Fitch Affirms One Class Issued by Pinnacle CBO, Ltd.

NEW YORK -- Fitch Ratings affirms one class of notes issued by Pinnacle CBO, Ltd. (Pinnacle). The affirmation is the result of Fitch's review process and is effective immediately:

-- $49,059,784 senior notes affirmed at 'BBB';

-- $78,506,476 second priority senior notes remain at 'C'.

Pinnacle is collateralized debt obligation (CDO) managed by Morgan Stanley Investment Management which closed Nov. 20, 1997. Pinnacle is composed of primarily sovereign and emerging market debt securities. Included in this review, Fitch discussed the current state of the portfolio with the asset manager and their portfolio management strategy going forward.

Since the last rating action, the collateral has improved. The weighted average rating has improved from 'CCC+/B-' to 'B-'. The senior par value test overcollateralization (OC) has increased from 105.8% as of the Nov. 20, 2003 trustee report to 114% as of the most recent trustee report dated Nov. 19, 2004. As of the most recent trustee report available, Pinnacle's defaulted assets represented 18.8% of the $70 million of total collateral debt securities. Assets rated 'CCC+' or below represented approximately 19.3% of the aggregate collateral balance.

Despite improvement in OC levels and collateral credit, Pinnacle owns collateral which has $7.5 million of scheduled principal distributions after Pinnacle's legal final maturity on Nov. 27, 2009. Excluding equity, defaulted assets, and principal collections (which were deployed to pay the senior noteholders on the last payment date), the long dated distributions account for approximately 13% of the $56.8 million performing portfolio. The collateral manager does have the ability to sell these assets, and Fitch will continue to monitor this exposure. Also of concern, Pinnacle owns approximate $3.4 million of Nigerian sovereign debt which is not publicly rated and subject to political and economic instability. These risk factors detract from the improving OC and collateral rating profile.

Of structural significance, Pinnacle bears the full weight of interest rate risk. There is no interest rate swap, and the liabilities are fixed and as of the last trustee report 43.5% of the collateral is floating. If interest rates continue to rise, the senior notes will benefit from additional interest revenue generated by the floating portion of the collateral. On the last payment date, $149,147 of interest proceeds was applied to redeem the principal of the senior notes. This is an improvement from subsequent payment dates when principal proceeds had to be diverted to cover the interest due on the senior notes.

As of the last payment date, the second priority notes have deferred interest of approximately $22.56 million. The original note balance of the second priority notes was $56 million.

The rating of the senior notes addresses the likelihood that investors will receive full and timely payments of interest, as per the governing documents, as well as the stated balance of principal by the legal final maturity date. The ratings of the second priority notes address the likelihood that investors will receive ultimate and compensating interest payments, as per the governing documents, as well as the stated balance of principal by the legal final maturity date.

As a result of this analysis, Fitch has determined that the current ratings assigned to the senior notes still reflect the current risk to noteholders.

Fitch will continue to monitor and review this transaction for future rating adjustments. Additional deal information and historical data are available on the Fitch Ratings web site at 'www.fitchratings.com'. For more information on the Fitch VECTOR Model, see 'Global Rating Criteria for Collateralised Debt Obligations,' dated Sept. 13, 2004, and also available at 'www.fitchratings.com'.