Property.....................................18

ARTICLE V.              REPORTS TO BE PROVIDED BY SERVICERS......................................................20

         Section 5.1.      Determination Date Reports............................................................20
         Section 5.2.      Reports of Foreclosure and Abandonment of Mortgaged Property..........................22
         Section 5.3.      Quarterly Statement as to Compliance..................................................22
         Section 5.4.      Annual Independent Public Accountants' Servicing Report...............................23
         Section 5.5.      Servicers' Financial Statements; Annual Certification.................................23



                                        i





                                                                                                             
ARTICLE VI.             DEFAULTS.................................................................................24

         Section 6.1.      Servicer Defaults.....................................................................24
         Section 6.2.      Notice of Servicer Default............................................................25
         Section 6.3.      Remedies..............................................................................25
         Section 6.4.      Additional Remedies of Trustee Upon Servicer Defaults.................................25
         Section 6.5.      Supervisory Servicer To Act; Appointment of Successor.................................26
         Section 6.6.      Waiver of Defaults....................................................................26

ARTICLE VII.            TERMINATION..............................................................................27

         Section 7.1.      Servicers Not To Resign...............................................................27
         Section 7.2.      Term of Agreement.....................................................................27

ARTICLE VIII.           MISCELLANEOUS PROVISIONS.................................................................27

         Section 8.1.      Amendment.............................................................................27
         Section 8.2.      Governing Law.........................................................................27
         Section 8.3.      Notices...............................................................................28
         Section 8.4.      Severability of Provisions............................................................28
         Section 8.5.      No Partnership........................................................................28
         Section 8.6.      Counterparts..........................................................................28
         Section 8.7.      Successors and Assigns................................................................28
         Section 8.8.      Notification to Rating Agency and Noteholders.........................................28
         Section 8.9.      Indulgences; No Waivers...............................................................29
         Section 8.10.     Titles Not To Affect Interpretation...................................................29
         Section 8.11.     Entire Agreement......................................................................29
         Section 8.12.     Recordation of Agreement..............................................................29
         Section 8.13.     Further Assurances....................................................................29


EXHIBIT A           -    Form of Trust Receipt
EXHIBIT B           -    Form of Lockbox Notice Letter
EXHIBIT C           -    Form of Determination Date Report
EXHIBIT D           -    Form of Annual Statement
EXHIBIT E           -    Quarterly Officer's Certificate
EXHIBIT F           -    Officer's Certificate
EXHIBIT G           -    Form of Obligor Letter


SCHEDULE 1          -    Definitions



                                       ii



                               SERVICING AGREEMENT

         This Servicing Agreement (this "Agreement"), dated as of September 16,
2003 is made and entered into by and among THE BANK OF NEW YORK, as trustee (the
"Trustee"), and as Supervisory Servicer (the "Supervisory Servicer"), PMC JOINT
VENTURE, L.P. 2003-1, a Delaware limited partnership, as issuer (the "Issuer"),
and PMC CAPITAL, INC., a Florida corporation ("PMC") and PMC COMMERCIAL TRUST, a
Texas real estate investment trust ("PMCT"), as servicers (PMC and PMCT are
hereinafter collectively referred to as the "Servicers" and individually, a
"Servicer").

                              PRELIMINARY STATEMENT

         The Issuer is the owner of the Loans and the other property being
pledged, assigned and conveyed by it to the Trustee for inclusion in the Trust
Estate pledged to secure the Notes issued pursuant to the Indenture. The
Servicers are in the business, among other things, of servicing mortgage loans.
The Issuer hereby appoints each Servicer to service the Loans that were
transferred by such Servicer to the Issuer and are included in the Trust Estate,
and each Servicer hereby accepts such appointment.

         All covenants and agreements made by the Issuer, the Servicers, the
Supervisory Servicer and the Trustee herein are for the benefit of the Holders
from time to time of the Notes, the Trustee and the Supervisory Servicer. The
Issuer, the Trustee, the Supervisory Servicer and the Servicers are entering
into this Agreement for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.

         In consideration of the mutual agreements herein contained, the Issuer,
the Servicers, the Supervisory Servicer and the Trustee hereby agree as follows:

                                   ARTICLE I.

                                   DEFINITIONS

         All capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in Schedule 1 attached hereto. Unless
otherwise provided, all calculations of interest pursuant to this Agreement are
based on a 360-day year and the actual number of days elapsed.

                                  ARTICLE II.

                    REPRESENTATIONS, WARRANTIES AND COVENANTS

         SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF SERVICER. Each Servicer
hereby represents and warrants on behalf of itself to the Trustee for the
benefit of the Noteholders, the Supervisory Servicer and the Issuer as of the
Closing Date, and at all times during the term of this Agreement shall be deemed
to represent and warrant on behalf of itself, that:


SERVICING AGREEMENT - PAGE 1



         (a) Such Servicer has been duly formed and is validly existing under
the laws of the jurisdiction of its formation and is duly qualified to do
business and is in good standing under the laws of each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
enforceability of, or its ability to service, a Loan and no demand for such
qualification has been made upon such Servicer by any state, and, in any event
such Servicer is or will be in compliance with the laws of any such state to the
extent necessary to insure the enforceability of each Loan and the servicing of
the Loans in accordance with the terms of this Agreement;

         (b) Such Servicer holds all material licenses, certificates and permits
from all governmental authorities necessary for the conduct of its business
(except where the failure to obtain same would not materially and adversely
affect such Servicer's ability to perform its obligations hereunder in
accordance with the terms of this Agreement) and has received no notice of
proceedings relating to the revocation of any such license, certificate or
permit which singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect the conduct
of the business, results of operations, net worth or condition (financial or
otherwise) of such Servicer;

         (c) Such Servicer has the full power and authority to execute, deliver
and perform, and to enter into and consummate all transactions contemplated by
this Agreement and to conduct its business as presently conducted, has duly
authorized the execution, delivery and performance of this Agreement, has duly
executed and delivered this Agreement and this Agreement constitutes a legal,
valid and binding obligation of such Servicer, enforceable against it in
accordance with its terms, except as such enforcement may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights in general and (ii) by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);

         (d) Neither the execution and delivery by such Servicer of this
Agreement, the consummation by such Servicer of the transactions contemplated
hereby, nor the fulfillment of or compliance by such Servicer with the terms and
conditions of this Agreement conflicts or will conflict with or results or will
result in a breach of or constitutes or will constitute a default under (i) any
term or provision of the organizational documents or bylaws of the Servicer, or
(ii) any material agreement, contract, instrument or indenture to which the
Servicer is now a party or by which it is bound, or (iii) any law, rule,
regulation, order, judgment, writ, injunction or decree of any court or
governmental authority having jurisdiction over the Servicer;

         (e) At the date hereof, such Servicer does not believe, nor does it
have any reason or cause to believe, that it cannot perform each of its
covenants contained in this Agreement;

         (f) There is no litigation pending or, to such Servicer's knowledge,
threatened, which, if determined adversely to such Servicer, would materially
and adversely affect the execution, delivery or enforceability of this
Agreement, or the ability of such Servicer to service the Loans hereunder in
accordance with the terms hereof or which would have a material adverse effect
on the financial condition of such Servicer;


SERVICING AGREEMENT - PAGE 2



         (g) No consent, approval, authorization or order of, registration or
filing with or notice to any court or governmental agency or body is required
for the execution, delivery and performance by such Servicer of or compliance by
such Servicer with this Agreement or the consummation by such Servicer of the
transactions contemplated by this Agreement or if any such consent, approval,
authorization, order, registration, filing or notice is required, such Servicer
has obtained or will obtain it prior to the time necessary for such Servicer to
perform its obligations hereunder;

         (h) Neither this Agreement nor any statement, report or other document
furnished or to be furnished pursuant to this Agreement or in connection with
the transactions contemplated hereby contains any untrue statement of material
fact or omits to state a material fact necessary to make the statements relating
to such Servicer contained therein not misleading; and

         (i) Such Servicer is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or other) or operations
of such Servicer or its properties or might have consequences that would
materially and adversely affect its performance hereunder.

         Upon discovery by the Issuer, the applicable Servicer, the Supervisory
Servicer or the Trustee of a material breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other parties, with a copy to the Noteholders and
the Rating Agency. Within 30 days of its discovery or its receipt of notice of
any such breach of a representation or warranty, the applicable Servicer shall
cure such breach in all material respects; provided that, if such failure shall
be of a nature that it cannot be cured within 30 days, the applicable Servicer
shall give written notice to the Supervisory Servicer and the Trustee, with a
copy to the Noteholders and the Rating Agency, within such 30 day period of the
corrective action it proposes to take and shall thereafter pursue such
corrective action diligently until such default is cured but in no event longer
than 90 days from the date of such notice.

         SECTION 2.2. COVENANTS OF SERVICERS. Each Servicer hereby agrees with
respect to itself that during the term of this Agreement:

         (a) Compliance with Agreements and Applicable Laws. Such Servicer shall
perform each of its obligations under this Agreement and comply with all
material requirements of any law, rule or regulation applicable to it and the
terms of the Loans and any related agreements.

         (b) Existence. Except as otherwise permitted pursuant to Section 2.6
hereof, such Servicer shall maintain its existence and shall at all times
continue to be duly organized under the laws of the state of its organization
and duly qualified and duly authorized (as described in Sections 2.1(a), (b) and
(c) hereof) and shall conduct its business in accordance with the terms of its
organizational documents and bylaws.

         (c) Financial Statements; Accountants' Reports; Other Information. Such
Servicer shall keep or cause to be kept in reasonable detail books and records
of account of such Servicer's assets and business, including, but not limited
to, books and records relating to the


SERVICING AGREEMENT - PAGE 3



sale of the Loans sold by such Servicer to the Issuer and the servicing of such
Loans by such Servicer, which books and records shall be furnished to the
Trustee upon reasonable request.

         (d) Access to Records; Discussions with Officers and Accountants. Such
Servicer shall, upon the reasonable request of the Supervisory Servicer, the
Trustee, any Noteholder or any Beneficial Owner, permit the Supervisory
Servicer, the Trustee, any such Noteholder or any Beneficial Owner or any of
their authorized designees:

                           (i) to inspect the books and records of such Servicer
                  as they may relate to the Loans and the obligations of such
                  Servicer under this Agreement; and

                           (ii) to discuss the affairs, finances and accounts of
                  such Servicer relating to the Loans and the obligations of
                  such Servicer under this Agreement with any Authorized Officer
                  of such Servicer.

         Such inspections and discussions shall be conducted during normal
         business hours and shall not unreasonably disrupt the business of such
         Servicer. Such inspections shall be at the expense of the party
         performing or requesting such inspection unless a Servicer Default
         shall have occurred and be continuing, in which case any such
         inspection shall be at the expense of such Servicer. The books and
         records of such Servicer will be maintained in the United States at the
         address of such Servicer designated herein for receipt of notices,
         unless such Servicer shall otherwise advise the Supervisory Servicer,
         the Trustee and the Noteholders in writing not less than fifteen (15)
         Business Days prior to any such change of address.

         (e) Notice of Material Events. Such Servicer shall promptly and in any
event, within five (5) Business Days of the occurrence thereof, inform the
Supervisory Servicer, the Trustee, the Noteholders and the Rating Agency in
writing of the occurrence of any of the following:

                           (i) the submission of any claim or the initiation of
                  any legal process, litigation or administrative or judicial
                  investigation against such Servicer involving potential
                  damages or penalties in an uninsured amount in excess of
                  $1,000,000 in any one instance or $5,000,000 in the aggregate;

                           (ii) any change in the location of such Servicer's
                  principal office, any change in the location of such
                  Servicer's books and records or any change in such Servicer's
                  organizational structure or jurisdiction of organization;

                           (iii) the occurrence of any Servicer Default;

                           (iv) the commencement of any proceedings instituted
                  by or against such Servicer in any federal, state or local
                  court or before any governmental body or agency, or before any
                  arbitration board, or the promulgation of any proceeding or
                  any proposed or final rule which, if adversely determined,
                  would result in a material adverse change in the financial
                  condition or operations of such Servicer;

                           (v) the commencement of any proceedings by or against
                  such Servicer under any applicable bankruptcy, reorganization,
                  liquidation, rehabilitation,


SERVICING AGREEMENT - PAGE 4



                  insolvency or other similar law now or hereafter in effect or
                  of any proceeding in which a receiver, liquidator,
                  conservator, trustee or similar official shall have been, or
                  may be, appointed or requested for such Servicer or any of its
                  assets;

                           (vi) the receipt of notice that (A) any license,
                  permit, charter, registration or approval necessary for the
                  performance by such Servicer of its obligations under this
                  Agreement is to be, or may be, suspended or revoked, or (B)
                  such Servicer is to cease and desist any practice, procedure
                  or policy employed by such Servicer in the conduct of its
                  business, and such cessation may result in a material adverse
                  change in the financial condition or operations of such
                  Servicer;

                           (vii) any merger, consolidation or sale of
                  substantially all of the assets of such Servicer; or

                           (viii) the final payment in full of the Notes.

         (f) Maintenance of Licenses. Such Servicer shall maintain all licenses,
permits, charters and registrations which are material to the performance by
such Servicer of its obligations under this Agreement.

         (g) Notices. Such Servicer shall promptly notify the Trustee, the
Noteholders, the Rating Agency and the Supervisory Servicer in writing of any
event, circumstance or occurrence which may materially and adversely affect the
ability of such Servicer to service any Loan or to otherwise perform and carry
out its duties, responsibilities and obligations under and in accordance with
this Agreement.

         SECTION 2.3. CLOSING CERTIFICATE AND OPINION. On the Closing Date, the
Servicers will deliver to the Issuer, the Initial Purchaser, the Supervisory
Servicer, the Noteholders and the Trustee an Opinion of Counsel, dated the
Closing Date, in form and substance satisfactory to the Noteholders, as to the
due authorization, execution and delivery of this Agreement by the Servicers and
the enforceability thereof and such other matters as reasonably requested by the
Noteholders. On the Closing Date, the Servicers shall also deliver an Officers'
Certificate, dated the Closing Date, signed by two Authorized Officers of each
Servicer, to the effect that:

         (a) the representations and warranties contained in Section 2.1 hereof
are true and correct in all material respects as of the Closing Date;

         (b) no Servicer Default exists hereunder; and

         (c) the Servicers maintain such errors and omissions insurance and
fidelity bond coverage as is required by this Agreement.

         SECTION 2.4. FIDELITY BOND AND INSURANCE. Each Servicer shall maintain
with a responsible company, at its own expense, a blanket fidelity bond in a
minimum amount of $1,000,000 (the "FIDELITY BOND") and an errors and omissions
insurance policy with coverage in an amount deemed reasonable by such Servicer
with coverage on all officers, employees or other persons acting in any capacity
requiring such persons to handle funds, money, documents or


SERVICING AGREEMENT - PAGE 5



papers relating to the Loans ("SERVICER EMPLOYEES"). Any such fidelity bond and
errors and omissions insurance shall protect and insure the Trust Estate and the
Trustee, as Trustee for the Noteholders, its officers, employees and agents
against losses, including losses resulting from forgery, theft, embezzlement,
fraud, errors and omissions and negligent acts of such Servicer Employees. Such
fidelity bond shall name the Trustee, for the benefit of the Noteholders, as a
loss payee and shall provide that such bond cannot be cancelled without 30 days'
prior notice to the Trustee. No provision of this Section 2.4 requiring such
fidelity bond and errors and omissions insurance shall diminish or relieve such
Servicer from its duties and obligations as set forth in this Agreement. Upon
the request of the Trustee, the Servicer shall cause to be delivered to the
Trustee a certified true copy of such fidelity bond and insurance policy.
Coverage of such Servicer under a policy or bond obtained by an Affiliate of
such Servicer and providing the coverage required by this Section shall satisfy
the requirements of this Section.

         SECTION 2.5. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE LOANS. Such Servicer shall provide to the Trustee, the Issuer, the
Supervisory Servicer, the Noteholders, the Beneficial Owners and their
representatives or designees access to the documentation regarding the Loans,
such access being afforded without charge but only upon reasonable request and
during normal business hours at the offices of such Servicer provided that such
access shall not be requested more frequently than is reasonable or justifiable.

         Such Servicer shall at all times maintain accurate records and books of
account and an adequate system of audit and internal controls. All accounting
and loan servicing records pertaining to each Loan shall be maintained in such
manner as will permit the Trustee, the Noteholders, Beneficial Owners and the
Supervisory Servicer or their duly authorized representatives and designees to
examine and audit and make legible reproductions of records during reasonable
business hours. All such records shall be maintained until no Notes remain
Outstanding or such longer period as is required by Law, including but not
limited to, all transaction registers and loan ledger histories.

         SECTION 2.6. MERGER OR CONSOLIDATION. Except as set forth in this
Section 2.6 below, such Servicer will keep in full effect its existence, rights
and franchises, and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement or any of the Loans it
services and to perform its duties under this Agreement.

         Any Person into which such Servicer may be merged or consolidated, or
any Person resulting from any merger, conversion or consolidation to which such
Servicer shall be a party, or any Person succeeding to the business of such
Servicer, shall be an established mortgage loan servicing institution that has a
net worth of at least $50,000,000 (unless such Person is then a Servicer
hereunder or is otherwise consented to in writing by the Trustee and the
Required Noteholders) and shall be the successor of such Servicer hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto except for notice thereof to the Rating Agency,
anything herein to the contrary notwithstanding, provided such successor accepts
the terms and conditions of this Agreement. Such Servicer shall, upon making a
determination that it will enter into any such merger or consolidation, send
written notice thereof to the Trustee, the Noteholders, the Supervisory Servicer
and the Rating Agency which shall in no event be less than thirty (30) days
prior written notice.


SERVICING AGREEMENT - PAGE 6



         SECTION 2.7. INDEMNIFICATION. Such Servicer agrees to indemnify and
hold the Issuer, the Trust Estate, the Initial Purchaser, the Supervisory
Servicer, the Trustee, the Noteholders and the Beneficial Owners (and each of
their respective officers, directors, employees and agents) each harmless
against any and all claims, losses, damages, penalties, fines, forfeitures,
reasonable legal fees and related costs, judgments, and other costs and expenses
("Losses") resulting from any claim, demand, defense or assertion based on or
grounded upon, or resulting from, a breach of any of such Servicer's
representations and warranties contained in this Agreement or the negligence,
bad faith or willful misconduct of such Servicer relating to the performance of
its duties hereunder and servicing the Loans it is responsible for servicing in
compliance with the terms of this Agreement. Such Servicer agrees to indemnify
and hold each of the Trustee and the Supervisory Servicer and each of their
respective officers, directors, employees and agents harmless against any and
all Losses incurred by such indemnified Person except for such actions to the
extent caused by any negligence, bad faith or willful misconduct on the part of
such indemnified Person, arising out of the administration of this Agreement,
the Indenture or the Supervisory Servicing Agreement or the exercise or
performance of any of such indemnified Person's rights, powers or duties
hereunder or thereunder. The Issuer, the Initial Purchaser, the Supervisory
Servicer or the Trustee, as the case may be, shall immediately notify the
Servicers if a claim is made by a third party with respect to this Agreement or
the Loans; provided, however, that failure to so notify shall not relieve the
applicable Servicer of its obligations hereunder except to the extent such
Servicer is materially prejudiced thereby. Notwithstanding anything to the
contrary contained herein, no Person acting as Servicer hereunder shall have any
liability under this Section 2.7 for the indemnification of any claim based upon
or arising from the action or omission of any predecessor Servicer.

                                  ARTICLE III.

                  GENERAL ADMINISTRATION AND SERVICING OF LOANS

         SECTION 3.1. GENERAL DUTIES OF THE SERVICERS. For and on behalf of
the Issuer, the Trustee and the Holders, each Servicer shall service and
administer the Loans it is responsible for servicing in accordance with the
provisions of this Agreement and the instructions of the Trustee hereunder.
Unless otherwise specified herein with respect to specific obligations of such
Servicer, such Servicer shall service and administer the Loans it is responsible
for servicing in the best interests of, and for the benefit of, the Holders, in
accordance with the Servicing Standard.

         (a) Consistent with the terms of this Agreement, the Servicers may
waive, modify or vary any term of any Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Obligor if, in such Servicer's reasonable determination, such waiver,
modification, postponement or indulgence is not materially adverse to the
interests of the Trustee on behalf of the Noteholders and such Servicer would
make the same determination if it serviced the Loan for its own account;
provided, however, that such Servicer may not permit any modification (except in
connection with a plan of liquidation or reorganization of the related Obligor)
with respect to any Loan that would change the Loan Rate or the default rate,
forgive the payment of any principal or interest (unless in connection with the
liquidation of the related Loan or in connection with a plan of liquidation or
reorganization of the related Obligor), or except as permitted by Section 3.6,
waive any prepayment fee or penalty,


SERVICING AGREEMENT - PAGE 7



release any primary collateral (the first lien Mortgage) securing the Loan or
defer or extend the final maturity date of such Loan beyond the term of the
Notes without the written consent of all of the Noteholders. Notwithstanding the
foregoing, in the event that any Loan is in default, or in the judgment of the
Servicer, such default is reasonably foreseeable, such Servicer, consistent with
the Servicing Standard and written notice to the Trustee, may also waive, modify
or vary any term of such Loan (including modifications that would change the
Loan Rate or the default rate, forgive the payment of any principal or interest,
waive any prepayment fee or penalty, release any primary collateral securing the
Loan or defer or extend the final maturity date of such Loan beyond the term of
the Notes.) Without limiting the generality of the foregoing, and subject to the
consent of the Trustee and in accordance with the Servicing Standard, such
Servicer shall continue, and is hereby authorized and empowered, to execute and
deliver on behalf of the Trustee, all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Loans it services and with respect to the
Mortgaged Properties. If reasonably required by such Servicer, the Trustee shall
furnish such Servicer with any powers of attorney and other documents necessary
or appropriate to enable such Servicer to carry out its servicing and
administrative duties under this Agreement.

         SECTION 3.2. NO ASSIGNMENT OR DELEGATION OF DUTIES BY SERVICERS. Each
Servicer, as an independent contractor, shall service and administer the Loans
for which it is responsible for servicing and shall have full power and
authority, acting alone, to do any and all things in connection with such
servicing and administration which such Servicer may deem necessary or desirable
and consistent with the terms of this Agreement. Such Servicer may not enter
into subservicing agreements (except with the other Servicer or an Affiliate)
for any servicing and administration of Loans without the prior written consent
of the Required Noteholders (which consent shall not be unreasonably withheld)
and without notice thereof to the Rating Agency and the Trustee. Except as
expressly provided herein, such Servicer shall not assign or transfer (except to
the other Servicer or an Affiliate) any of its rights, benefits or privileges
hereunder to any other Person, or delegate to or subcontract with, or authorize
or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by such Servicer hereunder, without notice to the
Rating Agency and the Trustee and without the prior written consent of the
Required Noteholders (which consent shall not be unreasonably withheld), and
absent such written consent any agreement, instrument or act purporting to
effect any such assignment, transfer, delegation or appointment shall be void.
Such Servicer shall be liable for all acts and omissions of any subservicer,
delegate, subcontractor or other agent appointed pursuant to this Agreement.
Nothing contained in this Section 3.2 shall prohibit or be deemed to prohibit
such Servicer from contracting with third parties to perform duties that are not
duties of such Servicer hereunder that such Servicer deems reasonably necessary
in connection with the servicing of the Loans for which it is responsible for
servicing including, without limitation, title work, surveying, environmental
consulting, property management and maintenance, construction, engineering and
architectural consulting.

         SECTION 3.3. ESTABLISHMENT OF LOCKBOX ACCOUNT; NOTICES TO OBLIGORS;
DEPOSITS IN LOCKBOX ACCOUNT. On or prior to the Closing Date, the Servicers
shall cause to be established and maintained, at the Servicers' expense, if the
Servicers are PMC and/or PMCT, if not, then at the expense of the Trust Estate,
the Lockbox Account with Bank One, NA or another Financial Institution having a
long-term unsecured debt rating of at least A2 or its equivalent by the Rating
Agency at all times that it holds the Lockbox Account (the "REQUIRED RATING").


SERVICING AGREEMENT - PAGE 8



         (a) Within three (3) Business Days after the Closing Date, each
Servicer will prepare and deliver to each of the Obligors with respect to the
Loans for which it is responsible for servicing, with a copy of such
correspondence to the Trustee and to the Noteholders, notices in the form
attached hereto as Exhibit B, directing each such Obligor to send all future
Monthly Payments or Principal Prepayments directly to the Lockbox Account.

         (b) Notwithstanding the foregoing notices, if such Servicer receives
any Collections, including, without limitation, any Monthly Payments, late
payment charges or other payments relating to a Loan, such Servicer will receive
such funds in trust for the Trustee and, if such Servicer is not a financial
institution having a rating of at least "P-1" or "A-1" or its equivalent by the
Rating Agency, will forward such funds to the Lockbox Account or Collection
Account no later than the Business Day immediately following the date such
Servicer obtains knowledge of such receipt. In addition, any Liquidation
Proceeds received by such Servicer will be deposited into the Lockbox Account or
Collection Account no later than the Business Day immediately following the day
such Servicer obtains knowledge of such receipt.

         (c) If the Supervisory Servicer assumes the function of Servicer under
this Agreement, the Supervisory Servicer shall have the right, at any time and
in its sole discretion, to establish and maintain at the expense of the Trust
Estate, a new Lockbox Account at a Financial Institution having the Required
Rating. Within five (5) Business Days of establishing the new Lockbox Account,
the Supervisory Servicer will prepare and deliver to each of the Obligors, with
copies of such correspondence to the Trustee and to the Noteholders, notice, in
the form of Exhibit B attached hereto, directing each such Obligor to send all
future Monthly Payments and Principal Prepayments directly to the new Lockbox
Account.

         (d) Upon receipt of notice that the institution holding the Lockbox
Account no longer has the Required Rating or that Bank One, NA no longer wishes
to hold the Lockbox Account, the Trustee will provide notice thereof to the
Servicers and the Servicers will, within three (3) Business Days, cause to be
established and maintained, at their expense if the Servicers are PMC and/or
PMCT, or if not, at the expense of the Trust Estate, a new Lockbox Account at a
Financial Institution having the Required Rating. Within five (5) Business Days
of establishing the new Lockbox Account, each Servicer will prepare and deliver
to each of the Obligors with respect to the Loans for which it is responsible
for servicing, with copies of such correspondence to the Trustee, and to the
Noteholders, notices, in the form of Exhibit B attached hereto, directing each
such Obligor to send all future Monthly Payments and Principal Prepayments
directly to the Lockbox Account.

         SECTION 3.4. PERMITTED WITHDRAWALS FROM THE LOCKBOX ACCOUNT. The
Trustee shall have the sole right to withdraw funds from the Lockbox Account and
on a daily basis, all deposits to the Lockbox Account shall be withdrawn
automatically and transferred to the Collection Account established under the
Indenture. The Trustee shall cause the entity holding the Lockbox Account to
forward funds held therein as provided herein.

         SECTION 3.5. PAYMENT OF TAXES AND OTHER CHARGES. If such Servicer
receives notice that any taxes, assessments or other charges which are or may
become a lien upon the Mortgaged Property are overdue, such Servicer will give a
written demand to the Obligor to pay such amounts and will verify whether such
payment has been made within sixty (60) days after


SERVICING AGREEMENT - PAGE 9



mailing such notice (but in any event prior to the time that any taxing
authority commences to exercise its available remedies), subject to any right,
pursuant to the Mortgage, of an Obligor who is contesting the validity of such
charges and has paid to such Servicer a deposit or security in the amount of the
contested charge plus possible costs, interest and penalties or who has
otherwise established adequate reserves against such liability in accordance
with generally accepted accounting principles; provided, further, however, that
this provision shall not have the effect of permitting such Servicer to take, or
fail to take, any action in respect of the payments described herein that would
adversely affect the interest of the Trustee in any Mortgaged Property. If such
amounts have not been paid by the Obligor or the Obligor has not deposited or
reserved funds therefor as described in the immediately preceding sentence, such
Servicer will promptly make such payment as a Servicing Expense and request
reimbursement from the Obligor, and from the Trustee in accordance with Section
3.8 hereof.

         SECTION 3.6. COLLECTION OF CERTAIN LOAN PAYMENTS. Such Servicer shall
make reasonable efforts to collect all payments called for under the terms and
provisions of the Loans. Consistent with the foregoing, such Servicer shall not,
unless the charging or collection of any such late payment charge, prepayment
fee, assumption fee or any penalty or interest would result in the violation or
contravention of applicable Law, waive or permit to be waived, except pursuant
to such Servicer's customary servicing procedures, any late payment charge or
assumption fee. Such Servicer shall not, unless the charging or collection of
any such prepayment fee or penalty would result in the violation or
contravention of applicable Law, waive or permit to be waived any prepayment fee
or any penalty or interest in connection with the prepayment of a Loan;
provided, however, at any time on or after the date on which the Outstanding
Note Amount is less than 15% of the Outstanding Note Amount on the Closing Date,
such Servicer shall have the right, in its sole discretion, to waive the payment
of any prepayment fee or other penalty or interest in connection with the
prepayment of a Loan. Notwithstanding any other provisions hereof, such Servicer
shall not charge or impose on any Obligor, nor seek to charge or impose on any
Obligor, nor assert a right to receive, any fee, charge, premium or penalty that
if charged or collected would violate or contravene any Law, including usury
laws or the terms of the related Loan.

         SECTION 3.7. LIMITATION OF LIABILITY OF SERVICERS' OFFICERS AND OTHERS.
No director, officer, employee or agent of such Servicer shall be under any
liability to the Trustee, the Issuer, the Supervisory Servicer, the Holders or
any other persons for any action taken by them or for their refraining to take
any action in good faith pursuant to this Agreement or for errors in judgment;
except that such provision shall not protect any of them from liability which
would be imposed by reason of willful misfeasance, willful misconduct, bad faith
or negligence.

         SECTION 3.8. SERVICING COMPENSATION; ADVANCES AND EXPENSES. As
compensation for its services hereunder, each Servicer shall be paid the
Servicing Fee with respect to the Loans for which it is responsible for
servicing. Such Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall be entitled to
reimbursement thereof as described below. The Servicing Fee shall be paid to
such Servicer and Servicing Expenses reimbursed to such Servicer pursuant to
Section 6.4 of the Indenture.


SERVICING AGREEMENT - PAGE 10



         (a) All reasonable and customary "out-of-pocket" costs and expenses
incurred in the performance by such Servicer of its servicing obligations
hereunder ("SERVICING EXPENSES") shall constitute routine servicing
responsibilities of such Servicer, which shall include, but are not limited to,
expenditures for the following, subject to the provisions of this Agreement, (i)
attorneys' fees, trustee fees under any deed of trust, recording, filing and
publication fees, title report and title search costs, costs associated with
environmental audits, court costs, witness fees and all other costs incurred in
respect of any enforcement of a Loan, any judicial foreclosure, or any
foreclosure sale, trustee's sale or acquisition in lieu of foreclosure, or in
respect of the insurance, sale or other disposition of any Mortgaged Property or
REO Property; (ii) repair, restoration, maintenance or other protection of any
Mortgaged Property (whether incurred before or after such property became an REO
Property) in accordance with and subject to the provisions of this Agreement, as
applicable; and (iii) compliance with such Servicer's obligations under Section
3.5 hereof; provided, however, such Servicer shall advance the expenses
described in clauses (i) through (iii) above if, but only if, such Servicer
would make an advance if it held the affected Loan or REO Property for its own
account and, in such Servicer's judgment, such amounts will be recoverable from
related Collections. Servicing Expenses shall not include any portion of such
Servicer's overhead or normal salary and operating expenses.

         SECTION 3.9. THE TRUSTEE'S, THE NOTEHOLDERS' AND SUPERVISORY SERVICER'S
RIGHT TO EXAMINE SERVICER RECORDS AND AUDIT OPERATIONS. The Trustee, the
Noteholders, the Beneficial Owners and the Supervisory Servicer and their
designees shall have the right upon reasonable prior notice, during normal
business hours and as often as reasonably required, to examine and audit (at no
cost to such Servicer unless a Servicer Default has occurred and is then
continuing) any and all of the books, records or other information of such
Servicer directly relating to the Loans, whether held by such Servicer or by
another on behalf of such Servicer, which may be relevant to the performance or
observance by such Servicer of the terms, covenants or conditions of this
Agreement. The Trustee, the Noteholders, the Beneficial Owners and the
Supervisory Servicer shall have the right upon reasonable prior notice, during
normal business hours and as often as reasonably required to perform ongoing
diligence of such Servicer's operations through loan reviews, re-appraisals (at
no cost to such Servicer) or other reasonable review of such Servicer's
operations. No amounts payable in respect of the foregoing (other than costs
associated with re-appraisals) shall be paid from the Trust Estate unless a
Servicer Default exists and is then continuing.

         SECTION 3.10. MAINTENANCE AND RELEASE OF LOAN DOCUMENTATION;
SATISFACTION OF MORTGAGES. Each Servicer shall retain, with respect to each
Loan for which it is responsible for servicing, the originals (or copies if
originals are not available) of all of the instruments and documents relating to
the Loan that would be maintained by a prudent lender servicing such Loan for
its own account (the "Servicer Loan File"), except for those original
instruments and documents constituting a part of the Trustee Loan File that are
required to be held by the Trustee.

         Each Servicer Loan File shall remain the property of the Issuer pledged
to the Trustee for the benefit of the Holders and shall be held by such Servicer
in trust for the benefit of the Trustee on behalf of the Holders. Upon written
request of the Trustee, such Servicer shall immediately deliver all or any of
such instruments, records and documents in its possession or custody to the
Trustee, together with a list identifying each Loan to which such records
pertain. Each Servicer, at its option, may microfilm, microfiche or otherwise
condense any records or documents


SERVICING AGREEMENT - PAGE 11



constituting a part of, or relating to, any Loan or any Servicer Loan File for
which it is responsible, provided that such Servicer, upon written request by
the Trustee, promptly reproduces in their entirety any or all such records or
documents at no cost to the Trustee.

         (a) Each Servicer shall maintain each Servicer Loan File for a period
of four (4) years after the related Loan has been paid in full, is foreclosed
upon or is otherwise liquidated, or such longer period as may be required by
Law. Each Servicer shall maintain an appropriate account record for each Loan
which shall include the permanent loan number for each Loan serviced by such
Servicer as shown on the Loan Schedule. Any system utilized for the Loan account
records shall be capable of producing, for any Loan, an account transcript
itemizing in chronological order the date, amount and application of each
Monthly Payment by due date and other information affecting the amounts paid by
the Obligor, including the latest outstanding Loan Principal Balance.

         (b) Each Servicer shall not grant a satisfaction or release of a
Mortgage without having obtained payment in full of the indebtedness secured by
the Mortgage or otherwise prejudice any right the Trustee may have under the
mortgage instruments, subject to Section 4.1 hereof. Upon the prepayment in full
or other liquidation of a Loan, the Servicer shall immediately deposit the
prepayment or Liquidation Proceeds in the Lockbox Account or the Collection
Account and prepare and deliver to the Trustee and Supervisory Servicer a
request for the appropriate instrument releasing the Mortgaged Property from the
lien of the Mortgage, together with an Officer's Certificate (i) certifying that
(A) all amounts that the Obligor is obligated to pay under the Underlying Note,
the Mortgage and any other document pertaining to the Loan, including, but not
limited to, all required payments of principal and interest, have been paid in
full and deposited in the Lockbox Account or the Collection Account; or (B) all
Liquidation Proceeds that such Servicer reasonably believes will be collected
with respect to a Liquidated Loan have been collected and deposited in the
Lockbox Account or the Collection Account; and (ii) requesting that (X) the
Trustee Loan File for such Loan be released by the Trustee to such Servicer and
(Y) the Trustee execute and deliver to such Servicer the appropriate instrument
prepared by such Servicer necessary to release the lien of the Mortgage,
together with the Underlying Note bearing written evidence of cancellation or
assignment thereof, as appropriate.

         The Trustee shall, upon receipt of a written request from a Servicing
Officer and approval of the Supervisory Servicer, execute any document provided
to the Trustee by the Servicer or take any other action requested in such
request, that is, in the opinion of such Servicer as evidenced by such request,
required by any state or other jurisdiction to discharge the lien of a Mortgage
upon the satisfaction thereof and the Trustee will sign and post, but will not
guarantee receipt of, any such documents to such Servicer, or such other party
as such Servicer may direct in writing, within five (5) Business Days of the
Trustee's receipt of such certificate or documents. Such certificate or
documents shall establish to the Trustee's satisfaction that the related Loan
has been paid in full by or on behalf of the Obligor and that such payment has
been deposited in the Lockbox Account or the Collection Account, as the case may
be.

         Upon receipt of the Trustee Loan File, the Servicer shall record the
mortgage release or satisfaction in the proper recording office, deliver the
Underlying Note and/or the recorded original of such instrument of release or
satisfaction to the Obligor, deposit any remaining


SERVICING AGREEMENT - PAGE 12


documents into the Servicer Loan File, and retain the Servicer Loan File as
provided in section (a) and (b) above. Any costs and expenses associated with
the release of any Loan shall be the expense of the Trust Estate to the extent
not paid by the applicable Obligor.

         Any applications for partial release of any part of a Mortgaged
Property must be approved in the manner set forth in Section 3.12 hereof.

         (c) From time to time as is appropriate, a Servicer may request the
Trustee to deliver or cause to be delivered to such Servicer all or part of the
documents constituting a part of the Trustee Loan File to facilitate the
servicing or foreclosure of any Loan, the acquisition of any Mortgaged Property
in lieu of foreclosure, the partial release of any Mortgaged Property from the
lien of the Mortgage or the making of any corrections to the Underlying Note or
the Mortgage or other documents constituting the Trustee Loan File. To make such
request, such Servicer shall deliver to the Trustee an Officer's Certificate
requesting that possession of all, or any document constituting part of, the
Trustee Loan File be released to such Servicer; such certificate shall certify
the reason for such release. Such Servicer also shall deliver to the Trustee
together with such certificate a Trust Receipt signed by a Servicing Officer, in
substantially the form attached as Exhibit A hereto.

         If a Servicer at any time seeks to initiate a foreclosure proceeding
with respect to any Mortgaged Property, then such Servicer shall deliver to the
Trustee, for signature by the Trustee, as appropriate, any court pleadings,
requests for Trustee's sale or other documents necessary to the foreclosure or
to any legal action brought to obtain judgment against the Obligor on the
Underlying Note or the Mortgage, or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Underlying Note or the
Mortgage or otherwise available at law or in equity. Such Servicer shall also
deliver to the Trustee an Officer's Certificate requesting that such pleadings
or documents be executed by the Trustee and certifying as to the reason such
documents or pleadings are required and that the execution and delivery thereof
by the Trustee will not invalidate the Mortgage except for the termination of
such lien upon completion of the proposed foreclosure. Notwithstanding the
foregoing, such Servicer shall cause possession of any Trustee Loan File or
documents therein that have been released by the Trustee to be returned to the
Trustee when the need for such file or documents no longer exists, but in any
event within thirty (30) calendar days after release by the Trustee unless (i)
the Loan has been liquidated and the Liquidation Proceeds relating to the Loan
have been deposited in the Lockbox Account or the Collection Account or (ii) the
Trustee Loan File or documents so released have been delivered to an attorney, a
public trustee or other public official, as required by Law, to initiate or
pursue legal action or other proceedings to foreclose the applicable Mortgage,
and such Servicer has delivered to the Trustee an Officer's Certificate
certifying as to the name and address of the Person to which the Trustee Loan
File, or documents therefrom, have been delivered and the purpose or purposes of
such delivery.

         (d) Each Servicer shall, at its expense if the Servicer is PMC, PMCT or
an Affiliate of either of them, if not, at the expense of the Trust Estate,
prepare and deliver to the Trustee any instruments required in connection with
substitution of a Loan pursuant to Section 3.3 of the Indenture and will pay any
recording or filing costs associated therewith.


SERVICING AGREEMENT - PAGE 13


         SECTION 3.11. NOTICE OF LIENS AND OTHER ACTIONS. Such Servicer shall,
at all times, exercise reasonable efforts to prevent any Lien or judicial levy
upon or writ of attachment against a Mortgaged Property of which such Servicer
is notified or otherwise has knowledge, which is, or may be, superior to the
lien of the Mortgage.

         SECTION 3.12. WAIVERS, RELEASES, CONDEMNATIONS, EASEMENTS AND
ALTERATIONS. Any applications for partial releases of real property and releases
of personal property which are part of a Mortgaged Property, the creation or
release of easements, waivers of rights under any Mortgage, consent to
alteration, removal or demolition of improvements and other matters affecting
the Mortgage or the Mortgaged Property, other than those which are contractually
provided for in the Underlying Note or related loan documents, shall be subject
to the prior written approval of the Trustee which consent shall not be
unreasonably withheld and which shall be provided only upon written
certification by such Servicer that such action is consistent with the Servicing
Standard and the Mortgage and the ability to collect under the Underlying Note
will not be adversely affected by such release.

         SECTION 3.13. LIMITATION ON LIABILITY OF SERVICERS AND OTHERS. Each
Servicer and any director, officer, employee or agent of such Servicer may rely
on any document of any kind which it in good faith reasonably believes to be
genuine and to have been adopted or signed by the proper authorities respecting
any matters arising hereunder. Subject to the terms of Section 2.7 herein, such
Servicer shall have no obligation to appear with respect to, prosecute or defend
any legal action which is not incidental to such Servicer's duty to service the
Loans in accordance with this Agreement. The Issuer agrees to indemnify and hold
such Servicer harmless from any loss, claim, demand, liability or expense
(including, without limitation, past acts of predecessor Servicers and fees and
expenses of legal counsel) arising from or relating to the performance of its
duties under this Agreement which do not result from such Servicer's negligence,
bad faith or willful misconduct.

         SECTION 3.14. PROPERTY ADDRESS CHANGE. Each Servicer shall note in its
records and notify the Trustee of all changes of address of an Obligor or of a
Mortgaged Property of which such Servicer is notified or of which such Servicer
has knowledge.

                                   ARTICLE IV.

                          SPECIFIC SERVICING PROCEDURES

         SECTION 4.1. ASSUMPTION AGREEMENTS. When a Mortgaged Property has been
or is about to be conveyed by the Obligor, the Servicer shall, at its option, to
the extent it has knowledge of such conveyance or prospective conveyance, either
(i) exercise its rights to accelerate the maturity of the related Loan under any
"due-on-sale" clause contained in the related Mortgage or Underlying Note;
provided, however, that such Servicer shall not exercise any such right if the
"due-on-sale" clause, in the reasonable belief of such Servicer, is not
enforceable under applicable law or if such enforcement would materially
increase the risk of default or delinquency on, or materially decrease the
security for, such Loan, or (ii) enter 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 under the Underlying Note
and, unless prohibited by applicable law or the Mortgage, the Obligor shall
remain liable


SERVICING AGREEMENT - PAGE 14


thereon. Such Servicer may enter into an assumption agreement with the
transferee only if (a) the transferee qualifies for credit under the customary
credit policies of such Servicer, (b) an officer of such Servicer has examined
and approved all instruments as are necessary to carry out the assumption
transaction and approved such instruments as to form and substance, (c) the
execution and delivery of such instruments by all necessary parties will not
cause the unpaid principal balance and any accrued interest thereon for the Loan
to be uncollectible in whole or in part, and (d) upon closing the assumption
transaction (i) the Mortgage will continue to be a first lien upon the Mortgaged
Property, and (ii) the Loan Rate and Monthly Payment for the Loan will not be
changed nor will the term of the Note be extended or shortened. For each
proposed assumption transaction, such Servicer shall deliver an Officer's
Certificate to the Trustee certifying that each of the applicable requirements
specified in the immediately preceding sentence have been satisfied together
with the assumption instruments requiring execution by the Trustee. Such
certificate shall also indicate whether the seller/transferor of the Mortgaged
Property will be released from liability on the Loan and that such Servicer has
made a good faith determination that any such release will not adversely affect
the collectibility of the Loan. Such Servicer shall perform substantially the
same level of due diligence with respect to the transferee as was performed on
the seller/transferor in connection with the origination of the Loan and shall
release the seller/transferor from liability only if any applicable Law requires
that the transferor-Obligor be released from liability on the Loan or such
Servicer has made a good faith determination that the applicable requirements
set forth above have been satisfied.

         Each Servicer is also authorized with the prior approval of the Trustee
to enter into a substitution of liability agreement with such transferee,
pursuant to which the original Obligor is released from liability and such
person is substituted as Obligor and becomes liable under the Underlying Note.
Such Servicer shall notify the Trustee that any such substitution or assumption
agreement has been completed by forwarding to the Trustee the original of such
substitution or assumption agreement, which original shall be added by the
Trustee to the related Trustee's Loan File and shall, for all purposes, be
considered a part of such Trustee's Loan File to the same extent as all other
documents and instruments constituting a part thereof. Any fee collected by such
Servicer for consenting to any such conveyance or entering into an assumption or
substitution agreement shall be retained by or paid to such Servicer as
additional servicing compensation.

         Notwithstanding the foregoing paragraph or any other provision of this
Agreement, such Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Loan by operation of law or any assumption which such Servicer may be restricted
by law from preventing, for any reason whatsoever.

         SECTION 4.2. SERVICING DELINQUENT ACCOUNTS; LIQUIDATION OF LOANS.
Each Servicer shall exercise diligence in obtaining payment of Monthly Payments
when due under the terms of each Loan and shall use reasonable efforts to
contact any delinquent Obligor.

         If any delinquent Obligor shall be or become a bankrupt or otherwise
become the subject of any insolvency or similar proceeding, such Servicer shall
notify the Trustee of such event and, thereafter, shall carry out all reasonable
actions necessary for the benefit and protection of the interests of the Trustee
and the Holders, including, but not limited to, retention of counsel to


SERVICING AGREEMENT - PAGE 15


represent the Trustee in any bankruptcy or other court proceedings relating to
such Obligor or the Mortgaged Property.

         If any Loan previously reported on a Determination Date Report as more
than ninety (90) days delinquent is subsequently reported as being brought
current, the Servicer will verify with the relevant Obligor that the Obligor
paid the delinquent payments, by sending the Obligor the letter in the form
attached hereto as Exhibit G.

         (a) In the event that any payment due under any Loan and not postponed
pursuant to Section 3.1 is not paid when the same becomes due and payable, or in
the event the Obligor fails to perform any other covenant or obligation under
such Loan and such failure continues beyond any applicable grace period, the
Servicer shall take such other action as it shall deem to be in the best
interests of the Trustee and the Holders. The Servicer shall foreclose upon or
otherwise effect the ownership in the name of the Trustee of Mortgaged
Properties relating to defaulted Loans as to which no satisfactory arrangements
can be made for collection of delinquent payments in accordance with the
customary collection policies of such Servicer and the provisions of Section
3.1. In connection with such foreclosure or other conversion, such Servicer
shall exercise collection and foreclosure procedures with the same degree of
care and skill in its exercise or use as it would exercise or use under the
circumstances in the conduct of its own affairs and shall in any event, comply
with the Servicing Standard. Such Servicer shall use its reasonable efforts to
realize upon such defaulted Loans in accordance with the Servicing Standard.
Such Servicer shall be responsible for all other costs and expenses incurred by
it in any foreclosure proceedings; provided, however, that it shall be entitled
to reimbursement thereof as contemplated in Sections 3.8 and 4.3 hereof.

         No modification, recast or extension of a Loan other than as provided
above and in Section 3.1 is permitted without the prior written consent of the
Trustee.

         Notwithstanding the foregoing provisions of this Section 4.2, no
Servicer shall, on behalf of the Trustee, obtain title to a Mortgaged Property
by deed in lieu of foreclosure or otherwise, or take any other action with
respect to any Mortgaged Property, if, as a result of any such action, the
Trustee, on behalf of the Noteholders, could, in the reasonable judgment of such
Servicer, made in accordance with the Servicing Standard, be considered to hold
title to, to be a "mortgagee-in possession" of, or to be an "owner" or
"operator" of such Mortgaged Property within the meaning of CERCLA or any
comparable law, unless such Servicer has previously determined in accordance
with the Servicing Standard, based on a Phase I Environmental Assessment (and
any additional environmental testing that such Servicer deems necessary and
prudent) of such Mortgaged Property conducted by an Independent Person who
regularly conducts Phase I Environmental Assessments and performed during the
twelve-month period preceding any such acquisition of title or other action,
that the Mortgaged Property is in material compliance with applicable
environmental laws and regulations or, if not, that it would maximize the
recovery to the Noteholders on a present value basis to acquire title to or
possession of the Mortgaged Property and to effect such compliance.

         (b) If the environmental testing contemplated by Section 4.2(b) above
establishes that any of the conditions set forth therein have not been satisfied
with respect to any Mortgaged Property securing a defaulted Loan, the Servicer
shall, in accordance with the Servicing


SERVICING AGREEMENT - PAGE 16


Standard, prepare a written report to the Trustee and the Noteholders
summarizing the environmental condition of the Mortgaged Property and proposing
a course of action to pursue with respect to such Mortgaged Property. In the
event that such Servicer has not received through the trustee the written
objection to such proposed course of action of the Required Holders within
thirty (30) days of the Trustee's distributing such notice, such Servicer may
take such proposed action provided such proposed action is consistent with
Section 4.2(b) above.

         (c) Each Servicer shall report to the Trustee monthly in writing as to
any actions taken by such Servicer with respect to any Mortgaged Property as to
which the environmental testing contemplated in Section 4.2(b) above has
revealed that any of the conditions set forth thereon have not been satisfied,
in each case until the earliest to occur of satisfaction of all such conditions
and the release of the Lien of the related Mortgage on such Mortgaged Property.

         (d) If foreclosure has been approved as provided above, such Servicer
shall initiate or cause to be initiated the foreclosure action according to such
procedures as are authorized by Law and the practices in the locality where the
Mortgaged Property is located. In the event that title to the Mortgaged Property
is acquired in foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale shall be taken in the name of the Trustee for the benefit of
the Holders.

         (e) Each Servicer shall have the right to determine, in accordance with
the Servicing Standard, the advisability of seeking to obtain a deficiency
judgment if the state in which the Mortgaged Property is located and the terms
of the Loan permit such an action and shall, in accordance with the Servicing
Standard, seek such deficiency judgment if it deems advisable.

         (f) After a Loan has become a Liquidated Loan, the applicable Servicer
shall promptly prepare and forward to the Trustee a liquidation report detailing
the Liquidation Proceeds received from the Liquidated Loan, expenses incurred
with respect thereto and any Realized Loss incurred in connection therewith.

         (g) If the requirements of Sections 4.2(b) and (c) hereof have been
satisfied, the Servicer may accept a deed in lieu of foreclosure, provided that
(i) marketable title as evidenced by a policy of title insurance can be conveyed
to and acquired by the Trustee or its designee; (ii) no cash consideration is to
be paid to the Obligor by the Trustee; and (iii) such Servicer has obtained from
the Obligor a written acknowledgment that the deed is being accepted as an
accommodation to the Obligor and on the condition that the Mortgaged Property
will be transferred to the Trustee or its designee free and clear of all claims,
liens, encumbrances, attachments, reservations or restrictions except for those
to which the Mortgaged Property was subject at the time the Mortgaged Property
became subject to the Mortgage. Title shall be conveyed directly from the
Obligor to the Trustee for the benefit of the Holders.

         (h) Such Servicer will indemnify and hold harmless the Trustee, the
Noteholders, the Beneficial Owners, the Supervisory Servicer and their
respective directors, officers, agents and employees from and against any and
all claims, demands, losses, penalties, liabilities, costs, damages, injuries
and expenses, including, without limitation, reasonable attorneys' fees and
expenses, suffered or sustained by such parties, either directly or indirectly,
relating to or arising out of the violation of an Environmental Law with respect
to a Mortgaged Property resulting from such Servicer's failure to perform its
obligations hereunder, including without limitation


SERVICING AGREEMENT - PAGE 17



any expenses and other costs incurred in connection with the defense of any such
action, proceeding or claim. This obligation shall survive the termination of
this Agreement, the Indenture and the Supervisory Servicing Agreement or the
earlier resignation or removal of the Trustee or the Supervisory Servicer, as
the case may be.

         SECTION 4.3. FORECLOSURE EXPENSES. The applicable Servicer shall
prepare a written estimate of the amount of attorneys' fees, trustee's fees and
other costs in respect of any foreclosure or acquisition in lieu of foreclosure
and shall send copies of such estimate to the Trustee and the Noteholders. Such
Servicer shall arrange payment of attorneys' fees, trustees' fees and other
foreclosure costs at the commencement of foreclosure proceedings.

         Such Servicer may reimburse itself for any Servicing Expenses paid by
such Servicer, made in connection with such Loan or such foreclosure or other
action, out of amounts received by such Servicer in connection with liquidation
of the Loan, prior to remittance of any such amounts to the Lockbox Account or
the Collection Account.

         SECTION 4.4. TITLE, MANAGEMENT AND DISPOSITION OF REO PROPERTY.
Upon the acquisition of REO Property by a Servicer by foreclosure or conveyance
in lieu of foreclosure, such Servicer shall notify the Trustee promptly that the
REO Property has been acquired and shall thereafter: (i) deliver the deed or
certificate of sale to the Trustee, or its nominee; (ii) manage, conserve and
protect the REO Property in the same manner and to such extent as is customary
in the locality where such REO Property is located including the rental of the
same, or any part thereof, as such Servicer deems to be in the best interest of
the Trustee for the benefit of the Holders; (iii) pay all costs such as taxes
and assessments relating to the REO Property; (iv) process any claims for
redemption and otherwise comply with any redemption procedures required by Law;
(v) sell or otherwise dispose of the REO Property and remit the proceeds to the
Trustee; and (vi) timely file any and all federal, state and local tax or
information returns or reports as are required as a result of the acquisition or
disposition of REO Property and perform any withholding required in connection
therewith. Such Servicer shall not acquire any REO Property relating to a
Charged-Off Loan that is required to be released from the lien of the Indenture
and disposed of by the Issuer on the next Payment Date. If any REO Property is
expected to be acquired, such Servicer shall inform the Issuer, the Noteholders
and the Trustee and the Issuer shall comply with Section 5.14 of the Indenture.

         Each Servicer shall manage, conserve, protect and operate each REO
Property for the Trustee solely for the purpose of its prudent and prompt
disposition and sale. Such Servicer shall, either itself or through an agent
selected by such Servicer, manage, conserve, protect and operate the REO
Property in the same manner that it manages, conserves, protects and operates
other foreclosed property for its own account and in the same manner that
similar property in the same locality as the REO Property is managed. Such
Servicer shall attempt to sell the same (and may temporarily rent the same) on
such terms and conditions as such Servicer deems to be in the best interest of
the Holders.

         (a) Until the REO Property is disposed of, such Servicer shall (i) take
appropriate action to secure the REO Property and maintain proper surveillance
over it; (ii) advance all costs such as taxes and assessments; (iii) maintain
the REO Property so as to preserve its value and prevent any additional deferred
maintenance; and (iv) submit monthly statements for services to


SERVICING AGREEMENT - PAGE 18



the Trustee, together with additional documentation including statements of
income and expenses (accompanied by copies of paid invoices for every expense
item).

         (b) Until the REO Property is disposed of, such Servicer shall maintain
for such REO Property, a standard hazard insurance policy providing fire and
extended coverage in an amount equal to the full replacement cost of all
improvements on the Mortgaged Property, which requirement may be satisfied by a
master force placed or blanket insurance policy insuring against hazard losses.
If the Mortgaged Property is in an area identified in the Federal Register by
the Federal Emergency Management Agency as having special flood hazards (and
such flood insurance has been made available) such Servicer shall maintain a
flood hazard insurance policy meeting the requirements of the current guidelines
of the Federal Insurance Administration with an insurance carrier generally
acceptable to commercial mortgage lending institutions for properties, similar
to the REO Property in an amount representing coverage not less than the lesser
of (i) the full insurable value of such REO Property, or (ii) the maximum amount
of insurance which is available under the Flood Disaster Protection Act of 1973,
as amended from time to time. Such Servicer will also maintain comprehensive
general liability insurance and business interruption insurance (to the extent
applicable) in such amounts as are then customary for similarly situated
properties and businesses.

         (c) Such Servicer shall advance all funds necessary for the proper
operation, management, insurance and maintenance of the REO Property. On each
Determination Date Report, such Servicer shall schedule its reasonable expenses
with respect to any REO Property for the related Collection Period.

         (d) Such Servicer shall deposit all funds collected and received in
connection with the operation or disposition of any REO Property in the
Collection Account or the Lockbox Account no later than the Business Day
immediately following notice of receipt of such funds, net of funds necessary
for the proper operation, management, insurance and maintenance of the REO
Property.

         (e) If as of the date of disposition of any REO Property there remain
unpaid Servicing Fees with respect to the related Loan, such Servicer shall be
entitled to payment for the unpaid Servicing Fees and reimbursement for the
unreimbursed related Servicing Expenses from proceeds received in connection
with the disposition prior to remittance of any proceeds to the Trustee.

         (f) Disposition of REO Property shall be carried out by such Servicer
at such price and upon such terms and conditions as such Servicer, in its
judgment, believes to be in the best interests of the Holders, subject to and in
accordance with Section 4.2. Upon the sale of any Mortgaged Property, such
Servicer shall remit the net cash proceeds remaining after payment of expenses
of the sale to the Collection Account or the Lockbox Account.

         (g) If any Charged-Off Loan is expected to be released from the Lien of
the Indenture on the next Payment Date, such Servicer shall not commence a
foreclosure proceeding or accept a deed in lieu of foreclosure. Any
determination by such Servicer that a Loan is a Charged-Off Loan shall be made
in good faith.


SERVICING AGREEMENT - PAGE 19


                                   ARTICLE V.

                       REPORTS TO BE PROVIDED BY SERVICERS

         SECTION 5.1. DETERMINATION DATE REPORTS.

         (a) Monthly Reports. Each month, not later than 12:00 noon Dallas time
on the third (3rd) Business Day preceding each Payment Date, the Servicers shall
deliver to the Trustee, in electronic format, the receipt and legibility of
which shall be confirmed telephonically, with hard copy thereof to be delivered
on the next Business Day, with copies to the Supervisory Servicer (if other than
the Trustee), the Noteholders and the Rating Agency, a Determination Date Report
in the form attached hereto as Exhibit C signed by a Servicing Officer stating
the date (day, month and year), referring to this Agreement by name and date and
stating, as of the close of business on the immediately preceding Determination
Date:

                           (i) the aggregate amount of all funds received in
                  respect of scheduled principal payments on the Loans during
                  the related Collection Period;

                           (ii) the aggregate amount of interest received on the
                  Loans during the related Collection Period;

                           (iii) the number and Loan Principal Balances of all
                  Loans which were the subject of Principal Prepayments during
                  the related Collection Period and the aggregate amount of
                  Principal Prepayments received with respect to the Loans
                  during such Collection Period;

                           (iv) the aggregate Loan Principal Balance of the
                  Loans as of the related Determination Date, stating any REO
                  Properties separately;

                           (v) the loan number and the aggregate number and
                  aggregate Loan Principal Balance of Loans delinquent
                  thirty-one (31) days to fifty-nine (59) days, sixty (60) days
                  to eighty-nine (89) days, ninety (90) to one hundred nineteen
                  (119) days, one hundred twenty (120) to one hundred forty-nine
                  (149) days, one hundred fifty (150) to one hundred
                  seventy-nine (179) days and one hundred eighty (180) or more
                  days as of the Determination Date;

                           (vi) the loan number and the aggregate number and
                  aggregate Loan Principal Balance of Loans which were
                  Charged-Off Loans as of the Determination Date and the related
                  recovery thereon;

                           (vii) the number and aggregate Loan Principal Balance
                  of Loans (A) which will be released from the Lien of the
                  Indenture during the related Collection Period or on the
                  related Payment Date, (B) which have been repurchased
                  including the Takeout Price therefor and (C) which have been
                  substituted for a Substitute Loan including any Asset
                  Substitution Shortfall therefor;


SERVICING AGREEMENT - PAGE 20



                           (viii) the number and aggregate Loan Principal
                  Balance of Loans which were in foreclosure as of the related
                  Determination Date;

                           (ix) with respect to any Loan that became an REO
                  Property during the related Collection Period, (a) the Loan
                  Principal Balance of such Loan as of the date title to such
                  REO Property was acquired, (b) the book value and length of
                  time held of each REO Property as of the related Determination
                  Date, and (c) the income and expenses incurred by the
                  applicable Servicer in connection with any REO Property during
                  the related Collection Period;

                           (x) the amount of any Realized Losses incurred during
                  the related Collection Period;

                           (xi) the cumulative Realized Losses since the Closing
                  Date;

                           (xii) the Required Principal Distribution Amount for
                  the related Payment Date and information as to the calculation
                  of such amount;

                           (xiii) the Regular Interest Distribution Amount for
                  the related Payment Date and information as to the calculation
                  of such amount;

                           (xiv) the difference between the Interest
                  Distribution Amount minus the Regular Interest Distribution
                  Amount, if any, and information as to the calculation of such
                  amount;

                           (xv) the Outstanding Note Amount;

                           (xvi) the Servicing Fee, Supervisory Servicer's Fee,
                  if any, and Trustee's Fee due on the related Payment Date;

                           (xvii) the amount of all Servicing Expenses paid by
                  each Servicer during such Collection Period and any and all
                  other amounts deducted by each Servicer in accordance with the
                  terms hereof from Collections received by each Servicer prior
                  to remittance thereof to the Lockbox Account and a detailed
                  report describing the type and amount of all such Servicing
                  Expenses and other deductions;

                           (xviii) information as to any Redemption Trigger
                  Event or Event of Default;

                           (xix) the Specified Spread Account Requirement,
                  including the beginning balance of the Spread Account,
                  additions thereto and transfers therefrom during the related
                  Collection Period; and

                           (xx) such other information as the Trustee, the
                  Noteholders or the Rating Agency may reasonably require.


SERVICING AGREEMENT - PAGE 21


         To the extent that there are inconsistencies between the electronic
version of the Determination Date Report and the hard copy thereof, the Trustee
shall be entitled to rely upon the electronic version.

         (b) Annual Statement. Within ninety (90) days after the end of each
calendar year, the Servicers shall furnish to the Trustee and the Noteholders
such information in the form attached hereto as Exhibit D as is reasonably
necessary to provide to the Holders a statement containing the aggregate amount
of principal of and interest on the Notes paid during the prior calendar year,
aggregated for such calendar year or applicable portion thereof during which
such Person was a Holder. Such obligation of the Servicers shall be deemed to
have been satisfied to the extent that substantially comparable information
shall be provided by the Servicers pursuant to any requirements of the Code as
from time to time are in force.

         (c) Computer Data. Prior to the Closing Date the Servicers shall
provide the Supervisory Servicer with all data on the Servicers' computerized
servicing system relating to the Loans in an electronically readable form
specified by the Supervisory Servicer and shall update such data at least
monthly.

         (d) Other Reports. The Servicers shall furnish to the Trustee, the
Noteholders, the Rating Agency and the Supervisory Servicer, during the term of
this Agreement, such periodic, special or other reports, Officer's Certificates,
data relating to the Loans or information, whether or not provided for herein,
as shall be reasonably requested, all such reports or information to be provided
by and in accordance with such applicable instructions and directions as the
Trustee, the Noteholders, the Rating Agency or the Supervisory Servicer may
reasonably require; provided, however, the Servicers shall be reimbursed for the
reasonable cost of providing such additional reports.

         SECTION 5.2. REPORTS OF FORECLOSURE AND ABANDONMENT OF MORTGAGED
PROPERTY. Each year the Servicers shall make any reports of foreclosures and
abandonments of any Mortgaged Property required by the Code.

         SECTION 5.3. QUARTERLY STATEMENT AS TO COMPLIANCE. The Servicers will
deliver to the Trustee, the Noteholders, the Rating Agency and the Supervisory
Servicer, quarterly, no later than each April 15, July 15, October 15 and
January 15, for each quarterly period ending on each March 31, June 30,
September 30 and December 31, commencing on October 15, 2003, an Officer's
Certificate in the form attached hereto as Exhibit E stating that (a) the
Servicers have fully complied with the provisions of this Agreement, (b) a
review of the activities of the Servicers during the preceding quarter and of
the Servicers' performance under this Agreement has been made under such
officer's supervision and (c) to the best of such officer's knowledge, based on
such review, the Servicers have fulfilled all of their obligations, duties and
responsibilities under this Agreement throughout such quarterly period (or, with
respect to the first such report, since the Closing Date) and no Servicer
Default exists, or, if there has been a default or failure in the fulfillment of
any such obligation, specifying each such default or failure known to such
officer and the nature and status thereof and the action being taken by the
applicable Servicer to cure such default.


SERVICING AGREEMENT - PAGE 22



         SECTION 5.4. ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
The Servicers at their expense shall cause a nationally recognized firm of
independent certified public accountants to furnish a statement to the Trustee,
the Supervisory Servicer, the Noteholders and the Rating Agency on or before May
1 of each year, commencing on May 1, 2004, to the effect that, with respect to
the most recently ended fiscal year, such firm has examined certain records and
documents relating to the Servicers' performance of their servicing obligations
and that, on the basis of such examination, conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers,
such firm is of the opinion that such servicing has been conducted substantially
in compliance in all material respects with the requirements of the standard
servicing procedures outlined in the Uniform Single Attestation Program for
Mortgage Bankers, except for such exceptions noted therein. In the event such
firm requires the Trustee or the Supervisory Servicer to agree to the procedures
performed by such firm, the Servicers shall direct the Trustee and the
Supervisory Servicer in writing to so agree; it being understood and agreed that
the Trustee and the Supervisory Servicer will deliver such letter of agreement
in conclusive reliance upon the direction of the Servicers, and each of the
Trustee and the Supervisory Servicer makes no independent inquiry or
investigation as to, and shall have no obligation or liability in respect of,
the sufficiency, validity or correctness of such procedures.

         SECTION 5.5. SERVICERS' FINANCIAL STATEMENTS; ANNUAL CERTIFICATION.
Within one hundred twenty (120) days after the end of each fiscal year beginning
with the fiscal year ending December 31, 2003, each Servicer shall submit to the
Trustee, the Noteholders and the Rating Agency a copy of its annual audited
financial statements or in the event the Servicers are not PMC and/or PMCT, a
copy of the annual audited consolidated financial statement of its parent.
Within forty-five (45) days after the end of each of the first three (3) fiscal
quarters of each fiscal year beginning with the quarter ending June 30, 2003,
each Servicer shall submit to the Trustee, the Noteholders and the Rating Agency
a copy of its quarterly financial statements. This Section 5.5 notwithstanding,
if the Supervisory Servicer assumes the role of Servicer, it shall not be
obligated to submit copies of its quarterly financial statements. Such financial
statements shall, to the extent required by the Securities Exchange Act of 1934,
as amended, whether or not the Servicer is subject to such Act, include a
balance sheet, income statement, statement of retained earnings, beneficiaries'
(or shareholders') equity, statement of cash flows and all related notes and
schedules and shall be in comparative form.

         Contemporaneously with the submission of the financial statements
required by the preceding paragraph, the Servicers shall deliver to the Trustee,
the Noteholders and the Rating Agency an Officer's Certificate in the form
attached hereto as Exhibit F to the effect that:

         (a) such officer has confirmed that the Fidelity Bond, the Errors and
Omissions Insurance Policy and any other bonds or insurance required by Section
2.4 hereof are in full force and effect; and

         (b) the representations and warranties of such Servicer set forth in
Section 2.1 are true and correct in all material respects as if made on the date
of such certification.

         Such Servicer shall also furnish and certify such other information as
to its organization, activities and personnel as the Trustee, the Noteholders,
the Companies, the Rating Agency or the Supervisory Servicer may reasonably
request from time to time.


SERVICING AGREEMENT - PAGE 23


                                   ARTICLE VI.

                                    DEFAULTS

         SECTION 6.1. SERVICER DEFAULTS. The happening of any one or more of the
following events shall constitute a Servicer Default hereunder:

         (a) Any failure by the Servicers to make any payment, deposit, advance
or transfer of funds required to be paid, deposited, advanced or transferred
under the terms of this Agreement, and such failure continues unremedied for
five (5) Business Days after discovery by the Servicers of such failure or
receipt by the Servicers of notice of such failure;

         (b) Failure on the part of the Servicers duly to observe or perform in
any material respect any of their covenants or agreements contained in this
Agreement or the Supervisory Servicing Agreement which continues unremedied for
thirty (30) days after the earlier to occur of the Servicers obtaining actual
knowledge of such failure or the Servicers' receipt of written notice of such
failure or breach as the case may be; provided, however, if such failure shall
be of a nature that it cannot be cured within thirty (30) days, such failure
shall not constitute a Servicer Default hereunder if within such 30-day period
the Servicers give notice to the Trustee and the Supervisory Servicer of the
corrective action it proposes to take, which corrective action is agreed in
writing by the Trustee to be satisfactory and the Servicers shall thereafter
pursue such corrective action diligently until such default is cured but in no
event longer than ninety (90) days;

         (c) A decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against a Servicer, and such
decree or order shall have remained in force undischarged or unstayed for a
period of ninety (90) days;

         (d) A Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to such Servicer or
of or relating to all or substantially all of its property;

         (e) A Servicer shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payments of its obligations;

         (f) A Servicer shall cease to be an Eligible Servicer;

         (g) A material adverse change occurs in the financial condition of a
Servicer, which change materially impairs the ability of the Servicer to perform
its obligations under this Agreement; or


SERVICING AGREEMENT - PAGE 24



         (h) Any representation or warranty made by a Servicer in any
Transaction Document proves to have been incorrect in any material respect when
made, which has a material adverse effect on the Noteholders and which continues
to have a material adverse effect or be incorrect in any material respect for a
period of thirty (30) days after written notice of such inaccuracy, requiring it
to be remedied, has been given to the Servicers by the Trustee, the Supervisory
Servicer or any Noteholder; provided, however, if such inaccuracy is of a nature
that it cannot be remedied within such 30-day period and the Servicer gives
notices to the Trustee and the Supervisory Servicer of the corrective action it
proposes to take, which corrective action is agreed in writing by the Trustee to
be satisfactory and the Servicer shall thereafter pursue such corrective action
diligently until such default is cured but in no event longer than ninety (90)
days from the date of such notice.

         SECTION 6.2. NOTICE OF SERVICER DEFAULT. In the case of a Servicer
Default referred to in Section 6.1 hereof or upon any termination of the
Servicers pursuant to Article VII hereof, the Trustee shall immediately notify
the Supervisory Servicer by telephone or telecopy (telephonic notice to be
followed by written notice within one Business Day) and shall promptly notify
the Rating Agency and the Holders in writing.

         SECTION 6.3. REMEDIES. So long as any such Servicer Default shall not
have been remedied within any applicable cure period, the Trustee may, and at
the written direction of the Required Noteholders shall, by notice in writing
specifying the termination date to the Servicers and the Supervisory Servicer
(and to the Trustee if given by the Holders), terminate all of the rights and
obligations of the Servicers under this Agreement and in and to the Loans and
the proceeds thereof. On or after the receipt by the Servicers of such written
notice, all authority and power shall pass to and be vested in the Supervisory
Servicer pursuant to and under this Section; and, without limitation, the
Supervisory Servicer is hereby authorized and empowered to execute and deliver,
on behalf of the Servicers, as attorney-in-fact or otherwise, any and all
documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the purposes of such notice of termination,
whether to complete the transfer and assignment of the Loans and related
documents or otherwise. All reasonable costs and expenses (including, without
limitation, attorneys' fees) of the Trustee, the Supervisory Servicer or the
Servicers incurred in connection with such termination and transfer will be at
the expense of the Servicers. The Servicers agree to cooperate with the
Supervisory Servicer and the Trustee in effecting the termination of the
Servicers' responsibilities and rights hereunder, including, without limitation,
the transfer to the Supervisory Servicer for administration by it of any cash
amounts held by the Servicers or thereafter received relating to the Loans and
all Servicer Loan Files. In addition to any other amounts which are then, or,
notwithstanding the termination of their activities as Servicers, may become
payable to the Servicers under this Agreement, the applicable Servicer shall be
entitled to receive out of any delinquent payment on account of interest on a
Loan due during a Collection Period prior to the notice of termination received
pursuant to this Section 6.3 and received after such notice, that portion of
such payment which it would have received pursuant to Section 3.8 hereof if such
notice had not been given.

         SECTION 6.4. ADDITIONAL REMEDIES OF TRUSTEE UPON SERVICER DEFAULTS.
Upon any Servicer Default, the Trustee, in addition to the rights specified in
Section 6.3 hereof, shall have the right, in its own name and as Trustee, to
take all actions now or hereafter existing at law, in


SERVICING AGREEMENT - PAGE 25


equity or by statute to enforce its rights and remedies and to protect the
interests, and enforce the rights and remedies, of the Noteholders (including
the institution and prosecution of all judicial, administrative and other
proceedings and the filings of proofs of claim and debt in connection
therewith). No remedy provided for by this Agreement shall be exclusive of any
other remedy, and each and every remedy shall be cumulative and in addition to
any other remedy and no delay or omission to exercise any right or remedy shall
impair any such right or remedy or shall be deemed to be a waiver of any
Servicer Default.

         SECTION 6.5. SUPERVISORY SERVICER TO ACT; APPOINTMENT OF SUCCESSOR. On
the effective date of any resignation of the Servicers pursuant to Section 7.1
hereof or on the date the Servicers are removed as servicer pursuant to this
Article VI, the Supervisory Servicer (or any successor appointed by the
Supervisory Servicer pursuant to the Supervisory Servicing Agreement) hereof
shall be the successor in all respects to the Servicers in their capacity as
servicers under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicers by the terms and provisions hereof in
accordance with and subject to the terms and conditions of the Supervisory
Servicing Agreement; provided, however, that the Supervisory Servicer or
successor Servicer shall not be liable for any acts or omissions of the
Servicers occurring prior to such succession or for any breach by the Servicers
of any of their representations or warranties contained herein or in any related
document or agreement. The Supervisory Servicer (or other successor) shall
assume all of the rights and obligations of the Servicers in accordance with the
terms and conditions of the Supervisory Servicing Agreement which shall control
over any provisions herein covering the same subject matter. The Servicers
shall, upon request of the Trustee or the Supervisory Servicer but at the
expense of the Servicers, deliver to the Supervisory Servicer (or other
successor), all Servicer Loan Files, documents and records (including computer
tapes and diskettes) relating to the Loans and an accounting of any amounts
collected and held by the Servicers and otherwise use their reasonable efforts
to effect the orderly and efficient transfer of servicing rights and obligations
to the assuming party.

         The Servicers agree to cooperate with the Trustee and the Supervisory
Servicer or any other successor servicer in effecting the termination of the
Servicers' servicing responsibilities and rights hereunder and shall promptly
provide the Supervisory Servicer or such successor servicer, as applicable, all
documents and records reasonably requested by it to enable it to assume the
Servicers' functions hereunder and shall promptly also transfer to the
Supervisory Servicer or such successor servicer, as applicable, all amounts
which then have been or should have been deposited in the Lockbox Account by the
Servicers or which are thereafter received with respect to the Loans. Neither
the Trustee, the Supervisory Servicer nor any other successor servicer shall be
held liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicers to deliver, or any delay in delivering, cash, documents or records to
it, or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicers hereunder. The Supervisory Servicer shall provide written
notice of each appointment of a successor to the Servicers hereunder, other than
the Supervisory Servicer, to each Holder and the Rating Agency, and the Trustee.

         SECTION 6.6. WAIVER OF DEFAULTS. The Trustee (with the written consent
of the Required Noteholders and with notice to the Rating Agency) may, on behalf
of all Noteholders, waive any events permitting removal of the Servicers as
servicers pursuant to this Article VI.


SERVICING AGREEMENT - PAGE 26


Upon any waiver of a past default, such default shall cease to exist, and any
Servicer Default arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto except to the extent
expressly so waived.

                                  ARTICLE VII.

                                   TERMINATION

         SECTION 7.1. SERVICERS NOT TO RESIGN. The Servicers shall not assign
this Agreement or resign from the obligations and duties hereby imposed on them
except by mutual consent of the Servicers and the Trustee (with the Required
Noteholders' consent), or upon the determination that the Servicers' duties
hereunder are no longer permissible under applicable law and such incapacity
cannot be cured by the Servicers. Any such determination permitting the
resignation of the Servicers shall be evidenced by a Certificate of an
Authorized Officer of the Servicers to such effect delivered to the Trustee, the
Noteholders, the Supervisory Servicer and the Rating Agency. No such resignation
shall become effective until a successor has assumed the Servicers'
responsibilities and obligations hereunder in accordance with Section 6.5.

         SECTION 7.2. TERM OF AGREEMENT. This Agreement shall continue in
existence and effect until the earlier of (a) the later of the final payment or
other liquidation of the last Loan or the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Loan and the remittance
of all funds due thereunder, (b) the payment in full of the Notes in accordance
with the Indenture, in addition to all other amounts payable thereunder, and the
discharge of the Indenture in accordance with the terms thereof, or (c) mutual
consent of the Servicers, the Trustee, the Supervisory Servicer and all Holders
in writing.

                                  ARTICLE VIII.

                            MISCELLANEOUS PROVISIONS

         SECTION 8.1. AMENDMENT. This Agreement may be amended from time to time
by the Servicers, the Issuer, the Supervisory Servicer and the Trustee (acting
at the written direction of the Required Noteholders) by written agreement, with
thirty (30) days prior written notice to the Rating Agency. Notwithstanding the
foregoing, this Agreement may be amended without the written direction of the
Required Noteholders to modify any provisions of this Agreement required by the
Rating Agency to maintain the rating of the Notes or to cure any ambiguity,
defect, omission, conflict or inconsistency in this Agreement or between the
terms of this Agreement and any other document executed or delivered in
connection herewith. This Agreement may also be amended without the written
direction of the Required Noteholders, so long as such amendment does not
materially adversely affect the rights of the Noteholders (which may be
evidenced by an opinion of counsel delivered to the parties hereto).

         SECTION 8.2. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL


SERVICING AGREEMENT - PAGE 27


BE DETERMINED IN ACCORDANCE WITH SUCH LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES
OF CONFLICTS OF LAW.

         SECTION 8.3. NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be duly given if addressed to the appropriate
Notice Address and delivered by hand or sent by nationally recognized express
courier, or mailed by registered mail, postage prepaid, or transmitted by
telecopy, and shall be effective upon receipt, except when telecopied, in which
case, any such communication shall be effective upon telecopy against receipt of
answer back or written confirmation thereof.

         SECTION 8.4. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other covenants, agreements, provisions or terms of this
Agreement. The parties hereto further agree that the holding by any court of
competent jurisdiction that any remedy pursued by the Trustee hereunder is
unavailable or unenforceable shall not affect in any way the ability of the
Trustee to pursue any other remedy available to it.

         SECTION 8.5. NO PARTNERSHIP. Nothing herein contained shall be deemed
or construed to create a partnership or joint venture between the parties
hereto, and the services of the Servicers shall be rendered as independent
contractors and not as agents for the Trustee.

         SECTION 8.6. COUNTERPARTS. This Agreement may be executed in one or
more counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.

         SECTION 8.7. SUCCESSORS AND ASSIGNS; BENEFICIARIES. This Agreement
shall inure to the benefit of and be binding upon the Servicers, the Issuer, the
Supervisory Servicer, the Trustee and their respective successors and assigns.
Each Servicer acknowledges and consents to the assignment to the Trustee for the
benefit of the Noteholders of all of the Issuer's rights and the delegation of
any of the Issuer's obligations hereunder pursuant to the Indenture.

         SECTION 8.8. NOTIFICATION TO RATING AGENCY AND NOTEHOLDERS. The Trustee
shall give prompt notice to the Rating Agency and the Noteholders of the
occurrence of any of the following events of which it has received notice: (a)
any modification or amendment to this Agreement, the Indenture or any other
Transaction Documents, (b) any proposed removal, replacement, resignation or
change of the Trustee or the Servicers, (c) any Event of Default under the
Indenture or any Servicer Default and (d) the final payment in full of the
Notes. Whenever the terms of this Agreement require that notice or reports be
given to the Rating Agency or the Noteholders, the Person to provide such notice
or reports shall first give them to the Trustee who shall provide them to the
Rating Agency or the Noteholders, as applicable. Additionally, the Trustee, upon
receipt, shall provide copies to the Rating Agency, the Companies (to the extent
the Companies are not then the Servicers) and the Noteholders of all amendments,
compliance reports, Determination Date Reports, financial statements, operating
reports, environmental reports and any and all other reports received by the
Trustee from the


SERVICING AGREEMENT - PAGE 28



Servicers, the Issuer or the Supervisory Servicer from time to time to the
extent such reports have not been otherwise forwarded to the Rating Agency, the
Companies and the Noteholders pursuant to the provisions of this Agreement or
the other Transaction Documents.

         SECTION 8.9. INDULGENCES; NO WAIVERS. Neither the failure nor any delay
on the part of a party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.

         SECTION 8.10. TITLES NOT TO AFFECT INTERPRETATION. The titles of
paragraphs and subparagraphs contained in this Agreement are for convenience
only, and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation hereof.

         SECTION 8.11. ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding among the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or written,
of any nature whatsoever with respect to the subject matter hereof. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof.

         SECTION 8.12. RECORDATION OF AGREEMENT. To the extent permitted by
applicable law, this Agreement is subject to recordation in all appropriate
public offices for real property records in all the counties or the comparable
jurisdictions in which any Mortgaged Property is situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Servicers and at their expense upon the written request of the
Trustee.

         SECTION 8.13. FURTHER ASSURANCES. Notwithstanding any other provision
of this Agreement, neither Trustee nor the Supervisory Servicer shall have any
obligation to consent to any amendment or modification of this Agreement unless
it has been provided reasonable security or indemnity against its out-of-pocket
expenses (including reasonable attorneys' fees) to be incurred in connection
therewith by the person requesting the amendment. To the extent permitted by
law, each Servicer agrees that it will, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such further
instruments as the Trustee may reasonably request to effectuate the intention of
or facilitate the performance of this Agreement.

         SECTION 8.14. FORCE MAJEURE. Notwithstanding anything to the contrary
otherwise contained herein, each Servicer will be excused from the performance
required of it under this Agreement and under each other Transaction Document
for any period, and to the extent, that such performance is prevented, hindered,
delayed, in whole or in part, by any circumstances beyond its reasonable
control, including, without limitation, any fire or other casualty, failure of
power, telecommunications or other equipment, strike, lockout or other labor
trouble, court order, acts of governmental bodies, banking moratorium, embargo,
sabotage, confiscation,


SERVICING AGREEMENT - PAGE 29


condemnation, riot, civil disturbance, insurrection, act of terrorism, war or
other activity of armed forces or other similar reason beyond the control of the
Servicers.


            [THE IMMEDIATELY FOLLOWING PAGE CONTAINS THE SIGNATURES.]


SERVICING AGREEMENT - PAGE 30



         IN WITNESS WHEREOF, the Issuer, the Servicers, the Supervisory Servicer
and the Trustee have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.

                                       PMC CAPITAL, INC., as a Servicer
                                       PMC COMMERCIAL TRUST, as a Servicer


                                       By: /s/ Jan F. Salit
                                           -------------------------------------
                                           Jan F. Salit
                                           Executive Vice President


                                       THE BANK OF NEW YORK,
                                       as Trustee


                                       By: /s/ Eric A. Lindahl
                                           -------------------------------------
                                           Name: Eric A. Lindahl
                                                 -------------------------------
                                           Title: Agent
                                                  ------------------------------


                                       THE BANK OF NEW YORK,
                                       as Supervisory Servicer


                                       By: /s/ Eric A. Lindahl
                                           -------------------------------------
                                           Name: Eric A. Lindahl
                                                 -------------------------------
                                           Title: Agent
                                                  ------------------------------



                                       PMC JOINT VENTURE, L.P. 2003-1,
                                       as Issuer

                                       By: PMC Joint Venture LLC 2003-1
                                           Its General Partner


                                       By: /s/ Jan F. Salit
                                           -------------------------------------
                                           Jan F. Salit
                                           Executive Vice President



SERVICING AGREEMENT - PAGE 31

                           FOR IMMEDIATE PRESS RELEASE

FOR:     PMC CAPITAL, INC.                    CONTACT:     Investor Relations
         PMC COMMERCIAL TRUST                              972-349-3256
         18111 Preston Road Suite 600                      972-349-3235
         Dallas, Texas 75252


                   PMC CAPITAL, INC. AND PMC COMMERCIAL TRUST
        SELL $92.9 MILLION OF "Aaa" RATED NOTES THROUGH A STRUCTURED LOAN
                                SALE TRANSACTION

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

Dallas, TX                                                       October 7, 2003

PMC Capital, Inc.; AMEX: PMC and PMC Commercial Trust; AMEX: PCC are pleased to
announce the completion of a joint structured loan sale transaction consisting
of variable-rate notes issued by a newly formed joint venture and secured by a
portfolio of their loans. The private financing was rated "Aaa" by Moody's
Investors Service, Inc. As a result of the transaction, PMC Capital, Inc. ("PMC
Capital") and PMC Commercial Trust ("PMC Commercial") received gross proceeds of
approximately $52.0 million and $40.9 million, respectively. These proceeds were
used to pay the costs of the transaction, fund the required reserve balance and
repay the balances outstanding on their respective revolving credit facilities.
The remaining funds will be utilized by PMC Capital and PMC Commercial to
originate additional portfolio and for working capital. The debt was issued by a
newly formed special purpose affiliate of PMC Capital and PMC Commercial at a
variable interest rate reset on a quarterly basis of 90-day LIBOR plus 1.25%
with an initial rate of 2.41%.

The President and CEO of PMC Capital, Lance B. Rosemore, stated, "The completion
of this securitization marks the fourth joint securitization between PMC Capital
and PMC Commercial. The ability to have both companies contribute assets enables
us to access the securitization market in a more efficient manner."

Dr. Andrew S. Rosemore, Chairman of the Board of Trust Managers of PMC
Commercial, stated, "We are pleased that this joint debt offering has been
successfully concluded allowing us to continue the growth of our serviced loan
portfolio. The securitization provides for a matching of variable rate portfolio
with a variable rate funding source."

Certain matters discussed in this press release are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as "expects," "anticipates" or words of
similar import. Similarly, statements that describe the reporting entities
future plans, objectives or goals are also forward-looking statements. Such
forward-looking statements can be subject to certain risks and uncertainties,
including the financial performance of the reporting entities, real estate
conditions and market valuations of their stock, which could cause actual
results to differ materially from those currently anticipated. Although the
reporting entities believe the expectations reflected in any forward-looking
statements are based on reasonable assumptions, the reporting entities can give
no assurance that their expectations will be attained. Shareholders, potential
investors and other readers are urged to consider these factors carefully in
evaluating the forward-looking statements. The forward-looking statements made
herein are only made as of the date of this press release and the reporting
entities undertake no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.