<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration Number 333-33823
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 24, 1998)
$50,703,106
(APPROXIMATE)
FUND AMERICA INVESTORS CORPORATION II
ISSUER
PASS-THROUGH CERTIFICATES, SERIES 1998-B
The Pass-Through Certificates, Series 1998-B, Class 1A (the "Class 1A
Certificates") and Class 2A (the "Class 2A Certificates," and together with the
Class 1A Certificates, the "Certificates"), will represent, in the aggregate,
the entire beneficial ownership interest in two groups of underlying securities,
each of which will constitute a separate sub-trust, held by a trust (the
"Trust") consisting primarily of all or a portion of (i) three classes of
Guaranteed REMIC Pass-Through Certificates issued by Fannie Mae, formerly known
as the Federal National Mortgage Association ("Fannie Mae"), as part of separate
series of such certificates, including two classes of Combinable and
Recombinable REMIC Certificates (the "Pooled Fannie Mae Certificates"), (ii) one
class of Guaranteed REMIC Pass-Through Securities issued by Ginnie Mae, formerly
known as the Government National Mortgage Association ("Ginnie Mae"),
representing a beneficial ownership interest in a trust established by Ginnie
Mae (the "Pooled Ginnie Mae Certificate"), (iii) two classes of certificates
issued by Freddie Mac, formerly known as the Federal Home Loan Mortgage
Corporation ("Freddie Mac"), as part of separate series of such certificates,
including one class of Payment Exchange Certificates and one class of Multiclass
Mortgage Participation Certificates (the "Pooled Freddie Mac Certificates," and
together with the Pooled Fannie Mae Certificates and the Pooled Ginnie Mae
Certificate, the "Pooled Agency Certificates"), and (iv) a single class of
Pass-Through Certificates, Series 1997-3, which represents a beneficial
ownership interest in a trust established by Bear Stearns Mortgage Securities,
Inc. (the "Pooled Non-Agency Certificate," and together with the Pooled Agency
Certificates, the "Pooled Certificates"). The Pooled Certificates or portions
thereof underlying the Class 1A Certificates are also referred to herein as the
"Group 1A Pooled Certificates" and the Pooled Certificates or portions thereof
underlying the Class 2A Certificates are also referred to herein as the "Group
2A Pooled Certificates." The designations used herein for each Pooled
Certificate and the allocation thereof to the Class 1A and/or Class 2A
Certificates are set forth under "Description of the Pooled
Certificates -- General" and the characteristics of the Pooled Certificates are
described herein under "Description of the Pooled Certificates" and in Annex 1
and Annex 2 attached hereto. Capitalized terms used but not otherwise defined
herein are defined in the Prospectus. (Cover continued on next page)
THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THESE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE ISSUER,
THE TRUSTEE, THE UNDERWRITER, OR ANY OF THEIR RESPECTIVE AFFILIATES.
DISTRIBUTIONS ON THE CERTIFICATES WILL BE MADE SOLELY FROM ASSETS TRANSFERRED OR
PLEDGED TO THE TRUST FOR THE BENEFIT OF CERTIFICATEHOLDERS.
------------------------------
Prospective investors should consider, among other things, the factors set
forth on Page (iv) herein, those under "Risk Factors," commencing at Page 28 of
the Prospectus and at Page S-14 of this Prospectus Supplement, and the
discussion under "Yield and Prepayment Considerations" commencing at Page S-28
herein.
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<S> <C> <C>
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INITIAL PRINCIPAL AMOUNT PASS-THROUGH RATE
- ----------------------------------------------------------------------------------------------------
Class 1A............................................... $24,651,553 (1)
- ----------------------------------------------------------------------------------------------------
Class 2A............................................... $26,051,553 (1)
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</TABLE>
(1) The effective per annum interest rate borne by either Class of Certificates
during each Interest Accrual Period (as defined herein) with respect to a
Distribution Date (as defined herein) will equal a fraction, expressed as a
percentage truncated at the fourth decimal place, the numerator of which is
equal to the aggregate amount in respect of interest paid on such Class of
Certificates for the related Interest Accrual Period multiplied by 12, and
the denominator of which is the principal amount of such Class of
Certificates immediately prior to such Distribution Date. Under certain
circumstances, the principal amount of either Class of Certificates could be
paid in full while interest would remain payable, in which case, the
calculation of the effective per annum interest rate borne by such Class of
Certificates would not be meaningful. The effective per annum interest rate
borne by the Class 1A Certificates and the Class 2A Certificates during the
first Interest Accrual Period is projected to be approximately 11.1466% and
10.8958%, respectively.
The Certificates will be purchased by Bear, Stearns & Co. Inc. (the
"Underwriter") from Fund America Investors Corporation II (the "Company") and
will be offered by the Underwriter from time to time in negotiated transactions
at varying prices to be determined at the time of sale. Proceeds to the Company
from the sale of the Certificates are expected to be approximately 110.0% of the
aggregate principal balance of the Certificates, plus accrued interest thereon
from June 1, 1998 to but not including the Closing Date, but before deducting
expenses payable by the Company, estimated to be $200,000.
The Certificates are offered by the Underwriter when, as and if issued,
delivered to and accepted by the Underwriter and subject to certain other
conditions. Delivery of the Certificates is expected to be made in book entry
form only, through the same day funds settlement system of The Depository Trust
Company on or about June 30, 1998.
------------------------------
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 26, 1998
<PAGE> 2
(cover continued from previous page)
The Pooled Fannie Mae Certificates are guaranteed as to timely
distribution of principal and interest by Fannie Mae. Freddie Mac guarantees
to the record holder of the Pooled Freddie Mac Certificates the timely payment
of interest and the payment of the principal amount of the Pooled Freddie Mac
Certificates as described in the applicable Freddie Mac Offering Circulars.
The Pooled Ginnie Mae Certificate is guaranteed as to timely payment of
principal and accrual of interest by Ginnie Mae, which guarantee is backed by
the full faith and credit of the United States. Payments with respect to the
Pooled Non-Agency Certificate are not guaranteed by Fannie Mae, Freddie Mac,
Ginnie Mae, or any other person. The Pooled Non-Agency Certificate represents
an undivided ownership interest in underlying certificates that include certain
Fannie Mae and Freddie Mac certificates.
The Pooled Fannie Mae Certificates (individually, the "Pooled Fannie
Mae 98-23 Certificate," the "Pooled Fannie Mae 97-78 Certificate," and the
"Pooled Fannie Mae 98-42 Certificate") are each one class of three separate
series of Guaranteed Fannie Mae REMIC Certificates (each, an "Underlying Fannie
Mae Series") that represent beneficial ownership interests in separate trusts
established by Fannie Mae (each, an "Underlying Fannie Mae Trust" and
individually, the "Underlying Fannie Mae 98-23 Trust," the "Underlying Fannie
Mae 97-78 Trust," and the "Underlying Fannie Mae 98-42 Trust"). The Pooled
Fannie Mae 98-23 Certificate represents a beneficial ownership interest in the
Underlying Fannie Mae 98-23 Trust. The assets of the Underlying Fannie Mae
98-23 Trust consist of certain previously issued REMIC certificates ("Fannie
Mae REMIC Certificates"), which evidence beneficial ownership interests in
related Fannie Mae REMIC Trusts ("Fannie Mae REMIC Trusts"). Underlying the
assets in the Fannie Mae REMIC Trusts are interests in certain Fannie Mae
Guaranteed Mortgage Pass-Through Certificates ("Fannie Mae MBS"), each of which
represents a beneficial ownership interest in a pool of first lien,
single-family, fixed-rate residential mortgage loans ("Fannie Mae Mortgages").
The Pooled Fannie Mae 97-78 Certificate represents a beneficial
ownership interest in the Underlying Fannie Mae 97-78 Trust. The assets of the
Underlying Fannie Mae 97-78 Trust include (i) certain Fannie Mae REMIC
Certificates that evidence beneficial ownership interests in related Fannie Mae
REMIC Trusts and (ii) certain Fannie Mae Stripped Mortgage-Backed Securities
("Fannie Mae SMBS"). Underlying the Fannie Mae REMIC Certificates are certain
Fannie Mae MBS and certain "fully modified pass-through" mortgage-backed
securities guaranteed as to timely payment of principal and interest by Ginnie
Mae ("Ginnie Mae Certificates"). Underlying the Fannie Mae SMBS are beneficial
ownership interests in certain principal and interest distributions made in
respect of certain Fannie Mae MBS. Each Fannie Mae MBS represents a beneficial
ownership interest in a pool of Fannie Mae Mortgages. Each Ginnie Mae
Certificate is based on and backed by a pool of mortgage loans that are either
insured by the Federal Housing Administration ("FHA") or partially guaranteed
by the Department of Veterans Affairs ("VA") (collectively, "Ginnie Mae
Mortgages").
The Pooled Fannie Mae 98-42 Certificate represents a beneficial
ownership interest in the Underlying Fannie Mae 98-42 Trust. The assets of the
Underlying Fannie Mae 98-42 Trust include (i) "regular interests" in a separate
trust fund the assets of which consist of (x) certain Fannie Mae Guaranteed
Mortgage Pass-Through Certificates and (y) certain previously issued REMIC
certificates evidencing beneficial ownership in the related Fannie Mae REMIC
Trusts and (ii) certain non-interest bearing cash deposits. Underlying the
assets in the Fannie Mae REMIC Trusts are interests in certain Fannie Mae
Guaranteed Mortgage Pass-Through Certificates, each of which represents a
beneficial ownership interest in a pool of Fannie Mae Mortgages.
The Pooled Freddie Mac Certificates (individually, the "Pooled Freddie
Mac G063 Certificate" and the "Pooled Freddie Mac 2008 Certificate") are each
all or a portion of one class of two separate series of Payment Exchange
Certificates or Multiclass Mortgage Participation Certificates, respectively
(each, an "Underlying Freddie Mac Series"). The Pooled Freddie Mac G063
Certificate represents a beneficial ownership interest in a trust established
by Freddie Mac (the "Underlying Freddie Mac G063 Trust"). The assets of the
Underlying Freddie Mac G063 Trust consist of Freddie Mac Giant Stripped
Securities, Series GS007, which in turn consist of Giant IO Securities and
Giant PO Securities, backed by Ginnie Mae Certificates and/or Giant Securities
backed by Ginnie Mae Certificates ("Ginnie Mae-Related Securities").
Underlying the Ginnie-Mae Related Securities are pools of Ginnie Mae Mortgages.
(ii)
<PAGE> 3
The Pooled Freddie Mac 2008 Certificate represents a beneficial
ownership interest in a trust established by Freddie Mac (the "Underlying
Freddie Mac 2008 Trust"). The assets of the Underlying Freddie Mac 2008 Trust
consist of Freddie Mac Multiclass PCs which are in turn backed by pools of
first-lien, fixed-rate residential mortgage loans and mortgage participations
("Freddie Mac Mortgages").
The Pooled Ginnie Mae Certificate is one class of a series of
Guaranteed REMIC Pass-Through Securities (the "Underlying Ginnie Mae Series"),
which represents a beneficial ownership interest in a trust established by
Ginnie Mae (the "Underlying Ginnie Mae Trust"). The assets of the Underlying
Ginnie Mae Trust include Ginnie Mae Certificates guaranteed pursuant to Ginnie
Mae programs for first lien, single-family, fixed rate, residential mortgage
loans.
The Pooled Non-Agency Certificate is a portion of a single class of
Pass-Through Certificates, Series 1997-3, which represents a beneficial
ownership interest in a trust established by Bear Stearns Mortgage Securities,
Inc. (the "Underlying Non-Agency Trust"). The assets of the Underlying
Non-Agency Trust consist of all or a portion of (i) three classes of certain
Fannie Mae REMIC Certificates, (ii) one class of Fannie Mae SMBS, and (iii)
seven classes of Multiclass Mortgage Securities, Multiclass Mortgage
Participation Certificates or Modifiable and Combinable REMIC Certificates
issued by Freddie Mac as part of six separate series of such securities or
certificates (collectively, the "Underlying 1997-3 Agency Certificates," and
together with the Fannie Mae REMIC Certificates, Fannie Mae MBS, Fannie Mae
SMBS, Ginnie Mae-Related Securities, and Freddie Mac Giant Stripped Securities
underlying the other Underlying Trusts, the "Underlying Agency Certificates").
Three classes of the Pooled Certificates are entitled to receive
distributions of interest on the principal balance or notional balance thereof
based on separate formulae that vary inversely with the London interbank
offered quotations for one-month Eurodollar deposits ("LIBOR"), subject to
minimum and maximum rates (the "Pooled Inverse Floating Rate Certificates").
One of the Pooled Inverse Floating Rate Certificates is also an "interest only"
certificate, which does not have a principal balance and is not entitled to
receive distributions of principal (an "IO Certificate"). One class of the
Pooled Certificates is a Payment Exchange Certificate that is also an IO
Certificate (the "Pooled PEC/IO Certificate," and together with the Pooled
Inverse Floating Rate Certificate that is also an IO Certificate, the "Pooled
IO Certificates"), which has a fixed interest rate of 8.00% and is also
entitled to receive interest payment supplement amounts that vary with the rate
of prepayments experienced on the mortgages underlying the Freddie Mac Giant
Stripped Securities (as defined in the Underlying Offering Circular Term Sheets
attached hereto as Annex 2) and the level of LIBOR. Lower levels of LIBOR and
faster prepayments will increase the interest payment supplement amount,
subject to the available funds. Two classes of the Pooled Certificates are
accrual classes with fixed interest rates (the "Pooled Accrual Certificates").
Amounts representing interest are not distributed to the holders of the Pooled
Accrual Certificates; instead, such amounts are added to the principal balance
thereof. One class of the Pooled Certificates is entitled to receive
distributions of interest on the principal balance thereof equal to the
interest received on the underlying assets (the "Pooled WAC Certificate"). The
annual interest rate on the Pooled WAC Certificate is determined by multiplying
the interest received on the underlying assets by 12 and then dividing such
amount by the principal balance of such Pooled WAC Certificate. See
"Description of the Pooled Certificates" herein.
It is a condition to the issuance of the Certificates that they be
assigned a rating of "Aaa" by Moody's Investors Service, Inc. ("Moody's") and
"AAA" by Fitch IBCA, Inc. ("Fitch," and together with Moody's, the "Rating
Agencies"). See "Ratings" herein.
Distributions of principal and interest on the Certificates with
respect to a month will be made on the 25th day of such month (each, a
"Distribution Date") or, if such 25th day is not a business day, then on the
first Business Day after the first Business Day (as defined herein) after the
25th day of each month. On each Distribution Date, holders of each Class of
Certificates will be entitled to receive interest from funds received as
interest on the related group of Pooled Certificates and principal from funds
received as principal on the related group of Pooled Certificates, as more
fully described herein under "Description of the Certificates" herein.
THE CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE THE CERTIFICATES UNLESS THE INVESTOR
(iii)
<PAGE> 4
UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY, AND MARKET
RISKS ASSOCIATED WITH THE CERTIFICATES.
The Certificates are complex securities and it is important that each
investor in the Certificates possess, either alone or together with an
investment advisor, the expertise necessary to evaluate the information
contained and incorporated in this Prospectus Supplement in the context of that
investor's financial situation.
The yield to maturity on each Class of Certificates will depend on the
purchase price of the Certificates, the amount of interest distributed on the
Certificates, and the rate and timing of principal payments on the related
group of Pooled Certificates, which in turn will be affected by the rate and
timing of principal payments on the Underlying Agency Certificates, which in
turn will be affected by the rate and timing of principal payments (including
prepayments, repurchases, defaults, and liquidations) on the Fannie Mae
Mortgages, Freddie Mac Mortgages and the Ginnie Mae Mortgages (collectively,
the "Mortgage Loans" and with respect to any Underlying Agency Certificates,
the "Underlying Mortgage Loans" or a "Mortgage Pool"). Generally, the Mortgage
Loans may be prepaid at any time without penalty. The yield to maturity on the
Certificates also will be sensitive to the level of LIBOR. Mortgage Loan
prepayment rates are likely to fluctuate significantly from time to time, as is
the level of LIBOR. Investors should consider the associated risks, including:
o High levels of LIBOR can significantly reduce the interest due on any
of the Underlying Agency Certificates that are inverse floating rate
certificates. Similarly, high levels of LIBOR can significantly
reduce the interest due on the Pooled Inverse Floating Rate
Certificates. Generally, a high level of LIBOR will have a negative
effect on the yield to investors in the Certificates.
o High levels of LIBOR can significantly reduce payments to the Pooled
PEC/IO Certificate. Relatively high levels of LIBOR will reduce the
supplemental amount of interest available for payments on the Pooled
PEC/IO Certificate in excess of the amount calculated at the base
fixed rate. As mortgage prepayment rates decrease, the supplemental
amount will also decrease. Therefore, high levels of LIBOR
(especially coupled with low prepayment rates) may significantly
reduce the supplemental interest payments to the Pooled PEC/IO
Certificate.
o If the notional principal balances of the Pooled IO Certificates are
reduced to zero (or, in the case of the Pooled Inverse Floating Rate
Certificates, if increased LIBOR levels reduce the interest rate
payable on such certificates to zero), interest payments on the
Certificates will be significantly reduced.
o Slight variations in Mortgage Loan characteristics could substantially
affect the weighted average life and yield of the Underlying Agency
Certificates, particularly those certificates that are support
classes, which in turn could substantially affect the weighted average
life and yield of the Pooled Certificates, particularly those Pooled
Certificates that are support classes.
o Although the Pooled Non-Agency Certificate represents a beneficial
ownership interest in certain Fannie Mae and Freddie Mac certificates,
the Pooled Non-Agency Certificate is not itself guaranteed by Fannie
Mae, Freddie Mac, or any other person.
o The Underlying Agency Certificates were issued as parts of different
Underlying Series and the rates of prepayments on the Underlying
Mortgage Loans will be different. Under various circumstances,
including differing prepayment rates of the Underlying Mortgage Loans,
the Underlying Agency Certificates could mature at times other than
those expected by investors, which in turn could cause the Pooled
Certificates to mature at times other than those expected by
investors, which could then cause either Class of Certificates to take
on a cash flow profile different from that expected by investors. For
example, with respect to the Pooled Certificates, if the Pooled
Accrual Certificates, the Pooled PEC/IO Certificate, and the Pooled
WAC Certificate were to mature prior to the Pooled Inverse Floating
Rate Certificates, the Certificates would, at that point, have the
payment and yield characteristics of an inverse floating rate
security. Similarly, if only one or two of the classes of Pooled
Certificates mature prior to the others, the Certificates would
thereafter have the combined payment and yield characteristics of the
remaining classes.
(iv)
<PAGE> 5
o The yield to investors on the Certificates can be expected to decrease
to the extent that the notional principal balance of the Pooled IO
Certificates reduces faster than anticipated.
o If, on any Distribution Date, the amount by which a Pooled Accrual
Certificate has accreted exceeds the aggregate distributions of
principal on the other Pooled Certificates in such Pooled Accrual
Certificate's Class, the principal balance of that Class of
Certificates will be increased by the amount of such excess.
o The yield to maturity of Certificates purchased at a discount or
premium will be more sensitive to the rate and timing of payments
thereon. Holders of Certificates purchased at a discount (or premium)
should consider the risk that a slower (or faster) than anticipated
rate of principal payments to the Certificates could result in an
actual yield that is lower than the anticipated yield.
o As of the June 1998 Pooled Non-Agency Certificate Payment Date, the
interest accrued and unpaid on the principal balance (an "Interest
Deficiency") in respect of the Fannie Mae 1993-246/F Certificate
(which is one of the Underlying Agency Certificates underlying the
Pooled Non-Agency Certificate) allocable to the Pooled Non-Agency
Certificate was approximately $810,814.17. There can be no assurance
as to whether holders of the Fannie Mae 1993-246/F Certificate, and in
turn, the Pooled Non-Agency Certificate will in the future receive
full distributions of interest at the rate calculated according to
their interest rate formula on a timely basis or whether payment of
any of the Interest Deficiency will be received.
To the extent statements contained herein do not relate to historic or
current information, this Prospectus Supplement may be deemed to contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "1933 Act"), and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "1934 Act"). Actual results could differ
materially from those projected in such statements as a result of the matters
set forth below, under "Summary of Terms--Yield and Prepayment Considerations"
and "Yield and Prepayment Considerations" and elsewhere in this Prospectus
Supplement.
There is currently no secondary market for the Certificates and there
can be no assurance that one will develop. The Underwriter intends to
establish a market in the Certificates, but is not obligated to do so. There
is no assurance that any such market, if established, will continue.
No election will be made to treat the Trust or any of its assets as a
"real estate mortgage investment conduit" ("REMIC") for federal income tax
purposes.
The Certificates offered by this Prospectus Supplement constitute a
separate series of Certificates being offered by the Company pursuant to its
Prospectus dated June 24, 1998, of which this Prospectus Supplement is a part
and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering that is not contained herein and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full. Prospective investors are also urged to read the documents
relating to the Pooled Certificates described under "Description of the Pooled
Certificates--Additional Information" herein.
--------------------
REPORTS TO CERTIFICATEHOLDERS
Unless and until definitive certificates are issued with respect to
the Certificates, monthly reports containing information concerning the Trust,
which are prepared by the Trustee, will be sent to Cede & Co., as nominee of
The Depository Trust Company ("DTC") and registered holder of the Certificates.
Such reports may be available to beneficial owners of the Certificates in
accordance with the regulations and procedures of DTC.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
CERTIFICATES OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING
TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
(v)
<PAGE> 6
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
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PAGE
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SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Uncertainty of Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Book Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Payments of Interest and Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Optional Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Mandatory Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
DESCRIPTION OF THE POOLED CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Pooled Fannie Mae Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Pooled Freddie Mac Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Pooled Ginnie Mae Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Pooled Non-Agency Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Pooled Certificates - Principal Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Pooled Certificates - Interest Types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
The Underlying Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
YIELD AND PREPAYMENT CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
General Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Final Scheduled Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Weighted Average Lives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
SPA Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Pricing Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Decrement and Weighted Average Life Table . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Pre-Tax Yield Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Actual Experience Will Vary from Assumptions . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
THE POOLING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Assignment of Pooled Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Certificateholder Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Indemnification of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Certain Matters Regarding the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Tax Characterization of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
INDEX OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
ANNEX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
ANNEX 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying prospectus dated June 24, 1998 (the "Prospectus"). A
description of the Pooled Certificates being deposited into the Trust is set
forth under "Description of the Pooled Certificates-- General" and in Annex 1
and Annex 2 hereto. Unless otherwise specified herein, references herein to an
amount or percentage of Pooled Certificates refers to the amount or percentage
calculated based on the aggregate outstanding principal balance or notional
principal balance as reported by Fannie Mae, Freddie Mac, and Ginnie Mae and
based on information provided to holders of the Pooled Non-Agency Certificate
with respect to the Underlying Series (the "Pooled Certificate Principal
Balance" or the "Pooled Certificate Notional Principal Balance," as applicable)
of such Pooled Certificates as of each Certificate's June 1998 Pooled
Certificate Distribution Date after giving effect to distributions made on the
Pooled Certificates on or prior to such dates. References to "FNMA," "FHLMC,"
or "GNMA" in the Prospectus shall be deemed to refer, respectively, to "Fannie
Mae," "Freddie Mac," or "Ginnie Mae" in this Prospectus Supplement.
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Title of Certificates . . . . . . . . . Pass-Through Certificates, Series 1998-B, Class 1A and Class 2A.
Trust . . . . . . . . . . . . . . . . . The Certificates will represent the entire beneficial ownership interest in
two groups of underlying securities, each of which will constitute a separate
sub-trust, held by a trust (the "Trust") formed pursuant to a Pooling
Agreement (the "Agreement") between Fund America Investors Corporation II (the
"Company") and U.S. Bank Trust National Association, as Trustee (the
"Trustee"). The Company expects to acquire the Pooled Certificates from Bear,
Stearns & Co. Inc. (the "Underwriter") on the Closing Date. See
"Underwriting" herein and "The Issuer" in the Prospectus. The Trustee will
act as certificate administrator and will perform certain administrative
functions for the Trust, including, among other things, calculating amounts
due to Certificateholders and the preparation and distribution of monthly
reports. Consequently, there will be no separate servicing agreement among
the parties relating to the transaction. See "The Pooling Agreement" herein.
Book-Entry;
Denominations . . . . . . . . . . . . . Each Class of Certificates will be registered as a single certificate
registered in the name of Cede & Co. as nominee of The Depository Trust
Company ("DTC"), and beneficial interests will be held by investors through
the book-entry facilities of DTC in minimum denominations of $25,000 and
increments of $1 in excess thereof. See "Description of the Certificates--
Book Entry; Physical Certificates" herein and "Description of the
Certificates--Book Entry Registration" in the Prospectus.
Pooled Certificates . . . . . . . . . . The Trust will consist primarily of the Pooled Certificates, which will
consist of two groups of underlying securities that consist of all or a
portion of (i) three classes of Guaranteed REMIC Pass-Through Certificates
issued by Fannie Mae, as part of separate series of such certificates,
including two classes of Combinable and Recombinable REMIC Certificates (the
"Pooled Fannie Mae Certificates"), (ii) one class of Guaranteed REMIC Pass-
Through Securities issued by Ginnie Mae, representing a beneficial ownership
interest in a separate trust established by Ginnie Mae (the "Pooled Ginnie Mae
Certificate"), (iii) two classes of certificates issued by Freddie Mac, as
part of separate
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series of such certificates, including one class of Payment Exchange
Certificates and one class of Multiclass Mortgage Participation Certificates
(the "Pooled Freddie Mac Certificates," and together with the Pooled Fannie
Mae Certificates and the Pooled Ginnie Mae Certificate, the "Pooled Agency
Certificates") and (iv) a single class of Pass-Through Certificates, Series
1997-3, which represents a beneficial ownership interest in a trust
established by Bear Stearns Mortgage Securities, Inc. (the "Pooled Non-Agency
Certificate," and together with the Pooled Agency Certificates, the "Pooled
Certificates"). The designations used herein for each Pooled Certificate and
the allocation thereof to the Class 1A and/or Class 2A Certificates are set
forth under "Description of the Pooled Certificates--General" and the
characteristics of the Pooled Certificates are described herein under
"Description of the Pooled Certificates" and in Annex 1 and Annex 2 attached
hereto.
The Pooled Fannie Mae Certificates are guaranteed as to timely distribution of
principal and interest by Fannie Mae. Freddie Mac guarantees to the record
holder of the Pooled Freddie Mac Certificates the timely payment of interest
and the payment of the principal amount of the Pooled Freddie Mac Certificates
as described in the Underlying Freddie Mac Offering Circulars. The Pooled
Ginnie Mae Certificate is guaranteed as to timely payment of principal and
accrual of interest by Ginnie Mae, which guarantee is backed by the full faith
and credit of the United States. Payments with respect to the Pooled Non-
Agency Certificate are not guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae
or any other person. The Pooled Non-Agency Certificate represents an
undivided ownership interest in underlying certificates that include certain
Fannie Mae and Freddie Mac certificates. See "Description of the Pooled
Certificates--General."
The Pooled Fannie Mae Certificates (individually, the "Pooled Fannie Mae 98-23
Certificate," the "Pooled Fannie Mae 97-78 Certificate," and the "Pooled
Fannie Mae 98-42 Certificate") are each one class of three separate series of
Guaranteed Fannie Mae REMIC Certificates (each, an "Underlying Fannie Mae
Series") that represent beneficial ownership interests in separate trusts
established by Fannie Mae (each, an "Underlying Fannie Mae Trust" and
individually, the "Underlying Fannie Mae 98-23 Trust," the "Underlying Fannie
Mae 97-78 Trust" and the "Underlying Fannie Mae 98-42 Trust"). The Pooled
Fannie Mae 98-23 Certificate represents a beneficial ownership interest in the
Underlying Fannie Mae 98-23 Trust. The assets of the Underlying Fannie Mae
98-23 Trust consist of certain previously issued REMIC certificates ("Fannie
Mae REMIC Certificates") evidencing beneficial ownership interests in related
Fannie Mae REMIC Trusts ("Fannie Mae REMIC Trusts"). Underlying the assets in
the Fannie Mae REMIC Trusts are interests in certain Fannie Mae Guaranteed
Mortgage Pass-Through Certificates ("Fannie Mae MBS"), each of which
represents a beneficial ownership interest in a pool of first lien, single-
family, fixed-rate residential mortgage loans ("Fannie Mae Mortgages"). Both
Classes of Certificates are entitled to receive distributions on the Pooled
Fannie Mae 98-23 Certificate. The Class 1A Certificates will be allocated
50.0% of such distributions, and the Class 2A Certificates will be allocated
the remaining 50.0%.
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The Pooled Fannie Mae 97-78 Certificate represents a beneficial ownership
interest in the Underlying Fannie Mae 97-78 Trust. The assets of the
Underlying Fannie Mae 97-78 Trust include (i) certain Fannie Mae REMIC
Certificates that evidence beneficial ownership interests in related Fannie
Mae REMIC Trusts and (ii) certain Fannie Mae Stripped Mortgage-Backed
Securities ("Fannie Mae SMBS"). Underlying the Fannie Mae REMIC Certificates
are certain Fannie Mae MBS and certain "fully modified pass-through" mortgage-
backed securities guaranteed as to timely payment of principal and interest by
Ginnie Mae ("Ginnie Mae Certificates"). Underlying the Fannie Mae SMBS are
beneficial ownership interests in certain principal and interest distributions
made in respect of certain Fannie Mae MBS. Each Fannie Mae MBS represents a
beneficial ownership interest in a pool of Fannie Mae Mortgages. Each Ginnie
Mae Certificate is based on and backed by a pool of mortgage loans that are
either insured by the Federal Housing Administration ("FHA") or partially
guaranteed by the Department of Veterans Affairs ("VA") (collectively, "Ginnie
Mae Mortgages"). Both Classes of Certificates are entitled to receive
distributions on the Pooled Fannie Mae 97-78 Certificate. The Class 1A
Certificates will be allocated 50.0% of such distributions, and the Class 2A
Certificates will be allocated the remaining 50.0%.
The Pooled Fannie Mae 98-42 Certificate represents a beneficial ownership
interest in the Underlying Fannie Mae 98-42 Trust. The assets of the
Underlying Fannie Mae 98-42 Trust include (i) "regular interests" in a
separate trust fund the assets of which consist of (x) certain Fannie Mae
Guaranteed Mortgage Pass-Through Certificates and (y) certain previously
issued REMIC certificates evidencing beneficial ownership in the related
Fannie Mae REMIC Trusts and (ii) certain non-interest bearing cash deposits.
Underlying the assets in the Fannie Mae REMIC Trusts are interests in certain
Fannie Mae Guaranteed Mortgage Pass-Through Certificates, each of which
represents a beneficial ownership interest in a pool of Fannie Mae Mortgages.
Only the Class 1A Certificates are entitled to receive distributions on the
Pooled Fannie Mae 98-42 Certificate.
The Pooled Freddie Mac Certificates (individually, the "Pooled Freddie Mac
G063 Certificate" and the "Pooled Freddie Mac 2008 Certificate") are each all
or a portion of one class of two separate series of Payment Exchange
Certificates or Multiclass Mortgage Participation Certificates, respectively
(each, an "Underlying Freddie Mac Series"). The Pooled Freddie Mac G063
Certificate represents a beneficial ownership interest in a trust established
by Freddie Mac (the "Underlying Freddie Mac G063 Trust"). The assets of the
Underlying Freddie Mac G063 Trust consist of Freddie Mac Giant Stripped
Securities, Series GS007 ("Freddie Mac Giant Stripped Securities"), which in
turn consist of Giant IO Securities and Giant PO Securities, backed by Ginnie
Mae Certificates and/or Giant Securities backed by Ginnie Mae Certificates
("Ginnie Mae-Related Securities"). Underlying the Ginnie Mae-Related
Securities are pools of Ginnie Mae Mortgages. Both Classes of Certificates
are entitled to receive distributions on the Pooled Freddie Mac G063
Certificate. The Class 1A Certificates will be allocated 50.0% of such
distributions, and the Class 2A Certificates will be allocated the remaining
50.0%.
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The Pooled Freddie Mac 2008 Certificate represents a beneficial ownership
interest in a trust established by Freddie Mac (the "Underlying Freddie Mac
2008 Trust"). The assets of the Underlying Freddie Mac 2008 Trust consist of
Freddie Mac Multiclass PCs which are in turn backed by pools of first-lien,
fixed-rate residential mortgage loans and mortgage participations ("Freddie
Mac Mortgages"). Both Classes of Certificates are entitled to receive
distributions on the Pooled Freddie Mac 2008 Certificate. The Class 1A
Certificates will be allocated 50.0% of such distributions, and the Class 2A
Certificates will be allocated the remaining 50.0%.
The Pooled Ginnie Mae Certificate is one class of a series of Guaranteed REMIC
Pass-Through Securities (the "Underlying Ginnie Mae Series"), which represents
a beneficial ownership interest in a trust established by Ginnie Mae (the
"Underlying Ginnie Mae Trust"). The assets of the Underlying Ginnie Mae Trust
include Ginnie Mae Certificates guaranteed pursuant to Ginnie Mae programs for
first lien, single-family, fixed rate, residential mortgage loans. Only the
Class 2A Certificates will be entitled to receive distributions on the Pooled
Ginnie Mae Certificate.
The Pooled Non-Agency Certificate is a portion of a single class of Pass-
Through Certificates, Series 1997-3, which represents a beneficial ownership
interest in a trust established by Bear Stearns Mortgage Securities, Inc. (the
"Underlying Non-Agency Trust"). The assets of the Underlying Non-Agency Trust
consist of all or a portion of (i) three classes of certain Fannie Mae REMIC
Certificates, (ii) one class of Fannie Mae SMBS, and (iii) seven classes of
Multiclass Mortgage Securities, Multiclass Mortgage Participation Certificates
or Modifiable and Combinable REMIC Certificates issued by Freddie Mac as part
of six separate series of such securities or certificates (collectively, the
"Underlying 1997-3 Agency Certificates" and together with the Fannie Mae REMIC
Certificates, Fannie Mae MBS, Fannie Mae SMBS, Ginnie Mae-Related Securities,
and Freddie Mac Giant Stripped Securities underlying the other Underlying
Trusts, the "Underlying Agency Certificates"). Both Classes of Certificates
are entitled to receive distributions on the Pooled Non-Agency Certificate.
The Class 1A Certificates will be allocated 50.0% of such distributions, and
the Class 2A Certificates will be allocated the remaining 50.0%.
Each underlying series was issued pursuant to a separate agreement (each, an
"Underlying Agreement").
In the case of the Pooled Fannie Mae Certificates, the distribution date is
the 25th day of each month for the Pooled Fannie Mae 98-23 Certificate and the
Pooled Fannie Mae 97-78 Certificate and the 1th day of the month for the
Pooled Fannie Mae 98-42 Certificate (each, a "Pooled Fannie Mae Certificate
Distribution Date"). In the case of the Pooled Freddie Mac Certificates, the
distribution date is the 15th day of each month for the Pooled Freddie Mac
2008 Certificate and the 17th day of each month for the Pooled Freddie Mac
G063 Certificate (each, a "Pooled Freddie Mac Certificate Distribution Date").
In the case of the Pooled Ginnie Mae Certificate, the distribution date is the
2th day of each month (the "Pooled Ginnie Mae Certificate Distribution
Date").
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In the case of the Pooled Non-Agency Certificate, the distribution date is the
25th day of the month (the "Pooled Non-Agency Certificate Date" and, together
with the Pooled Fannie Mae Certificate Distribution Dates, the Pooled Freddie
Mac Certificate Distribution Dates, and the Pooled Ginnie Mae Certificate
Distribution Date, a "Pooled Certificate Distribution Date"), or if such day
is not a business day as defined in the Underlying Agreement, then the next
succeeding business day, as so defined.
Three classes of the Pooled Certificates are entitled to receive distributions
of interest on the principal balance or notional balance thereof based on
separate formulae that vary inversely with the London interbank offered
quotations for one-month Eurodollar deposits ("LIBOR"), subject to minimum and
maximum rates (the "Pooled Inverse Floating Rate Certificates"). One of the
Pooled Inverse Floating Rate Certificates is also an "interest only"
certificate, which does not have a principal balance and is not entitled to
receive distributions of principal (an "IO Certificate"). One class of the
Pooled Certificates is a Payment Exchange Certificate that is also an IO
Certificate (the "Pooled PEC/IO Certificate," and together with the Pooled
Inverse Floating Rate Certificate that is also an IO Certificate, the "Pooled
IO Certificates"), which has a fixed interest rate of 8.00% and is also
entitled to receive interest payment supplement amounts that vary with the
rate of prepayments experienced on the mortgages underlying the Freddie Mac
Giant Stripped Securities (as defined in the Underlying Offering Circular Term
Sheets attached hereto as Annex 2) and the level of LIBOR. Lower levels of
LIBOR and faster prepayments will increase the interest payment supplement
amount, subject to the available funds. Two classes of the Pooled
Certificates are accrual classes with fixed interest rates (the "Pooled
Accrual Certificates"). Amounts representing interest are not distributed to
the holders of the Pooled Accrual Certificates; instead, such amounts are
added to the principal balance thereof. One class of the Pooled Certificates
is entitled to receive distributions of interest on the principal balance
thereof equal to the interest received on the underlying assets (the "Pooled
WAC Certificate"). The annual interest rate on the Pooled WAC Certificate is
determined by multiplying the interest received on the underlying assets by 12
and then dividing such amount by the principal balance of such Pooled WAC
Certificate.
Two classes of the Pooled Certificates are classes of Combinable and
Recombinable REMIC Certificates ("RCR Certificates"), which may be exchanged
for certain classes of Fannie Mae REMIC Certificates that represent beneficial
ownership interest in the Underlying Fannie Mae Trusts. Both the interest and
principal payment characteristics of the RCR Certificates will reflect the
interest and principal payment characteristics of the classes of Fannie Mae
REMIC Certificates that are combined to form such classes of RCR Certificates.
See "Description of the Pooled Certificates" herein. In the Agreement, the
Trustee has agreed not to exchange any portion of the RCR Certificates for a
related class or classes of Fannie REMIC Certificates pursuant to the relevant
Underlying Agreement.
Annex 1 hereto sets forth approximate information for each of the Pooled
Certificates. The tables and the descriptions of the Pooled Certificates
herein are subject to and qualified by reference to the
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provisions of the Underlying Prospectus Information (as defined below) and the
other documents related to the Pooled Certificates or the other mortgage-
backed securities issued as part of the Underlying Series. THE INFORMATION
SET FORTH IN THE TABLES AND ELSEWHERE HEREIN HAS BEEN DERIVED FROM INFORMATION
PROVIDED BY FANNIE MAE, FREDDIE MAC, AND GINNIE MAE, AND BASED ON INFORMATION
PROVIDED TO HOLDERS OF THE POOLED NON-AGENCY CERTIFICATE, BUT SUCH INFORMATION
HAS NOT BEEN INDEPENDENTLY VERIFIED. THIS INFORMATION COMPRISES ALL MATERIAL
INFORMATION ON THE SUBJECT THAT THE COMPANY AND THE UNDERWRITER POSSESS OR CAN
ACQUIRE WITHOUT UNREASONABLE EFFORT AND EXPENSE.
Annex 2 hereto contains the Prospectus Supplement for each of the Pooled
Fannie Mae Certificates (the "Underlying Fannie Mae Prospectus Information"),
the cover page and terms sheet from the Offering Circular Supplements for each
of the Pooled Freddie Mac Certificates (the "Underlying Freddie Mac Offering
Circular Term Sheets"), the Offering Circular Supplement for the Pooled Ginnie
Mae Certificate (the "Underlying Ginnie Mae Offering Circular Supplement"),
and the Prospectus Supplement for the Pooled Non-Agency Certificate (the
"Underlying Non-Agency Prospectus Information," and together with the
Underlying Fannie Mae Prospectus Information, the Underlying Freddie Mac
Offering Circular Term Sheets, and the Underlying Ginnie Mae Offering Circular
Supplement, the "Underlying Prospectus Information"). The Prospectuses
underlying the Prospectus Supplements for the Pooled Fannie Mae Certificates
and the Pooled Non-Agency Certificate are incorporated herein by reference.
The Offering Circular Supplements and the related Offering Circulars for each
of the Pooled Freddie Mac Certificates and the Offering Circular for the
Pooled Ginnie Mae Certificate are also incorporated herein by reference. The
related Prospectuses and Offering Circulars are hereinafter referred to as the
"Underlying Prospectuses." Investors should purchase Certificates only if
they have read and understood this Prospectus Supplement, the Prospectus, the
Underlying Prospectus Information, the Underlying Prospectuses and the other
documents described or incorporated by reference herein "Description of the
Pooled Certificates--Additional Information."
It should be noted that there have been material changes in facts and
circumstances since the dates of the Underlying Prospectus Information,
including changes in prepayment rates, prevailing interest rates, and other
economic factors, which may limit the usefulness of, and be directly contrary
to the assumptions used in preparing the information set forth in, such
documents.
Closing Date . . . . . . . . . . . . . On or about June 30, 1998 (the "Closing Date").
Distribution Dates . . . . . . . . . . Distributions of principal and interest on the Certificates with respect to a
month will be made on the 25th day of such month (each, a "Distribution Date")
or, if such 25th day is not a business day, then on the first Business Day
(as defined herein) after the 25th day of each month. A "Business Day" means
a day other than a Saturday, a Sunday, or a day on which banking institutions
in New York, New York or the city in which the corporate trust office of the
Trustee is located
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are authorized or obligated by law or executive order to be closed. The first
Distribution Date is expected to be July 27, 1998.
Record Date . . . . . . . . . . . . . . Distributions will be made on each Distribution Date to holders of record as
of the close of business on the last Business Day of the calendar month
preceding the month in which such Distribution Date occurs; provided that for
this purpose the Distribution Date is deemed to occur on the 25th of each
month, without regard to whether such day is a Business Day (the "Record
Date"). See "Description of the Certificates--Payments of Interest and
Principal" herein.
Original Principal
Amount . . . . . . . . . . . . . . . . The initial aggregate principal amount of the Class 1A Certificates will be
equal to the aggregate Group 1A Pooled Certificate Principal Balance following
the June 1998 Pooled Certificate Distribution Date and the initial aggregate
principal amount of the Class 2A Certificates will be equal to the aggregate
Group 2A Pooled Certificate Principal Balance following the June 1998 Pooled
Certificate Distribution Date. The original principal amount of the Class 1A
Certificates will be reduced to reflect any exchange of Class 1A Certificates
for a pro rata portion of the Group 1A Pooled Certificates and the original
principal amount of the Class 2A Certificates will be reduced to reflect any
exchange of Class 2A Certificates for a pro rata portion of the Group 2A
Pooled Certificates.
Distributions of Interest
and Principal . . . . . . . . . . . . . On each Distribution Date, holders of the Certificates of a Class will be
entitled to receive principal distributions from funds received on the Pooled
Certificates of the related group, to the extent, if any, that the principal
balance of the class of certificates is greater than the aggregate principal
balance of the related Pooled Certificates, subject to the reallocation of
certain amounts received as principal to pay interest, in each case, after
payment of the Trustee's Fees, as more fully described herein under
"Description of the Certificates."
On each Distribution Date, the remaining amounts shall be distributed as
interest. The effective per annum interest rate borne by either Class of
Certificates during the calendar month preceding the month in which the
Distribution Date occurs (each, an "Interest Accrual Period") will equal a
fraction, expressed as a percentage truncated at the fourth decimal place, the
numerator of which is equal to the aggregate amount in respect of interest
paid on the related Class of Certificates for the related Interest Accrual
Period multiplied by 12, and the denominator of which is the principal amount
of the related Class of Certificates immediately prior to such Distribution
Date. Under certain circumstances, the principal amount of the related Class
of Certificates could be paid in full while interest would remain payable, in
which case, the calculation of the effective per annum interest rate borne by
the related Class of Certificates would not be meaningful. The effective per
annum interest rate borne by the Class 1A Certificates and the Class 2A
Certificates during the first Interest Accrual Period is projected to be
approximately 11.1466% and 10.8958%, respectively.
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Optional Termination by
the Company, or its designee . . . . . The Trust may be terminated, at the option of the Company, or its designee, on
any Distribution Date on or after the date on which the aggregate Pooled
Certificate Principal Balance has declined to 10% or less of the initial
aggregate Pooled Certificate Principal Balance, as such sum is reduced by the
original face amount of any Certificates exchanged for a pro rata portion of
the Pooled Certificates. In addition, the sub-trust consisting of either the
Group 1A Pool or the Group 2A Pool may be terminated, at the option of the
Company or its designee, on any Distribution Date on or after the date on
which (i) in the case of the Group 1A Pool, the aggregate Pooled Certificate
Principal Balance of the Group 1A Pooled Certificates has declined to 10% or
less of the initial aggregate Group 1A Pooled Certificate Principal Balance
and (ii) in the case of the Group 2A Pool, the aggregate Pooled Certificate
Principal Balance of the Group 2A Pooled Certificates has declined to 10% or
less of the initial aggregate Group 2A Pooled Certificate Principal Balance in
both cases as reduced by the original face amount of any Class 1A Certificates
or Class 2A Certificates exchanged for a pro rata portion of the Group 1A
Pooled Certificates or the Group 2A Pooled Certificates, respectively. In the
event of any such termination, the applicable Certificateholders will receive
the unpaid principal balance of their Certificates plus accrued interest
thereon In the case of the Pooled Non-Agency Certificate, the
Certificateholders will receive any Interest Deficiency (as defined herein) on
the underlying Fannie Mae 1993-246/F Certificate and interest thereon. See
"Description of the Certificates--Optional Termination" herein.
Mandatory Termination . . . . . . . . . On the Distribution Date following the first Distribution Date on which the
Group 1A or the Group 2A Pooled Certificate Principal Balance or Pooled
Certificate Notional Principal Balance of all but one of the Group 1A or the
Group 2A Pooled Certificates has been reduced to zero, the Trust will be
terminated with respect to such group of Pooled Certificates and the remaining
Pooled Certificates related to such Class of Certificates will be distributed
in kind pro rata to the Certificateholders of the related Class. See
"Description of the Certificates--Mandatory Termination" herein.
Exchange of Certificates . . . . . . . Beginning on the Distribution Date in June 1999 and on any Distribution Date
thereafter, holders of a minimum of 10% of the initial principal amount of
either Class of Certificates, without taking into account any reductions in
the initial principal amount due to a prior exchange of such Certificates,
will be entitled to exchange such Class of Certificates for a pro rata portion
of the related group of Pooled Certificates. Holders of Certificates to be
exchanged will be charged an exchange fee by the Trustee equal to the greater
of (i) $500 and (ii) 0.02% of the outstanding principal amount of such Class
of Certificates.
Yield and Prepayment
Considerations . . . . . . . . . . . . General Considerations. The yield to maturity and weighted average life of
the Certificates will be affected by, among other things, the amount and
timing of principal and interest payments, the level of LIBOR, the payment
priorities and other characteristics of the Pooled Certificates and the
Underlying Agency Certificates, the occurrence of an optional or mandatory
termination with respect to the Underlying Agency Certificates, the Pooled
Certificates or the Certificates, and the
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purchase price paid for the Certificates. In addition to the discussion
below, prospective investors should review the discussion under "Yield and
Prepayment Considerations" herein.
Mortgage Loan Prepayments. If prevailing mortgage rates fall significantly
below the mortgage rates on the Fannie Mae Mortgages, the Freddie Mac
Mortgages or the Ginnie Mae Mortgages (collectively, the "Mortgage Loans" and
with respect to any Underlying Agency Certificates, the "Underlying Mortgage
Loans" or a "Mortgage Pool"), the Mortgage Loans are likely to be subject to
higher prepayment rates than if prevailing rates remain at or above the
mortgage rates on the Mortgage Loans. Other factors affecting prepayments of
Mortgage Loans include changes in mortgagors' housing needs, job transfers,
unemployment, net equity in the mortgaged properties, and servicing decisions.
The Mortgage Loans may be prepaid at any time without penalty and, except for
the Ginnie Mae Mortgages, usually have due-on-sale clauses. Because the
payment of installments of principal of and interest on the respective
Mortgage Loans are guaranteed by one or more government agencies, losses in
respect of the respective Underlying Mortgage Loans will have the effect of a
prepayment.
Timing of Payments. The timing and amount of payments on the Mortgage Loans
may significantly affect an investor's yield. In general, the earlier a
prepayment of principal on a Mortgage Loan, the greater will be the effect on
an investor's yield to maturity. As a result, the effect on an investor's
yield of principal prepayments occurring at a rate higher (or lower) than the
rate anticipated during the period immediately following the issuance of the
Certificates will not be offset by a subsequent like reduction (or increase)
in the rate of principal prepayments. In addition, interest amounts on the
Pooled PEC/IO Certificate contain a supplemental amount that varies directly
with the level of prepayments on the related Mortgage Loans. Furthermore, the
effective yield to Certificateholders will be slightly lower than the yield
that would otherwise be produced because, while interest generally will accrue
on the Certificates from the first day of a month, the distribution of such
interest will not be made earlier than the Distribution Date of the month
following the month of accrual.
Underlying Securities. The Pooled Certificates were issued as part of
different Underlying Series at different times, are backed by different
Underlying Agency Certificates and different Mortgage Pools, have different
allocations of principal and interest among various classes and will perform
differently in various interest and prepayment rate environments. The
performance characteristics of either Class of Certificates will reflect a
combination of the performance characteristics of the related group of Pooled
Certificates which themselves reflect a combination of the performance
characteristics of the related group of Underlying Agency Certificates.
Because certain of the Pooled Certificates have additional layers of
underlying assets, the inclusion of those Pooled Certificates in the Trust may
make it more difficult to analyze the likely yield and payment experience of
either Class of Certificates.
Discounts and Premiums. In the case of any Certificates purchased at a
discount, a slower than anticipated rate of principal payments on the
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Certificates, other things being equal, could result in an actual yield that
is lower than the anticipated yield. In the case of any Certificates
purchased at a premium, a faster than anticipated rate of principal payments
on the Certificates, other things being equal, could result in an actual yield
that is lower than the anticipated yield.
Notional Balances. The Pooled IO Certificates have notional principal
balances that reduce proportionately with the aggregate outstanding principal
balances of certain related classes in the same Underlying Series (the
"Related Certificates"). Accordingly, the amount and timing of payments on
the Pooled IO Certificates, and accordingly the yield on the Certificates,
will be sensitive to the rate and timing of principal payments on such Related
Certificates. Relatively fast prepayments of the underlying Mortgage Loans
may significantly shorten, and relatively slow underlying Mortgage Loan
prepayments may significantly extend, the life of the Related Certificates and
therefore the Pooled IO Certificates. Consequently, a rapid rate of principal
prepayments on the Mortgage Loans underlying the Pooled IO Certificates will
have a negative effect on the yield on such certificates and may reduce the
yield on the Certificates. If the life of the Related Certificates is
significantly shortened, the life of the Pooled IO Certificates will be
significantly shortened and the yield to investors in the Certificates can be
expected to decrease. Similarly, the exercise of any optional redemption
rights with respect to the Underlying Series of which the Pooled IO
Certificates are a part may have a negative effect on the yield on such
certificates and may reduce the yield on the Certificates. The Pooled IO
Certificates are part of both the Group 1A Pooled Certificates and the Group
2A Pooled Certificates.
Pooled Non-Agency Certificate. Although the Pooled Non-Agency Certificate
represents a beneficial ownership interest in certain Fannie Mae and Freddie
Mac certificates, payments on the Pooled Non-Agency Certificate are not
guaranteed by Fannie Mae, Freddie Mac, or any other person.
Reinvestment Risk. Because prevailing interest rates are subject to
fluctuation, there can be no assurance that investors in the Certificates will
be able to reinvest the distributions thereon at yields equaling or exceeding
the yield on the Certificates. Yields on any such reinvestments may be lower,
and may even be significantly lower, than the yield on the Certificates.
Generally, when prevailing interest rates increase, prepayment rates on
mortgage loans tend to decrease, resulting in a reduced return of principal to
investors at a time when reinvestment at such higher prevailing rates would be
desirable. Conversely, when prevailing interest rates decline, prepayment
rates on mortgage loans tend to increase, resulting in a greater return of
principal to investors at a time when reinvestment at comparable yields may
not be possible. Prospective investors in the Certificates should consider
the related reinvestment risks in light of other investments that may be
available to such investors.
LIBOR. The yield to maturity on the Pooled Certificates will reflect the
amount and timing of interest received on the Underlying Agency Certificates,
certain of which are sensitive to the level of LIBOR from time to time.
Similarly, the yield to maturity on the Certificates will
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reflect the amount and timing of interest received on the Pooled Certificates,
certain of which are also sensitive to the level of LIBOR from time to time.
For example, the amount of interest payable on the Pooled Inverse Floating
Rate Certificates and the supplemental interest payment on the Pooled PEC/IO
Certificate will vary inversely with the level of LIBOR. CONSEQUENTLY, A HIGH
LEVEL OF LIBOR WILL REDUCE THE INTEREST PAYABLE ON THE POOLED INVERSE FLOATING
RATE CERTIFICATES AND THE SUPPLEMENTAL INTEREST PAYMENTS TO THE POOLED PEC/IO
CERTIFICATE AND MAY THEREFORE REDUCE THE YIELD TO INVESTORS IN THE
CERTIFICATES.
Unrelated Underlying Securities. The Underlying Agency Certificates were
issued as parts of different Underlying Series and the rates of prepayments on
the Underlying Mortgage Loans will be different. Under various circumstances,
including differing prepayment rates of the Underlying Mortgage Loans, the
Underlying Agency Certificates could mature at times other than those expected
by investors, which in turn could cause the Pooled Certificates to mature at
times other than those expected by investors, which could then cause either
Class of Certificates to take on a cash flow profile different from that
expected by investors. For example, with respect to the Pooled Certificates,
if the Pooled Accrual Certificates, the Pooled PEC/IO Certificate, and the
Pooled WAC Certificate were to mature prior to the Pooled Inverse Floating
Rate Certificates, the Certificates would, at that point, have the payment and
yield characteristics of an inverse floating rate security. Similarly, if one
or more of the classes of Pooled Certificates were to mature prior to the
others, the Certificates would thereafter have the combined payment and yield
characteristics of the remaining classes. See Annex 1 attached hereto.
Liquidity . . . . . . . . . . . . . . . There is currently no secondary market for the Certificates, and there can be
no assurance that one will develop. The Underwriter intends to establish a
market in the Certificates, but it is not obligated to do so. There is no
assurance that any such market, if established, will continue. Each Class of
Certificateholders will receive monthly reports pertaining to the related
Certificates as described under "The Pooling Agreement--Reports to
Certificateholders" herein. There are a limited number of sources that
provide certain information about mortgage pass-through certificates in the
secondary market; however, there can be no assurance that any of these sources
will provide information about the related Class of Certificates. Investors
should consider the effect of limited information on the liquidity of each
Class of the Certificates.
Certain Federal Income Tax
Consequences . . . . . . . . . . . . . No election will be made to treat the Trust as a REMIC for federal income tax
purposes. For federal income tax purposes, the Trust will be classified as a
grantor trust under Subpart E, part I of Subchapter J of the Code and not as a
partnership or as an association taxable as a corporation. See "Federal
Income Tax Considerations" herein and "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for Securities as to Which No
REMIC Election is Made" in the Prospectus.
ERISA Considerations . . . . . . . . . Fiduciaries of employee benefit plans and certain other retirement plans and
arrangements, including individual retirement accounts and
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annuities, Keogh plans, and collective investment funds in which such plans,
accounts, annuities or arrangements are invested, that are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
corresponding provisions of the Code (any of the foregoing, a "Plan"), persons
acting on behalf of a Plan, or persons using the assets of a Plan (each, a
"Plan Investor"), should review carefully with their legal advisors whether
the purchase or holding of Certificates will result in unfavorable
consequences for the Plan or its fiduciaries under the Plan Asset Regulations
(as defined in the Prospectus) or the prohibited transaction provisions of
ERISA or the Code (the "Prohibited Transaction Provisions"). Such
consequences could result unless one of the exceptions in, or exemptions from,
the Plan Asset Regulations and Prohibited Transaction Provisions is
applicable. See "ERISA Considerations" herein and in the Prospectus. Each
purchaser of a Certificate, by virtue of its purchase of such Certificate,
will be deemed to have represented either that (i) it is not a Plan Investor
or (ii) an exemption granted by the Department of Labor exists which exempts
the acquisition, holding or transfer of a Certificate by such purchaser and
the operation and management of the Trust and its assets, from the prohibited
transaction rules of ERISA and the related excise tax provisions of the Code.
Legal Investment . . . . . . . . . . . Institutions whose investment activities are subject to legal investment laws
and regulations or to review by certain regulatory authorities may be subject
to restrictions on investment in the Certificates. Any such institution
should consult its legal advisors in determining whether and to what extent
there may be restrictions on its ability to invest in the Certificates. Both
the Class 1A Certificates and the Class 2A Certificates will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). See "Legal Investment" herein and in the
Prospectus.
Rating . . . . . . . . . . . . . . . . As a condition of their issuance, each Class of Certificates will be rated
"Aaa" by Moody's and "AAA" by Fitch. Moody's and Fitch are referred to herein
as the "Rating Agencies."
The ratings of each Class of Certificates should be evaluated independently
from similar ratings on other types of securities. A rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the rating Agencies. See "Ratings" herein.
The Company has not requested a rating of the Certificates by any rating
agency other than the Rating Agencies. However, there can be no assurance as
to whether any other rating agency will rate the Certificates or, if it does,
what rating would be assigned by such other rating agency. The rating
assigned by such other rating agency to the Certificates could be lower than
the respective ratings assigned by the Rating Agencies.
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RISK FACTORS
GENERAL
THE CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE THE CERTIFICATES UNLESS THE INVESTOR
UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY, AND MARKET
RISKS ASSOCIATED WITH THE CERTIFICATES.
The Certificates are complex securities and it is important that each
investor in the Certificates possess, either alone or together with an
investment advisor, the expertise necessary to evaluate the information
contained and incorporated in this Prospectus Supplement in the context of that
investor's financial situation.
In addition to the matters described elsewhere in this Prospectus
Supplement and Prospectus, particularly "Risk Factors" in the Prospectus,
prospective investors should consider the following:
UNCERTAINTY OF YIELD
The Certificates have no stated interest rate. Instead, each Class of
Certificateholders will receive on each Distribution Date an amount generally
equal to interest paid on the related group of Pooled Certificates for such
month less the Trustee's Fee, subject to the reallocation of certain amounts
received as principal to pay interest on the Certificates. See "Description of
the Certificates--Payments of Interest and Principal" herein. The amount of
interest payable on the Pooled Certificates will vary based upon a number of
factors, including the rate of prepayments thereon and level of LIBOR. See
"Yield and Prepayment Considerations" herein.
The yield to maturity on each Class of Certificates will depend on
the purchase price of the Certificates, the amount of interest distributed on
the Certificates, and the rate and timing of principal payments on the related
group of Pooled Certificates, which in turn will be affected by the rate and
timing of principal payments on the Underlying Agency Certificates, which in
turn will be affected by the rate and timing of principal payments (including
prepayments, repurchases, defaults, and liquidations) on the Fannie Mae
Mortgages, the Freddie Mac Mortgages and the Ginnie Mae Mortgages
(collectively, the "Mortgage Loans" and with respect to any Underlying Agency
Certificates, the "Underlying Mortgage Loans" or a "Mortgage Pool").
Generally, the Mortgage Loans may be prepaid at any time without penalty. The
yield to maturity on the Certificates also will be sensitive to the level of
LIBOR. Mortgage Loan prepayment rates are likely to fluctuate significantly
from time to time, as is the level of LIBOR. Investors should consider the
associated risks, including:
o High levels of LIBOR can significantly reduce the interest due on any
of the Underlying Agency Certificates that are inverse floating rate
certificates. Similarly, high levels of LIBOR can significantly
reduce the interest due on the Pooled Inverse Floating Rate
Certificates. Generally, a high level of LIBOR will have a negative
effect on the yield to investors in the Certificates.
o High levels of LIBOR can also significantly reduce payments to the
Pooled PEC/IO Certificate. Relatively high levels of LIBOR will
reduce the supplemental amount of interest available for payments on
the Pooled PEC/IO Certificate in excess of the amount calculated at
the base fixed rate. As mortgage prepayment rates decrease, the
supplemental amount will also decrease. Therefore, high levels of
LIBOR (especially coupled with low prepayment rates) may significantly
reduce the supplemental interest payments to the Pooled PEC/IO
Certificate.
o If the notional principal balances of the Pooled IO Certificates are
reduced to zero (or, in the case of the Pooled Inverse Floating Rate
Certificates, if increased LIBOR levels reduce the interest rate
payable on such certificates to zero), interest payments on the
Certificates will be significantly reduced.
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o Slight variations in Mortgage Loan characteristics could substantially
affect the weighted average life and yield of the Underlying Agency
Certificates, particularly those certificates that are support
classes, which in turn could substantially affect the weighted average
life and yield of the Pooled Certificates, particularly those Pooled
Certificates that are support classes.
o Although the Pooled Non-Agency Certificate represents beneficial
ownership interest in certain Fannie Mae and Freddie Mac certificates,
the Pooled Non-Agency Certificate is not itself guaranteed by Fannie
Mae, Freddie Mac, or any other person.
o The Underlying Agency Certificates were issued as parts of different
Underlying Series and the rates of prepayments on the Underlying
Mortgage Loans will be different. Under various circumstances,
including differing prepayment rates of the Underlying Mortgage Loans,
the Underlying Agency Certificates could mature at times other than
those expected by investors, which in turn could cause the Pooled
Certificates to mature at times other than those expected by
investors, which could then cause either Class of Certificates to take
on a cash flow profile different from that expected by investors. For
example, with respect to the Pooled Certificates, if the Pooled
Accrual Certificates, the Pooled PEC/IO Certificate, and the Pooled
WAC Certificate were to mature prior to the Pooled Inverse Floating
Rate Certificates, the Certificates would, at that point, have the
payment and yield characteristics of an inverse floating rate
security. Similarly, if only one or two of the classes of Pooled
Certificates mature prior to the others, the Certificates would
thereafter have the combined payment and yield characteristics of the
remaining classes.
o The yield to investors on the Certificates can be expected to decrease
to the extent that the notional principal balance of the Pooled IO
Certificates reduces faster than anticipated.
o If, on any Distribution Date, the amount by which a Pooled Accrual
Certificate has accreted exceeds the aggregate distributions of
principal on the other Pooled Certificates in such Pooled Accrual
Certificate's Class, the principal balance of that Class of
Certificates will be increased by the amount of such excess.
o The yield to maturity of Certificates purchased at a discount or
premium will be more sensitive to the rate and timing of payments
thereon. Holders of Certificates purchased at a discount (or premium)
should consider the risk that a slower (or faster) than anticipated
rate of principal payments to the Certificates could result in an
actual yield that is lower than the anticipated yield.
o As of the June 1998 Pooled Non-Agency Certificate Payment Date, the
interest accrued and unpaid on the principal balance (an "Interest
Deficiency") in respect of the Fannie Mae 1993-246/F Certificate
(which is one of the Underlying Agency Certificates underlying the
Pooled Non-Agency Certificate) allocable to the Pooled Non-Agency
Certificate was approximately $810,814.17. There can be no assurance
as to whether holders of the Fannie Mae 1993-246/F Certificate, and in
turn, the Pooled Non-Agency Certificate will in the future receive
full distributions of interest at the rate calculated according to
their interest rate formula on a timely basis or whether payment of
any of the Interest Deficiency will be received.
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the
Certificates do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the Prospectus and the provisions
of the Pooling Agreement relating to the Certificates offered hereby.
BOOK ENTRY
Each Class of Certificates will be represented by a single certificate
registered in the name of Cede & Co. ("Cede") as the nominee of DTC, and
beneficial interests therein will be held by investors through the book-entry
facilities of DTC, in minimum denominations of $25,000 and increments of $1 in
excess thereof. The certificates registered in the name of Cede can be held in
physical certificate form by investors only if (i) the Company advises
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the Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Certificates
and the Company is unable to locate a qualified successor within 30 days or
(ii) the Company, at its option, elects to terminate the book-entry system
through DTC.
With respect to the certificates registered in the name of Cede, all
references herein to actions by holders of either Class of Certificates shall
refer to actions taken by DTC upon instructions from its participants, and all
references herein to distributions, notices, reports, and statements to holders
of either Class of Certificates shall refer to distributions, notices, reports,
and statements to DTC or Cede, as the case may be, for distribution to the
beneficial owners of the Certificates in accordance with DTC procedures.
Because DTC can only act on behalf of participants, who in turn act on behalf
of indirect participants and certain banks, the ability of a beneficial owner
of either Class of Certificate to pledge such Certificate to persons or
entities who do not participate in the DTC system may be limited. In addition,
beneficial owners of either Class of Certificates held through DTC may
experience delays in the receipt of distributions on such Certificates. The
book entry procedures of DTC are more fully described under "Description of the
Certificates--Book-Entry Registration" in the Prospectus.
If either Class of Certificates are issued in physical certificate
form, they will be transferable and exchangeable on a "Certificate Register" to
be maintained by the Trustee at the office or agency of the Trustee maintained
for that purpose in St. Paul, Minnesota. Certificates surrendered to the
Trustee for registration of transfer or exchange must be accompanied by a
written instrument of transfer in form satisfactory to the Trustee. No service
charge will be made for any registration of transfer or exchange of such
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required. Such office or agency of the Trustee is
currently located at 180 East 5th Street, St. Paul, Minnesota 55101.
PAYMENTS OF INTEREST AND PRINCIPAL
Distributions of principal and interest on the Certificates with
respect to a month will be made on the 25th day of such month (each, a
"Distribution Date") or, if such 25th day is not a business day, then on the
first Business Day after the 25th day of each month. The first Distribution
Date is expected to be July 27, 1998.
Distributions will be made on each Distribution Date to holders of
record as of the close of business on the last Business Day of the calendar
month preceding the month in which such Distribution Date occurs; provided that
for this purpose the Distribution Date is deemed to occur on the 25th of each
month, without regard to whether such day is a Business Day (the "Record
Date").
The effective per annum interest rate borne by either Class of
Certificates during the calendar month preceding the month in which the
Distribution Date occurs (each, an "Interest Accrual Period") will equal a
fraction, expressed as a percentage truncated at the fourth decimal place, the
numerator of which is equal to the aggregate amount in respect of interest paid
on such Class of Certificates for the related Interest Accrual Period,
multiplied by 12, and the denominator of which is the principal amount of the
such Class of Certificates immediately prior to such Distribution Date. Under
certain circumstances, the principal amount of either Class of Certificates
could be paid in full while interest would remain payable, in which case, the
calculation of the effective per annum interest rate borne by such Class of
Certificates would not be meaningful. The effective per annum interest rate
borne by the Class 1A Certificates and the Class 2A Certificates during the
first Interest Accrual Period is projected to be approximately 11.1466% and
10.8958%, respectively.
On each Distribution Date, holders of the Certificates will be
entitled to receive interest from funds received as interest (and on some
Distribution Dates, from funds received as principal, up to the amount of
accrual on the Pooled Accrual Certificates for such Distribution Date) on the
Pooled Certificates. On each Distribution Date, holders of the Certificates
will be entitled to receive principal from funds received as principal on the
Pooled Certificates. Notwithstanding any such reallocation, however, the
Certificateholders will be required to include in income their allocable shares
of interest and original issue discount attributable to the Pooled
Certificates.
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If, on any Distribution Date, the amount by which a Pooled Accrual
Certificate has accreted exceeds the aggregate distributions of principal on
the other Pooled Certificates in such Pooled Accrual Certificate's Class, the
principal balance of that Class of Certificates will be increased by the amount
of such excess.
The Trustee as holder of the Pooled Certificates, will cause all
distributions received by it on the Pooled Certificates, from whatever source,
to be deposited directly into one or more accounts held in trust by the Trustee
for the benefit of the Certificateholders (such accounts referred to
collectively herein as the "Asset Proceeds Account").
On each Distribution Date, the Trustee will apply the aggregate amount
on deposit in the Asset Proceeds Account as of such Distribution Date to pay
the Trustee Fee, the Class 1A Available Distribution, and the Class 2A
Available Distribution. From amounts with respect to interest received on the
Pooled Certificates, the Trustee shall first pay to the Trustee the Trustee
Fee. The Trustee then shall pay from amounts remaining in the Asset Proceeds
Account the Class 1A Available Distribution to the Class 1A Certificateholders
and the Class 2A Available Distribution to the Class 2A Certificateholders in
the following manner and order of priority:
The Class 1A Available Distribution shall be applied as follows:
first, as principal, from the Class 1A Available Distribution,
an amount, if any, such that the principal balance of the Class 1A
Certificates after such distribution is equal to the aggregate
principal balance of the Class 1A Pooled Certificates.
second, from the remaining Class 1A Available Distribution, as
interest; and
The Class 2A Available Distribution shall be applied as follows:
first, as principal, from the Class 2A Available Distribution,
an amount, if any, such that the principal balance of the Class 2A
Certificates after such distribution is equal to the aggregate
principal balance of the Class 2A Pooled Certificates.
second, from the remaining Class 2A Available Distribution, as
interest; and
"Available Distribution" means, either the "Class 1A Available
Distribution" or the "Class 2A Available Distribution," as appropriate.
"Class 1A Available Distribution" means, as of any Distribution Date,
all distributions received by the Trustee on the Group 1A Pooled Certificates
and deposited by the Trustee in the Asset Proceeds Account as of such
Distribution Date, minus the pro rata portion of the Trustee Fee paid to the
Trustee, each as of such Distribution Date.
"Class 2A Available Distribution" means, as of any Distribution Date,
all distributions received by the Trustee on the Group 2A Pooled Certificates
and deposited by the Trustee in the Asset Proceeds Account as of such
Distribution Date, minus the pro rata portion of the Trustee Fee paid to the
Trustee, each as of such Distribution Date.
"Group 1A Pool" means, the Group 1A Pooled Certificates.
"Group 2A Pool" means, the Group 2A Pooled Certificates.
"Group 1A Pooled Certificates" means (1) a portion of the Pooled
Fannie Mae 97-78 Certificate, (2) a portion of the Pooled Fannie Mae 98-23
Certificate, (3) the Pooled Fannie Mae 98-42 Certificate, (4) a portion of the
Freddie Mac G063 Certificate, (5) a portion of the Pooled Freddie Mac 2008
Certificate, and (6) a portion of the Pooled Non-Agency Certificate.
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"Group 2A Pooled Certificates" means (1) a portion of the Pooled
Fannie Mae 97-78 Certificate, (2) a portion of the Pooled Fannie Mae 98-23
Certificate, (3) the Pooled Ginnie Mae Certificate, (4) a portion of the Pooled
Freddie Mac G063 Certificate, (5) a portion of the Pooled Freddie Mac 2008
Certificate, and (6) a portion of the Pooled Non-Agency Certificate.
The Group 1A Pooled Certificates and the Group 2A Pooled Certificates
will each constitute a separate sub- trust.
"Trustee Fee" means, with respect to any Distribution Date, the
monthly fee equal to 1/12th of the product of 0.02% and the principal balance
of the Certificates immediately prior to the Distribution Date, but not less
than $100 with respect to any Distribution Date. In any event, the Company
shall not be responsible for any portion of the Trustee Fee.
The full name of each abbreviated underlying series is set forth
herein under "Description of the Pooled Certificates--General." Copies of the
Underlying Agreements are available from the Underwriter, at 245 Park Avenue
New York, New York, Attention: MORTGAGE DEPARTMENT.
The Underwriter will convey the Pooled Certificates to the Company on
the Closing Date pursuant to a Purchase Agreement dated as of the Closing Date.
The Underwriter will be obligated to make certain representations and
warranties (see "The Pooling Agreement--Assignment of Pooled Certificates"
herein) with respect to the Pooled Certificates, and those representations and
warranties will be assigned to the Trust for the benefit of the
Certificateholders. If the Underwriter breaches a representation or warranty
with respect to the Pooled Certificates that materially and adversely affects
the interests of the Certificateholders and the Underwriter repurchases, or
elects to substitute one or more securities for, a Pooled Certificate, the
foregoing definition will be modified with respect to the related Distribution
Date to delete the portion thereof relating to the Pooled Certificate being
repurchased or substituted for and to reflect, in the case of a repurchase, the
repurchase price received with respect thereto as described herein under "The
Pooling Agreement--Assignment of Pooled Certificates" or in the case of a
substitution, the addition of a comparable provision with respect to the new
mortgage related security or securities.
The sole source of payment on the Certificates will be distributions
on the related Pooled Certificates. The Certificates will not be guaranteed by
the Company, the Underwriter, the Trustee, or any other person.
OPTIONAL TERMINATION
The Trust may be terminated at the option of the Company, or its
designee, on any Distribution Date on or after the date on which the aggregate
Pooled Certificate Principal Balance has declined to 10% or less of the initial
aggregate Pooled Certificate Principal Balance, as such sum is reduced by the
original face amount of any Certificates exchanged for a pro rata portion of
the Pooled Certificates. In addition, the sub-trust consisting of either the
Group 1A Pool or the Group 2A Pool may be terminated, at the option of the
Company or its designee, on any Distribution Date on or after the date on which
(i) in the case of the Group 1A Pool, the aggregate Pooled Certificate
Principal Balance of the Group 1A Pooled Certificates has declined to 10% or
less of the initial aggregate Group 1A Pooled Certificate Principal Balance and
(ii) in the case of the Group 2A Pool, the aggregate Pooled Certificate
Principal Balance of the Group 2A Pooled Certificates has declined to 10% or
less of the initial aggregate Group 2A Pooled Certificate Principal Balance, in
both cases as reduced by the original face amount of any Class 1A or Class 2A
Certificates exchanged for a pro rata portion of the Group 1A Pooled
Certificates or the Group 2A Pooled Certificates, respectively. In the event
of any such termination, the applicable Certificateholders will receive the
unpaid principal balance of their Certificates plus accrued interest thereon.
In the case of the Pooled Non-Agency Certificate, the Certificateholders will
receive any Interest Deficiency (as defined herein) on the underlying Fannie
Mae 1993-246/F Certificate and interest thereon. In connection with any such
termination, the aggregate amount then on deposit in the Asset Proceeds Account
will be disbursed to the Trustee, the applicable Certificateholders, and other
persons entitled thereto, in accordance with the terms of the Agreement.
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MANDATORY TERMINATION
On the Distribution Date following the first Distribution Date on
which the Group 1A or Group 2A Pooled Certificate Principal Balance or Pooled
Certificate Notional Principal Balance of all but one of the Group 1A or Group
2A Pooled Certificates has been reduced to zero, the Trust will be terminated
with respect to such group of Pooled Certificates and the remaining Pooled
Certificates will be distributed in kind pro rata to the Certificateholders of
the related Class.
EXCHANGE OF CERTIFICATES
Beginning on the Distribution Date in June 1999 and on any
Distribution Date thereafter, holders of a minimum of 10% of the initial
principal amount of either Class of Certificates, without taking into account
any reductions in the initial principal amount due to a prior exchange of
Certificates, will be entitled to exchange such Class of Certificates for a pro
rata portion of each of the related Pooled Certificates. Holders of either
Class of Certificates to be exchanged will be charged an exchange fee by the
Trustee equal to the greater of (i) $500 and (ii) 0.02% of the outstanding
principal amount of such Class of Certificates. Holders will be required to
provide the Trustee with irrevocable written notice, accompanied by the
exchange fee, of any proposed exchange of such Class of Certificates at least
five Business Days prior to the proposed date of such exchange, which must be a
Business Day.
DESCRIPTION OF THE POOLED CERTIFICATES
GENERAL
The Certificates will represent, in the aggregate, the entire
beneficial ownership interest in a Trust consisting primarily of seven groups
of Pooled Certificates. The following is a list of the Pooled Certificates
with the designations used herein for such group of Pooled Certificates and
other related information. Definitions of abbreviations used for principal
types and interest types appear under "--Pooled Certificates--Principal Types"
and "-- Pooled Certificates--Interest Types" herein.
POOLED FANNIE MAE CERTIFICATES
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Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1998-23
Designation: SG
% of Class in each group of
Pooled Certificates: Group 1A - 50.00%
Group 2A - 50.00%
Principal Type: NOTIONAL
Current Notional Principal
Balance of Pooled
Certificates in each group
of Pooled Certificates: Group 1A - $3,045,481
Group 2A - $3,045,481
Interest Type: INVERSE/IO
Interest Rate or Formula: 20.41667% - (2.33334 x LIBOR)
Minimum Rate: 0.00%; Maximum Rate: 20.41667%
Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1997-78
</TABLE>
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Designation: SK
% of Class in each group of
Pooled Certificates: Group 1A - 50.00%
Group 2A - 50.00%
Principal Type: PT
Current Principal
Balance of Pooled
Certificates in each group of
Pooled Certificates: Group 1A - $911,534
Group 2A - $911,534
Interest Type: INVERSE
Interest Rate or Formula: 98.98571% - (12.0714285 x LIBOR);
Minimum Rate: 0.00%; Maximum Rate: 8.45%
Guaranteed REMIC Pass-Through Certificates
Fannie Mae REMIC Trust 1998-42
Designation: Z
% of Class in each group of
Pooled Certificates: Group 1A - 100.00%
Principal Type: SUPPORT
Current Principal
Balance of Pooled
Certificates in each group of
Pooled Certificates: Group 1A - $5,000,000
Interest Type: FIX/ACCRUAL
Interest Rate or Formula: 6.50%
</TABLE>
POOLED FREDDIE MAC CERTIFICATES
<TABLE>
<S> <C>
Multiclass Mortgage Securities, Series G063
Designation: A
% of Class in each group of
Pooled Certificates: Group 1A - 6.50%
Group 2A - 6.50%
Principal Type: NOTIONAL
Current Notional Principal
Balance of Pooled
Certificates in each group of
Pooled Certificates: Group 1A - $5,192,460
Group 2A - $5,192,460
Interest Type: PEC/IO
Interest Rate or Formula: 8.00% + Interest Payment Supplement Amount
Multiclass Mortgage Participation Certificates, Series 2008
Designation: SE
% of Class in each group of
Pooled Certificates: Group 1A -50.00%
Group 2A - 50.00%
Principal Type: SUPPORT
Current Principal
</TABLE>
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<PAGE> 26
<TABLE>
<S> <C>
Balance of Pooled
Certificates in each group of
Pooled Certificates: Group 1A - $1,894,420,50
Group 2A - $1,894,420.50
Interest Type: INVERSE
Interest Rate or Formula: 35.23333% - (4.666667 x LIBOR);
Minimum Rate: 0.00%; Maximum Rate: 35.23333%
</TABLE>
POOLED GINNIE MAE CERTIFICATES
<TABLE>
<S> <C>
Guaranteed REMIC Pass-Through Securities
Ginnie Mae REMIC Trust 1998-14
Designation: Z
% of Class in each group of
Pooled Certificates:
Group 2A - 100.00%
Principal Type: SUPPORT
Current Principal
Balance of Pooled
Certificates in each group of
Pooled Certificates: Group 2A - $6,400,000
Interest Type: FIX/ACCRUAL
Interest Rate or Formula: 6.50%
POOLED NON-AGENCY CERTIFICATE
Bear Stearns Mortgage Securities, Inc.
Pass-Through Certificates, Series 1997-3
Designation: A
% of Class in each group of
Pooled Certificates: Group 1A - 36.2819147367%
Group 2A - 36.2819147367%
Principal Type: PT
Current Principal
Balance of Pooled
Certificates in each group of
Pooled Certificates: Group 1A - $16,845,598.58
Group 2A - $16,845,598.58
Interest Type: WAC
Interest Rate or Formula: (Aggregate interest paid on underlying assets x 12)/
Principal Balance of WAC Certificate
</TABLE>
The Pooled Fannie Mae Certificates are guaranteed as to timely
distribution of principal and interest by Fannie Mae. Freddie Mac guarantees
to each holder of the Pooled Freddie Mac Certificates the timely payment of
interest at the rates described above and the payment of the principal amount
of the Pooled Freddie Mac Certificates as described in the Underlying Freddie
Mac Offering Circular. The Pooled Ginnie Mae Certificate is guaranteed as to
timely payment of principal and accrual of interest by Ginnie Mae, which
guarantee is backed by the full faith and credit of the United States.
Payments with respect to the Pooled Non-Agency Certificate are not guaranteed
by Fannie Mae, Freddie Mac, Ginnie Mae or any other person. The Pooled
Non-Agency Certificate represents an undivided ownership interest in underlying
certificates that include certain Fannie Mae and Freddie Mac certificates.
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<PAGE> 27
The sponsor of the issuer of the Pooled Non-Agency Certificate is an
affiliate of the Underwriter; however, the Underwriter acquired the Pooled
Non-Agency Certificate in the secondary trading market from parties
unaffiliated with it.
The Pooled Fannie Mae Certificates (individually, the "Pooled Fannie
Mae 98-23 Certificate," the "Pooled Fannie Mae 97-78 Certificate," and the
"Pooled Fannie Mae 98-42 Certificate") are each one class of three separate
series of Guaranteed Fannie Mae REMIC Certificates (each, an "Underlying Fannie
Mae Series") that represent beneficial ownership interests in separate trusts
established by Fannie Mae (each, an "Underlying Fannie Mae Trust" and
individually, the "Underlying Fannie Mae 98-23 Trust," the "Underlying Fannie
Mae 97-78 Trust," and the "Underlying Fannie Mae 98-42 Trust"). The Pooled
Fannie Mae 98-23 Certificate represents a beneficial ownership interest in the
Underlying Fannie Mae 98-23 Trust. The assets of the Underlying Fannie Mae
98-23 Trust consist of certain previously issued REMIC certificates ("Fannie
Mae REMIC Certificates") evidencing beneficial ownership interests in related
Fannie Mae REMIC Trusts ("Fannie Mae REMIC Trusts"). Underlying the assets in
the Fannie Mae REMIC Trusts are interests in certain Fannie Mae Guaranteed
Mortgage Pass-Through Certificates ("Fannie Mae MBS"), each of which represents
a beneficial ownership interest in a pool of first lien, single-family,
fixed-rate residential mortgage loans ("Fannie Mae Mortgages").
The Pooled Fannie Mae 97-78 Certificate represents a beneficial
ownership interest in the Underlying Fannie Mae 97-78 Trust. The assets of the
Underlying Fannie Mae 97-78 Trust include (i) certain Fannie Mae REMIC
Certificates that evidence beneficial ownership interests in related Fannie Mae
REMIC Trusts and (ii) certain Fannie Mae Stripped Mortgage-Backed Securities
("Fannie Mae SMBS"). Underlying the Fannie Mae REMIC Certificates are certain
Fannie Mae MBS and certain "fully modified pass-through" mortgage-backed
securities guaranteed as to timely payment of principal and interest by Ginnie
Mae ("Ginnie Mae Certificates"). Underlying the Fannie Mae SMBS are beneficial
ownership interests in certain principal and interest distributions made in
respect of certain Fannie Mae MBS. Each Fannie Mae MBS represents a beneficial
ownership interest in a pool of Fannie Mae Mortgages. Each Ginnie Mae
Certificate is based on and backed by a pool of mortgage loans that are either
insured by the Federal Housing Administration ("FHA") or partially guaranteed
by the Department of Veterans Affairs ("VA") ("Ginnie Mae Mortgages").
The Pooled Fannie Mae 98-23 Certificate and the Pooled Fannie Mae
97-78 Certificate are each classes of Combinable and Recombinable REMIC
Certificates (together, "RCR Certificates"), which may be exchanged for a
proportionate interest in certain classes of Fannie Mae REMIC Certificates that
represent beneficial ownership interests in the respective Underlying Fannie
Mae Trusts. The characteristics of the RCR Certificates will reflect the
characteristics of the Fannie Mae REMIC Certificates used to form such RCR
Certificates. In the Agreement, the Trustee has agreed not to exchange any
portion of the RCR Certificates for a related class or classes of Fannie REMIC
Certificates pursuant to the relevant Underlying Agreement.
The Pooled Fannie Mae 98-42 Certificate represents a beneficial
ownership interest in the Underlying Fannie Mae 98-42 Trust. The assets of the
Underlying Fannie Mae 98-42 Trust include (i) "regular interests" in a separate
trust fund the assets of which consist of (x) certain Fannie Mae Guaranteed
Mortgage Pass-Through Certificates and (y) certain previously issued REMIC
certificates evidencing beneficial ownership in the related Fannie Mae REMIC
Trusts and (ii) certain non-interest bearing cash deposits. Underlying the
assets in the Fannie Mae REMIC Trusts are interests in certain Fannie Mae
Guaranteed Mortgage Pass-Through Certificates, each of which represents a
beneficial ownership interest in a pool of Fannie Mae Mortgages.
The Pooled Freddie Mac Certificates (individually, the "Pooled Freddie
Mac G063 Certificate" and the "Pooled Freddie Mac 2008 Certificate") are each
all or a portion of one class of two separate series of Payment Exchange
Certificates or Multiclass Mortgage Participation Certificates, respectively
(each, an "Underlying Freddie Mac Series"). The Pooled Freddie Mac G063
Certificate represents a beneficial ownership interest in a trust established
by Freddie Mac (the "Underlying Freddie Mac G063 Trust"). The assets of the
Underlying Freddie Mac G063 Trust consist of Freddie Mac Giant Stripped
Securities, Series GS007 ("Freddie Mac Giant Stripped Securities"), which in
turn consist of Giant IO Securities and Giant PO Securities, backed by Ginnie
Mae Certificates and/or Giant Certificates backed by Ginnie Mae Certificates
("Ginnie Mae-Related Securities"). Underlying the Ginnie Mae-Related
Securities are pools of Ginnie Mae Mortgages.
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<PAGE> 28
The Pooled Freddie Mac 2008 Certificate represents a beneficial ownership
interest in a trust established by Freddie Mac (the "Underlying Freddie Mac
2008 Trust"). The assets of the Underlying Freddie Mac 2008 Trust consist of
Freddie Mac Multiclass PCs which are in turn backed by pools of first-lien,
fixed-rate residential mortgage loans and mortgage participations ("Freddie Mac
Mortgages").
The Pooled Ginnie Mae Certificate is one class of a series of
Guaranteed REMIC Pass-Through Securities (the "Underlying Ginnie Mae Series"),
which represents a beneficial ownership interest in a trust established by
Ginnie Mae (the "Underlying Ginnie Mae Trust"). The assets of the Underlying
Ginnie Mae Trust include Ginnie Mae Certificates guaranteed pursuant to Ginnie
Mae programs for first lien, single-family, fixed rate, residential mortgage
loans.
The Pooled Non-Agency Certificate is a portion of a single class of
Pass-Through Certificates, Series 1997-3, which represents a beneficial
ownership interest in a trust established by Bear Stearns Mortgage Securities,
Inc. (the "Underlying Non-Agency Trust"). The assets of the Underlying
Non-Agency Trust consist of all or a portion of (i) three classes of certain
Fannie Mae REMIC Certificates, (ii) one class of Fannie Mae SMBS, and (iii)
seven classes of Multiclass Mortgage Securities, Multiclass Mortgage
Participation Certificates or Modifiable and Combinable REMIC Certificates
issued by Freddie Mac as part of six separate series of such securities or
certificates (collectively, the "Underlying 1997-3 Agency Certificates," and
together with the Fannie Mae REMIC Certificates, Fannie Mae MBS, Fannie Mae
SMBS, Ginnie Mae-Related Securities, and Freddie Mac Giant Stripped Securities
underlying the other Underlying Trusts, the "Underlying Agency Certificates").
The distribution dates for the Pooled Fannie Mae Certificates are the
18th or the 25th day of each month. The distribution dates for the Pooled
Freddie Mac Certificates are the 15th or the 17th day of each month. The
distribution date for the Pooled Ginnie Mae Certificate is the 20th day of each
month, and the distribution date for the Pooled Non- Agency Certificate is the
25th day of each month, or if, in each case, such day is not a business day as
defined in the applicable Underlying Agreement, then the next succeeding
business day, as so defined.
Additional characteristics of the Pooled Certificates are described
below and in Annex 1 and Annex 2.
POOLED CERTIFICATES - PRINCIPAL TYPES
The Pooled Certificates were structured as pass-through classes ("PT
Classes"), notional or support classes.
A PT Class is designed to receive principal payments based on payments
of principal received on the underlying assets. Payments of principal received
on the underlying assets will be passed-through as principal on the PT Class.
With respect to the RCR Certificates, the principal payments on such
certificates will be based on the principal payments received on the Fannie Mae
REMIC Certificates that are combined to form them.
The Pooled IO Certificates are "interest only" certificates and do not
have an actual principal balance, and as such, are not entitled to receive
distributions of principal. Such classes have a notional principal balance,
which is the amount used as a reference to calculate the amount of interest due
on a Pooled IO Certificate ("Notional Classes"). The notional principal
balances of Pooled IO Certificates reduce proportionately with their Related
Certificates.
A support class ("Support Class") is designed to receive principal
payments after scheduled payments have been made on other specified classes.
POOLED CERTIFICATES - INTEREST TYPES
Three classes of the Pooled Certificates are entitled to receive
distributions of interest on the principal balance or notional balance thereof
based on a formula that varies inversely with LIBOR, subject to minimum and
maximum rates ("Inverse Classes").
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<PAGE> 29
The Pooled Non-Agency Certificate is entitled to receive distributions
of interest on the principal balance thereof equal to the interest received on
the underlying assets (the "WAC Class"). The annual interest rate on the WAC
Class is determined by multiplying the interest received on the underlying
assets by 12 and then dividing such amount by the principal balance of the
Pooled Non-Agency Certificate.
Two of the classes of Pooled Certificates are Pooled Accrual
Certificates and as such, accrete all of their interest at a fixed rate, which
is added to their outstanding principal balance ("Accrual Classes"). This
accretion may continue until the class begins receiving principal payments,
until some other event has occurred, or until the class is retired. In the
case of both of the Pooled Accrual Certificates, the accretion continues so
long as such respective class remains outstanding and the accreted interest is
paid as principal.
One class of the Pooled Certificates is a Pooled PEC/IO Certificate
and is entitled to receive interest as described below.
Distributions on the Pooled PEC/IO Certificate. The Pooled PEC/IO
Certificate is a Notional Class. The notional principal balance of the Pooled
PEC/IO Certificate reduces proportionately with the Freddie Mac Giant Stripped
Securities. A PEC certificate represents the entire beneficial ownership
interest in related classes of multiclass securities issued under the same
transaction, together with rights and obligations under an associated interest
payment exchange. The Pooled PEC/IO Certificate receives distributions, at a
fixed interest rate of 8.00%, plus is entitled to receive the interest payment
supplement amount. The interest payment supplement amount is a variable amount
of interest that varies inversely with the level of LIBOR and directly with the
rate of prepayments.
THE UNDERLYING MORTGAGE LOANS
The Mortgage Loans consist of conventional, fixed rate, one- to
four-family, fully-amortizing, level monthly payment, first mortgage loans with
original maturities of up to approximately 30 years. Payments on the Mortgage
Loans underlying the Pooled Certificates will either be distributed in the same
month of payment or the month succeeding the month of payment.
ADDITIONAL INFORMATION
The descriptions of the Pooled Certificates and the Mortgage Loans do
not purport to be complete. Set forth below are lists of documents relevant to
each of the Pooled Certificates.
Documents relevant to the Pooled Fannie Mae 98-23 Certificate include
the following:
o Fannie Mae's Prospectus Supplement for Guaranteed REMIC
Pass-Through Certificates dated March 5, 1998 to Prospectus dated
November 12, 1997.
o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through
Certificates dated November 12, 1997.
Documents relevant to the Pooled Fannie Mae 97-78 Certificate include
the following:
o Fannie Mae's Prospectus Supplement for Guaranteed REMIC
Pass-Through Certificates dated October 8, 1997 to Prospectus
dated June 14, 1996.
o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through
Certificates dated June 14, 1996.
o Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated August 1, 1997.
o Fannie Mae's Prospectus for Stripped Mortgage-Backed Securities
dated July 1, 1996.
o Fannie Mae's Prospectus for Guaranteed MBS Pass-Through Securities
dated October 1, 1996.
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<PAGE> 30
o Fannie Mae's Information Statement dated March 31, 1997 and any
supplements thereto.
Documents relevant to the Pooled Fannie Mae 98-42 Certificate include
the following:
o Fannie Mae's Prospectus Supplement for Guaranteed REMIC
Pass-Through Certificates dated May 29, 1998 to Prospectus dated
November 12, 1997.
o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through
Certificates dated November 12, 1997.
o Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated August 1, 1997.
o Fannie Mae's Information Statement dated March 31, 1998 and any
supplements thereto.
Documents relevant to the Pooled Freddie Mac G063 Certificate (the
Pooled PEC/IO Certificate) include the following:
o Freddie Mac's Offering Circular Supplement for Multiclass Mortgage
Securities, Payment Exchange Certificates and Modifiable and
Combinable REMIC Certificates, Series G063, dated January 1, 1997.
o Freddie Mac's Offering Circular for Multiclass Series, dated
January 1, 1997.
o Freddie Mac's Offering Circular for Giant GNMA-Backed Securities
and Other Pass-Through Securities dated January 1, 1997, which
describes Giant Securities generally, and its Stripped Giant
Securities, Series GS007 Offering Circular Supplement dated June
2, 1997.
o Freddie Mac's Information Statement dated March 31, 1997, its
Information Statement Supplement dated May 15, 1997 and any other
Information Statement Supplements published by Freddie Mac through
the time of purchase.
Documents relevant to the Pooled Freddie Mac 2008 Certificate include
the following:
o Freddie Mac's Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Multiclass Mortgage Securities and
Modifiable and Combinable REMIC Certificates, Series 2008, dated
October 15, 1997 to Offering Circular dated January 1, 1997.
o Freddie Mac's Offering Circular for Multiclass Mortgage
Participation Certificates dated January 1, 1997.
o Freddie Mac's Offering Circular Supplement for its Series 1619,
1644 and 1686 Multiclass PC's.
o Freddie Mac's Information Statement dated March 31, 1997, its
Information Statement Supplements dated May 15, 1997, August 14,
1997 and November 14, 1997 and any other Information Statement
Supplements published by Freddie Mac through the time of purchase.
Documents relevant to the Pooled Ginnie Mae Certificate include the
following:
o Ginnie Mae's Offering Circular Supplement for Guaranteed REMIC
Pass-Through Securities and MX Securities, Series 1998-14 dated
June 24, 1998 to Base Offering Circular dated November 1, 1997.
o Ginnie Mae's Base Offering Circular dated November 1, 1997.
S-25
<PAGE> 31
Documents relevant to the Pooled Non-Agency Certificate include the
following:
o Bear Stearns Mortgage Securities, Inc.'s Prospectus Supplement for
Pass-Through Certificates, Series 1997- 3, Class A-1, March 25,
1997.
o Bear Stearns Mortgage Securities, Inc.'s Prospectus for Mortgage
Pass-Through Certificates dated October 10, 1996.
o Fannie Mae's Prospectus Supplement for Guaranteed REMIC
Pass-Through Certificates, Trust 1992-45, dated February 7, 1992.
o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through
Certificates dated January 4, 1990.
o Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated January 1, 1992.
o Fannie Mae's Information Statement dated November 21, 1991.
o Fannie Mae's Preliminary Data Statement for Stripped
Mortgage-Backed Securities, Trust 000252-CL, dated October 28,
1993.
o Fannie Mae's Prospectus for Stripped Mortgage-Backed Securities
dated December 1, 1992.
o Fannie Mae's Prospectus Supplement for Guaranteed REMIC
Pass-Through Certificates Trust 1993-346, dated November 12, 1993.
o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through
Certificates dated December 29, 1992.
o Fannie Mae's Prospectus for Stripped Mortgage-Backed Securities
dated December 1, 1992.
o Fannie Mae's Prospectus for Guaranteed MBS Pass-Through
Certificates dated December 1, 1992.
o Fannie Mae's Prospectus Supplements for Trust 1992-50, Trust
1992-150, Trust 1993-21 and Trust 1993-216 and the Information
Statement dated February 16, 1993 and any supplements thereto.
o Fannie Mae's Prospectus Supplement for Guaranteed REMIC
Pass-Through Certificates, Trust 1997-G2, dated January 16, 1997
to Prospectus dated June 14, 1996.
o Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through
Certificates dated June 14, 1996.
o Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated January 1, 1997.
o Fannie Mae's Information Statement dated February 22, 1996.
o Freddie Mac's Offering Circular Supplement for Multiclass Mortgage
Securities, Series G003, dated October 21, 1992.
o Freddie Mac's Multiclass Mortgage Securities Offering Circular
dated September 1, 1992.
o Freddie Mac's Giant GNMA-Backed Securities Offering Circular dated
September 1, 1992.
o Freddie Mac's Information Statement dated March 19, 1992, its
Information Statement Supplements dated April 28, 1992, July 30,
1992 and November 13, 1992 and any other Information Statement
Supplements published by Freddie Mac through the time of purchase.
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<PAGE> 32
o Freddie Mac's Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1505, dated March 19, 1993.
o Freddie Mac's Multiclass Mortgage Participation Certificates
Offering Circular dated January 1, 1993.
o Freddie Mac's Mortgage Participation Certificates Offering
Circular dated June 30, 1992 and its Mortgage Participation
Certificates Offering Circular Supplements dated August 3, 1992,
November 2, 1992, April 30, 1993 and August 17, 1993.
o Freddie Mac's Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991, and its Giant Mortgage
Participation Certificates Offering Circular Supplement dated
December 3, 1992.
o Freddie Mac's Information Statement dated April 9, 1993, its
Information Statement Supplements dated April 30, 1993 and August
2, 1993 and any other Information Statement Supplements published
by Freddie Mac through the time of purchase.
o Freddie Mac's Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1603, dated September 9, 1993.
o Freddie Mac's Multiclass Mortgage Participation Certificates
Offering Circular dated August 1, 1993.
o Freddie Mac's Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Series 1723, dated March 29, 1994.
o Freddie Mac's Multiclass Mortgage Participation Certificates
Offering Circular dated January 18, 1994.
o Freddie Mac's Mortgage Participation Certificates Offering
Circular dated February 15, 1994.
o Freddie Mac's Stripped Giant Mortgage Participation Certificates,
Series 165 Offering Circular Supplement dated March 29, 1994.
o Freddie Mac's Information Statement dated March 31, 1994 and any
Information Statement Supplements published by Freddie Mac through
the time of purchase.
o Freddie Mac's Offering Circular Supplement for Multiclass Mortgage
Participation Certificates, Callable Pass-Through Certificates and
Modifiable and Combinable REMIC Certificates, Series 1869, dated
July 12, 1996 to Offering Circular dated October 1, 1995.
o Freddie Mac's Offering Circular Supplement dated August 31, 1993
to Offering Circular dated August 1, 1993 and Freddie Mac's
Offering Circular Supplement dated February 17, 1994 to Offering
Circular Dated January 18, 1994.
o Freddie Mac's Mortgage Participation Certificates Offering
Circular dated September 1, 1995.
o Freddie Mac's Giant Participation Certificates and Other
Structured Pass-Through Participation Certificates Offering
Circulars dated September 1, 1995 and January 1, 1997.
o Freddie Mac's Information Statement dated March 29, 1996, its
Information Statement Supplements dated May 15, 1996, August 14,
1996, November 14, 1996 and January 30, 1997, and any other
Information Statement Supplements published subsequently by
Freddie Mac.
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<PAGE> 33
Fannie Mae documents may be obtained from Fannie Mae by writing or
calling its MBS Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S,
Washington, D.C. 20016; telephone 1-800-BEST-MBS or 202-752-6547.
Investors can order the Freddie Mac documents from Freddie Mac by
writing or calling its Investor Inquiry Department at 8200 Jones Branch Drive,
McLean, Virginia 22102; outside Washington, D.C. metropolitan area, telephone
800/336-3672; within Washington, D.C. metropolitan area, telephone
703/450-3777. Freddie Mac also publishes a supplemental statement applicable
to each series shortly after the applicable closing date. Investors can obtain
the supplemental statement, any offering materials for specific certificates,
and historic and current information concerning specific certificates from
Freddie Mac's Investor Inquiry Department. Freddie Mac's Internet Web-Site
(http://www.freddiemac.com) displays the offering circular supplements, the
supplemental statements, schedules of the certificates, and information,
updated monthly, regarding each class of the applicable Underlying Freddie Mac
Series.
Investors can order the Ginnie Mae documents from Ginnie Mae by
calling the Information Agent at 800/234-GNMA and can obtain supplemental
information in electronic form on gREX.
In addition, copies of the respective Prospectus Supplements,
Prospectuses, Offering Circular Supplements, Offering Circulars, and the other
documents set forth above relating to the Pooled Certificates, including the
Pooled Non-Agency Certificate, may be obtained from the Underwriter by writing
Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New York 10167, Attention:
Mortgage Department.
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL CONSIDERATIONS
The yield to maturity and weighted average life of the Certificates
will be affected by, among other things, the amount and timing of principal
payments, including prepayments (for this purpose the term "prepayments"
includes payments resulting from refinancing, liquidations, purchases by the
original transferors or others), and interest payments on the Mortgage Loans,
the level of LIBOR, the payment priorities and other characteristics of the
Pooled Certificates and the Underlying Agency Certificates, the purchase price
paid for the Certificates, and the occurrence of an optional or mandatory
termination with respect to the Underlying Agency Certificates, the Pooled
Certificates or the Certificates. No representation is made as to the
anticipated rate of prepayments on the Mortgage Loans or the anticipated yield
to maturity of the Certificates. Prospective investors are urged to consider
their own estimates as to the anticipated rate of future prepayments on the
Mortgage Loans and the suitability of the Certificates to their investment
objectives. If prevailing mortgage rates fall significantly below the mortgage
rates on the Mortgage Loans, the Mortgage Loans are likely to be subject to
higher prepayment rates than if prevailing rates remain at or above the
mortgage rates on the Mortgage Loans. Other factors affecting prepayments of
Mortgage Loans include changes in mortgagors' housing needs, job transfers,
unemployment, net equity in the mortgaged properties and servicing decisions.
The Mortgage Loans may be prepaid at any time without penalty and generally
have due-on-sale clauses. Because the payment of installments of principal of
and interest on the respective Mortgage Loans are guaranteed by one or more
governmental agencies, liquidations resulting from default, casualty or
condemnation in respect of the respective Mortgage Loans will have the effect
of a prepayment.
The timing and amount of payments, including prepayments, on the
Mortgage Loans may significantly affect an investor's yield. In general, the
earlier a prepayment of principal on the Mortgage Loans, the greater will be
the effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal prepayments occurring at a rate higher (or lower)
than the rate anticipated by the investor during the period immediately
following the issuance of the Certificates will not be offset by a subsequent
like reduction (or increase) in the rate of principal prepayments. In
addition, interest amounts on the Pooled PEC/IO Certificate contain a
supplemental amount that varies directly with the level of prepayments on the
related Mortgage Loans.
The Pooled Certificates were issued at different times, are backed
directly or indirectly by different Underlying Agency Certificates and
different Mortgage Pools, have different allocations of principal and interest
and
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<PAGE> 34
payment priorities among various classes, are subject to optional termination
to the extent described herein and in the Underlying Agreements and will
perform differently in various interest and prepayment rate environments. The
performance characteristics of each Class of Certificates will reflect a
combination of the performance characteristics of the related group of Pooled
Certificates, which will themselves reflect a combination of the related group
of Underlying Agency Certificates. Because some of the Pooled Certificates
have additional layers of underlying assets, the inclusion of those Pooled
Certificates in the Trust may make it more difficult to predict the likely
yield and payment experience of the Certificates.
Since interest generally will be due on each Mortgage Loan on the
first day of the month, but the distribution of such interest will not be made
until the Pooled Certificate Distribution Dates and then the amounts received
with respect to a Pooled Certificate Distribution Date will not be distributed
until the related Distribution Date, the yield to investors in the Certificates
will be lower than the yield produced without such delays. Since the amount of
the distributions on the Certificates is based on information in respect of the
Underlying Series, if such information is not received in a timely manner,
payments will not be made until the following Distribution Date and the yield
to investors may be lower than the yield produced if such information had been
received in a timely manner.
In the case of any Certificates purchased at a discount, a slower than
anticipated rate of principal payments on the Certificates, other things being
equal, could result in an actual yield that is lower than the anticipated
yield. In the case of any Certificates purchased at a premium, a faster than
anticipated rate of principal payments on the Certificates, other things being
equal, could result in an actual yield that is lower than the anticipated
yield.
The Pooled IO Certificates have notional principal balances that
reduce proportionately with the principal balance of certain related classes in
the same Underlying Series. Accordingly, the amount and timing of payments on
the related groups of Pooled Certificates, and accordingly the yield on both
classes of Certificates, will be sensitive to the rate and timing of principal
payments on such Related Certificates. Relatively fast prepayments of
underlying Mortgage Loans may significantly shorten, and relatively slow
prepayments of underlying Mortgage Loans may significantly extend, the life of
the Related Certificates and therefore the Pooled IO Certificates. Generally,
a rapid rate of principal prepayments on the Mortgage Loans underlying the
Pooled IO Certificates will have a negative effect on the yield on such
certificates and may reduce the yield on the Certificates. If the life of the
Related Certificates is significantly shortened, the life of the Pooled IO
Certificates will be significantly shortened and the yield to investors in both
Classes of Certificates can be expected to decrease. Similarly, the exercise
of any optional redemption rights with respect to the Underlying Series of
which the Pooled IO Certificates are a part may have a negative effect on the
yield on such certificates and may reduce the yield on both Classes of
Certificates. The Pooled IO Certificates are part of the Group 1A Pooled
Certificates and the Group 2A Pooled Certificates.
Because prevailing interest rates are subject to fluctuation, there
can be no assurance that investors in the Certificates will be able to reinvest
the payments thereon at yields equaling or exceeding the yields on the
Certificates. Yields on any such reinvestments may be lower, and may even be
significantly lower, than yields on the Certificates. Generally, when
prevailing interest rates increase, prepayment rates on mortgage loans tend to
decrease, resulting in a reduced return of principal to investors at a time
when reinvestment at such higher prevailing rates would be desirable.
Conversely, when prevailing interest rates decline, prepayment rates on
mortgage loans tend to increase, resulting in a greater return of principal to
investors at a time when reinvestment at comparable yields may not be possible.
Prospective investors in the Certificates should consider the related
reinvestment risks in light of other investments that may be available to such
investors.
The yield to maturity on the Pooled Certificates will reflect the
amount and timing of interest amounts received on the Underlying Agency
Certificates, certain of which are sensitive to the level of LIBOR from time to
time. Similarly, the yield to maturity on the Certificates will reflect the
amount and timing of interest amounts received on the Pooled Certificates,
certain of which are also sensitive to the level of LIBOR from time to time.
For example, the amount of interest payable on the Pooled Inverse Floating Rate
Certificates will vary inversely with the level of LIBOR. Consequently, a high
level of LIBOR will reduce the interest payable on the Pooled Inverse Floating
Rate Certificates and may therefore reduce the yield to investors in the
Certificates. Similarly, the amount of supplemental interest payable on the
Pooled PEC/IO Certificate may vary inversely with the level of LIBOR.
Consequently, a high level of LIBOR can significantly reduce supplemental
interest payments to the Pooled PEC/IO
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<PAGE> 35
Certificate and (especially in combination with fast Mortgage prepayment rates)
reduce the yield to investors in the Certificates.
The Underlying Agency Certificates were issued as parts of different
Underlying Series and the rates of prepayments on the Underlying Mortgage Loans
will be different. Under various circumstances, including differing prepayment
rates of the Underlying Mortgage Loans, the Underlying Agency Certificates
could mature at times other than those expected by investors, which in turn
could cause the Pooled Certificates to mature at times other than those
expected by investors, which could then cause either Class of Certificates to
take on a cash flow profile different from that expected by investors.
FINAL SCHEDULED DISTRIBUTION DATE
The "Final Scheduled Distribution Date" for distributions on the
Certificates is the Distribution Date in July, 2027. The Final Scheduled
Distribution Date is the Distribution Date one month after the latest final
distribution date of any of the Pooled Certificates. Since the rate of payment
of principal on the Mortgage Loans can be expected to exceed the rate of
payments used in calculating such final distribution date, the date of the
final distribution on the Certificates is expected to be earlier, and could be
substantially earlier, than the Final Scheduled Distribution Date.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount
of time that will elapse from the applicable settlement date until each dollar
of principal of such security will be distributed to the investor. The
weighted average life of a Certificate in either Class is determined by (i)
multiplying the amount of payments made in respect of principal on such
Certificate in the related Class on each Distribution Date by the number of
years from the Closing Date to such Distribution Date; (ii) summing the
results; and (iii) dividing the sum by the aggregate amount of the principal
payments on such Certificate in the related Class referred to in clause (i).
The weighted average lives of the Certificates will be influenced by, among
other factors, the rate at which principal is paid on the Mortgage Loans.
SPA MODEL
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The standard prepayment assumption model used in
this Prospectus Supplement ("SPA") represents an assumed rate of prepayment
each month of the then outstanding principal balance of a pool of new mortgage
loans. SPA does not purport to be either a historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans underlying the Pooled Certificates. 100% SPA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter (for example 0.4% per annum
in the second month) until the thirtieth month. Beginning in the thirtieth
month and in each month thereafter during the life of the mortgage loans, 100%
SPA assumes a constant prepayment rate of 6% per annum. Multiples will be
calculated from this prepayment rate series; for example, 50% SPA assumes
prepayment rates will be 0.1% per annum in month one, 0.2% per annum in month
two, reaching 3.0% per annum in month 30 and remaining constant at 3.0% per
annum thereafter. 0% SPA assumes no prepayments.
PRICING ASSUMPTION
The Certificates were structured assuming, among other things, a
prepayment assumption of 200% SPA with respect to the Pooled Certificates. The
prepayment assumptions to be used for pricing purposes for the Certificates may
vary as determined at the time of sale. The actual prepayment rates may vary
considerably from the rates used for any pricing assumption.
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<PAGE> 36
DECREMENT AND WEIGHTED AVERAGE LIFE TABLE
The following tables indicate the percentages of the Original
Principal Balance of each Class of Certificates outstanding after certain dates
and the weighted average lives (in years), assuming various constant
percentages of SPA.
For the following tables it was assumed, among other things, that (i)
the Trust consists of the groups of Pooled Certificates related to a particular
Class of Certificates in the principal or notional amounts described in Annex 1
hereto; (ii) the initial principal balance of the Class 1A Certificates will be
$24,651,553 the initial principal balance of the Class 2A Certificates will be
$26,051,553; (iii) Distribution Dates on the Certificates occur on the 25th of
each month commencing in July 1998; (iv) each Mortgage Loan underlying a
guaranteed mortgage pass-through certificate issued by Fannie Mae, certificate
issued by Ginnie Mae, or a participation certificate issued by Freddie Mac has
a mortgage rate, remaining term to maturity, and loan age equal to the weighted
average mortgage rate, weighted average remaining term to maturity, and
weighted average loan age, respectively, of all of the Mortgage Loans
underlying such guaranteed mortgage pass-through certificate, certificate
issued by Ginnie Mae, or participation certificate, or in the case of the
Pooled Accrual Certificates, equal to the assumptions for such characteristics
included in the related Underlying Prospectus Information; (v) the Mortgage
Loans prepay at the constant percentages of SPA specified in the tables; (vi)
all amounts due with respect to the Mortgage Loans underlying the groups of the
Pooled Certificates are applied to the payment of the respective groups of
Pooled Certificates on the 25th day of each month; (vii) there are no optional
terminations of the Certificates or the Pooled Certificates and the mandatory
termination is assumed not to occur; (viii) the settlement date is the Closing
Date, which is June 30, 1998; (ix) each month consists of 30 days; (x) any
reinvestment income on funds in the Asset Proceeds Account will be paid to the
Trustee and will not be available to make principal and interest payments on
the Certificates; (xi) the only expenses to be paid on any Distribution Date by
the Trust will be the monthly payment of the Trustee Fee, which is assumed to
equal 1/12 of the product of 0.020% and the principal balance immediately prior
to the applicable Distribution Date, but without giving effect to the minimum
Trustee Fee of $100 for any Distribution Date; (xii) interest rates applicable
to each Class of Certificates for each Interest Accrual Period subsequent to
the first Interest Accrual Period will be calculated based on the indicated
level of LIBOR; (xiii) there will be no substitution of Pooled Certificates;
and (xiv) no Certificates will be exchanged for pro rata portions of each of
the Pooled Certificates.
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<PAGE> 37
PERCENTAGE OF INITIAL PRINCIPAL AMOUNT OUTSTANDING OF THE CLASS 1A CERTIFICATES
% of SPA
<TABLE>
<CAPTION>
50% 100% 200% 300% 400%
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Balance 100% 100% 100% 100% 100%
June 25, 1999 100 99 75 71 65
June 25, 2000 100 98 69 61 46
June 25, 2001 100 97 65 51 38
June 25, 2002 101 96 62 44 30
June 25, 2003 102 96 59 34 23
June 25, 2004 103 97 53 26 15
June 25, 2005 104 97 46 21 6
June 25, 2006 105 96 40 14 4
June 25, 2007 106 94 35 8 3
June 25, 2008 105 92 30 5 2
June 25, 2009 103 90 24 4 2
June 25, 2010 102 89 18 3 1
June 25, 2011 100 88 12 2 1
June 25, 2012 99 87 10 1 *
June 25, 2013 98 86 8 1 *
June 25, 2014 96 85 7 1 *
June 25, 2015 95 82 5 * *
June 25, 2016 94 79 4 * *
June 25, 2017 95 79 3 * *
June 25, 2018 92 82 2 * *
June 25, 2019 90 50 1 * *
June 25, 2020 92 16 1 * *
June 25, 2021 94 2 * * *
June 25, 2022 97 * * * *
June 25, 2023 79 * * 0 0
June 25, 2024 20 0 0 0 0
June 25, 2025 0 0 0 0 0
June 25, 2026 0 0 0 0 0
June 25, 2027 0 0 0 0 0
Weighted Average
Life (in years) 24.0 19.1 6.8 3.9 2.8
</TABLE>
- ----------
* Principal balance less than 0.5% of Initial Principal Amount.
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<PAGE> 38
PERCENTAGE OF INITIAL PRINCIPAL AMOUNT OUTSTANDING OF THE CLASS 2A CERTIFICATES
% of SPA
<TABLE>
<CAPTION>
50% 100% 200% 300% 400%
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Balance 100% 100% 100% 100% 100%
June 25, 1999 100 99 96 93 88
June 25, 2000 101 98 93 85 71
June 25, 2001 102 98 92 78 36
June 25, 2002 103 98 90 41 28
June 25, 2003 104 99 90 33 21
June 25, 2004 105 99 86 25 14
June 25, 2005 107 100 46 20 6
June 25, 2006 108 100 38 13 4
June 25, 2007 110 99 33 8 3
June 25, 2008 109 97 29 5 2
June 25, 2009 109 96 23 3 2
June 25, 2010 108 96 17 3 1
June 25, 2011 107 96 11 2 1
June 25, 2012 107 96 9 1 *
June 25, 2013 106 96 8 1 *
June 25, 2014 90 79 6 1 *
June 25, 2015 73 61 5 * *
June 25, 2016 56 41 3 * *
June 25, 2017 37 23 3 * *
June 25, 2018 17 8 2 * *
June 25, 2019 10 6 1 * *
June 25, 2020 8 4 1 * *
June 25, 2021 4 2 * * *
June 25, 2022 1 * * * *
June 25, 2023 * * * 0 0
June 25, 2024 0 0 0 0 0
June 25, 2025 0 0 0 0 0
June 25, 2026 0 0 0 0 0
June 25, 2027 0 0 0 0 0
Weighted Average 18.1 17.1 8.4 4.6 3.3
Life (in years)
</TABLE>
- ----------
* Principal balance less than 0.5% of Initial Principal Amount.
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<PAGE> 39
PRE-TAX YIELD TABLES
The significance of the effects of prepayments and changes in LIBOR on
the Certificates is illustrated in the following tables entitled "Sensitivity
of the Certificates to Prepayments and LIBOR," which shows the pre-tax yield
(on a corporate bond equivalent basis) to the holders of such Classes of
Certificates under different constant percentages of SPA and levels of LIBOR.
The yields of such Classes of Certificates set forth in the following tables
were calculated using the assumptions specified above under "--Decrement and
Weighted Average Life Tables" and assuming that (i) interest rates applicable
to the related groups of Pooled Certificates for each Interest Accrual Period
subsequent to the first Interest Accrual Period will be calculated based on the
indicated level of LIBOR, (ii) the aggregate purchase price (expressed as a
percentage of the initial principal balance) of the Certificates is 109.0% with
respect to the Class 1A Certificates and 107.5% with respect to the Class 2A
Certificates (plus accrued interest from June 1, 1998) and (iii) the
Certificates are purchased on June 30, 1998.
THE YIELD TO INVESTORS IN THE CERTIFICATES WILL BE SENSITIVE TO THE
LEVEL OF LIBOR AND TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH GENERALLY CAN BE PREPAID AT ANY TIME.
Changes in LIBOR may not correlate with changes in prevailing mortgage interest
rates. It is possible that lower prevailing mortgage interest rates, which
might be expected to result in faster prepayments, could occur concurrently
with an increased level of LIBOR.
SENSITIVITY OF THE CLASS 1A CERTIFICATES TO PREPAYMENTS AND LIBOR
(Pre-Tax Yield to Maturity)
% of SPA
<TABLE>
<CAPTION>
LIBOR 50% 100% 200% 300% 400%
----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
2.65% 11.2 11.1 13.0 10.8 10.0
3.65 10.2 10.1 11.5 9.9 9.5
4.65 9.1 9.0 10.0 8.8 8.7
5.65 8.1 8.0 8.5 7.5 7.0
6.65 7.2 7.0 6.8 6.0 5.6
7.65 6.3 6.0 5.3 5.1 4.9
8.65 5.7 5.3 4.1 4.5 4.5
</TABLE>
SENSITIVITY OF THE CLASS 2A CERTIFICATES TO PREPAYMENTS AND LIBOR
(Pre-Tax Yield to Maturity)
% of SPA
<TABLE>
<CAPTION>
LIBOR 50% 100% 200% 300% 400%
----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
2.65% 11.3 11.1 11.7 10.3 9.7
3.65 10.3 10.0 10.6 9.5 9.3
4.65 9.3 9.0 9.4 8.6 8.7
5.65 8.3 8.0 8.2 7.6 7.2
6.65 7.3 7.1 6.9 6.3 6.1
7.65 6.4 6.1 5.7 5.6 5.5
8.65 5.7 5.4 4.8 5.1 5.2
</TABLE>
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<PAGE> 40
The yields set forth in the above tables were calculated by
determining the monthly discount rates which when applied to the assumed stream
of cash flows to be paid on the Certificates, would cause the discounted
present value of such assumed stream of cash flows to equal the assumed
purchase price of the Certificates indicated, and converting such monthly rates
to corporate bond equivalent rates. Such calculation does not take into
account variations that may occur in the interest rates at which investors may
be able to reinvest funds received by them as payments of principal of and
interest on the Certificates and consequently does not purport to reflect the
return of any investment in the Certificates when such reinvestment rates are
considered.
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual
Pooled Certificates and Mortgage Loans and characteristics of the Pooled
Certificates and Mortgage Loans assumed in preparing the tables contained
herein. To the extent that the Pooled Certificates and Mortgage Loans have
characteristics that differ from those assumed in preparing the tables, the
Certificates may mature earlier or later than indicated by the tables, and the
weighted average lives and pre-tax yields and the cash flows on the
Certificates may also differ. In addition, it is unlikely that the Mortgage
Loans will prepay at any constant rate. The timing of changes in the rate of
prepayment may significantly affect the yield realized by a holder of the
Certificates.
THE POOLING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling Agreement
between Fund America Investors Corporation II, as the depositor, and U. S. Bank
Trust National Association, as the Trustee (the "Agreement"). Reference is
made to the Prospectus for important information in addition to that set forth
herein regarding the terms and conditions of the Agreement and the
Certificates. References to the "FNMA," "FHLMC," or "GNMA" in the Prospectus
shall be deemed to mean, respectively, the "Fannie Mae," "Freddie Mac," or
"Ginnie Mae" in this Prospectus Supplement. The Certificates will be
transferable and exchangeable at the Corporate Trust Office of the Trustee,
which will serve as Certificate Registrar and Paying Agent. The Trustee will
provide to a prospective or actual Certificateholder without charge, upon
written request, a copy of the Agreement. Requests should be addressed to the
Trustee at 180 East 5th Street, St. Paul, MN 55101. The Trustee will also act
as securities administrator for the Trust. Consequently, there will be no
separate servicing agreement among the parties relating to the transaction.
ASSIGNMENT OF POOLED CERTIFICATES
At the time of issuance of the Certificates, the Company will cause
the Pooled Certificates to be assigned to the Trustee. The Underwriter, which
will sell the Pooled Certificates to the Company, will represent to the
Company, among other things, that as of the Closing Date, (i) it is the owner
of the Pooled Certificates free and clear of any lien or adverse interests of
any person and (ii) that it has acquired its ownership in the Pooled
Certificates in good faith without notice of any adverse claim. The Company,
following its purchase and immediately prior to the transfer to the Trustee,
will make similar representations.
Upon discovery or receipt of notice by either the Company or the
Trustee of a breach of any of the representations and warranties regarding the
Pooled Certificates which materially and adversely affects the interests of the
Certificateholders, the Company, or the Trustee, the party discovering such
breach will give prompt notice to the other and to the Underwriter. Within
thirty days of the earlier of either discovery by or notice to the Underwriter
of any such breach, the Underwriter shall use its best efforts promptly to cure
such breach in all material respects and, if such breach cannot be cured, the
Underwriter shall, at the election of the Majority Certificateholders,
repurchase each Pooled Certificate affected by the breach at a repurchase price
equal to (i) with respect to any Pooled Certificate that is not a Pooled IO
Certificate, the outstanding principal balance of the Pooled Certificate as of
the date of repurchase plus accrued interest thereon and (ii) with respect to
any Pooled IO Certificates, the highest bid obtained by the Trustee from three
dealers then active in the market for such Pooled IO Certificates (or such
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<PAGE> 41
lesser number as may then be active). In the event the Trustee is able to
obtain a bid from only one active dealer, then the Trustee may obtain an
opinion (a "FMV Opinion") of an investment banking firm of national reputation
(other than an affiliate of the Company) to determine whether such bid is at
least equal to the fair market value of such Pooled IO Certificates and the
repurchase price shall be the higher of the bid or the fair market value as
stated in any such FMV Opinion. If the Trustee is unable to obtain a bid from
any active dealer, then the Trustee shall obtain a FMV Opinion and the
repurchase price shall be equal to the fair market value of the Pooled IO
Certificates as stated in such FMV Opinion.
Notwithstanding the foregoing, for a period of 90 days following the
Closing Date, in lieu of repurchasing Pooled Certificates, other than the
Pooled IO Certificates, as described above, the Underwriter may substitute
therefor one or more mortgage related securities issued by Ginnie Mae, Fannie
Mae, or Freddie Mac (each a "Substitute Pooled Certificate") which meet the
following criteria: (i) such substitution shall be (a) in the case of the
Pooled Accrual Certificates, with one or more accrual certificates bearing a
coupon no less than the coupon of the Pooled Accrual Certificate being
substituted for or (b) in the case of the Pooled Inverse Floating Rate
Certificates, other than the Pooled IO Certificate, with one or more inverse
floating rate certificates based on LIBOR whose combined coupon will be at
least equal to the coupon of the Pooled Certificates being substituted for at
all levels of LIBOR, (ii) the sum of the outstanding principal amounts of the
Substitute Pooled Certificates equals or exceeds the sum of the outstanding
principal amounts of the Pooled Certificates being substituted for, (iii) the
Substitute Pooled Certificates as of the date of substitution ultimately are
backed by mortgage loans (a) with a weighted average pass-through rate no more
than 50 basis points below or no more than 50 basis points above the weighted
average pass-through rate of the mortgages loans ultimately backing the Pooled
Certificates being substituted for and (b) which are conventional, fixed rate,
one- to four-family, fully amortizing, level payment, first mortgage loans with
original maturities of up to 30 years, (iv) the inclusion of which in the Trust
Fund will not result in a withdrawal or downgrading in the ratings assigned to
such Class of Certificates by the Rating Agencies, written confirmation of
which shall be provided by the Rating Agencies to the Trustee, and (v) such
substitution will not cause the Trust to lose its status as a grantor trust for
federal income tax purposes as indicated in an opinion of counsel to be
provided to the Trustee.
ACCOUNTS
The Trustee shall establish and maintain the Asset Proceeds Account in
the name of the Trustee for the benefit of the Certificateholders. The Asset
Proceeds Account shall be an Eligible Account as defined in the Agreement. The
Trustee, in its capacity as holder of the Pooled Certificates, will cause all
distributions received by it on the Pooled Certificates from whatever source,
to be deposited directly into the Asset Proceeds Account. Amounts on deposit
in the Asset Proceeds Account will be invested in certain investments permitted
by the Agreement ("Permitted Investments"). Any income on such investments
will be paid to the Trustee as additional compensation and losses on such
investments shall be reimbursed by the Trustee from its own funds.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will prepare, to the extent it
receives distribution information with respect to the Pooled Certificates, and
will forward by mail, a statement to each Certificateholder and to the Company
stating:
(i) the Class 1A Available Distribution and the Class 2A Available
Distribution for such Distribution Date;
(ii) the interest distribution amount and the principal
distribution amount for such Distribution Date for each Class
of Certificates and, with respect to each, the components
thereof as described in the definitions of such terms and as
reported in the related distribution information;
(iii) the principal balance of each Class of Certificates before and
after applying payments on such Distribution Date;
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<PAGE> 42
(iv) the effective interest rate on each Class of Certificates for
such Distribution Date;
(v) the outstanding Pooled Certificate Principal Balance or Pooled
Certificate Notional Principal Balance, as the case may be,
for each group of Pooled Certificates immediately prior to and
after taking into account distributions made on such
Distribution Date of, and the current interest rate, on each
of the Pooled Certificates on such Distribution Date;
(vi) the original principal amount of each Class of Certificates
and the original principal amount of each Class of
Certificates as reduced to reflect any exchange of
Certificates for a pro rata portion of the related Pooled
Certificates; and
(vii) the amount of the Trustee Fee for such Distribution Date.
In the case of the information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall also be expressed as a dollar amount per $1000 of
principal face amount.
In addition, the Trustee promptly will furnish to the Company and,
upon request, to the Certificateholders, copies of any notices, statements,
reports, or other information received by the Trustee in its capacity as the
holder of the Pooled Certificates.
On or before March 31st of each calendar year, commencing in 1999, the
Trustee will prepare and deliver by first class mail to the Company and each
person who at any time during the prior calendar year was a Certificateholder
of record a statement containing the information required to be contained in
the regular monthly report to Certificateholders, as set forth in clauses (ii)
and (v) above aggregated for such prior calendar year or in the case of a
Certificateholder, the applicable portion thereof during which such person was
a Certificateholder. Such obligation of the Trustee will be satisfied to the
extent that substantially comparable information is provided by the Trustee
pursuant to any requirements of the Code and regulations thereunder as from
time to time are in force.
AMENDMENTS
The Agreement may be amended by the Company and the Trustee, without
the prior written consent of any Certificateholder (i) to cure any ambiguity or
mistake, (ii) to correct or supplement any provision therein which may be
inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement
that are not materially inconsistent with other provisions of the Agreement,
and (iv) to make such modifications as may be required in connection with a
substitution or repurchase of a Pooled Certificate permitted under the
Agreement; provided, however, that such amendment will not, as evidenced by an
opinion of counsel (at the expense of the party seeking such amendment)
delivered to the Trustee, adversely affect in any material respect the
interests of any Certificateholder. Counsel shall be entitled to rely on a
letter from each Rating Agency that the modification will not cause the
then-existing rating of the Certificates to be downgraded as conclusive
evidence that the modification does not adversely affect in any material
respect the interests of any Certificateholder. The Agreement may also be
amended by the Company and the Trustee and the holders of Certificates
evidencing more than 50% of the aggregate principal amount of the Certificates
(the "Majority Certificateholders") for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the Agreement
or modifying in any manner the rights of Certificateholders; provided, however,
that no such amendment may (i) reduce in any manner the amount of, or delay the
timing of, amounts required to be distributed on any Certificate without the
consent of the holder of such Certificate; (ii) modify the provisions of the
Section of the Agreement governing amendments of the Agreement, without the
consent of the holders of all Certificates; or (iii) be made unless the Trustee
has received an opinion of counsel (at the expense of the party seeking such
amendment) that such amendment will not adversely affect the status of the
Trust as a grantor trust for federal income tax purposes.
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<PAGE> 43
CERTIFICATEHOLDER ACTION
No Certificateholder will have any right to institute any action, suit
or proceeding in equity or at law upon or under or with respect to the
Agreement unless such holder previously has given to the Trustee and the
Company a written notice of default and unless also the Majority
Certificateholders have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee thereunder and have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby, and the
Trustee, for 30 days after its receipt of such notice, request and offer of
indemnity, will have neglected or refused to institute any such action, suit or
proceeding.
TERMINATION
The respective obligations and responsibilities of the Company and the
Trustee created by the Agreement will terminate upon the final distribution to
Certificateholders by the Trustee of all amounts required to be distributed
pursuant to the Agreement. Such distribution will occur, among other
circumstances, on the Distribution Date following the first Distribution Date
on which the principal balance or notional principal balance of all but one of
the Pooled Certificates has been reduced to zero, and if the Company exercises
its option to purchase the Pooled Certificates as described herein under
"Description of the Certificates--Optional Termination."
INDEMNIFICATION OF THE TRUSTEE
The Trustee and its directors, officers, employees, and agents, will
be indemnified by the Trust against any loss, liability, or expense arising out
of or incurred in connection with, the exercise and performance of any powers
and duties of the Trustee under the Agreement, with certain exceptions
described in the Agreement. The Trustee and its directors, officers, employees
and agents will not be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of the obligations and duties of the Trustee.
CERTAIN MATTERS REGARDING THE TRUSTEE
The Trustee for the Certificates will be U. S. Bank Trust National
Association. The Trustee's corporate office is located at 180 East 5th Street,
St. Paul, MN 55101 and its telephone number is (612) 244-0011.
The Trustee may at any time resign and be discharged from the trust by
giving 30 days' written notice thereof to the Company and the
Certificateholders. Upon receiving such notice of resignation, the Company
shall promptly appoint a successor trustee. If no successor trustee has been
so appointed and has accepted appointment within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee. If at any
time the Trustee fails to meet the eligibility requirements or is incapable of
acting, or certain insolvency events occur, then the Company shall remove the
Trustee and appoint a successor trustee. The Majority Certificateholders may
at any time remove the Trustee and appoint a successor trustee. No
resignation, discharge or removal of the Trustee will become effective until a
successor trustee shall have assumed the Trustee's responsibilities and
obligations under the Agreement.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion represents the opinion of Hunton & Williams,
counsel to the Trust ("Counsel"), as to the material federal income tax
consequences of the purchase, ownership and disposition of Certificates.
However, the discussion does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment
of Certificateholders that are insurance companies, regulated investment
companies or dealers in securities. Prospective investors are urged to consult
their own tax advisors in determining the Federal, state, local, foreign and
any other tax consequences to them of the purchase, ownership and disposition
of Certificates.
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<PAGE> 44
The following discussion is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
regulations promulgated thereunder and judicial or ruling authority, all of
which are subject to change, which change may be retroactive. No ruling on any
of the issues discussed below will be sought from the Internal Revenue Service
(the "IRS"). As a result, the IRS may disagree with all or part of the
discussion below.
TAX CHARACTERIZATION OF THE TRUST
Counsel is of the opinion that the Trust will be classified for
federal income tax purposes as a grantor trust under subpart E, Part I of
subchapter J of the Code and not as an association taxable as a corporation.
Accordingly, each holder of a Certificate will be treated for federal income
tax purposes as the owner of a pro rata undivided interest in, with respect to
the Class 1A Certificates, the Group 1A Pooled Certificates and, with respect
to the Class 2A Certificates, the Group 2A Pooled Certificates.
Each holder of a Certificate must report on its federal income tax
return the interest income and original issue discount attributable to the
portion of the Pooled Certificates that is allocable to such Certificate,
notwithstanding the reallocation of certain amounts received as principal to
pay interest in certain cases. Certain of the Pooled Certificates were issued
with original issue discount. Certificateholders must include any such
original issue discount in ordinary income for federal income tax purposes as
it accrues, in accordance with a constant interest method that takes into
account the compounding of interest, in advance of receipt of the cash or a
portion of the cash attributable to such income. A Certificateholder generally
may deduct the portion of the expenses incurred by the Trust that is allocable
to such Certificate, at the same time and to the same extent as such items
would be reported by such holder if it had purchased and held directly such
interest in the Pooled Certificates and incurred directly its share of expenses
incurred by the Trust. In general, the Certificates will be treated as
"Standard Certificates" as described in "Certain Federal Income Tax
Consequences--Federal Income Tax Consequences for Securities as to Which No
REMIC Election is Made" in the Prospectus.
A Certificateholder that is an individual, estate or trust will be
allowed deductions for such expenses only to the extent that the sum of those
expenses and the holder's other miscellaneous itemized deductions exceeds two
percent of such holder's adjusted gross income. In addition, in the case of a
Certificateholder who is an individual, certain otherwise allowable itemized
deductions will be reduced, but not by more than 80%, by an amount equal to 3%
of such Certificateholder's adjusted gross income in excess of a statutorily
defined threshold. Moreover, a Certificateholder that is not a corporation
cannot deduct such expenses for purposes of the alternative minimum tax (if
applicable). Such deductions will include servicing and administrative fees
paid to the Trustee.
A Certificateholder must allocate the purchase price of its
Certificates among its share of the Pooled Certificates based upon the relative
fair market value of the Pooled Certificates as of the date such
Certificateholder purchased its Certificates.
The tax consequences to a Certificateholder of ownership of an
undivided interest in the Pooled Certificates are described in the Underlying
Prospectuses. In addition, a general discussion of the tax consequences to a
holder of REMIC Regular Interests and Standard Certificates can be found in
"Certain Federal Income Tax Consequences--Federal Income Tax Consequences for
REMIC Securities and --Federal Income Tax Consequences for Securities as to
Which No REMIC Election is Made." It should be noted that recently enacted tax
legislation made a number of changes to the Code. Included among the changes
are (i) lower tax rates for certain capital gains of individuals resulting from
the holding of property for more than 18 months and (ii) a provision that would
subject pools of prepayable debt obligations to the provisions of section
1272(a)(6) of the Code for taxable years beginning after August 5, 1997. The
consequences of the application of section 1272(a)(6) in the case of the Trust
are not clear, but may require the use of a prepayment assumption that differs
from the prepayment assumptions used for computing the inclusion of any
original issue discount on the Pooled Certificates.
The Certificates generally will be treated as qualifying assets for
domestic building and loan associations, mutual savings banks, and real estate
investment trusts, and income from the Certificates generally will constitute
qualifying income for such entities, in each case to the extent that the Pooled
Certificates and the income therefrom
S-39
<PAGE> 45
are treated as such. See "Certain Federal Income Tax Consequences--Federal
Income Tax Consequences for REMIC Securities."
A Certificateholder may be subject to backup withholding as described
in "Certain Federal Income Tax Consequences--Federal Income Tax Consequences
for REMIC Securities" in the Prospectus. The backup withholding rate for
reportable payments (including interest payments and original issue discount)
made on or after January 1, 1993 is 31%.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans, and collective investment funds in which such plans, accounts,
annuities or arrangements are invested, that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or corresponding
provisions of the Code (any of the foregoing, a "Plan"), persons acting on
behalf of a Plan, or persons using the assets of a Plan (each, a "Plan
Investor"), should consult with their own counsel to determine whether the
purchase or holding of the Certificates could give rise to a transaction that
is prohibited or is not otherwise permissible either under ERISA or the Code.
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit
certain transactions that involve (i) a Plan that is subject to ERISA or
Section 4975 of the Code and any party in interest or disqualified person with
respect to the Plan and (ii) plan assets. The Plan Asset Regulations define
the assets of a benefit plan ("Plan Assets") to include not only securities
(such as the Certificates) held by a Plan but also the underlying assets of the
issuer of any equity securities (the "Look-Through Rule"), unless one or more
exceptions specified in the regulations are satisfied. The Certificates are
treated as equity securities for purposes of the Plan Asset Regulations.
Nonetheless, the Look-Through Rule will not apply to the Certificates as long
as one or more of the exceptions specified in the Plan Asset Regulations are
satisfied. An exception to the Look Through Rule will apply if the security is
registered under the Securities Exchange Act of 1934, as amended, is freely
transferable and is part of a class of securities that is held by more than 100
unrelated investors (the "Publicly Offered Exception"). In addition, an
exception will apply if, immediately after the most recent acquisition of an
equity interest, benefit plan investors do not own 25% or more of the value of
any class of equity interests in the trustee (the "Insignificant Participation
Exception"). However, based on the information available to the Underwriter at
the time of the printing of the Prospectus, no assurances can be given that
either the Publicly Offered Exception or the Insignificant Participation
Exception will apply to the initial purchase of the Certificates. In addition,
there can be no assurance that either the Publicly Offered Exception or the
Insignificant Participation Exception will apply to subsequent purchases of the
Certificates.
The Department of Labor has issued to Bear Stearns & Co. Inc. an
individual administrative exemption, Prohibited Transaction Exemption 90-30
("PTE 90-30"), from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, holding and resale by a Plan Investor of
certificates in pass-through trusts that meet the conditions and requirements
of that exemption. PTE 90-30 may apply to the acquisition, holding and resale
of the Certificates, provided that both the Pooled Agency Certificates and the
Pooled Non-Agency Certificate represent "guaranteed governmental mortgage pool
certificates," or fractional undivided interests in such certificates, within
the meaning of the Plan Asset Regulations and that the specified conditions of
the exemption are met. For purposes of the Plan Asset Regulations, a
"guaranteed governmental mortgage pool certificate" includes a certificate
backed by or evidencing an interest in, specified mortgages or participation
interests therein if interest and principal payable on the certificate are
guaranteed by Ginnie Mae, Freddie Mac or Fannie Mae. The Prospectus pursuant
to which the Pooled Fannie Mae Certificates were offered and the Offering
Circulars relating to the Pooled Freddie Mac Certificates and the Pooled Ginnie
Mae Certificates state that Fannie Mae, Freddie Mac, and Ginnie Mae
respectively, had been advised by their respective counsel that each such
respective class of Pooled Agency Certificates should qualify as "guaranteed
governmental mortgage pool certificates" within the meaning of the Plan Asset
Regulations. In addition, one or more alternative exemptions may be available
with respect to certain prohibited transactions, depending in part upon the
type of Plan fiduciary making the decision to acquire the Certificates and the
circumstances under which such decision is made, including, but not limited to,
(a) Prohibited
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<PAGE> 46
Transaction Class Exemption 95-60, regarding investments by insurance company
general accounts, (b) Prohibited Transaction Class Exemption 91-38, regarding
investments by bank collective investment funds; or (c) Prohibited Transaction
Class Exemption 90-1, regarding investments by insurance company pooled
separate accounts. A purchaser of Certificates should be aware, however, that
even if the conditions specified in one or more exemptions are met, the scope
of the relief provided by such exemptions might not cover all acts that might
be construed as prohibited transactions. Before purchasing Certificates, a
Plan Investor should consult with its counsel to determine whether the Pooled
Certificates would constitute "guaranteed governmental mortgage pool
certificates" and whether conditions of any exemptions would be met. Each
purchaser of a Certificate, by virtue of its purchase of such Certificate, will
be deemed to have represented either that (i) it is not a Plan Investor or (ii)
an exemption granted by the Department of Labor exists which exempts the
acquisition, holding or transfer of a Certificate by such purchaser and the
operation and management of the Trust and its assets, from the prohibited
transaction rules of ERISA and the related excise tax provisions of the Code.
A governmental plan as defined in Section 3(32) of ERISA is not
subject to ERISA, or Code Section 4975. However, such governmental plan may be
subject to Federal, state and local law, which is, to a material extent,
similar to the provisions of ERISA or Code Section 4975 ("Similar Law"). A
fiduciary of a governmental plan should make its own determination as to the
propriety of such investment under applicable fiduciary or other investment
standards, and the need for the availability of any exemptive relief under any
Similar Law.
LEGAL INVESTMENT
Institutions whose investment activities are subject to legal
investment laws and regulations or to review by certain regulatory authorities
may be subject to restrictions on investment in the Certificates. Any such
institution should consult its legal advisors in determining whether and to
what extent there may be restrictions on its ability to invest in the
Certificates. Both the Class 1A Certificates and the Class 2A Certificates
will constitute "mortgage related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement dated June 26, 1998 and the related Terms Agreement dated the date
hereof (the "Underwriting Agreement") between the Company and Bear, Stearns &
Co. Inc. (the "Underwriter"), the Company has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Company, all
of the Certificates. The Underwriting Agreement provides that the
Underwriter's obligations thereunder are subject to certain conditions
precedent, and that the Underwriter will be obligated to purchase all of the
Certificates if any are purchased.
The Underwriter has advised the Company that it proposes to offer the
Certificates from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined, in each case, at the time of
sale. The Underwriter may effect such transactions by selling the Certificates
to or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the Underwriter and/or commissions
from any purchaser of the Certificates for whom they may act as agents. The
Underwriter and any dealers that participate with the Underwriter in the
distribution of the Certificates may be deemed to be underwriters, and any
discounts, concessions or commissions received by them, and any profit on the
resale of the Certificates positioned by them, may be deemed to be
underwriting discounts and commissions under the 1933 Act.
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Act, to the extent and under
the circumstances set forth in the Underwriting Agreement.
Because the Pooled Certificates were sold by the Underwriter to the
Company, and thereafter, the Certificates will be purchased initially by the
Underwriter from the Company, the economic risks and benefits associated with
the sale of the Pooled Certificates and the purchase by the Underwriter of the
Certificates are borne or realized primarily by the Underwriter and its
affiliates.
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<PAGE> 47
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Company and the Trust by Hunton & Williams, Richmond, Virginia.
Certain legal matters with respect to the Underwriter will be passed upon by
Stroock & Stroock & Lavan LLP, New York, New York.
RATINGS
As a condition to their issuance, the Certificates will be rated "Aaa"
by Moody's and "AAA" by Fitch.
The rating assigned by Moody's to the Certificates addresses the
likelihood of the receipt by Certificateholders of all distributions to which
such Certificateholders are entitled. The rating is based principally on the
guarantees of Fannie Mae, Freddie Mac and Ginnie Mae on the Pooled Certificates
and on the assets securing the Underlying Agency Certificates. Moody's ratings
do not represent any assessment of the likelihood that prepayments will be made
by borrowers or the degree to which such prepayments will differ from that
originally anticipated. The rating does not address the possibility that, as a
result of prepayments, Certificateholders may suffer a lower than anticipated
yield on the Certificates.
The rating by Fitch on the Certificates addresses the likelihood of
the receipt by Certificateholders of all distributions to which such
Certificateholders are entitled. Fitch takes into consideration the credit
quality of Fannie Mae, Freddie Mac and Ginnie Mae, structural and legal aspects
associated with the Certificates and the extent to which the payment stream on
the Pooled Certificates is adequate to make payments required under the
Certificates. The rating of Fitch does not constitute a statement regarding
frequency of prepayments on the Mortgage Loans or the corresponding effects on
yield to investors, and does not represent any assessment of the likelihood or
rate of prepayments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to the Certificates are subsequently lowered for any reason,
no person or entity is obligated to provide any additional credit support or
credit enhancement with respect to the Certificates.
The Company has not requested a rating of the Certificates by any
rating agency other than Moody's and Fitch. However, there can be no assurance
as to whether any other rating agency will rate the Certificates or, in such
event, what rating would be assigned to the Certificates by such other rating
agency. The rating assigned by such other rating agency to the Certificates
may be lower than the rating assigned by or Moody's or Fitch.
S-42
<PAGE> 48
INDEX OF TERMS
<TABLE>
<S> <C>
1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-35
Asset Proceeds Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Available Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Class 1A Available Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Class 1A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Class 2A Available Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Class 2A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-7, S-16
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v, S-2
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Fannie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2, S-35
Fannie Mae MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Fannie Mae Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
Fannie Mae REMIC Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Fannie Mae REMIC Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Fannie Mae SMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
FHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-35
Final Scheduled Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Fixed Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Floater Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
FMV Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-35
Freddie Mac . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2, S-35
Freddie Mac Giant Stripped Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-22
Freddie Mac Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-5, S-22, S-23
fully modified pass-through . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
Ginnie Mae . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2, S-35
Ginnie Mae Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
Ginnie Mae Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
Ginnie Mae-Related Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-22
GNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-35
Group 1A Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Group 1A Pooled Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-17
Group 2A Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Group 2A Pooled Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-18
Insignificant Participation Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Interest Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-16
interest only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
</TABLE>
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<PAGE> 49
<TABLE>
<S> <C>
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Look-Through Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Majority Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv, S-10, S-14
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv, S-10, S-14
mortgage related securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
Notional Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Notional Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Plan Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Pooled Agency Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-3
Pooled Certificate Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Pooled Certificate Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Pooled Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-3
Pooled FAIT 1993-2 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Pooled Fannie Mae 97-78 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-3, S-22
Pooled Fannie Mae 98-23 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-3, S-22
Pooled Fannie Mae 98-42 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Pooled Fannie Mae Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2
Pooled Freddie Mac 2008 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
Pooled Freddie Mac Certificate Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Pooled Freddie Mac Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-3
Pooled Freddie Mac G063 Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
Pooled Ginnie Mae Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Pooled Non-Agency Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Pooled Non-Agency Certificate Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-28
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
PT Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Publicly Offered Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-13
RCR Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-16
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Similar Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
SPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Standard Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Substitute Pooled Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Support Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Trustee Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Underlying 1997-3 Agency Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-23
Underlying Agency Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-23
Underlying Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Underlying Fannie Mae 97-78 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-3, S-22
Underlying Fannie Mae 98-23 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-3, S-22
Underlying Fannie Mae 98-42 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-3, S-22
Underlying Fannie Mae Prospectus Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Underlying Fannie Mae Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-3, S-22
Underlying Fannie Mae Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-3, S-22
</TABLE>
S-44
<PAGE> 50
<TABLE>
<S> <C>
Underlying Freddie Mac 2043 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-5, S-23
Underlying Freddie Mac G063 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-22
Underlying Freddie Mac Offering Circular Term Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Underlying Freddie Mac Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-22
Underlying Ginnie Mae Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-5, S-23
Underlying Ginnie Mae Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-23
Underlying Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv, S-10, S-14
Underlying Non-Agency Prospectus Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Underlying Non-Agency Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-23
Underlying Prospectus Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Underlying Prospectuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2, S-41
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
VA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-4, S-22
WAC Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Weighted average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
</TABLE>
S-45
<PAGE> 51
ANNEX 1
POOLED CERTIFICATE CURRENT INFORMATION
The table in this Annex 1 sets forth information for each of the
Pooled Certificates concerning such Pooled Certificates and the related
Mortgage Loans. The table and the descriptions of the Pooled Certificates
herein are subject to and qualified by reference to the information with
respect to the provisions of the Underlying Agreements and Underlying
Prospectuses and the other prospectuses related to the Pooled Certificates.
The information set forth in the table and elsewhere herein has been derived
from information provided by Fannie Mae, Ginnie Mae and Freddie Mac and based
on information provided to investors of the Pooled Non-Agency Certificate, but
such information has not been independently verified by the Depositor or the
Underwriter. This information comprises all material information on the
subject that the Depositor and the Underwriter possess or can acquire without
unreasonable expense or effort.
"Weighted average" numbers are calculated based on the loan balances as
of June 1, 1998.
The issue date for the Pooled Fannie Mae Certificates are as follows:
98-23, March 30, 1998, 97-78, November 28, 1997, 98-42, June 30, 1998. The
issue dates for the Pooled Freddie Mac Certificates are as follows: G063/A,
June 30, 1997; 2008, November 28, 1997. The issue date for the Pooled Ginnie
Mae Certificate is June 30, 1998. The issue date for the Pooled Non-Agency
Certificate is March 27, 1997.
The following is a description of each item reported in the following
table. The table should be read in conjunction with these descriptions and the
additional information contained in Annex 2.
1. ISSUER AND SERIES/CLASS. These first two columns indicate,
collectively, the issuer name, series, and class designation
of each Pooled Certificate. For the full name of each Pooled
Certificate, see "Description of the Pooled
Certificates--General."
2. CERTIFICATE INTEREST TYPE. INV indicates that the Pooled
Certificates bear interest at rates that are based on an index
(in this case, LIBOR) and that vary inversely with changes in
the index. FIX indicates that the Pooled Certificates bear
interest at a fixed rate. Z indicates that the Pooled
Certificates accrete the amount of accrued interest otherwise
distributable on such Pooled Certificates, which amount will
be added as principal to the principal balance of such Pooled
Certificates on each applicable distribution date. Such
accretion will continue until such Pooled Certificate is
retired. PEC/IO indicates that the Pooled Certificates bear
interest at a fixed rate, plus is entitled to receive variable
supplemental amounts of interest, which interest varies
inversely with LIBOR and directly with the rate of
prepayments. WAC indicates that the Pooled Certificates bear
interest equal to the aggregate amount of the interest
received on the underlying assets multiplied by 12, then
dividing such amount by the principal balance of the Pooled
Certificate. RCR indicates that the Pooled Certificates are
Combination and Recombination Certificates and interest
payment characteristics resemble those of the Fannie Mae REMIC
Certificates that are combined to form such Classes of RCR
Certificates.
3. CURRENT COUPON. This coupon indicates the interest rates
applicable to the July 1998 distribution on the Pooled
Certificates.
4. GROUP/CLASS ORIGINAL PRINCIPAL BALANCE OR NOTIONAL PRINCIPAL
BALANCE IN TRUST. This column lists the original principal
balance or notional principal balance of the Pooled
Certificates included in the Trust and in the related group of
Pooled Certificates.
5. GROUP/CLASS % IN TRUST. This is the percentage which the
respective Pooled Certificates constitute of its class and the
percentage in the related groups of Pooled Certificates.
S-46
<PAGE> 52
6. GROUP/CLASS CURRENT PRINCIPAL BALANCE OR NOTIONAL PRINCIPAL
BALANCE IN TRUST. This column shows the principal balance or
notional principal balance of the Pooled Certificates included
in the Trust and in a related group of Pooled Certificates
after the distributions made in June 1998.
7. ORIGINAL MORTGAGE LOAN BALANCE. This is the original
aggregate scheduled principal balance of the Mortgage Loans
underlying each Pooled Certificate in a related group of
Pooled Certificates.
8. CURRENT MORTGAGE LOAN BALANCE. This is the aggregate
scheduled principal balance of the Mortgage Loans underlying
each Pooled Certificate in a related group of Pooled
Certificates as of June 1, 1998.
9. WAC. Under this heading is the current weighted average of
the note rates on the Mortgage Loans underlying each Pooled
Certificate.
10. CNWAC. Under this heading is the current weighted average of
the net rates (that is, note rate less any servicing fee and
any other administrative fees) on the Mortgage Loans
underlying each Pooled Certificate.
11. WAM. Under this heading is the current weighted average of
the remaining terms to maturity of the Mortgage Loans
underlying each Pooled Certificate (in months).
12. WALA/CAGE. Under this heading is the weighted average months
since origination for the Mortgage Loans underlying each
Pooled Certificate.
S-47
<PAGE> 53
ANNEX 1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Group/Class Group/Class
Original Principal Current Principal
Certificate or Notional or Notional Original
Interest Current Principal Balance Group/Class % Principal Balance Mortgage
Issuer Series/Class Type Coupon in Trust in Trust in Trust Loan Balance
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fannie Mae (1) 1998-23/SG INV/IO/RCR 7.14579% Group 1A - Group 1A - 50% Group 1A - $25,631,822
$3,045,481 Group 2A - 50% $3,045,481 (2)
Group 2A - Group 2A -
$3,045,481 $3,045,481
- ----------------------------------------------------------------------------------------------------------------------------------
Fannie Mae (1) 1997-78/SK INV/RCR 8.45000% Group 1A - Group 1A - 50% Group 1A - $30,471,262
$911,534 Group 2A - 50% $911,534 (2)
Group 2A - Group 2A -
$911,534 $911,534
- ----------------------------------------------------------------------------------------------------------------------------------
Fannie Mae (1) 1998-42/Z FIX/Z 6.50000% Group 1A - Group 1A - 100% Group 1A - $500,000,000
$5,000,000 $5,000,000 (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Freddie Mac G063/A PEC/IO 9.57409% Group 1A - Group 1A - 6.5% Group 1A - $337,000,000
$6,500,000 Group 2A - 6.5% $5,192,460
Group 2 - Group 2A -
$6,500,000 $5,192,460
- ----------------------------------------------------------------------------------------------------------------------------------
Freddie Mac (1) 2008/SE INV 8.39999% Group 1A - Group 1A - 50% Group 1A - $46,712,104
$1,894,420.50 Group 2A - 50% $1,894,420.50 (2)
Group 2A - Group 2A -
$1,894,420.50 $1,894,420.50
- ----------------------------------------------------------------------------------------------------------------------------------
Ginnie Mae (1) 1998-14/Z FIX/Z 6.50000% Group 2A - Group 2A - 100% Group 2A - $1,125,210,000
$6,400,000 $6,400,000 (3)
- ----------------------------------------------------------------------------------------------------------------------------------
BSMSI 1997-3/A1 WAC 9.05093% Group 1A - Group 1A & 2A- Group 1A & $54,672,353
(5) $19,836,176.50 36.2819147367% Group 2A - (2)
Group 2A - $16,845,598.58
$19,836,176.50
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------
Current
Mortgage WALA/
Issuer Loan Balance WAC CNWAC WAM CAGE
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fannie Mae (1) $25,631,822 7.534 7.000 283 63
(2)
- --------------------------------------------------------------------
Fannie Mae (1) $30,471,262 7.483 7.000 289 59
(2)
- --------------------------------------------------------------------
Fannie Mae (1) $500,000,000 7.120 6.500 357 2
(3) (3) (3) (3) (3)
- --------------------------------------------------------------------
Freddie Mac $269,209,080 8.500 8.000 347 13
- --------------------------------------------------------------------
Freddie Mac (1) $46,712,104 7.435 7.000 291 56
(2)
- --------------------------------------------------------------------
Ginnie Mae (1) $1,125,210,000 7.300 6.500 356 4
(3) (3) (3) (3) (3)
- --------------------------------------------------------------------
BSMSI $46,429,740 7.790 7.297 274 74
(2) (4) (4) (4) (4)
- --------------------------------------------------------------------
</TABLE>
- ----------
1 In cases where the Pooled Certificates receive payment from a specified
collateral group, only the characteristics of the group relating to the
Pooled Certificates have been used in calculating the above information.
2 Based on original and current principal balances of the underlying
securities, rather than the balance of the Mortgage Loans underlying such
securities.
3 Original and Current Mortgage Loan balances and WAC, CNWAC, WAM and WALA
are as set forth in the related Offering Circular supplements.
4 Weighted average calculations are based on the current principal balance
(excluding notional balances) of each of the underlying securities as of
the June 1998 Distribution Date.
5 Based on a June coupon date.
S-48
<PAGE> 54
UNDERLYING NON-AGENCY CERTIFICATES
Underlying Non-Agency Certificates
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Class Original Class Percent
Principal or in Trust Class Current Original
Certificate Current Notional Notional Balance Principal or Mortgage Loan
Issuer Series Class Type (7) Coupon Balance in Trust in Trust Balance Balance
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA 92G45 Z FIX/Z 6.00000% $6,000,000 35.29412% $8,506,983 $200,000,000
- --------------------------------------------------------------------------------------------------------------------------------
FNMA 252-CL IO FIX/IO 7.50000% $6,000,000 0.30380% $3,519,142 $1,975,000,000
- --------------------------------------------------------------------------------------------------------------------------------
FNMA 93246 F FLT 7.43750% $52,725,397 48.89887% $32,709,683 $107,825,398
(2)
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC G003 SA INV 12.25000% $1,800,000 42.45283% $415,320 $350,000,000
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC 1505 QB INV 7.49583% $2,280,000 23.60248% $2,280,000 $500,000,000
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC 1603 SB INV 8.79375% $3,000,000 36.37387% $2,104,653 $1,895,089,961
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC 1723 SB INV 3.93750% $440,000 20.53333% $413,101 $390,500,000
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC (1) 1869 TG FIX/IO 8.00000% $11,000,000 47.05265% $6,229,576 $400,000,000
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC (1) 1933 SA INV/IO 1.31250% $44,233,880 100.00000% $30,841,493 $581,287,000
- --------------------------------------------------------------------------------------------------------------------------------
FHLMC (1) 1933 SG INV/IO 1.81250% $22,000,000 10.44466% $15,023,653 $1,200,000,000
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------
Current WALA/
Issuer Mortgage Loan WAC NWAC WAM CAGE
- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FNMA $79,473,260 8.500 8.000 215 135
- ---------------------------------------------------------------
FNMA $1,158,384,267 7.931 7.500 286 62
- ---------------------------------------------------------------
FNMA $66,892,518 7.614 7.136 289 60
(2) (3) (3) (3) (3)
- ---------------------------------------------------------------
FHLMC $143,102,170 8.500 8.000 215 135
- ---------------------------------------------------------------
FHLMC $307,176,936 7.642 7.000 283 62
- ---------------------------------------------------------------
FHLMC $1,261,182,925 7.535 7.000 290 58
- ---------------------------------------------------------------
FHLMC $217,205,088 8.536 8.000 278 68
- ---------------------------------------------------------------
FHLMC (1) $262,672,560 8.502 8.000 328 25
- ---------------------------------------------------------------
FHLMC (1) $454,918,718 8.099 7.50 337 18
- ---------------------------------------------------------------
FHLMC (1) $841,943,206 8.513 8.000 336 19
- ---------------------------------------------------------------
</TABLE>
- ----------
1 In cases where the Pooled Certificates receive payment from a specified
collateral group, only the characteristics of the group relating to the
Pooled Certificates have been used in calculating the above information.
2 Based on original and current principal balances of the underlying
securities, rather than the balance of the Mortgage Loans underlying such
securities.
3 Weighted average calculations are based on the current principal balance
(excluding notional balances) of each of the underlying securities as of
the June 1998 Distribution Date.
S-49
<PAGE> 55
ANNEX 2
POOLED CERTIFICATE INFORMATION
S-50
<PAGE> 56
[THIS PAGE INTENTIONALLY LEFT BLANK]
S-51
<PAGE> 57
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 12, 1997)
$154,102,606
[FANNIE MAE LOGO]
GUARANTEED REMIC PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1998-23
The Guaranteed REMIC Pass-Through Certificates offered hereby (the "REMIC
Certificates") will represent beneficial ownership interests in one of two trust
funds. The REMIC Certificates, other than the RL Class, will represent
beneficial ownership interests in Fannie Mae REMIC Trust 1998-23 (the "Trust").
The assets of the Trust will consist of the "regular interests" in a separate
trust fund (the "Lower Tier REMIC"). The assets of the Lower Tier REMIC will
consist of certain previously issued REMIC certificates (the "Underlying REMIC
Certificates") evidencing beneficial ownership interests in the related Fannie
Mae REMIC Trusts (the "Underlying REMIC Trusts") as further described in Exhibit
A hereto. The assets of the Underlying REMIC Trusts evidence beneficial
ownership interests in certain Fannie Mae Guaranteed Mortgage Pass-Through
Certificates. The Fannie Mae Guaranteed Mortgage Pass-Through Certificates are
collectively referred to herein as the "MBS." Each MBS represents a beneficial
ownership interest in a pool (each, a "Pool") of first lien, single-family,
fixed-rate residential mortgage loans having the characteristics described
herein. The Certificates will be issued and guaranteed as to timely distribution
of principal and interest by Fannie Mae.
This Prospectus Supplement is intended to be used in conjunction with the
REMIC Prospectus (defined herein). Investors should not purchase the
Certificates before reading this Prospectus Supplement, the REMIC Prospectus and
the additional Disclosure Documents (defined herein). Such documents may be
obtained as described on page S-2.
------------------------
SEE "ADDITIONAL RISK FACTORS" ON PAGE S-7 HEREOF AND "CERTAIN RISK FACTORS"
BEGINNING ON PAGE 10 OF THE REMIC PROSPECTUS FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CERTIFICATES.
(Cover continued on next page)
------------------------
THE CERTIFICATES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS. NO INVESTOR
SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO
BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH SUCH
CERTIFICATES.
THE CERTIFICATES, TOGETHER WITH ANY INTEREST THEREON, ARE NOT GUARANTEED BY THE
UNITED STATES. THE OBLIGATIONS OF FANNIE MAE UNDER ITS GUARANTY OF THE
CERTIFICATES ARE OBLIGATIONS SOLELY OF FANNIE MAE AND DO NOT CONSTITUTE AN
OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF OTHER
THAN FANNIE MAE. THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES" WITHIN THE MEANING
OF THE SECURITIES EXCHANGE ACT OF 1934.
================================================================================
<TABLE>
<CAPTION>
ORIGINAL
CLASS PRINCIPAL INTEREST INTEREST
CLASS(1) GROUP BALANCE TYPE(2) RATE TYPE(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
F .......... 1 $ 22,500,000 SC/PT (3) FLT
FA .......... 1 18,575,000 SC/PT (3) FLT
SA .......... 1 5,867,857 SC/PT (3) INV
FB .......... 2 18,498,118 SC/PT (3) FLT
SB .......... 2 3,963,883 SC/PT (3) INV
FC .......... 3 17,098,252 SC/PT (3) FLT
SC .......... 3 2,442,607 SC/PT (3) INV
SD .......... 3 6,090,962(4) NTL (3) INV/IO
SE .......... 3 6,090,962(4) NTL (3) INV/IO
PO .......... 3 6,090,962 SC/PT (5) PO
</TABLE>
<TABLE>
<CAPTION>
FINAL
CUSIP DISTRIBUTION
CLASS(1) NUMBER DATE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
F 31359T A A 6 August 2023
FA 31359T A B 4 August 2023
SA 31359T A C 2 August 2023
FB 31359T A D 0 May 2013
SB 31359T A E 8 May 2013
FC 31359T A F 5 May 2023
SC 31359T A G 3 May 2023
SD 31359T A H 1 May 2023
SE 31359T A J 7 May 2023
PO 31359T A K 4 May 2023
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL
CLASS PRINCIPAL INTEREST INTEREST
CLASS(1) GROUP BALANCE TYPE(2) RATE TYPE(2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A .......... 4 $ 22,212,463 SC/PT 5.50% FIX
FD .......... 5 13,459,262 SC/PT (3) FLT
SK .......... 5 2,884,128 SC/PT (3) INV
SP .......... 5 8,918,077(4) NTL (3) INV/IO
SQ .......... 5 8,918,077(4) NTL (3) INV/IO
PL .......... 5 8,918,077 SC/PT (5) PO
FE .......... 6 8,371,998 SC/PT (3) FLT
SN .......... 6 3,219,999 SC/PT (3) INV
R .......... 0 NPR 0 NPR
RL .......... 0 NPR 0 NPR
</TABLE>
<TABLE>
<CAPTION>
FINAL
CUSIP DISTRIBUTION
CLASS(1) NUMBER DATE
- --------------------------------------
<S> <C> <C>
A 31359TAL2 December 2008
FD 31359TAM0 July 2023
SK 31359TAN8 July 2023
SP 31359TAP3 July 2023
SQ 31359TAQ1 July 2023
PL 31359TAR9 July 2023
FE 31359TAS7 May 2023
SN 31359TAT5 May 2023
R 31359TAU2 August 2023
RL 31359TAV0 August 2023
</TABLE>
================================================================================
(1) The SG, SH, SJ, SM, SO, SL and B Classes are RCR Classes. See "Description
of the Certificates -- Combination and Recombination" herein and Schedule 1
hereto for a description of the RCR Classes.
(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.
(3) The F, FA, SA, FB, SB, FC, SC, SD, SE, FE and SN Classes will bear interest
based on "LIBOR," the FD and SK Classes will bear interest based on the
"10-Year Treasury Index" and the SP and SQ Classes will bear interest based
on "COFI," as described under "Description of the
Certificates--Distributions of Interest" herein and "Description of the
Certificates--Indices Applicable to Floating Rate and Inverse Floating Rate
Classes" in the REMIC Prospectus.
(4) These Classes will be Notional Classes, will not have principal balances and
will bear interest on their respective notional principal balances. The
notional principal balances of the Notional Classes initially will be as set
forth above and thereafter will be calculated as specified herein. See
"Description of the Certificates--Distributions of Interest--Notional
Classes" herein.
(5) These Classes will be Principal Only Classes and will bear no interest.
------------------------
The Certificates will be offered by Bear, Stearns & Co. Inc. (the "Dealer")
from time to time in negotiated transactions, at varying prices to be determined
at the time of sale.
The Certificates will be offered by the Dealer, subject to issuance by
Fannie Mae, to prior sale or to withdrawal or modification of the offer without
notice, when, as and if delivered to and accepted by the Dealer, and subject to
approval of certain legal matters by counsel. It is expected that the FC and FD
Classes and the Group 1, Group 2 and Group 4 Classes will be available through
the book-entry system of the Federal Reserve Banks and that the SC, SD, SE, PO,
SK, SP, SQ and PL Classes, the Group 6 Classes and the RCR Certificates will be
available through the book-entry facilities of The Depository Trust Company on
or about March 30, 1998 (the "Settlement Date"). It is expected that the R and
RL Classes in registered, certificated form will be available for delivery at
the offices of the Dealer, 245 Park Avenue, New York, New York 10167, on or
about the Settlement Date.
------------------------
BEAR, STEARNS & CO. INC.
MARCH 5, 1998
<PAGE> 58
(Cover continued from previous page)
Certain of the REMIC Certificates may, upon notice and payment of an
exchange fee, be exchanged for the related Combinable and Recombinable REMIC
Certificates ("RCR Certificates") as provided herein. Each RCR Certificate
issued in such an exchange will represent a beneficial ownership interest in,
and will entitle the Holder thereof to receive a proportionate share of the
distributions on, the related REMIC Certificates. Certain characteristics of the
RCR Certificates are set forth in Schedule 1 hereto. As used herein, unless the
context requires otherwise, the term "Certificates" includes REMIC Certificates
and RCR Certificates and the term "Classes" includes the Classes of REMIC
Certificates and RCR Certificates. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 hereto.
THE YIELDS TO INVESTORS IN THE GROUP 1, GROUP 2, GROUP 3, GROUP 4, GROUP 5
AND GROUP 6 CLASSES WILL BE SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS,
THE RATE OF PRINCIPAL DISTRIBUTIONS OF THE RELATED UNDERLYING REMIC
CERTIFICATES, WHICH IN TURN WILL BE SENSITIVE IN VARYING DEGREES TO THE RATE OF
PRINCIPAL PAYMENTS OF THE RELATED MORTGAGE LOANS, THE CHARACTERISTICS OF THE
MORTGAGE LOANS INCLUDED IN THE RELATED POOLS AND THE PRIORITY SEQUENCES
AFFECTING DISTRIBUTIONS ON THE UNDERLYING REMIC CERTIFICATES. THE YIELD TO
INVESTORS IN EACH CLASS WILL ALSO BE SENSITIVE TO THE PURCHASE PRICE PAID FOR
SUCH CLASS AND, IN THE CASE OF ANY FLOATING RATE OR INVERSE FLOATING RATE CLASS,
FLUCTUATIONS IN THE LEVEL OF THE APPLICABLE INDEX (AS DEFINED HEREIN).
ACCORDINGLY, INVESTORS SHOULD CONSIDER THE FOLLOWING RISKS:
- THE MORTGAGE LOANS GENERALLY MAY BE PREPAID AT ANY TIME WITHOUT
PENALTY, AND, ACCORDINGLY, THE RATE OF PRINCIPAL PAYMENTS THEREON IS
LIKELY TO VARY CONSIDERABLY FROM TIME TO TIME.
- SLIGHT VARIATIONS IN MORTGAGE LOAN CHARACTERISTICS COULD SUBSTANTIALLY
AFFECT THE WEIGHTED AVERAGE LIVES AND YIELDS OF SOME OR ALL OF THE
CLASSES.
- IN THE CASE OF ANY CERTIFICATES PURCHASED AT A DISCOUNT TO THEIR
PRINCIPAL AMOUNTS (INCLUDING ANY PRINCIPAL ONLY CLASS), A SLOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS IS LIKELY TO RESULT IN A LOWER
THAN ANTICIPATED YIELD.
- IN THE CASE OF ANY CERTIFICATES PURCHASED AT A PREMIUM TO THEIR
PRINCIPAL AMOUNTS, A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
IS LIKELY TO RESULT IN A LOWER THAN ANTICIPATED YIELD.
- IN THE CASE OF ANY INTEREST ONLY CLASS, A FASTER THAN ANTICIPATED RATE
OF PRINCIPAL PAYMENTS IS LIKELY TO RESULT IN A LOWER THAN ANTICIPATED
YIELD AND, IN CERTAIN CASES, AN ACTUAL LOSS ON THE INVESTMENT.
- THE YIELD ON ANY FLOATING RATE OR INVERSE FLOATING RATE CLASS WILL BE
SENSITIVE TO THE LEVEL OF THE APPLICABLE INDEX. SEE "DESCRIPTION OF THE
CERTIFICATES--DISTRIBUTIONS OF INTEREST--FLOATING RATE AND INVERSE
FLOATING RATE CLASSES" HEREIN.
SEE "CERTAIN RISK FACTORS--YIELD CONSIDERATIONS" IN THE REMIC PROSPECTUS AND
"ADDITIONAL RISK FACTORS--ADDITIONAL YIELD AND PREPAYMENT CONSIDERATIONS" AND
"DESCRIPTION OF THE CERTIFICATES--YIELD TABLES" HEREIN.
IN ADDITION, INVESTORS SHOULD PURCHASE CERTIFICATES ONLY AFTER CONSIDERING
THE FOLLOWING:
- THE ACTUAL FINAL PAYMENT OF ANY CLASS WILL LIKELY OCCUR EARLIER, AND
COULD OCCUR MUCH EARLIER, THAN THE FINAL DISTRIBUTION DATE FOR SUCH
CLASS SPECIFIED ON THE COVER PAGE. SEE "DESCRIPTION OF THE
CERTIFICATES--WEIGHTED AVERAGE LIVES OF THE CERTIFICATES" HEREIN AND
"DESCRIPTION OF THE CERTIFICATES--WEIGHTED AVERAGE LIFE AND FINAL
DISTRIBUTION DATES" IN THE REMIC PROSPECTUS.
- THE RATE OF PRINCIPAL DISTRIBUTIONS OF THE CERTIFICATES IS UNCERTAIN
AND INVESTORS MAY BE UNABLE TO REINVEST THE DISTRIBUTIONS THEREON AT
YIELDS EQUALING THE YIELDS ON THE CERTIFICATES. SEE "CERTAIN RISK
FACTORS--SUITABILITY AND REINVESTMENT CONSIDERATIONS" IN THE REMIC
PROSPECTUS.
- INVESTORS WHOSE INVESTMENT ACTIVITIES ARE SUBJECT TO LEGAL INVESTMENT
LAWS AND REGULATIONS OR TO REVIEW BY REGULATORY AUTHORITIES MAY BE
SUBJECT TO RESTRICTIONS ON INVESTMENT IN CERTAIN CLASSES OF THE
CERTIFICATES. INVESTORS SHOULD CONSULT THEIR LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE CERTIFICATES CONSTITUTE LEGAL INVESTMENTS
OR ARE SUBJECT TO RESTRICTIONS ON INVESTMENT. SEE "LEGAL INVESTMENT
CONSIDERATIONS" IN THE REMIC PROSPECTUS.
- THE DEALER INTENDS TO MAKE A MARKET FOR THE CERTIFICATES BUT IS NOT
OBLIGATED TO DO SO. THERE CAN BE NO ASSURANCE THAT SUCH A SECONDARY
MARKET WILL DEVELOP OR, IF DEVELOPED, THAT IT WILL CONTINUE. THUS,
INVESTORS MAY NOT BE ABLE TO SELL THEIR CERTIFICATES READILY OR AT
PRICES THAT WILL ENABLE THEM TO REALIZE THEIR ANTICIPATED YIELD. NO
INVESTOR SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS
AND IS ABLE TO BEAR THE RISK THAT THE VALUE OF THE CERTIFICATES WILL
FLUCTUATE OVER TIME AND THAT THE CERTIFICATES MAY NOT BE READILY
SALABLE.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus Supplement, the REMIC Prospectus or the
Prospectus Supplements for the Underlying REMIC Trusts (collectively, the
"Underlying REMIC Disclosure Documents"). Any representation to the contrary is
a criminal offense.
Elections will be made to treat the Lower Tier REMIC and the Trust as "real
estate mortgage investment conduits" ("REMICs") pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). The R and RL Classes will be subject to
transfer restrictions. See "Description of the Certificates--Characteristics of
the R and RL Classes" and "Certain Additional Federal Income Tax Consequences"
herein, and "Description of the Certificates--Additional Characteristics of
Residual Certificates" and "Certain Federal Income Tax Consequences" in the
REMIC Prospectus.
Investors should purchase the Certificates only if they have read and
understood this Prospectus Supplement and the following documents (collectively,
the "Disclosure Documents"):
- Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through Certificates
dated November 12, 1997 (the "REMIC Prospectus");
- Fannie Mae's Information Statement dated March 31, 1997 and any
supplements thereto (collectively, the "Information Statement"); and
- The Underlying REMIC Disclosure Documents.
The Information Statement is incorporated herein by reference and, together
with the other Disclosure Documents, may be obtained from Fannie Mae by writing
or calling its MBS Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S,
Washington, D.C. 20016 (telephone 1-800-BEST-MBS or 202-752-6547). Such
documents, other than the Underlying REMIC Disclosure Documents, may also be
obtained from Bear, Stearns & Co. Inc. by writing or calling its Prospectus
Department at One Metro Tech Center North, Brooklyn, New York 11201 (telephone
718-272-1581).
S-2
<PAGE> 59
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REFERENCE SHEET...................... S- 4
ADDITIONAL RISK FACTORS.............. S- 7
Additional Yield and Prepayment
Considerations.................. S- 7
DESCRIPTION OF THE CERTIFICATES...... S- 7
General............................ S- 8
Structure....................... S- 8
Fannie Mae Guaranty............. S- 8
Characteristics of
Certificates.................. S- 8
Authorized Denominations........ S- 9
Distribution Dates.............. S- 9
Record Date..................... S- 9
REMIC Trust Factors............. S- 9
Optional Termination............ S- 9
Voting the Underlying REMIC
Certificates.................. S- 9
Combination and Recombination...... S- 9
General......................... S- 9
Procedures...................... S-10
Additional Considerations....... S-10
Book-Entry Procedures.............. S-10
General......................... S-10
Method of Distribution.......... S-11
The Underlying REMIC Certificates.. S-11
Final Data Statement............... S-12
Distributions of Interest.......... S-12
Categories of Classes........... S-12
General......................... S-12
Interest Accrual Periods........ S-13
Notional Classes................ S-13
Floating Rate and Inverse
Floating Rate Classes......... S-13
Calculation of LIBOR............... S-13
Calculation of 10-Year Treasury
Index........................... S-14
Calculation of COFI................ S-14
Distributions of Principal......... S-14
Categories of Classes........... S-14
Principal Distribution Amount... S-15
Group 1 Principal Distribution
Amount........................ S-16
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Group 2 Principal Distribution
Amount........................ S-16
Group 3 Principal Distribution
Amount........................ S-16
Group 4 Principal Distribution
Amount........................ S-16
Group 5 Principal Distribution
Amount........................ S-16
Group 6 Principal Distribution
Amount........................ S-16
Structuring Assumptions............ S-16
Pricing Assumptions............. S-16
Prepayment Assumptions.......... S-16
Yield Tables....................... S-17
General......................... S-17
The Inverse Floating Rate
Classes and the SG, SH, SJ,
SM, SO and SL Classes......... S-17
The Principal Only Classes...... S-21
Weighted Average Lives of the
Certificates.................... S-21
Decrement Tables................... S-22
Characteristics of the R and RL
Classes......................... S-24
CERTAIN ADDITIONAL FEDERAL INCOME TAX
CONSEQUENCES....................... S-24
REMIC Elections and Special Tax
Attributes...................... S-24
Taxation of Beneficial Owners of
Regular Certificates............ S-25
Taxation of Beneficial Owners of
Residual Certificates........... S-25
Taxation of Beneficial Owners of
RCR Certificates................ S-25
General......................... S-25
Combination RCR Classes......... S-25
Exchanges....................... S-25
PLAN OF DISTRIBUTION................. S-26
LEGAL MATTERS........................ S-26
EXHIBIT A............................ A-1
SCHEDULE 1........................... A-2
</TABLE>
S-3
<PAGE> 60
REFERENCE SHEET
THIS REFERENCE SHEET IS NOT A SUMMARY OF THE REMIC TRANSACTION AND IT DOES
NOT CONTAIN COMPLETE INFORMATION ABOUT THE CERTIFICATES. INVESTORS SHOULD
PURCHASE THE CERTIFICATES ONLY AFTER READING THIS PROSPECTUS SUPPLEMENT AND EACH
OF THE ADDITIONAL DISCLOSURE DOCUMENTS DESCRIBED HEREIN IN THEIR ENTIRETY.
CHARACTERISTICS OF THE UNDERLYING REMIC CERTIFICATES
The table contained in Exhibit A hereto sets forth information with respect
to the Underlying REMIC Certificates, including certain information regarding
the underlying Mortgage Loans. Certain additional information as to the
Underlying REMIC Certificates may be obtained by performing an analysis of
current Fannie Mae principal factors in the context of applicable information
contained in the related Underlying REMIC Disclosure Documents, which may be
obtained from Fannie Mae as described herein.
See "Description of the Certificates--The Underlying REMIC Certificates"
herein.
COMBINATION AND RECOMBINATION
Holders of certain REMIC Certificates will be entitled, upon notice and
payment of an exchange fee, to exchange all or a portion of such Certificates
for a proportionate interest in the related RCR Certificates as reflected on
Schedule 1 hereto. The Holders of RCR Certificates will be entitled to receive
distributions from the related REMIC Certificates. See "Description of the
Certificates--Combination and Recombination" herein. Schedule 1 sets forth all
of the available combinations of REMIC Certificates and the related RCR
Certificates.
INTEREST RATES
The Fixed Rate Class will bear interest at the applicable per annum
interest rate set forth on the cover.
The Floating Rate and Inverse Floating Rate Classes will bear interest
during the initial Interest Accrual Period at initial interest rates specified
or determined as described below, and will bear interest during each Interest
Accrual Period thereafter, subject to the applicable maximum and minimum
interest rates, at rates determined as described below:
<TABLE>
<CAPTION>
INITIAL MAXIMUM MINIMUM FORMULA FOR
INTEREST INTEREST INTEREST CALCULATION OF
CLASS RATE RATE RATE INTEREST RATE(1)
----- -------- -------- -------- ----------------
<S> <C> <C> <C> <C>
F .................. 6.57500% 8.00000% 0.95% LIBOR + 95 basis points
FA .................. 6.57500% 8.00000% 0.95% LIBOR + 95 basis points
SA .................. 9.97500% 49.35000% 0.00% 49.35% - (7 X LIBOR)
FB .................. 6.12500% 8.50000% 0.50% LIBOR + 50 basis points)
SB .................. 11.08333% 37.33333% 0.00% 37.33333% - (4.666666 X LIBOR)
FC .................. 6.57500% 8.00000% 0.95% LIBOR + 95 basis points
SC .................. 9.97500% 49.35000% 0.00% 49.35% - (7 X LIBOR)
SD................... 4.30209%(2) 17.50005% 0.00% 17.50005% - (2.33334 X LIBOR)
SE................... 2.91662%(2) 2.91662% 0.00% 20.41667% - (2.33334 X LIBOR)
FD .................. 5.93000% 8.50000% 0.30% 10-Year Treasury Index + 30 basis points
SK .................. 11.99333% 38.26667% 0.00% 38.26667% - (4.66666667 X 10-Year Treasury Index)
SP .................. 5.86366% 17.50000% 0.00% 17.50000% - (2.33333333 X COFI)
SQ .................. 2.91666% 2.91666% 0.00% 20.41666% - (2.33333333 X COFI)
FE................... 6.08750%(2) 9.00000% 0.40% LIBOR + 40 basis points
SN................... 7.57250%(2) 22.36000% 0.00% 22.36% - (2.6 X LIBOR)
SG................... 7.21871%(2) 20.41667% 0.00% 20.41667% - (2.33334 X LIBOR)
SH................... 7.21871%(2) 20.41667% 0.00% 20.41667% - (2.33334 X LIBOR)
SJ .................. 2.85519% 14.12570% 0.00% 14.12570% - (2.003645 X LIBOR)
SM................... 2.93083% 9.35130% 0.00% 9.35130% - (1.140402 X 10-Year Treasury Index)
SO .................. 8.78032% 20.41666% 0.00% 20.41666% - (2.33333333 X COFI)
SL .................. 8.78032% 20.41666% 0.00% 20.41666% - (2.33333333 X COFI)
</TABLE>
- ---------------
(1) LIBOR will be established on the basis of the "BBA Method" in the case of
the F, FA, SA, FB, SB, FC, SC, FE, SN and SJ Classes, and will be
established on the basis of the "LIBO Method" in the case of the SD, SE, SG
and SH Classes. See "Description of the Certificates--Calculation of LIBOR"
herein.
(2) The initial interest rates for these Classes are assumed rates. The actual
initial interest rates for these Classes will be calculated on the basis of
the applicable formulas for the calculation of such interest rates on the
Index Determination Date occurring on March 23, 1998.
S-4
<PAGE> 61
See "Description of the Certificates--Distributions of Interest--Floating
Rate and Inverse Floating Rate Classes" herein.
Distributions of interest to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
NOTIONAL CLASSES
The notional principal balances of the Notional Classes will be equal to
the indicated percentages of the outstanding balances specified below
immediately prior to the related Distribution Date:
<TABLE>
<CAPTION>
CLASSES
-------
<S> <C>
SD ......................................................... 100% of PO Class
SE ......................................................... 100% of PO Class
SG ......................................................... 100% of PO Class
SL ......................................................... 100% of PL Class
SP ......................................................... 100% of PL Class
SQ ......................................................... 100% of PL Class
</TABLE>
See "Description of the Certificates--Distributions of Interest--Notional
Classes" and "--Yield Tables--The Inverse Floating Rate Classes and the SG, SH,
SJ, SM, SO and SL Classes" herein.
DISTRIBUTIONS OF PRINCIPAL
The portion of the Principal Distribution Amount allocated to each Class of
Certificates will be determined as described herein under "Description of the
Certificates--Distributions of Principal--Principal Distribution Amount."
Group 1 Principal Distribution Amount
To the F, FA and SA Classes, pro rata, to zero.
Group 2 Principal Distribution Amount
To the FB and SB Classes, pro rata, to zero.
Group 3 Principal Distribution Amount
To the FC, SC and PO Classes, pro rata, to zero.
Group 4 Principal Distribution Amount
To the A Class, to zero.
Group 5 Principal Distribution Amount
To the FD, SK and PL Classes, pro rata, to zero.
Group 6 Principal Distribution Amount
To the FE and SN Classes, pro rata, to zero.
Distributions of principal to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
S-5
<PAGE> 62
WEIGHTED AVERAGE LIVES (YEARS)*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 1 CLASSES 0% 100% 195% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
F, FA and SA.................. 25.0 21.9 16.2 2.2 1.0
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 2 CLASSES 0% 100% 195% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FB and SB..................... 14.5 11.7 5.8 0.9 0.5
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 3 CLASSES 0% 100% 195% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FC, SC, SD, SE, PO, SG, SH and
SJ.......................... 24.6 20.8 14.4 1.9 0.9
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 4 CLASS 0% 100% 130% 350% 500%
------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A............................. 10.2 9.2 8.9 2.0 0.9
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 5 CLASSES 0% 100% 195% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FD, SK, SP, SQ, PL, SM, SO and
SL.......................... 24.6 20.3 13.3 1.9 0.9
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 6 CLASSES 0% 100% 260% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FE, SN and B.................. 23.0 15.8 7.0 2.3 0.9
</TABLE>
-------------------------
* Determined as specified under "Description of the
Certificates--Weighted Average Lives of the Certificates" herein.
S-6
<PAGE> 63
ADDITIONAL RISK FACTORS
ADDITIONAL YIELD AND PREPAYMENT CONSIDERATIONS
The rate of principal distributions of the Group 1, Group 2, Group 3, Group
4, Group 5 and Group 6 Classes will be directly related to the rate of principal
distributions of the related Underlying REMIC Certificates, which in turn will
be sensitive in varying degrees to the rate of payments of principal (including
prepayments) of the related Mortgage Loans and the priority sequences affecting
distributions on the Underlying REMIC Certificates. As described in the related
Underlying REMIC Disclosure Documents, the Underlying REMIC Certificates are
subordinate in priority of principal distributions to certain other classes of
certificates evidencing beneficial ownership interests in the related Underlying
REMIC Trusts and, accordingly, distributions of principal of the related
Mortgage Loans may for extended periods be applied to the distribution of
principal of those classes of certificates having priority over such Underlying
REMIC Certificates. In particular, certain of the Underlying REMIC Certificates
are Support classes that are entitled to receive principal distributions on any
Distribution Date only if scheduled distributions have been made on other
specified classes of certificates evidencing beneficial ownership interests in
the related Underlying REMIC Trusts. Accordingly, such Underlying REMIC
Certificates may receive no principal distributions for extended periods of time
or may receive principal distributions that vary widely from period to period.
In addition, certain of the Underlying REMIC Certificates have Principal Balance
Schedules and, as a result, may receive principal distributions at a rate faster
or slower than would otherwise have been the case (and in some cases may receive
no distributions of principal for extended periods). Prepayments on the related
Mortgage Loans may have occurred at a rate faster or slower than that initially
assumed. This Prospectus Supplement contains no information as to whether such
classes have adhered to their Principal Balance Schedules, whether any related
Support classes remain outstanding or whether such classes otherwise have
performed as originally anticipated. Additional information as to the Underlying
REMIC Certificates may be obtained by performing an analysis of current Fannie
Mae principal factors in the context of applicable information contained in the
related Underlying REMIC Disclosure Documents, which may be obtained from Fannie
Mae as described herein.
It is highly unlikely that the Mortgage Loans underlying the Underlying
REMIC Certificates will prepay at any of the rates assumed herein, will prepay
at a constant PSA rate until maturity or that such Mortgage Loans will prepay at
the same rate. Investors must make their own decisions as to the appropriate
assumptions, including prepayment assumptions, to be used in deciding whether to
purchase the Certificates.
The effective yields on the Delay Classes (as defined herein) will be
reduced below the yields otherwise produced because principal and interest
payable on a Distribution Date will not be distributed until on or about the
25th day following the end of the related Interest Accrual Period and will not
bear interest during such delay. As a result of the foregoing, the market values
of the Delay Classes will be lower than would have been the case if there were
no such delay. No interest at all will be paid on any Class after its principal
balance has been reduced to zero.
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the remaining provisions of this Prospectus
Supplement, the additional Disclosure Documents and the provisions of the Trust
Agreement (defined below). Capitalized terms used and not otherwise defined in
this Prospectus Supplement have the meanings assigned to such terms in the
applicable Disclosure Document or the Trust Agreement (as the context may
require).
S-7
<PAGE> 64
GENERAL
Structure. The Trust and the Lower Tier REMIC will be created pursuant to
a trust agreement dated as of March 1, 1998 (the "Trust Agreement"), executed by
the Federal National Mortgage Association ("Fannie Mae") in its corporate
capacity and in its capacity as trustee (the "Trustee"), and the Certificates in
the Classes and aggregate original principal balances set forth on the cover
hereof will be issued by Fannie Mae pursuant thereto. A description of Fannie
Mae and its business, together with certain financial statements and other
financial information, is contained in the Information Statement.
The Certificates (other than the R and RL Classes) will be designated as
the "regular interests," and the R Class will be designated as the "residual
interest," in the REMIC constituted by the Trust. The interests in the Lower
Tier REMIC other than the RL Class (the "Lower Tier Regular Interests") will be
designated as the "regular interests," and the RL Class will be designated as
the "residual interest," in the Lower Tier REMIC. The assets of the Lower Tier
REMIC will consist of the Underlying REMIC Certificates (which evidence
beneficial ownership interests in the Underlying REMIC Trusts).
Fannie Mae Guaranty. Fannie Mae guarantees to each holder of an MBS the
timely payment of scheduled installments of principal of and interest on the
underlying Mortgage Loans, whether or not received, together with the full
principal balance of any foreclosed Mortgage Loan, whether or not such balance
is actually recovered. The guaranty obligations of Fannie Mae with respect to
the Underlying REMIC Certificates are described in the Underlying REMIC
Disclosure Documents. In addition, Fannie Mae will be obligated to distribute on
a timely basis to the Holders of Certificates required installments of principal
and interest and to distribute the principal balance of each Class of
Certificates in full no later than the applicable Final Distribution Date,
whether or not sufficient funds are available in the Trust Account. The
guaranties of Fannie Mae are not backed by the full faith and credit of the
United States. See "Description of the Certificates--Fannie Mae's Guaranty" in
the REMIC Prospectus and "Description of the Certificates--General--Fannie Mae
Guaranty" in the related Underlying REMIC Disclosure Documents.
Characteristics of Certificates. The FC and FD Classes and the Group 1,
Group 2 and Group 4 Classes (the "Fed Book-Entry Certificates") will be issued
and maintained and may be transferred by Holders only on the book-entry system
of the Federal Reserve Banks. Such entities whose names appear on the book-entry
records of a Federal Reserve Bank as the entities for whose accounts such
Certificates have been deposited are herein referred to as "Holders" or
"Certificateholders."
The SC, SD, SE, PO, SK, SP, SQ and PL Classes, the Group 6 Classes and the
RCR Certificates will be represented by one or more certificates (the "DTC
Certificates") to be registered at all times in the name of the nominee of the
Depository (as defined herein), which Depository will maintain such Certificates
through its book-entry facilities. When used herein with respect to any DTC
Certificate, the terms "Holders" and "Certificateholders" refer to the nominee
of the Depository.
A Holder is not necessarily the beneficial owner of a book-entry
Certificate. Beneficial owners will ordinarily hold book-entry Certificates
through one or more financial intermediaries, such as banks, brokerage firms and
securities clearing organizations. See "Description of the
Certificates--Denominations, Certificate Form" in the REMIC Prospectus.
The R and RL Certificates will not be issued in book-entry form but will be
issued in fully registered, certificated form. As to the R or RL Certificate,
"Holder" or "Certificateholder" refers to the registered owner thereof. The R or
RL Certificates will be transferable at the corporate trust office of the
Transfer Agent, or at the agency of the Transfer Agent in New York, New York.
The Transfer Agent initially will be State Street Bank and Trust Company in
Boston, Massachusetts ("State Street"). A service charge may be imposed for any
registration of transfer of the R or RL Certificate and Fannie Mae may require
payment of a sum sufficient to cover any tax or other governmental charge. See
also "Characteristics of the R and RL Classes" herein.
S-8
<PAGE> 65
The distribution to the Holder of the R and RL Classes of the proceeds of
any remaining assets of the Trust and the Lower Tier REMIC, as applicable, will
be made only upon presentation and surrender of the related Certificate at the
office of the Paying Agent. The Paying Agent initially will be State Street.
Authorized Denominations. The Certificates, other than the R and RL
Certificates, will be issued in minimum denominations of $1,000 and integral
multiples of $1 in excess thereof. The R and RL Classes will be issued as single
Certificates and will not have principal balances.
Distribution Dates. Distributions on the Certificates will be made on the
25th day of each month (or, if the 25th day is not a business day, on the first
business day next succeeding such 25th day) (each, a "Distribution Date"),
commencing in the month following the Settlement Date.
Record Date. Each monthly distribution on the Certificates will be made to
Holders of record on the last day of the preceding month.
REMIC Trust Factors. As soon as practicable following the eleventh
calendar day of each month, Fannie Mae will publish or otherwise make available
for each Class of Certificates the factor (carried to eight decimal places)
which, when multiplied by the original principal balance of a Certificate of
such Class, will equal the remaining principal balance of such Certificate after
giving effect to the distribution of principal to be made on the following
Distribution Date.
Optional Termination. Consistent with its policy described under
"Description of Certificates--Termination" in the MBS Prospectus, Fannie Mae
will agree not to effect indirectly an early termination of the Lower Tier REMIC
or the Trust through the exercise of its right to repurchase the Mortgage Loans
underlying any MBS unless only one Mortgage Loan remains in the related Pool or
the principal balance of such Pool at the time of repurchase is less than one
percent of the original principal balance thereof.
Voting the Underlying REMIC Certificates. In the event any issue arises
under the trust agreement governing any of the Underlying REMIC Trusts that
requires the vote of holders of certificates outstanding thereunder, the Trustee
will vote the related Underlying REMIC Certificates in accordance with
instructions received from Holders of Certificates of the related Classes having
principal balances aggregating not less than 51% of the aggregate principal
balance of all such Classes outstanding. In the absence of such instructions,
the Trustee will vote in a manner consistent, in its sole judgment, with the
best interests of Certificateholders.
COMBINATION AND RECOMBINATION
General. Subject to the rules, regulations and procedures of the
Depository, all or a portion of the SD, SE, PO, SC, SK, PL, SP, SQ, FE and SN
Classes of REMIC Certificates may be exchanged for a proportionate interest in
one or more RCR Certificates as reflected on Schedule 1 hereto. Similarly, all
or a portion of one or more RCR Certificates may be exchanged as reflected on
Schedule 1, for certain REMIC Certificates. This process may occur repeatedly.
The RCR Certificates issued in an exchange will represent a beneficial
ownership interest in, and will be entitled to receive a proportionate share of
the distributions on, the related REMIC Certificates, and the Holders of RCR
Certificates will be treated as the beneficial owners of a proportionate
interest in the related REMIC Certificates.
The Classes of REMIC Certificates and RCR Certificates that are outstanding
at any given time, and the outstanding principal balances (or notional principal
balances) of such Classes, will depend upon any related distributions of
principal as well as any exchanges that occur. The principal balances and/or
notional principal balances of the REMIC Certificates and RCR Certificates
involved in any exchange will bear the same relationship as that borne by the
original principal balances and/or original notional principal balances of the
related Classes.
S-9
<PAGE> 66
Procedures. A Holder proposing to effect an exchange must notify Fannie
Mae's Capital Markets Department through a dealer who is a member of Fannie
Mae's "REMIC Dealer Group." Such notice must be given in writing or by telefax
not later than two business days before the proposed exchange date (which date,
subject to Fannie Mae's approval, can be any business day other than the first
or last business day of the month). The notice must include the outstanding
principal balance of both the Certificates to be exchanged and the Certificates
to be received, and the proposed exchange date. Promptly after the receipt of a
Holder's notice, Fannie Mae will telephone the dealer to provide instructions
for delivering the Certificates and the exchange fee to Fannie Mae by wire
transfer. A Holder's notice becomes irrevocable on the second business day
before the proposed exchange date.
A fee will be payable to Fannie Mae in connection with each exchange equal
to 1/32 of 1% of the outstanding principal balance (exclusive of any notional
principal balance) of the Certificates to be submitted for exchange, provided
that the fee payable in connection with each exchange will in no event be less
than $2,000.
The first distribution on a REMIC Certificate or an RCR Certificate
received in an exchange transaction will be made on the Distribution Date in the
month following the month of the exchange. Such distribution will be made to the
Holder of record as of the close of business on the last day of the month of the
exchange.
Additional Considerations. The characteristics of RCR Certificates will
reflect the characteristics of the REMIC Certificates used to form such RCR
Certificates.
At any given time, a Holder's ability to exchange REMIC Certificates for
RCR Certificates or to exchange RCR Certificates for REMIC Certificates will be
limited by a number of factors. A Holder must, at the time of the proposed
exchange, own Certificates of the Class or of the related Classes in the
proportions necessary to effect a desired exchange. A Holder that does not own
Certificates of the related Classes in the necessary proportions may not be able
to obtain the necessary REMIC Certificates or RCR Certificates, as applicable.
The Holder of needed Certificates may refuse or be unable to sell at a
reasonable price or any price, or certain Certificates may have been purchased
and placed into other financial structures. In addition, principal distributions
will, over time, diminish the amounts available for exchange. Only the
combinations listed on Schedule 1 are permitted.
BOOK-ENTRY PROCEDURES
General. The Fed Book-Entry Certificates will be issued and maintained
only on the book-entry system of the Federal Reserve Banks. Such Certificates
may be held of record only by entities eligible to maintain book-entry accounts
with the Federal Reserve Banks. Beneficial owners ordinarily will hold such
Certificates through one or more financial intermediaries, such as banks,
brokerage firms and securities clearing organizations. A Holder that is not the
beneficial owner of such a Certificate, and each other financial intermediary in
the chain to the beneficial owner, will have the responsibility of establishing
and maintaining accounts for their respective customers. The rights of the
beneficial owner of such a Certificate with respect to Fannie Mae and the
Federal Reserve Banks may be exercised only through the Holder of such
Certificate. Fannie Mae and the Federal Reserve Banks will have no direct
obligation to a beneficial owner of such a Certificate that is not also the
Holder of the Certificate. The Federal Reserve Banks will act only upon the
instructions of the Holder in recording transfers of such a Certificate. See
"Description of the Certificates--Denominations, Certificate Form" in the REMIC
Prospectus.
The DTC Certificates will be registered at all times in the name of the
nominee of The Depository Trust Company, a New York-chartered limited purpose
trust company, or any successor depository selected or approved by Fannie Mae
(the "Depository"). In accordance with its normal procedures, the Depository
will record the positions held by each Depository participating firm (each, a
"Depository Participant") in the DTC Certificates, whether held for its own
account or as a nominee for another person. State Street will act as Paying
Agent for, and perform certain administrative functions with respect to, the DTC
Certificates.
S-10
<PAGE> 67
No person acquiring a beneficial ownership interest in the DTC Certificates
(a "beneficial owner" or an "investor") will be entitled to receive a physical
certificate representing such ownership interest. An investor's interest in the
DTC Certificates will be recorded on the records of the brokerage firm, bank,
thrift institution or other financial intermediary (a "financial intermediary")
that maintains such investor's account for such purpose. In turn, the financial
intermediary's record ownership of such interest will be recorded on the records
of the Depository (or of a Depository Participant that acts as an agent for the
financial intermediary if such intermediary is not a Depository Participant).
Accordingly, an investor will not be recognized by the Trustee or the Depository
as a Certificateholder and must rely on the foregoing arrangements to evidence
its interest in the DTC Certificates. Beneficial ownership of an investor's
interest in the DTC Certificates may be transferred only by compliance with the
procedures of an investor's financial intermediary and of Depository
Participants. In general, beneficial ownership of an investor's interest in the
DTC Certificates will be subject to the rules, regulations and procedures
governing the Depository and Depository Participants as in effect from time to
time.
Method of Distribution. Fannie Mae's fiscal agent for the Fed Book-Entry
Certificates is the Federal Reserve Bank of New York. The Federal Reserve Banks
will make distributions on such Certificates on behalf of Fannie Mae on the
applicable Distribution Dates by crediting Holders' accounts at the Federal
Reserve Banks.
Each distribution on the DTC Certificates will be distributed by the Paying
Agent to the Depository in immediately available funds. The Depository will be
responsible for crediting the amount of such distributions to the accounts of
the Depository Participants entitled thereto, in accordance with the
Depository's normal procedures, which currently provide for distributions in
same-day funds settled through the New York Clearing House. Each Depository
Participant and each financial intermediary will be responsible for disbursing
such distributions to the beneficial owners of the DTC Certificates that it
represents. Accordingly, the beneficial owners may experience some delay in
their receipt of distributions.
THE UNDERLYING REMIC CERTIFICATES
The Underlying REMIC Certificates represent beneficial ownership interests
in the related Underlying REMIC Trusts, the assets of which evidence beneficial
ownership interests in certain MBS having the general characteristics set forth
in the MBS Prospectus. Each MBS evidences beneficial ownership interests in a
Pool of conventional Level Payment Mortgage Loans secured by first mortgages or
deeds of trust on one- to four-family residential properties, as described under
"The Mortgage Pools" and "Yield Considerations" in the MBS Prospectus. The
Underlying REMIC Certificates provide that distributions thereon will be passed
through monthly, commencing in the month following the initial issuance thereof.
The general characteristics of the Underlying REMIC Certificates are described
in the related Underlying REMIC Disclosure Documents.
The table contained in Exhibit A hereto sets forth certain information with
respect to each of the Underlying REMIC Certificates, including the numerical
designation of the related trust, the class designation, the date of issue, the
CUSIP number, the interest rate, the interest type, the final distribution date,
the principal type, the original principal balance of the entire class, the
current principal factor for such class and the principal balance of such class
contained in the Lower Tier REMIC as of the Issue Date. The table also sets
forth the approximate weighted average WAC, approximate weighted average WAM and
approximate weighted average CAGE of the Mortgage Loans underlying the related
MBS as of the Issue Date, the underlying security type and the related Class
group.
To request further information regarding the Underlying REMIC Certificates,
telephone Fannie Mae at 1-800-BEST-MBS or 202-752-6547. Other data specific to
the Certificates is available in electronic form by calling Fannie Mae at
1-800-752-6440 or 202-752-6000. It should be noted that there may have been
material changes in facts and circumstances since the dates the Underlying
S-11
<PAGE> 68
REMIC Disclosure Documents were prepared, including, but not limited to, changes
in prepayment speeds and prevailing interest rates and other economic factors,
which may limit the usefulness of the information set forth in such documents.
FINAL DATA STATEMENT
Following the issuance of the Certificates, Fannie Mae will prepare a Final
Data Statement setting forth, among other information, the current principal
balances of the Underlying REMIC Certificates as of the Issue Date. The Final
Data Statement will not accompany this Prospectus Supplement but will be made
available by Fannie Mae. To request the Final Data Statement, telephone Fannie
Mae at 1-800-BEST-MBS or 202-752-6547. The contents of the Final Data Statement
and other data specific to the Certificates are available in electronic form by
calling Fannie Mae at 1-800-752-6440 or 202-752-6000.
DISTRIBUTIONS OF INTEREST
Categories of Classes
For the purpose of payments of interest, the Classes will be categorized as
follows:
<TABLE>
<CAPTION>
INTEREST TYPE* CLASSES
-------------- -------
<S> <C>
GROUP 1 CLASSES
Floating Rate F and FA
Inverse Floating Rate SA
GROUP 2 CLASSES
Floating Rate FB
Inverse Floating Rate SB
GROUP 3 CLASSES
Floating Rate FC
Inverse Floating Rate SC, SD and SE
Interest Only SD and SE
Principal Only PO
RCR** SG, SH and SJ
GROUP 4 CLASS
Fixed Rate A
GROUP 5 CLASSES
Floating Rate FD
Inverse Floating Rate SK, SP and SQ
Interest Only SP and SQ
Principal Only PL
RCR** SM, SO, and SL
GROUP 6 CLASSES
Floating Rate FE
Inverse Floating Rate SN
RCR** B
NO PAYMENT RESIDUAL R and RL
</TABLE>
- ---------------
* See "Description of the Certificates--Class Definitions and
Abbreviations" in the REMIC Prospectus.
** See "Description of the Certificates--Combination and
Recombination" herein and Schedule 1 for a further description of
the RCR Classes.
General. The interest-bearing Certificates will bear interest at the
applicable per annum interest rates set forth on the cover or described herein.
Interest on the interest-bearing Certificates is calculated on the basis of a
360-day year consisting of twelve 30-day months and is distributable monthly on
each Distribution Date, commencing in the month after the Settlement Date.
Distributions of interest to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
S-12
<PAGE> 69
Interest Accrual Periods. Interest to be distributed on a Distribution
Date will accrue on the interest-bearing Certificates during the one-month
periods set forth below (each, an "Interest Accrual Period").
<TABLE>
<CAPTION>
CLASSES INTEREST ACCRUAL PERIODS
------- ------------------------
<S> <C>
The SD, SE, FE, SN, SG and SH Classes One month period ending on the day
preceding the Distribution Date
All other interest-bearing Classes (collectively, Calendar month preceding the month in
the "Delay Classes") which the Distribution Date occurs
</TABLE>
See "Additional Risk Factors--Additional Yield and Prepayment Considerations"
herein.
Solely for purposes of facilitating the trading of the Principal Only
Classes, such Classes will be treated as Delay Classes.
Notional Classes. The Notional Classes will not have principal balances
and will bear interest at the applicable per annum interest rates described
herein during each Interest Accrual Period on their respective notional
principal balances. The notional principal balances of the Notional Classes will
be calculated as specified herein under "Reference Sheet--Notional Classes."
The notional principal balance of a Notional Class is used for purposes of the
determination of interest distributions thereon and does not represent an
interest in any distributions of principal. Although a Notional Class will not
have a principal balance, a REMIC Trust Factor (as described herein) will be
published with respect to such Class that will be applicable to the notional
principal balance thereof, and references herein to the principal balances of
the Certificates generally shall be deemed to refer also to the notional
principal balances of the Notional Classes.
Floating Rate and Inverse Floating Rate Classes. The Floating Rate and
Inverse Floating Rate Classes will bear interest during each Interest Accrual
Period, subject to applicable maximum and minimum interest rates, at rates
determined as described herein under "Reference Sheet--Interest Rates."
The yields with respect to such Classes will be affected by changes in the
index specified (each, an "Index"), which changes may not correlate with changes
in mortgage interest rates. It is possible that lower mortgage interest rates
could occur concurrently with an increase in the level of the applicable Index.
Conversely, higher mortgage interest rates could occur concurrently with a
decrease in the level of the applicable Index.
The establishment of each Index value by Fannie Mae and Fannie Mae's
determination of the rate or rates of interest for the applicable Class or
Classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning Fannie Mae at 1-800-BEST-MBS or 202-752-6547.
CALCULATION OF LIBOR
On each Index Determination Date, until the principal balances and notional
principal balances of the F, FA, SA, FB, SB, FC, SC, SD, SE, FE, SN, SG, SH and
SJ Classes have been reduced to zero, Fannie Mae will establish LIBOR for the
related Interest Accrual Period. LIBOR will be established on the basis of the
"BBA Method" in the case of F, FA, SA, FB, SB, FC, SC, FE, SN and SJ Classes and
will be established on the basis of the "LIBO Method" in the case of the SD, SE,
SG and SH Classes, as described in the REMIC Prospectus under "Description of
the Certificates--Indices Applicable to Floating Rate and Inverse Floating Rate
Classes--LIBOR." With respect to the "BBA Method," Interest Settlement Rates
currently are based on rates quoted by sixteen BBA designated banks and are
calculated by eliminating the four highest rates and the four lowest rates and
averaging the eight remaining rates.
If on the initial Index Determination Date, Fannie Mae is unable to
determine LIBOR in the manner specified in the REMIC Prospectus, LIBOR for the
next succeeding Interest Accrual Period
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<PAGE> 70
will be equal to LIBOR as determined for such Interest Accrual Period for the
related Underlying REMIC Certificate in the case of the FC, SC, SD, SE, SG, SH
and SJ Classes, and will be equal to 5.6250% in the case of the F, FA, SA, FB
and SB Classes and 5.6875% in the case of the FE and SN Classes.
CALCULATION OF 10-YEAR TREASURY INDEX
On each Index Determination Date, until the principal balances of the FD,
SK and SM Classes have been reduced to zero, Fannie Mae will ascertain the
average yield on U.S. Treasury securities, adjusted to a constant maturity of
ten years, in effect for the week ending on the last Friday immediately
preceding the related Index Determination Date in the manner described in the
REMIC Prospectus under "Description of the Certificates--Indices Applicable to
Floating Rate and Inverse Floating Rate Classes--Treasury Index" with respect to
yields on U.S. Treasury securities at "constant maturity."
CALCULATION OF COFI
Except as otherwise specified below, the amount of interest which will
accrue in respect of the SP, SQ, SO and SL Classes (the "COFI Classes") during
each Interest Accrual Period following its initial Interest Accrual Period will
be determined on the basis of the Eleventh District Cost of Funds Index for the
second month next preceding the month in which such Interest Accrual Period
commences if such Eleventh District Cost of Funds Index for such second
preceding month is published on or before the tenth day of the month in which
such Interest Accrual Period commences. For example, if the Eleventh District
Cost of Funds Index for May is announced on or before July 10, interest accrued
on the COFI Classes for the Interest Accrual Period commencing in July and
distributable in August will be based on the Eleventh District Cost of Funds
relating to May. If the Eleventh District Cost of Funds Index for the applicable
month is not published on or before the tenth day of the second following month,
interest will accrue on the COFI Classes at a rate determined as provided in the
REMIC Prospectus under "Description of the Certificates--Indices Applicable to
Floating Rate and Inverse Floating Rate Classes--COFI." Under certain
circumstances, an alternative index may be applicable to the COFI Classes. A
change of index from the Eleventh District Cost of Funds Index to an alternative
index will result in a change in the index level, and, particularly if LIBOR is
the alternative index, could increase the degree of index volatility.
For information regarding historical values of the Eleventh District Cost
of Funds Index as reported by the Federal Home Loan Bank of San Francisco
("FHLBSF"), see "Description of the Certificates--Indices Applicable to Floating
Rate and Inverse Floating Rate Classes--COFI" in the REMIC Prospectus.
The values of the Eleventh District Cost of Funds Index as reported by the
FHLBSF since October 1997 were as follows:
<TABLE>
<S> <C>
October 1997................................................ 4.957%
November 1997............................................... 4.949%
December 1997............................................... 4.963%
January 1998................................................ 4.987%
</TABLE>
DISTRIBUTIONS OF PRINCIPAL
Categories of Classes
For the purpose of payments of principal, the Classes will be categorized
as follows:
<TABLE>
<CAPTION>
PRINCIPAL TYPE* CLASSES
--------------- -------
<S> <C>
GROUP 1 CLASSES
Structured F, FA and SA
Collateral/Pass-Through
</TABLE>
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<PAGE> 71
<TABLE>
<CAPTION>
PRINCIPAL TYPE* CLASSES
--------------- -------
<S> <C>
GROUP 2 CLASSES
Structured FB and SB
Collateral/Pass-Through
GROUP 3 CLASSES
Structured FC, SC and PO
Collateral/Pass-Through
Notional SD and SE
RCR** SG, SH and SJ
GROUP 4 CLASS
Structured A
Collateral/Pass-Through
GROUP 5 CLASSES
Structured FD, SK and PL
Collateral/Pass-Through
Notional SP and SQ
RCR** SM, SO and SL
GROUP 6 CLASSES
Structured FE and SN
Collateral/Pass-Through
RCR** B
NO PAYMENT RESIDUAL R and RL
</TABLE>
--------------------
* See "Description of the Certificates--Class Definitions and
Abbreviations" in the REMIC Prospectus.
** See "Description of the Certificates--Combination and
Recombination" herein and Schedule 1 for a further description of
the RCR Classes.
Principal Distribution Amount
On each Distribution Date, principal will be distributed on the
Certificates in an amount (the "Principal Distribution Amount") equal to the sum
of (i) the aggregate distributions of principal concurrently made on the Class
1993-138-FA, Class 1993-138-SA and Class 1993-138-SB REMIC Certificates (the
"Group 1 Principal Distribution Amount"), (ii) the distribution of principal
concurrently made on the Class 1993-140-N REMIC Certificate (the "Group 2
Principal Distribution Amount"), (iii) the aggregate distributions of principal
concurrently made on the Class 1993-50-FA and Class 1993-50-SA REMIC
Certificates (the "Group 3 Principal Distribution Amount"), (iv) the aggregate
distributions of principal concurrently made on the Class 1993-234-FC, Class
1993-234-SC and Class 1993-234-SD REMIC Certificates (the "Group 4 Principal
Distribution Amount"), (v) the aggregate distributions of principal concurrently
made on the Class 1993-99-F and Class 1993-99-S REMIC Certificates (the "Group 5
Principal Distribution Amount") and (vi) the aggregate distributions of
principal concurrently made on the Class 1993-110-FH and Class 1993-110-SH REMIC
Certificates (the "Group 6 Principal Distribution Amount"). The portion of each
class of Underlying REMIC Certificates held by the Lower Tier REMIC will be as
set forth in Exhibit A.
S-15
<PAGE> 72
<TABLE>
<S> <C>
Group 1 Principal Distribution Amount
On each Distribution Date, the Group 1 Principal Distribution
Amount will be distributed, concurrently, as principal of the F, FA
and SA Classes, pro rata (or 47.9306148750%, 39.5693853913% and
12.4999997337%, respectively), until the principal balances thereof
are reduced to zero.
Group 2 Principal Distribution Amount
On each Distribution Date, the Group 2 Principal Distribution
Amount will be distributed, concurrently, as principal of the FB and
SB Classes, pro rata (or 82.3529390814% and 17.6470609186%,
respectively), until the principal balances thereof are reduced to
zero.
Group 3 Principal Distribution Amount
On each Distribution Date, the Group 3 Principal Distribution STRUCTURED
Amount will be distributed, concurrently, as principal of the FC, SC COLLATERAL/
and PO Classes, pro rata (or 66.7071293920%, 9.5295882411% and PASS-THROUGH
23.7632823669%, respectively), until the principal balances thereof CLASSES
are reduced to zero.
Group 4 Principal Distribution Amount
On each Distribution Date, the Group 4 Principal Distribution
Amount will be distributed as principal of the A Class, until the
principal balance thereof is reduced to zero.
Group 5 Principal Distribution Amount
On each Distribution Date, the Group 5 Principal Distribution
Amount will be distributed, concurrently, as principal of the FD, SK
and PL Classes, pro rata (or 53.2798115010%, 11.4171041611% and
35.3030843379%, respectively), until the principal balances thereof
are reduced to zero.
Group 6 Principal Distribution Amount
On each Distribution Date, the Group 6 Principal Distribution
Amount will be distributed, concurrently, as principal of the FE and
SN Classes, pro rata (or 72.2222236600% and 27.7777763400%,
respectively), until the principal balances thereof are reduced to
zero.
</TABLE>
Distributions of principal to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
STRUCTURING ASSUMPTIONS
Pricing Assumptions. Unless otherwise specified, the information in the
tables in this Prospectus Supplement has been prepared on the basis of the
actual characteristics of each Pool underlying the Underlying REMIC
Certificates, the priority sequences affecting distributions on the Underlying
REMIC Certificates and the following assumptions (such characteristics and
assumptions, collectively, the "Pricing Assumptions"):
- the Mortgage Loans prepay at the constant percentages of PSA specified
in the related table; and
- the closing date for the sale of the Certificates is March 30, 1998.
Prepayment Assumptions. Prepayments of mortgage loans commonly are
measured relative to a prepayment standard or model. The model used herein is
The Bond Market Association's standard
S-16
<PAGE> 73
prepayment model ("PSA"). To assume a specified rate of PSA is to assume a
specified rate of prepayment each month of the then outstanding principal
balance of a pool of new mortgage loans computed as described under "Description
of the Certificates--Prepayment Models" in the REMIC Prospectus. It is highly
unlikely that prepayments will occur at any constant PSA rate or at any other
constant rate.
YIELD TABLES
General. The tables below indicate the sensitivity of the pre-tax
corporate bond equivalent yields to maturity of applicable Classes to various
constant percentages of PSA and, where specified, to changes in the applicable
Index. The yields set forth in the tables were calculated by determining the
monthly discount rates that, when applied to the assumed streams of cash flows
to be paid on the applicable Classes, would cause the discounted present value
of such assumed streams of cash flows to equal the assumed aggregate purchase
prices of such Classes and converting such monthly rates to corporate bond
equivalent rates. Such calculations do not take into account variations that may
occur in the interest rates at which investors may be able to reinvest funds
received by them as distributions on the Certificates and consequently do not
purport to reflect the return on any investment in the Certificates when such
reinvestment rates are considered. There can be no assurance that the pre-tax
yields on the Certificates will correspond to any of the pre-tax yields shown
herein or that the aggregate purchase prices of the applicable Certificates will
be as assumed. In addition, there can be no assurance that the applicable Index
will correspond to the levels shown herein. Furthermore, because some of the
Mortgage Loans will likely have remaining terms to maturity shorter or longer
than those assumed and interest rates higher or lower than those assumed, the
principal distributions on the Certificates are likely to differ from those
assumed, even if all Mortgage Loans prepay at the indicated constant percentages
of PSA. Moreover, it is not likely that the Mortgage Loans will prepay at a
constant PSA rate until maturity, that all of such Mortgage Loans will prepay at
the same rate or that the level of the applicable Index will remain constant.
The Inverse Floating Rate Classes and the SG, SH, SJ, SM, SO and SL
Classes. THE YIELDS TO INVESTORS IN THE INVERSE FLOATING RATE CLASSES AND THE
SG, SH, SJ, SM, SO AND SL CLASSES WILL BE SENSITIVE IN VARYING DEGREES TO THE
RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE RELATED MORTGAGE LOANS
AND TO THE LEVEL OF THE APPLICABLE INDEX. THE MORTGAGE LOANS GENERALLY CAN BE
PREPAID AT ANY TIME. IN ADDITION, THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE MORTGAGE LOANS IS LIKELY TO VARY, AND MAY VARY CONSIDERABLY,
FROM POOL TO POOL. AS INDICATED IN THE TABLES BELOW, IT IS POSSIBLE THAT, UNDER
CERTAIN INDEX AND PREPAYMENT SCENARIOS, INVESTORS IN THE SD, SE, SP, SQ, SG AND
SL CLASSES WOULD NOT FULLY RECOUP THEIR INITIAL INVESTMENTS.
Changes in the applicable Index may not correlate with changes in
prevailing mortgage interest rates. It is possible that lower prevailing
mortgage interest rates, which might be expected to result in faster
prepayments, could occur concurrently with an increased level of such Index.
The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumptions that (i) the interest rates
applicable to the Inverse Floating Rate Classes and the SG, SH, SJ, SM, SO and
SL Classes for the initial Interest Accrual Period are the rates listed in the
table under "Reference Sheet--Interest Rates" herein and for each Interest
Accrual Period subsequent to the initial Interest Accrual Period will be based
on the indicated level of the
S-17
<PAGE> 74
applicable Index and (ii) the aggregate purchase prices of such Classes
(expressed in each case as a percentage of original principal balance) are as
follows:
<TABLE>
<CAPTION>
CLASS PRICE*
----- ------
<S> <C>
SA ......................................................... 75.0%
SB ......................................................... 98.0%
SC ......................................................... 75.0%
SD ......................................................... 13.0%
SE ......................................................... 12.5%
SK ......................................................... 98.0%
SP ......................................................... 60.0%
SQ ......................................................... 40.0%
SN ......................................................... 92.5%
SG ......................................................... 25.0%
SH ......................................................... 87.0%
SJ ......................................................... 71.5%
SM.......................................................... 74.5%
SO ......................................................... 95.0%
SL ......................................................... 33.0%
</TABLE>
- ---------------
* The prices do not include accrued interest. Accrued interest
has been added to such prices in calculating the yields set
forth in the tables below.
SENSITIVITY OF THE SA CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%.................................... 33.4% 33.4% 33.5% 43.9% 61.2%
5.625%.................................... 13.8% 13.8% 14.2% 25.8% 42.9%
7.050%.................................... 1.2% 1.3% 1.8% 13.6% 30.5%
</TABLE>
SENSITIVITY OF THE SB CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%.................................... 21.5% 21.5% 21.5% 22.1% 22.8%
5.625%.................................... 11.5% 11.5% 11.7% 12.8% 14.1%
7.625%.................................... 1.9% 1.9% 2.1% 3.8% 5.7%
8.000%.................................... 0.2% 0.2% 0.4% 2.2% 4.2%
</TABLE>
SENSITIVITY OF THE SC CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%.................................... 33.4% 33.4% 33.6% 46.3% 64.4%
5.625%.................................... 13.8% 13.9% 14.4% 28.1% 46.0%
7.050%.................................... 1.3% 1.4% 2.0% 15.8% 33.5%
</TABLE>
S-18
<PAGE> 75
SENSITIVITY OF THE SD CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-----------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
3.65625%.................................. 77.6% 77.6% 77.5% 26.5% (66.4)%
5.65625%.................................. 35.4% 35.4% 34.8% (36.0)% *
7.50000%.................................. * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SE CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
7.50% and below........................... 24.3% 24.3% 23.0% (56.5)% *
8.10%..................................... 11.5% 11.2% 8.5% (84.6)% *
8.75%..................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SK CLASS TO PREPAYMENTS AND 10-YEAR TREASURY INDEX
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
10-YEAR TREASURY INDEX 50% 100% 195% 350% 500%
---------------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.63%..................................... 22.4% 22.4% 22.4% 22.7% 23.0%
5.63%..................................... 12.5% 12.5% 12.5% 13.1% 13.8%
7.63%..................................... 2.8% 2.8% 2.8% 3.7% 4.8%
8.20%..................................... 0.1% 0.1% 0.2% 1.1% 2.2%
</TABLE>
SENSITIVITY OF THE SP CLASS TO PREPAYMENTS AND COFI
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------------
COFI 50% 100% 195% 350% 500%
---- ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
2.987%.................................... 17.5% 17.3% 14.6% (70.1)% *
4.987%.................................... 8.2% 7.7% 3.7% (91.2)% *
6.987%.................................... (6.4)% (7.6)% (13.6)% * *
7.500%.................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SQ CLASS TO PREPAYMENTS AND COFI
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
------------------------------------------
COFI 50% 100% 195% 350% 500%
---- ------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C>
7.50% and below........................... 4.7% 4.1% (0.5)% (99.8)% *
8.10%..................................... (1.5)% (2.4)% (7.9)% * *
8.75%..................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
S-19
<PAGE> 76
SENSITIVITY OF THE SN CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 260% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.6875%................................... 14.2% 14.3% 14.9% 17.2% 22.2%
5.6875%................................... 8.5% 8.6% 9.2% 11.6% 16.8%
7.6875%................................... 2.9% 3.0% 3.7% 6.1% 11.5%
8.6000%................................... 0.4% 0.5% 1.2% 3.7% 9.1%
</TABLE>
SENSITIVITY OF THE SG CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-----------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
3.65625%.................................. 51.8% 51.8% 51.6% (9.8)% (99.2)%
5.65625%.................................. 30.6% 30.6% 29.7% (44.6)% *
7.65625%.................................. 9.1% 8.7% 5.7% (90.4)% *
8.75000%.................................. * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SH CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%.................................. 14.1% 14.1% 14.4% 20.9% 29.1%
5.65625%.................................. 8.7% 8.7% 9.0% 15.7% 24.0%
7.65625%.................................. 3.4% 3.5% 3.8% 10.5% 18.9%
8.75000%.................................. 0.6% 0.7% 1.0% 7.8% 16.1%
</TABLE>
SENSITIVITY OF THE SJ CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 195% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%.................................... 10.2% 10.3% 11.0% 27.3% 48.6%
5.625%.................................... 5.0% 5.1% 5.9% 22.2% 43.3%
7.050%.................................... 1.5% 1.6% 2.4% 18.6% 39.6%
</TABLE>
SENSITIVITY OF THE SM CLASS TO PREPAYMENTS AND 10-YEAR TREASURY INDEX
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
----------------------------------
10-YEAR TREASURY INDEX 50% 100% 195% 350% 500%
---------------------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
3.63%..................................... 7.7% 7.8% 8.6% 23.0% 41.4%
5.63%..................................... 4.8% 5.0% 5.8% 20.2% 38.6%
7.63%..................................... 2.1% 2.2% 3.0% 17.4% 35.7%
8.20%..................................... 1.3% 1.5% 2.3% 16.6% 34.9%
</TABLE>
S-20
<PAGE> 77
SENSITIVITY OF THE SO CLASS TO PREPAYMENTS AND COFI
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
COFI 50% 100% 195% 350% 500%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
2.987%.................................... 14.5% 14.5% 14.6% 16.6% 19.0%
4.987%.................................... 9.4% 9.4% 9.6% 11.7% 14.3%
6.987%.................................... 4.5% 4.5% 4.6% 6.9% 9.7%
8.750%.................................... 0.2% 0.3% 0.4% 2.8% 5.7%
</TABLE>
SENSITIVITY OF THE SL CLASS TO PREPAYMENTS AND COFI
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------
COFI 50% 100% 195% 350% 500%
---- ----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
2.987%.................................... 43.1% 43.1% 42.3% (24.3)% *
4.987%.................................... 27.5% 27.4% 25.7% (50.5)% *
6.987%.................................... 11.6% 11.3% 7.7% (83.2)% *
8.750%.................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
The Principal Only Classes. THE PRINCIPAL ONLY CLASSES WILL NOT BEAR
INTEREST. AS INDICATED IN THE TABLE BELOW, A LOW RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) ON THE RELATED MORTGAGE LOANS WILL HAVE A NEGATIVE
EFFECT ON THE YIELDS TO INVESTORS IN THE PRINCIPAL ONLY CLASSES.
The information set forth in the following table was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase prices
of the Principal Only Classes (expressed in each case as a percentage of
original principal balance) are as follows:
<TABLE>
<CAPTION>
CLASSES PRICE
------- ------
<S> <C>
PO.......................................................... 61.0%
PL.......................................................... 62.0%
</TABLE>
SENSITIVITY OF THE PRINCIPAL ONLY CLASSES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
----------------------------------
CLASSES 50% 100% 195% 350% 500%
------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
PO ....................................... 2.2% 2.4% 3.5% 28.1% 61.2%
PL ....................................... 2.2% 2.4% 3.7% 27.9% 60.1%
</TABLE>
WEIGHTED AVERAGE LIVES OF THE CERTIFICATES
The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the Settlement Date to the second such Distribution Date,
(b) summing the results and (c) dividing the sum by the aggregate amount of the
reductions in principal balance of such Certificate referred to in clause (a).
For a description of the factors which may influence the weighted average life
of a Certificate, see "Description of the Certificates--Weighted Average Life
and Final Distribution Dates" in the REMIC Prospectus.
In general, the weighted average lives of the Certificates will be
shortened if the level of prepayments of principal of the related Mortgage Loans
increases. However, the weighted average lives will depend upon a variety of
other factors, including the timing of changes in such rate of
S-21
<PAGE> 78
principal payments and the priority sequences affecting distributions on the
related Underlying REMIC Certificates. See "Distributions of Principal" herein
and "Description of the Certificates--Distributions of Principal" in the
Underlying REMIC Disclosure Documents.
The effect of the foregoing factors may differ as to various Classes and
the effects on any Class may vary at different times during the life of such
Class. Accordingly, no assurance can be given as to the weighted average life of
any Class. Further, to the extent the prices of the Certificates represent
discounts or premiums to their respective original principal balances,
variability in the weighted average lives of such Classes of Certificates could
result in variability in the related yields to maturity. For an example of how
the weighted average lives of the Classes may be affected at various constant
prepayment rates, see the Decrement Tables below.
DECREMENT TABLES
The following tables indicate the percentages of original principal
balances of the specified Classes that would be outstanding after each of the
dates shown at various constant PSA rates and the corresponding weighted average
lives of such Classes. The tables have been prepared on the basis of the Pricing
Assumptions, except that with respect to the information set forth for each such
Class under 0% PSA it has been assumed that the underlying Mortgage Loans have
the original and remaining terms to maturity and bear interest at the per annum
rates specified below:
<TABLE>
<CAPTION>
ORIGINAL REMAINING
MORTGAGE LOANS RELATING TO TERMS TERMS INTEREST RELATED
TRUST ASSETS SPECIFIED BELOW TO MATURITY TO MATURITY RATES GROUPS
- ---------------------------- ----------- ----------- -------- -------
<C> <C> <C> <C> <S>
1993-138 360 months 305 months 9.5% Group 1
1993-140 240 months 185 months 9.5% Group 2
1993-50 360 months 302 months 9.5% Group 3
1993-234 180 months 129 months 8.0% Group 4
1993-99 360 months 304 months 9.5% Group 5
1993-110 360 months 302 months 10.0% Group 6
</TABLE>
It is not likely that (i) all of the underlying Mortgage Loans will have
the interest rates, CAGEs or remaining terms to maturity assumed or (ii) the
underlying Mortgage Loans will prepay at a constant PSA level. In addition, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster principal distributions than indicated in the tables at the specified
constant PSA rates, even if the distributions of the weighted average remaining
terms to maturity and the weighted average CAGEs of the Mortgage Loans are
identical to the distributions of the remaining terms to maturity and CAGEs
specified in the Pricing Assumptions.
S-22
<PAGE> 79
PERCENT OF ORIGINAL PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
F, FA AND SA CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 195% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
March 1999.......... 100 100 100 100 47
March 2000.......... 100 100 100 59 0
March 2001.......... 100 100 100 3 0
March 2002.......... 100 100 100 0 0
March 2003.......... 100 100 100 0 0
March 2004.......... 100 100 100 0 0
March 2005.......... 100 100 100 0 0
March 2006.......... 100 100 100 0 0
March 2007.......... 100 100 100 0 0
March 2008.......... 100 100 100 0 0
March 2009.......... 100 100 100 0 0
March 2010.......... 100 100 89 0 0
March 2011.......... 100 100 77 0 0
March 2012.......... 100 100 66 0 0
March 2013.......... 100 100 56 0 0
March 2014.......... 100 100 46 0 0
March 2015.......... 100 100 38 0 0
March 2016.......... 100 100 30 0 0
March 2017.......... 100 100 23 0 0
March 2018.......... 100 92 17 0 0
March 2019.......... 100 68 12 0 0
March 2020.......... 100 46 7 0 0
March 2021.......... 100 24 3 0 0
March 2022.......... 100 5 0 0 0
March 2023.......... 47 0 0 0 0
March 2024.......... 0 0 0 0 0
March 2025.......... 0 0 0 0 0
March 2026.......... 0 0 0 0 0
March 2027.......... 0 0 0 0 0
March 2028.......... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.0 21.9 16.2 2.2 1.0
<CAPTION>
FB AND SB CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 195% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
March 1999.......... 100 100 100 41 0
March 2000.......... 100 100 99 0 0
March 2001.......... 100 100 86 0 0
March 2002.......... 100 100 73 0 0
March 2003.......... 100 100 60 0 0
March 2004.......... 100 100 46 0 0
March 2005.......... 100 100 34 0 0
March 2006.......... 100 100 21 0 0
March 2007.......... 100 100 10 0 0
March 2008.......... 100 97 0 0 0
March 2009.......... 100 70 0 0 0
March 2010.......... 100 42 0 0 0
March 2011.......... 100 13 0 0 0
March 2012.......... 87 0 0 0 0
March 2013.......... 0 0 0 0 0
March 2014.......... 0 0 0 0 0
March 2015.......... 0 0 0 0 0
March 2016.......... 0 0 0 0 0
March 2017.......... 0 0 0 0 0
March 2018.......... 0 0 0 0 0
March 2019.......... 0 0 0 0 0
March 2020.......... 0 0 0 0 0
March 2021.......... 0 0 0 0 0
March 2022.......... 0 0 0 0 0
March 2023.......... 0 0 0 0 0
March 2024.......... 0 0 0 0 0
March 2025.......... 0 0 0 0 0
March 2026.......... 0 0 0 0 0
March 2027.......... 0 0 0 0 0
March 2028.......... 0 0 0 0 0
Weighted Average
Life (years)**..... 14.5 11.7 5.8 0.9 0.5
<CAPTION>
FC, SC, SD+, SE+, PO, SG+, SH
AND SJ CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 195% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
March 1999.......... 100 100 100 100 36
March 2000.......... 100 100 100 40 0
March 2001.......... 100 100 100 0 0
March 2002.......... 100 100 100 0 0
March 2003.......... 100 100 100 0 0
March 2004.......... 100 100 100 0 0
March 2005.......... 100 100 100 0 0
March 2006.......... 100 100 100 0 0
March 2007.......... 100 100 97 0 0
March 2008.......... 100 100 86 0 0
March 2009.......... 100 100 75 0 0
March 2010.......... 100 100 65 0 0
March 2011.......... 100 100 56 0 0
March 2012.......... 100 100 48 0 0
March 2013.......... 100 100 40 0 0
March 2014.......... 100 100 33 0 0
March 2015.......... 100 100 27 0 0
March 2016.......... 100 99 21 0 0
March 2017.......... 100 81 16 0 0
March 2018.......... 100 63 12 0 0
March 2019.......... 100 46 8 0 0
March 2020.......... 100 29 4 0 0
March 2021.......... 100 13 1 0 0
March 2022.......... 93 1 0 0 0
March 2023.......... 14 0 0 0 0
March 2024.......... 0 0 0 0 0
March 2025.......... 0 0 0 0 0
March 2026.......... 0 0 0 0 0
March 2027.......... 0 0 0 0 0
March 2028.......... 0 0 0 0 0
Weighted Average
Life (years)**..... 24.6 20.8 14.4 1.9 0.9
</TABLE>
<TABLE>
<CAPTION>
A CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 130% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
March 1999.......... 100 100 100 90 38
March 2000.......... 100 100 100 41 0
March 2001.......... 100 100 100 14 0
March 2002.......... 100 100 100 2 0
March 2003.......... 100 100 100 0 0
March 2004.......... 100 100 100 0 0
March 2005.......... 100 100 100 0 0
March 2006.......... 100 93 78 0 0
March 2007.......... 100 57 48 0 0
March 2008.......... 63 12 10 0 0
March 2009.......... 0 0 0 0 0
March 2010.......... 0 0 0 0 0
March 2011.......... 0 0 0 0 0
March 2012.......... 0 0 0 0 0
March 2013.......... 0 0 0 0 0
March 2014.......... 0 0 0 0 0
March 2015.......... 0 0 0 0 0
March 2016.......... 0 0 0 0 0
March 2017.......... 0 0 0 0 0
March 2018.......... 0 0 0 0 0
March 2019.......... 0 0 0 0 0
March 2020.......... 0 0 0 0 0
March 2021.......... 0 0 0 0 0
March 2022.......... 0 0 0 0 0
March 2023.......... 0 0 0 0 0
March 2024.......... 0 0 0 0 0
March 2025.......... 0 0 0 0 0
March 2026.......... 0 0 0 0 0
March 2027.......... 0 0 0 0 0
March 2028.......... 0 0 0 0 0
Weighted Average
Life (years)**..... 10.2 9.2 8.9 2.0 0.9
<CAPTION>
FD, SK, SP+, SQ+, PL, SM, SO
AND SL+ CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 195% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
March 1999.......... 100 100 100 96 36
March 2000.......... 100 100 100 39 0
March 2001.......... 100 100 100 2 0
March 2002.......... 100 100 100 0 0
March 2003.......... 100 100 100 0 0
March 2004.......... 100 100 100 0 0
March 2005.......... 100 100 94 0 0
March 2006.......... 100 100 88 0 0
March 2007.......... 100 100 81 0 0
March 2008.......... 100 100 72 0 0
March 2009.......... 100 100 63 0 0
March 2010.......... 100 100 55 0 0
March 2011.......... 100 100 47 0 0
March 2012.......... 100 100 40 0 0
March 2013.......... 100 100 34 0 0
March 2014.......... 100 100 28 0 0
March 2015.......... 100 98 23 0 0
March 2016.......... 100 83 18 0 0
March 2017.......... 100 68 14 0 0
March 2018.......... 100 53 10 0 0
March 2019.......... 100 39 7 0 0
March 2020.......... 100 25 4 0 0
March 2021.......... 100 12 1 0 0
March 2022.......... 87 1 0 0 0
March 2023.......... 23 0 0 0 0
March 2024.......... 0 0 0 0 0
March 2025.......... 0 0 0 0 0
March 2026.......... 0 0 0 0 0
March 2027.......... 0 0 0 0 0
March 2028.......... 0 0 0 0 0
Weighted Average
Life (years)**..... 24.6 20.3 13.3 1.9 0.9
<CAPTION>
FE, SN AND B CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 260% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
March 1999.......... 100 100 100 100 34
March 2000.......... 100 100 100 56 2
March 2001.......... 100 100 100 22 0
March 2002.......... 100 100 92 * 0
March 2003.......... 100 100 77 0 0
March 2004.......... 100 100 64 0 0
March 2005.......... 100 100 51 0 0
March 2006.......... 100 100 40 0 0
March 2007.......... 100 100 23 0 0
March 2008.......... 100 100 0 0 0
March 2009.......... 100 100 0 0 0
March 2010.......... 100 100 0 0 0
March 2011.......... 100 100 0 0 0
March 2012.......... 100 99 0 0 0
March 2013.......... 100 70 0 0 0
March 2014.......... 100 43 0 0 0
March 2015.......... 100 18 0 0 0
March 2016.......... 100 0 0 0 0
March 2017.......... 100 0 0 0 0
March 2018.......... 100 0 0 0 0
March 2019.......... 100 0 0 0 0
March 2020.......... 100 0 0 0 0
March 2021.......... 52 0 0 0 0
March 2022.......... 0 0 0 0 0
March 2023.......... 0 0 0 0 0
March 2024.......... 0 0 0 0 0
March 2025.......... 0 0 0 0 0
March 2026.......... 0 0 0 0 0
March 2027.......... 0 0 0 0 0
March 2028.......... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.0 15.8 7.0 2.3 0.9
</TABLE>
- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.
S-23
<PAGE> 80
CHARACTERISTICS OF THE R AND RL CLASSES
The R and RL Classes will not have principal balances and will not bear
interest. The Holder of the R Class will be entitled to receive the proceeds of
the remaining assets of the Trust, if any, after the principal balances of all
Classes have been reduced to zero, and the Holder of the RL Class will be
entitled to receive the proceeds of the remaining assets of the Lower Tier
REMIC, if any, after the principal balances of the Lower Tier Regular Interests
have been reduced to zero. It is not anticipated that there will be any material
assets remaining in either such circumstance.
The R and RL Classes will be subject to certain transfer restrictions. No
transfer of record or beneficial ownership of an R or RL Certificate will be
allowed to a "disqualified organization." In addition, no transfer of record or
beneficial ownership of an R or RL Certificate will be allowed to any person
that is not a "U.S. Person" without the written consent of Fannie Mae. Under
regulations issued by the Treasury Department (the "Regulations"), a transfer of
a "noneconomic residual interest" to a U.S. Person will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. The R and RL Classes will constitute
noneconomic residual interests under the Regulations. Any transferee of an R or
RL Certificate must execute and deliver an affidavit and an Internal Revenue
Service Form W-9 on which the transferee provides its taxpayer identification
number. See "Description of the Certificates--Additional Characteristics of
Residual Certificates" and "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Residual Certificates" in the REMIC Prospectus. Transferors
of an R or RL Certificate should consult with their own tax advisors for further
information regarding such transfers.
The Holder of the R Class will be considered to be the holder of the
"residual interest" in the REMIC constituted by the Trust, and the Holder of the
RL Class will be considered to be the holder of the "residual interest" in the
REMIC constituted by the Lower Tier REMIC. See "Certain Federal Income Tax
Consequences" in the REMIC Prospectus. Pursuant to the Trust Agreement, Fannie
Mae will be obligated to provide to such Holders (i) such information as is
necessary to enable them to prepare their federal income tax returns and (ii)
any reports regarding the R or RL Class that may be required under the Code.
CERTAIN ADDITIONAL FEDERAL INCOME TAX CONSEQUENCES
The following tax discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the REMIC Prospectus, describes
the current federal income tax treatment of investors in the Certificates. These
two tax discussions do not purport to deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Certificates.
REMIC ELECTIONS AND SPECIAL TAX ATTRIBUTES
Elections will be made to treat the Lower Tier REMIC and the Trust as
REMICs for federal income tax purposes. The REMIC Certificates, other than the R
and RL Classes, will be designated as the "regular interests," and the R Class
will be designated as the "residual interest," in the REMIC constituted by the
Trust. The Lower Tier Regular Interests will be designated as the "regular
interests" and the RL Class will be designated as the "residual interest" in the
Lower Tier REMIC.
As a consequence of the qualification of the Lower Tier REMIC and the Trust
as REMICs, the REMIC Certificates and any related RCR Certificates generally
will be treated as "regular or residual interests in a REMIC" for domestic
building and loan associations, "real estate assets" for real estate investment
trusts, and, except for the R and RL Classes, as "qualified mortgages" for other
REMICs. See "Certain Federal Income Tax Consequences--Special Tax Attributes" in
the REMIC Prospectus.
S-24
<PAGE> 81
TAXATION OF BENEFICIAL OWNERS OF REGULAR CERTIFICATES
The Notional Classes, the Principal Only Classes and the SA and SC Classes
will be, and certain other Classes of REMIC Certificates may be, issued with
original issue discount ("OID") for federal income tax purposes, which generally
will result in recognition of some taxable income in advance of the receipt of
the cash attributable to such income. The Prepayment Assumption that will be
used in determining the rate of accrual of original issue discount will be 195%
PSA in the case of the Group 1, Group 2, Group 3 and Group 5 Classes, 130% PSA
in the case of the Group 4 Classes and 260% PSA in the case of the Group 6
Classes. See "Certain Federal Income Tax Consequences--Taxation of Beneficial
Owners of Regular Certificates--Original Issue Discount" in the REMIC
Prospectus. No representation is made as to whether the Mortgage Loans
underlying the MBS will prepay at any of those rates or any other rate. See
"Description of the Certificates--Weighted Average Lives of the Certificates"
herein and "Description of the Certificates--Weighted Average Life and Final
Distribution Dates" in the REMIC Prospectus. In addition, certain Classes of
REMIC Certificates may be treated as having been issued at a premium for federal
income tax purposes. See "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Regular Certificates--Certificates Purchased at a Premium"
in the REMIC Prospectus.
TAXATION OF BENEFICIAL OWNERS OF RESIDUAL CERTIFICATES
For purposes of determining the portion of the taxable income of the Trust
(or the Lower Tier REMIC) that generally will not be treated as excess
inclusions, the rate to be used is 6.94% (which is 120% of the "federal
long-term rate"). See "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Residual Certificates--Excess Inclusions" and "--Foreign
Investors--Residual Certificates" in the REMIC Prospectus.
TAXATION OF BENEFICIAL OWNERS OF RCR CERTIFICATES
General. The arrangement pursuant to which the RCR Classes will be
created, sold and administered will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. The interests in the REMIC
Certificates that have been exchanged for RCR Certificates (including any
exchanges effective on the Settlement Date) will be the assets of such trust and
the RCR Certificates will evidence an ownership interest in those REMIC
Certificates. For a general discussion of the federal income tax treatment of
investors in REMIC Certificates, see "Certain Federal Income Tax Consequences"
in the REMIC Prospectus.
The RCR Classes will represent beneficial ownership of the underlying
Regular Certificates set forth in Schedule 1. The RCR Certificates (the
"Combination RCR Certificates") will represent beneficial ownership of undivided
interests in two or more underlying Regular Certificates.
Combination RCR Classes. A beneficial owner of a Combination RCR
Certificate will be treated as the beneficial owner of a proportionate interest
in the related Class or Classes of REMIC Certificates. A purchaser of a
Combination RCR Certificate must allocate its purchase price among the related
Classes of REMIC Certificates in proportion to their relative fair market values
at the time of purchase. Such owner should account for its ownership interest in
each related Class of REMIC Certificates as described under "--Taxation of
Beneficial Owners of Regular Certificates" herein and "Certain Federal Income
Tax Consequences--Taxation of Beneficial Owners of Regular Certificates" in the
REMIC Prospectus. When a beneficial owner sells a Combination RCR Certificate,
such owner must allocate the sale proceeds among the related Classes of REMIC
Certificates in proportion to their relative fair market values at the time of
sale.
Exchanges. An exchange, as described under "Description of the
Certificates--Combination and Recombination" herein, by a beneficial owner of
(i) a combination of REMIC Certificates or (ii) all or a portion of an RCR Class
for the related RCR Class or REMIC Certificates, respectively, will not be a
taxable exchange. Such owner will be treated as continuing to own after the
exchange the same
S-25
<PAGE> 82
combination of interests in the related REMIC Certificates that it owned
immediately prior to the exchange.
PLAN OF DISTRIBUTION
The Dealer will receive the Certificates in exchange for the Underlying
REMIC Certificates pursuant to a Fannie Mae commitment. The Dealer proposes to
offer the Certificates directly to the public from time to time in negotiated
transactions at varying prices to be determined at the time of sale. The Dealer
may effect such transactions to or through dealers.
LEGAL MATTERS
Certain legal matters will be passed upon for the Dealer by Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982.
S-26
<PAGE> 83
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 84
EXHIBIT A
UNDERLYING REMIC CERTIFICATES
<TABLE>
<CAPTION>
UNDERLYING DATE
REMIC OF CUSIP INTEREST INTEREST
TRUST CLASS ISSUE NUMBER RATE TYPE(1)
---------- ----- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C>
1993-138 FA August 1993 31359DFC2 (2) FLT
1993-138 SA August 1993 31359DFD0 (2) INV
1993-138 SB August 1993 31359DFE8 (2) INV
1993-140 N August 1993 31359BH83 7.0% FIX
1993-50 FA May 1993 31358U3H7 (2) FLT
1993-50 SA May 1993 31358U3J3 (2) INV
1993-234 FC December 1993 31359FKH0 (2) FLT
1993-234 SC December 1993 31359FKJ6 (2) INV
1993-234 SD December 1993 31359FKK3 (2) INV
1993-99 F July 1993 31359A5U9 (2) FLT
1993-99 S July 1993 31359A5V7 (2) INV
1993-110 FH July 1993 31359BHT7 (2) FLT
1993-110 SH July 1993 31359BHU4 (2) INV
<CAPTION>
ORIGINAL MARCH PRINCIPAL
UNDERLYING FINAL PRINCIPAL 1998 BALANCE IN
REMIC DISTRIBUTION PRINCIPAL BALANCE CLASS THE LOWER
TRUST DATE TYPE(1) OF CLASS FACTOR TIER REMIC
---------- ------------ --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
1993-138 August 2023 SUP $44,520,000 1.00000000 $32,860,000.00
1993-138 August 2023 SUP 13,515,000 1.00000000 9,975,357.00
1993-138 August 2023 SUP 5,565,000 1.00000000 4,107,500.00
1993-140 May 2013 SUP 32,950,000 0.68169958 22,462,001.16
1993-50 May 2023 SUP 59,296,767 0.79081841 13,678,601.78
1993-50 May 2023 SUP 25,412,900 0.79081841 11,953,220.27
1993-234 December 2008 SUP 23,758,777 0.98659080 13,574,282.81
1993-234 December 2008 SUP 8,872,713 0.98659080 5,069,314.66
1993-234 December 2008 SUP 6,246,510 0.98659080 3,568,865.94
1993-99 July 2023 SUP 40,184,893 0.90188958 11,440,372.82
1993-99 July 2023 SUP 17,222,097 0.90188958 13,821,094.35
1993-110 May 2023 TAC 22,945,008 0.88104332 7,534,799.65
1993-110 May 2023 TAC 12,354,992 0.88104332 4,057,197.44
<CAPTION>
APPROXIMATE APPROXIMATE
APPROXIMATE WEIGHTED WEIGHTED
UNDERLYING WEIGHTED AVERAGE AVERAGE UNDERLYING
REMIC AVERAGE WAM CAGE SECURITY CLASS
TRUST WAC (IN MONTHS) (IN MONTHS) TYPE GROUP
---------- ----------- ----------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
1993-138 7.517% 291 57 MBS 1
1993-138 7.517 291 57 MBS 1
1993-138 7.517 291 57 MBS 1
1993-140 7.548 179 56 MBS 2
1993-50 7.536 287 60 MBS 3
1993-50 7.536 287 60 MBS 3
1993-234 6.177 123 53 MBS 4
1993-234 6.177 123 53 MBS 4
1993-234 6.177 123 53 MBS 4
1993-99 7.528 288 59 MBS 5
1993-99 7.528 288 59 MBS 5
1993-110 7.981 285 62 MBS 6
1993-110 7.981 285 62 MBS 6
</TABLE>
- ---------------
(1) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus.
(2) These Classes bear interest during their respective interest accrual
periods, subject to the applicable maximum and minimum interest rates, as
further described in the related Underlying REMIC Disclosure Documents.
A-1
<PAGE> 85
SCHEDULE 1
AVAILABLE RECOMBINATIONS(1)
<TABLE>
<CAPTION>
REMIC CERTIFICATES RCR CERTIFICATES
- ------------------------------------------ ------
ORIGINAL
PRINCIPAL
OR NOTIONAL
PRINCIPAL RCR
CLASS BALANCE CLASS
----- ----------- -----
<S> <C> <C>
Recombination 1
SD $6,090,962 SG
SE 6,090,962
Recombination 2
SD 6,090,962 SH
SE 6,090,962
PO 6,090,962
Recombination 3
SC 2,442,607 SJ
PO 6,090,962
Recombination 4
SK 2,884,128 SM
PL 8,918,077
Recombination 5
SP 8,918,077 SO
SQ 8,918,077
PL 8,918,077
Recombination 6
SP 8,918,077 SL
SQ 8,918,077
Recombination 7
FE 8,371,998 B
SN 3,219,999
<CAPTION>
RCR CERTIFICATES
----------------------------------
ORIGINAL
PRINCIPAL
OR NOTIONAL
PRINCIPAL INTEREST INTEREST
CLASS BALANCE RATE TYPE(2)
----- ----------- -------- --------
<S> <C> <C> <C>
Recombination 1
SD $ 6,090,962 (3) INV/IO
SE
Recombination 2
SD 6,090,962 (3) INV
SE
PO
Recombination 3
SC 8,533,569 (3) INV
PO
Recombination 4
SK 11,802,205 (3) INV
PL
Recombination 5
SP 8,918,077 (3) INV
SQ
PL
Recombination 6
SP 8,918,077 (3) INV/IO
SQ
Recombination 7
FE 11,591,997 6.5% FIX
SN
<CAPTION>
RCR CERTIFICATES
--------------------------------------
FINAL
PRINCIPAL CUSIP DISTRIBUTION
CLASS TYPE(2) NUMBER DATE
----- --------- ------ ------------
<S> <C> <C> <C>
Recombination 1
SD NTL 31359TAW8 May 2023
SE
Recombination 2
SD SC/PT 31359TAX6 May 2023
SE
PO
Recombination 3
SC SC/PT 31359TAY4 May 2023
PO
Recombination 4
SK SC/PT 31359TAZ1 July 2023
PL
Recombination 5
SP SC/PT 31359TBB3 July 2023
SQ
PL
Recombination 6
SP NTL 31359TBC1 July 2023
SQ
Recombination 7
FE SC/PT 31359TBA5 May 2023
SN
</TABLE>
- ---------------
(1) The principal balances and/or notional principal balances of the REMIC
Certificates and RCR Certificates involved in any exchange will bear the
same relationship as that borne by the original principal balances and/or
original notional principal balances of the related Classes.
(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.
(3) For a description of these interest rates, see "Description of the
Certificates--Distributions of Interest" herein.
A-2
<PAGE> 86
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ADDITIONAL DISCLOSURE DOCUMENTS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
AFOREMENTIONED DOCUMENTS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE CERTIFICATES OFFERED HEREBY IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE.
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE AFOREMENTIONED DOCUMENTS AT
ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Table of Contents..................... S- 3
Reference Sheet....................... S- 4
Additional Risk Factors............... S- 7
Description of the Certificates....... S- 7
Certain Additional Federal Income Tax
Consequences........................ S-24
Plan of Distribution.................. S-26
Legal Matters......................... S-26
Exhibit A............................. A- 1
Schedule 1............................ A- 2
</TABLE>
======================================================
$154,102,606
[FANNIE MAE LOGO]
GUARANTEED REMIC
PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1998-23
------------------------
PROSPECTUS SUPPLEMENT
------------------------
BEAR, STEARNS & CO. INC.
MARCH 5, 1998
================================================================================
<PAGE> 87
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 14, 1996)
$2,102,833,336
[FANNIE MAE LOGO]
GUARANTEED REMIC PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1997-78
The Guaranteed REMIC Pass-Through Certificates offered hereby (the "REMIC
Certificates") will represent beneficial ownership interests in one of two trust
funds. The REMIC Certificates, other than the RL Class, will represent
beneficial ownership interests in Fannie Mae REMIC Trust 1997-78 (the "Trust").
The assets of the Trust will consist of the "regular interests" in a separate
trust fund (the "Lower Tier REMIC"). The assets of the Lower Tier REMIC will
consist of (i) two groups of Fannie Mae Guaranteed Mortgage Pass-Through
Certificates described herein (the "Group 1 MBS" and "Group 6 MBS" and,
together, the "Trust MBS"), (ii) certain previously issued REMIC certificates
(the "Underlying REMIC Certificates") evidencing beneficial ownership interests
in the related Fannie Mae REMIC Trusts (the "Underlying REMIC Trusts") as
further described in Exhibit A hereto and (iii) certain Fannie Mae Stripped
Mortgage-Backed Securities (the "Trust SMBS") as further described in Exhibit A.
The assets of the Underlying REMIC Trusts evidence beneficial ownership
interests in (i) certain Fannie Mae Guaranteed Mortgage Pass-Through
Certificates and (ii) certain "fully modified pass-through" mortgage backed
securities (the "GNMA Certificates") guaranteed as to timely payment of
principal and interest by the Government National Mortgage Association ("GNMA").
The Trust SMBS evidence beneficial ownership interests in certain principal and
interest distributions made in respect of certain Fannie Mae Guaranteed Mortgage
Pass-Through Certificates. The Fannie Mae Guaranteed Mortgage Pass-Through
Certificates are collectively referred to herein as the "MBS." Each MBS
represents a beneficial ownership interest in a pool (each, a "Pool") of first
lien, single-family, fixed-rate residential mortgage loans having the
characteristics described herein. Each GNMA Certificate is based on and backed
by a pool of mortgage loans (together with the pools and mortgage loans
underlying the MBS, the "Pools" and "Mortgage Loans," respectively) which are
either insured or guaranteed by the Federal Housing Administration ("FHA"), the
Department of Veterans Affairs ("VA") or the Rural Housing Service ("FmHA"). The
Certificates will be issued and guaranteed as to timely distribution of
principal and interest by Fannie Mae.
Investors should not purchase the Certificates before reading this Prospectus
Supplement and the additional Disclosure Documents listed at the bottom of page
S-2.
------------------------
SEE "ADDITIONAL RISK FACTORS" ON PAGE S-10 HEREOF AND "RISK FACTORS"
BEGINNING ON PAGE 8 OF THE REMIC PROSPECTUS ATTACHED HERETO FOR A DISCUSSION OF
CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
CERTIFICATES.
(Cover continued on next page)
------------------------
THE CERTIFICATES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS. NO INVESTOR
SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO
BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH SUCH
CERTIFICATES.
THE CERTIFICATES, TOGETHER WITH ANY INTEREST THEREON, ARE NOT GUARANTEED BY THE
UNITED STATES. THE OBLIGATIONS OF FANNIE MAE UNDER ITS GUARANTY OF THE
CERTIFICATES ARE OBLIGATIONS SOLELY OF FANNIE MAE AND DO NOT CONSTITUTE AN
OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF OTHER
THAN FANNIE MAE. THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES" WITHIN THE MEANING
OF THE SECURITIES EXCHANGE ACT OF 1934.
================================================================================
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL
CLASS PRINCIPAL INTEREST INTEREST
CLASS(1) GROUP BALANCE TYPE(2) RATE TYPE(2)
<S> <C> <C> <C> <C> <C>
PB ....... 1 $ 155,973,200 PAC 6.000% FIX
PC ....... 1 70,011,500 PAC 6.250 FIX
PD ....... 1 42,180,000 PAC 6.500 FIX
PH ....... 1 54,193,100 PAC 6.250 FIX
PG ....... 1 35,521,000 PAC 6.000 FIX
PJ ....... 1 54,830,500 PAC 6.500 FIX
PE ....... 1 245,849,700 PAC 7.000 FIX
IA ....... 1 47,593,271(3) NTL 7.000 FIX/IO
FD ....... 1 55,345,666 TAC (4) FLT
SD ....... 1 27,672,834 TAC (4) INV
FC ....... 1 30,142,588 SUP (4) FLT
SC ....... 1 25,059,412 SUP (4) INV
FB ....... 1 30,000,000 SUP (4) FLT
SE ....... 1 2,500,000 SUP (4) INV
FA ....... 1 129,304,711 TAC/AD (4) FLT
SA ....... 1 129,304,711(3) NTL (4) INV/IO
SB ....... 1 16,163,089 TAC/AD (4) INV
Z ........ 1 25,252,700 SUP (5) FIX/Z
IO ....... 1 25,252,700(3) NTL 8.000 FIX/IO
FH ....... 2 5,381,497 SC/PT (4) FLT
SH ....... 2 1,395,204 SC/PT (4) INV
A ........ 3 25,000,000 SC/PT 6.000 FIX
B ........ 4 32,300,000 SC/PT 6.500 FIX
FJ ....... 5 22,007,022 SC/PT (4) FLT
PL ....... 5 6,641,172 SC/PT (6) PO
SL ....... 5 6,641,172(3) NTL (4) INV/IO
</TABLE>
[CAPTION]
FINAL
CUSIP DISTRIBUTION
CLASS(1) NUMBER DATE
[S] [C] [C]
PB ....... 31359R D B 5 August 2014
PC ....... 31359R D C 3 October 2017
PD ....... 31359R D D 1 January 2021
PH ....... 31359R D E 9 January 2021
PG ....... 31359R D F 6 June 2023
PJ ....... 31359R D G 4 June 2023
PE ....... 31359R D H 2 December 2027
IA ....... 31359R D J 8 June 2023
FD ....... 31359R D K 5 December 2027
SD ....... 31359R D L 3 December 2027
FC ....... 31359RDM1 December 2027
SC ....... 31359R D N 9 December 2027
FB ....... 31359R D P 4 December 2027
SE ....... 31359R D Q 2 December 2027
FA ....... 31359R D R 0 December 2027
SA ....... 31359R D S 8 December 2027
SB ....... 31359R D T 6 December 2027
Z ........ 31359R D U 3 December 2027
IO ....... 31359R D V 1 February 1998
FH ....... 31359RDW9 October 2023
SH ....... 31359R D X 7 October 2023
A ........ 31359R D Y 5 June 2022
B ........ 31359R D Z 2 July 2023
FJ ....... 31359R E A 6 September 2023
PL ....... 31359R E B 4 September 2023
SL ....... 31359R E C 2 September 2023
<TABLE>
<CAPTION>
ORIGINAL
CLASS PRINCIPAL INTEREST INTEREST
CLASS(1) GROUP BALANCE TYPE(2) RATE TYPE(2)
<S> <C> <C> <C> <C> <C>
PM........ 5 $ 1,823,068 SC/PT (6) PO
SM........ 5 1,823,068(3) NTL (4) INV/IO
C ........ 6 75,000,000 SEQ 6.765% FIX
D ........ 6 119,228,400 SEQ 6.500 FIX
E ........ 6 30,895,600 SEQ 9.500 FIX
G ........ 6 74,876,000 SEQ 7.000 FIX
FG ....... 7 24,588,236 SC/PT (4) FLT
SG ....... 7 24,588,236(3) NTL (4) INV/IO
PN ....... 8 112,660,700 PAC 6.000 FIX
PQ ....... 8 43,800,400 PAC 6.250 FIX
PR ....... 8 65,074,500 PAC 6.500 FIX
PS ....... 8 61,333,200 PAC 6.500 FIX
PT ....... 8 165,608,300 PAC 7.000 FIX
IB ....... 8 53,838,364(3) NTL 7.000 FIX/IO
IC ....... 8 40,046,200(3) NTL 7.000 FIX/IO
FR ....... 8 173,652,988 TAC/AD (4) FLT
SR........ 8 173,652,988(3) NTL (4) INV/IO
SO ....... 8 21,706,624 TAC/AD (4) INV
ID ....... 8 34,350,000(3) NTL 8.000 FIX/IO
ZA ....... 8 34,350,000 SUP (5) FIX/Z
PO ....... 9 5,510,425 SC/PT (6) PO
SP ....... 9 5,510,425(3) NTL (4) INV/IO
SQ ....... 9 5,510,425(3) NTL (4) INV/IO
R ........ 0 NPR 0 NPR
RL ....... 0 NPR 0 NPR
<CAPTION>
FINAL
CUSIP DISTRIBUTION
CLASS(1) NUMBER DATE
<S> <C> <C>
PM........ 31359R E D 0 September 2023
SM........ 31359R E E 8 September 2023
C ........ 31359R E F 5 March 2025
D ........ 31359R E G 3 March 2025
E ........ 31359R E H 1 March 2025
G ........ 31359R E J 7 December 2027
FG ....... 31359R E K 4 November 2023
SG ....... 31359R E L 2 November 2023
PN ....... 31359R E M 0 December 2014
PQ ....... 31359R E N 8 October 2017
PR ....... 31359R E P 3 December 2020
PS ....... 31359R E Q 1 April 2023
PT ....... 31359R E R 9 October 2027
IB ....... 31359R E S 7 April 2020
IC ....... 31359R E T 5 October 2027
FR ....... 31359R E U 2 October 2027
SR........ 31359R E V 0 October 2027
SO ....... 31359REW8 October 2027
ID ....... 31359R E X 6 February 1998
ZA ....... 31359R E Y 4 October 2027
PO ....... 31359R E Z 1 July 2023
SP ....... 31359R F A 5 July 2023
SQ ....... 31359R F B 3 July 2023
R ........ 31359R F C 1 December 2027
RL ....... 31359R F D 9 December 2027
</TABLE>
================================================================================
(1) The SJ, SK, SN and ST Classes are RCR Classes. See "Description of the
Certificates -- Combination and Recombination herein and Schedule 1 hereto
for a description of the RCR Classes.
(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.
(3) These Classes will be Notional Classes, will not have principal balances and
will bear interest on their respective notional principal balances. The
notional principal balances of the Notional Classes initially will be as set
forth above and thereafter will be calculated as specified herein. See
"Description of the Certificates--Distributions of Interest--Notional
Classes" herein.
(4) The FD, SD, FC, SC, FB, SE, FA, SA, SB, FH, SH, FJ, SL, SM, FG, SG, FR, SR
and SO Classes will bear interest based on "LIBOR" and the SP and SQ Classes
will bear interest based on "COFI," as described under "Description of the
Certificates--Distributions of Interest" herein and "Description of the
Certificates--Indices Applicable to Floating Rate and Inverse Floating Rate
Classes" in the REMIC Prospectus.
(5) No interest will accrue on the Z and ZA Classes prior to the Interest
Accrual Period in February 1998; thereafter, interest will accrue thereon at
a rate of 8.00% per annum.
(6) These Classes will be Principal Only Classes and will bear no interest.
------------------------
The Certificates will be offered by Bear, Stearns & Co. Inc. (the "Dealer")
from time to time in negotiated transactions, at varying prices to be determined
at the time of sale.
The Certificates will be offered by the Dealer, subject to issuance by Fannie
Mae, to prior sale or to withdrawal or modification of the offer without notice,
when, as and if delivered to and accepted by the Dealer, and subject to approval
of certain legal matters by counsel. It is expected that the Classes (except the
PL, SL, PM, SM, SP, SQ, R and RL Classes) will be available through the
book-entry system of the Federal Reserve Banks and that the PL, SL, PM, SM, SP
and SQ Classes and the RCR Certificates will be available through the book-entry
facilities of The Depository Trust Company on or about November 28, 1997 (the
"Settlement Date"). It is expected that the R and RL Classes in registered,
certificated form will be available for delivery at the offices of the Dealer,
245 Park Avenue, New York, New York 10167, on or about the Settlement Date.
------------------------
BEAR, STEARNS & CO. INC.
OCTOBER 8, 1997.
<PAGE> 88
(Cover continued from previous page)
Certain of the Classes of REMIC Certificates may, upon notice and payment of
an exchange fee, be exchanged for one or more Classes (each, an "RCR Class") of
Combinable and Recombinable REMIC Certificates ("RCR Certificates") as provided
herein. Each RCR Certificate issued in such an exchange will represent a
beneficial ownership interest in, and will entitle the Holder thereof to receive
a proportionate share of the distributions on, the related Classes of REMIC
Certificates. The characteristics of the RCR Classes are set forth in Schedule 1
hereto. As used herein, unless the context requires otherwise, the term
"Certificates" includes REMIC Certificates and RCR Certificates and the term
"Classes" includes the Classes of REMIC Certificates and the Classes of RCR
Certificates. See "Description of the Certificates--Combination and
Recombination" herein and Schedule 1 hereto.
THE YIELDS TO INVESTORS IN THE GROUP 1 AND GROUP 6 CLASSES WILL BE SENSITIVE
IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE OF PRINCIPAL DISTRIBUTIONS
ON THE GROUP 1 MBS AND GROUP 6 MBS, RESPECTIVELY, WHICH IN TURN WILL BE
DETERMINED BY THE RATE OF PRINCIPAL PAYMENTS OF THE RELATED MORTGAGE LOANS AND
THE CHARACTERISTICS OF SUCH MORTGAGE LOANS. THE YIELDS TO INVESTORS IN THE GROUP
2, GROUP 3, GROUP 4, GROUP 5, GROUP 7, GROUP 8 AND GROUP 9 CLASSES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE OF PRINCIPAL
DISTRIBUTIONS OF THE RELATED UNDERLYING REMIC CERTIFICATES AND THE TRUST SMBS,
AS APPLICABLE, WHICH IN TURN WILL BE SENSITIVE IN VARYING DEGREES TO THE RATE OF
PRINCIPAL PAYMENTS OF THE RELATED MORTGAGE LOANS, THE CHARACTERISTICS OF THE
MORTGAGE LOANS INCLUDED IN THE RELATED POOLS AND, IF APPLICABLE, THE PRIORITY
SEQUENCES AFFECTING THE UNDERLYING REMIC CERTIFICATES. THE YIELD TO INVESTORS IN
EACH CLASS WILL ALSO BE SENSITIVE TO THE PURCHASE PRICE PAID FOR SUCH CLASS AND,
IN THE CASE OF ANY FLOATING RATE OR INVERSE FLOATING RATE CLASS, FLUCTUATIONS IN
THE LEVEL OF THE APPLICABLE INDEX (AS DEFINED HEREIN). ACCORDINGLY, INVESTORS
SHOULD CONSIDER THE FOLLOWING RISKS:
- THE MORTGAGE LOANS GENERALLY MAY BE PREPAID AT ANY TIME WITHOUT
PENALTY, AND, ACCORDINGLY, THE RATE OF PRINCIPAL PAYMENTS THEREON IS
LIKELY TO VARY CONSIDERABLY FROM TIME TO TIME.
- SLIGHT VARIATIONS IN MORTGAGE LOAN CHARACTERISTICS COULD SUBSTANTIALLY
AFFECT THE WEIGHTED AVERAGE LIVES AND YIELDS OF SOME OR ALL OF THE
CLASSES.
- IN THE CASE OF ANY CERTIFICATES PURCHASED AT A DISCOUNT TO THEIR
PRINCIPAL AMOUNTS (INCLUDING ANY PRINCIPAL ONLY CLASS), A SLOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS IS LIKELY TO RESULT IN A LOWER
THAN ANTICIPATED YIELD.
- IN THE CASE OF ANY CERTIFICATES PURCHASED AT A PREMIUM TO THEIR
PRINCIPAL AMOUNTS, A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
IS LIKELY TO RESULT IN A LOWER THAN ANTICIPATED YIELD.
- IN THE CASE OF ANY INTEREST ONLY CLASS, A FASTER THAN ANTICIPATED RATE
OF PRINCIPAL PAYMENTS IS LIKELY TO RESULT IN A LOWER THAN ANTICIPATED
YIELD AND, IN CERTAIN CASES, AN ACTUAL LOSS ON THE INVESTMENT.
- THE YIELD ON ANY FLOATING RATE OR INVERSE FLOATING RATE CLASS WILL BE
SENSITIVE TO THE LEVEL OF THE APPLICABLE INDEX. SEE "DESCRIPTION OF THE
CERTIFICATES--DISTRIBUTIONS OF INTEREST--FLOATING RATE AND INVERSE
FLOATING RATE CLASSES" HEREIN.
SEE "RISK FACTORS--YIELD CONSIDERATIONS" IN THE REMIC PROSPECTUS AND "ADDITIONAL
RISK FACTORS--ADDITIONAL YIELD AND PREPAYMENT CONSIDERATIONS" AND "YIELD TABLES"
HEREIN.
IN ADDITION, INVESTORS SHOULD PURCHASE CERTIFICATES ONLY AFTER CONSIDERING
THE FOLLOWING:
- THE ACTUAL FINAL PAYMENT OF ANY CLASS WILL LIKELY OCCUR EARLIER, AND
COULD OCCUR MUCH EARLIER, THAN THE FINAL DISTRIBUTION DATE FOR SUCH
CLASS SPECIFIED ON THE COVER PAGE. SEE "DESCRIPTION OF THE
CERTIFICATES--WEIGHTED AVERAGE LIVES OF THE CERTIFICATES" HEREIN AND
"DESCRIPTION OF THE CERTIFICATES--WEIGHTED AVERAGE LIFE AND FINAL
DISTRIBUTION DATES" IN THE REMIC PROSPECTUS.
- THE RATE OF PRINCIPAL DISTRIBUTIONS OF THE CERTIFICATES IS UNCERTAIN
AND INVESTORS MAY BE UNABLE TO REINVEST THE DISTRIBUTIONS THEREON AT
YIELDS EQUALING THE YIELDS ON THE CERTIFICATES. SEE "RISK
FACTORS--SUITABILITY AND REINVESTMENT CONSIDERATIONS" IN THE REMIC
PROSPECTUS.
- INVESTORS WHOSE INVESTMENT ACTIVITIES ARE SUBJECT TO LEGAL INVESTMENT
LAWS AND REGULATIONS OR TO REVIEW BY REGULATORY AUTHORITIES MAY BE
SUBJECT TO RESTRICTIONS ON INVESTMENT IN CERTAIN CLASSES OF THE
CERTIFICATES. INVESTORS SHOULD CONSULT THEIR LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE CERTIFICATES CONSTITUTE LEGAL INVESTMENTS
OR ARE SUBJECT TO RESTRICTIONS ON INVESTMENT. SEE "LEGAL INVESTMENT
CONSIDERATIONS" IN THE REMIC PROSPECTUS.
- THE DEALER INTENDS TO MAKE A MARKET FOR THE CERTIFICATES BUT IS NOT
OBLIGATED TO DO SO. THERE CAN BE NO ASSURANCE THAT SUCH A SECONDARY
MARKET WILL DEVELOP OR, IF DEVELOPED, THAT IT WILL CONTINUE. THUS,
INVESTORS MAY NOT BE ABLE TO SELL THEIR CERTIFICATES READILY OR AT
PRICES THAT WILL ENABLE THEM TO REALIZE THEIR ANTICIPATED YIELD. NO
INVESTOR SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS
AND IS ABLE TO BEAR THE RISK THAT THE VALUE OF THE CERTIFICATES WILL
FLUCTUATE OVER TIME AND THAT THE CERTIFICATES MAY NOT BE READILY
SALABLE.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus Supplement, the REMIC Prospectus, the
MBS Prospectus, the Prospectus Supplements for the Underlying REMIC Trusts
(collectively, the "Underlying REMIC Disclosure Documents"), the SMBS Prospectus
or the Mega Prospectus (each as defined below). Any representation to the
contrary is a criminal offense.
Elections will be made to treat the Lower Tier REMIC and the Trust as "real
estate mortgage investment conduits" ("REMICs") pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). The R and RL Classes will be subject to
transfer restrictions. See "Description of the Certificates--Characteristics of
the R and RL Classes" and "Certain Additional Federal Income Tax Consequences"
herein, and "Description of the Certificates--Additional Characteristics of
Residual Certificates" and "Certain Federal Income Tax Consequences" in the
REMIC Prospectus.
Investors should purchase the Certificates only if they have read and
understood this Prospectus Supplement and the following documents (collectively,
the "Disclosure Documents"):
- Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through Certificates
dated June 14, 1996 (the "REMIC Prospectus"), which is attached to this
Prospectus Supplement;
- Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated August 1, 1997 (the "MBS Prospectus");
- Fannie Mae's Prospectus for Stripped Mortgage-Backed Securities dated
July 1, 1996 (the "SMBS Prospectus");
- Fannie Mae's Prospectus for Guaranteed MBS Pass-Through Securities
dated October 1, 1996 (the "Mega Prospectus");
- Fannie Mae's Information Statement dated March 31, 1997 and any
supplements thereto (collectively, the "Information Statement"); and
- The Underlying REMIC Disclosure Documents.
The MBS Prospectus, SMBS Prospectus, the Mega Prospectus and the Information
Statement are incorporated herein by reference and, together with the other
Disclosure Documents, may be obtained from Fannie Mae by writing or calling its
MBS Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S, Washington, D.C. 20016
(telephone 1-800-BEST-MBS or 202-752-6547). Such documents, other than the
Underlying REMIC Disclosure Documents, may also be obtained from Bear, Stearns &
Co. Inc. by writing or calling its Prospectus Department at One Metro Tech
Center North, Brooklyn, New York 11201 (telephone 718-272-1581).
S-2
<PAGE> 89
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REFERENCE SHEET........................ S- 4
ADDITIONAL RISK FACTORS................ S-10
Additional Yield and Prepayment
Considerations..................... S-10
DESCRIPTION OF THE CERTIFICATES........ S-11
General.............................. S-11
Structure.......................... S-11
Fannie Mae Guaranty................ S-11
Characteristics of Certificates.... S-11
Authorized Denominations........... S-12
Distribution Dates................. S-12
Record Date........................ S-12
REMIC Trust Factors................ S-12
Optional Termination............... S-12
Voting the Underlying REMIC
Certificates and Trust SMBS..... S-12
Combination and Recombination........ S-12
General............................ S-12
Procedures......................... S-13
Additional Considerations.......... S-13
Book-Entry Procedures................ S-14
General............................ S-14
Method of Distribution............. S-14
The Trust MBS........................ S-15
The Underlying REMIC Certificates and
the Trust SMBS..................... S-15
Final Data Statement................. S-16
Distributions of Interest............ S-16
Categories of Classes.............. S-16
General............................ S-17
Interest Accrual Periods........... S-17
Accrual Classes.................... S-17
Notional Classes................... S-17
Floating Rate and Inverse Floating
Rate Classes.................... S-18
Calculation of LIBOR................. S-18
Calculation of COFI.................. S-18
Distributions of Principal........... S-19
Categories of Classes.............. S-19
Principal Distribution Amount...... S-20
Group 1 Principal Distribution
Amount.......................... S-20
Group 1 Accrual Amount.......... S-20
Group 1 Cash Flow Distribution
Amount........................ S-21
Group 2 Principal Distribution
Amount.......................... S-22
Group 3 Principal Distribution
Amount.......................... S-22
Group 4 Principal Distribution
Amount.......................... S-22
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Group 5 Principal Distribution
Amount.......................... S-22
Group 6 Principal Distribution
Amount.......................... S-22
Group 7 Principal Distribution
Amount.......................... S-22
Group 8 Principal Distribution
Amount.......................... S-23
Group 8 Accrual Amount.......... S-23
Group 8 Cash Flow Distribution
Amount........................ S-23
Group 9 Principal Distribution
Amount.......................... S-23
Structuring Assumptions.............. S-23
Pricing Assumptions................ S-23
Prepayment Assumptions............. S-24
Structuring Range and Rate......... S-24
Initial Effective Ranges........... S-24
Yield Tables......................... S-25
General............................ S-25
The IA, IO, IB, IC and ID
Classes......................... S-25
The Inverse Floating Rate Classes
and the SJ, SK, SN and ST
Classes......................... S-26
The Principal Only Classes......... S-30
Weighted Average Lives of the
Certificates....................... S-31
Decrement Tables..................... S-32
Characteristics of the R and RL
Classes............................ S-37
CERTAIN ADDITIONAL FEDERAL INCOME TAX
CONSEQUENCES......................... S-37
REMIC Elections and Special Tax
Attributes......................... S-37
Taxation of Beneficial Owners of
Regular Certificates............... S-38
Taxation of Beneficial Owners of
Residual Certificates.............. S-38
Taxation of Beneficial Owners of RCR
Certificates....................... S-39
General............................ S-39
Combination RCR Classes............ S-39
Exchanges.......................... S-39
PLAN OF DISTRIBUTION................... S-39
General............................ S-39
Increase in Certificates........... S-39
LEGAL MATTERS.......................... S-40
EXHIBIT A.............................. A-1
SCHEDULE 1............................. A-2
PRINCIPAL BALANCE SCHEDULES............ B-1
</TABLE>
S-3
<PAGE> 90
REFERENCE SHEET
THIS REFERENCE SHEET IS NOT A SUMMARY OF THE REMIC TRANSACTION AND IT DOES
NOT CONTAIN COMPLETE INFORMATION ABOUT THE CERTIFICATES. INVESTORS SHOULD
PURCHASE THE CERTIFICATES ONLY AFTER READING THIS PROSPECTUS SUPPLEMENT AND EACH
OF THE ADDITIONAL DISCLOSURE DOCUMENTS DESCRIBED HEREIN IN THEIR ENTIRETY.
ASSUMED CHARACTERISTICS OF THE MORTGAGE LOANS UNDERLYING THE TRUST MBS
(AS OF NOVEMBER 1, 1997)
<TABLE>
<CAPTION>
APPROXIMATE
ORIGINAL WEIGHTED AVERAGE APPROXIMATE
APPROXIMATE TERM TO REMAINING TERM CALCULATED APPROXIMATE
MORTGAGE LOAN PRINCIPAL MATURITY TO MATURITY LOAN AGE WEIGHTED
GROUP BALANCE (IN MONTHS) (IN MONTHS) (IN MONTHS) AVERAGE COUPON
- ------------- -------------- ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Group 1 MBS $1,000,000,000 360 355 4 7.700%
Group 6 MBS $ 300,000,000 360 342 15 7.700%
</TABLE>
The actual remaining terms to maturity, calculated loan ages and interest
rates of most of the related Mortgage Loans will differ from the weighted
averages shown above, perhaps significantly. See "Description of the
Certificates--Structuring Assumptions--Pricing Assumptions" herein.
CHARACTERISTICS OF THE UNDERLYING REMIC CERTIFICATES AND THE TRUST SMBS
The table contained in Exhibit A hereto sets forth information with respect
to the Underlying REMIC Certificates and the Trust SMBS, including certain
information regarding the underlying Mortgage Loans. Certain additional
information as to the Underlying REMIC Certificates may be obtained by
performing an analysis of current Fannie Mae principal factors in the context of
applicable information contained in the related Underlying REMIC Disclosure
Documents, which may be obtained from Fannie Mae as described herein.
See "Description of the Certificates--The Underlying REMIC Certificates and
the Trust SMBS" herein.
COMBINATION AND RECOMBINATION
Holders of certain Classes of REMIC Certificates will be entitled, upon
notice and payment of an exchange fee, to exchange all or a portion of such
Classes for a proportionate interest in the related RCR Classes as reflected on
Schedule 1 hereto. The Holders of RCR Classes will be entitled to receive
distributions of principal and interest from the related Classes of REMIC
Certificates. See "Description of the Certificates--Combination and
Recombination" herein. Schedule 1 sets forth all of the available combinations
of the Classes of REMIC Certificates and the related RCR Classes.
INTEREST RATES
The Fixed Rate Classes will bear interest at the applicable per annum
interest rates set forth on the cover.
The Floating Rate and Inverse Floating Rate Classes will bear interest
during the initial Interest Accrual Period at initial interest rates specified
or determined as described below, and will bear
S-4
<PAGE> 91
interest during each Interest Accrual Period thereafter, subject to the
applicable maximum and minimum interest rates, at rates determined as described
below:
<TABLE>
<CAPTION>
INITIAL MAXIMUM MINIMUM FORMULA FOR
INTEREST INTEREST INTEREST CALCULATION OF
CLASS RATE RATE RATE INTEREST RATE
----- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
FD .................. 6.05000% 9.00000% 0.40% LIBOR + 40 basis points
SD .................. 5.90000% 17.20000% 0.00% 17.2% - (2 X LIBOR)
FC .................. 6.65000% 8.50000% 1.00% LIBOR + 100 basis points
SC .................. 4.44000% 18.00000% 0.00% 18% - (2.4 X LIBOR)
FB .................. 6.45000% 9.00000% 0.80% LIBOR + 80 basis points
SE .................. 8.40000% 8.40000% 0.00% 98.4% - (12 X LIBOR)
FA .................. 6.05000% 9.00000% 0.40% LIBOR + 40 basis points
SA .................. 1.85000% 7.50000% 0.00% 7.5% - LIBOR
SB .................. 8.80000% 8.80000% 0.00% 68.8% - (8 X LIBOR)
FH .................. 6.62500% 8.50000% 1.00% LIBOR + 100 basis points
SH .................. 7.23213% 28.92855% 0.00% 28.92855% - (3.85714 X LIBOR)
FJ .................. 6.42500% 9.00000% 0.80% LIBOR + 80 basis points
SL .................. 6.21324% 24.85294% 0.00% 24.85294% - (3.31372549 X LIBOR)
SM................... 8.45000% 8.45000% 0.00% 98.98571% - (12.0714285 X LIBOR)
SJ .................. 6.21324% 24.85294% 0.00% 24.85294% - (3.31372549 X LIBOR)
SK .................. 8.45000% 8.45000% 0.00% 98.98571% - (12.0714285 X LIBOR)
SN .................. 6.69500% 21.32000% 0.00% 21.32% - (2.6 X LIBOR)
FG .................. 6.60625%(1) 8.50000% 0.95% LIBOR + 95 basis points
SG .................. 0.45000%(1) 0.45000% 0.00% 7.55% - LIBOR
FR .................. 6.05000% 9.00000% 0.40% LIBOR + 40 basis points
SR .................. 1.85000% 7.50000% 0.00% 7.5% - LIBOR
SO .................. 8.80000% 8.80000% 0.00% 68.8% - (8 X LIBOR)
SP .................. 4.80432% 16.33331% 0.00% 16.33331% - (2.33333 X COFI)
SQ .................. 4.19990% 4.19999% 0.00% 20.53330% - (2.33333 X COFI)
ST .................. 9.00431% 20.53330% 0.00% 20.53330% - (2.33333 X COFI)
</TABLE>
- ---------------
(1) The initial interest rates for these Classes are assumed rates. The actual
initial interest rates for these Classes will be calculated on the basis of
the applicable formulas for the calculation of such interest rates on the
Index Determination Date occurring on November 21, 1997.
See "Description of the Certificates--Distributions of Interest--Floating
Rate and Inverse Floating Rate Classes" herein.
On any Distribution Date when distributions of interest are to be allocated
from REMIC Certificates to RCR Certificates, such distributions will be
allocated on a pro rata basis from the applicable Classes of REMIC Certificates
to the related RCR Class.
S-5
<PAGE> 92
NOTIONAL CLASSES
The notional principal balances of the Notional Classes will be equal to
the indicated percentages of the outstanding balances specified below
immediately prior to the related Distribution Date:
<TABLE>
<CAPTION>
CLASSES
-------
<S> <C> <C>
IA ............................................... 14.2857142857% of PB Class
14.2857142857% of PG Class
10.7142857143% of PC Class
10.7142857143% of PH Class
7.1428571429% of PD Class
7.1428571429% of PJ Class
SA ............................................... 100% of FA Class
IO(1)............................................. 100% of Z Class
SL................................................ 100% of PL Class
SM................................................ 100% of PM Class
SG ............................................... 100% of FG Class
IB and IC(2)...................................... 28.5714285714% of PN Class
25.0000000000% of PQ Class
21.4285714286% of PR Class
21.4285714286% of PS Class
14.2857142857% of PT Class
SR ............................................... 100% of FR Class
ID(1)............................................. 100% of ZA Class
SP ............................................... 100% of PO Class
SQ ............................................... 100% of PO Class
ST ............................................... 100% of PO Class
</TABLE>
-------------------------
(1) Prior to the Interest Accrual Period in February 1998, the IO and
ID Classes will have notional principal balances calculated as
specified above. Thereafter, the notional principal balances of
the IO and ID Classes will be deemed to be zero and, accordingly,
Holders of the IO and ID Classes will no longer be entitled to any
distributions of interest.
(2) In the aggregate. On each Distribution Date, reductions in the
principal balances of the PN, PQ, PR, PS and PT Classes will be
applied, sequentially, to reduce the notional principal balances
of the IB and IC Classes, in that order, until the respective
notional principal balances thereof are reduced to zero.
See "Description of the Certificates--Distributions of Interest--Notional
Classes" and "--Yield Tables--The IA, IO, IB, IC and ID Classes" and "--The
Inverse Floating Rate Classes and the SJ, SK, SN and ST Classes" herein.
DISTRIBUTIONS OF PRINCIPAL
The portion of the Principal Distribution Amount allocated to each Class of
Certificates will be determined as described herein under "Description of the
Certificates--Distributions of Principal--Principal Distribution Amount."
Group 1 Principal Distribution Amount
Group 1 Accrual Amount
Commencing in March 1998, to the FA and SB Classes, in proportion to their
original principal balances, to zero, and then to the Z Class.
Group 1 Cash Flow Distribution Amount
1. To the PB and PC Classes, in that order, to their Planned Balances.
2. To the PD and PH Classes, in proportion to their original principal
balances, to their Planned Balances.
3. To the PG and PJ Classes, in proportion to their original principal
balances, to their Planned Balances.
S-6
<PAGE> 93
4. To the PE Class, to its Planned Balance.
5. (a) 50% of the remaining amount in the following order:
first, to the FD and SD Classes, in proportion to their original
principal balances, to their Targeted Balances,
second, to the FC, SC, FB and SE Classes, in proportion to their
original principal balances, to zero, and
third, to the FD and SD Classes, in proportion to their original
principal balances, to zero, and
(b) 50% of such remaining amount in the following order:
first, to the FA and SB Classes, in proportion to their original
principal balances, to their Targeted Balances,
second, to the Z Class, to zero, and
third, to the FA and SB Classes, in proportion to their original
principal balances, to zero.
6. To the PB and PC Classes, in that order, to zero.
7. To the PD and PH Classes, in proportion to their original principal
balances, to zero.
8. To the PG and PJ Classes, in proportion to their original principal
balances, to zero.
9. To the PE Class, to zero.
Group 2 Principal Distribution Amount
To the FH and SH Classes, in proportion to their original principal
balances, to zero.
Group 3 Principal Distribution Amount
To the A Class, to zero.
Group 4 Principal Distribution Amount
To the B Class, to zero.
Group 5 Principal Distribution Amount
To the FJ, PL and PM Classes, in proportion to their original principal
balances, to zero.
Group 6 Principal Distribution Amount
1. To the C, D and E Classes, in proportion to their original principal
balances, to zero.
2. To the G Class, to zero.
Group 7 Principal Distribution Amount
To the FG Class, to zero.
Group 8 Principal Distribution Amount
Group 8 Accrual Amount
Commencing in March 1998, to the FR and SO Classes, in proportion to their
original principal balances, to zero, and then to the ZA Class.
S-7
<PAGE> 94
Group 8 Cash Flow Distribution Amount
1. To the PN, PQ, PR, PS and PT Classes, in that order, to their Planned
Balances.
2. To the FR and SO Classes, in proportion to their original principal
balances, to their Targeted Balances.
3. To the ZA Class, to zero.
4. To the FR and SO Classes, in proportion to their original principal
balances, to zero.
5. To the PN, PQ, PR, PS and PT Classes, in that order, to zero.
Group 9 Principal Distribution Amount
To the PO Class, to zero.
On any Distribution Date when distributions of principal are to be
allocated from REMIC Certificates to RCR Certificates, such distributions will
be allocated on a pro rata basis from the applicable Classes of REMIC
Certificates to the related RCR Class.
WEIGHTED AVERAGE LIVES (YEARS)*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 1 CLASSES 0% 100% 165% 250% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PB ........................... 8.0 2.5 2.5 2.5 2.2
PC ........................... 14.8 4.5 4.5 4.5 3.0
PD and PH..................... 17.8 6.0 6.0 6.0 3.6
PG and PJ..................... 20.4 7.9 7.9 7.9 4.3
PE ........................... 23.9 13.8 13.8 13.8 7.4
IA ........................... 13.2 4.5 4.5 4.5 3.0
FC, SC, FB and SE............. 29.1 23.9 15.5 2.8 1.1
Z ........................... 28.1 23.3 19.4 1.6 1.0
IO ........................... 0.2 0.2 0.2 0.2 0.2
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------------
0% 100% 160% 165% 250% 500%
-- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FD and SD..................... 27.0 11.3 3.0 3.0 3.0 1.7
FA, SA and SB................. 15.9 10.5 4.8 4.5 3.1 1.4
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 2 CLASSES 0% 100% 165% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FH and SH..................... 25.7 23.4 20.8 1.3 0.6
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 3 CLASS 0% 100% 140% 350% 500%
------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A............................. 17.2 6.9 6.9 6.4 4.4
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 4 CLASS 0% 100% 165% 350% 500%
------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
B............................. 20.8 13.7 13.7 10.8 7.6
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 5 CLASSES 0% 100% 165% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FJ, PL, SL, PM, SM, SJ, SK and
SN.......................... 25.5 22.6 19.3 2.2 1.1
</TABLE>
S-8
<PAGE> 95
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 6 CLASSES 0% 100% 180% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
C, D and E.................... 18.9 7.1 4.5 2.5 1.8
G............................. 28.7 21.9 16.6 9.7 6.8
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 7 CLASSES 0% 100% 250% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FG and SG..................... 25.6 22.7 14.0 4.2 1.6
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 8 CLASSES 0% 100% 165% 250% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PN ........................... 8.3 2.5 2.5 2.5 2.2
PQ ........................... 15.1 4.5 4.5 4.5 3.0
PR ........................... 17.9 6.0 6.0 6.0 3.6
PS ........................... 20.5 7.9 7.9 7.9 4.3
PT ........................... 23.9 13.8 13.8 13.8 7.4
IB ........................... 11.5 3.6 3.6 3.6 2.6
IC ........................... 22.4 11.3 11.3 11.3 6.1
ID ........................... 0.2 0.2 0.2 0.2 0.2
ZA ........................... 28.0 23.2 19.3 1.6 1.0
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------------
0% 100% 160% 165% 250% 500%
-- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
FR, SR and SO................. 15.7 10.5 4.8 4.5 3.1 1.4
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 9 CLASSES 0% 100% 175% 350% 500%
--------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PO, SP, SQ and ST............. 25.1 21.5 17.1 2.1 1.0
</TABLE>
-----------------------
* Determined as specified under "Description of the
Certificates--Weighted Average Lives of the Certificates" herein.
S-9
<PAGE> 96
ADDITIONAL RISK FACTORS
ADDITIONAL YIELD AND PREPAYMENT CONSIDERATIONS
The rate of distributions of principal of the Group 1 and Group 6 Classes
will be sensitive in varying degrees to the rate of principal distributions on
the Group 1 MBS and Group 6 MBS, respectively, which in turn will reflect the
rate of amortization (including prepayments) of the related Mortgage Loans.
There can be no assurance that the Mortgage Loans underlying the Group 1 MBS or
Group 6 MBS will have the characteristics assumed herein. Because the rate of
principal distributions on the Group 1 and Group 6 Classes will be related to
the rate of amortization of the related Mortgage Loans, which are likely to
include Mortgage Loans with remaining terms to maturity shorter or longer than
those assumed and interest rates higher or lower than those assumed, the rate of
principal distributions on such Classes is likely to differ from the rate
anticipated by an investor, even if the related Mortgage Loans prepay at the
indicated constant percentages of PSA.
The rate of distributions of principal of the Group 2, Group 3, Group 4,
Group 5, Group 7, Group 8 and Group 9 Classes will be directly related to the
rate of distributions of principal of the related Underlying REMIC Certificates
and the Trust SMBS, as applicable, which in turn will be sensitive in varying
degrees to the rate of payments of principal (including prepayments) of the
related Mortgage Loans and, if applicable, the priority sequences affecting such
Underlying REMIC Certificates. As described in the related Underlying REMIC
Disclosure Documents, the Underlying REMIC Certificates are subordinate in
priority of principal distributions to certain other classes of certificates
evidencing beneficial ownership interests in the related Underlying REMIC Trusts
and, accordingly, distributions of principal of the related Mortgage Loans may
for extended periods be applied to the distribution of principal of those
classes of certificates having priority over such Underlying REMIC Certificates.
In particular, certain of the Underlying REMIC Certificates are Support classes
that are entitled to receive principal distributions on any Distribution Date
only if scheduled distributions have been made on other specified classes of
certificates evidencing beneficial ownership interests in the related Underlying
REMIC Trusts. Accordingly, such Underlying REMIC Certificates may receive no
principal distributions for extended periods of time or may receive principal
distributions that vary widely from period to period. In addition, certain of
the Underlying REMIC Certificates have Principal Balance Schedules and, as a
result, may receive principal distributions at a rate faster or slower than
would otherwise have been the case (and in some cases may receive no
distributions of principal for extended periods). Prepayments on the related
Mortgage Loans may have occurred at a rate faster or slower than that initially
assumed. This Prospectus Supplement contains no information as to whether such
classes have adhered to their Principal Balance Schedules, whether any related
Support classes remain outstanding or whether such classes otherwise have
performed as originally anticipated. Additional information as to the Underlying
REMIC Certificates may be obtained by performing an analysis of current Fannie
Mae principal factors in the context of applicable information contained in the
related Underlying REMIC Disclosure Documents, which may be obtained from Fannie
Mae as described herein.
It is highly unlikely that the Mortgage Loans underlying the Trust MBS,
Underlying REMIC Certificates or Trust SMBS, as applicable, will prepay at any
of the rates assumed herein, will prepay at a constant PSA rate until maturity
or that such Mortgage Loans will prepay at the same rate. Investors must make
their own decisions as to the appropriate assumptions, including prepayment
assumptions, to be used in deciding whether to purchase the Certificates.
The effective yields on the Delay Classes (as defined herein) will be
reduced below the yields otherwise produced because principal and interest
payable on a Distribution Date will not be distributed until the 18th or 25th
day, as applicable, following the end of the related Interest Accrual Period and
will not bear interest during such delay. As a result of the foregoing, the
market values of the Delay Classes will be lower than would have been the case
if there were no such delay. No interest at all will be paid on any Class after
its principal balance has been reduced to zero.
S-10
<PAGE> 97
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the remaining provisions of this Prospectus
Supplement, the additional Disclosure Documents and the provisions of the Trust
Agreement (defined below). Capitalized terms used and not otherwise defined in
this Prospectus Supplement have the meanings assigned to such terms in the
applicable Disclosure Document or the Trust Agreement (as the context may
require).
GENERAL
Structure. The Trust and the Lower Tier REMIC will be created pursuant to
a trust agreement dated as of November 1, 1997 (the "Trust Agreement"), executed
by the Federal National Mortgage Association ("Fannie Mae") in its corporate
capacity and in its capacity as trustee (the "Trustee"), and the Certificates in
the Classes and aggregate original principal balances set forth on the cover
hereof will be issued by Fannie Mae pursuant thereto. A description of Fannie
Mae and its business, together with certain financial statements and other
financial information, is contained in the Information Statement.
The Certificates (other than the R and RL Classes) will be designated as
the "regular interests," and the R Class will be designated as the "residual
interest," in the REMIC constituted by the Trust. The interests in the Lower
Tier REMIC other than the RL Class (the "Lower Tier Regular Interests") will be
designated as the "regular interests," and the RL Class will be designated as
the "residual interest," in the Lower Tier REMIC. The assets of the Lower Tier
REMIC will consist of the Trust MBS, Underlying REMIC Certificates (which
evidence beneficial ownership interests in the Underlying REMIC Trusts) and
Trust SMBS.
Fannie Mae Guaranty. Fannie Mae guarantees to each holder of an MBS the
timely payment of scheduled installments of principal of and interest on the
underlying Mortgage Loans, whether or not received, together with the full
principal balance of any foreclosed Mortgage Loan, whether or not such balance
is actually recovered. The guaranty obligations of Fannie Mae with respect to
the Underlying REMIC Certificates are described in the Underlying REMIC
Disclosure Documents. The guarantee obligations of Fannie Mae with respect to
the Trust SMBS are described in the SMBS Prospectus. In addition, Fannie Mae
will be obligated to distribute on a timely basis to the Holders of Certificates
required installments of principal and interest and to distribute the principal
balance of each Class of Certificates in full no later than the applicable Final
Distribution Date, whether or not sufficient funds are available in the Trust
Account. The guaranties of Fannie Mae are not backed by the full faith and
credit of the United States. See "Description of the Certificates--Fannie Mae's
Guaranty" in the REMIC Prospectus, "Description of Certificates--The
Corporation's Guaranty" in the MBS Prospectus, "Description of the
Certificates--General--Fannie Mae Guaranty" in the related Underlying REMIC
Disclosure Documents and "The SMBS Certificates--Fannie Mae Obligations" in the
SMBS Prospectus.
Characteristics of Certificates. The Classes of REMIC Certificates other
than the PL, SL, PM, SM, SP, SQ, R and the RL Classes (the "Fed Book-Entry
Certificates") will be issued and maintained and may be transferred by Holders
only on the book-entry system of the Federal Reserve Banks. Such entities whose
names appear on the book-entry records of a Federal Reserve Bank as the entities
for whose accounts such Certificates have been deposited are herein referred to
as "Holders" or "Certificateholders."
The PL, SL, PM, SM, SP and SQ Classes and the RCR Certificates will be
represented by one or more certificates (the "DTC Certificates") to be
registered at all times in the name of the nominee of the Depository (as defined
herein), which Depository will maintain such Certificates through its book-
entry facilities. When used herein with respect to any DTC Certificate, the
terms "Holders" and "Certificateholders" refer to the nominee of the Depository.
A Holder is not necessarily the beneficial owner of a book-entry
Certificate. Beneficial owners will ordinarily hold book-entry Certificates
through one or more financial intermediaries, such as banks,
S-11
<PAGE> 98
brokerage firms and securities clearing organizations. See "Description of the
Certificates--Denominations, Certificate Form" in the REMIC Prospectus.
The R and RL Certificates will not be issued in book-entry form but will be
issued in fully registered, certificated form. As to the R or RL Certificate,
"Holder" or "Certificateholder" refers to the registered owner thereof. The R or
RL Certificates will be transferable at the corporate trust office of the
Transfer Agent, or at the agency of the Transfer Agent in New York, New York.
The Transfer Agent initially will be State Street Bank and Trust Company in
Boston, Massachusetts ("State Street"). A service charge may be imposed for any
registration of transfer of the R or RL Certificate and Fannie Mae may require
payment of a sum sufficient to cover any tax or other governmental charge. See
also "Characteristics of the R and RL Classes" herein.
The distribution to the Holder of the R and RL Classes of the proceeds of
any remaining assets of the Trust and the Lower Tier REMIC, as applicable, will
be made only upon presentation and surrender of the related Certificate at the
office of the Paying Agent. The Paying Agent initially will be State Street.
Authorized Denominations. The Certificates, other than the R and RL
Certificates, will be issued in minimum denominations of $1,000 and integral
multiples of $1 in excess thereof. The R and RL Classes will be issued as single
Certificates and will not have principal balances.
Distribution Dates. Distributions on the Group 1, Group 6 and Group 8
Classes will be made on the 18th day of each month (or, if such 18th day is not
a business day, on the first business day next succeeding such 18th day), and
distributions on the Group 2, Group 3, Group 4, Group 5, Group 7 and Group 9
Classes will be made on the 25th day of each month (or, if the 25th day is not a
business day, on the first business day next succeeding such 25th day) (each, a
"Distribution Date"), commencing in the month following the Settlement Date.
Record Date. Each monthly distribution on the Certificates will be made to
Holders of record on the last day of the preceding month.
REMIC Trust Factors. As soon as practicable following the eleventh
calendar day of each month, Fannie Mae will publish or otherwise make available
for each Class of Certificates the factor (carried to eight decimal places)
which, when multiplied by the original principal balance of a Certificate of
such Class, will equal the remaining principal balance of such Certificate after
giving effect to the distribution of principal to be made on the following
Distribution Date and any interest to be added as principal to the principal
balances of the Accrual Classes on such Distribution Date.
Optional Termination. Consistent with its policy described under
"Description of Certificates--Termination" in the MBS Prospectus, Fannie Mae
will agree not to effect indirectly an early termination of the Lower Tier REMIC
or the Trust through the exercise of its right to repurchase the Mortgage Loans
underlying any MBS unless only one Mortgage Loan remains in the related Pool or
the principal balance of such Pool at the time of repurchase is less than one
percent of the original principal balance thereof.
Voting the Underlying REMIC Certificates and Trust SMBS. In the event any
issue arises under the trust agreement governing any of the Underlying REMIC
Trusts or under the trust indenture governing the Trust SMBS that requires the
vote of holders of certificates outstanding thereunder, the Trustee will vote
the related Underlying REMIC Certificates or the Trust SMBS, as applicable, in
accordance with instructions received from Holders of Certificates of the
related Classes having principal balances aggregating not less than 51% of the
aggregate principal balance of all such Classes outstanding. In the absence of
such instructions, the Trustee will vote in a manner consistent, in its sole
judgment, with the best interests of Certificateholders.
COMBINATION AND RECOMBINATION
General. Subject to the rules, regulations and procedures of the
Depository, all or a portion of the PL, SL, PM, SM, SP and SQ Classes of REMIC
Certificates may be exchanged for a proportionate
S-12
<PAGE> 99
interest in one or more RCR Classes as reflected on Schedule 1 hereto.
Similarly, all or a portion of one or more RCR Classes may be exchanged as
reflected on Schedule 1, for certain Classes of REMIC Certificates. This process
may occur repeatedly.
Each RCR Class issued in an exchange will represent a beneficial ownership
interest in, and will be entitled to receive a proportionate share of the
distributions on, the related Classes of REMIC Certificates, and the Holders of
an RCR Class will be treated as the beneficial owners of a proportionate
interest in the related Classes of REMIC Certificates.
The Classes of REMIC Certificates and RCR Certificates that are outstanding
at any given time, and the outstanding principal balances (or notional principal
balances) of such Classes, will depend upon distributions of principal of such
Classes as well as any exchanges that occur. The aggregate outstanding principal
balance of all the Classes of REMIC Certificates and RCR Classes (exclusive of
any notional principal balance) will at all times equal the aggregate
outstanding principal balance of the related Underlying REMIC Certificates.
Procedures. A Holder proposing to effect an exchange must notify Fannie
Mae's Capital Markets Department through a dealer who is a member of Fannie
Mae's "REMIC Dealer Group." Such notice must be given in writing or by telefax
not later than two business days before the proposed exchange date (which date,
subject to Fannie Mae's approval, can be any business day other than the first
or last business day of the month). The notice must include the outstanding
principal balance of both the Certificates to be exchanged and the Certificates
to be received, and the proposed exchange date. Promptly after the receipt of a
Holder's notice, Fannie Mae will telephone the dealer to provide instructions
for delivering the Certificates and the exchange fee to Fannie Mae by wire
transfer. A Holder's notice becomes irrevocable on the second business day
before the proposed exchange date.
A fee will be payable to Fannie Mae in connection with each exchange equal
to 1/32 of 1% of the outstanding principal balance (exclusive of any notional
principal balance) of the Certificates to be submitted for exchange, provided
that the fee payable in connection with each exchange will in no event be less
than $2,000.
The first distribution on a REMIC Certificate or an RCR Certificate
received in an exchange transaction will be made on the Distribution Date in the
month following the month of the exchange. Such distribution will be made to the
Holder of record as of the close of business on the last day of the month of the
exchange.
Certificates to be exchanged must be delivered to Fannie Mae as provided in
Schedule 1, based on the original principal balances of the related Classes of
REMIC Certificates or RCR Certificates and will not change as a result of any
reductions (or increases) in the outstanding principal balances of the
Certificates.
Additional Considerations. The characteristics of an RCR Class will
reflect the characteristics of the Classes of REMIC Certificates used to form
such RCR Class.
At any given time, a Holder's ability to exchange REMIC Certificates for
RCR Certificates or to exchange RCR Certificates for REMIC Certificates will be
limited by a number of factors. A Holder must, at the time of the proposed
exchange, own the appropriate Classes in the appropriate proportions in order to
effect a desired exchange. A Holder that does not own the appropriate Classes or
the appropriate portions of such Classes may not be able to obtain the necessary
Class or Classes of REMIC Certificates or the RCR Class. The Holder of a needed
Class may refuse or be unable to sell at a reasonable price or any price, or
certain Classes may have been purchased and placed into other financial
structures. In addition, principal distributions will, over time, diminish the
amounts available for exchange. Only the combinations listed on Schedule 1 are
permitted.
S-13
<PAGE> 100
BOOK-ENTRY PROCEDURES
General. The Fed Book-Entry Certificates will be issued and maintained
only on the book-entry system of the Federal Reserve Banks. Such Certificates
may be held of record only by entities eligible to maintain book-entry accounts
with the Federal Reserve Banks. Beneficial owners ordinarily will hold such
Certificates through one or more financial intermediaries, such as banks,
brokerage firms and securities clearing organizations. A Holder that is not the
beneficial owner of such a Certificate, and each other financial intermediary in
the chain to the beneficial owner, will have the responsibility of establishing
and maintaining accounts for their respective customers. The rights of the
beneficial owner of such a Certificate with respect to Fannie Mae and the
Federal Reserve Banks may be exercised only through the Holder of such
Certificate. Fannie Mae and the Federal Reserve Banks will have no direct
obligation to a beneficial owner of such a Certificate that is not also the
Holder of the Certificate. The Federal Reserve Banks will act only upon the
instructions of the Holder in recording transfers of such a Certificate. See
"Description of the Certificates--Denominations, Certificate Form" in the REMIC
Prospectus.
The DTC Certificates will be registered at all times in the name of the
nominee of The Depository Trust Company, a New York-chartered limited purpose
trust company, or any successor depository selected or approved by Fannie Mae
(the "Depository"). In accordance with its normal procedures, the Depository
will record the positions held by each Depository participating firm (each, a
"Depository Participant") in the DTC Certificates, whether held for its own
account or as a nominee for another person. State Street will act as Paying
Agent for, and perform certain administrative functions with respect to, the DTC
Certificates.
No person acquiring a beneficial ownership interest in the DTC Certificates
(a "beneficial owner" or an "investor") will be entitled to receive a physical
certificate representing such ownership interest. An investor's interest in the
DTC Certificates will be recorded on the records of the brokerage firm, bank,
thrift institution or other financial intermediary (a "financial intermediary")
that maintains such investor's account for such purpose. In turn, the financial
intermediary's record ownership of such interest will be recorded on the records
of the Depository (or of a Depository Participant that acts as an agent for the
financial intermediary if such intermediary is not a Depository Participant).
Accordingly, an investor will not be recognized by the Trustee or the Depository
as a Certificateholder and must rely on the foregoing arrangements to evidence
its interest in the DTC Certificates. Beneficial ownership of an investor's
interest in the DTC Certificates may be transferred only by compliance with the
procedures of an investor's financial intermediary and of Depository
Participants. In general, beneficial ownership of an investor's interest in the
DTC Certificates will be subject to the rules, regulations and procedures
governing the Depository and Depository Participants as in effect from time to
time.
Method of Distribution. Fannie Mae's fiscal agent for the Fed Book-Entry
Certificates is the Federal Reserve Bank of New York. The Federal Reserve Banks
will make distributions on such Certificates on behalf of Fannie Mae on the
applicable Distribution Dates by crediting Holders' accounts at the Federal
Reserve Banks.
Each distribution on the DTC Certificates will be distributed by the Paying
Agent to the Depository in immediately available funds. The Depository will be
responsible for crediting the amount of such distributions to the accounts of
the Depository Participants entitled thereto, in accordance with the
Depository's normal procedures, which currently provide for distributions in
same-day funds settled through the New York Clearing House. Each Depository
Participant and each financial intermediary will be responsible for disbursing
such distributions to the beneficial owners of the DTC Certificates that it
represents. Accordingly, the beneficial owners may experience some delay in
their receipt of distributions.
S-14
<PAGE> 101
THE TRUST MBS
The Trust MBS included in each group specified below will have the
aggregate unpaid principal balance and Pass-Through Rate set forth below and the
general characteristics described in the MBS Prospectus. The Trust MBS will
provide that principal and interest on the related Mortgage Loans will be passed
through monthly, commencing in the month following the month of the initial
issuance of the Trust MBS. The Mortgage Loans underlying the Trust MBS will be
conventional Level Payment Mortgage Loans secured by first mortgages or deeds of
trust on one- to four-family ("single-family") residential properties and having
an original maturity of up to 30 years. See "The Mortgage Pools" and "Yield
Considerations" in the MBS Prospectus. The characteristics of the Group 1 and
Group 6 MBS and the related Mortgage Loans as of November 1, 1997 (the "Issue
Date") are expected to be as follows:
<TABLE>
<S> <C>
GROUP 1 MBS
Aggregate Unpaid Principal Balance....................... $1,000,000,000
MBS Pass-Through Rate.................................... 7.00%
RELATED MORTGAGE LOANS
Range of WACs (per annum percentages).................... 7.25% to 9.50%
Range of WAMs............................................ 241 months to 360 months
Approximate Weighted Average WAM......................... 355 months
Approximate Weighted Average CAGE........................ 4 months
GROUP 6 MBS
Aggregate Unpaid Principal Balance....................... $300,000,000
MBS Pass-Through Rate.................................... 7.00%
RELATED MORTGAGE LOANS
Range of WACs (per annum percentages).................... 7.25% to 9.50%
Range of WAMs............................................ 241 months to 360 months
Approximate Weighted Average WAM......................... 342 months
Approximate Weighted Average CAGE........................ 15 months
</TABLE>
THE UNDERLYING REMIC CERTIFICATES AND THE TRUST SMBS
The Underlying REMIC Certificates represent beneficial ownership interests
in the related Underlying REMIC Trusts, the assets of which evidence beneficial
ownership interests in certain MBS having the general characteristics set forth
in the MBS Prospectus or beneficial ownership interests in distributions made in
respect of certain GNMA Certificates. The Trust SMBS evidence beneficial
ownership interests in certain interest and principal distributions made with
respect of certain MBS. Each MBS evidences beneficial ownership interests in a
Pool of conventional Level Payment Mortgage Loans secured by first mortgages or
deeds of trust on one- to four-family residential properties, as described under
"The Mortgage Pools" and "Yield Considerations" in the MBS Prospectus. Each GNMA
Certificate is based on and backed by a pool of mortgage loans that are either
insured or guaranteed by the FHA, the VA or the FmHA. The Underlying REMIC
Certificates and the Trust SMBS provide that distributions thereon will be
passed through monthly, commencing in the month following the initial issuance
thereof. The general characteristics of the Underlying REMIC Certificates are
described in the related Underlying REMIC Disclosure Documents. The general
characteristics of the Trust SMBS are described in the SMBS Prospectus.
The table contained in Exhibit A hereto sets forth certain information with
respect to each of the Underlying REMIC Certificates and the Trust SMBS,
including the numerical designation of the related trust, the class designation,
the date of issue, the CUSIP number, the interest rate, the interest type, the
final distribution date, the principal type, the original notional principal
balance or principal balance of the entire class, the current principal factor
for such class and the notional principal balance or principal balance of such
class contained in the Lower Tier REMIC as of the Issue Date. The table also
sets forth the approximate weighted average WAC, approximate weighted average
WAM or WARM and approximate weighted average CAGE or WALA of the Mortgage Loans
underlying the related MBS or GNMA Certificates as of the Issue Date, the
underlying security type and the related Class group.
S-15
<PAGE> 102
To request further information regarding the Underlying REMIC Certificates
and the Trust SMBS, telephone Fannie Mae at 1-800-BEST-MBS or 202-752-6547.
Other data specific to the Certificates is available in electronic form by
calling Fannie Mae at 1-800-752-6440 or 202-752-6000. It should be noted that
there may have been material changes in facts and circumstances since the dates
the Underlying REMIC Disclosure Documents were prepared, including, but not
limited to, changes in prepayment speeds and prevailing interest rates and other
economic factors, which may limit the usefulness of the information set forth in
such documents.
FINAL DATA STATEMENT
Following the issuance of the Certificates, Fannie Mae will prepare a Final
Data Statement setting forth, among other information, the current principal
balances of the Underlying REMIC Certificates and the Trust SMBS as of the Issue
Date and with respect to the Trust MBS, the Pool number, the current WAC (or
original WAC, if the current WAC is not available) and the current WAM (or
Adjusted WAM, if the current WAM is not available) of the Mortgage Loans
underlying each Trust MBS, along with the weighted average of all the current or
original WACs and the weighted average of all the current or Adjusted WAMs,
based on the current unpaid principal balances of the Mortgage Loans underlying
the Trust MBS as of the Issue Date. The Final Data Statement will not accompany
this Prospectus Supplement but will be made available by Fannie Mae. To request
the Final Data Statement, telephone Fannie Mae at 1-800-BEST-MBS or
202-752-6547. The contents of the Final Data Statement and other data specific
to the Certificates are available in electronic form by calling Fannie Mae at
1-800-752-6440 or 202-752-6000.
DISTRIBUTIONS OF INTEREST
Categories of Classes
For the purpose of payments of interest, the Classes will be categorized as
follows:
<TABLE>
<CAPTION>
INTEREST TYPE* CLASSES
-------------- -------
<S> <C>
GROUP 1 CLASSES
Fixed Rate PB, PC, PD, PH, PG, PJ, PE, IA, Z and IO
Accrual Z
Floating Rate FD, FC, FB and FA
Inverse Floating Rate SD, SC, SE, SA and SB
Interest Only IA, SA and IO
GROUP 2 CLASSES
Floating Rate FH
Inverse Floating Rate SH
GROUP 3 CLASS
Fixed Rate A
GROUP 4 CLASS
Fixed Rate B
GROUP 5 CLASSES
Floating Rate FJ
Inverse Floating Rate SL and SM
Interest Only SL and SM
Principal Only PL and PM
RCR** SJ, SK and SN
GROUP 6 CLASSES
Fixed Rate C, D, E and G
GROUP 7 CLASSES
Floating Rate FG
Inverse Floating Rate SG
Interest Only SG
</TABLE>
S-16
<PAGE> 103
<TABLE>
<CAPTION>
INTEREST TYPE* CLASSES
-------------- -------
<S> <C>
GROUP 8 CLASSES
Fixed Rate PN, PQ, PR, PS, PT, IB, IC, ID and ZA
Accrual ZA
Floating Rate FR
Inverse Floating Rate SR and SO
Interest Only IB, IC, SR and ID
GROUP 9 CLASSES
Inverse Floating Rate SP and SQ
Interest Only SP and SQ
Principal Only PO
RCR** ST
NO PAYMENT RESIDUAL R and RL
</TABLE>
- ---------------
* See "Description of the Certificates--Class Definitions and
Abbreviations" in the REMIC Prospectus.
** See "Description of the Certificates--Combination and
Recombination" herein and Schedule 1 for a further description of
the RCR Classes.
General. The interest-bearing Certificates will bear interest at the
applicable per annum interest rates set forth on the cover or described herein.
Interest on the interest-bearing Certificates is calculated on the basis of a
360-day year consisting of twelve 30-day months and is distributable monthly on
each Distribution Date, commencing (except with respect to the Accrual Classes)
in the month after the Settlement Date. Interest to be distributed or, in the
case of the Accrual Classes, added to principal on each interest-bearing
Certificate on a Distribution Date will consist of one month's interest on the
outstanding principal balance of such Certificate immediately prior to such
Distribution Date.
On any Distribution Date when distributions of interest are to be allocated
from REMIC Certificates to RCR Certificates, such distributions will be
allocated on a pro rata basis from the applicable Class or Classes of REMIC
Certificates to the related RCR Class.
Interest Accrual Periods. Interest to be distributed on a Distribution
Date will accrue on the interest-bearing Certificates during the one-month
periods set forth below (each, an "Interest Accrual Period").
<TABLE>
<CAPTION>
CLASSES INTEREST ACCRUAL PERIODS
------- ------------------------
<S> <C>
All Floating Rate and Inverse One month period ending on the day
Floating Rate Classes (other preceding the Distribution Date
than the FH, SH, SP, SQ and
ST Classes) and the SJ, SK
and SN Classes
All Fixed Rate Classes and the Calendar month preceding the month in
FH, SH, SP, SQ and ST which the Distribution Date occurs
Classes (collectively, the
"Delay Classes")
</TABLE>
See "Additional Risk Factors--Additional Yield and Prepayment Considerations"
herein.
Solely for purposes of facilitating the trading of the Principal Only
Classes, the PL, PM and PO Classes will be treated as Delay Classes.
Accrual Classes. The Z and ZA Classes are Accrual Classes. The Accrual
Classes will bear no interest prior to the Interest Accrual Period in February
1998. Commencing in February 1998, interest will accrue on the Accrual Classes
at the per annum rate set forth on the cover hereof; however, such interest will
not be distributed thereon for so long as such Classes remain outstanding.
Interest so accrued and unpaid on the Accrual Classes will be added as principal
to the respective principal balances thereof on each Distribution Date.
Distributions of principal of the Accrual Classes will be made as described
herein.
Notional Classes. The IA, SA, IO, SL, SM, SG, IB, IC, SR, ID, SP, SQ and
ST Classes will be Notional Classes. The Notional Classes will not have
principal balances and will bear interest at the applicable per annum interest
rates set forth on the cover or as described herein during each Interest
S-17
<PAGE> 104
Accrual Period on their respective notional principal balances. The notional
principal balances of the Notional Classes will be calculated as specified
herein under "Reference Sheet--Notional Classes."
The notional principal balance of a Notional Class is used for purposes of the
determination of interest distributions thereon and does not represent an
interest in any distributions of principal. Although a Notional Class will not
have a principal balance, a REMIC Trust Factor (as described herein) will be
published with respect to such Class that will be applicable to the notional
principal balance thereof, and references herein to the principal balances of
the Certificates generally shall be deemed to refer also to the notional
principal balances of the Notional Classes.
Floating Rate and Inverse Floating Rate Classes. The Floating Rate and
Inverse Floating Rate Classes will bear interest during each Interest Accrual
Period, subject to applicable maximum and minimum interest rates, at rates
determined as described herein under "Reference Sheet--Interest Rates."
The yields with respect to such Classes will be affected by changes in the
index specified (each, an "Index"), which changes may not correlate with changes
in mortgage interest rates. It is possible that lower mortgage interest rates
could occur concurrently with an increase in the level of the applicable Index.
Conversely, higher mortgage interest rates could occur concurrently with a
decrease in the level of the applicable Index.
The establishment of each Index value by Fannie Mae and Fannie Mae's
determination of the rate or rates of interest for the applicable Class or
Classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning Fannie Mae at 1-800-BEST-MBS or 202-752-6547.
CALCULATION OF LIBOR
On each Index Determination Date, until the principal balances and notional
principal balances of the Floating Rate and Inverse Floating Rate Classes (other
than the SP, SQ and ST Classes) and the SJ, SK and SN Classes have been reduced
to zero, Fannie Mae will establish LIBOR for the related Interest Accrual Period
in the manner described in the REMIC Prospectus under "Description of the
Certificates--Indices Applicable to Floating Rate and Inverse Floating Rate
Classes--LIBOR."
If on the initial Index Determination Date, Fannie Mae is unable to
determine LIBOR in the manner specified in the REMIC Prospectus, LIBOR for the
next succeeding Interest Accrual Period will be equal to 5.65% in the case of
the FD, SD, FC, SC, FB, SE, FA, SA, SB, FR, SR and SO Classes and 5.625% in the
case of the FH, SH, FJ, SL, SJ, SM, SK and SN Classes, and will be equal to
LIBOR as determined for such Interest Accrual Period for the related Underlying
REMIC Certificates in the case of the FG and SG Classes.
CALCULATION OF COFI
Except as otherwise specified below, the amount of interest which will
accrue in respect of the SP, SQ and ST Classes (the "COFI Classes") during each
Interest Accrual Period following its initial Interest Accrual Period will be
determined on the basis of the Eleventh District Cost of Funds Index for the
second month next preceding the month in which such Interest Accrual Period
commences if such Eleventh District Cost of Funds Index for such second
preceding month is published on or before the tenth day of the month in which
such Interest Accrual Period commences. For example, if the Eleventh District
Cost of Funds Index for May is announced on or before July 10, interest accrued
on the COFI Classes for the Interest Accrual Period commencing in July and
distributable in August will be based on the Eleventh District Cost of Funds
relating to May. If the Eleventh District Cost of Funds Index for the applicable
month is not published on or before the tenth day of the second following month,
interest will accrue on the COFI Classes at a rate determined as provided in the
REMIC Prospectus under "Description of the Certificates--Indices Applicable to
Floating Rate and Inverse Floating Rate Classes--COFI." Under certain
circumstances, an alternative index may be
S-18
<PAGE> 105
applicable to the COFI Classes. A change of index from the Eleventh District
Cost of Funds Index to an alternative index will result in a change in the index
level, and, particularly if LIBOR is the alternative index, could increase the
degree of index volatility.
For information regarding historical values of the Eleventh District Cost
of Funds Index as reported by the Federal Home Loan Bank of San Francisco
("FHLBSF"), see "Description of the Certificates--Indices Applicable to Floating
Rate and Inverse Floating Rate Classes--COFI" in the REMIC Prospectus.
The values of the Eleventh District Cost of Funds Index as reported by the
FHLBSF for the period from May 1996 through September 1997 were as follows:
<TABLE>
<S> <C>
May 1996................................................... 4.823%
June 1996.................................................. 4.809%
July 1996.................................................. 4.819%
August 1996................................................ 4.839%
September 1996............................................. 4.834%
October 1996............................................... 4.839%
November 1996.............................................. 4.835%
December 1996.............................................. 4.842%
January 1997............................................... 4.821%
February 1997.............................................. 4.759%
March 1997................................................. 4.780%
April 1997................................................. 4.822%
May 1997................................................... 4.864%
June 1997.................................................. 4.853%
July 1997.................................................. 4.887%
August 1997................................................ 4.904%
September 1997............................................. 4.941%
</TABLE>
DISTRIBUTIONS OF PRINCIPAL
Categories of Classes
For the purpose of payments of principal, the Classes will be categorized
as follows:
<TABLE>
<CAPTION>
PRINCIPAL TYPE* CLASSES
--------------- -------
<S> <C>
GROUP 1 CLASSES
PAC(1) PB, PC, PD, PH, PG, PJ and PE
TAC(1) FD, SD, FA and SB
Support FC, SC, FB, SE and Z
Notional IA, SA and IO
Accretion Directed FA and SB
GROUP 2 CLASSES
Structured FH and SH
Collateral/Pass-Through
GROUP 3 CLASS
Structured A
Collateral/Pass-Through
GROUP 4 CLASS
Structured B
Collateral/Pass-Through
GROUP 5 CLASSES
Structured FJ, PL and PM
Collateral/Pass-Through
Notional SL and SM
RCR** SJ, SK and SN
GROUP 6 CLASSES
Sequential Pay C, D, E and G
GROUP 7 CLASSES
Structured FG
Collateral/Pass-Through
Notional SG
</TABLE>
S-19
<PAGE> 106
<TABLE>
<S> <C>
GROUP 8 CLASSES
PAC(1) PN, PQ, PR, PS and PT
TAC(1) FR and SO
Support ZA
Notional IB, IC, SR and ID
Accretion Directed FR and SO
GROUP 9 CLASSES
Structured Collateral/Pass-Through PO
Notional SP and SQ
RCR** ST
NO PAYMENT RESIDUAL R and RL
</TABLE>
- ---------------
* See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus.
** See "Description of the Certificates--Combination and Recombination" herein
and Schedule 1 for a further description of the RCR Classes.
(1) The Principal Balance Schedules are set forth herein beginning on page B-1.
Principal Distribution Amount
Principal will be distributed monthly on the Certificates in an amount (the
"Principal Distribution Amount") equal to the sum of (i) the aggregate
distributions of principal to be made on the Group 1 MBS in the month of such
Distribution Date (the "Group 1 Cash Flow Distribution Amount") and any interest
accrued and added on such Distribution Date to the principal balance of the Z
Class (the "Group 1 Accrual Amount", and together with the Group 1 Cash Flow
Distribution Amount, the "Group 1 Principal Distribution Amount"), (ii) the
distribution of principal concurrently made on the Class 1993-G34-G REMIC
Certificate (the "Group 2 Principal Distribution Amount"), (iii) the aggregate
distributions of principal concurrently made on the Class 1993-198-F and Class
1993-198-S REMIC Certificates (the "Group 3 Principal Distribution Amount"),
(iv) the aggregate distributions of principal concurrently made on the Class
1993-121-FB and Class 1993-121-SC REMIC Certificates (the "Group 4 Principal
Distribution Amount"), (v) the aggregate distributions of principal concurrently
made on the Class 1993-178-FA and Class 1993-178-SA REMIC Certificates (the
"Group 5 Principal Distribution Amount"), (vi) the aggregate distributions of
principal to be made on the Group 6 MBS in the month of such Distribution Date
(the "Group 6 Principal Distribution Amount"), (vii) the distribution of
principal concurrently made on the Class 1993-210-FD REMIC Certificate (the
"Group 7 Principal Distribution Amount"), (viii) the aggregate distributions of
principal concurrently made on the Trust SMBS (the "Group 8 Cash Flow
Distribution Amount") and any interest accrued and added on such Distribution
Date to the principal balance of the ZA Class (the "Group 8 Accrual Amount", and
together with the Group 8 Cash Flow Distribution Amount, the "Group 8 Principal
Distribution Amount") and (ix) the distribution of principal concurrently made
on the Class 1993-103-SB REMIC Certificate (the "Group 9 Principal Distribution
Amount").
Group 1 Principal Distribution Amount
Group 1 Accrual Amount
Commencing in March 1998, on each Distribution Date, the Group 1
Accrual Amount will be distributed, concurrently, as principal of the
FA and SB Classes, in proportion to their original principal balances
(or 88.8888888125% and 11.1111111875%, respectively), without regard
to their Targeted Balances and until the principal balances thereof
are reduced to zero, and then to the Z Class.
ACCRETION
DIRECTED
CLASSES
AND
ACCRUAL
CLASS
S-20
<PAGE> 107
Group 1 Cash Flow Distribution Amount
On each Distribution Date, the Group 1 Cash Flow Distribution Amount will
be distributed as principal of the Group 1 Classes in the following order of
priority:
(i) sequentially, to the PB and PC Classes, in that order,
until the principal balances thereof are reduced to their
respective Planned Balances for such Distribution Date;
(ii) concurrently, to the PD and PH Classes, in proportion
to their original principal balances (or 43.7673998242% and
56.2326001758%, respectively), until the principal balances
thereof are reduced to their respective Planned Balances for such
Distribution Date;
(iii) concurrently, to the PG and PJ Classes, in proportion
to their original principal balances (or 39.3142338533% and
60.6857661467%, respectively), until the principal balances
thereof are reduced to their respective Planned Balances for such
Distribution Date;
(iv) to the PE Class, until the principal balance thereof is
reduced to its Planned Balance for such Distribution Date;
PAC
CLASSES
(v) (a) 50% of the remaining amount in the following order of
priority:
first, concurrently, to the FD and SD Classes, in
proportion to their original principal balances (or
66.6666658636% and 33.3333341364%, respectively), until the
principal balances thereof are reduced to their respective
Targeted Balances for such Distribution Date;
TAC
CLASSES
second, concurrently, to the FC, SC, FB and SE Classes,
in proportion to their original principal balances (or
34.3693279515%, 28.5733643474%, 34.2067455702% and
2.8505621309%, respectively), until the principal balances
thereof are reduced to zero; and
SUPPORT
CLASSES
third, concurrently, to the FD and SD Classes, in
proportion to their original principal balances, without
regard to their Targeted Balances and until the principal
balances thereof are reduced to zero, and
TAC
CLASSES
(b) 50% of such remaining amount in the following order of priority:
first, concurrently, to the FA and SB Classes, in
proportion to their original principal balances (or
88.8888888125% and 11.1111111875%, respectively), until the
principal balances thereof are reduced to their respective
Targeted Balances for such Distribution Date;
TAC
CLASSES
second, to the Z Class, until the principal balance
thereof is reduced to zero; and
SUPPORT
CLASS
third, concurrently, to the FA and SB Classes, in
proportion to their original principal balances, without
regard to their Targeted Balances and until the principal
balances thereof are reduced to zero;
TAC
CLASSES
S-21
<PAGE> 108
(vi) sequentially, to the PB and PC Classes, in that order,
without regard to their Planned Balances and until the respective
principal balances thereof are reduced to zero;
(vii) concurrently, to the PD and PH Classes, in proportion
to their original principal balances, without regard to their
Planned Balances and until the principal balances thereof are
reduced to zero;
(viii) concurrently, to the PG and PJ Classes, in proportion
to their original principal balances, without regard to their
Planned Balances and until the principal balances thereof are
reduced to zero; and
(ix) to the PE Class, without regard to its Planned Balance
and until the principal balance thereof is reduced to zero.
PAC
CLASSES
Group 2 Principal Distribution Amount
On each Distribution Date, the Group 2 Principal Distribution
Amount will be distributed, concurrently, as principal of the FH and
SH Classes, in proportion to their original principal balances (or
79.4117521195 and 20.5882478805%, respectively), until the principal
balances thereof are reduced to zero.
STRUCTURED
COLLATERAL/
PASS-THROUGH
CLASSES
Group 3 Principal Distribution Amount
On each Distribution Date, the Group 3 Principal Distribution
Amount will be distributed as principal of the A Class, until the
principal balance thereof is reduced to zero.
STRUCTURED
COLLATERAL/
PASS-THROUGH
CLASS
Group 4 Principal Distribution Amount
On each Distribution Date, the Group 4 Principal Distribution
Amount will be distributed as principal of the B Class, until the
principal balance thereof is reduced to zero.
STRUCTURED
COLLATERAL/
PASS-THROUGH
CLASS
Group 5 Principal Distribution Amount
On each Distribution Date, the Group 5 Principal Distribution
Amount will be distributed, concurrently, as principal of the FJ, PL
and PM Classes, in proportion to their original principal balances (or
72.2222203990%, 21.7948701961% and 5.9829094049%, respectively), until
the principal balances thereof are reduced to zero.
STRUCTURED
COLLATERAL/
PASS-THROUGH
CLASSES
Group 6 Principal Distribution Amount
On each Distribution Date, the Group 6 Principal Distribution Amount will
be distributed as principal of the Group 6 Classes in the following order of
priority:
(i) concurrently, to the C, D and E Classes, in proportion
to their original principal balances (or 33.3149730815%,
52.9612124873% and 13.7238144312%, respectively), until the
principal balances thereof are reduced to zero; and
(ii) to the G Class, until the principal balance thereof is reduced to
zero.
SEQUENTIAL
PAY
CLASSES
Group 7 Principal Distribution Amount
On each Distribution Date, the Group 7 Principal Distribution
Amount will be distributed as principal of the FG Class, until the
principal balance thereof is reduced to zero.
STRUCTURED
COLLATERAL/
PASS-THROUGH
CLASS
S-22
<PAGE> 109
Group 8 Principal Distribution Amount
Group 8 Accrual Amount
Commencing in March 1998, on each Distribution Date, the Group 8
Accrual Amount will be distributed, concurrently, as principal of the
FR and SO Classes, in proportion to their original principal balances
(or 88.8888886614% and 11.1111113386%, respectively), without regard
to their Targeted Balances and until the principal balances thereof
are reduced to zero, and then to the ZA Class.
ACCRETION
DIRECTED
CLASSES
AND ACCRUAL
CLASS
Group 8 Cash Flow Distribution Amount
On each Distribution Date, the Group 8 Cash Flow Distribution Amount will
be distributed as principal of the Group 8 Classes in the following order of
priority:
(i) sequentially, to the PN, PQ, PR, PS and PT Classes, in
that order, until the principal balances thereof are reduced to
their respective Planned Balances for such Distribution Date;
PAC
CLASSES
(ii) concurrently, to the FR and SO Classes, in proportion
to their original principal balances (or 88.8888886614% and
11.1111113386%, respectively), until the principal balances
thereof are reduced to their respective Targeted Balances for
such Distribution Date;
TAC
CLASSES
(iii) to the ZA Class, until the principal balance thereof
is reduced to zero;
SUPPORT
CLASS
(iv) concurrently, to the FR and SO Classes, in proportion
to their original principal balances, without regard to their
Targeted Balances and until the principal balances thereof are
reduced to zero; and
TAC
CLASSES
(v) sequentially, to the PN, PQ, PR, PS and PT Classes, in
that order, without regard to their Planned Balances and until
the respective principal balances thereof are reduced to zero.
PAC
CLASSES
Group 9 Principal Distribution Amount
On each Distribution Date, the Group 9 Principal Distribution
Amount will be distributed as principal of the PO Class, until the
principal balance thereof is reduced to zero.
STRUCTURED
COLLATERAL/
PASS-THROUGH
CLASS
On any Distribution Date when distributions of principal are to be
allocated from REMIC
Certificates to RCR Certificates, such distributions will be allocated on a pro
rata basis from the applicable Classes of REMIC Certificates to the related RCR
Class.
STRUCTURING ASSUMPTIONS
Pricing Assumptions. Unless otherwise specified, the information in the
tables in this Prospectus Supplement has been prepared on the basis of the
actual characteristics of each Pool underlying the Underlying REMIC Certificates
and the Trust SMBS, the priority sequences affecting the principal distributions
of the Underlying REMIC Certificates and the following assumptions (such
characteristics and assumptions, collectively, the "Pricing Assumptions"):
- the Mortgage Loans underlying the Group 1 MBS and Group 6 MBS have the
original terms to maturity, remaining terms to maturity, CAGEs and
interest rates as specified herein under "Reference Sheet--Assumed
Characteristics of the Mortgage Loans Underlying the Trust MBS;
- all payments (including prepayments) on the Mortgage Loans underlying
the GNMA Certificates, are distributed on the Certificates in the
month in which such payments are received;
- the Mortgage Loans prepay at the constant percentages of PSA specified
in the related table; and
S-23
<PAGE> 110
- the closing date for the sale of the Certificates is November 28,
1997.
Prepayment Assumptions. Prepayments of mortgage loans commonly are
measured relative to a prepayment standard or model. The model used herein is
the Public Securities Association's standard prepayment model ("PSA"). To assume
a specified rate of PSA is to assume a specified rate of prepayment each month
of the then outstanding principal balance of a pool of new mortgage loans
computed as described under "Description of the Certificates--Prepayment Models"
in the REMIC Prospectus. It is highly unlikely that prepayments will occur at
any constant PSA rate or at any other constant rate.
Structuring Range and Rate. The Principal Balance Schedules have been
prepared on the basis of the Pricing Assumptions and the assumption that the
related Mortgage Loans prepay at a constant PSA rate within the Structuring
Range or at the applicable rate set forth below.
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
SCHEDULE REFERENCES RELATED CLASSES STRUCTURING RANGE AND RATE
- ------------------- --------------- --------------------------
<S> <C> <C>
Planned Balances PB, PC, PD, PH, PG, PJ, PE, Between 100% and 250%
PN, PQ, PR, PS and PT
Targeted Balances FD and SD 160%
Targeted Balances FA, SB, FR and SO (1)
</TABLE>
-------------------------
(1) The Targeted Balances relating to the specified Classes have not
been structured to hold at any constant percentage of PSA.
THERE IS NO ASSURANCE THAT THE BALANCE OF ANY CLASS LISTED ABOVE WILL
CONFORM ON ANY DISTRIBUTION DATE TO THE APPLICABLE BALANCE SPECIFIED FOR SUCH
DISTRIBUTION DATE IN THE PRINCIPAL BALANCE SCHEDULES HEREIN, OR THAT
DISTRIBUTIONS OF PRINCIPAL OF SUCH CLASS WILL BEGIN OR END ON THE RESPECTIVE
DISTRIBUTION DATES SPECIFIED THEREIN. Because any excess of the principal
distribution on any Distribution Date over the amount necessary to reduce any
such Class to its scheduled balance will be distributed or allocated, the
ability to so reduce such Class will not be enhanced by the averaging of high
and low principal payments from month to month. In addition, even if prepayments
occur on the related Mortgage Loans at rates falling within the Structuring
Range specified above, principal distributions may be insufficient to reduce the
applicable Classes to their scheduled balances if such prepayments do not occur
at a constant PSA rate. Moreover, because of the diverse remaining terms to
maturity of the related Mortgage Loans (which may include recently originated
Mortgage Loans), the Classes specified above may not be reduced to their
scheduled balances, even if prepayments occur at a constant rate within the
Structuring Range or at the applicable rate specified above.
Initial Effective Ranges. The Effective Range for a Class is the range of
prepayment rates (measured by constant PSA rates) that would reduce such Class
to its scheduled balance on each Distribution Date. The Initial Effective Ranges
set forth in the table below are based upon the assumed characteristics of the
related Mortgage Loans specified in the Pricing Assumptions.
<TABLE>
<CAPTION>
RELATED CLASSES INITIAL EFFECTIVE RANGES
- --------------- ------------------------
<S> <C>
PB Between 100% and 333%
PC Between 100% and 289%
PD Between 100% and 258%
PH Between 100% and 258%
PG Between 100% and 250%
PJ Between 100% and 250%
PE Between 100% and 250%
PN Between 100% and 327%
PQ Between 100% and 288%
PR Between 100% and 258%
PS Between 100% and 250%
PT Between 100% and 250%
</TABLE>
The actual Effective Ranges at any time will be based upon the actual
characteristics of the related Mortgage Loans at such time, which are likely to
vary (and may vary considerably) from the
S-24
<PAGE> 111
Pricing Assumptions. The actual Effective Ranges calculated on the basis of the
actual characteristics likely will differ from the Initial Effective Ranges. As
a result, the applicable Classes might not be reduced to their scheduled
balances even if prepayments were to occur at a constant PSA rate within the
Initial Effective Ranges (particularly if such rate were at the lower or higher
end of such ranges). In addition, even if prepayments occur at rates falling
within the actual Effective Ranges, principal distributions may be insufficient
to reduce the applicable Classes to their scheduled balances if such prepayments
do not occur at a constant PSA rate. It is highly unlikely that the related
Mortgage Loans will prepay at any constant PSA rate. In general, the actual
Effective Ranges may narrow, widen or shift upward or downward to reflect actual
prepayment experience over time. The stability in principal payment of the PAC
Classes will be supported in part by the related TAC and Support Classes. When
the related TAC and Support Classes are retired, any outstanding PAC Classes may
no longer have Effective Ranges and will be more sensitive to prepayments.
YIELD TABLES
General. The tables below indicate the sensitivity of the pre-tax
corporate bond equivalent yields to maturity of applicable Classes to various
constant percentages of PSA and, where specified, to changes in the applicable
Index. The yields set forth in the tables were calculated by determining the
monthly discount rates that, when applied to the assumed streams of cash flows
to be paid on the applicable Classes, would cause the discounted present value
of such assumed streams of cash flows to equal the assumed aggregate purchase
prices of such Classes and converting such monthly rates to corporate bond
equivalent rates. Such calculations do not take into account variations that may
occur in the interest rates at which investors may be able to reinvest funds
received by them as distributions on the Certificates and consequently do not
purport to reflect the return on any investment in the Certificates when such
reinvestment rates are considered. There can be no assurance that the pre-tax
yields on the Certificates will correspond to any of the pre-tax yields shown
herein or that the aggregate purchase prices of the Certificates will be as
assumed. In addition, there can be no assurance that the applicable Index will
correspond to the levels shown herein. Furthermore, because some of the Mortgage
Loans will likely have remaining terms to maturity shorter or longer than those
assumed and interest rates higher or lower than those assumed, the principal
distributions on the Certificates are likely to differ from those assumed, even
if all Mortgage Loans prepay at the indicated constant percentages of PSA.
Moreover, it is not likely that the Mortgage Loans will prepay at a constant PSA
rate until maturity, that all of such Mortgage Loans will prepay at the same
rate or that the level of the applicable Index will remain constant.
The IA, IO, IB, IC and ID Classes. THE YIELDS TO INVESTORS IN THE IA, IO,
IB, IC AND ID CLASSES WILL BE VERY SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) OF THE RELATED MORTGAGE LOANS. THE MORTGAGE LOANS
GENERALLY CAN BE PREPAID AT ANY TIME. ON THE BASIS OF THE ASSUMPTIONS DESCRIBED
BELOW, THE YIELD TO MATURITY ON THE IA, IB AND IC CLASSES WOULD BE 0% IF
PREPAYMENTS OF THE RELATED MORTGAGE LOANS WERE TO OCCUR AT CONSTANT RATES OF
APPROXIMATELY 413% PSA, 426% PSA AND 466% PSA, RESPECTIVELY. IF THE ACTUAL
PREPAYMENT RATES OF THE RELATED MORTGAGE LOANS WERE TO EXCEED THE APPLICABLE
LEVELS FOR AS LITTLE AS ONE MONTH WHILE EQUALING SUCH LEVELS FOR THE REMAINING
MONTHS, THE INVESTORS IN THE IA, IB AND IC CLASSES, AS APPLICABLE, WOULD NOT
FULLY RECOUP THEIR INITIAL INVESTMENTS.
S-25
<PAGE> 112
The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase prices
of the IA, IO, IB, IC and ID Classes (expressed in each case as a percentage of
the original principal balance) are as follows:
<TABLE>
<CAPTION>
CLASS PRICE*
----- ---------
<S> <C>
IA ......................................................... 23.53125%
IO ......................................................... 1.37500%
IB ......................................................... 19.81250%
IC ......................................................... 45.37500%
ID.......................................................... 1.37500%
</TABLE>
- ---------------
* The prices do not include accrued interest. Accrued interest
has been added to such prices in calculating the yields set
forth in the tables below.
SENSITIVITY OF THE IA CLASS TO PREPAYMENTS
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
--------------------------------------
50% 100% 165% 250% 500%
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity...................... 17.5% 10.5% 10.5% 10.5% (7.6)%
</TABLE>
SENSITIVITY OF THE IO CLASS TO PREPAYMENTS
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
50% 100% 165% 250% 500%
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity...................... 9.3% 9.3% 9.3% 9.3% 9.3%
</TABLE>
SENSITIVITY OF THE IB CLASS TO PREPAYMENTS
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
--------------------------------------
50% 100% 165% 250% 500%
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity...................... 18.9% 10.5% 10.5% 10.5% (6.8)%
</TABLE>
SENSITIVITY OF THE IC CLASS TO PREPAYMENTS
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
--------------------------------------
50% 100% 165% 250% 500%
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity...................... 12.7% 10.0% 10.0% 10.0% (1.8)%
</TABLE>
SENSITIVITY OF THE ID CLASS TO PREPAYMENTS
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
--------------------------------
50% 100% 165% 250% 500%
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity...................... 9.3% 9.3% 9.3% 9.3% 9.3%
</TABLE>
The Inverse Floating Rate Classes and the SJ, SK, SN and ST Classes. THE
YIELDS TO INVESTORS IN THE INVERSE FLOATING RATE CLASSES AND THE SJ, SK, SN AND
ST CLASSES WILL BE SENSITIVE IN VARYING DEGREES TO THE RATE OF PRINCIPAL
PAYMENTS (INCLUDING PREPAYMENTS) OF THE RELATED MORTGAGE LOANS AND TO THE LEVEL
OF THE APPLICABLE INDEX. THE MORTGAGE LOANS GENERALLY CAN BE PREPAID AT ANY
TIME. IN ADDITION, THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE
MORTGAGE LOANS IS LIKELY TO VARY, AND MAY VARY CONSIDERABLY, FROM POOL TO POOL.
AS INDICATED IN THE TABLES BELOW, IT IS POSSIBLE THAT, UNDER CERTAIN INDEX AND
PREPAYMENT SCENARIOS, INVESTORS IN THE SA, SL, SM, SG, SR, SP, SQ AND ST CLASSES
WOULD NOT FULLY RECOUP THEIR INITIAL INVESTMENTS.
Changes in the applicable Index may not correlate with changes in
prevailing mortgage interest rates. It is possible that lower prevailing
mortgage interest rates, which might be expected to result in faster
prepayments, could occur concurrently with an increased level of such Index.
S-26
<PAGE> 113
The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumptions that (i) the interest rates
applicable to the Inverse Floating Rate Classes and the SJ, SK, SN and ST
Classes for the initial Interest Accrual Period are the actual and assumed rates
appearing in the table under "Reference Sheet--Interest Rates" herein and for
each Interest Accrual Period subsequent to the initial Interest Accrual Period
will be based on the indicated level of the Index and (ii) the aggregate
purchase prices of such Classes (expressed in each case as a percentage of
original principal balance) are as follows:
<TABLE>
<CAPTION>
CLASS PRICE*
----- ----------
<S> <C>
SD ......................................................... 90.84375%
SC ......................................................... 75.00000%
SE ......................................................... 92.75000%
SA ......................................................... 4.06250%
SB ......................................................... 99.00000%
SH ......................................................... 76.25000%
SL ......................................................... 16.00000%
SM.......................................................... 16.00000%
SG ......................................................... 2.78125%
SR ......................................................... 4.00000%
SO.......................................................... 100.00000%
SP.......................................................... 23.50000%
SQ.......................................................... 24.00000%
SJ ......................................................... 72.00000%
SK ......................................................... 88.50000%
SN ......................................................... 88.50000%
ST.......................................................... 23.75000%
</TABLE>
- ---------------
* The prices do not include accrued interest. Accrued interest
has been added to such prices in calculating the yields set
forth in the tables below.
SENSITIVITY OF THE SD CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
3.65%..................................... 11.3% 11.8% 14.3% 14.3% 14.3% 16.6%
5.65%..................................... 6.9% 7.3% 9.8% 9.8% 9.9% 12.3%
7.65%..................................... 2.5% 2.9% 5.5% 5.5% 5.5% 8.0%
8.60%..................................... 0.5% 0.9% 3.4% 3.4% 3.4% 6.0%
</TABLE>
SENSITIVITY OF THE SC CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 165% 250% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65%..................................... 12.8% 12.8% 13.8% 22.9% 41.8%
5.65%..................................... 6.5% 6.6% 7.5% 16.7% 35.5%
7.50% and above........................... 1.1% 1.2% 2.0% 11.0% 29.8%
</TABLE>
S-27
<PAGE> 114
SENSITIVITY OF THE SE CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
----------------------------------
LIBOR 50% 100% 165% 250% 500%
----- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
7.50% and below........................... 9.3% 9.3% 9.6% 11.8% 16.4%
7.85%..................................... 4.7% 4.8% 5.0% 7.3% 12.0%
8.20%..................................... 0.3% 0.3% 0.5% 2.9% 7.6%
</TABLE>
SENSITIVITY OF THE SA CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
----- ------ ------ ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
3.65%..................................... 107.7% 101.9% 90.7% 89.6% 82.4% 36.5%
5.65%..................................... 46.6% 42.5% 29.8% 28.4% 18.5% (38.7)%
7.50% and above........................... * * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SB CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
7.50% and below........................... 9.1% 9.1% 9.3% 9.3% 9.4% 9.7%
8.05%..................................... 4.6% 4.6% 4.8% 4.8% 4.9% 5.4%
8.60%..................................... 0.1% 0.1% 0.3% 0.3% 0.5% 1.0%
</TABLE>
SENSITIVITY OF THE SH CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 165% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%.................................... 20.2% 20.2% 20.3% 41.0% 72.4%
5.625%.................................... 9.9% 10.0% 10.1% 31.4% 62.6%
7.500%.................................... 1.1% 1.2% 1.3% 22.7% 53.6%
</TABLE>
SENSITIVITY OF THE SL CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-----------------------------------------
LIBOR 50% 100% 165% 350% 500%
----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
3.625%.................................... 91.8% 91.8% 91.8% 58.7% (29.2)%
5.625%.................................... 42.1% 42.1% 42.1% (11.7)% (97.7)%
7.500%.................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
S-28
<PAGE> 115
SENSITIVITY OF THE SM CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-----------------------------------------
LIBOR 50% 100% 165% 350% 500%
----- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
7.50% and below........................... 59.0% 59.0% 59.0% 14.4% (72.9)%
7.85%..................................... 28.4% 28.4% 28.3% (36.1)% *
8.20%..................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SG CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------
LIBOR 50% 100% 250% 350% 500%
----- ----- ----- ----- ------- -----
<S> <C> <C> <C> <C> <C>
3.65625%.................................. 16.3% 16.2% 13.8% (13.6)% *
5.65625%.................................. 16.3% 16.2% 13.8% (13.6)% *
7.55000%.................................. * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SR CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
----- ------ ------ ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
3.65%..................................... 110.5% 104.3% 92.7% 91.6% 84.0% 35.8%
5.65%..................................... 47.9% 43.6% 30.7% 29.3% 19.2% (40.0)%
7.50% and above........................... * * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SO CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------------
LIBOR 50% 100% 160% 165% 250% 500%
----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
7.50% and below........................... 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
8.05%..................................... 4.5% 4.5% 4.5% 4.5% 4.5% 4.6%
8.60%..................................... 0.0% 0.0% 0.1% 0.1% 0.2% 0.3%
</TABLE>
SENSITIVITY OF THE SP CLASS TO PREPAYMENTS AND COFI
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
--------------------------------------------
COFI 50% 100% 175% 350% 500%
---- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
2.941%.................................... 42.5% 42.5% 42.4% (13.9)% *
4.941%.................................... 20.8% 20.7% 20.0% (53.2)% *
6.941%.................................... (13.4)% (14.5)% (18.4)% * *
7.000% and above.......................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
S-29
<PAGE> 116
SENSITIVITY OF THE SQ CLASS TO PREPAYMENTS AND COFI
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
--------------------------------------
COFI 50% 100% 175% 350% 500%
---- ----- ----- ----- ------- ----
<S> <C> <C> <C> <C> <C>
7.0% and below............................ 17.5% 17.4% 16.5% (60.3)% *
7.9%...................................... 7.0% 6.7% 4.9% (85.6)% *
8.8%...................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
SENSITIVITY OF THE SJ CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 165% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%.................................... 18.5% 18.5% 18.7% 32.1% 51.0%
5.625%.................................... 9.3% 9.3% 9.6% 23.5% 42.2%
7.500% and above.......................... 1.4% 1.5% 1.7% 15.7% 34.3%
</TABLE>
SENSITIVITY OF THE SK CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-----------------------------------
LIBOR 50% 100% 165% 350% 500%
----- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C>
7.50% and below........................... 9.9% 9.9% 10.0% 15.0% 21.5%
7.85%..................................... 5.1% 5.2% 5.3% 10.4% 17.0%
8.20%..................................... 0.5% 0.6% 0.7% 5.9% 12.6%
</TABLE>
SENSITIVITY OF THE SN CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 165% 350% 500%
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.625%.................................... 13.8% 13.9% 13.9% 18.7% 25.1%
5.625%.................................... 7.9% 7.9% 8.0% 13.0% 19.5%
7.625%.................................... 2.1% 2.2% 2.3% 7.4% 14.0%
8.200%.................................... 0.5% 0.6% 0.7% 5.8% 12.4%
</TABLE>
SENSITIVITY OF THE ST CLASS TO PREPAYMENTS AND COFI
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-----------------------------------------
COFI 50% 100% 175% 350% 500%
---- ----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
2.941%.................................... 62.2% 62.2% 62.2% 15.4% (76.4)%
4.941%.................................... 39.9% 39.9% 39.8% (18.1)% *
6.941%.................................... 18.4% 18.3% 17.5% (58.3)% *
8.800%.................................... * * * * *
</TABLE>
- ---------------
* The pre-tax yield to maturity would be less than (99.9)%.
The Principal Only Classes. THE PRINCIPAL ONLY CLASSES WILL NOT BEAR
INTEREST. AS INDICATED IN THE TABLES BELOW, A LOW RATE OF PRINCIPAL PAYMENTS
(INCLUDING PREPAYMENTS) ON THE RELATED MORTGAGE LOANS WILL HAVE A NEGATIVE
EFFECT ON THE YIELDS TO INVESTORS IN THE PRINCIPAL ONLY CLASSES.
S-30
<PAGE> 117
The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase prices
of the Principal Only Classes (expressed in each case as a percentage of
original principal balance) are as follows:
<TABLE>
<CAPTION>
CLASS PRICE
----- ------
<S> <C>
PL.......................................................... 56.0%
PM.......................................................... 72.5%
PO.......................................................... 50.0%
</TABLE>
SENSITIVITY OF THE PRINCIPAL ONLY CLASSES TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
----------------------------------
CLASS 50% 100% 165% 350% 500%
----- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
PL ....................................... 2.5% 2.6% 3.0% 28.2% 63.3%
PM........................................ 1.4% 1.4% 1.7% 15.1% 32.8%
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
----------------------------------
CLASS 50% 100% 175% 350% 500%
----- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
PO ....................................... 3.0% 3.3% 4.2% 36.0% 84.4%
</TABLE>
WEIGHTED AVERAGE LIVES OF THE CERTIFICATES
The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the Settlement Date to the second such Distribution Date,
(b) summing the results and (c) dividing the sum by the aggregate amount of the
reductions in principal balance of such Certificate referred to in clause (a).
For a description of the factors which may influence the weighted average life
of a Certificate, see "Description of the Certificates--Weighted Average Life
and Final Distribution Dates" in the REMIC Prospectus.
In general, the weighted average lives of the Certificates will be
shortened if the level of prepayments of principal of the related Mortgage Loans
increases. However, the weighted average lives will depend upon a variety of
other factors, including the timing of changes in such rate of principal
payments, the priority sequences of distributions of principal of the Group 1,
Group 6 and Group 8 Classes and, in the case of the Group 2, Group 3, Group 4,
Group 5, Group 7, and Group 9 Classes, the priority sequences of principal
distributions of the related Underlying REMIC Certificates. The weighted average
lives of certain Group 1 and Group 8 Classes will also depend on the
distribution of principal of certain Classes in accordance with the Principal
Balance Schedules. See "Distributions of Principal" herein and "Description of
the Certificates--Distributions of Principal" in the Underlying REMIC Disclosure
Documents.
The effect of the foregoing factors may differ as to various Classes and
the effects on any Class may vary at different times during the life of such
Class. Accordingly, no assurance can be given as to the weighted average life of
any Class. Further, to the extent the prices of the Certificates represent
discounts or premiums to their respective original principal balances,
variability in the weighted average lives of such Classes of Certificates could
result in variability in the related yields to maturity. For an example of how
the weighted average lives of the Classes may be affected at various constant
prepayment rates, see the Decrement Tables below.
S-31
<PAGE> 118
DECREMENT TABLES
The following tables indicate the percentages of original principal
balances of the specified Classes that would be outstanding after each of the
dates shown at various constant PSA rates and the corresponding weighted average
lives of such Classes. The tables have been prepared on the basis of the Pricing
Assumptions, except that with respect to the information set forth for each such
Class under 0% PSA it has been assumed that the underlying Mortgage Loans have
the original and remaining terms to maturity and bear interest at the per annum
rates specified below:
<TABLE>
<CAPTION>
ORIGINAL REMAINING
MORTGAGE LOANS RELATING TO TERMS TERMS INTEREST RELATED
TRUST ASSETS SPECIFIED BELOW TO MATURITY TO MATURITY RATES GROUPS
- ---------------------------- ----------- ----------- -------- -------
<C> <C> <C> <C> <S>
Group 1 MBS 360 months 360 months 9.5% Group 1
1993-G34 360 months 311 months 8.0% Group 2
1993-198 360 months 311 months 9.0% Group 3
1993-121 360 months 308 months 9.5% Group 4
1993-178 360 months 310 months 9.5% Group 5
Group 6 MBS 360 months 360 months 9.5% Group 6
1993-210 360 months 312 months 9.0% Group 7
Trust SMBS 360 months 359 months 9.5% Group 8
1993-103 360 months 308 months 9.5% Group 9
</TABLE>
It is not likely that (i) all of the underlying Mortgage Loans will have
the interest rates, CAGEs or WALAs or remaining terms to maturity assumed or
(ii) the underlying Mortgage Loans will prepay at a constant PSA level. In
addition, the diverse remaining terms to maturity of the Mortgage Loans could
produce slower or faster principal distributions than indicated in the tables at
the specified constant PSA rates, even if the distributions of the weighted
average remaining terms to maturity and the weighted average CAGEs or WALAs of
the Mortgage Loans are identical to the distributions of the remaining terms to
maturity and CAGEs or WALAs specified in the Pricing Assumptions.
PERCENT OF ORIGINAL PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
PB CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 96 91 91 91 91
November 1999....... 92 75 75 75 75
November 2000....... 87 33 33 33 0
November 2001....... 82 0 0 0 0
November 2002....... 76 0 0 0 0
November 2003....... 70 0 0 0 0
November 2004....... 63 0 0 0 0
November 2005....... 55 0 0 0 0
November 2006....... 46 0 0 0 0
November 2007....... 37 0 0 0 0
November 2008....... 27 0 0 0 0
November 2009....... 16 0 0 0 0
November 2010....... 4 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 8.0 2.5 2.5 2.5 2.2
<CAPTION>
PC CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 55
November 2001....... 100 88 88 88 0
November 2002....... 100 6 6 6 0
November 2003....... 100 0 0 0 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 78 0 0 0 0
November 2012....... 45 0 0 0 0
November 2013....... 8 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 14.8 4.5 4.5 4.5 3.0
<CAPTION>
PD AND PH CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 0
November 2002....... 100 100 100 100 0
November 2003....... 100 48 48 48 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 77 0 0 0 0
November 2015....... 45 0 0 0 0
November 2016....... 10 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 17.8 6.0 6.0 6.0 3.6
</TABLE>
- ---------------
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
S-32
<PAGE> 119
<TABLE>
<CAPTION>
PJ AND PG CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 88
November 2002....... 100 100 100 100 0
November 2003....... 100 100 100 100 0
November 2004....... 100 95 95 95 0
November 2005....... 100 42 42 42 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 100 0 0 0 0
November 2015....... 100 0 0 0 0
November 2016....... 100 0 0 0 0
November 2017....... 69 0 0 0 0
November 2018....... 24 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.4 7.9 7.9 7.9 4.3
<CAPTION>
PE CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 92
November 2003....... 100 100 100 100 63
November 2004....... 100 100 100 100 44
November 2005....... 100 100 100 100 30
November 2006....... 100 97 97 97 21
November 2007....... 100 81 81 81 14
November 2008....... 100 67 67 67 10
November 2009....... 100 56 56 56 7
November 2010....... 100 46 46 46 4
November 2011....... 100 38 38 38 3
November 2012....... 100 31 31 31 2
November 2013....... 100 25 25 25 1
November 2014....... 100 21 21 21 1
November 2015....... 100 17 17 17 1
November 2016....... 100 13 13 13 *
November 2017....... 100 11 11 11 *
November 2018....... 100 8 8 8 *
November 2019....... 90 7 7 7 *
November 2020....... 70 5 5 5 *
November 2021....... 48 4 4 4 *
November 2022....... 24 3 3 3 *
November 2023....... 2 2 2 2 *
November 2024....... 1 1 1 1 *
November 2025....... 1 1 1 1 *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.9 13.8 13.8 13.8 7.4
<CAPTION>
IA+ CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 98 96 96 96 96
November 1999....... 96 88 88 88 88
November 2000....... 94 69 69 69 46
November 2001....... 91 51 51 51 17
November 2002....... 89 38 38 38 0
November 2003....... 86 28 28 28 0
November 2004....... 82 18 18 18 0
November 2005....... 79 8 8 8 0
November 2006....... 75 0 0 0 0
November 2007....... 71 0 0 0 0
November 2008....... 66 0 0 0 0
November 2009....... 61 0 0 0 0
November 2010....... 55 0 0 0 0
November 2011....... 50 0 0 0 0
November 2012....... 44 0 0 0 0
November 2013....... 39 0 0 0 0
November 2014....... 33 0 0 0 0
November 2015....... 27 0 0 0 0
November 2016....... 21 0 0 0 0
November 2017....... 13 0 0 0 0
November 2018....... 5 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 13.2 4.5 4.5 4.5 3.0
</TABLE>
<TABLE>
<CAPTION>
FC, SC, FB AND SE CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 98 88 58
November 1999....... 100 100 95 65 0
November 2000....... 100 100 91 41 0
November 2001....... 100 100 88 23 0
November 2002....... 100 100 85 11 0
November 2003....... 100 100 84 4 0
November 2004....... 100 100 83 * 0
November 2005....... 100 100 82 0 0
November 2006....... 100 100 81 0 0
November 2007....... 100 100 79 0 0
November 2008....... 100 100 75 0 0
November 2009....... 100 100 70 0 0
November 2010....... 100 100 66 0 0
November 2011....... 100 100 60 0 0
November 2012....... 100 100 55 0 0
November 2013....... 100 100 50 0 0
November 2014....... 100 100 45 0 0
November 2015....... 100 100 40 0 0
November 2016....... 100 97 35 0 0
November 2017....... 100 87 30 0 0
November 2018....... 100 77 26 0 0
November 2019....... 100 67 22 0 0
November 2020....... 100 57 18 0 0
November 2021....... 100 48 15 0 0
November 2022....... 100 39 12 0 0
November 2023....... 100 30 9 0 0
November 2024....... 100 21 6 0 0
November 2025....... 100 13 3 0 0
November 2026....... 54 5 1 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 29.1 23.9 15.5 2.8 1.1
<CAPTION>
Z CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 106 106 106 106 47
November 1999....... 115 115 115 12 0
November 2000....... 125 125 125 0 0
November 2001....... 135 135 135 0 0
November 2002....... 146 146 146 0 0
November 2003....... 158 158 158 0 0
November 2004....... 171 171 171 0 0
November 2005....... 186 186 186 0 0
November 2006....... 201 201 201 0 0
November 2007....... 218 218 218 0 0
November 2008....... 236 236 236 0 0
November 2009....... 255 255 245 0 0
November 2010....... 276 276 228 0 0
November 2011....... 299 299 210 0 0
November 2012....... 324 324 192 0 0
November 2013....... 351 351 173 0 0
November 2014....... 380 380 155 0 0
November 2015....... 412 371 138 0 0
November 2016....... 446 336 121 0 0
November 2017....... 483 301 105 0 0
November 2018....... 523 267 91 0 0
November 2019....... 566 233 76 0 0
November 2020....... 613 199 63 0 0
November 2021....... 664 166 51 0 0
November 2022....... 676 134 40 0 0
November 2023....... 654 103 30 0 0
November 2024....... 514 73 20 0 0
November 2025....... 360 44 12 0 0
November 2026....... 189 16 4 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.1 23.3 19.4 1.6 1.0
<CAPTION>
IO+ CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 0 0 0 0 0
November 1999....... 0 0 0 0 0
November 2000....... 0 0 0 0 0
November 2001....... 0 0 0 0 0
November 2002....... 0 0 0 0 0
November 2003....... 0 0 0 0 0
November 2004....... 0 0 0 0 0
November 2005....... 0 0 0 0 0
November 2006....... 0 0 0 0 0
November 2007....... 0 0 0 0 0
November 2008....... 0 0 0 0 0
November 2009....... 0 0 0 0 0
November 2010....... 0 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 0.2 0.2 0.2 0.2 0.2
</TABLE>
- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.
S-33
<PAGE> 120
<TABLE>
<CAPTION>
FD AND SD CLASSES
---------------------------------------------
PSA PREPAYMENT
ASSUMPTION
---------------------------------------------
DATE 0% 100% 160% 165% 250% 500%
---- -- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
November 1998....... 100 90 84 84 84 84
November 1999....... 100 74 55 55 55 36
November 2000....... 100 74 41 41 41 0
November 2001....... 100 74 29 29 29 0
November 2002....... 100 74 19 19 19 0
November 2003....... 100 74 12 12 12 0
November 2004....... 100 74 6 6 6 0
November 2005....... 100 74 2 2 1 0
November 2006....... 100 74 0 0 * 0
November 2007....... 100 72 0 0 * 0
November 2008....... 100 68 0 0 * 0
November 2009....... 100 63 0 0 * 0
November 2010....... 100 55 0 0 * 0
November 2011....... 100 47 0 0 * 0
November 2012....... 100 38 0 0 * 0
November 2013....... 100 28 0 0 * 0
November 2014....... 100 18 0 0 * 0
November 2015....... 100 7 0 0 * 0
November 2016....... 100 0 0 0 * 0
November 2017....... 100 0 0 0 * 0
November 2018....... 100 0 0 0 * 0
November 2019....... 100 0 0 0 * 0
November 2020....... 100 0 0 0 * 0
November 2021....... 100 0 0 0 * 0
November 2022....... 100 0 0 0 * 0
November 2023....... 93 0 0 0 * 0
November 2024....... 51 0 0 0 * 0
November 2025....... 4 0 0 0 * 0
November 2026....... 0 0 0 0 * 0
November 2027....... 0 0 0 0 0 0
Weighted Average
Life (years)**..... 27.0 11.3 3.0 3.0 3.0 1.7
<CAPTION>
FA, SA+ AND SB CLASSES
---------------------------------------------
PSA PREPAYMENT
ASSUMPTION
---------------------------------------------
DATE 0% 100% 160% 165% 250% 500%
---- -- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
November 1998....... 99 93 89 89 83 75
November 1999....... 97 83 70 69 69 21
November 2000....... 96 81 58 56 48 0
November 2001....... 94 79 48 46 30 0
November 2002....... 92 77 40 37 18 0
November 2003....... 90 75 33 30 9 0
November 2004....... 88 73 27 24 4 0
November 2005....... 85 70 22 19 1 0
November 2006....... 82 68 18 14 * 0
November 2007....... 80 64 13 10 * 0
November 2008....... 76 58 8 4 * 0
November 2009....... 73 52 2 0 * 0
November 2010....... 69 44 0 0 * 0
November 2011....... 65 35 0 0 * 0
November 2012....... 61 25 0 0 * 0
November 2013....... 56 15 0 0 * 0
November 2014....... 51 4 0 0 * 0
November 2015....... 46 0 0 0 * 0
November 2016....... 40 0 0 0 * 0
November 2017....... 34 0 0 0 * 0
November 2018....... 27 0 0 0 * 0
November 2019....... 19 0 0 0 * 0
November 2020....... 11 0 0 0 * 0
November 2021....... 2 0 0 0 * 0
November 2022....... 0 0 0 0 * 0
November 2023....... 0 0 0 0 * 0
November 2024....... 0 0 0 0 * 0
November 2025....... 0 0 0 0 * 0
November 2026....... 0 0 0 0 * 0
November 2027....... 0 0 0 0 0 0
Weighted Average
Life (years)**..... 15.9 10.5 4.8 4.5 3.1 1.4
<CAPTION>
FH AND SH CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 81 0
November 1999....... 100 100 100 0 0
November 2000....... 100 100 100 0 0
November 2001....... 100 100 100 0 0
November 2002....... 100 100 100 0 0
November 2003....... 100 100 100 0 0
November 2004....... 100 100 100 0 0
November 2005....... 100 100 100 0 0
November 2006....... 100 100 100 0 0
November 2007....... 100 100 100 0 0
November 2008....... 100 100 100 0 0
November 2009....... 100 100 100 0 0
November 2010....... 100 100 100 0 0
November 2011....... 100 100 100 0 0
November 2012....... 100 100 100 0 0
November 2013....... 100 100 100 0 0
November 2014....... 100 100 100 0 0
November 2015....... 100 100 94 0 0
November 2016....... 100 100 76 0 0
November 2017....... 100 100 59 0 0
November 2018....... 100 100 44 0 0
November 2019....... 100 96 30 0 0
November 2020....... 100 59 17 0 0
November 2021....... 100 25 6 0 0
November 2022....... 100 3 * 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.7 23.4 20.8 1.3 0.6
<CAPTION>
A CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 140% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 59
November 2002....... 100 90 90 89 23
November 2003....... 100 64 64 56 0
November 2004....... 100 43 43 30 0
November 2005....... 100 25 25 10 0
November 2006....... 100 10 10 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 98 0 0 0 0
November 2013....... 78 0 0 0 0
November 2014....... 56 0 0 0 0
November 2015....... 32 0 0 0 0
November 2016....... 6 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 17.2 6.9 6.9 6.4 4.4
</TABLE>
<TABLE>
<CAPTION>
B CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 98
November 2003....... 100 100 100 100 67
November 2004....... 100 100 100 100 46
November 2005....... 100 100 100 82 31
November 2006....... 100 100 100 63 21
November 2007....... 100 85 85 48 14
November 2008....... 100 70 70 36 10
November 2009....... 100 57 57 27 6
November 2010....... 100 47 47 21 4
November 2011....... 100 38 38 15 3
November 2012....... 100 30 30 11 2
November 2013....... 100 24 24 8 1
November 2014....... 100 19 19 6 1
November 2015....... 100 15 15 4 *
November 2016....... 100 11 11 3 *
November 2017....... 80 8 8 2 *
November 2018....... 39 6 6 1 *
November 2019....... 4 4 4 1 *
November 2020....... 2 2 2 * *
November 2021....... 1 1 1 * *
November 2022....... 0 0 0 * *
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.8 13.7 13.7 10.8 7.6
<CAPTION>
FJ, PL, SL+, PM, SM+, SJ,
SK AND SN CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 57
November 1999....... 100 100 100 63 *
November 2000....... 100 100 100 * *
November 2001....... 100 100 100 * *
November 2002....... 100 100 100 * *
November 2003....... 100 100 100 * *
November 2004....... 100 100 100 * *
November 2005....... 100 100 100 * *
November 2006....... 100 100 100 * *
November 2007....... 100 100 100 * *
November 2008....... 100 100 100 * *
November 2009....... 100 100 100 * *
November 2010....... 100 100 100 * *
November 2011....... 100 100 100 * *
November 2012....... 100 100 100 * *
November 2013....... 100 100 88 * *
November 2014....... 100 100 74 * *
November 2015....... 100 100 61 * *
November 2016....... 100 100 50 * *
November 2017....... 100 100 39 * *
November 2018....... 100 86 29 * *
November 2019....... 100 61 20 * *
November 2020....... 100 38 11 * *
November 2021....... 100 16 4 * *
November 2022....... 100 * * * *
November 2023....... * * * * *
November 2024....... * * * * *
November 2025....... * * * * *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.5 22.6 19.3 2.2 1.1
<CAPTION>
C, D AND E CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 180% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 99 93 88 79 70
November 1999....... 98 84 74 54 39
November 2000....... 97 76 61 35 16
November 2001....... 96 68 50 20 1
November 2002....... 95 60 40 8 0
November 2003....... 94 53 31 0 0
November 2004....... 92 47 23 0 0
November 2005....... 91 41 16 0 0
November 2006....... 89 35 10 0 0
November 2007....... 87 29 4 0 0
November 2008....... 85 24 0 0 0
November 2009....... 83 19 0 0 0
November 2010....... 80 14 0 0 0
November 2011....... 77 10 0 0 0
November 2012....... 74 6 0 0 0
November 2013....... 71 2 0 0 0
November 2014....... 67 0 0 0 0
November 2015....... 63 0 0 0 0
November 2016....... 58 0 0 0 0
November 2017....... 53 0 0 0 0
November 2018....... 48 0 0 0 0
November 2019....... 42 0 0 0 0
November 2020....... 35 0 0 0 0
November 2021....... 28 0 0 0 0
November 2022....... 20 0 0 0 0
November 2023....... 11 0 0 0 0
November 2024....... 2 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 18.9 7.1 4.5 2.5 1.8
<CAPTION>
G CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 180% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 71
November 2003....... 100 100 100 97 49
November 2004....... 100 100 100 75 34
November 2005....... 100 100 100 58 23
November 2006....... 100 100 100 45 16
November 2007....... 100 100 100 35 11
November 2008....... 100 100 98 27 7
November 2009....... 100 100 85 21 5
November 2010....... 100 100 74 16 3
November 2011....... 100 100 63 12 2
November 2012....... 100 100 54 9 2
November 2013....... 100 100 46 7 1
November 2014....... 100 94 39 5 1
November 2015....... 100 84 33 4 *
November 2016....... 100 73 28 3 *
November 2017....... 100 64 23 2 *
November 2018....... 100 55 19 2 *
November 2019....... 100 46 15 1 *
November 2020....... 100 38 12 1 *
November 2021....... 100 30 9 * *
November 2022....... 100 23 6 * *
November 2023....... 100 16 4 * *
November 2024....... 100 9 2 * *
November 2025....... 73 3 1 * *
November 2026....... 38 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.7 21.9 16.6 9.7 6.8
</TABLE>
- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.
S-34
<PAGE> 121
<TABLE>
<CAPTION>
FG AND SG+ CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 250% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 0
November 2000....... 100 100 100 77 0
November 2001....... 100 100 100 41 0
November 2002....... 100 100 100 22 0
November 2003....... 100 100 100 12 0
November 2004....... 100 100 100 9 0
November 2005....... 100 100 100 6 0
November 2006....... 100 100 100 * 0
November 2007....... 100 100 86 0 0
November 2008....... 100 100 73 0 0
November 2009....... 100 100 61 0 0
November 2010....... 100 100 51 0 0
November 2011....... 100 100 42 0 0
November 2012....... 100 100 34 0 0
November 2013....... 100 100 27 0 0
November 2014....... 100 100 22 0 0
November 2015....... 100 100 17 0 0
November 2016....... 100 100 13 0 0
November 2017....... 100 100 10 0 0
November 2018....... 100 87 7 0 0
November 2019....... 100 64 4 0 0
November 2020....... 100 42 3 0 0
November 2021....... 100 21 1 0 0
November 2022....... 100 3 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.6 22.7 14.0 4.2 1.6
<CAPTION>
PN CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 96 90 90 90 90
November 1999....... 92 73 73 73 73
November 2000....... 88 35 35 35 0
November 2001....... 83 0 0 0 0
November 2002....... 77 0 0 0 0
November 2003....... 71 0 0 0 0
November 2004....... 65 0 0 0 0
November 2005....... 57 0 0 0 0
November 2006....... 49 0 0 0 0
November 2007....... 41 0 0 0 0
November 2008....... 31 0 0 0 0
November 2009....... 20 0 0 0 0
November 2010....... 9 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 8.3 2.5 2.5 2.5 2.2
<CAPTION>
PQ CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 54
November 2001....... 100 95 95 95 0
November 2002....... 100 6 6 6 0
November 2003....... 100 0 0 0 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 89 0 0 0 0
November 2012....... 53 0 0 0 0
November 2013....... 13 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 15.1 4.5 4.5 4.5 3.0
</TABLE>
<TABLE>
<CAPTION>
PR CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 0
November 2002....... 100 100 100 100 0
November 2003....... 100 48 48 48 0
November 2004....... 100 0 0 0 0
November 2005....... 100 0 0 0 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 80 0 0 0 0
November 2015....... 47 0 0 0 0
November 2016....... 12 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 17.9 6.0 6.0 6.0 3.6
<CAPTION>
PS CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 86
November 2002....... 100 100 100 100 0
November 2003....... 100 100 100 100 0
November 2004....... 100 95 95 95 0
November 2005....... 100 42 42 42 0
November 2006....... 100 0 0 0 0
November 2007....... 100 0 0 0 0
November 2008....... 100 0 0 0 0
November 2009....... 100 0 0 0 0
November 2010....... 100 0 0 0 0
November 2011....... 100 0 0 0 0
November 2012....... 100 0 0 0 0
November 2013....... 100 0 0 0 0
November 2014....... 100 0 0 0 0
November 2015....... 100 0 0 0 0
November 2016....... 100 0 0 0 0
November 2017....... 71 0 0 0 0
November 2018....... 25 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 20.5 7.9 7.9 7.9 4.3
<CAPTION>
PT CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 100
November 2002....... 100 100 100 100 91
November 2003....... 100 100 100 100 63
November 2004....... 100 100 100 100 43
November 2005....... 100 100 100 100 30
November 2006....... 100 97 97 97 20
November 2007....... 100 81 81 81 14
November 2008....... 100 67 67 67 10
November 2009....... 100 56 56 56 7
November 2010....... 100 46 46 46 4
November 2011....... 100 38 38 38 3
November 2012....... 100 31 31 31 2
November 2013....... 100 25 25 25 1
November 2014....... 100 21 21 21 1
November 2015....... 100 17 17 17 1
November 2016....... 100 13 13 13 *
November 2017....... 100 11 11 11 *
November 2018....... 100 8 8 8 *
November 2019....... 91 7 7 7 *
November 2020....... 70 5 5 5 *
November 2021....... 48 4 4 4 *
November 2022....... 23 3 3 3 *
November 2023....... 2 2 2 2 *
November 2024....... 1 1 1 1 *
November 2025....... 1 1 1 1 *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.9 13.8 13.8 13.8 7.4
</TABLE>
- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.
S-35
<PAGE> 122
<TABLE>
<CAPTION>
IB+ CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 98 94 94 94 94
November 1999....... 95 84 84 84 84
November 2000....... 93 61 61 61 31
November 2001....... 90 39 39 39 0
November 2002....... 86 21 21 21 0
November 2003....... 83 6 6 6 0
November 2004....... 79 0 0 0 0
November 2005....... 74 0 0 0 0
November 2006....... 70 0 0 0 0
November 2007....... 64 0 0 0 0
November 2008....... 59 0 0 0 0
November 2009....... 52 0 0 0 0
November 2010....... 45 0 0 0 0
November 2011....... 38 0 0 0 0
November 2012....... 31 0 0 0 0
November 2013....... 23 0 0 0 0
November 2014....... 15 0 0 0 0
November 2015....... 6 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 11.5 3.6 3.6 3.6 2.6
<CAPTION>
IC+ CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 100
November 1999....... 100 100 100 100 100
November 2000....... 100 100 100 100 100
November 2001....... 100 100 100 100 87
November 2002....... 100 100 100 100 54
November 2003....... 100 100 100 100 37
November 2004....... 100 90 90 90 26
November 2005....... 100 73 73 73 18
November 2006....... 100 57 57 57 12
November 2007....... 100 48 48 48 8
November 2008....... 100 40 40 40 6
November 2009....... 100 33 33 33 4
November 2010....... 100 27 27 27 3
November 2011....... 100 22 22 22 2
November 2012....... 100 18 18 18 1
November 2013....... 100 15 15 15 1
November 2014....... 100 12 12 12 1
November 2015....... 100 10 10 10 *
November 2016....... 96 8 8 8 *
November 2017....... 82 6 6 6 *
November 2018....... 67 5 5 5 *
November 2019....... 54 4 4 4 *
November 2020....... 42 3 3 3 *
November 2021....... 28 2 2 2 *
November 2022....... 14 2 2 2 *
November 2023....... 1 1 1 1 *
November 2024....... 1 1 1 1 *
November 2025....... * * * * *
November 2026....... * * * * *
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 22.4 11.3 11.3 11.3 6.1
<CAPTION>
FR, SR+ AND SO CLASSES
---------------------------------------------
PSA PREPAYMENT
ASSUMPTION
---------------------------------------------
DATE 0% 100% 160% 165% 250% 500%
---- -- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100 100
November 1998....... 99 94 89 89 82 75
November 1999....... 97 83 70 69 69 18
November 2000....... 96 82 58 56 48 0
November 2001....... 94 80 49 46 30 0
November 2002....... 92 78 40 37 18 0
November 2003....... 90 76 33 30 9 0
November 2004....... 87 73 27 24 4 0
November 2005....... 85 71 22 19 1 0
November 2006....... 82 68 18 14 * 0
November 2007....... 79 64 13 10 * 0
November 2008....... 76 59 8 4 * 0
November 2009....... 73 52 1 0 * 0
November 2010....... 69 44 0 0 * 0
November 2011....... 65 35 0 0 * 0
November 2012....... 61 25 0 0 * 0
November 2013....... 56 15 0 0 * 0
November 2014....... 51 4 0 0 * 0
November 2015....... 45 0 0 0 * 0
November 2016....... 39 0 0 0 * 0
November 2017....... 33 0 0 0 * 0
November 2018....... 26 0 0 0 * 0
November 2019....... 18 0 0 0 * 0
November 2020....... 10 0 0 0 * 0
November 2021....... 1 0 0 0 * 0
November 2022....... 0 0 0 0 * 0
November 2023....... 0 0 0 0 * 0
November 2024....... 0 0 0 0 * 0
November 2025....... 0 0 0 0 * 0
November 2026....... 0 0 0 0 * 0
November 2027....... 0 0 0 0 0 0
Weighted Average
Life (years)**..... 15.7 10.5 4.8 4.5 3.1 1.4
</TABLE>
<TABLE>
<CAPTION>
ID+ CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 0 0 0 0 0
November 1999....... 0 0 0 0 0
November 2000....... 0 0 0 0 0
November 2001....... 0 0 0 0 0
November 2002....... 0 0 0 0 0
November 2003....... 0 0 0 0 0
November 2004....... 0 0 0 0 0
November 2005....... 0 0 0 0 0
November 2006....... 0 0 0 0 0
November 2007....... 0 0 0 0 0
November 2008....... 0 0 0 0 0
November 2009....... 0 0 0 0 0
November 2010....... 0 0 0 0 0
November 2011....... 0 0 0 0 0
November 2012....... 0 0 0 0 0
November 2013....... 0 0 0 0 0
November 2014....... 0 0 0 0 0
November 2015....... 0 0 0 0 0
November 2016....... 0 0 0 0 0
November 2017....... 0 0 0 0 0
November 2018....... 0 0 0 0 0
November 2019....... 0 0 0 0 0
November 2020....... 0 0 0 0 0
November 2021....... 0 0 0 0 0
November 2022....... 0 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 0.2 0.2 0.2 0.2 0.2
<CAPTION>
ZA CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 165% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 106 106 106 106 36
November 1999....... 115 115 115 9 0
November 2000....... 125 125 125 0 0
November 2001....... 135 135 135 0 0
November 2002....... 146 146 146 0 0
November 2003....... 158 158 158 0 0
November 2004....... 171 171 171 0 0
November 2005....... 186 186 186 0 0
November 2006....... 201 201 201 0 0
November 2007....... 218 218 218 0 0
November 2008....... 236 236 236 0 0
November 2009....... 255 255 243 0 0
November 2010....... 276 276 226 0 0
November 2011....... 299 299 209 0 0
November 2012....... 324 324 190 0 0
November 2013....... 351 351 172 0 0
November 2014....... 380 380 154 0 0
November 2015....... 412 368 137 0 0
November 2016....... 446 334 120 0 0
November 2017....... 483 299 105 0 0
November 2018....... 523 265 90 0 0
November 2019....... 566 231 76 0 0
November 2020....... 613 197 63 0 0
November 2021....... 664 165 51 0 0
November 2022....... 669 133 40 0 0
November 2023....... 641 102 29 0 0
November 2024....... 500 72 20 0 0
November 2025....... 345 43 12 0 0
November 2026....... 173 15 4 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.0 23.2 19.3 1.6 1.0
<CAPTION>
PO, SP+, SQ+ AND ST+ CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 175% 350% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
November 1998....... 100 100 100 100 44
November 1999....... 100 100 100 53 0
November 2000....... 100 100 100 7 0
November 2001....... 100 100 100 0 0
November 2002....... 100 100 100 0 0
November 2003....... 100 100 100 0 0
November 2004....... 100 100 100 0 0
November 2005....... 100 100 100 0 0
November 2006....... 100 100 100 0 0
November 2007....... 100 100 100 0 0
November 2008....... 100 100 100 0 0
November 2009....... 100 100 100 0 0
November 2010....... 100 100 88 0 0
November 2011....... 100 100 77 0 0
November 2012....... 100 100 66 0 0
November 2013....... 100 100 56 0 0
November 2014....... 100 100 46 0 0
November 2015....... 100 100 38 0 0
November 2016....... 100 95 30 0 0
November 2017....... 100 76 23 0 0
November 2018....... 100 58 16 0 0
November 2019....... 100 40 11 0 0
November 2020....... 100 23 5 0 0
November 2021....... 100 7 1 0 0
November 2022....... 59 0 0 0 0
November 2023....... 0 0 0 0 0
November 2024....... 0 0 0 0 0
November 2025....... 0 0 0 0 0
November 2026....... 0 0 0 0 0
November 2027....... 0 0 0 0 0
Weighted Average
Life (years)**..... 25.1 21.5 17.1 2.1 1.0
</TABLE>
- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.
S-36
<PAGE> 123
CHARACTERISTICS OF THE R AND RL CLASSES
The R and RL Classes will not have principal balances and will not bear
interest. The Holder of the R Class will be entitled to receive the proceeds of
the remaining assets of the Trust, if any, after the principal balances of all
Classes have been reduced to zero, and the Holder of the RL Class will be
entitled to receive the proceeds of the remaining assets of the Lower Tier
REMIC, if any, after the principal balances of the Lower Tier Regular Interests
have been reduced to zero. It is not anticipated that there will be any material
assets remaining in either such circumstance.
The R and RL Classes will be subject to certain transfer restrictions. No
transfer of record or beneficial ownership of an R or RL Certificate will be
allowed to a "disqualified organization." In addition, no transfer of record or
beneficial ownership of an R or RL Certificate will be allowed to any person
that is not a "U.S. Person" without the written consent of Fannie Mae. Under
regulations issued by the Treasury Department on December 23, 1992 (the
"Regulations"), a transfer of a "noneconomic residual interest" to a U.S. Person
will be disregarded for all federal tax purposes unless no significant purpose
of the transfer is to impede the assessment or collection of tax. The R and RL
Classes will constitute noneconomic residual interests under the Regulations.
Any transferee of an R or RL Certificate must execute and deliver an affidavit
and an Internal Revenue Service Form W-9 on which the transferee provides its
taxpayer identification number. See "Description of the Certificates--Additional
Characteristics of Residual Certificates" and "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Residual Certificates" in the
REMIC Prospectus. Transferors of an R or RL Certificate should consult with
their own tax advisors for further information regarding such transfers.
The Holder of the R Class will be considered to be the holder of the
"residual interest" in the REMIC constituted by the Trust, and the Holder of the
RL Class will be considered to be the holder of the "residual interest" in the
REMIC constituted by the Lower Tier REMIC. See "Certain Federal Income Tax
Consequences" in the REMIC Prospectus. Pursuant to the Trust Agreement, Fannie
Mae will be obligated to provide to such Holders (i) such information as is
necessary to enable them to prepare their federal income tax returns and (ii)
any reports regarding the R or RL Class that may be required under the Code.
CERTAIN ADDITIONAL FEDERAL INCOME TAX CONSEQUENCES
The following tax discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the REMIC Prospectus, describes
the current federal income tax treatment of investors in the Certificates. These
two tax discussions do not purport to deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Certificates.
REMIC ELECTIONS AND SPECIAL TAX ATTRIBUTES
Elections will be made to treat the Lower Tier REMIC and the Trust as
REMICs for federal income tax purposes. Arnold & Porter, special tax counsel to
Fannie Mae, will deliver its opinion to Fannie Mae that, assuming compliance
with the Trust Agreement, the Lower Tier REMIC and the Trust will qualify as
REMICs for federal income tax purposes. The REMIC Certificates, other than the R
and RL Classes, will be designated as the "regular interests," and the R Class
will be designated as the "residual interest," in the REMIC constituted by the
Trust. The Lower Tier Regular Interests will be designated as the "regular
interests" and the RL Class will be designated as the "residual interest" in the
Lower Tier REMIC.
As a consequence of the qualification of the Lower Tier REMIC and the Trust
as REMICs, the REMIC Certificates and any related RCR Certificates generally
will be treated as "regular or residual interests in a REMIC" for domestic
building and loan associations, "real estate assets" for real estate
S-37
<PAGE> 124
investment trusts, and, except for the R and RL Classes, as "qualified
mortgages" for other REMICs. The Small Business Job Protection Act of 1996
repeals the bad debt reserve method of accounting for mutual savings banks and
domestic building and loan associations for tax years beginning after December
31, 1995. As a result, section 593(d) of the Code is no longer applicable to
treat the Certificates as "qualifying real property loans." See "Certain Federal
Income Tax Consequences--Special Tax Attributes" in the REMIC Prospectus.
TAXATION OF BENEFICIAL OWNERS OF REGULAR CERTIFICATES
The Notional Classes, the Principal Only Classes, the Accrual Classes, the
SD Class, the SC Class and the SH Class will be, and certain other Classes of
REMIC Certificates may be, issued with original issue discount ("OID") for
federal income tax purposes, which generally will result in recognition of some
taxable income in advance of the receipt of the cash attributable to such
income. The Prepayment Assumption that will be used in determining the rate of
accrual of original issue discount will be 165% PSA in the case of the Group 1,
Group 2, Group 4, Group 5 and Group 8 Classes, 140% PSA in the case of the Group
3 Classes, 180% PSA in the case of the Group 6 Classes, 100% PSA in the case of
the Group 7 Classes and 175% PSA in the case of the Group 9 Classes. See
"Certain Federal Income Tax Consequences--Taxation of Beneficial Owners of
Regular Certificates--Original Issue Discount" in the REMIC Prospectus. No
representation is made as to whether the Mortgage Loans underlying the MBS or
the GNMA Certificates will prepay at any of those rates or any other rate. See
"Description of the Certificates--Weighted Average Lives of the Certificates"
herein and "Description of the Certificates--Weighted Average Life and Final
Distribution Dates" in the REMIC Prospectus. In addition, certain Classes of
REMIC Certificates may be treated as having been issued at a premium for federal
income tax purposes. See "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Regular Certificates--Certificates Purchased at a Premium"
in the REMIC Prospectus.
The Taxpayer Relief Act of 1997 adds provisions to the Code that require
the recognition of gain upon the "constructive sale of an appreciated financial
position." A constructive sale of an appreciated financial position occurs if a
taxpayer enters into certain transactions or series of such transactions with
respect to a financial instrument that have the effect of substantially
eliminating the taxpayer's risk of loss and opportunity for gain with respect to
the financial instrument. These provisions do not apply to Classes of
Certificates other than the Notional Classes.
TAXATION OF BENEFICIAL OWNERS OF RESIDUAL CERTIFICATES
Under the Regulations, neither the R Class nor the RL Class will have
significant value. Special rules regarding the treatment of "excess inclusions"
by certain thrift institutions no longer apply because of the amendment of
sections 593 and 860E of the Code by the Small Business Job Protection Act of
1996. See "Certain Federal Income Tax Consequences--Taxation of Beneficial
Owners of Residual Certificates--Excess Inclusions" in the REMIC Prospectus.
For purposes of determining the portion of the taxable income of the Trust
(or the Lower Tier REMIC) that generally will not be treated as excess
inclusions, the rate to be used is 120% of the "federal long-term rate." The
rate will be published on or about October 20, 1997. See "Certain Federal Income
Tax Consequences--Taxation of Beneficial Owners of Residual Certificates--Excess
Inclusions" and "--Foreign Investors--Residual Certificates" in the REMIC
Prospectus. The federal income tax consequences of any consideration paid to a
transferee on the transfer of an R or RL Certificate are unclear; any transferee
receiving such consideration should consult its own tax advisors.
Fannie Mae intends to determine the accruals of OID on the Underlying REMIC
Certificates using the same Prepayment Assumptions, as provided above, that will
be used to determine the accruals of OID on the related Regular Certificates.
The IRS, however, could take the position that the proper Prepayment Assumption
to be used with respect to the Underlying REMIC Certificates is
S-38
<PAGE> 125
the Prepayment Assumption set forth in the related Underlying REMIC Disclosure
Documents. See also "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Residual Certificates--Taxable Income or Net Loss of a
REMIC Trust" in the REMIC Prospectus.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will apply
to an "electing large partnership." If an electing large partnership holds an R
or RL Certificate, all interests in the electing large partnership are treated
as held by disqualified organizations for purposes of the tax imposed upon a
pass-through entity by section 860E(e) of the Code. An exception to this tax,
otherwise available to a pass-through entity that is furnished certain
affidavits by record holders of interests in the entity and that does not know
such affidavits are false, is not available to an electing large partnership.
TAXATION OF BENEFICIAL OWNERS OF RCR CERTIFICATES
General. The arrangement pursuant to which the RCR Classes will be
created, sold and administered will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. The interests in the REMIC
Certificates that have been exchanged for RCR Certificates (including any
exchanges effective on the Settlement Date) will be the assets of such trust and
the RCR Certificates will evidence an ownership interest in those REMIC
Certificates. For a general discussion of the federal income tax treatment of
investors in REMIC Certificates, see "Certain Federal Income Tax Consequences"
in the REMIC Prospectus.
The RCR Classes will represent beneficial ownership of the underlying
Regular Certificates set forth in Schedule 1. The RCR Certificates (the
"Combination RCR Certificates") will represent beneficial ownership of undivided
interests in two or more underlying Regular Certificates.
Combination RCR Classes. A beneficial owner of a Combination RCR
Certificate will be treated as the beneficial owner of a proportionate interest
in the related Class or Classes of REMIC Certificates. A purchaser of a
Combination RCR Certificate must allocate its purchase price among the related
Classes of REMIC Certificates in proportion to their relative fair market values
at the time of purchase. Such owner should account for its ownership interest in
each related Class of REMIC Certificates as described under "--Taxation of
Beneficial Owners of Regular Certificates" herein and "Certain Federal Income
Tax Consequences--Taxation of Beneficial Owners of Regular Certificates" in the
REMIC Prospectus. When a beneficial owner sells a Combination RCR Certificate,
such owner must allocate the sale proceeds among the related Classes of REMIC
Certificates in proportion to their relative fair market values at the time of
sale.
Exchanges. An exchange, as described under "Description of the
Certificates--Combination and Recombination" herein, by a beneficial owner of
(i) a combination of REMIC Certificates or (ii) all or a portion of an RCR Class
for the related RCR Class or REMIC Certificates, respectively, will not be a
taxable exchange. Such owner will be treated as continuing to own after the
exchange the same combination of interests in the related REMIC Certificates
that it owned immediately prior to the exchange.
PLAN OF DISTRIBUTION
General. The Dealer will receive the Certificates in exchange for the
Trust MBS, Underlying REMIC Certificates and Trust SMBS pursuant to a Fannie Mae
commitment. The Dealer proposes to offer the Certificates directly to the public
from time to time in negotiated transactions at varying prices to be determined
at the time of sale. The Dealer may effect such transactions to or through
dealers.
Increase in Certificates. Before the Settlement Date, Fannie Mae and the
Dealer may agree to offer hereby Group 1 or Group 6 Classes in addition to those
contemplated as of the date hereof. In such event, the related Trust MBS will be
increased in principal balance, but it is expected that all such additional
Trust MBS will have the same characteristics as described herein under
"Description
S-39
<PAGE> 126
of the Certificates--The Trust MBS." The proportion that the original principal
balance of each Group 1 or Group 6 Class bears to the aggregate original
principal balance of all Group 1 or Group 6 Classes, respectively, will remain
the same. In addition, the dollar amounts reflected in the Principal Balance
Schedules will be increased in a pro rata amount that corresponds to the
increase of the principal balances of the applicable Classes.
LEGAL MATTERS
Certain legal matters will be passed upon for the Dealer by Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982.
S-40
<PAGE> 127
EXHIBIT A
UNDERLYING REMIC CERTIFICATES AND TRUST SMBS
<TABLE>
<CAPTION>
UNDERLYING
REMIC
TRUST DATE
AND TRUST OF CUSIP INTEREST INTEREST
SMBS CLASS ISSUE NUMBER RATE TYPE(1)
---------- ----- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C>
1993-G34 G October 1993 31359EB34 6.75% FIX
1993-198 F October 1993 31359EMR9 (2) FLT
1993-198 S October 1993 31359EMS7 (2) INV
1993-121 FB July 1993 31359BNE3 (2) FLT
1993-121 SC July 1993 31359BNF0 (2) INV
1993-178 FA September 1993 31359D6Z1 (2) FLT
1993-178 SA September 1993 31359D7A5 (2) INV
1993-210 FD November 1993 31359E6N6 (2) FLT
000289-CL PO October 1997 31364HQ75 (3) PO
000289-CL IO October 1997 31364HQ83 7.00 FIX
1993-103 SB July 1993 31359BCJ4 (2) INV
<CAPTION>
ORIGINAL
PRINCIPAL PRINCIPAL
BALANCE OR BALANCE OR
UNDERLYING ORIGINAL NOTIONAL
REMIC NOTIONAL NOVEMBER PRINCIPAL
TRUST FINAL PRINCIPAL 1997 BALANCE IN
AND TRUST DISTRIBUTION PRINCIPAL BALANCE CLASS THE LOWER
SMBS DATE TYPE(1) OF CLASS FACTOR TIER REMIC
---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
1993-G34 October 2023 SUP $ 28,362,962 0.49138576 $ 6,776,701
1993-198 June 2022 PAC 27,300,000 1.00000000 15,000,000
1993-198 June 2022 PAC 18,200,000 1.00000000 10,000,000
1993-121 July 2023 PAC 22,100,000 1.00000000 22,100,000
1993-121 July 2023 PAC 10,200,000 1.00000000 10,200,000
September
1993-178 2023 TAC/SUP 26,000,000 0.84642395 22,007,022
September
1993-178 2023 TAC/SUP 10,000,000 0.84642395 8,464,240
1993-210 November 2023 SUP 30,588,236 1.00000000 24,588,236
000289-CL November 2027 STP 2,050,000,000 0.99733340 678,186,712
000289-CL November 2027 NTL 2,050,000,000 0.99733340 775,070,528
1993-103 July 2023 SUP 11,040,000 0.91840422 5,510,425
<CAPTION>
APPROXIMATE APPROXIMATE
UNDERLYING WEIGHTED WEIGHTED
REMIC APPROXIMATE AVERAGE AVERAGE
TRUST WEIGHTED WARM OR WALA OR UNDERLYING
AND TRUST AVERAGE WAM CAGE SECURITY CLASS
SMBS WAC (IN MONTHS) (IN MONTHS) TYPE GROUP
---------- ----------- ----------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
1993-G34 8.000% 296 54 GNMA 2
1993-198 7.085 299 50 MBS 3
1993-198 7.085 299 50 MBS 3
1993-121 7.543 295 53 MBS 4
1993-121 7.543 295 53 MBS 4
1993-178 7.485 297 52 MBS 5
1993-178 7.485 297 52 MBS 5
1993-210 7.055 301 49 MBS 7
000289-CL 7.687 355 5 MBS 8
000289-CL 7.687 355 5 MBS 8
1993-103 7.509 293 55 MBS 9
</TABLE>
- ---------------
(1) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus.
(2) These Classes bear interest during their respective interest accrual
periods, subject to the applicable maximum and minimum interest rates, as
further described in the related Underlying REMIC Disclosure Documents.
(3) This Class is a Principal Only Class and bears no interest.
A-1
<PAGE> 128
SCHEDULE 1
AVAILABLE RECOMBINATIONS(1)
<TABLE>
<CAPTION>
REMIC CERTIFICATES RCR CERTIFICATES
- ------------------------------------------ ------
ORIGINAL
PRINCIPAL
OR NOTIONAL
PRINCIPAL RCR
CLASS BALANCE CLASS
----- ----------- -----
<S> <C> <C>
Recombination 1
PL $6,641,172 SJ
SL 6,641,172
Recombination 2
PM 1,823,068 SK
SM 1,823,068
Recombination 3
PL 6,641,172 SN
SL 6,641,172
PM 1,823,068
SM 1,823,068
Recombination 4
SP 5,510,425 ST
SQ 5,510,425
<CAPTION>
REMIC CERTIFI RCR CERTIFICATES
- ------------------------- ----------------------------------
ORIGINAL
PRINCIPAL
OR NOTIONAL
PRINCIPAL INTEREST INTEREST
CLASS BALANCE RATE TYPE(2)
----- ----------- -------- --------
<S> <C> <C> <C>
Recombination 1
PL $6,641,172 (3) INV
SL
Recombination 2
PM 1,823,068 (3) INV
SM
Recombination 3
PL 8,464,240 (3) INV
SL
PM
SM
Recombination 4
SP 5,510,425 (3) INV/IO
SQ
<CAPTION>
REMIC CERTIFI RCR CERTIFICATES
- ------------------------- --------------------------------------
FINAL
PRINCIPAL CUSIP DISTRIBUTION
CLASS TYPE(2) NUMBER DATE
----- --------- ------ ------------
<S> <C> <C> <C>
Recombination 1
PL SC/PT 31359RFE7 September 2023
SL
Recombination 2
PM SC/PT 31359RFF4 September 2023
SM
Recombination 3
PL SC/PT 31359RFG2 September 2023
SL
PM
SM
Recombination 4
SP NTL 31359RFH0 July 2023
SQ
</TABLE>
- ---------------
(1) The principal balances and/or notional principal balances of the REMIC
Certificates and RCR Certificates involved in any exchange will bear the
same relationship as that borne by the original principal balances and/or
original notional principal balances of the related Classes.
(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.
(3) For a description of these interest rates, see "Description of the
Certificates--Distribution of Interest" herein.
A-2
<PAGE> 129
PRINCIPAL BALANCE SCHEDULES
<TABLE>
<CAPTION>
PB CLASS PC CLASS PD CLASS PH CLASS PG CLASS PJ CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance..... $155,973,200.00 $70,011,500.00 $42,180,000.00 $54,193,100.00 $35,521,000.00 $54,830,500.00
December 1997....... 155,238,185.76 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 1998........ 154,423,493.74 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 1998....... 153,529,368.28 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 1998.......... 152,556,094.90 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 1998.......... 151,504,000.19 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 1998............ 150,373,451.73 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 1998........... 149,164,857.85 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 1998........... 147,878,667.50 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 1998......... 146,515,369.97 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 1998...... 145,075,494.61 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 1998........ 143,559,610.59 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 1998....... 141,968,326.46 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 1998....... 140,302,289.87 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 1999........ 138,562,187.08 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 1999....... 136,748,742.58 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 1999.......... 134,862,718.56 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 1999.......... 132,904,914.44 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 1999............ 130,876,166.29 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 1999........... 128,777,346.28 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 1999........... 126,609,362.05 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 1999......... 124,373,156.09 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 1999...... 122,069,705.04 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 1999........ 119,700,019.03 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 1999....... 116,271,576.18 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 1999....... 110,915,567.14 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 2000........ 105,424,508.33 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 2000....... 99,960,694.77 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 2000.......... 94,523,985.11 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 2000.......... 89,114,238.71 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 2000............ 83,731,315.67 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 2000........... 78,375,076.79 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 2000........... 73,045,383.59 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 2000......... 67,742,098.31 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 2000...... 62,465,083.88 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 2000........ 57,214,203.96 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 2000....... 51,989,322.87 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 2000....... 46,790,305.67 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
January 2001........ 41,617,018.08 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 2001....... 36,469,326.52 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 2001.......... 31,347,098.10 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 2001.......... 26,250,200.61 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 2001............ 21,178,502.50 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 2001........... 16,131,872.94 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 2001........... 11,110,181.71 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 2001......... 6,113,299.32 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 2001...... 1,141,096.90 70,011,500.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 2001........ 0.00 66,204,946.25 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 2001....... 0.00 61,281,719.85 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
</TABLE>
B-1
<PAGE> 130
<TABLE>
<CAPTION>
PB CLASS PC CLASS PD CLASS PH CLASS PG CLASS PJ CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
December 2001....... $ 0.00 $56,382,790.81 $42,180,000.00 $54,193,100.00 $35,521,000.00 $54,830,500.00
January 2002........ 0.00 51,508,032.90 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
February 2002....... 0.00 46,657,320.54 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
March 2002.......... 0.00 41,830,528.78 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
April 2002.......... 0.00 37,027,533.34 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
May 2002............ 0.00 32,248,210.55 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
June 2002........... 0.00 27,492,437.37 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
July 2002........... 0.00 22,760,091.44 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
August 2002......... 0.00 18,051,050.95 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
September 2002...... 0.00 13,365,194.80 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
October 2002........ 0.00 8,702,402.45 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
November 2002....... 0.00 4,062,554.00 42,180,000.00 54,193,100.00 35,521,000.00 54,830,500.00
December 2002....... 0.00 0.00 41,937,322.97 53,881,307.19 35,521,000.00 54,830,500.00
January 2003........ 0.00 0.00 39,926,509.47 51,297,802.77 35,521,000.00 54,830,500.00
February 2003....... 0.00 0.00 37,925,582.11 48,727,000.10 35,521,000.00 54,830,500.00
March 2003.......... 0.00 0.00 35,934,489.47 46,168,833.12 35,521,000.00 54,830,500.00
April 2003.......... 0.00 0.00 33,953,180.38 43,623,236.13 35,521,000.00 54,830,500.00
May 2003............ 0.00 0.00 31,981,603.99 41,090,143.74 35,521,000.00 54,830,500.00
June 2003........... 0.00 0.00 30,019,709.65 38,569,490.93 35,521,000.00 54,830,500.00
July 2003........... 0.00 0.00 28,067,447.02 36,061,212.96 35,521,000.00 54,830,500.00
August 2003......... 0.00 0.00 26,124,765.98 33,565,245.49 35,521,000.00 54,830,500.00
September 2003...... 0.00 0.00 24,191,616.68 31,081,524.47 35,521,000.00 54,830,500.00
October 2003........ 0.00 0.00 22,267,949.54 28,609,986.17 35,521,000.00 54,830,500.00
November 2003....... 0.00 0.00 20,353,715.22 26,150,567.20 35,521,000.00 54,830,500.00
December 2003....... 0.00 0.00 18,448,864.63 23,703,204.49 35,521,000.00 54,830,500.00
January 2004........ 0.00 0.00 16,553,348.94 21,267,835.33 35,521,000.00 54,830,500.00
February 2004....... 0.00 0.00 14,667,119.57 18,844,397.28 35,521,000.00 54,830,500.00
March 2004.......... 0.00 0.00 12,790,128.17 16,432,828.24 35,521,000.00 54,830,500.00
April 2004.......... 0.00 0.00 10,922,326.68 14,033,066.44 35,521,000.00 54,830,500.00
May 2004............ 0.00 0.00 9,063,667.25 11,645,050.40 35,521,000.00 54,830,500.00
June 2004........... 0.00 0.00 7,214,102.28 9,268,718.98 35,521,000.00 54,830,500.00
July 2004........... 0.00 0.00 5,373,584.44 6,904,011.35 35,521,000.00 54,830,500.00
August 2004......... 0.00 0.00 3,542,066.60 4,550,866.99 35,521,000.00 54,830,500.00
September 2004...... 0.00 0.00 1,719,501.91 2,209,225.67 35,521,000.00 54,830,500.00
October 2004........ 0.00 0.00 0.00 0.00 35,436,423.78 54,699,947.46
November 2004....... 0.00 0.00 0.00 0.00 33,815,257.06 52,197,501.54
December 2004....... 0.00 0.00 0.00 0.00 32,202,007.53 49,707,276.65
January 2005........ 0.00 0.00 0.00 0.00 30,596,633.96 47,229,209.16
February 2005....... 0.00 0.00 0.00 0.00 28,999,095.33 44,763,235.73
March 2005.......... 0.00 0.00 0.00 0.00 27,409,350.80 42,309,293.35
April 2005.......... 0.00 0.00 0.00 0.00 25,827,359.78 39,867,319.34
May 2005............ 0.00 0.00 0.00 0.00 24,253,081.86 37,437,251.33
June 2005........... 0.00 0.00 0.00 0.00 22,686,476.84 35,019,027.29
July 2005........... 0.00 0.00 0.00 0.00 21,127,504.74 32,612,585.48
August 2005......... 0.00 0.00 0.00 0.00 19,576,125.79 30,217,864.51
September 2005...... 0.00 0.00 0.00 0.00 18,032,300.39 27,834,803.25
October 2005........ 0.00 0.00 0.00 0.00 16,495,989.17 25,463,340.97
November 2005....... 0.00 0.00 0.00 0.00 14,967,152.97 23,103,417.15
December 2005....... 0.00 0.00 0.00 0.00 13,445,752.80 20,754,971.68
</TABLE>
B-2
<PAGE> 131
<TABLE>
<CAPTION>
PB CLASS PC CLASS PD CLASS PH CLASS PG CLASS PJ CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
January 2006........ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $11,931,749.90 $18,417,944.69
February 2006....... 0.00 0.00 0.00 0.00 10,425,105.69 16,092,276.62
March 2006.......... 0.00 0.00 0.00 0.00 8,925,781.80 13,777,908.24
April 2006.......... 0.00 0.00 0.00 0.00 7,433,740.03 11,474,780.64
May 2006............ 0.00 0.00 0.00 0.00 5,948,942.42 9,182,835.14
June 2006........... 0.00 0.00 0.00 0.00 4,471,351.16 6,902,013.44
July 2006........... 0.00 0.00 0.00 0.00 3,000,928.67 4,632,257.51
August 2006......... 0.00 0.00 0.00 0.00 1,537,637.54 2,373,509.61
September 2006...... 0.00 0.00 0.00 0.00 81,440.55 125,712.28
October 2006 and
thereafter........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-3
<PAGE> 132
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance..... $245,849,700.00 $55,345,666.00 $27,672,834.00 $129,304,711.00 $16,163,089.00 $112,660,700.00
December 1997....... 245,849,700.00 54,925,164.59 27,462,583.29 96,978,500.00 12,122,312.59 112,056,398.75
January 1998........ 245,849,700.00 54,446,411.20 27,223,206.59 96,978,500.00 12,122,312.59 111,391,877.83
February 1998....... 245,849,700.00 53,909,633.20 26,954,817.58 96,978,500.00 12,122,312.59 110,667,347.24
March 1998.......... 245,849,700.00 53,315,109.64 26,657,555.79 96,978,500.00 12,122,312.59 109,883,047.54
April 1998.......... 245,849,700.00 52,663,171.15 26,331,586.53 96,978,500.00 12,122,312.59 109,039,250.29
May 1998............ 245,849,700.00 51,954,199.76 25,977,100.82 96,978,500.00 12,122,312.59 108,136,257.92
June 1998........... 245,849,700.00 51,188,628.65 25,594,315.25 96,978,500.00 12,122,312.59 107,174,403.60
July 1998........... 245,849,700.00 50,366,941.82 25,183,471.82 96,978,500.00 12,122,312.59 106,154,135.14
August 1998......... 245,849,700.00 49,489,673.70 24,744,837.74 96,978,500.00 12,122,312.59 105,075,847.55
September 1998...... 245,849,700.00 48,557,408.71 24,278,705.23 96,978,500.00 12,122,312.59 103,939,963.52
October 1998........ 245,849,700.00 47,570,780.69 23,785,391.20 96,978,500.00 12,122,312.59 102,746,935.62
November 1998....... 245,849,700.00 46,530,472.31 23,265,236.99 96,978,500.00 12,122,312.59 101,497,245.98
December 1998....... 245,849,700.00 45,437,214.38 22,718,608.00 96,978,500.00 12,122,312.59 100,191,423.51
January 1999........ 245,849,700.00 44,291,785.12 22,145,893.35 96,978,500.00 12,122,312.59 98,830,021.78
February 1999....... 245,849,700.00 43,095,009.31 21,547,505.43 96,978,500.00 12,122,312.59 97,413,609.17
March 1999.......... 245,849,700.00 41,847,757.46 20,923,879.48 96,978,500.00 12,122,312.59 95,942,782.22
April 1999.......... 245,849,700.00 40,550,944.80 20,275,473.13 96,978,500.00 12,122,312.59 94,418,240.19
May 1999............ 245,849,700.00 39,205,530.31 19,602,765.86 96,978,500.00 12,122,312.59 92,840,687.90
June 1999........... 245,849,700.00 37,812,515.59 18,906,258.47 96,978,500.00 12,122,312.59 91,211,001.06
July 1999........... 245,849,700.00 36,372,943.76 18,186,472.53 96,978,500.00 12,122,312.59 89,531,507.49
August 1999......... 245,849,700.00 34,887,898.24 17,443,949.75 95,829,501.88 11,978,687.83 87,806,747.20
September 1999...... 245,849,700.00 33,358,501.49 16,679,251.35 93,366,287.08 11,670,785.98 86,039,484.66
October 1999........ 245,849,700.00 31,785,913.67 15,892,957.41 90,838,003.09 11,354,750.47 84,239,721.36
November 1999....... 245,849,700.00 30,502,519.53 15,251,260.32 88,688,210.50 11,086,026.40 82,159,114.21
December 1999....... 245,849,700.00 29,799,511.88 14,899,756.48 87,305,557.49 10,913,194.77 78,599,466.62
January 2000........ 245,849,700.00 29,081,018.79 14,540,509.92 85,895,948.67 10,736,993.67 74,991,096.98
February 2000....... 245,849,700.00 28,373,773.02 14,186,887.02 84,505,655.29 10,563,206.99 71,343,223.06
March 2000.......... 245,849,700.00 27,677,662.00 13,838,831.50 83,134,448.91 10,391,806.19 67,674,593.08
April 2000.......... 245,849,700.00 26,992,574.16 13,496,287.57 81,782,103.16 10,222,762.97 64,012,187.86
May 2000............ 245,849,700.00 26,318,398.93 13,159,199.94 80,448,393.73 10,056,049.29 60,367,827.17
June 2000........... 245,849,700.00 25,655,026.76 12,827,513.84 79,133,098.38 9,891,637.37 56,741,536.42
July 2000........... 245,849,700.00 25,002,349.04 12,501,174.97 77,835,996.86 9,729,499.68 53,133,221.84
August 2000......... 245,849,700.00 24,360,258.16 12,180,129.52 76,556,870.92 9,569,608.94 49,542,790.14
September 2000...... 245,849,700.00 23,728,647.48 11,864,324.17 75,295,504.35 9,411,938.12 45,970,148.54
October 2000........ 245,849,700.00 23,107,411.30 11,553,706.07 74,051,682.85 9,256,460.43 42,415,204.69
November 2000....... 245,849,700.00 22,496,444.90 11,248,222.86 72,825,194.08 9,103,149.33 38,877,866.75
December 2000....... 245,849,700.00 21,895,644.47 10,947,822.63 71,615,827.64 8,951,978.52 35,358,043.32
January 2001........ 245,849,700.00 21,304,907.16 10,652,453.97 70,423,375.04 8,802,921.95 31,855,643.49
February 2001....... 245,849,700.00 20,724,131.03 10,362,065.90 69,247,629.68 8,655,953.78 28,370,576.82
March 2001.......... 245,849,700.00 20,153,215.08 10,076,607.91 68,088,386.82 8,511,048.42 24,902,753.32
April 2001.......... 245,849,700.00 19,592,059.19 9,796,029.95 66,945,443.58 8,368,180.51 21,452,083.47
May 2001............ 245,849,700.00 19,040,564.17 9,520,282.43 65,818,598.94 8,227,324.93 18,018,478.19
June 2001........... 245,849,700.00 18,498,631.71 9,249,316.19 64,707,653.67 8,088,456.77 14,601,848.91
July 2001........... 245,849,700.00 17,966,164.40 8,983,082.53 63,612,410.35 7,951,551.36 11,202,107.44
August 2001......... 245,849,700.00 17,443,065.70 8,721,533.17 62,532,673.34 7,816,584.23 7,819,166.11
September 2001...... 245,849,700.00 16,929,239.95 8,464,620.28 61,468,248.78 7,683,531.16 4,452,937.65
October 2001........ 245,849,700.00 16,424,592.35 8,212,296.47 60,418,944.56 7,552,368.13 1,103,335.28
November 2001....... 245,849,700.00 15,929,028.96 7,964,514.77 59,384,570.28 7,423,071.34 0.00
</TABLE>
B-4
<PAGE> 133
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
December 2001....... $245,849,700.00 $15,442,456.70 $ 7,721,228.63 $ 58,364,937.28 $ 7,295,617.22 $ 0.00
January 2002........ 245,849,700.00 14,964,783.32 7,482,391.93 57,359,858.59 7,169,982.38 0.00
February 2002....... 245,849,700.00 14,495,917.41 7,247,958.96 56,369,148.91 7,046,143.67 0.00
March 2002.......... 245,849,700.00 14,035,768.39 7,017,884.44 55,392,624.63 6,924,078.13 0.00
April 2002.......... 245,849,700.00 13,584,246.51 6,792,123.49 54,430,103.76 6,803,763.02 0.00
May 2002............ 245,849,700.00 13,141,262.82 6,570,631.64 53,481,405.97 6,685,175.80 0.00
June 2002........... 245,849,700.00 12,706,729.20 6,353,364.82 52,546,352.54 6,568,294.12 0.00
July 2002........... 245,849,700.00 12,280,558.31 6,140,279.37 51,624,766.33 6,453,095.84 0.00
August 2002......... 245,849,700.00 11,862,663.61 5,931,332.01 50,716,471.83 6,339,559.03 0.00
September 2002...... 245,849,700.00 11,452,959.35 5,726,479.87 49,821,295.06 6,227,661.93 0.00
October 2002........ 245,849,700.00 11,051,360.57 5,525,680.47 48,939,063.59 6,117,383.00 0.00
November 2002....... 245,849,700.00 10,657,783.07 5,328,891.71 48,069,606.55 6,008,700.87 0.00
December 2002....... 245,849,700.00 10,272,143.43 5,136,071.88 47,212,754.61 5,901,594.37 0.00
January 2003........ 245,849,700.00 9,894,358.98 4,947,179.65 46,368,339.92 5,796,042.53 0.00
February 2003....... 245,849,700.00 9,524,347.80 4,762,174.05 45,536,196.11 5,692,024.56 0.00
March 2003.......... 245,849,700.00 9,162,028.74 4,581,014.51 44,716,158.32 5,589,519.83 0.00
April 2003.......... 245,849,700.00 8,807,321.38 4,403,660.83 43,908,063.17 5,488,507.94 0.00
May 2003............ 245,849,700.00 8,460,146.02 4,230,073.15 43,111,748.65 5,388,968.62 0.00
June 2003........... 245,849,700.00 8,120,423.72 4,060,212.00 42,327,054.29 5,290,881.83 0.00
July 2003........... 245,849,700.00 7,788,076.25 3,894,038.26 41,553,820.95 5,194,227.66 0.00
August 2003......... 245,849,700.00 7,463,026.08 3,731,513.17 40,791,890.96 5,098,986.41 0.00
September 2003...... 245,849,700.00 7,145,196.41 3,572,598.33 40,041,108.01 5,005,138.54 0.00
October 2003........ 245,849,700.00 6,834,511.14 3,417,255.69 39,301,317.16 4,912,664.68 0.00
November 2003....... 245,849,700.00 6,530,894.87 3,265,447.55 38,572,364.86 4,821,545.64 0.00
December 2003....... 245,849,700.00 6,234,272.89 3,117,136.55 37,854,098.88 4,731,762.40 0.00
January 2004........ 245,849,700.00 5,944,571.17 2,972,285.69 37,146,368.37 4,643,296.08 0.00
February 2004....... 245,849,700.00 5,661,716.37 2,830,858.28 36,449,023.77 4,556,128.01 0.00
March 2004.......... 245,849,700.00 5,385,635.83 2,692,818.00 35,761,916.85 4,470,239.64 0.00
April 2004.......... 245,849,700.00 5,116,257.53 2,558,128.85 35,084,900.64 4,385,612.61 0.00
May 2004............ 245,849,700.00 4,853,510.15 2,426,755.16 34,417,829.50 4,302,228.72 0.00
June 2004........... 245,849,700.00 4,597,323.02 2,298,661.59 33,760,559.04 4,220,069.91 0.00
July 2004........... 245,849,700.00 4,347,626.09 2,173,813.12 33,112,946.10 4,139,118.29 0.00
August 2004......... 245,849,700.00 4,104,350.00 2,052,175.07 32,474,848.81 4,059,356.13 0.00
September 2004...... 245,849,700.00 3,867,426.00 1,933,713.07 31,846,126.50 3,980,765.84 0.00
October 2004........ 245,849,700.00 3,636,785.99 1,818,393.06 31,226,639.74 3,903,330.00 0.00
November 2004....... 245,849,700.00 3,412,362.49 1,706,181.31 30,616,250.30 3,827,031.32 0.00
December 2004....... 245,849,700.00 3,194,088.67 1,597,044.39 30,014,821.15 3,751,852.67 0.00
January 2005........ 245,849,700.00 2,981,898.28 1,490,949.19 29,422,216.43 3,677,777.08 0.00
February 2005....... 245,849,700.00 2,775,725.70 1,387,862.90 28,838,301.44 3,604,787.71 0.00
March 2005.......... 245,849,700.00 2,575,505.93 1,287,753.01 28,262,942.65 3,532,867.86 0.00
April 2005.......... 245,849,700.00 2,381,174.57 1,190,587.33 27,696,007.67 3,462,000.99 0.00
May 2005............ 245,849,700.00 2,192,667.80 1,096,333.94 27,137,365.29 3,392,170.69 0.00
June 2005........... 245,849,700.00 2,009,922.42 1,004,961.24 26,586,885.34 3,323,360.69 0.00
July 2005........... 245,849,700.00 1,832,875.79 916,437.92 26,044,438.83 3,255,554.88 0.00
August 2005......... 245,849,700.00 1,661,465.86 830,732.95 25,509,897.81 3,188,737.25 0.00
September 2005...... 245,849,700.00 1,495,631.18 747,815.61 24,983,135.49 3,122,891.96 0.00
October 2005........ 245,849,700.00 1,335,310.84 667,655.44 24,464,026.08 3,058,003.28 0.00
November 2005....... 245,849,700.00 1,180,444.53 590,222.28 23,952,444.89 2,994,055.63 0.00
December 2005....... 245,849,700.00 1,030,972.47 515,486.25 23,448,268.28 2,931,033.56 0.00
</TABLE>
B-5
<PAGE> 134
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
January 2006........ $245,849,700.00 $ 886,835.46 $ 443,417.74 $ 22,951,373.64 $ 2,868,921.73 $ 0.00
February 2006....... 245,849,700.00 747,974.85 373,987.43 22,461,639.42 2,807,704.95 0.00
March 2006.......... 245,849,700.00 614,332.53 307,166.27 21,978,945.06 2,747,368.15 0.00
April 2006.......... 245,849,700.00 485,850.94 242,925.47 21,503,171.02 2,687,896.40 0.00
May 2006............ 245,849,700.00 362,473.06 181,236.53 21,034,198.78 2,629,274.87 0.00
June 2006........... 245,849,700.00 244,142.40 122,071.20 20,571,910.77 2,571,488.87 0.00
July 2006........... 245,849,700.00 130,803.00 65,401.50 20,116,190.40 2,514,523.82 0.00
August 2006......... 245,849,700.00 22,399.42 11,199.71 19,666,922.06 2,458,365.28 0.00
September 2006...... 245,849,700.00 0.00 0.00 19,223,991.13 2,402,998.91 0.00
October 2006........ 242,370,809.10 0.00 0.00 18,787,283.85 2,348,410.50 0.00
November 2006....... 238,715,548.20 0.00 0.00 18,350,942.61 2,293,867.84 0.00
December 2006....... 235,112,269.91 0.00 0.00 17,905,391.99 2,238,174.02 0.00
January 2007........ 231,560,254.95 0.00 0.00 17,450,799.55 2,181,349.96 0.00
February 2007....... 228,058,793.82 0.00 0.00 16,987,329.59 2,123,416.22 0.00
March 2007.......... 224,607,186.76 0.00 0.00 16,515,143.16 2,064,392.91 0.00
April 2007.......... 221,204,743.50 0.00 0.00 16,034,398.24 2,004,299.80 0.00
May 2007............ 217,850,783.26 0.00 0.00 15,545,249.64 1,943,156.22 0.00
June 2007........... 214,544,634.50 0.00 0.00 15,047,849.16 1,880,981.16 0.00
July 2007........... 211,285,634.88 0.00 0.00 14,542,345.54 1,817,793.21 0.00
August 2007......... 208,073,131.11 0.00 0.00 14,028,884.59 1,753,610.59 0.00
September 2007...... 204,906,478.81 0.00 0.00 13,507,609.17 1,688,451.16 0.00
October 2007........ 201,785,042.41 0.00 0.00 12,978,659.26 1,622,332.42 0.00
November 2007....... 198,708,195.02 0.00 0.00 12,442,172.02 1,555,271.51 0.00
December 2007....... 195,675,318.32 0.00 0.00 11,898,281.78 1,487,285.23 0.00
January 2008........ 192,685,802.44 0.00 0.00 11,347,120.14 1,418,390.03 0.00
February 2008....... 189,739,045.84 0.00 0.00 10,788,815.97 1,348,602.01 0.00
March 2008.......... 186,834,455.19 0.00 0.00 10,223,495.50 1,277,936.95 0.00
April 2008.......... 183,971,445.31 0.00 0.00 9,651,282.26 1,206,410.29 0.00
May 2008............ 181,149,438.97 0.00 0.00 9,072,297.24 1,134,037.16 0.00
June 2008........... 178,367,866.88 0.00 0.00 8,486,658.85 1,060,832.36 0.00
July 2008........... 175,626,167.48 0.00 0.00 7,894,483.00 986,810.38 0.00
August 2008......... 172,923,786.95 0.00 0.00 7,295,883.08 911,985.39 0.00
September 2008...... 170,260,179.00 0.00 0.00 6,690,970.07 836,371.27 0.00
October 2008........ 167,634,804.83 0.00 0.00 6,079,852.52 759,981.57 0.00
November 2008....... 165,047,133.00 0.00 0.00 5,462,636.62 682,829.58 0.00
December 2008....... 162,496,639.36 0.00 0.00 4,839,426.20 604,928.28 0.00
January 2009........ 159,982,806.91 0.00 0.00 4,210,322.80 526,290.35 0.00
February 2009....... 157,505,125.75 0.00 0.00 3,575,425.70 446,928.22 0.00
March 2009.......... 155,063,092.92 0.00 0.00 2,934,831.92 366,853.99 0.00
April 2009.......... 152,656,212.39 0.00 0.00 2,288,636.30 286,079.54 0.00
May 2009............ 150,283,994.89 0.00 0.00 1,636,931.48 204,616.44 0.00
June 2009........... 147,945,957.85 0.00 0.00 979,807.99 122,476.00 0.00
July 2009........... 145,641,625.32 0.00 0.00 317,354.23 39,669.28 0.00
August 2009......... 143,370,527.86 0.00 0.00 0.00 0.00 0.00
September 2009...... 141,132,202.46 0.00 0.00 0.00 0.00 0.00
October 2009........ 138,926,192.46 0.00 0.00 0.00 0.00 0.00
November 2009....... 136,752,047.43 0.00 0.00 0.00 0.00 0.00
December 2009....... 134,609,323.15 0.00 0.00 0.00 0.00 0.00
January 2010........ 132,497,581.44 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-6
<PAGE> 135
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
February 2010....... $130,416,390.18 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
March 2010.......... 128,365,323.12 0.00 0.00 0.00 0.00 0.00
April 2010.......... 126,343,959.88 0.00 0.00 0.00 0.00 0.00
May 2010............ 124,351,885.85 0.00 0.00 0.00 0.00 0.00
June 2010........... 122,388,692.07 0.00 0.00 0.00 0.00 0.00
July 2010........... 120,453,975.24 0.00 0.00 0.00 0.00 0.00
August 2010......... 118,547,337.53 0.00 0.00 0.00 0.00 0.00
September 2010...... 116,668,386.62 0.00 0.00 0.00 0.00 0.00
October 2010........ 114,816,735.54 0.00 0.00 0.00 0.00 0.00
November 2010....... 112,992,002.64 0.00 0.00 0.00 0.00 0.00
December 2010....... 111,193,811.50 0.00 0.00 0.00 0.00 0.00
January 2011........ 109,421,790.87 0.00 0.00 0.00 0.00 0.00
February 2011....... 107,675,574.61 0.00 0.00 0.00 0.00 0.00
March 2011.......... 105,954,801.57 0.00 0.00 0.00 0.00 0.00
April 2011.......... 104,259,115.60 0.00 0.00 0.00 0.00 0.00
May 2011............ 102,588,165.40 0.00 0.00 0.00 0.00 0.00
June 2011........... 100,941,604.52 0.00 0.00 0.00 0.00 0.00
July 2011........... 99,319,091.27 0.00 0.00 0.00 0.00 0.00
August 2011......... 97,720,288.63 0.00 0.00 0.00 0.00 0.00
September 2011...... 96,144,864.24 0.00 0.00 0.00 0.00 0.00
October 2011........ 94,592,490.28 0.00 0.00 0.00 0.00 0.00
November 2011....... 93,062,843.45 0.00 0.00 0.00 0.00 0.00
December 2011....... 91,555,604.88 0.00 0.00 0.00 0.00 0.00
January 2012........ 90,070,460.10 0.00 0.00 0.00 0.00 0.00
February 2012....... 88,607,098.96 0.00 0.00 0.00 0.00 0.00
March 2012.......... 87,165,215.56 0.00 0.00 0.00 0.00 0.00
April 2012.......... 85,744,508.21 0.00 0.00 0.00 0.00 0.00
May 2012............ 84,344,679.39 0.00 0.00 0.00 0.00 0.00
June 2012........... 82,965,435.66 0.00 0.00 0.00 0.00 0.00
July 2012........... 81,606,487.59 0.00 0.00 0.00 0.00 0.00
August 2012......... 80,267,549.79 0.00 0.00 0.00 0.00 0.00
September 2012...... 78,948,340.73 0.00 0.00 0.00 0.00 0.00
October 2012........ 77,648,582.82 0.00 0.00 0.00 0.00 0.00
November 2012....... 76,368,002.24 0.00 0.00 0.00 0.00 0.00
December 2012....... 75,106,328.96 0.00 0.00 0.00 0.00 0.00
January 2013........ 73,863,296.69 0.00 0.00 0.00 0.00 0.00
February 2013....... 72,638,642.76 0.00 0.00 0.00 0.00 0.00
March 2013.......... 71,432,108.16 0.00 0.00 0.00 0.00 0.00
April 2013.......... 70,243,437.42 0.00 0.00 0.00 0.00 0.00
May 2013............ 69,072,378.62 0.00 0.00 0.00 0.00 0.00
June 2013........... 67,918,683.28 0.00 0.00 0.00 0.00 0.00
July 2013........... 66,782,106.36 0.00 0.00 0.00 0.00 0.00
August 2013......... 65,662,406.20 0.00 0.00 0.00 0.00 0.00
September 2013...... 64,559,344.47 0.00 0.00 0.00 0.00 0.00
October 2013........ 63,472,686.12 0.00 0.00 0.00 0.00 0.00
November 2013....... 62,402,199.35 0.00 0.00 0.00 0.00 0.00
December 2013....... 61,347,655.55 0.00 0.00 0.00 0.00 0.00
January 2014........ 60,308,829.28 0.00 0.00 0.00 0.00 0.00
February 2014....... 59,285,498.19 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-7
<PAGE> 136
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
March 2014.......... $ 58,277,443.01 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
April 2014.......... 57,284,447.49 0.00 0.00 0.00 0.00 0.00
May 2014............ 56,306,298.38 0.00 0.00 0.00 0.00 0.00
June 2014........... 55,342,785.36 0.00 0.00 0.00 0.00 0.00
July 2014........... 54,393,701.02 0.00 0.00 0.00 0.00 0.00
August 2014......... 53,458,840.81 0.00 0.00 0.00 0.00 0.00
September 2014...... 52,538,003.02 0.00 0.00 0.00 0.00 0.00
October 2014........ 51,630,988.72 0.00 0.00 0.00 0.00 0.00
November 2014....... 50,737,601.71 0.00 0.00 0.00 0.00 0.00
December 2014....... 49,857,648.54 0.00 0.00 0.00 0.00 0.00
January 2015........ 48,990,938.40 0.00 0.00 0.00 0.00 0.00
February 2015....... 48,137,283.14 0.00 0.00 0.00 0.00 0.00
March 2015.......... 47,296,497.21 0.00 0.00 0.00 0.00 0.00
April 2015.......... 46,468,397.61 0.00 0.00 0.00 0.00 0.00
May 2015............ 45,652,803.88 0.00 0.00 0.00 0.00 0.00
June 2015........... 44,849,538.08 0.00 0.00 0.00 0.00 0.00
July 2015........... 44,058,424.71 0.00 0.00 0.00 0.00 0.00
August 2015......... 43,279,290.69 0.00 0.00 0.00 0.00 0.00
September 2015...... 42,511,965.36 0.00 0.00 0.00 0.00 0.00
October 2015........ 41,756,280.42 0.00 0.00 0.00 0.00 0.00
November 2015....... 41,012,069.88 0.00 0.00 0.00 0.00 0.00
December 2015....... 40,279,170.07 0.00 0.00 0.00 0.00 0.00
January 2016........ 39,557,419.59 0.00 0.00 0.00 0.00 0.00
February 2016....... 38,846,659.27 0.00 0.00 0.00 0.00 0.00
March 2016.......... 38,146,732.14 0.00 0.00 0.00 0.00 0.00
April 2016.......... 37,457,483.42 0.00 0.00 0.00 0.00 0.00
May 2016............ 36,778,760.46 0.00 0.00 0.00 0.00 0.00
June 2016........... 36,110,412.75 0.00 0.00 0.00 0.00 0.00
July 2016........... 35,452,291.85 0.00 0.00 0.00 0.00 0.00
August 2016......... 34,804,251.38 0.00 0.00 0.00 0.00 0.00
September 2016...... 34,166,147.00 0.00 0.00 0.00 0.00 0.00
October 2016........ 33,537,836.37 0.00 0.00 0.00 0.00 0.00
November 2016....... 32,919,179.14 0.00 0.00 0.00 0.00 0.00
December 2016....... 32,310,036.88 0.00 0.00 0.00 0.00 0.00
January 2017........ 31,710,273.12 0.00 0.00 0.00 0.00 0.00
February 2017....... 31,119,753.25 0.00 0.00 0.00 0.00 0.00
March 2017.......... 30,538,344.55 0.00 0.00 0.00 0.00 0.00
April 2017.......... 29,965,916.14 0.00 0.00 0.00 0.00 0.00
May 2017............ 29,402,338.97 0.00 0.00 0.00 0.00 0.00
June 2017........... 28,847,485.78 0.00 0.00 0.00 0.00 0.00
July 2017........... 28,301,231.06 0.00 0.00 0.00 0.00 0.00
August 2017......... 27,763,451.08 0.00 0.00 0.00 0.00 0.00
September 2017...... 27,234,023.81 0.00 0.00 0.00 0.00 0.00
October 2017........ 26,712,828.93 0.00 0.00 0.00 0.00 0.00
November 2017....... 26,199,747.78 0.00 0.00 0.00 0.00 0.00
December 2017....... 25,694,663.36 0.00 0.00 0.00 0.00 0.00
January 2018........ 25,197,460.31 0.00 0.00 0.00 0.00 0.00
February 2018....... 24,708,024.87 0.00 0.00 0.00 0.00 0.00
March 2018.......... 24,226,244.85 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-8
<PAGE> 137
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
April 2018.......... $ 23,752,009.66 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
May 2018............ 23,285,210.21 0.00 0.00 0.00 0.00 0.00
June 2018........... 22,825,738.97 0.00 0.00 0.00 0.00 0.00
July 2018........... 22,373,489.88 0.00 0.00 0.00 0.00 0.00
August 2018......... 21,928,358.37 0.00 0.00 0.00 0.00 0.00
September 2018...... 21,490,241.34 0.00 0.00 0.00 0.00 0.00
October 2018........ 21,059,037.12 0.00 0.00 0.00 0.00 0.00
November 2018....... 20,634,645.45 0.00 0.00 0.00 0.00 0.00
December 2018....... 20,216,967.49 0.00 0.00 0.00 0.00 0.00
January 2019........ 19,805,905.78 0.00 0.00 0.00 0.00 0.00
February 2019....... 19,401,364.19 0.00 0.00 0.00 0.00 0.00
March 2019.......... 19,003,247.98 0.00 0.00 0.00 0.00 0.00
April 2019.......... 18,611,463.69 0.00 0.00 0.00 0.00 0.00
May 2019............ 18,225,919.21 0.00 0.00 0.00 0.00 0.00
June 2019........... 17,846,523.69 0.00 0.00 0.00 0.00 0.00
July 2019........... 17,473,187.56 0.00 0.00 0.00 0.00 0.00
August 2019......... 17,105,822.50 0.00 0.00 0.00 0.00 0.00
September 2019...... 16,744,341.43 0.00 0.00 0.00 0.00 0.00
October 2019........ 16,388,658.48 0.00 0.00 0.00 0.00 0.00
November 2019....... 16,038,689.01 0.00 0.00 0.00 0.00 0.00
December 2019....... 15,694,349.54 0.00 0.00 0.00 0.00 0.00
January 2020........ 15,355,557.77 0.00 0.00 0.00 0.00 0.00
February 2020....... 15,022,232.54 0.00 0.00 0.00 0.00 0.00
March 2020.......... 14,694,293.85 0.00 0.00 0.00 0.00 0.00
April 2020.......... 14,371,662.81 0.00 0.00 0.00 0.00 0.00
May 2020............ 14,054,261.64 0.00 0.00 0.00 0.00 0.00
June 2020........... 13,742,013.65 0.00 0.00 0.00 0.00 0.00
July 2020........... 13,434,843.23 0.00 0.00 0.00 0.00 0.00
August 2020......... 13,132,675.82 0.00 0.00 0.00 0.00 0.00
September 2020...... 12,835,437.93 0.00 0.00 0.00 0.00 0.00
October 2020........ 12,543,057.09 0.00 0.00 0.00 0.00 0.00
November 2020....... 12,255,461.83 0.00 0.00 0.00 0.00 0.00
December 2020....... 11,972,581.73 0.00 0.00 0.00 0.00 0.00
January 2021........ 11,694,347.31 0.00 0.00 0.00 0.00 0.00
February 2021....... 11,420,690.11 0.00 0.00 0.00 0.00 0.00
March 2021.......... 11,151,542.60 0.00 0.00 0.00 0.00 0.00
April 2021.......... 10,886,838.22 0.00 0.00 0.00 0.00 0.00
May 2021............ 10,626,511.35 0.00 0.00 0.00 0.00 0.00
June 2021........... 10,370,497.29 0.00 0.00 0.00 0.00 0.00
July 2021........... 10,118,732.23 0.00 0.00 0.00 0.00 0.00
August 2021......... 9,871,153.30 0.00 0.00 0.00 0.00 0.00
September 2021...... 9,627,698.49 0.00 0.00 0.00 0.00 0.00
October 2021........ 9,388,306.66 0.00 0.00 0.00 0.00 0.00
November 2021....... 9,152,917.55 0.00 0.00 0.00 0.00 0.00
December 2021....... 8,921,471.75 0.00 0.00 0.00 0.00 0.00
January 2022........ 8,693,910.68 0.00 0.00 0.00 0.00 0.00
February 2022....... 8,470,176.57 0.00 0.00 0.00 0.00 0.00
March 2022.......... 8,250,212.51 0.00 0.00 0.00 0.00 0.00
April 2022.......... 8,033,962.37 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-9
<PAGE> 138
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
May 2022............ $ 7,821,370.80 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
June 2022........... 7,612,383.25 0.00 0.00 0.00 0.00 0.00
July 2022........... 7,406,945.94 0.00 0.00 0.00 0.00 0.00
August 2022......... 7,205,005.86 0.00 0.00 0.00 0.00 0.00
September 2022...... 7,006,510.72 0.00 0.00 0.00 0.00 0.00
October 2022........ 6,811,409.01 0.00 0.00 0.00 0.00 0.00
November 2022....... 6,619,649.92 0.00 0.00 0.00 0.00 0.00
December 2022....... 6,431,183.38 0.00 0.00 0.00 0.00 0.00
January 2023........ 6,245,960.01 0.00 0.00 0.00 0.00 0.00
February 2023....... 6,063,931.15 0.00 0.00 0.00 0.00 0.00
March 2023.......... 5,885,048.82 0.00 0.00 0.00 0.00 0.00
April 2023.......... 5,709,265.72 0.00 0.00 0.00 0.00 0.00
May 2023............ 5,536,535.23 0.00 0.00 0.00 0.00 0.00
June 2023........... 5,366,811.38 0.00 0.00 0.00 0.00 0.00
July 2023........... 5,200,048.87 0.00 0.00 0.00 0.00 0.00
August 2023......... 5,036,203.02 0.00 0.00 0.00 0.00 0.00
September 2023...... 4,875,229.81 0.00 0.00 0.00 0.00 0.00
October 2023........ 4,717,085.84 0.00 0.00 0.00 0.00 0.00
November 2023....... 4,561,728.31 0.00 0.00 0.00 0.00 0.00
December 2023....... 4,409,115.05 0.00 0.00 0.00 0.00 0.00
January 2024........ 4,259,204.49 0.00 0.00 0.00 0.00 0.00
February 2024....... 4,111,955.63 0.00 0.00 0.00 0.00 0.00
March 2024.......... 3,967,328.09 0.00 0.00 0.00 0.00 0.00
April 2024.......... 3,825,282.04 0.00 0.00 0.00 0.00 0.00
May 2024............ 3,685,778.22 0.00 0.00 0.00 0.00 0.00
June 2024........... 3,548,777.93 0.00 0.00 0.00 0.00 0.00
July 2024........... 3,414,243.04 0.00 0.00 0.00 0.00 0.00
August 2024......... 3,282,135.95 0.00 0.00 0.00 0.00 0.00
September 2024...... 3,152,419.60 0.00 0.00 0.00 0.00 0.00
October 2024........ 3,025,057.45 0.00 0.00 0.00 0.00 0.00
November 2024....... 2,900,013.51 0.00 0.00 0.00 0.00 0.00
December 2024....... 2,777,252.27 0.00 0.00 0.00 0.00 0.00
January 2025........ 2,656,738.76 0.00 0.00 0.00 0.00 0.00
February 2025....... 2,538,438.48 0.00 0.00 0.00 0.00 0.00
March 2025.......... 2,422,317.46 0.00 0.00 0.00 0.00 0.00
April 2025.......... 2,308,342.19 0.00 0.00 0.00 0.00 0.00
May 2025............ 2,196,479.64 0.00 0.00 0.00 0.00 0.00
June 2025........... 2,086,697.28 0.00 0.00 0.00 0.00 0.00
July 2025........... 1,978,963.01 0.00 0.00 0.00 0.00 0.00
August 2025......... 1,873,245.23 0.00 0.00 0.00 0.00 0.00
September 2025...... 1,769,512.76 0.00 0.00 0.00 0.00 0.00
October 2025........ 1,667,734.89 0.00 0.00 0.00 0.00 0.00
November 2025....... 1,567,881.34 0.00 0.00 0.00 0.00 0.00
December 2025....... 1,469,922.28 0.00 0.00 0.00 0.00 0.00
January 2026........ 1,373,828.28 0.00 0.00 0.00 0.00 0.00
February 2026....... 1,279,570.37 0.00 0.00 0.00 0.00 0.00
March 2026.......... 1,187,119.98 0.00 0.00 0.00 0.00 0.00
April 2026.......... 1,096,448.95 0.00 0.00 0.00 0.00 0.00
May 2026............ 1,007,529.53 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-10
<PAGE> 139
<TABLE>
<CAPTION>
PE CLASS FD CLASS SD CLASS FA CLASS SB CLASS PN CLASS
DISTRIBUTION PLANNED TARGETED TARGETED TARGETED TARGETED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2026........... $ 920,334.36 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
July 2026........... 834,836.50 0.00 0.00 0.00 0.00 0.00
August 2026......... 751,009.37 0.00 0.00 0.00 0.00 0.00
September 2026...... 668,826.80 0.00 0.00 0.00 0.00 0.00
October 2026........ 588,262.97 0.00 0.00 0.00 0.00 0.00
November 2026....... 509,292.47 0.00 0.00 0.00 0.00 0.00
December 2026....... 431,890.22 0.00 0.00 0.00 0.00 0.00
January 2027........ 356,031.53 0.00 0.00 0.00 0.00 0.00
February 2027....... 281,692.05 0.00 0.00 0.00 0.00 0.00
March 2027.......... 208,847.81 0.00 0.00 0.00 0.00 0.00
April 2027.......... 137,475.15 0.00 0.00 0.00 0.00 0.00
May 2027............ 67,550.78 0.00 0.00 0.00 0.00 0.00
June 2027 and
thereafter........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-11
<PAGE> 140
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance..... $43,800,400.00 $65,074,500.00 $61,333,200.00 $165,608,300.00 $173,652,988.00 $21,706,624.00
December 1997....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
January 1998........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
February 1998....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
March 1998.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
April 1998.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
May 1998............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
June 1998........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
July 1998........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
August 1998......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
September 1998...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
October 1998........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
November 1998....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
December 1998....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
January 1999........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
February 1999....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
March 1999.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
April 1999.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
May 1999............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
June 1999........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
July 1999........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 130,239,000.00 16,279,875.37
August 1999......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 128,841,793.13 16,105,224.51
September 1999...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 125,634,466.68 15,704,308.70
October 1999........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 122,377,678.52 15,297,210.17
November 1999....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 119,302,087.62 14,912,761.30
December 1999....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 117,477,922.14 14,684,740.61
January 2000........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 115,640,320.17 14,455,040.35
February 2000....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 113,795,021.14 14,224,377.97
March 2000.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 111,952,987.51 13,994,123.76
April 2000.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 110,129,539.02 13,766,192.69
May 2000............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 108,331,178.53 13,541,397.63
June 2000........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 106,557,673.92 13,319,709.55
July 2000........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 104,808,727.48 13,101,091.24
August 2000......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 103,084,044.22 12,885,505.82
September 2000...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 101,383,331.82 12,672,916.77
October 2000........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 99,706,300.63 12,463,287.87
November 2000....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 98,052,663.58 12,256,583.23
December 2000....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 96,422,136.30 12,052,767.32
January 2001........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 94,814,436.93 11,851,804.89
February 2001....... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 93,229,286.20 11,653,661.04
March 2001.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 91,666,407.32 11,458,301.18
April 2001.......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 90,125,526.09 11,265,691.02
May 2001............ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 88,606,370.74 11,075,796.60
June 2001........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 87,108,671.94 10,888,584.24
July 2001........... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 85,632,162.86 10,704,020.60
August 2001......... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 84,176,579.01 10,522,072.62
September 2001...... 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 82,741,658.34 10,342,707.53
October 2001........ 43,800,400.00 65,074,500.00 61,333,200.00 165,608,300.00 81,327,141.14 10,165,892.88
November 2001....... 41,570,672.62 65,074,500.00 61,333,200.00 165,608,300.00 79,932,770.04 9,991,596.49
</TABLE>
B-12
<PAGE> 141
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
December 2001....... $38,254,063.77 $65,074,500.00 $61,333,200.00 $165,608,300.00 $ 78,558,290.00 $ 9,819,786.48
January 2002........ 34,953,823.26 65,074,500.00 61,333,200.00 165,608,300.00 77,203,448.27 9,650,431.26
February 2002....... 31,669,866.05 65,074,500.00 61,333,200.00 165,608,300.00 75,867,994.37 9,483,499.51
March 2002.......... 28,402,107.55 65,074,500.00 61,333,200.00 165,608,300.00 74,551,680.07 9,318,960.22
April 2002.......... 25,150,463.59 65,074,500.00 61,333,200.00 165,608,300.00 73,254,259.40 9,156,782.64
May 2002............ 21,914,850.44 65,074,500.00 61,333,200.00 165,608,300.00 71,975,488.55 8,996,936.28
June 2002........... 18,695,184.80 65,074,500.00 61,333,200.00 165,608,300.00 70,715,125.92 8,839,390.94
July 2002........... 15,491,383.79 65,074,500.00 61,333,200.00 165,608,300.00 69,472,932.07 8,684,116.71
August 2002......... 12,303,364.97 65,074,500.00 61,333,200.00 165,608,300.00 68,248,669.71 8,531,083.91
September 2002...... 9,131,046.30 65,074,500.00 61,333,200.00 165,608,300.00 67,042,103.66 8,380,263.15
October 2002........ 5,974,346.19 65,074,500.00 61,333,200.00 165,608,300.00 65,853,000.84 8,231,625.29
November 2002....... 2,833,183.44 65,074,500.00 61,333,200.00 165,608,300.00 64,681,130.26 8,085,141.47
December 2002....... 0.00 64,781,977.29 61,333,200.00 165,608,300.00 63,526,262.99 7,940,783.06
January 2003........ 0.00 61,671,647.38 61,333,200.00 165,608,300.00 62,388,172.10 7,798,521.69
February 2003....... 0.00 58,576,613.76 61,333,200.00 165,608,300.00 61,266,632.75 7,658,329.27
March 2003.......... 0.00 55,496,796.90 61,333,200.00 165,608,300.00 60,161,422.04 7,520,177.93
April 2003.......... 0.00 52,432,117.68 61,333,200.00 165,608,300.00 59,072,319.06 7,384,040.05
May 2003............ 0.00 49,382,497.37 61,333,200.00 165,608,300.00 57,999,104.89 7,249,888.28
June 2003........... 0.00 46,347,857.66 61,333,200.00 165,608,300.00 56,941,562.50 7,117,695.48
July 2003........... 0.00 43,328,120.63 61,333,200.00 165,608,300.00 55,899,476.81 6,987,434.76
August 2003......... 0.00 40,323,208.78 61,333,200.00 165,608,300.00 54,872,634.61 6,859,079.48
September 2003...... 0.00 37,333,044.97 61,333,200.00 165,608,300.00 53,860,824.64 6,732,603.24
October 2003........ 0.00 34,357,552.49 61,333,200.00 165,608,300.00 52,863,837.43 6,607,979.83
November 2003....... 0.00 31,396,655.01 61,333,200.00 165,608,300.00 51,881,465.39 6,485,183.32
December 2003....... 0.00 28,450,276.60 61,333,200.00 165,608,300.00 50,913,502.73 6,364,187.99
January 2004........ 0.00 25,518,341.70 61,333,200.00 165,608,300.00 49,959,745.49 6,244,968.33
February 2004....... 0.00 22,600,775.16 61,333,200.00 165,608,300.00 49,019,991.49 6,127,499.08
March 2004.......... 0.00 19,697,502.20 61,333,200.00 165,608,300.00 48,094,040.33 6,011,755.18
April 2004.......... 0.00 16,808,448.44 61,333,200.00 165,608,300.00 47,181,693.33 5,897,711.80
May 2004............ 0.00 13,933,539.85 61,333,200.00 165,608,300.00 46,282,753.58 5,785,344.33
June 2004........... 0.00 11,072,702.81 61,333,200.00 165,608,300.00 45,397,025.88 5,674,628.37
July 2004........... 0.00 8,225,864.08 61,333,200.00 165,608,300.00 44,524,316.69 5,565,539.71
August 2004......... 0.00 5,392,950.77 61,333,200.00 165,608,300.00 43,664,434.21 5,458,054.40
September 2004...... 0.00 2,573,890.37 61,333,200.00 165,608,300.00 42,817,188.28 5,352,148.66
October 2004........ 0.00 0.00 61,101,810.76 165,608,300.00 41,982,390.38 5,247,798.92
November 2004....... 0.00 0.00 58,310,240.18 165,608,300.00 41,159,853.62 5,144,981.82
December 2004....... 0.00 0.00 55,532,307.23 165,608,300.00 40,349,392.71 5,043,674.20
January 2005........ 0.00 0.00 52,767,940.89 165,608,300.00 39,550,824.01 4,943,853.12
February 2005....... 0.00 0.00 50,017,070.49 165,608,300.00 38,763,965.41 4,845,495.79
March 2005.......... 0.00 0.00 47,279,625.73 165,608,300.00 37,988,636.35 4,748,579.65
April 2005.......... 0.00 0.00 44,555,536.67 165,608,300.00 37,224,657.90 4,653,082.34
May 2005............ 0.00 0.00 41,844,733.73 165,608,300.00 36,471,852.57 4,558,981.68
June 2005........... 0.00 0.00 39,147,147.69 165,608,300.00 35,730,044.44 4,466,255.66
July 2005........... 0.00 0.00 36,462,709.66 165,608,300.00 34,999,059.08 4,374,882.49
August 2005......... 0.00 0.00 33,791,351.15 165,608,300.00 34,278,723.52 4,284,840.54
September 2005...... 0.00 0.00 31,133,003.98 165,608,300.00 33,568,866.28 4,196,108.38
October 2005........ 0.00 0.00 28,487,600.33 165,608,300.00 32,869,317.33 4,108,664.76
November 2005....... 0.00 0.00 25,855,072.73 165,608,300.00 32,179,908.09 4,022,488.60
December 2005....... 0.00 0.00 23,235,354.07 165,608,300.00 31,500,471.37 3,937,559.01
</TABLE>
B-13
<PAGE> 142
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
January 2006........ $ 0.00 $ 0.00 $20,628,377.57 $165,608,300.00 $ 30,830,841.41 $ 3,853,855.27
February 2006....... 0.00 0.00 18,034,076.78 165,608,300.00 30,170,853.84 3,771,356.82
March 2006.......... 0.00 0.00 15,452,385.61 165,608,300.00 29,520,345.68 3,690,043.29
April 2006.......... 0.00 0.00 12,883,238.31 165,608,300.00 28,879,155.29 3,609,894.49
May 2006............ 0.00 0.00 10,326,569.46 165,608,300.00 28,247,122.37 3,530,890.38
June 2006........... 0.00 0.00 7,782,313.96 165,608,300.00 27,624,088.01 3,453,011.08
July 2006........... 0.00 0.00 5,250,407.08 165,608,300.00 27,009,894.55 3,376,236.90
August 2006......... 0.00 0.00 2,730,784.38 165,608,300.00 26,404,385.67 3,300,548.28
September 2006...... 0.00 0.00 223,381.79 165,608,300.00 25,807,406.35 3,225,925.87
October 2006........ 0.00 0.00 0.00 163,336,435.54 25,218,802.82 3,152,350.43
November 2006....... 0.00 0.00 0.00 160,872,144.14 24,621,656.42 3,077,707.12
December 2006....... 0.00 0.00 0.00 158,442,907.71 24,012,115.27 3,001,514.48
January 2007........ 0.00 0.00 0.00 156,048,241.10 23,390,404.81 2,923,800.67
February 2007....... 0.00 0.00 0.00 153,687,665.78 22,756,746.05 2,844,593.32
March 2007.......... 0.00 0.00 0.00 151,360,709.76 22,111,355.76 2,763,919.53
April 2007.......... 0.00 0.00 0.00 149,066,907.48 21,454,446.43 2,681,805.87
May 2007............ 0.00 0.00 0.00 146,805,799.74 20,786,226.36 2,598,278.35
June 2007........... 0.00 0.00 0.00 144,576,933.63 20,106,899.70 2,513,362.52
July 2007........... 0.00 0.00 0.00 142,379,862.41 19,416,666.59 2,427,083.38
August 2007......... 0.00 0.00 0.00 140,214,145.45 18,715,723.13 2,339,465.45
September 2007...... 0.00 0.00 0.00 138,079,348.12 18,004,261.51 2,250,532.74
October 2007........ 0.00 0.00 0.00 135,975,041.76 17,282,469.97 2,160,308.80
November 2007....... 0.00 0.00 0.00 133,900,803.54 16,550,532.97 2,068,816.67
December 2007....... 0.00 0.00 0.00 131,856,216.43 15,808,631.21 1,976,078.95
January 2008........ 0.00 0.00 0.00 129,840,869.08 15,056,941.64 1,882,117.75
February 2008....... 0.00 0.00 0.00 127,854,355.77 14,295,637.55 1,786,954.73
March 2008.......... 0.00 0.00 0.00 125,896,276.34 13,524,888.65 1,690,611.12
April 2008.......... 0.00 0.00 0.00 123,966,236.07 12,744,861.09 1,593,107.67
May 2008............ 0.00 0.00 0.00 122,063,845.67 11,955,717.49 1,494,464.72
June 2008........... 0.00 0.00 0.00 120,188,721.16 11,157,617.06 1,394,702.16
July 2008........... 0.00 0.00 0.00 118,340,483.79 10,350,715.60 1,293,839.48
August 2008......... 0.00 0.00 0.00 116,518,760.03 9,535,165.57 1,191,895.72
September 2008...... 0.00 0.00 0.00 114,723,181.43 8,711,116.09 1,088,889.54
October 2008........ 0.00 0.00 0.00 112,953,384.59 7,878,713.08 984,839.16
November 2008....... 0.00 0.00 0.00 111,209,011.08 7,038,099.23 879,762.42
December 2008....... 0.00 0.00 0.00 109,489,707.38 6,189,414.12 773,676.78
January 2009........ 0.00 0.00 0.00 107,795,124.80 5,332,794.16 666,599.29
February 2009....... 0.00 0.00 0.00 106,124,919.43 4,468,372.73 558,546.60
March 2009.......... 0.00 0.00 0.00 104,478,752.05 3,596,280.21 449,535.04
April 2009.......... 0.00 0.00 0.00 102,856,288.12 2,716,643.99 339,580.51
May 2009............ 0.00 0.00 0.00 101,257,197.64 1,829,588.53 228,698.57
June 2009........... 0.00 0.00 0.00 99,681,155.14 935,235.41 116,904.43
July 2009........... 0.00 0.00 0.00 98,127,839.64 33,703.36 4,212.92
August 2009......... 0.00 0.00 0.00 96,596,934.50 0.00 0.00
September 2009...... 0.00 0.00 0.00 95,088,127.46 0.00 0.00
October 2009........ 0.00 0.00 0.00 93,601,110.53 0.00 0.00
November 2009....... 0.00 0.00 0.00 92,135,579.92 0.00 0.00
December 2009....... 0.00 0.00 0.00 90,691,236.01 0.00 0.00
January 2010........ 0.00 0.00 0.00 89,267,783.31 0.00 0.00
</TABLE>
B-14
<PAGE> 143
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
February 2010....... $ 0.00 $ 0.00 $ 0.00 $ 87,864,930.36 $ 0.00 $ 0.00
March 2010.......... 0.00 0.00 0.00 86,482,389.68 0.00 0.00
April 2010.......... 0.00 0.00 0.00 85,119,877.76 0.00 0.00
May 2010............ 0.00 0.00 0.00 83,777,114.97 0.00 0.00
June 2010........... 0.00 0.00 0.00 82,453,825.50 0.00 0.00
July 2010........... 0.00 0.00 0.00 81,149,737.33 0.00 0.00
August 2010......... 0.00 0.00 0.00 79,864,582.18 0.00 0.00
September 2010...... 0.00 0.00 0.00 78,598,095.44 0.00 0.00
October 2010........ 0.00 0.00 0.00 77,350,016.14 0.00 0.00
November 2010....... 0.00 0.00 0.00 76,120,086.88 0.00 0.00
December 2010....... 0.00 0.00 0.00 74,908,053.79 0.00 0.00
January 2011........ 0.00 0.00 0.00 73,713,666.50 0.00 0.00
February 2011....... 0.00 0.00 0.00 72,536,678.06 0.00 0.00
March 2011.......... 0.00 0.00 0.00 71,376,844.93 0.00 0.00
April 2011.......... 0.00 0.00 0.00 70,233,926.89 0.00 0.00
May 2011............ 0.00 0.00 0.00 69,107,687.04 0.00 0.00
June 2011........... 0.00 0.00 0.00 67,997,891.71 0.00 0.00
July 2011........... 0.00 0.00 0.00 66,904,310.47 0.00 0.00
August 2011......... 0.00 0.00 0.00 65,826,716.03 0.00 0.00
September 2011...... 0.00 0.00 0.00 64,764,884.24 0.00 0.00
October 2011........ 0.00 0.00 0.00 63,718,594.01 0.00 0.00
November 2011....... 0.00 0.00 0.00 62,687,627.32 0.00 0.00
December 2011....... 0.00 0.00 0.00 61,671,769.11 0.00 0.00
January 2012........ 0.00 0.00 0.00 60,670,807.31 0.00 0.00
February 2012....... 0.00 0.00 0.00 59,684,532.73 0.00 0.00
March 2012.......... 0.00 0.00 0.00 58,712,739.10 0.00 0.00
April 2012.......... 0.00 0.00 0.00 57,755,222.96 0.00 0.00
May 2012............ 0.00 0.00 0.00 56,811,783.64 0.00 0.00
June 2012........... 0.00 0.00 0.00 55,882,223.25 0.00 0.00
July 2012........... 0.00 0.00 0.00 54,966,346.63 0.00 0.00
August 2012......... 0.00 0.00 0.00 54,063,961.27 0.00 0.00
September 2012...... 0.00 0.00 0.00 53,174,877.34 0.00 0.00
October 2012........ 0.00 0.00 0.00 52,298,907.63 0.00 0.00
November 2012....... 0.00 0.00 0.00 51,435,867.47 0.00 0.00
December 2012....... 0.00 0.00 0.00 50,585,574.77 0.00 0.00
January 2013........ 0.00 0.00 0.00 49,747,849.94 0.00 0.00
February 2013....... 0.00 0.00 0.00 48,922,515.84 0.00 0.00
March 2013.......... 0.00 0.00 0.00 48,109,397.79 0.00 0.00
April 2013.......... 0.00 0.00 0.00 47,308,323.53 0.00 0.00
May 2013............ 0.00 0.00 0.00 46,519,123.14 0.00 0.00
June 2013........... 0.00 0.00 0.00 45,741,629.07 0.00 0.00
July 2013........... 0.00 0.00 0.00 44,975,676.07 0.00 0.00
August 2013......... 0.00 0.00 0.00 44,221,101.17 0.00 0.00
September 2013...... 0.00 0.00 0.00 43,477,743.65 0.00 0.00
October 2013........ 0.00 0.00 0.00 42,745,444.99 0.00 0.00
November 2013....... 0.00 0.00 0.00 42,024,048.88 0.00 0.00
December 2013....... 0.00 0.00 0.00 41,313,401.16 0.00 0.00
January 2014........ 0.00 0.00 0.00 40,613,349.77 0.00 0.00
February 2014....... 0.00 0.00 0.00 39,923,744.80 0.00 0.00
</TABLE>
B-15
<PAGE> 144
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
March 2014.......... $ 0.00 $ 0.00 $ 0.00 $ 39,244,438.37 $ 0.00 $ 0.00
April 2014.......... 0.00 0.00 0.00 38,575,284.65 0.00 0.00
May 2014............ 0.00 0.00 0.00 37,916,139.83 0.00 0.00
June 2014........... 0.00 0.00 0.00 37,266,862.09 0.00 0.00
July 2014........... 0.00 0.00 0.00 36,627,311.55 0.00 0.00
August 2014......... 0.00 0.00 0.00 35,997,350.28 0.00 0.00
September 2014...... 0.00 0.00 0.00 35,376,842.25 0.00 0.00
October 2014........ 0.00 0.00 0.00 34,765,653.32 0.00 0.00
November 2014....... 0.00 0.00 0.00 34,163,651.17 0.00 0.00
December 2014....... 0.00 0.00 0.00 33,570,705.36 0.00 0.00
January 2015........ 0.00 0.00 0.00 32,986,687.22 0.00 0.00
February 2015....... 0.00 0.00 0.00 32,411,469.87 0.00 0.00
March 2015.......... 0.00 0.00 0.00 31,844,928.18 0.00 0.00
April 2015.......... 0.00 0.00 0.00 31,286,938.75 0.00 0.00
May 2015............ 0.00 0.00 0.00 30,737,379.90 0.00 0.00
June 2015........... 0.00 0.00 0.00 30,196,131.63 0.00 0.00
July 2015........... 0.00 0.00 0.00 29,663,075.58 0.00 0.00
August 2015......... 0.00 0.00 0.00 29,138,095.06 0.00 0.00
September 2015...... 0.00 0.00 0.00 28,621,074.98 0.00 0.00
October 2015........ 0.00 0.00 0.00 28,111,901.85 0.00 0.00
November 2015....... 0.00 0.00 0.00 27,610,463.75 0.00 0.00
December 2015....... 0.00 0.00 0.00 27,116,650.31 0.00 0.00
January 2016........ 0.00 0.00 0.00 26,630,352.68 0.00 0.00
February 2016....... 0.00 0.00 0.00 26,151,463.53 0.00 0.00
March 2016.......... 0.00 0.00 0.00 25,679,877.03 0.00 0.00
April 2016.......... 0.00 0.00 0.00 25,215,488.80 0.00 0.00
May 2016............ 0.00 0.00 0.00 24,758,195.92 0.00 0.00
June 2016........... 0.00 0.00 0.00 24,307,896.87 0.00 0.00
July 2016........... 0.00 0.00 0.00 23,864,491.58 0.00 0.00
August 2016......... 0.00 0.00 0.00 23,427,881.34 0.00 0.00
September 2016...... 0.00 0.00 0.00 22,997,968.82 0.00 0.00
October 2016........ 0.00 0.00 0.00 22,574,658.04 0.00 0.00
November 2016....... 0.00 0.00 0.00 22,157,854.36 0.00 0.00
December 2016....... 0.00 0.00 0.00 21,747,464.44 0.00 0.00
January 2017........ 0.00 0.00 0.00 21,343,396.25 0.00 0.00
February 2017....... 0.00 0.00 0.00 20,945,559.03 0.00 0.00
March 2017.......... 0.00 0.00 0.00 20,553,863.30 0.00 0.00
April 2017.......... 0.00 0.00 0.00 20,168,220.79 0.00 0.00
May 2017............ 0.00 0.00 0.00 19,788,544.50 0.00 0.00
June 2017........... 0.00 0.00 0.00 19,414,748.60 0.00 0.00
July 2017........... 0.00 0.00 0.00 19,046,748.48 0.00 0.00
August 2017......... 0.00 0.00 0.00 18,684,460.71 0.00 0.00
September 2017...... 0.00 0.00 0.00 18,327,803.00 0.00 0.00
October 2017........ 0.00 0.00 0.00 17,976,694.21 0.00 0.00
November 2017....... 0.00 0.00 0.00 17,631,054.35 0.00 0.00
December 2017....... 0.00 0.00 0.00 17,290,804.53 0.00 0.00
January 2018........ 0.00 0.00 0.00 16,955,866.96 0.00 0.00
February 2018....... 0.00 0.00 0.00 16,626,164.93 0.00 0.00
March 2018.......... 0.00 0.00 0.00 16,301,622.81 0.00 0.00
</TABLE>
B-16
<PAGE> 145
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
April 2018.......... $ 0.00 $ 0.00 $ 0.00 $ 15,982,166.01 $ 0.00 $ 0.00
May 2018............ 0.00 0.00 0.00 15,667,721.00 0.00 0.00
June 2018........... 0.00 0.00 0.00 15,358,215.26 0.00 0.00
July 2018........... 0.00 0.00 0.00 15,053,577.29 0.00 0.00
August 2018......... 0.00 0.00 0.00 14,753,736.58 0.00 0.00
September 2018...... 0.00 0.00 0.00 14,458,623.60 0.00 0.00
October 2018........ 0.00 0.00 0.00 14,168,169.82 0.00 0.00
November 2018....... 0.00 0.00 0.00 13,882,307.63 0.00 0.00
December 2018....... 0.00 0.00 0.00 13,600,970.39 0.00 0.00
January 2019........ 0.00 0.00 0.00 13,324,092.38 0.00 0.00
February 2019....... 0.00 0.00 0.00 13,051,608.80 0.00 0.00
March 2019.......... 0.00 0.00 0.00 12,783,455.76 0.00 0.00
April 2019.......... 0.00 0.00 0.00 12,519,570.27 0.00 0.00
May 2019............ 0.00 0.00 0.00 12,259,890.19 0.00 0.00
June 2019........... 0.00 0.00 0.00 12,004,354.29 0.00 0.00
July 2019........... 0.00 0.00 0.00 11,752,902.17 0.00 0.00
August 2019......... 0.00 0.00 0.00 11,505,474.29 0.00 0.00
September 2019...... 0.00 0.00 0.00 11,262,011.94 0.00 0.00
October 2019........ 0.00 0.00 0.00 11,022,457.22 0.00 0.00
November 2019....... 0.00 0.00 0.00 10,786,753.06 0.00 0.00
December 2019....... 0.00 0.00 0.00 10,554,843.19 0.00 0.00
January 2020........ 0.00 0.00 0.00 10,326,672.10 0.00 0.00
February 2020....... 0.00 0.00 0.00 10,102,185.09 0.00 0.00
March 2020.......... 0.00 0.00 0.00 9,881,328.22 0.00 0.00
April 2020.......... 0.00 0.00 0.00 9,664,048.31 0.00 0.00
May 2020............ 0.00 0.00 0.00 9,450,292.90 0.00 0.00
June 2020........... 0.00 0.00 0.00 9,240,010.30 0.00 0.00
July 2020........... 0.00 0.00 0.00 9,033,149.52 0.00 0.00
August 2020......... 0.00 0.00 0.00 8,829,660.32 0.00 0.00
September 2020...... 0.00 0.00 0.00 8,629,493.13 0.00 0.00
October 2020........ 0.00 0.00 0.00 8,432,599.09 0.00 0.00
November 2020....... 0.00 0.00 0.00 8,238,930.03 0.00 0.00
December 2020....... 0.00 0.00 0.00 8,048,438.47 0.00 0.00
January 2021........ 0.00 0.00 0.00 7,861,077.56 0.00 0.00
February 2021....... 0.00 0.00 0.00 7,676,801.15 0.00 0.00
March 2021.......... 0.00 0.00 0.00 7,495,563.73 0.00 0.00
April 2021.......... 0.00 0.00 0.00 7,317,320.40 0.00 0.00
May 2021............ 0.00 0.00 0.00 7,142,026.94 0.00 0.00
June 2021........... 0.00 0.00 0.00 6,969,639.71 0.00 0.00
July 2021........... 0.00 0.00 0.00 6,800,115.72 0.00 0.00
August 2021......... 0.00 0.00 0.00 6,633,412.56 0.00 0.00
September 2021...... 0.00 0.00 0.00 6,469,488.44 0.00 0.00
October 2021........ 0.00 0.00 0.00 6,308,302.15 0.00 0.00
November 2021....... 0.00 0.00 0.00 6,149,813.05 0.00 0.00
December 2021....... 0.00 0.00 0.00 5,993,981.08 0.00 0.00
January 2022........ 0.00 0.00 0.00 5,840,766.77 0.00 0.00
February 2022....... 0.00 0.00 0.00 5,690,131.17 0.00 0.00
March 2022.......... 0.00 0.00 0.00 5,542,035.91 0.00 0.00
April 2022.......... 0.00 0.00 0.00 5,396,443.14 0.00 0.00
</TABLE>
B-17
<PAGE> 146
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
May 2022............ $ 0.00 $ 0.00 $ 0.00 $ 5,253,315.57 $ 0.00 $ 0.00
June 2022........... 0.00 0.00 0.00 5,112,616.41 0.00 0.00
July 2022........... 0.00 0.00 0.00 4,974,309.42 0.00 0.00
August 2022......... 0.00 0.00 0.00 4,838,358.84 0.00 0.00
September 2022...... 0.00 0.00 0.00 4,704,729.44 0.00 0.00
October 2022........ 0.00 0.00 0.00 4,573,386.49 0.00 0.00
November 2022....... 0.00 0.00 0.00 4,444,295.74 0.00 0.00
December 2022....... 0.00 0.00 0.00 4,317,423.43 0.00 0.00
January 2023........ 0.00 0.00 0.00 4,192,736.29 0.00 0.00
February 2023....... 0.00 0.00 0.00 4,070,201.50 0.00 0.00
March 2023.......... 0.00 0.00 0.00 3,949,786.72 0.00 0.00
April 2023.......... 0.00 0.00 0.00 3,831,460.06 0.00 0.00
May 2023............ 0.00 0.00 0.00 3,715,190.11 0.00 0.00
June 2023........... 0.00 0.00 0.00 3,600,945.87 0.00 0.00
July 2023........... 0.00 0.00 0.00 3,488,696.81 0.00 0.00
August 2023......... 0.00 0.00 0.00 3,378,412.80 0.00 0.00
September 2023...... 0.00 0.00 0.00 3,270,064.19 0.00 0.00
October 2023........ 0.00 0.00 0.00 3,163,621.69 0.00 0.00
November 2023....... 0.00 0.00 0.00 3,059,056.48 0.00 0.00
December 2023....... 0.00 0.00 0.00 2,956,340.12 0.00 0.00
January 2024........ 0.00 0.00 0.00 2,855,444.59 0.00 0.00
February 2024....... 0.00 0.00 0.00 2,756,342.26 0.00 0.00
March 2024.......... 0.00 0.00 0.00 2,659,005.91 0.00 0.00
April 2024.......... 0.00 0.00 0.00 2,563,408.68 0.00 0.00
May 2024............ 0.00 0.00 0.00 2,469,524.11 0.00 0.00
June 2024........... 0.00 0.00 0.00 2,377,326.13 0.00 0.00
July 2024........... 0.00 0.00 0.00 2,286,789.02 0.00 0.00
August 2024......... 0.00 0.00 0.00 2,197,887.45 0.00 0.00
September 2024...... 0.00 0.00 0.00 2,110,596.42 0.00 0.00
October 2024........ 0.00 0.00 0.00 2,024,891.33 0.00 0.00
November 2024....... 0.00 0.00 0.00 1,940,747.89 0.00 0.00
December 2024....... 0.00 0.00 0.00 1,858,142.19 0.00 0.00
January 2025........ 0.00 0.00 0.00 1,777,050.64 0.00 0.00
February 2025....... 0.00 0.00 0.00 1,697,450.00 0.00 0.00
March 2025.......... 0.00 0.00 0.00 1,619,317.36 0.00 0.00
April 2025.......... 0.00 0.00 0.00 1,542,630.15 0.00 0.00
May 2025............ 0.00 0.00 0.00 1,467,366.10 0.00 0.00
June 2025........... 0.00 0.00 0.00 1,393,503.28 0.00 0.00
July 2025........... 0.00 0.00 0.00 1,321,020.06 0.00 0.00
August 2025......... 0.00 0.00 0.00 1,249,971.76 0.00 0.00
September 2025...... 0.00 0.00 0.00 1,180,259.17 0.00 0.00
October 2025........ 0.00 0.00 0.00 1,111,861.62 0.00 0.00
November 2025....... 0.00 0.00 0.00 1,044,758.70 0.00 0.00
December 2025....... 0.00 0.00 0.00 978,932.32 0.00 0.00
January 2026........ 0.00 0.00 0.00 914,360.66 0.00 0.00
February 2026....... 0.00 0.00 0.00 851,039.38 0.00 0.00
March 2026.......... 0.00 0.00 0.00 788,933.76 0.00 0.00
April 2026.......... 0.00 0.00 0.00 728,024.85 0.00 0.00
May 2026............ 0.00 0.00 0.00 668,293.99 0.00 0.00
</TABLE>
B-18
<PAGE> 147
<TABLE>
<CAPTION>
PQ CLASS PR CLASS PS CLASS PT CLASS FR CLASS SO CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2026........... $ 0.00 $ 0.00 $ 0.00 $ 609,765.66 $ 0.00 $ 0.00
July 2026........... 0.00 0.00 0.00 552,400.37 0.00 0.00
August 2026......... 0.00 0.00 0.00 496,182.39 0.00 0.00
September 2026...... 0.00 0.00 0.00 441,110.85 0.00 0.00
October 2026........ 0.00 0.00 0.00 387,465.64 0.00 0.00
November 2026....... 0.00 0.00 0.00 337,070.08 0.00 0.00
December 2026....... 0.00 0.00 0.00 289,392.23 0.00 0.00
January 2027........ 0.00 0.00 0.00 244,165.97 0.00 0.00
February 2027....... 0.00 0.00 0.00 201,355.60 0.00 0.00
March 2027.......... 0.00 0.00 0.00 162,312.46 0.00 0.00
April 2027.......... 0.00 0.00 0.00 129,536.78 0.00 0.00
May 2027............ 0.00 0.00 0.00 98,369.10 0.00 0.00
June 2027........... 0.00 0.00 0.00 68,920.21 0.00 0.00
July 2027........... 0.00 0.00 0.00 41,731.98 0.00 0.00
August 2027......... 0.00 0.00 0.00 19,186.97 0.00 0.00
September 2027...... 0.00 0.00 0.00 4,928.12 0.00 0.00
October 2027 and
thereafter........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-19
<PAGE> 148
- ------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ADDITIONAL DISCLOSURE DOCUMENTS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
AFOREMENTIONED DOCUMENTS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE CERTIFICATES OFFERED HEREBY IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE.
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE AFOREMENTIONED DOCUMENTS AT
ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Table of Contents..................... S- 3
Reference Sheet....................... S- 4
Additional Risk Factors............... S-10
Description of the Certificates....... S-11
Certain Additional Federal Income Tax
Consequences........................ S-37
Plan of Distribution.................. S-39
Legal Matters......................... S-40
Exhibit A............................. A- 1
Schedule 1............................ A- 2
Principal Balance Schedules........... B- 1
REMIC PROSPECTUS
Prospectus Supplement................. 2
Summary of Prospectus................. 3
Risk Factors.......................... 8
Description of the Certificates....... 10
The Trust Agreement................... 23
Certain Federal Income Tax
Consequences........................ 25
Legal Investment Considerations....... 37
Legal Opinion......................... 37
ERISA Considerations.................. 37
Glossary.............................. 39
</TABLE>
======================================================
$2,102,833,336
[FANNIE MAE LOGO]
GUARANTEED REMIC
PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1997-78
------------------------
PROSPECTUS SUPPLEMENT
------------------------
BEAR, STEARNS & CO. INC.
OCTOBER 8, 1997
- ------------------------------------------------------
------------------------------------------------------
<PAGE> 149
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 12, 1997)
$636,015,467
[FANNIE MAE LOGO]
GUARANTEED REMIC PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1998-42
The Guaranteed REMIC Pass-Through Certificates offered hereby (the "REMIC
Certificates") will represent beneficial ownership interests in one of two trust
funds. The REMIC Certificates, other than the RL Class, will represent
beneficial ownership interests in Fannie Mae REMIC Trust 1998-42 (the "Trust").
The assets of the Trust will consist of (i) the "regular interests" in a
separate trust fund (the "Lower Tier REMIC") and (ii) certain non-interest
bearing cash deposits (the "Retail Cash Deposits") to be applied as described
herein. The assets of the Lower Tier REMIC will consist of (i) certain Fannie
Mae Guaranteed Mortgage Pass-Through Certificates described herein (the "Trust
MBS") and (ii) certain previously issued REMIC certificates (the "Underlying
REMIC Certificates") evidencing beneficial ownership interests in the related
Fannie Mae REMIC Trusts (the "Underlying REMIC Trusts") as further described in
Exhibit A hereto. The assets of the Underlying REMIC Trusts evidence beneficial
ownership interests in certain Fannie Mae Guaranteed Mortgage Pass-Through
Certificates (together with the Trust MBS, the "MBS"). Each MBS represents a
beneficial ownership interest in a pool (each, a "Pool") of first lien,
single-family, fixed-rate residential mortgage loans (the "Mortgage Loans")
having the characteristics described herein. The Certificates will be issued and
guaranteed as to timely distribution of principal and interest by Fannie Mae.
This Prospectus Supplement is intended to be used only in conjunction with
the REMIC Prospectus (defined herein). Investors should not purchase the
Certificates before reading this Prospectus Supplement, the REMIC Prospectus and
the additional Disclosure Documents (defined herein). Such documents may be
obtained as described on page S-2.
PROSPECTIVE INVESTORS IN THE GG, DD AND UU CLASSES SHOULD CONSIDER CAREFULLY,
AS SHOULD PROSPECTIVE INVESTORS IN ANY CLASS OF CERTIFICATES, WHETHER SUCH AN
INVESTMENT IS APPROPRIATE FOR THEIR INVESTMENT OBJECTIVES. SEE "DESCRIPTION OF
THE CERTIFICATES--THE RETAIL CERTIFICATES" HEREIN.
------------------------
SEE "ADDITIONAL RISK FACTORS" ON PAGE S-9 HEREOF AND "CERTAIN RISK FACTORS"
BEGINNING ON PAGE 10 OF THE REMIC PROSPECTUS FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CERTIFICATES.
(Cover continued on next page)
------------------------
THE CERTIFICATES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS. NO INVESTOR
SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO
BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH SUCH
CERTIFICATES.
THE CERTIFICATES, TOGETHER WITH ANY INTEREST THEREON, ARE NOT GUARANTEED BY THE
UNITED STATES. THE OBLIGATIONS OF FANNIE MAE UNDER ITS GUARANTY OF THE
CERTIFICATES ARE OBLIGATIONS SOLELY OF FANNIE MAE AND DO NOT CONSTITUTE AN
OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF OTHER
THAN FANNIE MAE. THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES" WITHIN THE MEANING
OF THE SECURITIES EXCHANGE ACT OF 1934.
<TABLE>
<CAPTION>
=================================================================================================================
ORIGINAL FINAL
CLASS PRINCIPAL INTEREST INTEREST CUSIP DISTRIBUTION
CLASS(1) GROUP BALANCE TYPE(2) RATE TYPE(2) NUMBER DATE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PB .................. 1 $ 28,343,333 PAC 6.00% FIX 31359T 2 B 3 October 2010
PC .................. 1 57,525,000 PAC 6.00 FIX 31359T 2 C 1 May 2017
PD .................. 1 55,790,000 PAC 6.00 FIX 31359T 2 D 9 May 2021
PE .................. 1 23,633,333 PAC 6.50 FIX 31359T 2 E 7 September 2022
PG .................. 1 143,500,000 PAC 6.50 FIX 31359T 2 F 4 July 2028
IO .................. 1 10,896,794(3) NTL 6.50 FIX/IO 31359T 2 G 2 May 2021
FA .................. 1 26,216,667 CPT (4) FLT 31359T 2 H 0 October 2027
SC .................. 1 2,184,722 CPT (4) INV 31359T 2 J 6 October 2027
SD .................. 1 5,881,945 CPT (4) INV 31359T 2 K 3 October 2027
B ................... 1 35,000,000 TAC 6.50 FIX 31359T 2 L 1 February 2028
FE .................. 1 49,678,985 TAC (4) FLT 31359T 2 M 9 February 2028
SE .................. 1 11,464,382 TAC (4) INV 31359T 2 N 7 February 2028
C ................... 1 2,336,046 TAC 6.50 FIX 31359T 2 P 2 July 2028
D ................... 1 2,250,000 TAC 6.00 FIX 31359T 2 Q 0 July 2028
E ................... 1 2,250,000 TAC 7.00 FIX 31369T 2 R 8 July 2028
FG .................. 1 9,703,081 TAC (4) FLT 31359T 2 S 6 July 2028
SG .................. 1 2,239,173 TAC (4) INV 31359T 2 T 4 July 2028
Z ................... 1 5,000,000 SUP 6.50 FIX/Z 31359T 2 U 1 May 2027
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================
ORIGINAL FINAL
CLASS PRINCIPAL INTEREST INTEREST CUSIP DISTRIBUTION
CLASS(1) GROUP BALANCE TYPE(2) RATE TYPE(2) NUMBER DATE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FB .................. 1 $ 10,000,000 SUP (4) FLT 31359T 2 V 9 July 2028
SB .................. 1 3,076,923 SUP (4) INV 31359T 2 W 7 July 2028
G ................... 1 1,217,380 SUP 7.00% FIX 31359T 2 X 5 July 2028
FJ .................. 1 18,375,000 SUP (4) FLT 31359T 2 Y 3 July 2028
SJ .................. 1 2,625,000 SUP (4) INV 31359T 2 Z 0 July 2028
PN .................. 1 1,709,030 SUP (5) PO 31359T 3 A 4 July 2028
F ................... 2 67,476,846 SC/PT (4) FLT 31359T 3 B 2 March 2024
S ................... 2 18,810,386 SC/PT (4) INV 31359T 3 C 0 March 2024
GA .................. 3 5,735,000 SC/SEQ 6.50 FIX 31359T 3 D 8 June 2023
GB .................. 3 6,344,847 SC/SEQ 6.50 FIX 31359T 3 E 6 June 2023
GG .................. 3 10,000,000 SC/SEQ/RTL 6.50 FIX 31359T 3 F 3 June 2023
DA .................. 4 5,853,000 SC/SEQ 6.50 FIX 31359T 3 G 1 April 2027
DB .................. 4 3,244,388 SC/SEQ 6.50 FIX 31359T 3 H 9 April 2027
DD .................. 4 9,797,000 SC/SEQ/RTL 6.50 FIX 31359T 3 J 5 April 2027
UU .................. 4 8,754,000 SC/SEQ/RTL 6.50 FIX 31359T 3 K 2 April 2027
R ................... 0 NPR 0 NPR 31359T 3 L 0 July 2028
RL .................. 0 NPR 0 NPR 31359T 3 M 8 July 2028
=================================================================================================================
</TABLE>
(1) The H, A, SA, J, FH, SH and K Classes are RCR Classes. See "Description of
the Certificates--Combination and Recombination" herein and Schedule 1
hereto for a description of the RCR Classes.
(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.
(3) This Class will be a Notional Class, will not have a principal balance and
will bear interest on its notional principal balance. The notional principal
balance of the Notional Class initially will be as set forth above and
thereafter will be calculated as specified herein. See "Description of the
Certificates--Distributions of Interest--Notional Class" herein.
(4) These Classes will bear interest based on "LIBOR" as described under
"Description of the Certificates--Distributions of Interest" herein and
"Description of the Certificates--Indices Applicable to Floating Rate and
Inverse Floating Rate Classes" in the REMIC Prospectus.
(5) This Class will be a Principal Only Class and will bear no interest.
------------------------
The Certificates will be offered by Bear, Stearns & Co. Inc. (the "Dealer")
from time to time in negotiated transactions, at varying prices to be determined
at the time of sale.
The Certificates will be offered by the Dealer, subject to issuance by
Fannie Mae, to prior sale or to withdrawal or modification of the offer without
notice, when, as and if delivered to and accepted by the Dealer, and subject to
approval of certain legal matters by counsel. It is expected that the Group 1,
Group 2, Group 3 and Group 4 Classes (other than the GG, DD and UU Classes) and
the RCR Certificates will be available through the book-entry system of the
Federal Reserve Banks and that the GG, DD and UU Classes will be available
through the book-entry facilities of The Depository Trust Company on or about
June 30, 1998 (the "Settlement Date"). It is expected that the R and RL Classes
in registered, certificated form will be available for delivery at the offices
of the Dealer, 245 Park Avenue, New York, New York 10167, on or about the
Settlement Date.
------------------------
BEAR, STEARNS & CO. INC.
MAY 29, 1998
<PAGE> 150
(Cover continued from previous page)
Certain of the REMIC Certificates may, upon notice and payment of an
exchange fee, be exchanged for the related Combinable and Recombinable REMIC
Certificates ("RCR Certificates") as provided herein. Each RCR Certificate
issued in such an exchange will represent a beneficial ownership interest in,
and will entitle the Holder thereof to receive a proportionate share of the
distributions on, the related REMIC Certificates. Certain characteristics of the
RCR Certificates are set forth in Schedule 1 hereto. As used herein, unless the
context requires otherwise, the term "Certificates" includes REMIC Certificates
and RCR Certificates and the term "Classes" includes the Classes of REMIC
Certificates and RCR Certificates. See "Description of the
Certificates--Combination and Recombination" herein and Schedule 1 hereto.
THE YIELDS TO INVESTORS IN THE GROUP 1 CLASSES WILL BE SENSITIVE IN VARYING
DEGREES TO, AMONG OTHER THINGS, THE RATE OF PRINCIPAL DISTRIBUTIONS ON THE TRUST
MBS, WHICH IN TURN WILL BE DETERMINED BY THE RATE OF PRINCIPAL PAYMENTS OF THE
RELATED MORTGAGE LOANS AND THE CHARACTERISTICS OF SUCH MORTGAGE LOANS. THE
YIELDS TO INVESTORS IN THE GROUP 2, GROUP 3 AND GROUP 4 CLASSES WILL BE
SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE OF PRINCIPAL
DISTRIBUTIONS ON THE RELATED UNDERLYING REMIC CERTIFICATES, WHICH IN TURN WILL
BE SENSITIVE IN VARYING DEGREES TO THE RATE OF PRINCIPAL PAYMENTS OF THE RELATED
MORTGAGE LOANS, THE CHARACTERISTICS OF THE MORTGAGE LOANS INCLUDED IN THE
RELATED POOLS AND, IF APPLICABLE, THE PRIORITY SEQUENCES AFFECTING THE
UNDERLYING REMIC CERTIFICATES. THE YIELD TO INVESTORS IN EACH CLASS WILL ALSO BE
SENSITIVE TO THE PURCHASE PRICE PAID FOR SUCH CLASS AND, IN THE CASE OF ANY
FLOATING RATE OR INVERSE FLOATING RATE CLASS, FLUCTUATIONS IN THE LEVEL OF THE
INDEX (AS DEFINED HEREIN). ACCORDINGLY, INVESTORS SHOULD CONSIDER THE FOLLOWING
RISKS:
- THE MORTGAGE LOANS GENERALLY MAY BE PREPAID AT ANY TIME WITHOUT
PENALTY, AND, ACCORDINGLY, THE RATE OF PRINCIPAL PAYMENTS THEREON IS
LIKELY TO VARY CONSIDERABLY FROM TIME TO TIME.
- SLIGHT VARIATIONS IN MORTGAGE LOAN CHARACTERISTICS COULD SUBSTANTIALLY
AFFECT THE WEIGHTED AVERAGE LIVES AND YIELDS OF SOME OR ALL OF THE
CLASSES.
- IN THE CASE OF ANY CERTIFICATES PURCHASED AT A DISCOUNT TO THEIR
PRINCIPAL AMOUNTS (INCLUDING ANY PRINCIPAL ONLY CLASS), A SLOWER THAN
ANTICIPATED RATE OF PRINCIPAL PAYMENTS IS LIKELY TO RESULT IN A LOWER
THAN ANTICIPATED YIELD.
- IN THE CASE OF ANY CERTIFICATES PURCHASED AT A PREMIUM TO THEIR
PRINCIPAL AMOUNTS, A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
IS LIKELY TO RESULT IN A LOWER THAN ANTICIPATED YIELD.
- IN THE CASE OF ANY INTEREST ONLY CLASS, A FASTER THAN ANTICIPATED RATE
OF PRINCIPAL PAYMENTS IS LIKELY TO RESULT IN A LOWER THAN ANTICIPATED
YIELD AND, IN CERTAIN CASES, AN ACTUAL LOSS ON THE INVESTMENT.
- THE YIELD ON ANY FLOATING RATE OR INVERSE FLOATING RATE CLASS WILL BE
SENSITIVE TO THE LEVEL OF THE INDEX. SEE "DESCRIPTION OF THE
CERTIFICATES--DISTRIBUTIONS OF INTEREST--FLOATING RATE AND INVERSE
FLOATING RATE CLASSES" HEREIN.
SEE "CERTAIN RISK FACTORS--YIELD CONSIDERATIONS" IN THE REMIC PROSPECTUS AND
"ADDITIONAL RISK FACTORS--ADDITIONAL YIELD AND PREPAYMENT CONSIDERATIONS" AND
"YIELD TABLES" HEREIN.
IN ADDITION, INVESTORS SHOULD PURCHASE CERTIFICATES ONLY AFTER CONSIDERING
THE FOLLOWING:
- THE ACTUAL FINAL PAYMENT OF ANY CLASS WILL LIKELY OCCUR EARLIER, AND
COULD OCCUR MUCH EARLIER, THAN THE FINAL DISTRIBUTION DATE FOR SUCH
CLASS SPECIFIED ON THE COVER PAGE. SEE "DESCRIPTION OF THE
CERTIFICATES--WEIGHTED AVERAGE LIVES OF THE CERTIFICATES" HEREIN AND
"DESCRIPTION OF THE CERTIFICATES--WEIGHTED AVERAGE LIFE AND FINAL
DISTRIBUTION DATES" IN THE REMIC PROSPECTUS.
- THE RATE OF PRINCIPAL DISTRIBUTIONS OF THE CERTIFICATES IS UNCERTAIN
AND INVESTORS MAY BE UNABLE TO REINVEST THE DISTRIBUTIONS THEREON AT
YIELDS EQUALING THE YIELDS ON THE CERTIFICATES. SEE "CERTAIN RISK
FACTORS--SUITABILITY AND REINVESTMENT CONSIDERATIONS" IN THE REMIC
PROSPECTUS.
- INVESTORS WHOSE INVESTMENT ACTIVITIES ARE SUBJECT TO LEGAL INVESTMENT
LAWS AND REGULATIONS OR TO REVIEW BY REGULATORY AUTHORITIES MAY BE
SUBJECT TO RESTRICTIONS ON INVESTMENT IN CERTAIN CLASSES OF THE
CERTIFICATES. INVESTORS SHOULD CONSULT THEIR LEGAL ADVISORS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE CERTIFICATES CONSTITUTE LEGAL
INVESTMENTS OR ARE SUBJECT TO RESTRICTIONS ON INVESTMENT. SEE "LEGAL
INVESTMENT CONSIDERATIONS" IN THE REMIC PROSPECTUS.
- THE DEALER INTENDS TO MAKE A MARKET FOR THE CERTIFICATES BUT IS NOT
OBLIGATED TO DO SO. THERE CAN BE NO ASSURANCE THAT SUCH A SECONDARY
MARKET WILL DEVELOP OR, IF DEVELOPED, THAT IT WILL CONTINUE. THUS,
INVESTORS MAY NOT BE ABLE TO SELL THEIR CERTIFICATES READILY OR AT
PRICES THAT WILL ENABLE THEM TO REALIZE THEIR ANTICIPATED YIELD. NO
INVESTOR SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS
AND IS ABLE TO BEAR THE RISK THAT THE VALUE OF THE CERTIFICATES WILL
FLUCTUATE OVER TIME AND THAT THE CERTIFICATES MAY NOT BE READILY
SALABLE.
THE GG, DD AND UU CLASSES (THE "RETAIL CERTIFICATES") MAY NOT BE AN
APPROPRIATE INVESTMENT FOR ALL PROSPECTIVE INVESTORS. THE RETAIL CERTIFICATES
WOULD NOT BE AN APPROPRIATE INVESTMENT FOR ANY INVESTOR REQUIRING A PARTICULAR
DISTRIBUTION OF PRINCIPAL ON A SPECIFIC DATE OR AN OTHERWISE PREDICTABLE STREAM
OF PRINCIPAL DISTRIBUTIONS. ANY INVESTOR WHO PURCHASES A RETAIL CERTIFICATE AT A
PREMIUM (OR A DISCOUNT) SHOULD CONSIDER THE RISK THAT RELATIVELY EARLY (OR LATE)
PRINCIPAL DISTRIBUTIONS FOLLOWING ISSUANCE OF THE CERTIFICATES, COULD RESULT IN
AN ACTUAL YIELD THAT IS LOWER THAN SUCH INVESTOR'S ANTICIPATED YIELD. IN
ADDITION, ALTHOUGH THE DEALER INTENDS TO MAKE A SECONDARY MARKET IN THE RETAIL
CERTIFICATES, IT HAS NO OBLIGATION TO DO SO, AND ANY SUCH MARKET MAKING MAY BE
DISCONTINUED AT ANY TIME. FINALLY, THERE CAN BE NO ASSURANCE THAT THE PRICE AT
WHICH AN INVESTOR MAY BE ABLE TO SELL A RETAIL CERTIFICATE WILL BE THE SAME AS
THE PRICE AT WHICH SUCH INVESTOR PURCHASED SUCH CERTIFICATE. SEE "DESCRIPTION OF
THE CERTIFICATES--THE RETAIL CERTIFICATES" HEREIN.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this Prospectus Supplement, the REMIC Prospectus, the
Prospectus Supplements for the Underlying REMIC Trusts (collectively, the
"Underlying REMIC Disclosure Documents") or the MBS Prospectus (each as defined
below). Any representation to the contrary is a criminal offense.
Elections will be made to treat the Lower Tier REMIC and the Trust as "real
estate mortgage investment conduits" ("REMICs") pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). The R and RL Classes will be subject to
transfer restrictions. See "Description of the Certificates--Characteristics of
the R and RL Classes" and "Certain Additional Federal Income Tax Consequences"
herein, and "Description of the Certificates--Additional Characteristics of
Residual Certificates" and "Certain Federal Income Tax Consequences" in the
REMIC Prospectus.
Investors should purchase the Certificates only if they have read and
understood this Prospectus Supplement and the following documents (collectively,
the "Disclosure Documents"):
- Fannie Mae's Prospectus for Guaranteed REMIC Pass-Through Certificates
dated November 12, 1997 (the "REMIC Prospectus");
- Fannie Mae's Prospectus for Guaranteed Mortgage Pass-Through
Certificates dated August 1, 1997 (the "MBS Prospectus");
- Fannie Mae's Information Statement dated March 31, 1998 and any
supplements thereto (collectively, the "Information Statement"); and
- The Underlying REMIC Disclosure Documents.
The Information Statement is incorporated herein by reference and, together
with the other Disclosure Documents, may be obtained from Fannie Mae by writing
or calling its MBS Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S,
Washington, D.C. 20016 (telephone 1-800-BEST-MBS or 202-752-6547). Such
documents, other than the Underlying REMIC Disclosure Documents, may also be
obtained from Bear, Stearns & Co. Inc. by writing or calling its Prospectus
Department at One Metro Tech Center North, Brooklyn, New York 11201 (telephone
718-272-1581).
S-2
<PAGE> 151
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REFERENCE SHEET........................ S- 4
ADDITIONAL RISK FACTORS................ S- 9
Additional Yield and Prepayment
Considerations..................... S- 9
DESCRIPTION OF THE CERTIFICATES........ S-10
General.............................. S-10
Structure.......................... S-10
Fannie Mae Guaranty................ S-10
Characteristics of Certificates.... S-10
Authorized Denominations........... S-11
Distribution Dates................. S-11
Record Date........................ S-11
REMIC Trust Factors................ S-11
Optional Termination............... S-11
Voting the Underlying REMIC
Certificates.................... S-12
The Retail Certificates.............. S-12
General............................ S-12
Method of Distribution............. S-12
Retail Interest Distributions...... S-12
Retail Principal Distributions..... S-13
General......................... S-13
Rounding of Retail Principal
Distributions................. S-13
Retail Principal Distribution
Requests...................... S-13
Excess Retail Principal
Distribution by Random Lot.... S-14
Beneficial Owners............... S-15
Tax Information................. S-15
Certain Principal Distribution
Considerations.................. S-15
Investment Determination........... S-20
Combination and Recombination........ S-20
General............................ S-20
Procedures......................... S-21
Additional Considerations.......... S-21
Book-Entry Procedures................ S-21
General............................ S-21
Method of Distribution............. S-22
The Trust MBS........................ S-22
The Underlying REMIC Certificates.... S-23
Final Data Statement................. S-23
Distributions of Interest............ S-24
Categories of Classes.............. S-24
General............................ S-24
Interest Accrual Periods........... S-24
Accrual Class...................... S-24
Notional Class..................... S-25
Floating Rate and Inverse Floating
Rate Classes.................... S-25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Calculation of LIBOR................. S-25
Distributions of Principal........... S-26
Categories of Classes and
Components...................... S-26
Components......................... S-26
Principal Distribution Amount...... S-26
Group 1 Principal Distribution
Amount.......................... S-27
Z Accrual Amount................ S-27
Group 1 Cash Flow Distribution
Amount........................ S-27
Group 2 Principal Distribution
Amount.......................... S-28
Group 3 Principal Distribution
Amount.......................... S-28
Group 4 Principal Distribution
Amount.......................... S-28
Structuring Assumptions.............. S-28
Pricing Assumptions................ S-28
Prepayment Assumptions............. S-29
Structuring Range and Rate......... S-29
Initial Effective Ranges........... S-29
Yield Tables......................... S-30
General............................ S-30
The Inverse Floating Rate Classes
and the SA and SH Classes....... S-30
The IO Class....................... S-33
The Principal Only Class........... S-33
Weighted Average Lives of the
Certificates....................... S-34
Decrement Tables..................... S-35
Characteristics of the R and RL
Classes............................ S-38
CERTAIN ADDITIONAL FEDERAL INCOME TAX
CONSEQUENCES......................... S-38
REMIC Elections and Special Tax
Attributes......................... S-38
Taxation of Beneficial Owners of
Regular Certificates............... S-39
Taxation of Beneficial Owners of
Residual Certificates.............. S-39
Taxation of Beneficial Owners of RCR
Certificates....................... S-39
General............................ S-39
Combination RCR Classes............ S-39
Exchanges.......................... S-39
PLAN OF DISTRIBUTION................... S-40
General............................ S-40
Increase in Certificates........... S-40
LEGAL MATTERS.......................... S-40
EXHIBIT A.............................. A-1
SCHEDULE 1............................. A-2
PRINCIPAL BALANCE SCHEDULES............ B-1
</TABLE>
S-3
<PAGE> 152
REFERENCE SHEET
THIS REFERENCE SHEET IS NOT A SUMMARY OF THE REMIC TRANSACTION AND IT DOES
NOT CONTAIN COMPLETE INFORMATION ABOUT THE CERTIFICATES. INVESTORS SHOULD
PURCHASE THE CERTIFICATES ONLY AFTER READING THIS PROSPECTUS SUPPLEMENT AND EACH
OF THE ADDITIONAL DISCLOSURE DOCUMENTS DESCRIBED HEREIN IN THEIR ENTIRETY.
THE RETAIL CERTIFICATES
Description
The Retail Certificates represent an indirect interest in certain Mortgage
Loans. The Retail Certificates are guaranteed by Fannie Mae but are not
guaranteed by, and are not a debt or obligation of, the United States. See
"Description of the Certificates--General--Fannie Mae Guaranty" herein.
Investment Objective
Each individual investor should determine, in consultation with his or her
investment advisor, whether or not the Retail Certificates satisfy his or her
specified investment objectives, particularly in light of the related redemption
feature, as described herein. See "Description of the Certificates--The Retail
Certificates--Investment Determination" herein.
Liquidity
If a Retail Certificate is sold prior to its maturity, an investor may
receive sales proceeds (less applicable transaction costs) that are less than
the amount originally invested. The Dealer intends to make a market for the
purchase and sale of the Retail Certificates after their initial issuance, but
is not obligated to do so. There is no assurance that such a secondary market
will develop or, if it develops, that it will continue. See "Description of the
Certificates--The Retail Certificates--Investment Determination" herein.
Federal Income Taxes
Interest on the Retail Certificates will be taxed in the year it is earned,
which may not be the year it is paid. Relevant federal income tax information
for the preceding calendar year will be mailed to investors who own Retail
Certificates, as required by the Internal Revenue Service. Investors should be
aware, however, that such information need not be furnished before March 15 of
any calendar year following a calendar year in which income accrues on a Retail
Certificate. See "Description of the Certificates--The Retail
Certificates--Retail Principal Distributions--Tax Information" and "Certain
Additional Federal Income Tax Consequences" herein.
Maturity
Unlike many other fixed income securities, the Retail Certificates do not
have fixed principal redemption schedules or fixed principal distribution dates.
The timing of principal distributions may vary considerably based upon a number
of factors, including changes in prevailing interest rates. If prevailing
interest rates decrease, principal distributions on the Retail Certificates may
accelerate, and any reinvestment of such distributions might be at such lower
prevailing interest rates. Conversely, if prevailing interest rates increase,
principal distributions on the Retail Certificates may slow down, and investors
might not be able to reinvest their principal at such higher prevailing interest
rates. In such case, the market value of such Retail Certificates is likely to
have declined. See "Description of the Certificates--The Retail
Certificates--Certain Principal Distribution Considerations" herein.
S-4
<PAGE> 153
ASSUMED CHARACTERISTICS OF THE MORTGAGE LOANS UNDERLYING THE TRUST MBS
(AS OF JUNE 1, 1998)
<TABLE>
<CAPTION>
APPROXIMATE
ORIGINAL WEIGHTED AVERAGE APPROXIMATE
APPROXIMATE TERM TO REMAINING TERM CALCULATED APPROXIMATE
PRINCIPAL MATURITY TO MATURITY LOAN AGE WEIGHTED
BALANCE (IN MONTHS) (IN MONTHS) (IN MONTHS) AVERAGE COUPON
------------ ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Trust MBS $500,000,000 360 357 2 7.12%
</TABLE>
The actual remaining terms to maturity, calculated loan ages and interest
rates of most of the related Mortgage Loans will differ from the weighted
averages shown above, perhaps significantly. See "Description of the
Certificates--Structuring Assumptions--Pricing Assumptions" herein.
CHARACTERISTICS OF THE UNDERLYING REMIC CERTIFICATES
The table contained in Exhibit A hereto sets forth information with respect
to the Underlying REMIC Certificates, including certain information regarding
the underlying Mortgage Loans. Certain additional information as to the
Underlying REMIC Certificates may be obtained by performing an analysis of
current Fannie Mae principal factors in the context of applicable information
contained in the related Underlying REMIC Disclosure Documents, which may be
obtained from Fannie Mae as described herein.
See "Description of the Certificates--The Underlying REMIC Certificates"
herein.
COMBINATION AND RECOMBINATION
Holders of certain REMIC Certificates will be entitled, upon notice and
payment of an exchange fee, to exchange all or a portion of such Certificates
for a proportionate interest in the related RCR Certificates as reflected on
Schedule 1 hereto. The Holders of RCR Certificates will be entitled to receive
distributions of principal and interest from the related REMIC Certificates. See
"Description of the Certificates--Combination and Recombination" herein.
Schedule 1 sets forth all of the available combinations of the REMIC
Certificates and the related RCR Certificates.
INTEREST RATES
The first distribution of interest on each Retail Class Unit will be made
on July 18, 1998 or July 25, 1998, as applicable, in an amount equal to
approximately $5.41 for each Retail Class Unit. Distributions of interest in
that approximate amount on each monthly Distribution Date will continue on each
Retail Class Unit until such Unit is retired. See "Description of the
Certificates--The Retail Certificates--Retail Interest Distributions" herein.
The Fixed Rate Classes will bear interest at the applicable per annum
interest rates set forth on the cover.
The Floating Rate and Inverse Floating Rate Classes will bear interest
during the initial Interest Accrual Period at initial interest rates specified
or determined as described below, and will bear
S-5
<PAGE> 154
interest during each Interest Accrual Period thereafter, subject to the
applicable maximum and minimum interest rates, at rates determined as described
below:
<TABLE>
<CAPTION>
INITIAL MAXIMUM MINIMUM FORMULA FOR
INTEREST INTEREST INTEREST CALCULATION OF
CLASS RATE RATE RATE INTEREST RATE(1)
- ----- -------- -------- -------- ----------------
<S> <C> <C> <C> <C>
FA ..................... 6.00625% 8.50000% 0.35% LIBOR + 35 basis points
SD ..................... 8.21786% 33.42857% 0.00% 33.42857% - (4.45714267 X LIBOR)
SC ..................... 7.80000% 7.80000% 0.00% 97.8% - (12 X LIBOR)
FE ..................... 6.05625% 8.00000% 0.40% LIBOR + 40 basis points
SE ..................... 8.42291% 32.93333% 0.00% 32.93333% - (4.33333333 X LIBOR)
FG ..................... 6.05625% 8.00000% 0.40% LIBOR + 40 basis points
SG ..................... 8.42291% 32.93333% 0.00% 32.93333% - (4.33333333 X LIBOR)
FB ..................... 6.40625% 8.50000% 0.75% LIBOR + 75 basis points
SB ..................... 6.80468% 25.18750% 0.00% 25.1875% - (3.25 X LIBOR)
FJ ..................... 6.60625% 8.00000% 0.95% LIBOR + 95 basis points
SJ ..................... 9.75625% 49.35000% 0.00% 49.35% - (7 X LIBOR)
F ..................... 6.65625% 9.00000% 1.00% LIBOR + 100 basis points
S ..................... 8.40750% 28.69762% 0.00% 28.69762% - (3.587203 X LIBOR)
SA ..................... 8.10468% 26.48750% 0.00% 26.4875% - (3.25 X LIBOR)
FH ..................... 6.05625% 8.00000% 0.40% LIBOR + 40 basis points
SH ..................... 8.42291% 32.93333% 0.00% 32.93333% - (4.33333333 X LIBOR)
</TABLE>
- ---------------
(1) LIBOR will be established on the basis of the "BBA Method". See "Description
of the Certificates--Calculation of LIBOR" herein.
See "Description of the Certificates--Distributions of Interest--Floating
Rate and Inverse Floating Rate Classes" herein.
Distributions of interest to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
NOTIONAL CLASS
The notional principal balance of the Notional Class will be equal to the
indicated percentage of the outstanding balances specified below immediately
prior to the related Distribution Date:
<TABLE>
<CAPTION>
CLASS
- -----
<S> <C>
IO...................................................... 7.6923076923% of PB Class
7.6923076923% of PC Class
7.6923076923% of PD Class
</TABLE>
See "Description of the Certificates--Distributions of Interest--Notional Class"
and "--Yield Tables--The IO Class" herein.
COMPONENTS
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL
PRINCIPAL BALANCE TYPE
----------------- ---------
<S> <C> <C>
FA1................................................... $ 5,294,315 PAC
FA2................................................... $ 6,181,372 PAC
FA3................................................... $14,740,980 SUP
SC1 .................................................. $ 441,193 PAC
SC2 .................................................. $ 515,114 PAC
SC3 .................................................. $ 1,228,415 SUP
SD1................................................... $ 1,187,827 PAC
SD2................................................... $ 1,386,847 PAC
SD3................................................... $ 3,307,271 SUP
</TABLE>
S-6
<PAGE> 155
DISTRIBUTIONS OF PRINCIPAL
The portion of the Principal Distribution Amount allocated to each Class of
Certificates will be determined as described herein under "Description of the
Certificates--Distributions of Principal--Principal Distribution Amount."
Group 1 Principal Distribution Amount
Z Accrual Amount
1. To the B, FE and SE Classes, pro rata, to their Targeted Balances.
2. To the C, D, E, FG and SG Classes, pro rata, to their Targeted Balances.
3. To the FA3, SC3 and SD3 Components, pro rata, to zero, and then to the Z
Class.
Group 1 Cash Flow Distribution Amount
1. To the FA1, SC1 and SD1 Components, pro rata, to their Planned
Balances.
2. To the PB Class and the FA2, SC2 and SD2 Components, pro rata, to their
Planned Balances.
3. To the PC, PD, PE and PG Classes, in that order, to their Planned
Balances.
4. To the B, FE and SE Classes, pro rata, to their Targeted Balances.
5. To the C, D, E, FG and SG Classes, pro rata, to their Targeted
Balances.
6. To the Z Class, to zero.
7. To the FA3, SC3 and SD3 Components, pro rata, to zero.
8. To the FB, SB, G, PN, FJ and SJ Classes, pro rata, to zero.
9. To the B, FE and SE Classes, pro rata, to zero.
10. To the C, D, E, FG and SG Classes, pro rata, to zero.
11. To the FA1, SC1 and SD1 Components, pro rata, to zero.
12. To the PB Class and the FA2, SC2 and SD2 Components, pro rata, to zero.
13. To the PC, PD, PE and PG Classes, in that order, to zero.
Group 2 Principal Distribution Amount
To the F and S Classes, pro rata, to zero.
Group 3 Principal Distribution Amount
1. To the GA Class, to zero.
2. To the GB and GG Classes, pro rata, to zero.
Group 4 Principal Distribution Amount
To the DA, DB, DD and UU Classes, in that order, to zero.
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<PAGE> 156
Distributions of principal to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
WEIGHTED AVERAGE LIVES (YEARS)*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 1 CLASSES 0% 100% 170% 250% 500%
- --------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PB............................ 6.7 2.5 2.5 2.5 2.4
PC............................ 12.7 4.0 4.0 4.0 3.0
PD............................ 17.2 6.0 6.0 6.0 3.7
PE............................ 19.6 7.5 7.5 7.5 4.3
PG............................ 23.2 13.1 13.1 13.1 7.1
IO............................ 13.3 4.5 4.5 4.5 3.1
FA, SC, SD and SA............. 18.4 14.0 3.0 1.7 1.3
B, FE, SE and J............... 22.8 10.0 3.8 2.7 1.6
C, D, E, FG, SG and K......... 27.8 19.1 14.5 6.7 2.4
Z............................. 28.4 21.2 1.0 0.4 0.2
FB, SB, G, PN, FJ, SJ and H... 29.6 27.1 22.1 2.6 1.2
A, FH and SH.................. 23.6 11.5 5.5 3.4 1.7
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 2 CLASSES 0% 100% 155% 250% 500%
- --------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
F and S....................... 24.9 20.3 15.9 6.9 1.1
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 3 CLASSES 0% 100% 200% 300% 500%
- --------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GA............................ 23.9 17.0 7.8 2.1 0.8
GB and GG**................... 24.4 18.4 10.2 2.9 1.0
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
GROUP 4 CLASSES 0% 100% 160% 250% 500%
- --------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
DA............................ 26.7 16.4 1.0 0.3 0.1
DB............................ 27.1 18.2 5.4 1.1 0.4
DD**.......................... 27.7 20.8 14.3 3.0 0.9
UU**.......................... 28.4 24.7 21.7 6.8 1.2
</TABLE>
- -------------------------
* Determined as specified under "Description of the Certificates--Weighted
Average Lives of the Certificates" herein.
** The weighted average lives shown in the tables for the Classes of Retail
Certificates apply to such Classes as a whole and are not likely to reflect
the experience of any investor in such Classes of Retail Certificates.
Because investors will receive principal distributions subject to the
distribution priorities and allocations described under "Description of the
Certificates--The Retail Certificates--Retail Principal Distributions"
herein, the weighted average lives of Retail Class Units will vary among
different investors. See "Description of the Certificates--The Retail
Certificates--Certain Principal Distribution Considerations" herein.
S-8
<PAGE> 157
ADDITIONAL RISK FACTORS
ADDITIONAL YIELD AND PREPAYMENT CONSIDERATIONS
The rate of distributions of principal of the Group 1 Classes will be
sensitive in varying degrees to the rate of principal distributions on the Trust
MBS, which in turn will reflect the rate of amortization (including prepayments)
of the related Mortgage Loans. There can be no assurance that the Mortgage Loans
underlying the Trust MBS will have the characteristics assumed herein. Because
the rate of principal distributions on the Group 1 Classes will be related to
the rate of amortization of the related Mortgage Loans, which are likely to
include Mortgage Loans with remaining terms to maturity shorter or longer than
those assumed and interest rates higher or lower than those assumed, the rate of
principal distributions on such Classes is likely to differ from the rate
anticipated by an investor, even if the related Mortgage Loans prepay at the
indicated constant percentages of PSA.
The rate of distributions of principal of the Group 2, Group 3 and Group 4
Classes will be directly related to the rate of distributions of principal of
the related Underlying REMIC Certificates, which in turn will be sensitive in
varying degrees to the rate of payments of principal (including prepayments) of
the related Mortgage Loans and the priority sequences affecting such Underlying
REMIC Certificates. As described in the related Underlying REMIC Disclosure
Documents, the Underlying REMIC Certificates are subordinate in priority of
principal distributions to certain other classes of certificates evidencing
beneficial ownership interests in the related Underlying REMIC Trusts and,
accordingly, distributions of principal of the related Mortgage Loans may for
extended periods be applied to the distribution of principal of those classes of
certificates having priority over such Underlying REMIC Certificates. In
particular, all but one of the Underlying REMIC Certificates are Support classes
(and the remaining Underlying REMIC Certificate consists in part of a Support
component) that are entitled to receive principal distributions on any
Distribution Date only if scheduled distributions have been made on other
specified classes of certificates evidencing beneficial ownership interests in
the related Underlying REMIC Trust. Accordingly, such Underlying REMIC
Certificates (or Component) may receive no principal distributions for extended
periods of time or may receive principal distributions that vary widely from
period to period. In addition, one of the Underlying REMIC Certificates consists
in part of a component that has a Principal Balance Schedule and, as a result,
may receive principal distributions at a rate faster or slower than would
otherwise have been the case (and may receive no distributions of principal for
an extended period). Prepayments on the related Mortgage Loans may have occurred
at a rate faster or slower than that initially assumed. This Prospectus
Supplement contains no information as to whether such component has adhered to
its Principal Balance Schedule, whether any related Support classes remain
outstanding or whether such component otherwise has performed as originally
anticipated. Additional information as to the Underlying REMIC Certificates may
be obtained by performing an analysis of current Fannie Mae principal factors in
the context of applicable information contained in the related Underlying REMIC
Disclosure Documents, which may be obtained from Fannie Mae as described herein.
It is highly unlikely that the Mortgage Loans underlying the Trust MBS or
the Underlying REMIC Certificates, as applicable, will prepay at any of the
rates assumed herein, will prepay at a constant PSA rate until maturity or that
such Mortgage Loans will prepay at the same rate. Investors must make their own
decisions as to the appropriate assumptions, including prepayment assumptions,
to be used in deciding whether to purchase the Certificates.
The effective yields on the Delay Classes (as defined herein) will be
reduced below the yields otherwise produced because principal and interest
payable on a Distribution Date will not be distributed until on or about the
18th or 25th day, as applicable, following the end of the related Interest
Accrual Period and will not bear interest during such delay. No interest at all
will be paid on any Class after its principal balance has been reduced to zero.
As a result of the foregoing, the market values of the Delay Classes will be
lower than would have been the case if there were no such delay.
S-9
<PAGE> 158
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the remaining provisions of this Prospectus
Supplement, the additional Disclosure Documents and the provisions of the Trust
Agreement (defined below). Capitalized terms used and not otherwise defined in
this Prospectus Supplement have the meanings assigned to such terms in the
applicable Disclosure Document or the Trust Agreement (as the context may
require).
GENERAL
Structure. The Trust and the Lower Tier REMIC will be created pursuant to
a trust agreement dated as of June 1, 1998 (the "Trust Agreement"), executed by
the Federal National Mortgage Association ("Fannie Mae") in its corporate
capacity and in its capacity as trustee (the "Trustee"), and the Certificates in
the Classes and aggregate original principal balances set forth on the cover
hereof will be issued by Fannie Mae pursuant thereto. A description of Fannie
Mae and its business, together with certain financial statements and other
financial information, is contained in the Information Statement.
The REMIC Certificates (other than the R and RL Classes) will be designated
as the "regular interests," and the R Class will be designated as the "residual
interest," in the REMIC constituted by the Trust. The interests in the Lower
Tier REMIC other than the RL Class (the "Lower Tier Regular Interests") will be
designated as the "regular interests," and the RL Class will be designated as
the "residual interest," in the Lower Tier REMIC. The assets of the Lower Tier
REMIC will consist of the Trust MBS and Underlying REMIC Certificates (which
evidence beneficial ownership interests in the Underlying REMIC Trusts).
The assets of the Trust will consist of (i) the Lower Tier Regular
Interests and (ii) certain non-interest bearing cash deposits (the "Retail Cash
Deposits"). The Retail Cash Deposits will be used, if necessary, to round the
amount of any principal distribution on any Class of Retail Certificates to an
amount equal to an integral multiple of $1,000 as described herein. The Retail
Cash Deposits will not be available for application toward any distributions on
the other Classes of Certificates offered hereby (other than the R Class).
Fannie Mae Guaranty. Fannie Mae guarantees to each holder of an MBS the
timely payment of scheduled installments of principal of and interest on the
underlying Mortgage Loans, whether or not received, together with the full
principal balance of any foreclosed Mortgage Loan, whether or not such balance
is actually recovered. The guaranty obligations of Fannie Mae with respect to
the Underlying REMIC Certificates are described in the Underlying REMIC
Disclosure Documents. In addition, Fannie Mae will be obligated to distribute on
a timely basis to the Holders of Certificates required installments of principal
and interest and to distribute the principal balance of each Class of
Certificates in full no later than the applicable Final Distribution Date,
whether or not sufficient funds are available in the Trust Account. The
guaranties of Fannie Mae are not backed by the full faith and credit of the
United States. See "Description of the Certificates--Fannie Mae's Guaranty" in
the REMIC Prospectus, "Description of Certificates--The Corporation's Guaranty"
in the MBS Prospectus, and "Description of the Certificates--General--Fannie Mae
Guaranty" in the related Underlying REMIC Disclosure Documents.
Characteristics of Certificates. The GG, DD and UU Classes will be
represented by one or more certificates (the "DTC Certificates") to be
registered at all times in the name of the nominee of the Depository (as defined
herein), which Depository will maintain such Certificates through its book-
entry facilities. When used herein with respect to any DTC Certificate, the
terms "Holders" and "Certificateholders" refer to the nominee of the Depository.
The Certificates of all other Classes except for the R and the RL Classes
(the "Fed Book-Entry Certificates") will be issued and maintained and may be
transferred by Holders only on the book-entry system of the Federal Reserve
Banks. Such entities whose names appear on the book-entry
S-10
<PAGE> 159
records of a Federal Reserve Bank as the entities for whose accounts such
Certificates have been deposited are herein referred to as "Holders" or
"Certificateholders."
A Holder is not necessarily the beneficial owner of a book-entry
Certificate. Beneficial owners will ordinarily hold book-entry Certificates
through one or more financial intermediaries, such as banks, brokerage firms and
securities clearing organizations. See "Description of the
Certificates--Denominations, Certificate Form" in the REMIC Prospectus.
The R and RL Certificates will not be issued in book-entry form but will be
issued in fully registered, certificated form. As to the R or RL Certificate,
"Holder" or "Certificateholder" refers to the registered owner thereof. The R or
RL Certificates will be transferable at the corporate trust office of the
Transfer Agent, or at the agency of the Transfer Agent in New York, New York.
The Transfer Agent initially will be State Street Bank and Trust Company in
Boston, Massachusetts ("State Street"). A service charge may be imposed for any
registration of transfer of the R or RL Certificate and Fannie Mae may require
payment of a sum sufficient to cover any tax or other governmental charge. See
also "Characteristics of the R and RL Classes" herein.
The distribution to the Holder of the R and RL Classes of the proceeds of
any remaining assets of the Trust and the Lower Tier REMIC, as applicable, will
be made only upon presentation and surrender of the related Certificate at the
office of the Paying Agent. The Paying Agent initially will be State Street.
Authorized Denominations. The Certificates, other than the Retail
Certificates and the R and RL Certificates, will be issued in minimum
denominations of $1,000 and integral multiples of $1 in excess thereof. The
Retail Certificates will be issued in minimum denominations of $1,000 and
integral multiples thereof. The R and RL Classes will be issued as single
Certificates and will not have principal balances.
Distribution Dates. Distributions on the Group 1 and Group 4 Classes will
be made on the 18th day of each month (or, if such 18th day is not a business
day, on the first business day next succeeding such 18th day), and distributions
on the Group 2 and Group 3 Classes will be made on the 25th day of each month
(or, if the 25th day is not a business day, on the first business day next
succeeding such 25th day) (each, a "Distribution Date"), commencing in the month
following the Settlement Date.
Record Date. Each monthly distribution on the Certificates will be made to
Holders of record on the last day of the preceding month.
REMIC Trust Factors. As soon as practicable following the eleventh
calendar day of each month, Fannie Mae will publish or otherwise make available
for each Class of Certificates the factor (carried to eight decimal places)
which, (i) in the case of each such Class of Certificates other than the Retail
Certificates, when multiplied by the original principal balance of a Certificate
of such Class, will equal the remaining principal balance of such Certificate
and (ii) in the case of each Class of Retail Certificates, when multiplied by
the aggregate original principal balance of such Class, will equal the aggregate
remaining principal balance of such Class, in each case after giving effect to
the distribution of principal to be made on the following Distribution Date and
any interest to be added as principal to the principal balance of the Accrual
Class on such Distribution Date. As a result, the factor for the Retail
Certificates will reflect the reduction in aggregate principal balance of such
Class taken as a whole, and will not reflect the reduction in principal balance
of the Retail Certificates owned by any particular investor. For purposes of
determining the factor for the Retail Certificates, any rounding of the
distribution of principal thereof will be disregarded.
Optional Termination. Consistent with its policy described under
"Description of Certificates--Termination" in the MBS Prospectus, Fannie Mae
will agree not to effect indirectly an early termination of the Lower Tier REMIC
or the Trust through the exercise of its right to repurchase the Mortgage Loans
underlying any MBS unless only one Mortgage Loan remains in the related Pool or
the principal balance of such Pool at the time of repurchase is less than one
percent of the original principal balance thereof.
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<PAGE> 160
Voting the Underlying REMIC Certificates. In the event any issue arises
under the trust agreement governing any of the Underlying REMIC Trusts that
requires the vote of holders of certificates outstanding thereunder, the Trustee
will vote the related Underlying REMIC Certificates in accordance with
instructions received from Holders of Certificates of the related Classes having
principal balances aggregating not less than 51% of the aggregate principal
balance of all such Classes outstanding. In the absence of such instructions,
the Trustee will vote in a manner consistent, in its sole judgment, with the
best interests of Certificateholders.
THE RETAIL CERTIFICATES
General
The GG, DD and UU Classes will consist of Retail Certificates. Each Class
of Retail Certificates will be represented by one or more certificates to be
registered at all times in the name of the nominee of The Depository Trust
Company, a New York-chartered limited purpose trust company, or any successor
depositary selected or approved by Fannie Mae (the "Depository"). The Depository
will maintain each Class of Retail Certificates in integral multiples of $1,000
through its book-entry facilities. In accordance with its normal procedures, the
Depository will record the positions held by each Depository participating firm
(each, a "Depository Participant") in the Retail Certificates, whether held for
its own account or as a nominee for another person. State Street will act as
paying agent for, and perform certain administrative functions with respect to,
the Retail Certificates.
No person acquiring a beneficial ownership interest in the Retail
Certificates (a "beneficial owner" or an "investor") will be entitled to receive
a physical certificate representing such ownership interest. An investor's
interest in a Retail Certificate will be recorded, in integral multiples of
$1,000, on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (a "financial intermediary") that maintains such
investor's account for such purpose. In turn, the financial intermediary's
record ownership of such Certificate will be recorded, in integral multiples of
$1,000, on the records of the Depository (or of a Depository Participant that
acts as agent for the financial intermediary if such intermediary is not a
Depository Participant). Therefore, the investor must rely on the foregoing
arrangements to evidence its interest in the Retail Certificates. Beneficial
ownership of the Retail Certificates may be transferred only by compliance with
the procedures of an investor's financial intermediary and of the Depository
Participants. In general, beneficial ownership of the Retail Certificates will
be subject to the rules, regulations and procedures governing the Depository and
Depository Participants as in effect from time to time.
Method of Distribution
Each distribution of principal and interest on a Class of Retail
Certificates will be distributed by State Street to the Depository in
immediately available funds. The Depository will be responsible for crediting
the amount of such distributions to the accounts of the Depository Participants
entitled thereto, in accordance with the Depository's normal procedures. Each
Depository Participant and each financial intermediary will be responsible for
disbursing such distribution to the beneficial owners of the Retail Certificates
that it represents. Accordingly, the beneficial owners may experience some delay
in their receipt of distributions.
Retail Interest Distributions
Interest to be distributed on a Class of Retail Certificates on each
Distribution Date will consist of one month's interest at the applicable per
annum rate set forth on the cover hereof on the outstanding principal balance
thereof immediately prior to such Distribution Date. For further discussion, see
"Distributions of Interest" herein.
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<PAGE> 161
Retail Principal Distributions
General. Distributions of principal of a Class of Retail Certificates on
any Distribution Date (each, a "Retail Principal Distribution") will be made, in
each case in integral multiples of $1,000, in accordance with the priorities and
limitations set forth herein. On each Distribution Date, State Street, or the
Depository in the case of excess Retail Principal Distributions by random lot as
described below, will determine the portion of the Retail Principal
Distribution, if any, to be made on the related Retail Certificates held for the
account of each Depository Participant. Each Depository Participant and each
financial intermediary will in turn determine the portion of the Retail
Principal Distribution to be made on the related Retail Certificates held for
the account of each investor that it represents.
Rounding of Retail Principal Distributions. On each Distribution Date on
which amounts are available for the distribution of principal of a Class of
Retail Certificates (as described under "Distributions of Principal" herein),
the amount of such distribution will be rounded, as necessary, to an amount
equal to an integral multiple of $1,000. Such rounding will be accomplished on
the first Distribution Date on which a Retail Principal Distribution for such
Class is made by withdrawing from the related Retail Cash Deposit the amount of
funds, if any, needed to round the amount otherwise allocable as principal of
such Class of Retail Certificates to the next higher integral multiple of
$1,000. On each succeeding Distribution Date on which a Retail Principal
Distribution is to be made for such Class, the aggregate amount allocable as
principal to such Class of Retail Certificates will be applied first to repay
any funds withdrawn from the related Retail Cash Deposit on the preceding
Distribution Date, and then the remainder of such allocable amount, if any, will
be similarly rounded upward and applied as a Retail Principal Distribution. This
procedure will continue on succeeding Distribution Dates until the principal
balance of such Class of Retail Certificates has been reduced to zero. Thus, the
Retail Principal Distribution for such Class on any Distribution Date may be
slightly more or less than would be the case in the absence of such rounding
procedures, but such difference will in no event exceed $999.99 on any
Distribution Date. The aggregate of all Retail Principal Distributions made
through any Distribution Date will in no event be less than what would have been
the case in the absence of such rounding procedures.
Retail Principal Distribution Requests. An investor in a Class of Retail
Certificates may request that distributions of principal of such Class of Retail
Certificates be allocated to such investor (up to the amount of such investor's
ownership interest in such Class of Retail Certificates) in integral multiples
of $1,000, on the earliest possible Distribution Date, subject to the priorities
and limitations described below (each, a "Retail Principal Distribution
Request"). Any Retail Principal Distribution Request must be submitted to the
financial intermediary that maintains the account evidencing the related
investor's interest in the related Class of Retail Certificates. If such
financial intermediary is not a Depository Participant, it must notify the
related Depository Participant of such request. The related Depository
Participant must in turn make the request in writing to the Depository on a form
required by the Depository. Upon the receipt of a request, the Depository will
date and time stamp such request and forward it to State Street. State Street
shall not be deemed liable for any delay in delivery to State Street of Retail
Principal Distribution Requests or the withdrawal of such requests. The exact
procedures to be followed by the Depository for purposes of determining the
order of receipt will be those established from time to time by the Depository.
State Street will maintain a list of those Depository Participants representing
investors that have submitted Retail Principal Distribution Requests, together
with the order of receipt and the amounts of such requests. State Street will
notify the Depository and the appropriate Depository Participants as to which
requests should be honored on each Distribution Date. Retail Principal
Distribution Requests will be honored by the Depository in accordance with the
procedures, and subject to the priorities and limitations, described below. The
exact procedures to be followed by State Street and the Depository for purposes
of determining such priorities and limitations will be those established from
time to time by State Street or the Depository, as the case may be. The
decisions of State Street and the Depository concerning such matters will be
final and binding on all affected persons.
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<PAGE> 162
An investor may withdraw a Retail Principal Distribution Request by
notifying the financial intermediary that maintains the account evidencing such
investor's Retail Certificates. If such financial intermediary is not a
Depository Participant, it must notify the related Depository Participant, which
must in turn forward the withdrawal of such request, on a form required by the
Depository, to State Street.
In order for a Retail Principal Distribution Request, or a withdrawal of
such request, to be honored with respect to a Distribution Date, it must be
received by the Depository and forwarded to State Street, in the case of a
Retail Principal Distribution Request, or received by the Depository Participant
and forwarded to State Street, in the case of a withdrawal of such request, by
the last day of the month preceding the month in which such Distribution Date
occurs (the "Record Date"), in accordance with the procedures described above.
Priority of distribution of principal of a Class of Retail Certificates will be
given to investors on whose behalf Retail Principal Distribution Requests have
been duly received and not withdrawn. Such requests will be honored by the
Depository in the following order of priority:
(i) requests on behalf of Deceased Owners (as defined below) will be
honored in the order of their receipt by the Depository until such requests
have been honored, with respect to each Deceased Owner on whose behalf such
a request has been made, in an initial amount up to $100,000 of original
principal balance per Deceased Owner; and
(ii) requests on behalf of Living Owners (as defined below) will be
honored in the order of their receipt by the Depository until such requests
have been honored, with respect to each Living Owner on whose behalf such a
request has been made, in an initial amount up to $10,000 of original
principal balance per Living Owner.
Thereafter, requests on behalf of Deceased Owners will be honored as provided in
clause (i) above up to an additional amount equal to $100,000 of original
principal balance, and requests on behalf of Living Owners will be honored as
provided in clause (ii) above up to an additional amount equal to $10,000 of
original principal balance. This sequence of priorities will be repeated until
all Retail Principal Distribution Requests have been honored.
To the extent that the Retail Principal Distribution Requests exceed the
aggregate amount of principal available for distribution on the related Class of
Retail Certificates on a Distribution Date, such requests will automatically be
honored on succeeding Distribution Dates, without the need for any further
Retail Principal Distribution Requests, all in accordance with the applicable
procedures of State Street. A Retail Principal Distribution Request submitted on
behalf of a Living Owner who thereafter becomes a Deceased Owner will become
entitled to the priority of a newly submitted request on behalf of a Deceased
Owner, provided that, as to any Distribution Date, the Depository has received
and forwarded to State Street appropriate evidence of death and any required tax
waivers on or before the related Record Date. Upon the transfer of beneficial
ownership of any Retail Certificate, any Retail Principal Distribution Request
relating thereto will be deemed to have been withdrawn only upon the receipt by
State Street of notification of such withdrawal using a form required by the
Depository.
Excess Retail Principal Distribution by Random Lot. To the extent the
Retail Principal Distribution for a Class of Retail Certificates on any
Distribution Date exceeds the amount evidenced by the applicable Retail
Principal Distribution Requests received by State Street for such Class, the
Retail Certificates of such Class in respect of which distributions of principal
are to be made (in integral multiples of $1,000) will be determined in
accordance with the then applicable random lot procedures of the Depository and
the established procedures of the Depository Participants and financial
intermediaries. Accordingly, a Depository Participant or financial intermediary
may elect to allot the remaining portion of such Retail Principal Distribution
to the accounts of some investors (which could include such Depository
Participant or financial intermediary) without allotting such distributions to
the accounts of other investors.
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<PAGE> 163
Beneficial Owners. A "Deceased Owner" is a beneficial owner of Retail
Certificates who was living at the time such interest was acquired and whose
executor or other authorized representative causes to be furnished to the
Depository evidence of death satisfactory to State Street and any tax waivers
requested by State Street. A "Living Owner" is any other beneficial owner of
Retail Certificates. Retail Certificates beneficially owned by tenants by the
entirety, joint tenants or tenants in common will be considered to be
beneficially owned by a single owner. The death of a tenant by the entirety,
joint tenant or tenant in common will be deemed to be the death of the
beneficial owner, and the Retail Certificates so beneficially owned will be
eligible for priority in principal distribution, subject to the limitations
stated above. Retail Certificates beneficially owned by a trust will be
considered to be beneficially owned by each beneficiary of the trust to the
extent of such beneficiary's beneficial interest in such Retail Certificates,
but in no event will a trust's beneficiaries collectively be deemed to be
beneficial owners of a principal amount of Retail Certificates greater than the
principal amount of Retail Certificates of which such trust is the owner. The
death of a beneficiary of a trust will be deemed to be the death of a beneficial
owner of the Retail Certificates beneficially owned by the trust to the extent
of such beneficiary's beneficial interest in the Retail Certificates owned by
such trust. The death of an individual who was a tenant by the entirety, joint
tenant or tenant in common in a tenancy which is the beneficiary of a trust will
be deemed to be the death of the beneficiary of the trust. The death of a person
who, during his or her lifetime, was entitled to substantially all of the
beneficial ownership interests in Retail Certificates will be deemed to be the
death of the beneficial owner of such Retail Certificates regardless of the
registration of ownership, if such beneficial interest can be established to the
satisfaction of State Street. Such beneficial interest will be deemed to exist
in typical cases of street name or nominee ownership, ownership by a trustee,
ownership under the Uniform Gifts to Minors Act and community property or other
joint ownership arrangements between spouses. Beneficial interest will include
the power to sell, transfer or otherwise dispose of Retail Certificates and the
right to receive the proceeds therefrom, as well as interest and principal
distributable with respect thereto.
Tax Information. Information allowing beneficial owners of the Retail
Certificates to calculate properly the taxable income attributable to the Retail
Certificates will be made available by Fannie Mae to Depository Participants and
financial intermediaries as required by federal income tax law. Financial
intermediaries, in turn, will be obligated to supply such information to
individuals and other beneficial owners who are not "exempt recipients."
Beneficial owners should be aware, however, that such information need not be
furnished before March 15 of any calendar year following a calendar year in
which income accrues on a Retail Certificate. The Classes of Retail Certificates
may be issued with "original issue discount" or at a premium for federal income
tax purposes. Prospective investors in a Class of Retail Certificates should be
aware that the beneficial owners of Retail Certificates must include in gross
income original issue discount, if any, as it accrues under a method that
generally results in recognition of some taxable income in advance of receipt of
the cash attributable to such income. Prospective investors in a Class of Retail
Certificates also should be aware that beneficial owners of Retail Certificates
should treat any premium, any original issue discount and any market discount
with respect to such Certificates in the same manner as beneficial owners of
other "regular interests" in a REMIC. See "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Regular Certificates" in the
REMIC Prospectus. Because the Retail Certificates will not receive payments of
principal on a pro rata basis, however, a payment in full of a Retail
Certificate may be treated as a prepayment for purposes of the premium, original
issue discount and market discount rules. Additional tax consequences affecting
beneficial owners of the Retail Certificates are discussed under "Certain
Additional Federal Income Tax Consequences--Taxation of Beneficial Owners of the
Regular Certificates" herein and "Certain Federal Income Tax Consequences--
Taxation of Beneficial Owners of Regular Certificates" in the REMIC Prospectus.
Certain Principal Distribution Considerations
Because there may be little or no distribution of principal of a Class of
Retail Certificates on any particular Distribution Date, there is no assurance
that a Retail Principal Distribution Request will be
S-15
<PAGE> 164
honored, either in whole or in part, within any particular time after it is
submitted. The likelihood that any particular Retail Principal Distribution
Request will be honored within any particular time after submission will also be
affected by the aggregate principal balance of the related Class of Retail
Certificates beneficially owned by persons having priority to right of
distribution, either due to their status as Deceased Owners or because of
earlier submission of their Retail Principal Distribution Requests. Conversely,
the amount of principal available to be distributed on a Class of Retail
Certificates on any Distribution Date may exceed the amount necessary to satisfy
such Retail Principal Distribution Requests, in which case non-requesting
investors may receive distributions of principal in accordance with the random
lot procedures referred to herein.
During periods in which interest rates generally are higher than the per
annum rate at which interest accrues on a Class of Retail Certificates, a
greater number of investors may be expected to submit Retail Principal
Distribution Requests. During such periods, however, there may be a concurrent
reduction in the rate of prepayments on the related Mortgage Loans, thus
reducing the funds available for Retail Principal Distributions. Conversely,
Retail Principal Distributions may be greater when prevailing interest rates
decline relative to the rates of interest on the related Mortgage Loans. Under
such conditions, investors may be less likely to submit Retail Principal
Distribution Requests while mortgagors may be more likely to prepay the related
Mortgage Loans. Investors whose Retail Certificates are selected for
distribution under such conditions may be unable to reinvest the proceeds of
such distributions at effective interest rates equal to the specified per annum
rate at which interest accrues on such Retail Certificates.
Because the rate of Retail Principal Distributions for any Class is
dependent upon the rate of principal distributions (including prepayments) on
the related Mortgage Loans and the priority sequences of distributions described
herein under "Description of the Certificates--Distributions of Principal," no
assurance can be given as to the Distribution Date on which any Class of Retail
Certificates will begin to receive principal distributions, as to the rate at
which such distributions will continue thereafter or as to the date on which the
principal amount of any Class of Retail Certificates will be distributed in
full. In addition, it is possible that certain investors in the Retail
Certificates may not receive Retail Principal Distributions until the Final
Distribution Date for such Class. Any investor who purchases a Retail
Certificate at a premium (or a discount) should consider the risk that
relatively early (or late) principal distributions following issuance of the
Certificates could result in an actual yield that is lower than such investor's
anticipated yield. See "Distributions of Principal," "Yield Considerations,"
"Weighted Average Lives of the Certificates" and "Decrement Tables" herein.
As described under "Distributions of Principal" herein, the amount of
principal allocated on each Distribution Date to the Retail Certificates
primarily will depend on the sufficiency of the Group 3 Principal Distribution
Amount or Group 4 Principal Distribution Amount (each as defined herein), as
applicable, to reduce the principal balances of those Classes of Certificates
that have higher principal payment priorities than the applicable Classes of
Retail Certificates to zero. As a result, the amount of principal distributable
on the Retail Certificates on any Distribution Date will be sensitive to the
level of prepayments of the related Mortgage Loans.
To illustrate the effect of prepayments on the distributions of principal
of each Class of Retail Certificates, the following tables indicate the
approximately aggregate distributions of principal of each Class of Retail
Certificates during the periods shown. The following tables show the amounts
that would be available for distributions of principal of each Class of Retail
Certificates during the periods indicated at various constant percentages of PSA
(as defined under "Structuring Assumptions--Prepayment Assumptions" herein),
based on the allocations of principal described under "Distributions of
Principal" herein. The amounts shown have been calculated on the basis of the
Pricing Assumptions (as defined herein) (except that with respect to the
information set forth below under 0% PSA, it has been assumed that the related
Mortgage Loans have remaining terms to maturity of 360 months and interest rates
of 9.5% per annum in the case of the Mortgage Loans underlying the Group 3
Classes and 9.0% per annum in the case of the Mortgage Loans underlying the
S-16
<PAGE> 165
Group 4 Classes) and on the assumption that principal distributions on each
Class of Retail Certificates are not rounded to integral multiples of $1,000 and
are made on or about the 18th or 25th day, as applicable, of each month in which
such distributions are required to be made. THE AMOUNTS IN THE TABLES ARE
HYPOTHETICAL NUMBERS ONLY, APPLY TO EACH CLASS OF RETAIL CERTIFICATES TAKEN AS A
WHOLE, AND ARE PRESENTED SOLELY TO SHOW THE RELATIONSHIP BETWEEN PREPAYMENTS AND
DISTRIBUTIONS ON EACH CLASS OF RETAIL CERTIFICATES IN ORDER TO ASSIST INVESTORS
IN ANALYZING THAT RELATIONSHIP. BECAUSE OF THE DISTRIBUTION PRIORITIES AND
ALLOCATIONS DESCRIBED ABOVE AND BECAUSE INVESTORS IN THE RETAIL CERTIFICATES
WILL RECEIVE PRINCIPAL DISTRIBUTIONS IN INTEGRAL MULTIPLES OF $1,000, THERE IS
NO ASSURANCE THAT ANY INVESTOR WILL RECEIVE A DISTRIBUTION OF PRINCIPAL ON ANY
DISTRIBUTION DATE. INVESTORS ARE URGED TO CONSULT THEIR OWN FINANCIAL ADVISORS
AS TO THE SIGNIFICANCE OF PREPAYMENTS IN TERMS OF THE INVESTORS' FINANCIAL AND
INVESTMENT OBJECTIVES.
AGGREGATE RETAIL PRINCIPAL DISTRIBUTIONS OF THE GG CLASS
(FOR ILLUSTRATIVE PURPOSES ONLY)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
DISTRIBUTION -----------------------------------------------
DATE 0% 100% 200% 300% 500%
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
June 1999.................................... $ 0 $ 0 $ 0 $ 0 $ 5,487
June 2000.................................... 0 0 0 0 4,513
June 2001.................................... 0 0 0 6,304 0
June 2002.................................... 0 0 0 3,696 0
June 2003.................................... 0 0 0 0 0
June 2004.................................... 0 0 0 0 0
June 2005.................................... 0 0 0 0 0
June 2006.................................... 0 0 0 0 0
June 2007.................................... 0 0 1,810 0 0
June 2008.................................... 0 0 2,836 0 0
June 2009.................................... 0 0 2,675 0 0
June 2010.................................... 0 0 2,497 0 0
June 2011.................................... 0 0 182 0 0
June 2012.................................... 0 0 0 0 0
June 2013.................................... 0 0 0 0 0
June 2014.................................... 0 0 0 0 0
June 2015.................................... 0 0 0 0 0
June 2016.................................... 0 3,182 0 0 0
June 2017.................................... 0 4,498 0 0 0
June 2018.................................... 0 2,320 0 0 0
June 2019.................................... 0 0 0 0 0
June 2020.................................... 0 0 0 0 0
June 2021.................................... 0 0 0 0 0
June 2022.................................... 0 0 0 0 0
June 2023.................................... 10,000 0 0 0 0
June 2024.................................... 0 0 0 0 0
June 2025.................................... 0 0 0 0 0
June 2026.................................... 0 0 0 0 0
June 2027.................................... 0 0 0 0 0
June 2028.................................... 0 0 0 0 0
Total*....................................... $10,000 $10,000 $10,000 $10,000 $10,000
======= ======= ======= ======= =======
</TABLE>
- ---------------
* Total principal payments may not equal the sums of the respective columns due
to rounding.
S-17
<PAGE> 166
AGGREGATE RETAIL PRINCIPAL DISTRIBUTIONS OF THE DD CLASS
(FOR ILLUSTRATIVE PURPOSES ONLY)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
DISTRIBUTION ------------------------------------------
DATE 0% 100% 160% 250% 500%
- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 1999......................................... $ 0 $ 0 $ 0 $ 0 $8,859
June 2000......................................... 0 0 0 0 938
June 2001......................................... 0 0 0 5,044 0
June 2002......................................... 0 0 0 4,753 0
June 2003......................................... 0 0 0 0 0
June 2004......................................... 0 0 0 0 0
June 2005......................................... 0 0 0 0 0
June 2006......................................... 0 0 0 0 0
June 2007......................................... 0 0 0 0 0
June 2008......................................... 0 0 0 0 0
June 2009......................................... 0 0 61 0 0
June 2010......................................... 0 0 1,486 0 0
June 2011......................................... 0 0 1,519 0 0
June 2012......................................... 0 0 1,519 0 0
June 2013......................................... 0 0 1,494 0 0
June 2014......................................... 0 0 1,450 0 0
June 2015......................................... 0 0 1,392 0 0
June 2016......................................... 0 0 876 0 0
June 2017......................................... 0 534 0 0 0
June 2018......................................... 0 2,541 0 0 0
June 2019......................................... 0 2,492 0 0 0
June 2020......................................... 0 2,433 0 0 0
June 2021......................................... 0 1,798 0 0 0
June 2022......................................... 0 0 0 0 0
June 2023......................................... 0 0 0 0 0
June 2024......................................... 0 0 0 0 0
June 2025......................................... 0 0 0 0 0
June 2026......................................... 9,006 0 0 0 0
June 2027......................................... 791 0 0 0 0
June 2028......................................... 0 0 0 0 0
Total*............................................ $9,797 $9,797 $9,797 $9,797 $9,797
====== ====== ====== ====== ======
</TABLE>
- ---------------
* Total principal payments may not equal the sums of the respective columns due
to rounding.
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<PAGE> 167
AGGREGATE RETAIL PRINCIPAL DISTRIBUTIONS OF THE UU CLASS
(FOR ILLUSTRATIVE PURPOSES ONLY)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
DISTRIBUTION ------------------------------------------
DATE 0% 100% 160% 250% 500%
- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
June 1999......................................... $ 0 $ 0 $ 0 $ 0 $ 0
June 2000......................................... 0 0 0 0 8,754
June 2001......................................... 0 0 0 0 0
June 2002......................................... 0 0 0 214 0
June 2003......................................... 0 0 0 3,345 0
June 2004......................................... 0 0 0 2,016 0
June 2005......................................... 0 0 0 932 0
June 2006......................................... 0 0 0 391 0
June 2007......................................... 0 0 0 327 0
June 2008......................................... 0 0 0 273 0
June 2009......................................... 0 0 0 227 0
June 2010......................................... 0 0 0 189 0
June 2011......................................... 0 0 0 156 0
June 2012......................................... 0 0 0 129 0
June 2013......................................... 0 0 0 106 0
June 2014......................................... 0 0 0 87 0
June 2015......................................... 0 0 0 72 0
June 2016......................................... 0 0 448 58 0
June 2017......................................... 0 0 1,249 47 0
June 2018......................................... 0 0 1,171 38 0
June 2019......................................... 0 0 1,091 30 0
June 2020......................................... 0 0 1,011 24 0
June 2021......................................... 0 569 932 19 0
June 2022......................................... 0 2,296 856 15 0
June 2023......................................... 0 2,192 771 9 0
June 2024......................................... 0 2,066 683 4 0
June 2025......................................... 0 1,524 504 39 0
June 2026......................................... 0 106 37 7 0
June 2027......................................... 8,754 0 0 0 0
June 2028......................................... 0 0 0 0 0
Total*............................................ $8,754 $8,754 $8,754 $8,754 $8,754
====== ====== ====== ====== ======
</TABLE>
- ---------------
* Total principal payments may not equal the sums of the respective columns due
to rounding.
The foregoing tables have been prepared on the basis of assumptions, some
or all of which are likely to differ from actual experience. There can be no
assurance that the related Mortgage Loans will have the assumed characteristics
or will prepay at any of the constant rates shown in the tables or at any other
particular rate or that the amounts available for distribution of principal of a
Class of Retail Certificates will correspond to any of the amounts shown herein.
The rates of Retail Principal Distributions for any Class of Retail Certificates
will be directly related to the rate of principal distributions on the related
Underlying REMIC Certificate, which in turn will be sensitive to the rate of
principal payments of the related Mortgage Loans, the characteristics of such
Mortgage Loans and the priority sequence affecting the related Underlying REMIC
Certificate. As a result, the amounts available for distribution of principal of
a Class of Retail Certificates are likely to differ from those shown in the
table above, even if all the Mortgage Loans prepay at the indicated constant
percentages of PSA. In particular, the diverse remaining terms to maturity of
the Mortgage Loans could produce lower yields than those produced by Mortgage
Loans having the assumed characteristics. In addition, the Mortgage Loans will
not prepay at a constant level of PSA until maturity and it is extremely
unlikely that all of such Mortgage Loans will prepay at the same rate. The
timing of the changes in the rate of prepayments may significantly affect the
actual amounts available for distribution of principal to an investor (and may
affect the resulting yield to maturity), even if the average rate of principal
prepayments is consistent with an investor's expectation. In general, the
earlier the payment
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<PAGE> 168
of principal of the Mortgage Loans, the greater the effect on an investor's
yield to maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate slower (or faster) than the rate anticipated by
the investor during the period immediately following the issuance of the Retail
Certificates will not be equally offset by a subsequent like increase (or
decrease) in the rate of principal prepayments. Investors are urged to consult
their own financial advisors as to the appropriate prepayment assumption to be
used in deciding whether to purchase any Retail Certificates.
The weighted average lives of a Class of Retail Certificates shown in the
table referenced under "Decrement Tables" herein apply to such Class taken as a
whole; as a result of the distribution priorities and allocations described
above, the weighted average lives of individual Retail Certificates beneficially
owned by individual investors may vary significantly from the weighted average
life of the related Class as a whole. Although distributions of principal and
interest on the Retail Certificates are guaranteed by Fannie Mae as described
herein, Fannie Mae can give no assurance as to any particular principal
distribution scenario, as to any particular weighted average life for a Class of
Retail Certificates or as to the date or dates on which any particular investor
will receive distributions of principal. In addition, there is no assurance that
procedures of the financial intermediaries or the Depository will not change.
Investors in the Retail Certificates should understand that they are assuming
all risks and benefits associated with the rate of principal distributions on
such Retail Certificates, whether such rate is rapid or slow and with variations
in such rate from time to time. Investors in the Retail Certificates should also
consider that the effective yields to Holders of the Retail Certificates will be
lower than the yields otherwise produced because principal and interest payable
on a Distribution Date will not be distributed until on or about the 18th or
25th day, as applicable, following the end of the related Interest Accrual
Period and will not bear interest during such delay.
Investment Determination
The Retail Certificates may not be an appropriate investment for all
prospective investors. The Retail Certificates would not be an appropriate
investment for any investor requiring a particular distribution of principal on
a specified date or an otherwise predictable stream of principal distributions.
There is no assurance that any investor in the Retail Certificates will receive
a principal distribution (in integral multiples of $1,000) on any particular
Distribution Date. Any investor who purchases a Retail Certificate at a premium
(or a discount) should consider the risk that relatively early (or late)
principal distributions following issuance of the Certificates could result in
an actual yield that is lower than such investor's anticipated yield. In
addition, although the Dealer intends to make a secondary market in the Retail
Certificates, it has no obligation to do so, and any such market making may be
discontinued at any time. There is no assurance that such a secondary market
will develop, that any such market will continue or that information on any such
secondary market will be as readily available as information regarding certain
other types of investments. Thus, investors may not be able to sell their Retail
Certificates readily or at a price that will enable them to realize their
anticipated yield. The price of the Retail Certificates in any such secondary
market will be affected by various factors, and the volatility of such price may
differ from that evidenced by certain other types of investments. Accordingly,
there can be no assurance that the price at which an investor may be able to
sell a Retail Certificate will be the same as or higher than the purchase price
at which such investor purchased such Certificate; in fact, such price may be
lower and, under certain circumstances, substantially lower than the original
price for such Retail Certificate.
COMBINATION AND RECOMBINATION
General. Subject to the rules, regulations and procedures of the Federal
Reserve Banks, all or a portion of the FE, FG, SE, SG, SC, SD, FB and SB Classes
of REMIC Certificates may be exchanged for a proportionate interest in the
related RCR Certificates in accordance with the available combinations reflected
on Schedule 1 hereto. Similarly, all or a portion of the RCR Certificates may be
S-20
<PAGE> 169
exchanged in accordance with the available combinations reflected on Schedule 1,
for the related REMIC Certificates. This process may occur repeatedly.
The RCR Certificates issued in an exchange will represent a beneficial
ownership interest in, and will be entitled to receive a proportionate share of
the distributions on, the related REMIC Certificates, and the Holders of RCR
Certificates will be treated as the beneficial owners of a proportionate
interest in the related REMIC Certificates.
The Classes of REMIC Certificates and RCR Certificates that are outstanding
at any given time, and the outstanding principal balances of such Classes, will
depend upon any related distributions of principal as well as any exchanges that
occur. The principal balances of the REMIC Certificates and RCR Certificates
involved in any exchange will bear the same relationship as that borne by the
original principal balances of the related Classes.
Procedures. A Holder proposing to effect an exchange must notify Fannie
Mae's Capital Markets Department through a dealer who is a member of Fannie
Mae's "REMIC Dealer Group." Such notice must be given in writing or by telefax
not later than two business days before the proposed exchange date (which date,
subject to Fannie Mae's approval, can be any business day other than the first
or last business day of the month). The notice must include the outstanding
principal balance of both the Certificates to be exchanged and the Certificates
to be received, and the proposed exchange date. Promptly after the receipt of a
Holder's notice, Fannie Mae will telephone the dealer to provide instructions
for delivering the Certificates and the exchange fee to Fannie Mae by wire
transfer. A Holder's notice becomes irrevocable on the second business day
before the proposed exchange date.
A fee will be payable to Fannie Mae in connection with each exchange equal
to 1/32 of 1% of the outstanding principal balance (exclusive of any notional
principal balance) of the Certificates to be submitted for exchange, provided
that the fee payable in connection with each exchange will in no event be less
than $2,000.
The first distribution on a REMIC Certificate or an RCR Certificate
received in an exchange transaction will be made on the Distribution Date in the
month following the month of the exchange. Such distribution will be made to the
Holder of record as of the close of business on the last day of the month of the
exchange.
Additional Considerations. The characteristics of RCR Certificates will
reflect the characteristics of the REMIC Certificates used to form such RCR
Certificates.
At any given time, a Holder's ability to exchange REMIC Certificates for
RCR Certificates or to exchange RCR Certificates for REMIC Certificates will be
limited by a number of factors. A Holder must, at the time of the proposed
exchange, own Certificates of the Class or of the related Classes in the
proportions necessary to effect a desired exchange. A Holder that does not own
Certificates of the related Classes in the necessary proportions may not be able
to obtain the necessary REMIC Certificates or RCR Certificates, as applicable.
The Holder of needed Certificates may refuse or be unable to sell at a
reasonable price or any price, or certain Certificates may have been purchased
and placed into other financial structures. In addition, principal distributions
will, over time, diminish the amounts available for exchange. Only the
combinations listed on Schedule 1 are permitted.
BOOK-ENTRY PROCEDURES
General. The DTC Certificates will be registered at all times in the name
of the nominee of The Depository Trust Company, a New York-chartered limited
purpose trust company, or any successor depository selected or approved by
Fannie Mae (the "Depository"). In accordance with its normal procedures, the
Depository will record the positions held by each Depository participating firm
(each, a "Depository Participant") in the DTC Certificates, whether held for its
own account or as a nominee for another person. State Street will act as Paying
Agent for, and perform certain administrative functions with respect to, the DTC
Certificates.
S-21
<PAGE> 170
No person acquiring a beneficial ownership interest in the DTC Certificates
(a "beneficial owner" or an "investor") will be entitled to receive a physical
certificate representing such ownership interest. An investor's interest in the
DTC Certificates will be recorded on the records of the brokerage firm, bank,
thrift institution or other financial intermediary (a "financial intermediary")
that maintains such investor's account for such purpose. In turn, the financial
intermediary's record ownership of such interest will be recorded on the records
of the Depository (or of a Depository Participant that acts as an agent for the
financial intermediary if such intermediary is not a Depository Participant).
Accordingly, an investor will not be recognized by the Trustee or the Depository
as a Certificateholder and must rely on the foregoing arrangements to evidence
its interest in the DTC Certificates. Beneficial ownership of an investor's
interest in the DTC Certificates may be transferred only by compliance with the
procedures of an investor's financial intermediary and of Depository
Participants. In general, beneficial ownership of an investor's interest in the
DTC Certificates will be subject to the rules, regulations and procedures
governing the Depository and Depository Participants as in effect from time to
time.
The Fed Book-Entry Certificates will be issued and maintained only on the
book-entry system of the Federal Reserve Banks. Such Certificates may be held of
record only by entities eligible to maintain book-entry accounts with the
Federal Reserve Banks. Beneficial owners ordinarily will hold such Certificates
through one or more financial intermediaries, such as banks, brokerage firms and
securities clearing organizations. A Holder that is not the beneficial owner of
such a Certificate, and each other financial intermediary in the chain to the
beneficial owner, will have the responsibility of establishing and maintaining
accounts for their respective customers. The rights of the beneficial owner of
such a Certificate with respect to Fannie Mae and the Federal Reserve Banks may
be exercised only through the Holder of such Certificate. Fannie Mae and the
Federal Reserve Banks will have no direct obligation to a beneficial owner of
such a Certificate that is not also the Holder of the Certificate. The Federal
Reserve Banks will act only upon the instructions of the Holder in recording
transfers of such a Certificate. See "Description of the
Certificates--Denominations, Certificate Form" in the REMIC Prospectus.
Method of Distribution. Each distribution on the DTC Certificates will be
distributed by the Paying Agent to the Depository in immediately available
funds. The Depository will be responsible for crediting the amount of such
distributions to the accounts of the Depository Participants entitled thereto,
in accordance with the Depository's normal procedures, which currently provide
for distributions in same-day funds settled through the New York Clearing House.
Each Depository Participant and each financial intermediary will be responsible
for disbursing such distributions to the beneficial owners of the DTC
Certificates that it represents. Accordingly, the beneficial owners may
experience some delay in their receipt of distributions.
Fannie Mae's fiscal agent for the Fed Book-Entry Certificates is the
Federal Reserve Bank of New York. The Federal Reserve Banks will make
distributions on such Certificates on behalf of Fannie Mae on the applicable
Distribution Dates by crediting Holders' accounts at the Federal Reserve Banks.
THE TRUST MBS
The Trust MBS will have the aggregate unpaid principal balance and
Pass-Through Rate set forth below and the general characteristics described in
the MBS Prospectus. The Trust MBS will provide that principal and interest on
the related Mortgage Loans will be passed through monthly, commencing in the
month following the month of the initial issuance of the Trust MBS. The Mortgage
Loans underlying the Trust MBS will be conventional Level Payment Mortgage Loans
secured by first mortgages or deeds of trust on one- to four-family
("single-family") residential properties and having original maturities of up to
30 years. See "The Mortgage Pools" and "Yield
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<PAGE> 171
Considerations" in the MBS Prospectus. The characteristics of the Trust MBS and
the related Mortgage Loans as of June 1, 1998 (the "Issue Date") are expected to
be as follows:
<TABLE>
<S> <C>
TRUST MBS
Aggregate Unpaid Principal Balance....................... $500,000,000
MBS Pass-Through Rate.................................... 6.50%
RELATED MORTGAGE LOANS
Range of WACs (per annum percentages).................... 6.75% to 9.00%
Range of WAMs............................................ 241 months to 360 months
Approximate Weighted Average WAM......................... 357 months
Approximate Weighted Average CAGE........................ 2 months
</TABLE>
THE UNDERLYING REMIC CERTIFICATES
The Underlying REMIC Certificates represent beneficial ownership interests
in the related Underlying REMIC Trusts, the assets of which evidence beneficial
ownership interests in certain MBS having the general characteristics set forth
in the MBS Prospectus. Each MBS evidences beneficial ownership interests in a
Pool of conventional Level Payment Mortgage Loans secured by first mortgages or
deeds of trust on one- to four-family residential properties, as described under
"The Mortgage Pools" and "Yield Considerations" in the MBS Prospectus. The
Underlying REMIC Certificates provide that distributions thereon will be passed
through monthly, commencing in the month following the initial issuance thereof.
The general characteristics of the Underlying REMIC Certificates are described
in the related Underlying REMIC Disclosure Documents.
The table contained in Exhibit A hereto sets forth certain information with
respect to each of the Underlying REMIC Certificates, including the numerical
designation of the related trust, the class designation, the date of issue, the
CUSIP number, the interest rate, the interest type, the final distribution date,
the principal type, the original principal balance of the entire class, the
current principal factor for such class and the principal balance of such class
contained in the Lower Tier REMIC as of the Issue Date. The table also sets
forth the approximate weighted average WAC, approximate weighted average WAM and
approximate weighted average CAGE of the Mortgage Loans underlying the related
MBS as of the Issue Date, the underlying security type and the related Class
Group.
To request further information regarding the Underlying REMIC Certificates,
telephone Fannie Mae at 1-800-BEST-MBS or 202-752-6547. Other data specific to
the Certificates is available in electronic form by calling Fannie Mae at
1-800-752-6440 or 202-752-6000. It should be noted that there may have been
material changes in facts and circumstances since the dates the Underlying REMIC
Disclosure Documents were prepared, including, but not limited to, changes in
prepayment speeds and prevailing interest rates and other economic factors,
which may limit the usefulness of the information set forth in such documents.
FINAL DATA STATEMENT
Following the issuance of the Certificates, Fannie Mae will prepare a Final
Data Statement setting forth, among other information, the current principal
balances of the Underlying REMIC Certificates as of the Issue Date and with
respect to the Trust MBS, the Pool number, the current WAC (or original WAC, if
the current WAC is not available) and the current WAM (or Adjusted WAM, if the
current WAM is not available) of the Mortgage Loans underlying the Trust MBS,
along with the weighted averages of all the current or original WACs and the
weighted averages of all the current or Adjusted WAMs, based on the current
unpaid principal balances of the Mortgage Loans underlying each of the Trust MBS
as of the Issue Date. The Final Data Statement will not accompany this
Prospectus Supplement but will be made available by Fannie Mae. To request the
Final Data Statement, telephone Fannie Mae at 1-800-BEST-MBS or 202-752-6547.
The contents of the Final Data Statement and other data specific to the
Certificates are available in electronic form by calling Fannie Mae at
1-800-752-6440 or 202-752-6000.
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<PAGE> 172
DISTRIBUTIONS OF INTEREST
Categories of Classes
For the purpose of payments of interest, the Classes will be categorized as
follows:
<TABLE>
<CAPTION>
INTEREST TYPE* CLASSES
- -------------- -------
<S> <C>
GROUP 1 CLASSES
Fixed Rate PB, PC, PD, PE, PG, IO, B, C,
D, E, Z and G
Accrual Z
Floating Rate FA, FE, FG, FB and FJ
Inverse Floating Rate SC, SD, SE, SG, SB and SJ
Interest Only IO
Principal Only PN
RCR** H, A, SA, J, FH, SH and K
GROUP 2 CLASSES
Floating Rate F
Inverse Floating Rate S
GROUP 3 CLASSES
Fixed Rate GA, GB and GG
GROUP 4 CLASSES
Fixed Rate DA, DB, DD and UU
NO PAYMENT RESIDUAL R and RL
</TABLE>
- ---------------
* See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus.
** See "Description of the Certificates--Combination and Recombination" herein
and Schedule 1 for a further description of the RCR Classes.
General. The interest-bearing Certificates will bear interest at the
applicable per annum interest rates set forth on the cover or described herein.
Interest on the interest-bearing Certificates is calculated on the basis of a
360-day year consisting of twelve 30-day months and is distributable monthly on
each Distribution Date, commencing (except with respect to the Accrual Class) in
the month after the Settlement Date. Interest to be distributed or, in the case
of the Accrual Class, added to principal on each interest-bearing Certificate on
a Distribution Date will consist of one month's interest on the outstanding
principal balance of such Certificate immediately prior to such Distribution
Date.
Distributions of interest to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
Interest Accrual Periods. Interest to be distributed on a Distribution
Date will accrue on the interest-bearing Certificates during the one-month
periods set forth below (each, an "Interest Accrual Period").
<TABLE>
<CAPTION>
CLASSES INTEREST ACCRUAL PERIODS
------- ------------------------
<S> <C>
All Fixed Rate Classes and the Calendar month preceding the month in
FB, SB, FJ, SJ, H, A, J and which the Distribution Date occurs
K Classes (collectively, the
"Delay Classes")
All other Floating Rate and One month period ending on the day
Inverse Floating Rate preceding the Distribution Date
Classes and the SA, FH and
SH Classes
</TABLE>
See "Additional Risk Factors--Additional Yield and Prepayment Considerations"
herein.
Solely for purposes of facilitating the trading of the Principal Only
Class, such Class will be treated as a Delay Class.
Accrual Class. Interest will accrue on the Accrual Class at the applicable
per annum rate set forth on the cover hereof; however, such interest will not be
distributed thereon for so long as such Class remains outstanding. Interest so
accrued and unpaid on the Accrual Class will be added as
S-24
<PAGE> 173
principal to the principal balance thereof on each Distribution Date.
Distributions of principal of the Accrual Class will be made as described
herein.
Notional Class. The Notional Class will not have a principal balance and
will bear interest at the applicable per annum interest rate set forth on the
cover during each Interest Accrual Period on its notional principal balance. The
notional principal balance of the Notional Class will be calculated as specified
herein under "Reference Sheet--Notional Class."
The notional principal balance of a Notional Class is used for purposes of
the determination of interest distributions thereon and does not represent an
interest in any distributions of principal. Although a Notional Class will not
have a principal balance, a REMIC Trust Factor (as described herein) will be
published with respect to such Class that will be applicable to the notional
principal balance thereof, and references herein to the principal balances of
the Certificates generally shall be deemed to refer also to the notional
principal balance of the Notional Class.
Floating Rate and Inverse Floating Rate Classes. The Floating Rate and
Inverse Floating Rate Classes will bear interest during each Interest Accrual
Period, subject to applicable maximum and minimum interest rates, at rates
determined as described herein under "Reference Sheet--Interest Rates."
The yields with respect to such Classes will be affected by changes in the
index specified (the "Index"), which changes may not correlate with changes in
mortgage interest rates. It is possible that lower mortgage interest rates could
occur concurrently with an increase in the level of the Index. Conversely,
higher mortgage interest rates could occur concurrently with a decrease in the
level of the Index.
The establishment of each Index value by Fannie Mae and Fannie Mae's
determination of the rate or rates of interest for the applicable Class or
Classes for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning Fannie Mae at 1-800-BEST-MBS or 202-752-6547.
CALCULATION OF LIBOR
On each Index Determination Date, until the principal balances of the
Floating Rate and Inverse Floating Rate Classes have been reduced to zero,
Fannie Mae will establish LIBOR for the related Interest Accrual Period. LIBOR
will be established on the basis of the "BBA Method," as described in the REMIC
Prospectus under "Description of the Certificates--Indices Applicable to
Floating Rate and Inverse Floating Rate Classes--LIBOR." With respect to the
"BBA Method," Interest Settlement Rates currently are based on rates quoted by
sixteen BBA designated banks and are calculated by eliminating the four highest
rates and the four lowest rates and averaging the eight remaining rates.
If on the initial Index Determination Date, Fannie Mae is unable to
determine LIBOR in the manner specified in the REMIC Prospectus, LIBOR for the
next succeeding Interest Accrual Period will be equal to 5.65625%.
S-25
<PAGE> 174
DISTRIBUTIONS OF PRINCIPAL
Categories of Classes and Components
For the purpose of payments of principal, the Classes and Components will
be categorized as follows:
<TABLE>
<CAPTION>
PRINCIPAL TYPE* CLASSES AND COMPONENTS
- --------------- ----------------------
<S> <C>
GROUP 1 CLASSES AND COMPONENTS
PAC** FA1, SC1, SD1, PB, FA2, SC2, SD2, PC, PD,
PE and PG
TAC** B, FE, SE, C, D, E, FG and SG
Support Z, FA3, SC3, SD3, FB, SB, G, PN, FJ and SJ
Accretion Directed B, FE, SE, C, D, E, FG, SG, FA3, SC3 and
SD3
Notional IO
Component FA, SC and SD
RCR*** H, A, SA, J, FH, SH and K
GROUP 2 CLASSES
Structured F and S
Collateral/Pass-Through
GROUP 3 CLASSES
Structured GA, GB and GG
Collateral/Sequential Pay
Retail GG
GROUP 4 CLASSES
Structured DA, DB, DD and UU
Collateral/Sequential Pay
Retail DD and UU
NO PAYMENT RESIDUAL R and RL
</TABLE>
- --------------------
* See "Description of the Certificates--Class Definitions and
Abbreviations" in the REMIC Prospectus.
** The Principal Balance Schedules are set forth herein beginning on
page B-1.
*** See "Description of the Certificates--Combination and
Recombination" herein and Schedule 1 for a further description of
the RCR Classes.
Components. For purposes of calculating payments thereon, the FA, SC and
SD Classes are comprised of multiple payment Components having the designations
and original principal balances specified herein under "Reference
Sheet--Components." The payment characteristics of the FA, SC and SD Classes
will reflect a combination of the payment characteristics of the related
Components. Components are not separately transferable from the related Class of
Certificates.
Principal Distribution Amount
On each Distribution Date, principal will be distributed on the
Certificates in an amount (the "Principal Distribution Amount") equal to the sum
of (i) the aggregate distributions of principal to be made on the Trust MBS in
the month of such Distribution Date (the "Group 1 Cash Flow Distribution
Amount") and any interest accrued and added to the principal balance of the Z
Class (the "Z Accrual Amount," and together with the Group 1 Cash Flow
Distribution Amount, the "Group 1 Principal Distribution Amount"), (ii) the
aggregate distributions of principal concurrently made on the Class 1994-50-FA,
Class 1994-50-SA and Class 1994-50-SB REMIC Certificates (the "Group 2 Principal
Distribution Amount"), (iii) the distribution of principal concurrently made on
the Class 1994-41-G REMIC Certificate (the "Group 3 Principal Distribution
Amount") and (iv) the distribution of principal concurrently made on the Class
1997-13-Q REMIC Certificate (the "Group 4
S-26
<PAGE> 175
Principal Distribution Amount"). The portion of each class of Underlying REMIC
Certificates held by the Lower Tier REMIC will be set forth in Exhibit A.
Group 1 Principal Distribution Amount
Z Accrual Amount
On each Distribution Date, the Z Accrual Amount will be distributed as
principal of the Classes and Components specified below in the following order
of priority:
<TABLE>
<S> <C>
(i) concurrently, to the B, FE and SE Classes, pro rata (or
36.4039674208%, 51.6717757555% and 11.9242568237%, respectively),
until the principal balances thereof are reduced to their ACCRETION
respective Targeted Balances for such Distribution Date; DIRECTED/
TAC
(ii) concurrently, to the C, D, E, FG and SG Classes, pro CLASSES
rata (or 12.4401356885%, 11.9819152959%, 11.9819152959%,
51.6717754003% and 11.9242583194%, respectively), until the
principal balances thereof are reduced to their respective
Targeted Balances for such Distribution Date;
ACCRETION
(iii) concurrently, to the FA3, SC3 and SD3 Components, pro DIRECTED
rata (or 76.4705888456%, 6.3725490705% and 17.1568620839%, COMPONENTS
respectively), until the respective principal balances thereof AND
are reduced to zero, and then to the Z Class. ACCRUAL
CLASS
Group 1 Cash Flow Distribution Amount
On each Distribution Date, the Group 1 Cash Flow Distribution Amount will
be distributed as principal of the Group 1 Classes and Components in the
following order of priority:
(i) concurrently, to the FA1, SC1 and SD1 Components, pro
rata (or 76.4705882353%, 6.3725502233% and 17.1568615414%,
respectively), until the principal balances thereof are reduced
to their respective Planned Balances for such Distribution Date;
(ii) concurrently, to the PB Class and the FA2, SC2 and SD2
Components, pro rata (or 77.8092977271%, 16.9693597542%, PAC
1.4141123978% and 3.8072301209%, respectively), until the COMPONENTS
principal balances thereof are reduced to their respective AND
Planned Balances for such Distribution Date; CLASSES
(iii) sequentially, to the PC, PD, PE and PG Classes, in
that order, until the principal balances thereof are reduced to
their respective Planned Balances for such Distribution Date;
(iv) concurrently, to the B, FE and SE Classes, pro rata,
until the principal balances thereof are reduced to their
respective Targeted Balances for such Distribution Date;
(v) concurrently, to the C, D, E, FG and SG Classes, pro TAC
rata, until the principal balances thereof are reduced to their CLASSES
respective Targeted Balances for such Distribution Date;
</TABLE>
S-27
<PAGE> 176
<TABLE>
<S> <C>
(vi) to the Z Class, until the principal balance thereof is
reduced to zero;
SUPPORT
(vii) concurrently, to the FA3, SC3 and SD3 Components, pro COMPONENTS
rata, until the principal balances thereof are reduced to zero; AND
CLASSES
(viii) concurrently, to the FB, SB, G, PN, FJ and SJ
Classes, pro rata (or 27.0245926225%, 8.3152590606%,
3.2899198567%, 4.6185839530%, 49.6576889438% and 7.0939555634%,
respectively), until the principal balances thereof are reduced
to zero;
(ix) concurrently, to the B, FE and SE Classes, pro rata,
without regard to their Targeted Balances and until the principal
balances thereof are reduced to zero; TAC
CLASSES
(x) concurrently, to the C, D, E, FG and SG Classes, pro
rata, without regard to their Targeted Balances and until the
principal balances thereof are reduced to zero;
(xi) concurrently, to the FA1, SC1 and SD1 Components, pro
rata, without regard to their Planned Balances and until the
principal balances thereof are reduced to zero;
PAC
(xii) concurrently, to the PB Class and the FA2, SC2 and SD2 COMPONENTS
Components, pro rata, without regard to their Planned Balances AND
and until the principal balances thereof are reduced to zero; and CLASSES
(xiii) sequentially, to the PC, PD, PE and PG Classes, in
that order, without regard to their Planned Balances and until
the respective principal balances thereof are reduced to zero.
Group 2 Principal Distribution Amount
On each Distribution Date, the Group 2 Principal Distribution STRUCTURED
Amount will be distributed, concurrently, as principal of the F and S COLLATERAL/
Classes, pro rata (or 78.2002672191% and 21.7997327809%, PASS-THROUGH
respectively), until the principal balances thereof are reduced to CLASSES
zero.
Group 3 Principal Distribution Amount
On each Distribution Date, the Group 3 Principal Distribution Amount will
be distributed as principal of the Group 3 Classes in the following order of
priority:
(i) to the GA Class, until the principal balance thereof is
reduced to zero; and STRUCTURED
COLLATERAL/
(ii) concurrently, to the GB and GG Classes, pro rata (or SEQUENTIAL
38.8186380698% and 61.1813619302%, respectively), until the PAY CLASSES
principal balances thereof are reduced to zero.
Group 4 Principal Distribution Amount
On each Distribution Date, the Group 4 Principal Distribution STRUCTURED
Amount will be distributed, sequentially, as principal of the DA, DB, COLLATERAL/
DD and UU Classes in that order, until the principal balances thereof SEQUENTIAL
are reduced to zero. PAY CLASSES
</TABLE>
Distributions of principal to be allocated from REMIC Certificates to RCR
Certificates on any Distribution Date will be allocated on a pro rata basis.
STRUCTURING ASSUMPTIONS
Pricing Assumptions. Unless otherwise specified, the information in the
tables in this Prospectus Supplement has been prepared on the basis of the
actual characteristics of each Pool underlying the Underlying REMIC
Certificates, the priority sequences affecting the principal distributions of
the
S-28
<PAGE> 177
Underlying REMIC Certificates and the following assumptions (such
characteristics and assumptions, collectively, the "Pricing Assumptions"):
- the Mortgage Loans underlying the Trust MBS have the original terms to
maturity, remaining terms to maturity, CAGEs and interest rates as
specified herein under "Reference Sheet--Assumed Characteristics of
the Mortgage Loans Underlying the Trust MBS";
- the Mortgage Loans prepay at the constant percentages of PSA specified
in the related table; and
- the closing date for the sale of the Certificates is June 30, 1998.
Prepayment Assumptions. Prepayments of mortgage loans commonly are
measured relative to a prepayment standard or model. The model used herein is
The Bond Market Association's standard prepayment model ("PSA"). To assume a
specified rate of PSA is to assume a specified rate of prepayment each month of
the then outstanding principal balance of a pool of new mortgage loans computed
as described under "Description of the Certificates--Prepayment Models" in the
REMIC Prospectus. It is highly unlikely that prepayments will occur at any
constant PSA rate or at any other constant rate.
Structuring Range and Rate. The Principal Balance Schedules have been
prepared on the basis of the Pricing Assumptions and the assumption that the
related Mortgage Loans prepay at a constant PSA rate within the applicable
Structuring Range or at the applicable rate set forth below.
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
SCHEDULE REFERENCES RELATED CLASSES AND COMPONENTS STRUCTURING RANGE AND RATE
- ------------------- ------------------------------ --------------------------
<S> <C> <C>
Planned Balances FA1, SC1, SD1, PB, FA2, SC2,
SD2, PC, PD, PE and PG Between 100% and 250%
Targeted Balances B, FE, SE, C, D, E, FG, SG, A,
J, FH, SH and K 170%
</TABLE>
THERE IS NO ASSURANCE THAT THE BALANCE OF ANY CLASS OR COMPONENT LISTED
ABOVE WILL CONFORM ON ANY DISTRIBUTION DATE TO THE APPLICABLE BALANCE SPECIFIED
FOR SUCH DISTRIBUTION DATE IN THE PRINCIPAL BALANCE SCHEDULES HEREIN, OR THAT
DISTRIBUTIONS OF PRINCIPAL OF SUCH CLASS OR COMPONENT WILL BEGIN OR END ON THE
RESPECTIVE DISTRIBUTION DATES SPECIFIED THEREIN. Because any excess of the
principal distribution on any Distribution Date over the amount necessary to
reduce any such Class or Component to its scheduled balance will be distributed
or allocated, the ability to so reduce such Class or Component will not be
enhanced by the averaging of high and low principal payments from month to
month. In addition, even if prepayments occur on the related Mortgage Loans at
rates falling within the applicable Structuring Range specified above, principal
distributions may be insufficient to reduce the applicable Class or Component to
its scheduled balance if such prepayments do not occur at a constant PSA rate.
Moreover, because of the diverse remaining terms to maturity of the related
Mortgage Loans (which may include recently originated Mortgage Loans), the
Classes and Components specified above may not be reduced to their scheduled
balances, even if prepayments occur at a constant rate within the applicable
Structuring Range or at the applicable rate specified above.
Initial Effective Ranges. The Effective Range for a Class or Component is
the range of prepayment rates (measured by constant PSA rates) that would reduce
such Class or Component to its scheduled balance on each Distribution Date. The
Initial Effective Ranges set forth in the table
S-29
<PAGE> 178
below are based upon the assumed characteristics of the related Mortgage Loans
specified in the Pricing Assumptions.
<TABLE>
<CAPTION>
RELATED CLASSES AND COMPONENTS INITIAL EFFECTIVE RANGES
- ------------------------------ ------------------------
<S> <C>
FA1 Between 100% and 752%
SC1 Between 100% and 752%
SD1 Between 100% and 752%
PB Between 100% and 413%
FA2 Between 100% and 413%
SC2 Between 100% and 413%
SD2 Between 100% and 413%
PC Between 100% and 294%
PD Between 100% and 258%
PE Between 100% and 251%
PG Between 100% and 250%
</TABLE>
The actual Effective Ranges at any time will be based upon the actual
characteristics of the related Mortgage Loans at such time, which are likely to
vary (and may vary considerably) from the Pricing Assumptions. The actual
Effective Ranges calculated on the basis of the actual characteristics likely
will differ from the Initial Effective Ranges. As a result, the applicable Class
or Component might not be reduced to their scheduled balances even if
prepayments were to occur at a constant PSA rate within the Initial Effective
Ranges (particularly if such rate were at the lower or higher end of such
ranges). In addition, even if prepayments occur at rates falling within the
actual Effective Ranges, principal distributions may be insufficient to reduce
the applicable Classes and Components to their scheduled balances if such
prepayments do not occur at a constant PSA rate. It is highly unlikely that the
related Mortgage Loans will prepay at any constant PSA rate. In general, the
actual Effective Ranges may narrow, widen or shift upward or downward to reflect
actual prepayment experience over time. The stability in principal payment of
the PAC Classes and Components will be supported in part by the related Support
and TAC Classes and Components. When the Support and TAC Classes and Components
are retired, any outstanding PAC Class or Component may no longer have an
Effective Range and will be more sensitive to prepayments.
YIELD TABLES
General. The tables below indicate the sensitivity of the pre-tax
corporate bond equivalent yields to maturity of applicable Classes to various
constant percentages of PSA and, where specified, to changes in the Index. The
yields set forth in the tables were calculated by determining the monthly
discount rates that, when applied to the assumed streams of cash flows to be
paid on the applicable Classes, would cause the discounted present value of such
assumed streams of cash flows to equal the assumed aggregate purchase prices of
such Classes and converting such monthly rates to corporate bond equivalent
rates. Such calculations do not take into account variations that may occur in
the interest rates at which investors may be able to reinvest funds received by
them as distributions on the Certificates and consequently do not purport to
reflect the return on any investment in the Certificates when such reinvestment
rates are considered. There can be no assurance that the pre-tax yields on the
applicable Certificates will correspond to any of the pre-tax yields shown
herein or that the aggregate purchase prices of the applicable Certificates will
be as assumed. In addition, there can be no assurance that the Index will
correspond to the levels shown herein. Furthermore, because some of the Mortgage
Loans will likely have remaining terms to maturity shorter or longer than those
assumed and interest rates higher or lower than those assumed, the principal
distributions on the Certificates are likely to differ from those assumed, even
if all Mortgage Loans prepay at the indicated constant percentages of PSA.
Moreover, it is not likely that the Mortgage Loans will prepay at a constant PSA
rate until maturity, that all of such Mortgage Loans will prepay at the same
rate or that the level of the Index will remain constant.
The Inverse Floating Rate Classes and the SA and SH Classes. THE YIELDS TO
INVESTORS IN THE INVERSE FLOATING RATE CLASSES AND THE SA AND SH CLASSES WILL BE
SENSITIVE IN VARYING
S-30
<PAGE> 179
DEGREES TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE RELATED
MORTGAGE LOANS AND TO THE LEVEL OF THE INDEX. THE MORTGAGE LOANS GENERALLY CAN
BE PREPAID AT ANY TIME. IN ADDITION, THE RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE MORTGAGE LOANS IS LIKELY TO VARY, AND MAY VARY CONSIDERABLY,
FROM POOL TO POOL.
Changes in the Index may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of such Index.
The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumptions that (i) the interest rates
applicable to the Inverse Floating Rate Classes and the SA and SH Classes for
the initial Interest Accrual Period are the rates listed in the table under
"Reference Sheet--Interest Rates" herein and for each Interest Accrual Period
subsequent to the initial Interest Accrual Period will be based on the indicated
level of the Index and (ii) the aggregate purchase prices of such Classes
(expressed in each case as a percentage of original principal balance) are as
follows:
<TABLE>
<CAPTION>
CLASS PRICE*
- ----- -------
<S> <C>
SC ......................................................... 98.500%
SD ......................................................... 95.000%
SE ......................................................... 95.000%
SG ......................................................... 83.000%
SB ......................................................... 82.875%
SJ ......................................................... 90.750%
S ......................................................... 82.000%
SA ......................................................... 96.000%
SH ......................................................... 93.000%
</TABLE>
- ---------------
* The prices do not include accrued interest. Accrued interest
has been added to such prices in calculating the yields set
forth in the tables below.
SENSITIVITY OF THE SC CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
--------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
7.5000% and below...................... 8.1% 8.2% 8.5% 8.9% 9.2%
7.8125%................................ 4.3% 4.3% 4.7% 5.1% 5.5%
8.1500%................................ 0.1% 0.1% 0.6% 1.1% 1.5%
</TABLE>
SENSITIVITY OF THE SD CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%............................... 19.0% 19.0% 20.0% 21.3% 22.4%
5.65625%............................... 9.1% 9.2% 10.4% 11.8% 12.9%
7.50000% and above..................... 0.4% 0.4% 1.9% 3.3% 4.4%
</TABLE>
S-31
<PAGE> 180
SENSITIVITY OF THE SE CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%............................... 18.8% 19.0% 19.9% 20.2% 21.5%
5.65625%............................... 9.3% 9.5% 10.4% 10.9% 12.3%
7.60000%............................... 0.3% 0.6% 1.5% 2.1% 3.6%
</TABLE>
SENSITIVITY OF THE SG CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%............................... 21.4% 21.5% 21.6% 22.9% 28.1%
5.65625%............................... 10.6% 10.7% 11.0% 12.5% 17.8%
7.60000%............................... 0.8% 1.0% 1.3% 2.9% 8.2%
</TABLE>
SENSITIVITY OF THE SB CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%............................... 16.5% 16.5% 16.6% 22.6% 31.3%
5.65625%............................... 8.5% 8.5% 8.7% 15.0% 23.7%
7.75000%............................... 0.7% 0.7% 0.9% 7.3% 15.9%
</TABLE>
SENSITIVITY OF THE SJ CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%............................... 27.3% 27.3% 27.3% 29.9% 34.0%
5.65625%............................... 11.0% 11.0% 11.1% 14.2% 18.4%
7.05000%............................... 0.3% 0.4% 0.4% 3.7% 8.1%
</TABLE>
SENSITIVITY OF THE S CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 155% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%............................... 19.7% 19.8% 19.9% 21.4% 38.1%
5.65625%............................... 10.7% 10.8% 11.1% 12.8% 29.6%
7.65625%............................... 2.3% 2.4% 2.7% 4.4% 21.3%
8.00000%............................... 0.9% 1.0% 1.3% 3.0% 19.9%
</TABLE>
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<PAGE> 181
SENSITIVITY OF THE SA CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%............................... 15.9% 16.0% 16.8% 17.8% 18.6%
5.65625%............................... 8.9% 8.9% 9.9% 11.0% 11.8%
7.65625%............................... 2.0% 2.0% 3.2% 4.3% 5.2%
8.15000%............................... 0.3% 0.3% 1.5% 2.7% 3.6%
</TABLE>
SENSITIVITY OF THE SH CLASS TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
LIBOR 50% 100% 170% 250% 500%
- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
3.65625%.......................... 19.3% 19.5% 20.4% 20.9% 22.9%
5.65625%.......................... 9.5% 9.8% 10.6% 11.3% 13.5%
7.60000%.......................... 0.4% 0.7% 1.5% 2.3% 4.6%
</TABLE>
The IO Class. THE YIELD TO INVESTORS IN THE IO CLASS WILL BE VERY
SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) OF THE
RELATED MORTGAGE LOANS. THE MORTGAGE LOANS GENERALLY CAN BE PREPAID AT ANY TIME.
ON THE BASIS OF THE ASSUMPTIONS DESCRIBED BELOW, THE YIELD TO MATURITY ON THE IO
CLASS WOULD BE 0% IF PREPAYMENTS OF THE RELATED MORTGAGE LOANS WERE TO OCCUR AT
A CONSTANT RATE OF APPROXIMATELY 400% PSA. IF THE ACTUAL PREPAYMENT RATE OF THE
RELATED MORTGAGE LOANS WERE TO EXCEED THE APPLICABLE LEVEL FOR AS LITTLE AS ONE
MONTH WHILE EQUALING SUCH LEVEL FOR THE REMAINING MONTHS, THE INVESTORS IN THE
IO CLASS WOULD NOT FULLY RECOUP THEIR INITIAL INVESTMENTS.
The information set forth in the following tables was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase price
of the IO Class (expressed as a percentage of the original principal balance) is
as follows:
<TABLE>
<CAPTION>
CLASS PRICE*
- ----- --------
<S> <C>
IO.......................................................... 23.3125%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest
has been added to such price in calculating the yields set
forth in the table below.
SENSITIVITY OF THE IO CLASS TO PREPAYMENTS
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-----------------------------------
50% 100% 170% 250% 500%
----- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Pre-Tax Yields to Maturity................... 17.9% 8.9% 8.9% 8.9% (8.6)%
</TABLE>
The Principal Only Class. THE PRINCIPAL ONLY CLASS WILL NOT BEAR INTEREST.
AS INDICATED IN THE TABLE BELOW, A LOW RATE OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) ON THE RELATED MORTGAGE LOANS WILL HAVE A NEGATIVE EFFECT ON THE
YIELD TO INVESTORS IN THE PRINCIPAL ONLY CLASS.
The information set forth in the following table was prepared on the basis
of the Pricing Assumptions and the assumption that the aggregate purchase price
of the Principal Only Class (expressed as a percentage of original principal
balance) is as follows:
<TABLE>
<CAPTION>
CLASS PRICE
- ----- --------
<S> <C>
PN.......................................................... 62.9375%
</TABLE>
S-33
<PAGE> 182
SENSITIVITY OF THE PRINCIPAL ONLY CLASS TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
----------------------------------
CLASS 50% 100% 170% 250% 500%
- ----- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
PN........................................ 1.6% 1.7% 2.1% 18.5% 41.5%
</TABLE>
WEIGHTED AVERAGE LIVES OF THE CERTIFICATES
The weighted average life of a Certificate is determined by (a) multiplying
the amount of the reduction, if any, of the principal balance of such
Certificate from one Distribution Date to the next Distribution Date by the
number of years from the Settlement Date to the second such Distribution Date,
(b) summing the results and (c) dividing the sum by the aggregate amount of the
reductions in principal balance of such Certificate referred to in clause (a).
For a description of the factors which may influence the weighted average life
of a Certificate, see "Description of the Certificates--Weighted Average Life
and Final Distribution Dates" in the REMIC Prospectus.
In general, the weighted average lives of the Certificates will be
shortened if the level of prepayments of principal of the related Mortgage Loans
increases. However, the weighted average lives will depend upon a variety of
other factors, including the timing of changes in such rate of principal
payments, the priority sequence of distributions of principal of the Group 1
Classes and, in the case of the Group 2, Group 3 and Group 4 Classes, the
priority sequences of principal distributions of the related Underlying REMIC
Certificates. The weighted average lives of certain Group 1 Classes will also
depend on the distribution of principal of certain Classes and Components in
accordance with the Principal Balance Schedules. See "Distributions of
Principal" herein and "Description of the Certificates--Distributions of
Principal" in the Underlying REMIC Disclosure Documents.
The effect of the foregoing factors may differ as to various Classes and
the effects on any Class may vary at different times during the life of such
Class. Accordingly, no assurance can be given as to the weighted average life of
any Class. Further, to the extent the prices of the Certificates represent
discounts or premiums to their respective original principal balances,
variability in the weighted average lives of such Classes of Certificates could
result in variability in the related yields to maturity. For an example of how
the weighted average lives of the Classes may be affected at various constant
prepayment rates, see the Decrement Tables below.
As described under "Distributions of Principal--Components" herein, for
purposes of calculating payments thereon, the FA, SC and SD Classes are
comprised of multiple payment components. Since such components are not
divisible, the payment characteristics of such Classes will reflect a
combination of the payment characteristics of the related Components.
S-34
<PAGE> 183
DECREMENT TABLES
The following tables indicate the percentages of original principal
balances of the specified Classes that would be outstanding after each of the
dates shown at various constant PSA rates and the corresponding weighted average
lives of such Classes. The tables have been prepared on the basis of the Pricing
Assumptions, except that with respect to the information set forth for each such
Class under 0% PSA it has been assumed that the underlying Mortgage Loans have
the original and remaining terms to maturity and bear interest at the per annum
rates specified below:
<TABLE>
<CAPTION>
MORTGAGE LOANS RELATING ORIGINAL REMAINING
TO TRUST ASSETS TERMS TERMS INTEREST RELATED
SPECIFIED BELOW TO MATURITY TO MATURITY RATES GROUPS
----------------------- ----------- ----------- -------- -------
<C> <C> <C> <C> <S>
Trust MBS 360 months 360 months 9.00% Group 1
1994-50 360 months 309 months 9.00% Group 2
1994-41 360 months 309 months 9.50% Group 3
1997-13 360 months 345 months 9.00% Group 4
</TABLE>
It is not likely that (i) all of the underlying Mortgage Loans will have
the interest rates, CAGEs or remaining terms to maturity assumed or (ii) the
underlying Mortgage Loans will prepay at a constant PSA level. In addition, the
diverse remaining terms to maturity of the Mortgage Loans could produce slower
or faster principal distributions than indicated in the tables at the specified
constant PSA rates, even if the distributions of the weighted average remaining
terms to maturity and the weighted average CAGEs of the Mortgage Loans are
identical to the distributions of the remaining terms to maturity and CAGEs
specified in the Pricing Assumptions.
PERCENT OF ORIGINAL PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
PB CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 93 93 93 93
June 2001........... 100 4 4 4 0
June 2002........... 92 0 0 0 0
June 2003........... 79 0 0 0 0
June 2004........... 64 0 0 0 0
June 2005........... 48 0 0 0 0
June 2006........... 30 0 0 0 0
June 2007........... 11 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 6.7 2.5 2.5 2.5 2.4
<CAPTION>
PC CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 43
June 2002........... 100 49 49 49 0
June 2003........... 100 0 0 0 0
June 2004........... 100 0 0 0 0
June 2005........... 100 0 0 0 0
June 2006........... 100 0 0 0 0
June 2007........... 100 0 0 0 0
June 2008........... 94 0 0 0 0
June 2009........... 79 0 0 0 0
June 2010........... 63 0 0 0 0
June 2011........... 46 0 0 0 0
June 2012........... 27 0 0 0 0
June 2013........... 6 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 12.7 4.0 4.0 4.0 3.0
<CAPTION>
PD CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 7
June 2003........... 100 98 98 98 0
June 2004........... 100 49 49 49 0
June 2005........... 100 2 2 2 0
June 2006........... 100 0 0 0 0
June 2007........... 100 0 0 0 0
June 2008........... 100 0 0 0 0
June 2009........... 100 0 0 0 0
June 2010........... 100 0 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 83 0 0 0 0
June 2015........... 57 0 0 0 0
June 2016........... 29 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 17.2 6.0 6.0 6.0 3.7
<CAPTION>
PE CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 100 100 100 100 0
June 2004........... 100 100 100 100 0
June 2005........... 100 100 100 100 0
June 2006........... 100 2 2 2 0
June 2007........... 100 0 0 0 0
June 2008........... 100 0 0 0 0
June 2009........... 100 0 0 0 0
June 2010........... 100 0 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 95 0 0 0 0
June 2018........... 16 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 19.6 7.5 7.5 7.5 4.3
</TABLE>
- ---------------
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
S-35
<PAGE> 184
<TABLE>
<CAPTION>
PG CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 100 100 100 100 82
June 2004........... 100 100 100 100 57
June 2005........... 100 100 100 100 39
June 2006........... 100 100 100 100 27
June 2007........... 100 84 84 84 18
June 2008........... 100 70 70 70 13
June 2009........... 100 58 58 58 9
June 2010........... 100 48 48 48 6
June 2011........... 100 40 40 40 4
June 2012........... 100 33 33 33 3
June 2013........... 100 27 27 27 2
June 2014........... 100 22 22 22 1
June 2015........... 100 18 18 18 1
June 2016........... 100 14 14 14 1
June 2017........... 100 12 12 12 *
June 2018........... 100 9 9 9 *
June 2019........... 88 7 7 7 *
June 2020........... 73 6 6 6 *
June 2021........... 56 4 4 4 *
June 2022........... 37 3 3 3 *
June 2023........... 16 2 2 2 *
June 2024........... 2 2 2 2 *
June 2025........... 1 1 1 1 *
June 2026........... 1 1 1 1 *
June 2027........... * * * * *
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.2 13.1 13.1 13.1 7.1
<CAPTION>
IO+ CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 99 99 99 99
June 2001........... 100 81 81 81 57
June 2002........... 98 59 59 59 3
June 2003........... 96 39 39 39 0
June 2004........... 93 19 19 19 0
June 2005........... 90 1 1 1 0
June 2006........... 86 0 0 0 0
June 2007........... 82 0 0 0 0
June 2008........... 77 0 0 0 0
June 2009........... 72 0 0 0 0
June 2010........... 65 0 0 0 0
June 2011........... 58 0 0 0 0
June 2012........... 50 0 0 0 0
June 2013........... 42 0 0 0 0
June 2014........... 33 0 0 0 0
June 2015........... 22 0 0 0 0
June 2016........... 11 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 13.3 4.5 4.5 4.5 3.1
<CAPTION>
FA, SC, SD AND SA CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 89 44
June 2000........... 96 78 73 22 22
June 2001........... 84 57 35 1 0
June 2002........... 78 56 21 0 0
June 2003........... 75 56 11 0 0
June 2004........... 71 56 3 0 0
June 2005........... 68 56 * 0 0
June 2006........... 63 56 * 0 0
June 2007........... 59 56 * 0 0
June 2008........... 56 56 * 0 0
June 2009........... 56 56 * 0 0
June 2010........... 56 56 * 0 0
June 2011........... 56 56 0 0 0
June 2012........... 56 56 0 0 0
June 2013........... 56 56 0 0 0
June 2014........... 56 56 0 0 0
June 2015........... 56 56 0 0 0
June 2016........... 56 56 0 0 0
June 2017........... 56 56 0 0 0
June 2018........... 56 56 0 0 0
June 2019........... 56 54 0 0 0
June 2020........... 56 52 0 0 0
June 2021........... 56 37 0 0 0
June 2022........... 56 13 0 0 0
June 2023........... 56 0 0 0 0
June 2024........... 56 0 0 0 0
June 2025........... 56 0 0 0 0
June 2026........... 56 0 0 0 0
June 2027........... 25 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 18.4 14.0 3.0 1.7 1.3
<CAPTION>
B, FE, SE AND J CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 96 86 82 82 82
June 2000........... 93 69 57 57 23
June 2001........... 93 69 46 46 0
June 2002........... 92 68 36 29 0
June 2003........... 92 68 28 9 0
June 2004........... 91 67 22 0 0
June 2005........... 91 67 17 0 0
June 2006........... 90 66 13 0 0
June 2007........... 90 66 10 0 0
June 2008........... 89 64 8 0 0
June 2009........... 88 60 5 0 0
June 2010........... 88 54 1 0 0
June 2011........... 87 47 0 0 0
June 2012........... 86 39 0 0 0
June 2013........... 85 30 0 0 0
June 2014........... 84 21 0 0 0
June 2015........... 83 11 0 0 0
June 2016........... 82 1 0 0 0
June 2017........... 81 0 0 0 0
June 2018........... 80 0 0 0 0
June 2019........... 79 0 0 0 0
June 2020........... 77 0 0 0 0
June 2021........... 76 0 0 0 0
June 2022........... 74 0 0 0 0
June 2023........... 73 0 0 0 0
June 2024........... 60 0 0 0 0
June 2025........... 22 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 22.8 10.0 3.8 2.7 1.6
</TABLE>
<TABLE>
<CAPTION>
C, D, E, FG, SG AND
K CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 100 0
June 2003........... 100 100 100 100 0
June 2004........... 100 100 100 76 0
June 2005........... 100 100 100 31 0
June 2006........... 100 100 100 7 0
June 2007........... 100 100 100 * 0
June 2008........... 100 100 100 * 0
June 2009........... 100 100 100 * 0
June 2010........... 100 100 100 * 0
June 2011........... 100 100 83 * 0
June 2012........... 100 100 60 * 0
June 2013........... 100 100 38 * 0
June 2014........... 100 100 15 * 0
June 2015........... 100 100 0 * 0
June 2016........... 100 100 0 * 0
June 2017........... 100 54 0 * 0
June 2018........... 100 2 0 * 0
June 2019........... 100 0 0 * 0
June 2020........... 100 0 0 * 0
June 2021........... 100 0 0 * 0
June 2022........... 100 0 0 * 0
June 2023........... 100 0 0 * 0
June 2024........... 100 0 0 * 0
June 2025........... 100 0 0 * 0
June 2026........... 1 0 0 * 0
June 2027........... 0 0 0 * 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 27.8 19.1 14.5 6.7 2.4
<CAPTION>
Z CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 107 107 58 0 0
June 2000........... 114 114 0 0 0
June 2001........... 121 121 0 0 0
June 2002........... 130 130 0 0 0
June 2003........... 138 138 0 0 0
June 2004........... 148 148 0 0 0
June 2005........... 157 157 0 0 0
June 2006........... 168 168 0 0 0
June 2007........... 179 179 0 0 0
June 2008........... 191 191 0 0 0
June 2009........... 204 204 0 0 0
June 2010........... 218 218 0 0 0
June 2011........... 232 232 0 0 0
June 2012........... 248 248 0 0 0
June 2013........... 264 264 0 0 0
June 2014........... 282 282 0 0 0
June 2015........... 301 301 0 0 0
June 2016........... 321 321 0 0 0
June 2017........... 343 343 0 0 0
June 2018........... 366 366 0 0 0
June 2019........... 390 218 0 0 0
June 2020........... 416 59 0 0 0
June 2021........... 444 0 0 0 0
June 2022........... 474 0 0 0 0
June 2023........... 506 0 0 0 0
June 2024........... 539 0 0 0 0
June 2025........... 576 0 0 0 0
June 2026........... 614 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.4 21.2 1.0 0.4 0.2
<CAPTION>
FB, SB, G, PN, FJ, SJ AND
H CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 84
June 2000........... 100 100 100 89 0
June 2001........... 100 100 100 26 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 100 0 0
June 2008........... 100 100 100 0 0
June 2009........... 100 100 100 0 0
June 2010........... 100 100 100 0 0
June 2011........... 100 100 100 0 0
June 2012........... 100 100 100 0 0
June 2013........... 100 100 100 0 0
June 2014........... 100 100 100 0 0
June 2015........... 100 100 96 0 0
June 2016........... 100 100 85 0 0
June 2017........... 100 100 75 0 0
June 2018........... 100 100 65 0 0
June 2019........... 100 100 55 0 0
June 2020........... 100 100 47 0 0
June 2021........... 100 100 39 0 0
June 2022........... 100 100 31 0 0
June 2023........... 100 91 25 0 0
June 2024........... 100 71 18 0 0
June 2025........... 100 51 13 0 0
June 2026........... 100 32 8 0 0
June 2027........... 100 13 3 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 29.6 27.1 22.1 2.6 1.2
<CAPTION>
A, FH AND SH CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 170% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 97 88 85 85 85
June 2000........... 94 74 64 64 36
June 2001........... 94 74 54 54 0
June 2002........... 94 73 47 40 0
June 2003........... 93 73 40 24 0
June 2004........... 93 73 35 12 0
June 2005........... 92 72 31 5 0
June 2006........... 92 72 27 1 0
June 2007........... 91 71 25 * 0
June 2008........... 91 70 23 * 0
June 2009........... 90 66 20 * 0
June 2010........... 90 62 17 * 0
June 2011........... 89 56 14 * 0
June 2012........... 88 49 10 * 0
June 2013........... 88 42 6 * 0
June 2014........... 87 34 2 * 0
June 2015........... 86 26 0 * 0
June 2016........... 85 17 0 * 0
June 2017........... 84 9 0 * 0
June 2018........... 83 * 0 * 0
June 2019........... 82 0 0 * 0
June 2020........... 81 0 0 * 0
June 2021........... 80 0 0 * 0
June 2022........... 79 0 0 * 0
June 2023........... 77 0 0 * 0
June 2024........... 66 0 0 * 0
June 2025........... 35 0 0 * 0
June 2026........... * 0 0 * 0
June 2027........... 0 0 0 * 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.6 11.5 5.5 3.4 1.7
</TABLE>
- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
+ In the case of a Notional Class, the Decrement Table indicates the percentage
of the original notional principal balance outstanding.
S-36
<PAGE> 185
<TABLE>
<CAPTION>
F AND S CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 155% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 54
June 2000........... 100 100 100 100 0
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 86 0
June 2003........... 100 100 100 74 0
June 2004........... 100 100 100 59 0
June 2005........... 100 100 100 45 0
June 2006........... 100 100 100 33 0
June 2007........... 100 100 100 22 0
June 2008........... 100 100 100 13 0
June 2009........... 100 100 89 4 0
June 2010........... 100 100 77 0 0
June 2011........... 100 100 68 0 0
June 2012........... 100 100 60 0 0
June 2013........... 100 100 53 0 0
June 2014........... 100 100 45 0 0
June 2015........... 100 90 38 0 0
June 2016........... 100 77 32 0 0
June 2017........... 100 65 26 0 0
June 2018........... 100 52 20 0 0
June 2019........... 100 40 15 0 0
June 2020........... 100 28 10 0 0
June 2021........... 100 17 5 0 0
June 2022........... 100 6 2 0 0
June 2023........... 46 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 24.9 20.3 15.9 6.9 1.1
<CAPTION>
GA CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 200% 300% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 0
June 2000........... 100 100 100 81 0
June 2001........... 100 100 100 0 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 33 0 0
June 2007........... 100 100 0 0 0
June 2008........... 100 100 0 0 0
June 2009........... 100 100 0 0 0
June 2010........... 100 100 0 0 0
June 2011........... 100 100 0 0 0
June 2012........... 100 100 0 0 0
June 2013........... 100 100 0 0 0
June 2014........... 100 100 0 0 0
June 2015........... 100 42 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 100 0 0 0 0
June 2019........... 100 0 0 0 0
June 2020........... 100 0 0 0 0
June 2021........... 100 0 0 0 0
June 2022........... 12 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 23.9 17.0 7.8 2.1 0.8
<CAPTION>
GB AND GG CLASSES
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 200% 300% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 45
June 2000........... 100 100 100 100 0
June 2001........... 100 100 100 37 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 82 0 0
June 2008........... 100 100 54 0 0
June 2009........... 100 100 27 0 0
June 2010........... 100 100 2 0 0
June 2011........... 100 100 0 0 0
June 2012........... 100 100 0 0 0
June 2013........... 100 100 0 0 0
June 2014........... 100 100 0 0 0
June 2015........... 100 100 0 0 0
June 2016........... 100 68 0 0 0
June 2017........... 100 23 0 0 0
June 2018........... 100 0 0 0 0
June 2019........... 100 0 0 0 0
June 2020........... 100 0 0 0 0
June 2021........... 100 0 0 0 0
June 2022........... 100 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 24.4 18.4 10.2 2.9 1.0
<CAPTION>
DA CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 160% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 47 0 0
June 2000........... 100 100 8 0 0
June 2001........... 100 100 0 0 0
June 2002........... 100 100 0 0 0
June 2003........... 100 100 0 0 0
June 2004........... 100 100 0 0 0
June 2005........... 100 100 0 0 0
June 2006........... 100 100 0 0 0
June 2007........... 100 100 0 0 0
June 2008........... 100 100 0 0 0
June 2009........... 100 100 0 0 0
June 2010........... 100 100 0 0 0
June 2011........... 100 100 0 0 0
June 2012........... 100 100 0 0 0
June 2013........... 100 100 0 0 0
June 2014........... 100 68 0 0 0
June 2015........... 100 24 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 100 0 0 0 0
June 2019........... 100 0 0 0 0
June 2020........... 100 0 0 0 0
June 2021........... 100 0 0 0 0
June 2022........... 100 0 0 0 0
June 2023........... 100 0 0 0 0
June 2024........... 100 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 26.7 16.4 1.0 0.3 0.1
</TABLE>
<TABLE>
<CAPTION>
DB CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 160% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 32 0
June 2000........... 100 100 100 32 0
June 2001........... 100 100 61 0 0
June 2002........... 100 100 32 0 0
June 2003........... 100 100 32 0 0
June 2004........... 100 100 32 0 0
June 2005........... 100 100 32 0 0
June 2006........... 100 100 32 0 0
June 2007........... 100 100 32 0 0
June 2008........... 100 100 32 0 0
June 2009........... 100 100 0 0 0
June 2010........... 100 100 0 0 0
June 2011........... 100 100 0 0 0
June 2012........... 100 100 0 0 0
June 2013........... 100 100 0 0 0
June 2014........... 100 100 0 0 0
June 2015........... 100 100 0 0 0
June 2016........... 100 63 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 100 0 0 0 0
June 2019........... 100 0 0 0 0
June 2020........... 100 0 0 0 0
June 2021........... 100 0 0 0 0
June 2022........... 100 0 0 0 0
June 2023........... 100 0 0 0 0
June 2024........... 100 0 0 0 0
June 2025........... 85 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 27.1 18.2 5.4 1.1 0.4
<CAPTION>
DD CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 160% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 10
June 2000........... 100 100 100 100 0
June 2001........... 100 100 100 49 0
June 2002........... 100 100 100 0 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 100 0 0
June 2008........... 100 100 100 0 0
June 2009........... 100 100 99 0 0
June 2010........... 100 100 84 0 0
June 2011........... 100 100 69 0 0
June 2012........... 100 100 53 0 0
June 2013........... 100 100 38 0 0
June 2014........... 100 100 23 0 0
June 2015........... 100 100 9 0 0
June 2016........... 100 100 0 0 0
June 2017........... 100 95 0 0 0
June 2018........... 100 69 0 0 0
June 2019........... 100 43 0 0 0
June 2020........... 100 18 0 0 0
June 2021........... 100 0 0 0 0
June 2022........... 100 0 0 0 0
June 2023........... 100 0 0 0 0
June 2024........... 100 0 0 0 0
June 2025........... 100 0 0 0 0
June 2026........... 8 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 27.7 20.8 14.3 3.0 0.9
<CAPTION>
UU CLASS
-------------------------------------
PSA PREPAYMENT
ASSUMPTION
-------------------------------------
DATE 0% 100% 160% 250% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 0
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 98 0
June 2003........... 100 100 100 59 0
June 2004........... 100 100 100 36 0
June 2005........... 100 100 100 26 0
June 2006........... 100 100 100 21 0
June 2007........... 100 100 100 17 0
June 2008........... 100 100 100 14 0
June 2009........... 100 100 100 12 0
June 2010........... 100 100 100 10 0
June 2011........... 100 100 100 8 0
June 2012........... 100 100 100 6 0
June 2013........... 100 100 100 5 0
June 2014........... 100 100 100 4 0
June 2015........... 100 100 100 3 0
June 2016........... 100 100 95 3 0
June 2017........... 100 100 81 2 0
June 2018........... 100 100 67 2 0
June 2019........... 100 100 55 1 0
June 2020........... 100 100 43 1 0
June 2021........... 100 93 33 1 0
June 2022........... 100 67 23 1 0
June 2023........... 100 42 14 1 0
June 2024........... 100 19 6 1 0
June 2025........... 100 1 * * 0
June 2026........... 100 * * * 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)**..... 28.4 24.7 21.7 6.8 1.2
</TABLE>
- ---------------
* Indicates an outstanding balance greater than 0% and less than 0.5% of the
original principal balance.
** Determined as specified under "Weighted Average Lives of the Certificates"
herein.
S-37
<PAGE> 186
CHARACTERISTICS OF THE R AND RL CLASSES
The R and RL Classes will not have principal balances and will not bear
interest. The Holder of the R Class will be entitled to receive the proceeds of
the remaining assets of the Trust, if any, after the principal balances of all
Classes have been reduced to zero, and the Holder of the RL Class will be
entitled to receive the proceeds of the remaining assets of the Lower Tier
REMIC, if any, after the principal balances of the Lower Tier Regular Interests
have been reduced to zero. It is not anticipated that there will be any material
assets remaining in either such circumstance.
The R and RL Classes will be subject to certain transfer restrictions. No
transfer of record or beneficial ownership of an R or RL Certificate will be
allowed to a "disqualified organization." In addition, no transfer of record or
beneficial ownership of an R or RL Certificate will be allowed to any person
that is not a "U.S. Person" without the written consent of Fannie Mae. Under
regulations issued by the Treasury Department (the "Regulations"), a transfer of
a "noneconomic residual interest" to a U.S. Person will be disregarded for all
federal tax purposes unless no significant purpose of the transfer is to impede
the assessment or collection of tax. The R and RL Classes will constitute
noneconomic residual interests under the Regulations. Any transferee of an R or
RL Certificate must execute and deliver an affidavit and an Internal Revenue
Service Form W-9 on which the transferee provides its taxpayer identification
number. See "Description of the Certificates--Additional Characteristics of
Residual Certificates" and "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Residual Certificates" in the REMIC Prospectus. Transferors
of an R or RL Certificate should consult with their own tax advisors for further
information regarding such transfers.
The Holder of the R Class will be considered to be the holder of the
"residual interest" in the REMIC constituted by the Trust, and the Holder of the
RL Class will be considered to be the holder of the "residual interest" in the
REMIC constituted by the Lower Tier REMIC. See "Certain Federal Income Tax
Consequences" in the REMIC Prospectus. Pursuant to the Trust Agreement, Fannie
Mae will be obligated to provide to such Holders (i) such information as is
necessary to enable them to prepare their federal income tax returns and (ii)
any reports regarding the R or RL Class that may be required under the Code.
CERTAIN ADDITIONAL FEDERAL INCOME TAX CONSEQUENCES
The following tax discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the REMIC Prospectus, describes
the current federal income tax treatment of investors in the Certificates. These
two tax discussions do not purport to deal with all federal tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Investors should consult their own tax advisors in determining
the federal, state, local and any other tax consequences to them of the
purchase, ownership and disposition of the Certificates.
REMIC ELECTIONS AND SPECIAL TAX ATTRIBUTES
Elections will be made to treat the Lower Tier REMIC and the Trust as
REMICs for federal income tax purposes. The REMIC Certificates, other than the R
and RL Classes, will be designated as the "regular interests," and the R Class
will be designated as the "residual interest," in the REMIC constituted by the
Trust. The Lower Tier Regular Interests will be designated as the "regular
interests" and the RL Class will be designated as the "residual interest" in the
Lower Tier REMIC.
As a consequence of the qualification of the Lower Tier REMIC and the Trust
as REMICs, the REMIC Certificates and any related RCR Certificates generally
will be treated as "regular or residual interests in a REMIC" for domestic
building and loan associations, "real estate assets" for real estate investment
trusts, and, except for the R and RL Classes, as "qualified mortgages" for other
REMICS. See "Certain Federal Income Tax Consequences--Special Tax Attributes" in
the REMIC Prospectus.
S-38
<PAGE> 187
TAXATION OF BENEFICIAL OWNERS OF REGULAR CERTIFICATES
The Notional Class, the Principal Only Class, the Accrual Class and the SG,
SB and S Classes will be, and certain other Classes of REMIC Certificates may
be, issued with original issue discount ("OID") for federal income tax purposes,
which generally will result in recognition of some taxable income in advance of
the receipt of the cash attributable to such income. The Prepayment Assumption
that will be used in determining the rate of accrual of original issue discount
will be 170% PSA in the case of the Group 1 Classes, 155% PSA in the case of the
Group 2 Classes, 200% PSA in the case of the Group 3 Classes and 160% PSA in the
case of the Group 4 Classes. See "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Regular Certificates--Original
Issue Discount" in the REMIC Prospectus. No representation is made as to whether
the Mortgage Loans underlying the MBS will prepay at any of those rates or any
other rate. See "Description of the Certificates--Weighted Average Lives of the
Certificates" herein and "Description of the Certificates--Weighted Average Life
and Final Distribution Dates" in the REMIC Prospectus. In addition, certain
Classes of REMIC Certificates may be treated as having been issued at a premium
for federal income tax purposes. See "Certain Federal Income Tax
Consequences--Taxation of Beneficial Owners of Regular
Certificates--Certificates Purchased at a Premium" in the REMIC Prospectus.
Additional tax consequences affecting beneficial owners of Retail
Certificates are discussed under "Description of the Certificates--The Retail
Certificates--Retail Principal Distributions--Tax Information" herein.
TAXATION OF BENEFICIAL OWNERS OF RESIDUAL CERTIFICATES
For purposes of determining the portion of the taxable income of the Trust
(or the Lower Tier REMIC) that generally will not be treated as excess
inclusions, the rate to be used is 7.06% (which is 120% of the "federal
long-term rate"). See "Certain Federal Income Tax Consequences--Taxation of
Beneficial Owners of Residual Certificates--Excess Inclusions" and "--Foreign
Investors--Residual Certificates" in the REMIC Prospectus.
TAXATION OF BENEFICIAL OWNERS OF RCR CERTIFICATES
General. The arrangement pursuant to which the RCR Classes will be
created, sold and administered will be classified as a grantor trust under
subpart E, Part I of subchapter J of the Code. The interests in the REMIC
Certificates that have been exchanged for RCR Certificates (including any
exchanges effective on the Settlement Date) will be the assets of such trust and
the RCR Certificates will evidence an ownership interest in those REMIC
Certificates. For a general discussion of the federal income tax treatment of
investors in REMIC Certificates, see "Certain Federal Income Tax Consequences"
in the REMIC Prospectus.
The RCR Classes will represent beneficial ownership of the underlying
Regular Certificates set forth in Schedule 1. The RCR Certificates will
represent beneficial ownership of undivided interests in two or more underlying
Regular Certificates ("Combination RCR Certificates").
All RCR Classes are Combination RCR Classes.
Combination RCR Classes. A beneficial owner of a Combination RCR
Certificate will be treated as the beneficial owner of a proportionate interest
in the related Class or Classes of REMIC Certificates. A purchaser of a
Combination RCR Certificate must allocate its purchase price among the related
Classes of REMIC Certificates in proportion to their relative fair market values
at the time of purchase. Such owner should account for its ownership interest in
each related Class of REMIC Certificates as described under "--Taxation of
Beneficial Owners of Regular Certificates" herein and "Certain Federal Income
Tax Consequences--Taxation of Beneficial Owners of Regular Certificates" in the
REMIC Prospectus. When a beneficial owner sells a Combination RCR Certificate,
such owner must allocate the sale proceeds among the related Classes of REMIC
Certificates in proportion to their relative fair market values at the time of
sale.
S-39
<PAGE> 188
Exchanges. An exchange, as described under "Description of the
Certificates--Combination and Recombination" herein, by a beneficial owner of
(i) a combination of REMIC Certificates or (ii) all or a portion of an RCR Class
for the related RCR Class or REMIC Certificates, respectively, will not be a
taxable exchange. Such owner will be treated as continuing to own after the
exchange the same combination of interests in the related REMIC Certificates
that it owned immediately prior to the exchange.
PLAN OF DISTRIBUTION
General. The Dealer will receive the Certificates in exchange for the
Trust MBS and the Underlying REMIC Certificates pursuant to a Fannie Mae
commitment. The Dealer proposes to offer the Certificates directly to the public
from time to time in negotiated transactions at varying prices to be determined
at the time of sale. The Dealer may effect such transactions to or through
dealers.
Increase in Certificates. Before the Settlement Date, Fannie Mae and the
Dealer may agree to offer hereby Group 1 Classes in addition to those
contemplated as of the date hereof. In such event, the Trust MBS will be
increased in principal balance, but it is expected that all such additional
Trust MBS will have the same characteristics as described herein under
"Description of the Certificates--The Trust MBS." The proportion that the
original principal balance of each Group 1 Class bears to the aggregate original
principal balance of all Group 1 Classes, respectively, will remain the same. In
addition, the dollar amounts reflected in the Principal Balance Schedules will
be increased in a pro rata amount that corresponds to the increase of the
principal balances of the applicable Classes and Components.
LEGAL MATTERS
Certain legal matters will be passed upon for the Dealer by Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982.
S-40
<PAGE> 189
EXHIBIT A
UNDERLYING REMIC CERTIFICATES
<TABLE>
<CAPTION>
UNDERLYING DATE
REMIC OF CUSIP INTEREST INTEREST
TRUST CLASS ISSUE NUMBER RATE TYPE(1)
---------- ----- ----- ------ -------- --------
<S> <C> <C> <C> <C> <C>
1994-50 FA March 1994 31359H K W 3 (2) FLT
1994-50 SA March 1994 31359H K X 1 (2) INV
1994-50 SB March 1994 31359H K Y 9 (2) INV
1994-41 G March 1994 31359H E S 9 6.5% FIX
1997-13 Q March 1997 31359N J 9 3 6.5 FIX
<CAPTION>
PRINCIPAL
BALANCE IN
ORIGINAL JUNE LOWER TIER
UNDERLYING FINAL PRINCIPAL 1998 REMIC
REMIC DISTRIBUTION PRINCIPAL BALANCES CLASS AS OF
TRUST DATE TYPE(1) OF CLASS FACTOR ISSUE DATE
---------- ------------ --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
1994-50 March 2024 SUP $92,100,510 0.99886695 $ 67,476,896
1994-50 March 2024 SUP 19,688,051 0.99886695 14,424,334
1994-50 March 2024 SUP 5,986,539 0.99886695 4,386,002
1994-41 June 2023 SUP 28,000,000 0.95999337 22,079,847
1997-13 April 2027 CPT 29,552,000 0.93558433 27,648,388
<CAPTION>
APPROXIMATE APPROXIMATE
APPROXIMATE WEIGHTED WEIGHTED
UNDERLYING WEIGHTED AVERAGE AVERAGE UNDERLYING
REMIC AVERAGE WAM CAGE SECURITY CLASS
TRUST WAC (IN MONTHS) (IN MONTHS) TYPE GROUP
---------- ----------- ----------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C>
1994-50 7.083% 296 54 MBS 2
1994-50 7.083 296 54 MBS 2
1994-50 7.083 296 54 MBS 2
1994-41 7.489 297 53 MBS 3
1997-13 7.249 321 32 MBS 4
</TABLE>
- ---------------
(1) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus.
(2) These Classes bear interest during their respective interest accrual
periods, subject to the applicable maximum and minimum interest rates, as
further described in the related Underlying REMIC Disclosure Document.
A-1
<PAGE> 190
SCHEDULE 1
AVAILABLE RECOMBINATIONS(1)
<TABLE>
<CAPTION>
REMIC CERTIFICATES RCR CERTIFICATES
- ------------------------------------------ ------
ORIGINAL
PRINCIPAL RCR
CLASS BALANCE CLASS
----- --------- -----
<S> <C> <C>
RECOMBINATION 1
FB $10,000,000 H
SB 3,076,923
RECOMBINATION 2
FE 49,678,985 A
FG 9,703,081
SE 11,464,382
SG 2,239,173
RECOMBINATION 3
SD 5,881,945 SA
SC 2,184,722
RECOMBINATION 4
FE 49,678,985 J
SE 11,464,382
RECOMBINATION 5
FE 49,678,985 FH
FG 9,703,081
RECOMBINATION 6
SE 11,464,382 SH
SG 2,239,173
RECOMBINATION 7
FG 9,703,081 K
SG 2,239,173
<CAPTION>
RCR CERTIFICATES
----------------------------------
ORIGINAL
PRINCIPAL INTEREST INTEREST
CLASS BALANCE RATE TYPE(2)
----- --------- -------- --------
<S> <C> <C> <C>
RECOMBINATION 1
FB $13,076,923 6.5% FIX
SB
RECOMBINATION 2
FE 73,085,621 6.5 FIX
FG
SE
SG
RECOMBINATION 3
SD 8,066,667 (3) INV
SC
RECOMBINATION 4
FE 61,143,367 6.5 FIX
SE
RECOMBINATION 5
FE 59,382,066 (3) FLT
FG
RECOMBINATION 6
SE 13,703,555 (3) INV
SG
RECOMBINATION 7
FG 11,942,254 6.5 FIX
SG
<CAPTION>
RCR CERTIFICATES
--------------------------------------
FINAL
PRINCIPAL CUSIP DISTRIBUTION
CLASS TYPE(2) NUMBER DATE
----- --------- ------ ------------
<S> <C> <C> <C>
RECOMBINATION 1
FB SUP 31359T3N6 July 2028
SB
RECOMBINATION 2
FE TAC 31359T3P1 July 2028
FG
SE
SG
RECOMBINATION 3
SD CPT 31359T3Q9 October 2027
SC
RECOMBINATION 4
FE TAC 31359T3R7 February 2028
SE
RECOMBINATION 5
FE TAC 31359T3S5 July 2028
FG
RECOMBINATION 6
SE TAC 31359T3T3 July 2028
SG
RECOMBINATION 7
FG TAC 31359T3U0 July 2028
SG
</TABLE>
- ---------------
(1) The principal balances of the REMIC Certificates and RCR Certificates
involved in any exchange will bear the same relationship as that borne by
the original principal balances of the related Classes.
(2) See "Description of the Certificates--Class Definitions and Abbreviations"
in the REMIC Prospectus and "Description of the Certificates--Distributions
of Interest" and "--Distributions of Principal" herein.
(3) For a description of these interest rates, see "Description of the
Certificates--Distributions of Interest" herein.
A-2
<PAGE> 191
PRINCIPAL BALANCE SCHEDULES
<TABLE>
<CAPTION>
FA1 SC1 SD1 FA2 SC2
COMPONENT COMPONENT COMPONENT PB CLASS COMPONENT COMPONENT
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance..... $5,294,315.00 $441,193.00 $1,187,827.00 $28,343,333.00 $6,181,372.00 $515,114.00
July 1998........... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
August 1998......... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
September 1998...... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
October 1998........ 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
November 1998....... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
December 1998....... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
January 1999........ 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
February 1999....... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
March 1999.......... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
April 1999.......... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
May 1999............ 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
June 1999........... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
July 1999........... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
August 1999......... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
September 1999...... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
October 1999........ 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
November 1999....... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
December 1999....... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
January 2000........ 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
February 2000....... 5,294,315.00 441,193.00 1,187,827.00 28,343,333.00 6,181,372.00 515,114.00
March 2000.......... 3,548,008.64 295,667.44 796,027.52 28,343,333.00 6,181,372.00 515,114.00
April 2000.......... 1,745,498.27 145,458.22 391,618.17 28,343,333.00 6,181,372.00 515,114.00
May 2000............ 0.00 0.00 0.00 28,228,934.93 6,156,423.03 513,034.92
June 2000........... 0.00 0.00 0.00 26,282,922.31 5,732,018.89 477,667.93
July 2000........... 0.00 0.00 0.00 24,282,205.71 5,295,684.40 441,306.75
August 2000......... 0.00 0.00 0.00 22,227,667.87 4,847,612.09 403,967.41
September 2000...... 0.00 0.00 0.00 20,120,217.76 4,388,000.19 365,666.45
October 2000........ 0.00 0.00 0.00 17,960,790.06 3,917,052.55 326,420.83
November 2000....... 0.00 0.00 0.00 15,812,206.48 3,448,469.89 287,372.30
December 2000....... 0.00 0.00 0.00 13,674,411.06 2,982,240.01 248,519.84
January 2001........ 0.00 0.00 0.00 11,547,348.10 2,518,350.76 209,862.43
February 2001....... 0.00 0.00 0.00 9,430,962.22 2,056,790.07 171,399.06
March 2001.......... 0.00 0.00 0.00 7,325,198.31 1,597,545.91 133,128.74
April 2001.......... 0.00 0.00 0.00 5,230,001.54 1,140,606.33 95,050.47
May 2001............ 0.00 0.00 0.00 3,145,317.36 685,959.43 57,163.25
June 2001........... 0.00 0.00 0.00 1,071,091.50 233,593.38 19,466.10
July 2001 and
thereafter........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-1
<PAGE> 192
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance..... $1,386,847.00 $57,525,000.00 $55,790,000.00 $23,633,333.00 $143,500,000.00 $35,000,000.00
July 1998........... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 34,718,943.69
August 1998......... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 34,393,022.81
September 1998...... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 34,022,342.95
October 1998........ 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 33,607,042.99
November 1998....... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 33,147,295.23
December 1998....... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 32,643,305.21
January 1999........ 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 32,095,311.70
February 1999....... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 31,503,586.56
March 1999.......... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 30,868,434.58
April 1999.......... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 30,190,193.22
May 1999............ 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 29,469,232.46
June 1999........... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 28,705,954.38
July 1999........... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 27,900,792.92
August 1999......... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 27,054,213.50
September 1999...... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 26,166,712.56
October 1999........ 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 25,238,817.11
November 1999....... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 24,271,084.31
December 1999....... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 23,264,100.86
January 2000........ 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 22,218,482.44
February 2000....... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 21,134,873.14
March 2000.......... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 20,845,277.45
April 2000.......... 1,386,847.00 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 20,545,817.62
May 2000............ 1,381,249.47 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 20,236,844.61
June 2000........... 1,286,030.54 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 19,918,721.76
July 2000........... 1,188,134.94 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 19,591,824.37
August 2000......... 1,087,605.84 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 19,256,539.09
September 2000...... 984,487.73 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 18,913,263.46
October 2000........ 878,826.35 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 18,562,405.29
November 2000....... 773,695.57 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 18,217,018.20
December 2000....... 669,092.66 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 17,877,048.25
January 2001........ 565,014.89 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 17,542,442.00
February 2001....... 461,459.55 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 17,213,146.46
March 2001.......... 358,423.95 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 16,889,109.09
April 2001.......... 255,905.40 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 16,570,277.86
May 2001............ 153,901.23 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 16,256,601.15
June 2001........... 52,408.80 57,525,000.00 55,790,000.00 23,633,333.00 143,500,000.00 15,948,027.81
July 2001........... 0.00 56,249,149.85 55,790,000.00 23,633,333.00 143,500,000.00 15,644,507.13
August 2001......... 0.00 53,610,042.45 55,790,000.00 23,633,333.00 143,500,000.00 15,345,988.86
September 2001...... 0.00 50,984,168.93 55,790,000.00 23,633,333.00 143,500,000.00 15,052,423.17
October 2001........ 0.00 48,371,460.98 55,790,000.00 23,633,333.00 143,500,000.00 14,763,760.69
November 2001....... 0.00 45,771,850.62 55,790,000.00 23,633,333.00 143,500,000.00 14,479,952.47
December 2001....... 0.00 43,185,270.25 55,790,000.00 23,633,333.00 143,500,000.00 14,200,949.98
January 2002........ 0.00 40,611,652.57 55,790,000.00 23,633,333.00 143,500,000.00 13,926,705.16
February 2002....... 0.00 38,050,930.68 55,790,000.00 23,633,333.00 143,500,000.00 13,657,170.32
March 2002.......... 0.00 35,503,037.98 55,790,000.00 23,633,333.00 143,500,000.00 13,392,298.22
April 2002.......... 0.00 32,967,908.25 55,790,000.00 23,633,333.00 143,500,000.00 13,132,042.03
May 2002............ 0.00 30,445,475.58 55,790,000.00 23,633,333.00 143,500,000.00 12,876,355.33
</TABLE>
B-2
<PAGE> 193
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
June 2002........... $ 0.00 $27,935,674.42 $55,790,000.00 $23,633,333.00 $143,500,000.00 $12,625,192.12
July 2002........... 0.00 25,438,439.52 55,790,000.00 23,633,333.00 143,500,000.00 12,378,506.78
August 2002......... 0.00 22,953,706.00 55,790,000.00 23,633,333.00 143,500,000.00 12,136,254.13
September 2002...... 0.00 20,481,409.33 55,790,000.00 23,633,333.00 143,500,000.00 11,898,389.37
October 2002........ 0.00 18,021,485.27 55,790,000.00 23,633,333.00 143,500,000.00 11,664,868.09
November 2002....... 0.00 15,573,869.92 55,790,000.00 23,633,333.00 143,500,000.00 11,435,646.27
December 2002....... 0.00 13,138,499.72 55,790,000.00 23,633,333.00 143,500,000.00 11,210,680.29
January 2003........ 0.00 10,715,311.45 55,790,000.00 23,633,333.00 143,500,000.00 10,989,926.93
February 2003....... 0.00 8,304,242.17 55,790,000.00 23,633,333.00 143,500,000.00 10,773,343.33
March 2003.......... 0.00 5,905,229.32 55,790,000.00 23,633,333.00 143,500,000.00 10,560,887.00
April 2003.......... 0.00 3,518,210.60 55,790,000.00 23,633,333.00 143,500,000.00 10,352,515.86
May 2003............ 0.00 1,143,124.08 55,790,000.00 23,633,333.00 143,500,000.00 10,148,188.19
June 2003........... 0.00 0.00 54,569,908.15 23,633,333.00 143,500,000.00 9,947,862.64
July 2003........... 0.00 0.00 52,218,501.47 23,633,333.00 143,500,000.00 9,751,498.21
August 2003......... 0.00 0.00 49,878,843.03 23,633,333.00 143,500,000.00 9,559,054.29
September 2003...... 0.00 0.00 47,550,872.20 23,633,333.00 143,500,000.00 9,370,490.63
October 2003........ 0.00 0.00 45,234,528.55 23,633,333.00 143,500,000.00 9,185,767.30
November 2003....... 0.00 0.00 42,929,752.07 23,633,333.00 143,500,000.00 9,004,844.79
December 2003....... 0.00 0.00 40,636,482.95 23,633,333.00 143,500,000.00 8,827,683.87
January 2004........ 0.00 0.00 38,354,661.80 23,633,333.00 143,500,000.00 8,654,245.73
February 2004....... 0.00 0.00 36,084,229.45 23,633,333.00 143,500,000.00 8,484,491.85
March 2004.......... 0.00 0.00 33,825,127.07 23,633,333.00 143,500,000.00 8,318,384.09
April 2004.......... 0.00 0.00 31,577,296.12 23,633,333.00 143,500,000.00 8,155,884.63
May 2004............ 0.00 0.00 29,340,678.37 23,633,333.00 143,500,000.00 7,996,956.00
June 2004........... 0.00 0.00 27,115,215.90 23,633,333.00 143,500,000.00 7,841,561.05
July 2004........... 0.00 0.00 24,900,851.07 23,633,333.00 143,500,000.00 7,689,662.98
August 2004......... 0.00 0.00 22,697,526.52 23,633,333.00 143,500,000.00 7,541,225.30
September 2004...... 0.00 0.00 20,505,185.22 23,633,333.00 143,500,000.00 7,396,211.88
October 2004........ 0.00 0.00 18,323,770.42 23,633,333.00 143,500,000.00 7,254,586.88
November 2004....... 0.00 0.00 16,153,225.65 23,633,333.00 143,500,000.00 7,116,314.79
December 2004....... 0.00 0.00 13,993,494.75 23,633,333.00 143,500,000.00 6,981,360.43
January 2005........ 0.00 0.00 11,844,521.85 23,633,333.00 143,500,000.00 6,849,688.92
February 2005....... 0.00 0.00 9,706,251.33 23,633,333.00 143,500,000.00 6,714,092.51
March 2005.......... 0.00 0.00 7,578,627.90 23,633,333.00 143,500,000.00 6,543,318.58
April 2005.......... 0.00 0.00 5,461,596.52 23,633,333.00 143,500,000.00 6,377,520.49
May 2005............ 0.00 0.00 3,355,102.47 23,633,333.00 143,500,000.00 6,216,638.12
June 2005........... 0.00 0.00 1,259,091.27 23,633,333.00 143,500,000.00 6,060,612.01
July 2005........... 0.00 0.00 0.00 22,806,841.74 143,500,000.00 5,909,383.28
August 2005......... 0.00 0.00 0.00 20,731,634.04 143,500,000.00 5,762,893.62
September 2005...... 0.00 0.00 0.00 18,666,747.47 143,500,000.00 5,621,085.41
October 2005........ 0.00 0.00 0.00 16,612,128.72 143,500,000.00 5,483,901.55
November 2005....... 0.00 0.00 0.00 14,567,724.68 143,500,000.00 5,351,285.54
December 2005....... 0.00 0.00 0.00 12,533,482.57 143,500,000.00 5,223,181.47
January 2006........ 0.00 0.00 0.00 10,509,349.87 143,500,000.00 5,099,534.01
February 2006....... 0.00 0.00 0.00 8,495,274.28 143,500,000.00 4,980,288.39
March 2006.......... 0.00 0.00 0.00 6,491,203.86 143,500,000.00 4,865,390.40
April 2006.......... 0.00 0.00 0.00 4,497,086.84 143,500,000.00 4,754,786.40
May 2006............ 0.00 0.00 0.00 2,512,871.78 143,500,000.00 4,648,423.30
</TABLE>
B-3
<PAGE> 194
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
June 2006........... $ 0.00 $ 0.00 $ 0.00 $ 538,507.48 $143,500,000.00 $ 4,546,248.55
July 2006........... 0.00 0.00 0.00 0.00 142,073,943.00 4,448,210.17
August 2006......... 0.00 0.00 0.00 0.00 140,119,127.67 4,354,256.68
September 2006...... 0.00 0.00 0.00 0.00 138,174,011.08 4,264,337.17
October 2006........ 0.00 0.00 0.00 0.00 136,238,543.12 4,178,401.21
November 2006....... 0.00 0.00 0.00 0.00 134,312,673.83 4,096,398.94
December 2006....... 0.00 0.00 0.00 0.00 132,396,353.65 4,018,280.99
January 2007........ 0.00 0.00 0.00 0.00 130,489,533.15 3,943,998.52
February 2007....... 0.00 0.00 0.00 0.00 128,592,163.20 3,873,503.19
March 2007.......... 0.00 0.00 0.00 0.00 126,704,194.95 3,806,747.14
April 2007.......... 0.00 0.00 0.00 0.00 124,825,579.77 3,743,683.05
May 2007............ 0.00 0.00 0.00 0.00 122,956,269.28 3,684,264.06
June 2007........... 0.00 0.00 0.00 0.00 121,096,215.35 3,628,443.82
July 2007........... 0.00 0.00 0.00 0.00 119,256,421.62 3,572,153.26
August 2007......... 0.00 0.00 0.00 0.00 117,442,978.52 3,513,112.49
September 2007...... 0.00 0.00 0.00 0.00 115,655,519.42 3,451,392.81
October 2007........ 0.00 0.00 0.00 0.00 113,893,682.68 3,387,064.24
November 2007....... 0.00 0.00 0.00 0.00 112,157,111.70 3,320,195.54
December 2007....... 0.00 0.00 0.00 0.00 110,445,454.65 3,250,854.28
January 2008........ 0.00 0.00 0.00 0.00 108,758,364.63 3,179,106.78
February 2008....... 0.00 0.00 0.00 0.00 107,095,499.42 3,105,018.18
March 2008.......... 0.00 0.00 0.00 0.00 105,456,521.53 3,028,652.43
April 2008.......... 0.00 0.00 0.00 0.00 103,841,098.10 2,950,072.35
May 2008............ 0.00 0.00 0.00 0.00 102,248,900.82 2,869,339.62
June 2008........... 0.00 0.00 0.00 0.00 100,679,605.87 2,786,514.78
July 2008........... 0.00 0.00 0.00 0.00 99,132,893.92 2,701,657.27
August 2008......... 0.00 0.00 0.00 0.00 97,608,449.98 2,614,825.46
September 2008...... 0.00 0.00 0.00 0.00 96,105,963.40 2,526,076.65
October 2008........ 0.00 0.00 0.00 0.00 94,625,127.78 2,435,467.09
November 2008....... 0.00 0.00 0.00 0.00 93,165,640.93 2,343,051.98
December 2008....... 0.00 0.00 0.00 0.00 91,727,204.83 2,248,885.51
January 2009........ 0.00 0.00 0.00 0.00 90,309,525.53 2,153,020.88
February 2009....... 0.00 0.00 0.00 0.00 88,912,313.12 2,055,510.29
March 2009.......... 0.00 0.00 0.00 0.00 87,535,281.63 1,956,404.99
April 2009.......... 0.00 0.00 0.00 0.00 86,178,149.12 1,855,755.24
May 2009............ 0.00 0.00 0.00 0.00 84,840,637.43 1,753,610.40
June 2009........... 0.00 0.00 0.00 0.00 83,522,472.25 1,650,018.87
July 2009........... 0.00 0.00 0.00 0.00 82,223,383.05 1,545,028.17
August 2009......... 0.00 0.00 0.00 0.00 80,943,103.00 1,438,684.90
September 2009...... 0.00 0.00 0.00 0.00 79,681,368.93 1,331,034.82
October 2009........ 0.00 0.00 0.00 0.00 78,437,921.35 1,222,122.75
November 2009....... 0.00 0.00 0.00 0.00 77,212,504.25 1,111,992.74
December 2009....... 0.00 0.00 0.00 0.00 76,004,865.18 1,000,687.95
January 2010........ 0.00 0.00 0.00 0.00 74,814,755.17 888,250.72
February 2010....... 0.00 0.00 0.00 0.00 73,641,928.67 774,722.59
March 2010.......... 0.00 0.00 0.00 0.00 72,486,143.48 660,144.30
April 2010.......... 0.00 0.00 0.00 0.00 71,347,160.77 544,555.80
May 2010............ 0.00 0.00 0.00 0.00 70,224,744.98 427,996.25
</TABLE>
B-4
<PAGE> 195
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
June 2010........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 69,118,663.78 $ 310,504.08
July 2010........... 0.00 0.00 0.00 0.00 68,028,688.07 192,116.95
August 2010......... 0.00 0.00 0.00 0.00 66,954,591.83 72,871.79
September 2010...... 0.00 0.00 0.00 0.00 65,896,152.25 0.00
October 2010........ 0.00 0.00 0.00 0.00 64,853,149.52 0.00
November 2010....... 0.00 0.00 0.00 0.00 63,825,366.88 0.00
December 2010....... 0.00 0.00 0.00 0.00 62,812,590.55 0.00
January 2011........ 0.00 0.00 0.00 0.00 61,814,609.68 0.00
February 2011....... 0.00 0.00 0.00 0.00 60,831,216.37 0.00
March 2011.......... 0.00 0.00 0.00 0.00 59,862,205.52 0.00
April 2011.......... 0.00 0.00 0.00 0.00 58,907,374.92 0.00
May 2011............ 0.00 0.00 0.00 0.00 57,966,525.08 0.00
June 2011........... 0.00 0.00 0.00 0.00 57,039,459.33 0.00
July 2011........... 0.00 0.00 0.00 0.00 56,125,983.68 0.00
August 2011......... 0.00 0.00 0.00 0.00 55,225,906.78 0.00
September 2011...... 0.00 0.00 0.00 0.00 54,339,039.98 0.00
October 2011........ 0.00 0.00 0.00 0.00 53,465,197.20 0.00
November 2011....... 0.00 0.00 0.00 0.00 52,604,194.90 0.00
December 2011....... 0.00 0.00 0.00 0.00 51,755,852.13 0.00
January 2012........ 0.00 0.00 0.00 0.00 50,919,990.42 0.00
February 2012....... 0.00 0.00 0.00 0.00 50,096,433.72 0.00
March 2012.......... 0.00 0.00 0.00 0.00 49,285,008.45 0.00
April 2012.......... 0.00 0.00 0.00 0.00 48,485,543.42 0.00
May 2012............ 0.00 0.00 0.00 0.00 47,697,869.80 0.00
June 2012........... 0.00 0.00 0.00 0.00 46,921,821.12 0.00
July 2012........... 0.00 0.00 0.00 0.00 46,157,233.13 0.00
August 2012......... 0.00 0.00 0.00 0.00 45,403,943.93 0.00
September 2012...... 0.00 0.00 0.00 0.00 44,661,793.83 0.00
October 2012........ 0.00 0.00 0.00 0.00 43,930,625.35 0.00
November 2012....... 0.00 0.00 0.00 0.00 43,210,283.17 0.00
December 2012....... 0.00 0.00 0.00 0.00 42,500,614.12 0.00
January 2013........ 0.00 0.00 0.00 0.00 41,801,467.17 0.00
February 2013....... 0.00 0.00 0.00 0.00 41,112,693.35 0.00
March 2013.......... 0.00 0.00 0.00 0.00 40,434,145.78 0.00
April 2013.......... 0.00 0.00 0.00 0.00 39,765,679.58 0.00
May 2013............ 0.00 0.00 0.00 0.00 39,107,151.90 0.00
June 2013........... 0.00 0.00 0.00 0.00 38,458,421.85 0.00
July 2013........... 0.00 0.00 0.00 0.00 37,819,350.52 0.00
August 2013......... 0.00 0.00 0.00 0.00 37,189,800.85 0.00
September 2013...... 0.00 0.00 0.00 0.00 36,569,637.78 0.00
October 2013........ 0.00 0.00 0.00 0.00 35,958,728.03 0.00
November 2013....... 0.00 0.00 0.00 0.00 35,356,940.23 0.00
December 2013....... 0.00 0.00 0.00 0.00 34,764,144.78 0.00
January 2014........ 0.00 0.00 0.00 0.00 34,180,213.92 0.00
February 2014....... 0.00 0.00 0.00 0.00 33,605,021.63 0.00
March 2014.......... 0.00 0.00 0.00 0.00 33,038,443.63 0.00
April 2014.......... 0.00 0.00 0.00 0.00 32,480,357.40 0.00
May 2014............ 0.00 0.00 0.00 0.00 31,930,642.10 0.00
</TABLE>
B-5
<PAGE> 196
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
June 2014........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 31,389,178.53 $ 0.00
July 2014........... 0.00 0.00 0.00 0.00 30,855,849.22 0.00
August 2014......... 0.00 0.00 0.00 0.00 30,330,538.25 0.00
September 2014...... 0.00 0.00 0.00 0.00 29,813,131.37 0.00
October 2014........ 0.00 0.00 0.00 0.00 29,303,515.87 0.00
November 2014....... 0.00 0.00 0.00 0.00 28,801,580.63 0.00
December 2014....... 0.00 0.00 0.00 0.00 28,307,216.08 0.00
January 2015........ 0.00 0.00 0.00 0.00 27,820,314.15 0.00
February 2015....... 0.00 0.00 0.00 0.00 27,340,768.27 0.00
March 2015.......... 0.00 0.00 0.00 0.00 26,868,473.37 0.00
April 2015.......... 0.00 0.00 0.00 0.00 26,403,325.83 0.00
May 2015............ 0.00 0.00 0.00 0.00 25,945,223.48 0.00
June 2015........... 0.00 0.00 0.00 0.00 25,494,065.55 0.00
July 2015........... 0.00 0.00 0.00 0.00 25,049,752.67 0.00
August 2015......... 0.00 0.00 0.00 0.00 24,612,186.88 0.00
September 2015...... 0.00 0.00 0.00 0.00 24,181,271.57 0.00
October 2015........ 0.00 0.00 0.00 0.00 23,756,911.47 0.00
November 2015....... 0.00 0.00 0.00 0.00 23,339,012.60 0.00
December 2015....... 0.00 0.00 0.00 0.00 22,927,482.38 0.00
January 2016........ 0.00 0.00 0.00 0.00 22,522,229.42 0.00
February 2016....... 0.00 0.00 0.00 0.00 22,123,163.67 0.00
March 2016.......... 0.00 0.00 0.00 0.00 21,730,196.28 0.00
April 2016.......... 0.00 0.00 0.00 0.00 21,343,239.70 0.00
May 2016............ 0.00 0.00 0.00 0.00 20,962,207.55 0.00
June 2016........... 0.00 0.00 0.00 0.00 20,587,014.68 0.00
July 2016........... 0.00 0.00 0.00 0.00 20,217,577.10 0.00
August 2016......... 0.00 0.00 0.00 0.00 19,853,812.03 0.00
September 2016...... 0.00 0.00 0.00 0.00 19,495,637.82 0.00
October 2016........ 0.00 0.00 0.00 0.00 19,142,973.95 0.00
November 2016....... 0.00 0.00 0.00 0.00 18,795,741.03 0.00
December 2016....... 0.00 0.00 0.00 0.00 18,453,860.80 0.00
January 2017........ 0.00 0.00 0.00 0.00 18,117,256.08 0.00
February 2017....... 0.00 0.00 0.00 0.00 17,785,850.75 0.00
March 2017.......... 0.00 0.00 0.00 0.00 17,459,569.77 0.00
April 2017.......... 0.00 0.00 0.00 0.00 17,138,339.13 0.00
May 2017............ 0.00 0.00 0.00 0.00 16,822,085.90 0.00
June 2017........... 0.00 0.00 0.00 0.00 16,510,738.12 0.00
July 2017........... 0.00 0.00 0.00 0.00 16,204,224.87 0.00
August 2017......... 0.00 0.00 0.00 0.00 15,902,476.17 0.00
September 2017...... 0.00 0.00 0.00 0.00 15,605,423.08 0.00
October 2017........ 0.00 0.00 0.00 0.00 15,312,997.58 0.00
November 2017....... 0.00 0.00 0.00 0.00 15,025,132.65 0.00
December 2017....... 0.00 0.00 0.00 0.00 14,741,762.17 0.00
January 2018........ 0.00 0.00 0.00 0.00 14,462,820.93 0.00
February 2018....... 0.00 0.00 0.00 0.00 14,188,244.68 0.00
March 2018.......... 0.00 0.00 0.00 0.00 13,917,970.05 0.00
April 2018.......... 0.00 0.00 0.00 0.00 13,651,934.53 0.00
May 2018............ 0.00 0.00 0.00 0.00 13,390,076.53 0.00
</TABLE>
B-6
<PAGE> 197
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
June 2018........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 13,132,335.30 $ 0.00
July 2018........... 0.00 0.00 0.00 0.00 12,878,650.95 0.00
August 2018......... 0.00 0.00 0.00 0.00 12,628,964.42 0.00
September 2018...... 0.00 0.00 0.00 0.00 12,383,217.48 0.00
October 2018........ 0.00 0.00 0.00 0.00 12,141,352.73 0.00
November 2018....... 0.00 0.00 0.00 0.00 11,903,313.57 0.00
December 2018....... 0.00 0.00 0.00 0.00 11,669,044.18 0.00
January 2019........ 0.00 0.00 0.00 0.00 11,438,489.53 0.00
February 2019....... 0.00 0.00 0.00 0.00 11,211,595.40 0.00
March 2019.......... 0.00 0.00 0.00 0.00 10,988,308.28 0.00
April 2019.......... 0.00 0.00 0.00 0.00 10,768,575.43 0.00
May 2019............ 0.00 0.00 0.00 0.00 10,552,344.87 0.00
June 2019........... 0.00 0.00 0.00 0.00 10,339,565.32 0.00
July 2019........... 0.00 0.00 0.00 0.00 10,130,186.22 0.00
August 2019......... 0.00 0.00 0.00 0.00 9,924,157.78 0.00
September 2019...... 0.00 0.00 0.00 0.00 9,721,430.83 0.00
October 2019........ 0.00 0.00 0.00 0.00 9,521,956.97 0.00
November 2019....... 0.00 0.00 0.00 0.00 9,325,688.40 0.00
December 2019....... 0.00 0.00 0.00 0.00 9,132,578.08 0.00
January 2020........ 0.00 0.00 0.00 0.00 8,942,579.55 0.00
February 2020....... 0.00 0.00 0.00 0.00 8,755,647.07 0.00
March 2020.......... 0.00 0.00 0.00 0.00 8,571,735.50 0.00
April 2020.......... 0.00 0.00 0.00 0.00 8,390,800.38 0.00
May 2020............ 0.00 0.00 0.00 0.00 8,212,797.83 0.00
June 2020........... 0.00 0.00 0.00 0.00 8,037,684.62 0.00
July 2020........... 0.00 0.00 0.00 0.00 7,865,418.12 0.00
August 2020......... 0.00 0.00 0.00 0.00 7,695,956.32 0.00
September 2020...... 0.00 0.00 0.00 0.00 7,529,257.77 0.00
October 2020........ 0.00 0.00 0.00 0.00 7,365,281.63 0.00
November 2020....... 0.00 0.00 0.00 0.00 7,203,987.63 0.00
December 2020....... 0.00 0.00 0.00 0.00 7,045,336.07 0.00
January 2021........ 0.00 0.00 0.00 0.00 6,889,287.82 0.00
February 2021....... 0.00 0.00 0.00 0.00 6,735,804.28 0.00
March 2021.......... 0.00 0.00 0.00 0.00 6,584,847.43 0.00
April 2021.......... 0.00 0.00 0.00 0.00 6,436,379.77 0.00
May 2021............ 0.00 0.00 0.00 0.00 6,290,364.30 0.00
June 2021........... 0.00 0.00 0.00 0.00 6,146,764.62 0.00
July 2021........... 0.00 0.00 0.00 0.00 6,005,544.77 0.00
August 2021......... 0.00 0.00 0.00 0.00 5,866,669.35 0.00
September 2021...... 0.00 0.00 0.00 0.00 5,730,103.42 0.00
October 2021........ 0.00 0.00 0.00 0.00 5,595,812.58 0.00
November 2021....... 0.00 0.00 0.00 0.00 5,463,762.92 0.00
December 2021....... 0.00 0.00 0.00 0.00 5,333,920.93 0.00
January 2022........ 0.00 0.00 0.00 0.00 5,206,253.68 0.00
February 2022....... 0.00 0.00 0.00 0.00 5,080,728.63 0.00
March 2022.......... 0.00 0.00 0.00 0.00 4,957,313.78 0.00
April 2022.......... 0.00 0.00 0.00 0.00 4,835,977.50 0.00
May 2022............ 0.00 0.00 0.00 0.00 4,716,688.67 0.00
</TABLE>
B-7
<PAGE> 198
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
June 2022........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 4,599,416.58 $ 0.00
July 2022........... 0.00 0.00 0.00 0.00 4,484,130.98 0.00
August 2022......... 0.00 0.00 0.00 0.00 4,370,802.03 0.00
September 2022...... 0.00 0.00 0.00 0.00 4,259,400.35 0.00
October 2022........ 0.00 0.00 0.00 0.00 4,149,896.92 0.00
November 2022....... 0.00 0.00 0.00 0.00 4,042,263.20 0.00
December 2022....... 0.00 0.00 0.00 0.00 3,936,470.98 0.00
January 2023........ 0.00 0.00 0.00 0.00 3,832,492.55 0.00
February 2023....... 0.00 0.00 0.00 0.00 3,730,300.52 0.00
March 2023.......... 0.00 0.00 0.00 0.00 3,629,867.90 0.00
April 2023.......... 0.00 0.00 0.00 0.00 3,531,168.12 0.00
May 2023............ 0.00 0.00 0.00 0.00 3,434,174.97 0.00
June 2023........... 0.00 0.00 0.00 0.00 3,338,862.58 0.00
July 2023........... 0.00 0.00 0.00 0.00 3,245,205.52 0.00
August 2023......... 0.00 0.00 0.00 0.00 3,153,178.67 0.00
September 2023...... 0.00 0.00 0.00 0.00 3,062,757.28 0.00
October 2023........ 0.00 0.00 0.00 0.00 2,973,917.00 0.00
November 2023....... 0.00 0.00 0.00 0.00 2,886,633.73 0.00
December 2023....... 0.00 0.00 0.00 0.00 2,800,883.82 0.00
January 2024........ 0.00 0.00 0.00 0.00 2,716,643.90 0.00
February 2024....... 0.00 0.00 0.00 0.00 2,633,890.95 0.00
March 2024.......... 0.00 0.00 0.00 0.00 2,552,602.27 0.00
April 2024.......... 0.00 0.00 0.00 0.00 2,472,755.50 0.00
May 2024............ 0.00 0.00 0.00 0.00 2,394,328.62 0.00
June 2024........... 0.00 0.00 0.00 0.00 2,317,299.85 0.00
July 2024........... 0.00 0.00 0.00 0.00 2,241,647.83 0.00
August 2024......... 0.00 0.00 0.00 0.00 2,167,351.42 0.00
September 2024...... 0.00 0.00 0.00 0.00 2,094,389.82 0.00
October 2024........ 0.00 0.00 0.00 0.00 2,022,742.53 0.00
November 2024....... 0.00 0.00 0.00 0.00 1,952,389.35 0.00
December 2024....... 0.00 0.00 0.00 0.00 1,883,310.35 0.00
January 2025........ 0.00 0.00 0.00 0.00 1,815,485.92 0.00
February 2025....... 0.00 0.00 0.00 0.00 1,748,896.67 0.00
March 2025.......... 0.00 0.00 0.00 0.00 1,683,523.57 0.00
April 2025.......... 0.00 0.00 0.00 0.00 1,619,347.80 0.00
May 2025............ 0.00 0.00 0.00 0.00 1,556,350.85 0.00
June 2025........... 0.00 0.00 0.00 0.00 1,494,514.48 0.00
July 2025........... 0.00 0.00 0.00 0.00 1,433,820.67 0.00
August 2025......... 0.00 0.00 0.00 0.00 1,374,251.72 0.00
September 2025...... 0.00 0.00 0.00 0.00 1,315,790.12 0.00
October 2025........ 0.00 0.00 0.00 0.00 1,258,418.67 0.00
November 2025....... 0.00 0.00 0.00 0.00 1,202,120.38 0.00
December 2025....... 0.00 0.00 0.00 0.00 1,146,878.57 0.00
January 2026........ 0.00 0.00 0.00 0.00 1,092,676.70 0.00
February 2026....... 0.00 0.00 0.00 0.00 1,039,498.55 0.00
March 2026.......... 0.00 0.00 0.00 0.00 987,328.10 0.00
April 2026.......... 0.00 0.00 0.00 0.00 936,149.60 0.00
May 2026............ 0.00 0.00 0.00 0.00 885,947.47 0.00
</TABLE>
B-8
<PAGE> 199
<TABLE>
<CAPTION>
SD2
COMPONENT PC CLASS PD CLASS PE CLASS PG CLASS B CLASS
DISTRIBUTION PLANNED PLANNED PLANNED PLANNED PLANNED PLANNED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
June 2026........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 836,706.42 $ 0.00
July 2026........... 0.00 0.00 0.00 0.00 788,411.30 0.00
August 2026......... 0.00 0.00 0.00 0.00 741,047.28 0.00
September 2026...... 0.00 0.00 0.00 0.00 694,599.68 0.00
October 2026........ 0.00 0.00 0.00 0.00 649,054.05 0.00
November 2026....... 0.00 0.00 0.00 0.00 604,396.15 0.00
December 2026....... 0.00 0.00 0.00 0.00 560,611.95 0.00
January 2027........ 0.00 0.00 0.00 0.00 517,687.62 0.00
February 2027....... 0.00 0.00 0.00 0.00 475,609.53 0.00
March 2027.......... 0.00 0.00 0.00 0.00 434,364.27 0.00
April 2027.......... 0.00 0.00 0.00 0.00 393,938.58 0.00
May 2027............ 0.00 0.00 0.00 0.00 354,319.45 0.00
June 2027........... 0.00 0.00 0.00 0.00 315,494.03 0.00
July 2027........... 0.00 0.00 0.00 0.00 277,449.67 0.00
August 2027......... 0.00 0.00 0.00 0.00 240,173.87 0.00
September 2027...... 0.00 0.00 0.00 0.00 203,654.35 0.00
October 2027........ 0.00 0.00 0.00 0.00 167,879.02 0.00
November 2027....... 0.00 0.00 0.00 0.00 132,835.93 0.00
December 2027....... 0.00 0.00 0.00 0.00 98,513.32 0.00
January 2028........ 0.00 0.00 0.00 0.00 64,899.62 0.00
February 2028....... 0.00 0.00 0.00 0.00 31,983.40 0.00
March 2028 and
thereafter........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-9
<PAGE> 200
<TABLE>
<CAPTION>
FE CLASS SE CLASS C CLASS D CLASS E CLASS FG CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance..... $49,678,985.00 $11,464,382.00 $2,336,046.00 $2,250,000.00 $2,250,000.00 $9,703,081.00
July 1998........... 49,280,053.79 11,372,320.94 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 1998......... 48,817,441.84 11,265,564.33 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 1998...... 48,291,299.00 11,144,146.75 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 1998........ 47,701,822.42 11,008,113.68 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 1998....... 47,049,256.64 10,857,521.57 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 1998....... 46,333,893.42 10,692,437.73 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 1999........ 45,556,071.67 10,512,940.39 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 1999....... 44,716,177.26 10,319,118.59 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 1999.......... 43,814,642.81 10,111,072.16 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 1999.......... 42,851,947.32 9,888,911.65 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 1999............ 41,828,615.92 9,652,758.23 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 1999........... 40,745,219.35 9,402,743.62 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 1999........... 39,602,373.52 9,139,009.95 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 1999......... 38,400,739.05 8,861,709.67 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 1999...... 37,141,020.59 8,571,005.38 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 1999........ 35,823,966.20 8,267,069.73 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 1999....... 34,450,366.67 7,950,085.20 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 1999....... 33,021,054.78 7,620,243.97 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2000........ 31,536,904.45 7,277,747.72 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2000....... 29,998,829.87 6,922,807.40 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2000.......... 29,587,777.88 6,827,949.25 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2000.......... 29,162,724.73 6,729,860.05 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2000............ 28,724,168.57 6,628,654.77 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2000........... 28,272,625.14 6,524,452.44 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2000........... 27,808,627.11 6,417,375.96 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2000......... 27,332,723.33 6,307,552.00 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2000...... 26,845,478.05 6,195,110.78 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2000........ 26,347,470.11 6,080,185.86 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2000....... 25,857,227.82 5,967,053.02 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2000....... 25,374,674.63 5,855,694.58 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2001........ 24,899,734.66 5,746,093.04 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2001....... 24,432,332.70 5,638,231.04 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2001.......... 23,972,394.21 5,532,091.38 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2001.......... 23,519,845.30 5,427,657.01 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2001............ 23,074,612.70 5,324,911.02 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2001........... 22,636,623.84 5,223,836.66 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2001........... 22,205,806.71 5,124,417.31 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2001......... 21,782,090.01 5,026,636.53 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2001...... 21,365,403.00 4,930,477.98 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2001........ 20,955,675.59 4,835,925.49 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2001....... 20,552,838.33 4,742,963.04 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2001....... 20,156,822.32 4,651,574.72 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2002........ 19,767,559.33 4,561,744.80 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2002....... 19,384,981.70 4,473,457.64 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2002.......... 19,009,022.35 4,386,697.79 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2002.......... 18,639,614.83 4,301,449.89 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2002............ 18,276,693.24 4,217,698.75 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
</TABLE>
B-10
<PAGE> 201
<TABLE>
<CAPTION>
FE CLASS SE CLASS C CLASS D CLASS E CLASS FG CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2002........... $17,920,192.28 $ 4,135,429.29 $2,336,046.00 $2,250,000.00 $2,250,000.00 $9,703,081.00
July 2002........... 17,570,047.22 4,054,626.58 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2002......... 17,226,193.92 3,975,275.81 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2002...... 16,888,568.77 3,897,362.31 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2002........ 16,557,108.76 3,820,871.53 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2002....... 16,231,751.41 3,745,789.06 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2002....... 15,912,434.80 3,672,100.61 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2003........ 15,599,097.57 3,599,792.01 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2003....... 15,291,678.90 3,528,849.24 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2003.......... 14,990,118.49 3,459,258.37 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2003.......... 14,694,356.58 3,391,005.61 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2003............ 14,404,333.97 3,324,077.32 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2003........... 14,119,991.97 3,258,459.93 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2003........... 13,841,272.38 3,194,140.02 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2003......... 13,568,117.56 3,131,104.28 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2003...... 13,300,470.38 3,069,339.54 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2003........ 13,038,274.17 3,008,832.72 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2003....... 12,781,472.83 2,949,570.87 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2003....... 12,530,010.71 2,891,541.15 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2004........ 12,283,832.68 2,834,730.83 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2004....... 12,042,884.10 2,779,127.30 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2004.......... 11,807,110.81 2,724,718.08 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2004.......... 11,576,459.15 2,671,490.77 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2004............ 11,350,875.92 2,619,433.10 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2004........... 11,130,308.39 2,568,532.89 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2004........... 10,914,704.34 2,518,778.11 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2004......... 10,704,011.96 2,470,156.79 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2004...... 10,498,179.97 2,422,657.09 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2004........ 10,297,157.51 2,376,267.29 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2004....... 10,100,894.16 2,330,975.75 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2004....... 9,909,340.00 2,286,770.94 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2005........ 9,722,445.52 2,243,641.44 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2005....... 9,529,980.04 2,199,226.32 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2005.......... 9,287,583.59 2,143,288.68 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2005.......... 9,052,249.85 2,088,980.89 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2005............ 8,823,893.49 2,036,283.26 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2005........... 8,602,430.09 1,985,176.32 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2005........... 8,387,776.09 1,935,640.78 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2005......... 8,179,848.74 1,887,657.54 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2005...... 7,978,566.23 1,841,207.73 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2005........ 7,783,847.50 1,796,272.63 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2005....... 7,595,612.40 1,752,833.76 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2005....... 7,413,781.55 1,710,872.79 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2006........ 7,238,276.39 1,670,371.60 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2006....... 7,069,019.21 1,631,312.25 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2006.......... 6,905,933.04 1,593,676.97 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2006.......... 6,748,941.78 1,557,448.22 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2006............ 6,597,970.03 1,522,608.58 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
</TABLE>
B-11
<PAGE> 202
<TABLE>
<CAPTION>
FE CLASS SE CLASS C CLASS D CLASS E CLASS FG CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2006........... $ 6,452,943.24 $ 1,489,140.86 $2,336,046.00 $2,250,000.00 $2,250,000.00 $9,703,081.00
July 2006........... 6,313,787.60 1,457,028.02 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2006......... 6,180,430.07 1,426,253.20 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2006...... 6,052,798.35 1,396,799.72 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2006........ 5,930,820.88 1,368,651.07 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2006....... 5,814,426.91 1,341,790.92 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2006....... 5,703,546.32 1,316,203.09 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2007........ 5,598,109.81 1,291,871.59 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2007....... 5,498,048.76 1,268,780.58 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2007.......... 5,403,295.26 1,246,914.38 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2007.......... 5,313,782.12 1,226,257.50 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2007............ 5,229,442.83 1,206,794.59 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2007........... 5,150,211.60 1,188,510.46 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2007........... 5,070,312.81 1,170,072.27 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2007......... 4,986,510.36 1,150,733.25 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2007...... 4,898,905.47 1,130,516.73 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2007........ 4,807,597.53 1,109,445.67 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2007....... 4,712,684.13 1,087,542.57 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2007....... 4,614,261.18 1,064,829.58 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2008........ 4,512,422.80 1,041,328.42 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2008....... 4,407,261.47 1,017,060.41 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2008.......... 4,298,867.97 992,046.53 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2008.......... 4,187,331.44 966,307.33 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2008............ 4,072,739.42 939,863.01 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2008........... 3,955,177.88 912,733.42 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2008........... 3,834,731.17 884,938.03 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2008......... 3,711,482.14 856,495.94 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2008...... 3,585,512.12 827,425.94 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2008........ 3,456,900.94 797,746.43 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2008....... 3,325,726.97 767,475.51 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2008....... 3,192,067.13 736,630.93 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2009........ 3,055,996.92 705,230.11 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2009....... 2,917,590.43 673,290.15 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2009.......... 2,776,920.41 640,827.83 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2009.......... 2,634,058.20 607,859.63 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2009............ 2,489,073.84 574,401.70 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
June 2009........... 2,342,036.08 540,469.90 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
July 2009........... 2,193,012.32 506,079.80 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2009......... 2,042,068.73 471,246.67 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2009...... 1,889,270.25 435,985.47 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
October 2009........ 1,734,680.51 400,310.92 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
November 2009....... 1,578,362.02 364,237.42 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
December 2009....... 1,420,376.04 327,779.11 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
January 2010........ 1,260,782.69 290,949.87 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
February 2010....... 1,099,640.91 253,763.31 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
March 2010.......... 937,008.54 216,232.76 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
April 2010.......... 772,942.27 178,371.31 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
May 2010............ 607,497.70 140,191.79 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
</TABLE>
B-12
<PAGE> 203
<TABLE>
<CAPTION>
FE CLASS SE CLASS C CLASS D CLASS E CLASS FG CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2010........... $ 440,729.36 $ 101,706.78 $2,336,046.00 $2,250,000.00 $2,250,000.00 $9,703,081.00
July 2010........... 272,690.72 62,928.63 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
August 2010......... 103,434.19 23,869.43 2,336,046.00 2,250,000.00 2,250,000.00 9,703,081.00
September 2010...... 0.00 0.00 2,319,918.68 2,234,466.71 2,234,466.71 9,636,093.99
October 2010........ 0.00 0.00 2,278,621.78 2,194,690.94 2,194,690.94 9,464,561.78
November 2010....... 0.00 0.00 2,237,068.07 2,154,667.83 2,154,667.83 9,291,962.89
December 2010....... 0.00 0.00 2,195,269.21 2,114,408.59 2,114,408.59 9,118,345.68
January 2011........ 0.00 0.00 2,153,236.61 2,073,924.21 2,073,924.21 8,943,757.61
February 2011....... 0.00 0.00 2,110,981.46 2,033,225.49 2,033,225.49 8,768,245.17
March 2011.......... 0.00 0.00 2,068,514.73 1,992,322.98 1,992,322.98 8,591,853.91
April 2011.......... 0.00 0.00 2,025,847.17 1,951,227.04 1,951,227.04 8,414,628.46
May 2011............ 0.00 0.00 1,982,989.31 1,909,947.81 1,909,947.81 8,236,612.58
June 2011........... 0.00 0.00 1,939,951.46 1,868,495.22 1,868,495.22 8,057,849.11
July 2011........... 0.00 0.00 1,896,743.74 1,826,879.01 1,826,879.01 7,878,380.01
August 2011......... 0.00 0.00 1,853,376.35 1,785,109.02 1,785,109.02 7,698,247.72
September 2011...... 0.00 0.00 1,809,858.70 1,743,194.30 1,743,194.30 7,517,491.34
October 2011........ 0.00 0.00 1,766,200.28 1,701,144.00 1,701,144.00 7,336,150.22
November 2011....... 0.00 0.00 1,722,410.37 1,658,967.05 1,658,967.05 7,154,262.95
December 2011....... 0.00 0.00 1,678,498.09 1,616,672.24 1,616,672.24 6,971,867.40
January 2012........ 0.00 0.00 1,634,472.35 1,574,268.14 1,574,268.14 6,789,000.56
February 2012....... 0.00 0.00 1,590,341.88 1,531,763.18 1,531,763.18 6,605,698.74
March 2012.......... 0.00 0.00 1,546,115.24 1,489,165.57 1,489,165.57 6,421,997.42
April 2012.......... 0.00 0.00 1,501,800.78 1,446,483.39 1,446,483.39 6,237,931.35
May 2012............ 0.00 0.00 1,457,406.69 1,403,724.52 1,403,724.52 6,053,534.54
June 2012........... 0.00 0.00 1,412,940.99 1,360,896.67 1,360,896.67 5,868,840.27
July 2012........... 0.00 0.00 1,368,411.52 1,318,007.40 1,318,007.40 5,683,881.14
August 2012......... 0.00 0.00 1,323,825.95 1,275,064.10 1,275,064.10 5,498,689.00
September 2012...... 0.00 0.00 1,279,191.80 1,232,074.00 1,232,074.00 5,313,295.03
October 2012........ 0.00 0.00 1,234,516.39 1,189,044.17 1,189,044.17 5,127,729.74
November 2012....... 0.00 0.00 1,189,806.92 1,145,981.53 1,145,981.53 4,942,022.95
December 2012....... 0.00 0.00 1,145,070.42 1,102,892.86 1,102,892.86 4,756,203.87
January 2013........ 0.00 0.00 1,100,313.75 1,059,784.75 1,059,784.75 4,570,301.02
February 2013....... 0.00 0.00 1,055,543.63 1,016,663.70 1,016,663.70 4,384,342.31
March 2013.......... 0.00 0.00 1,010,766.63 973,536.01 973,536.01 4,198,355.02
April 2013.......... 0.00 0.00 965,989.16 930,407.89 930,407.89 4,012,365.81
May 2013............ 0.00 0.00 921,217.52 887,285.36 887,285.36 3,826,400.77
June 2013........... 0.00 0.00 876,457.82 844,174.34 844,174.34 3,640,485.34
July 2013........... 0.00 0.00 831,716.07 801,080.61 801,080.61 3,454,644.45
August 2013......... 0.00 0.00 786,998.11 758,009.79 758,009.79 3,268,902.42
September 2013...... 0.00 0.00 742,309.67 714,967.41 714,967.41 3,083,282.97
October 2013........ 0.00 0.00 697,656.34 671,958.84 671,958.84 2,897,809.37
November 2013....... 0.00 0.00 653,043.58 628,989.35 628,989.35 2,712,504.25
December 2013....... 0.00 0.00 608,476.70 586,064.05 586,064.05 2,527,389.76
January 2014........ 0.00 0.00 563,960.93 543,187.97 543,187.97 2,342,487.50
February 2014....... 0.00 0.00 519,501.32 500,365.99 500,365.99 2,157,818.57
March 2014.......... 0.00 0.00 475,102.86 457,602.90 457,602.90 1,973,403.56
April 2014.......... 0.00 0.00 430,770.36 414,903.35 414,903.35 1,789,262.58
May 2014............ 0.00 0.00 386,508.55 372,271.88 372,271.88 1,605,415.20
</TABLE>
B-13
<PAGE> 204
<TABLE>
<CAPTION>
FE CLASS SE CLASS C CLASS D CLASS E CLASS FG CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2014........... $ 0.00 $ 0.00 $ 342,322.04 $ 329,712.93 $ 329,712.93 $1,421,880.58
July 2014........... 0.00 0.00 298,215.31 287,230.84 287,230.84 1,238,677.37
August 2014......... 0.00 0.00 254,192.75 244,829.80 244,829.80 1,055,823.73
September 2014...... 0.00 0.00 210,258.62 202,513.94 202,513.94 873,337.42
October 2014........ 0.00 0.00 166,417.09 160,287.28 160,287.28 691,235.74
November 2014....... 0.00 0.00 122,672.21 118,153.70 118,153.70 509,535.51
December 2014....... 0.00 0.00 79,027.94 76,117.02 76,117.02 328,253.16
January 2015........ 0.00 0.00 35,488.12 34,180.95 34,180.95 147,404.69
February 2015 and
thereafter........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-14
<PAGE> 205
<TABLE>
<CAPTION>
SG CLASS A CLASS J CLASS FH CLASS SH CLASS K CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Initial Balance..... $2,239,173.00 $73,085,621.00 $61,143,367.00 $59,382,066.00 $13,703,555.00 $11,942,254.00
July 1998........... 2,239,173.00 72,594,628.74 60,652,374.74 58,983,134.79 13,611,493.95 11,942,254.00
August 1998......... 2,239,173.00 72,025,260.17 60,083,006.17 58,520,522.84 13,504,737.33 11,942,254.00
September 1998...... 2,239,173.00 71,377,699.77 59,435,445.77 57,994,380.02 13,383,319.75 11,942,254.00
October 1998........ 2,239,173.00 70,652,190.11 58,709,936.11 57,404,903.43 13,247,286.68 11,942,254.00
November 1998....... 2,239,173.00 69,849,032.23 57,906,778.23 56,752,337.66 13,096,694.57 11,942,254.00
December 1998....... 2,239,173.00 68,968,585.16 57,026,331.16 56,036,974.43 12,931,610.73 11,942,254.00
January 1999........ 2,239,173.00 68,011,266.06 56,069,012.06 55,259,152.67 12,752,113.39 11,942,254.00
February 1999....... 2,239,173.00 66,977,549.85 55,035,295.85 54,419,258.26 12,558,291.59 11,942,254.00
March 1999.......... 2,239,173.00 65,867,968.98 53,925,714.98 53,517,723.81 12,350,245.16 11,942,254.00
April 1999.......... 2,239,173.00 64,683,112.97 52,740,858.97 52,555,028.32 12,128,084.65 11,942,254.00
May 1999............ 2,239,173.00 63,423,628.16 51,481,374.16 51,531,696.92 11,891,931.23 11,942,254.00
June 1999........... 2,239,173.00 62,090,216.97 50,147,962.97 50,448,300.35 11,641,916.62 11,942,254.00
July 1999........... 2,239,173.00 60,683,637.48 48,741,383.48 49,305,454.53 11,378,182.95 11,942,254.00
August 1999......... 2,239,173.00 59,204,702.74 47,262,448.74 48,103,820.07 11,100,882.67 11,942,254.00
September 1999...... 2,239,173.00 57,654,279.98 45,712,025.98 46,844,101.59 10,810,178.38 11,942,254.00
October 1999........ 2,239,173.00 56,033,289.93 44,091,035.93 45,527,047.20 10,506,242.73 11,942,254.00
November 1999....... 2,239,173.00 54,342,705.87 42,400,451.87 44,153,447.67 10,189,258.20 11,942,254.00
December 1999....... 2,239,173.00 52,583,552.77 40,641,298.77 42,724,135.79 9,859,416.98 11,942,254.00
January 2000........ 2,239,173.00 50,756,906.18 38,814,652.18 41,239,985.46 9,516,920.72 11,942,254.00
February 2000....... 2,239,173.00 48,863,891.28 36,921,637.28 39,701,910.88 9,161,980.41 11,942,254.00
March 2000.......... 2,239,173.00 48,357,981.15 36,415,727.15 39,290,858.90 9,067,122.25 11,942,254.00
April 2000.......... 2,239,173.00 47,834,838.78 35,892,584.78 38,865,805.73 8,969,033.05 11,942,254.00
May 2000............ 2,239,173.00 47,295,077.34 35,352,823.34 38,427,249.57 8,867,827.77 11,942,254.00
June 2000........... 2,239,173.00 46,739,331.59 34,797,077.59 37,975,706.15 8,763,625.44 11,942,254.00
July 2000........... 2,239,173.00 46,168,257.08 34,226,003.08 37,511,708.11 8,656,548.96 11,942,254.00
August 2000......... 2,239,173.00 45,582,529.34 33,640,275.34 37,035,804.33 8,546,725.00 11,942,254.00
September 2000...... 2,239,173.00 44,982,842.85 33,040,588.85 36,548,559.07 8,434,283.78 11,942,254.00
October 2000........ 2,239,173.00 44,369,909.98 32,427,655.98 36,050,551.12 8,319,358.86 11,942,254.00
November 2000....... 2,239,173.00 43,766,534.86 31,824,280.86 35,560,308.84 8,206,226.02 11,942,254.00
December 2000....... 2,239,173.00 43,172,623.22 31,230,369.22 35,077,755.64 8,094,867.58 11,942,254.00
January 2001........ 2,239,173.00 42,588,081.71 30,645,827.71 34,602,815.67 7,985,266.04 11,942,254.00
February 2001....... 2,239,173.00 42,012,817.75 30,070,563.75 34,135,413.71 7,877,404.04 11,942,254.00
March 2001.......... 2,239,173.00 41,446,739.59 29,504,485.59 33,675,475.21 7,771,264.38 11,942,254.00
April 2001.......... 2,239,173.00 40,889,756.32 28,947,502.32 33,222,926.31 7,666,830.01 11,942,254.00
May 2001............ 2,239,173.00 40,341,777.74 28,399,523.74 32,777,693.72 7,564,084.02 11,942,254.00
June 2001........... 2,239,173.00 39,802,714.52 27,860,460.52 32,339,704.86 7,463,009.66 11,942,254.00
July 2001........... 2,239,173.00 39,272,478.03 27,330,224.03 31,908,887.72 7,363,590.31 11,942,254.00
August 2001......... 2,239,173.00 38,750,980.55 26,808,726.55 31,485,171.02 7,265,809.53 11,942,254.00
September 2001...... 2,239,173.00 38,238,134.98 26,295,880.98 31,068,484.00 7,169,650.98 11,942,254.00
October 2001........ 2,239,173.00 37,733,855.09 25,791,601.09 30,658,756.60 7,075,098.49 11,942,254.00
November 2001....... 2,239,173.00 37,238,055.37 25,295,801.37 30,255,919.33 6,982,136.04 11,942,254.00
December 2001....... 2,239,173.00 36,750,651.04 24,808,397.04 29,859,903.32 6,890,747.72 11,942,254.00
January 2002........ 2,239,173.00 36,271,558.14 24,329,304.14 29,470,640.34 6,800,917.80 11,942,254.00
February 2002....... 2,239,173.00 35,800,693.35 23,858,439.35 29,088,062.70 6,712,630.65 11,942,254.00
March 2002.......... 2,239,173.00 35,337,974.14 23,395,720.14 28,712,103.35 6,625,870.79 11,942,254.00
April 2002.......... 2,239,173.00 34,883,318.72 22,941,064.72 28,342,695.83 6,540,622.89 11,942,254.00
May 2002............ 2,239,173.00 34,436,645.99 22,494,391.99 27,979,774.24 6,456,871.75 11,942,254.00
</TABLE>
B-15
<PAGE> 206
<TABLE>
<CAPTION>
SG CLASS A CLASS J CLASS FH CLASS SH CLASS K CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2002........... $2,239,173.00 $33,997,875.58 $22,055,621.58 $27,623,273.28 $ 6,374,602.29 $11,942,254.00
July 2002........... 2,239,173.00 33,566,927.80 21,624,673.80 27,273,128.22 6,293,799.58 11,942,254.00
August 2002......... 2,239,173.00 33,143,723.73 21,201,469.73 26,929,274.92 6,214,448.81 11,942,254.00
September 2002...... 2,239,173.00 32,728,185.08 20,785,931.08 26,591,649.77 6,136,535.31 11,942,254.00
October 2002........ 2,239,173.00 32,320,234.30 20,377,980.30 26,260,189.77 6,060,044.54 11,942,254.00
November 2002....... 2,239,173.00 31,919,794.48 19,977,540.48 25,934,832.41 5,984,962.06 11,942,254.00
December 2002....... 2,239,173.00 31,526,789.41 19,584,535.41 25,615,515.80 5,911,273.61 11,942,254.00
January 2003........ 2,239,173.00 31,141,143.59 19,198,889.59 25,302,178.57 5,838,965.01 11,942,254.00
February 2003....... 2,239,173.00 30,762,782.15 18,820,528.15 24,994,759.91 5,768,022.24 11,942,254.00
March 2003.......... 2,239,173.00 30,391,630.87 18,449,376.87 24,693,199.50 5,698,431.37 11,942,254.00
April 2003.......... 2,239,173.00 30,027,616.19 18,085,362.19 24,397,437.58 5,630,178.61 11,942,254.00
May 2003............ 2,239,173.00 29,670,665.31 17,728,411.31 24,107,414.99 5,563,250.32 11,942,254.00
June 2003........... 2,239,173.00 29,320,705.92 17,378,451.92 23,823,072.99 5,497,632.93 11,942,254.00
July 2003........... 2,239,173.00 28,977,666.42 17,035,412.42 23,544,353.40 5,433,313.02 11,942,254.00
August 2003......... 2,239,173.00 28,641,475.85 16,699,221.85 23,271,198.56 5,370,277.28 11,942,254.00
September 2003...... 2,239,173.00 28,312,063.93 16,369,809.93 23,003,551.38 5,308,512.55 11,942,254.00
October 2003........ 2,239,173.00 27,989,360.89 16,047,106.89 22,741,355.17 5,248,005.72 11,942,254.00
November 2003....... 2,239,173.00 27,673,297.71 15,731,043.71 22,484,553.84 5,188,743.87 11,942,254.00
December 2003....... 2,239,173.00 27,363,805.88 15,421,551.88 22,233,091.73 5,130,714.15 11,942,254.00
January 2004........ 2,239,173.00 27,060,817.52 15,118,563.52 21,986,913.69 5,073,903.83 11,942,254.00
February 2004....... 2,239,173.00 26,764,265.41 14,822,011.41 21,745,965.10 5,018,300.31 11,942,254.00
March 2004.......... 2,239,173.00 26,474,082.89 14,531,828.89 21,510,191.81 4,963,891.08 11,942,254.00
April 2004.......... 2,239,173.00 26,190,203.92 14,247,949.92 21,279,540.15 4,910,663.77 11,942,254.00
May 2004............ 2,239,173.00 25,912,563.03 13,970,309.03 21,053,956.93 4,858,606.10 11,942,254.00
June 2004........... 2,239,173.00 25,641,095.29 13,698,841.29 20,833,389.39 4,807,705.90 11,942,254.00
July 2004........... 2,239,173.00 25,375,736.45 13,433,482.45 20,617,785.34 4,757,951.11 11,942,254.00
August 2004......... 2,239,173.00 25,116,422.76 13,174,168.76 20,407,092.97 4,709,329.79 11,942,254.00
September 2004...... 2,239,173.00 24,863,091.07 12,920,837.07 20,201,260.97 4,661,830.10 11,942,254.00
October 2004........ 2,239,173.00 24,615,678.80 12,673,424.80 20,000,238.51 4,615,440.29 11,942,254.00
November 2004....... 2,239,173.00 24,374,123.92 12,431,869.92 19,803,975.17 4,570,148.75 11,942,254.00
December 2004....... 2,239,173.00 24,138,364.95 12,196,110.95 19,612,421.01 4,525,943.94 11,942,254.00
January 2005........ 2,239,173.00 23,908,340.96 11,966,086.96 19,425,526.52 4,482,814.44 11,942,254.00
February 2005....... 2,239,173.00 23,671,460.37 11,729,206.37 19,233,061.04 4,438,399.33 11,942,254.00
March 2005.......... 2,239,173.00 23,373,126.27 11,430,872.27 18,990,664.59 4,382,461.68 11,942,254.00
April 2005.......... 2,239,173.00 23,083,484.75 11,141,230.75 18,755,330.86 4,328,153.89 11,942,254.00
May 2005............ 2,239,173.00 22,802,430.75 10,860,176.75 18,526,974.49 4,275,456.26 11,942,254.00
June 2005........... 2,239,173.00 22,529,860.41 10,587,606.41 18,305,511.09 4,224,349.32 11,942,254.00
July 2005........... 2,239,173.00 22,265,670.88 10,323,416.88 18,090,857.10 4,174,813.78 11,942,254.00
August 2005......... 2,239,173.00 22,009,760.28 10,067,506.28 17,882,929.74 4,126,830.54 11,942,254.00
September 2005...... 2,239,173.00 21,762,027.97 9,819,773.97 17,681,647.24 4,080,380.73 11,942,254.00
October 2005........ 2,239,173.00 21,522,374.14 9,580,120.14 17,486,928.51 4,035,445.63 11,942,254.00
November 2005....... 2,239,173.00 21,290,700.16 9,348,446.16 17,298,693.40 3,992,006.76 11,942,254.00
December 2005....... 2,239,173.00 21,066,908.34 9,124,654.34 17,116,862.55 3,950,045.79 11,942,254.00
January 2006........ 2,239,173.00 20,850,902.00 8,908,648.00 16,941,357.40 3,909,544.60 11,942,254.00
February 2006....... 2,239,173.00 20,642,585.48 8,700,331.48 16,772,100.23 3,870,485.25 11,942,254.00
March 2006.......... 2,239,173.00 20,441,864.02 8,499,610.02 16,609,014.05 3,832,849.97 11,942,254.00
April 2006.......... 2,239,173.00 20,248,644.01 8,306,390.01 16,452,022.79 3,796,621.22 11,942,254.00
May 2006............ 2,239,173.00 20,062,832.62 8,120,578.62 16,301,051.04 3,761,781.58 11,942,254.00
</TABLE>
B-16
<PAGE> 207
<TABLE>
<CAPTION>
SG CLASS A CLASS J CLASS FH CLASS SH CLASS K CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2006........... $2,239,173.00 $19,884,338.11 $ 7,942,084.11 $16,156,024.25 $ 3,728,313.86 $11,942,254.00
July 2006........... 2,239,173.00 19,713,069.64 7,770,815.64 16,016,868.62 3,696,201.02 11,942,254.00
August 2006......... 2,239,173.00 19,548,937.28 7,606,683.28 15,883,511.08 3,665,426.20 11,942,254.00
September 2006...... 2,239,173.00 19,391,852.07 7,449,598.07 15,755,879.35 3,635,972.72 11,942,254.00
October 2006........ 2,239,173.00 19,241,725.96 7,299,471.96 15,633,901.89 3,607,824.07 11,942,254.00
November 2006....... 2,239,173.00 19,098,471.83 7,156,217.83 15,517,507.91 3,580,963.92 11,942,254.00
December 2006....... 2,239,173.00 18,962,003.41 7,019,749.41 15,406,627.32 3,555,376.09 11,942,254.00
January 2007........ 2,239,173.00 18,832,235.40 6,889,981.40 15,301,190.81 3,531,044.59 11,942,254.00
February 2007....... 2,239,173.00 18,709,083.35 6,766,829.35 15,201,129.77 3,507,953.58 11,942,254.00
March 2007.......... 2,239,173.00 18,592,463.64 6,650,209.64 15,106,376.26 3,486,087.38 11,942,254.00
April 2007.......... 2,239,173.00 18,482,293.62 6,540,039.62 15,016,863.12 3,465,430.50 11,942,254.00
May 2007............ 2,239,173.00 18,378,491.43 6,436,237.43 14,932,523.84 3,445,967.59 11,942,254.00
June 2007........... 2,239,173.00 18,280,976.07 6,338,722.07 14,853,292.61 3,427,683.46 11,942,254.00
July 2007........... 2,239,173.00 18,182,639.08 6,240,385.08 14,773,393.81 3,409,245.27 11,942,254.00
August 2007......... 2,239,173.00 18,079,497.63 6,137,243.63 14,689,591.38 3,389,906.25 11,942,254.00
September 2007...... 2,239,173.00 17,971,676.21 6,029,422.21 14,601,986.48 3,369,689.73 11,942,254.00
October 2007........ 2,239,173.00 17,859,297.22 5,917,043.22 14,510,678.55 3,348,618.67 11,942,254.00
November 2007....... 2,239,173.00 17,742,480.70 5,800,226.70 14,415,765.13 3,326,715.57 11,942,254.00
December 2007....... 2,239,173.00 17,621,344.76 5,679,090.76 14,317,342.18 3,304,002.58 11,942,254.00
January 2008........ 2,239,173.00 17,496,005.24 5,553,751.24 14,215,503.82 3,280,501.42 11,942,254.00
February 2008....... 2,239,173.00 17,366,575.89 5,424,321.89 14,110,342.47 3,256,233.42 11,942,254.00
March 2008.......... 2,239,173.00 17,233,168.51 5,290,914.51 14,001,948.98 3,231,219.53 11,942,254.00
April 2008.......... 2,239,173.00 17,095,892.78 5,153,638.78 13,890,412.45 3,205,480.33 11,942,254.00
May 2008............ 2,239,173.00 16,954,856.44 5,012,602.44 13,775,820.43 3,179,036.01 11,942,254.00
June 2008........... 2,239,173.00 16,810,165.31 4,867,911.31 13,658,258.88 3,151,906.43 11,942,254.00
July 2008........... 2,239,173.00 16,661,923.21 4,719,669.21 13,537,812.18 3,124,111.03 11,942,254.00
August 2008......... 2,239,173.00 16,510,232.08 4,567,978.08 13,414,563.14 3,095,668.94 11,942,254.00
September 2008...... 2,239,173.00 16,355,192.08 4,412,938.08 13,288,593.14 3,066,598.94 11,942,254.00
October 2008........ 2,239,173.00 16,196,901.37 4,254,647.37 13,159,981.94 3,036,919.43 11,942,254.00
November 2008....... 2,239,173.00 16,035,456.49 4,093,202.49 13,028,807.98 3,006,648.51 11,942,254.00
December 2008....... 2,239,173.00 15,870,952.06 3,928,698.06 12,895,148.13 2,975,803.93 11,942,254.00
January 2009........ 2,239,173.00 15,703,481.03 3,761,227.03 12,759,077.92 2,944,403.11 11,942,254.00
February 2009....... 2,239,173.00 15,533,134.58 3,590,880.58 12,620,671.43 2,912,463.15 11,942,254.00
March 2009.......... 2,239,173.00 15,360,002.24 3,417,748.24 12,480,001.41 2,880,000.83 11,942,254.00
April 2009.......... 2,239,173.00 15,184,171.83 3,241,917.83 12,337,139.20 2,847,032.63 11,942,254.00
May 2009............ 2,239,173.00 15,005,729.55 3,063,475.55 12,192,154.85 2,813,574.70 11,942,254.00
June 2009........... 2,239,173.00 14,824,759.98 2,882,505.98 12,045,117.08 2,779,642.90 11,942,254.00
July 2009........... 2,239,173.00 14,641,346.13 2,699,092.13 11,896,093.32 2,745,252.80 11,942,254.00
August 2009......... 2,239,173.00 14,455,569.42 2,513,315.42 11,745,149.75 2,710,419.67 11,942,254.00
September 2009...... 2,239,173.00 14,267,509.73 2,325,255.73 11,592,351.25 2,675,158.48 11,942,254.00
October 2009........ 2,239,173.00 14,077,245.45 2,134,991.45 11,437,761.53 2,639,483.92 11,942,254.00
November 2009....... 2,239,173.00 13,884,853.46 1,942,599.46 11,281,443.04 2,603,410.42 11,942,254.00
December 2009....... 2,239,173.00 13,690,409.16 1,748,155.16 11,123,457.05 2,566,952.11 11,942,254.00
January 2010........ 2,239,173.00 13,493,986.56 1,551,732.56 10,963,863.69 2,530,122.87 11,942,254.00
February 2010....... 2,239,173.00 13,295,658.24 1,353,404.24 10,802,721.93 2,492,936.31 11,942,254.00
March 2010.......... 2,239,173.00 13,095,495.32 1,153,241.32 10,640,089.56 2,455,405.76 11,942,254.00
April 2010.......... 2,239,173.00 12,893,567.60 951,313.60 10,476,023.29 2,417,544.31 11,942,254.00
May 2010............ 2,239,173.00 12,689,943.50 747,689.50 10,310,578.71 2,379,364.79 11,942,254.00
</TABLE>
B-17
<PAGE> 208
<TABLE>
<CAPTION>
SG CLASS A CLASS J CLASS FH CLASS SH CLASS K CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2010........... $2,239,173.00 $12,484,690.14 $ 542,436.14 $10,143,810.36 $ 2,340,879.78 $11,942,254.00
July 2010........... 2,239,173.00 12,277,873.35 335,619.35 9,975,771.72 2,302,101.63 11,942,254.00
August 2010......... 2,239,173.00 12,069,557.62 127,303.62 9,806,515.19 2,263,042.43 11,942,254.00
September 2010...... 2,223,714.46 11,859,808.47 0.00 9,636,094.01 2,223,714.46 11,859,808.47
October 2010........ 2,184,130.09 11,648,691.88 0.00 9,464,561.79 2,184,130.09 11,648,691.88
November 2010....... 2,144,299.57 11,436,262.46 0.00 9,291,962.89 2,144,299.57 11,436,262.46
December 2010....... 2,104,234.05 11,222,579.75 0.00 9,118,345.70 2,104,234.06 11,222,579.75
January 2011........ 2,063,944.49 11,007,702.13 0.00 8,943,757.63 2,063,944.49 11,007,702.13
February 2011....... 2,023,441.61 10,791,686.80 0.00 8,768,245.19 2,023,441.61 10,791,686.80
March 2011.......... 1,982,735.93 10,574,589.86 0.00 8,591,853.93 1,982,735.93 10,574,589.86
April 2011.......... 1,941,837.74 10,356,466.21 0.00 8,414,628.47 1,941,837.74 10,356,466.21
May 2011............ 1,900,757.14 10,137,369.73 0.00 8,236,612.59 1,900,757.14 10,137,369.73
June 2011........... 1,859,504.02 9,917,353.13 0.00 8,057,849.11 1,859,504.02 9,917,353.13
July 2011........... 1,818,088.07 9,696,468.10 0.00 7,878,380.03 1,818,088.07 9,696,468.10
August 2011......... 1,776,519.07 9,474,766.82 0.00 7,698,247.74 1,776,519.08 9,474,766.82
September 2011...... 1,734,806.05 9,252,297.39 0.00 7,517,491.34 1,734,806.05 9,252,297.39
October 2011........ 1,692,958.09 9,029,108.33 0.00 7,336,150.23 1,692,958.10 9,029,108.33
November 2011....... 1,650,984.10 8,805,247.06 0.00 7,154,262.96 1,650,984.10 8,805,247.06
December 2011....... 1,608,892.81 8,580,760.23 0.00 6,971,867.42 1,608,892.81 8,580,760.23
January 2012........ 1,566,692.76 8,355,693.33 0.00 6,789,000.57 1,566,692.76 8,355,693.33
February 2012....... 1,524,392.33 8,130,091.09 0.00 6,605,698.76 1,524,392.34 8,130,091.09
March 2012.......... 1,481,999.71 7,903,997.14 0.00 6,421,997.43 1,481,999.71 7,903,997.14
April 2012.......... 1,439,522.92 7,677,454.29 0.00 6,237,931.37 1,439,522.92 7,677,454.29
May 2012............ 1,396,969.80 7,450,504.35 0.00 6,053,534.55 1,396,969.80 7,450,504.35
June 2012........... 1,354,348.03 7,223,188.32 0.00 5,868,840.29 1,354,348.04 7,223,188.32
July 2012........... 1,311,665.15 6,995,546.30 0.00 5,683,881.15 1,311,665.15 6,995,546.30
August 2012......... 1,268,928.49 6,767,617.49 0.00 5,498,689.00 1,268,928.49 6,767,617.49
September 2012...... 1,226,145.26 6,539,440.32 0.00 5,313,295.05 1,226,145.26 6,539,440.32
October 2012........ 1,183,322.49 6,311,052.23 0.00 5,127,729.74 1,183,322.49 6,311,052.23
November 2012....... 1,140,467.07 6,082,490.02 0.00 4,942,022.95 1,140,467.07 6,082,490.02
December 2012....... 1,097,585.74 5,853,789.63 0.00 4,756,203.89 1,097,585.74 5,853,789.63
January 2013........ 1,054,685.07 5,624,986.10 0.00 4,570,301.03 1,054,685.07 5,624,986.10
February 2013....... 1,011,771.51 5,396,113.84 0.00 4,384,342.32 1,011,771.51 5,396,113.84
March 2013.......... 968,851.36 5,167,206.39 0.00 4,198,355.03 968,851.36 5,167,206.39
April 2013.......... 925,930.76 4,938,296.60 0.00 4,012,365.83 925,930.77 4,938,296.60
May 2013............ 883,015.74 4,709,416.52 0.00 3,826,400.77 883,015.74 4,709,416.52
June 2013........... 840,112.18 4,480,597.54 0.00 3,640,485.36 840,112.18 4,480,597.54
July 2013........... 797,225.81 4,251,870.28 0.00 3,454,644.47 797,225.81 4,251,870.28
August 2013......... 754,362.25 4,023,264.67 0.00 3,268,902.42 754,362.25 4,023,264.67
September 2013...... 711,526.99 3,794,809.98 0.00 3,083,282.99 711,526.99 3,794,809.98
October 2013........ 668,725.38 3,566,534.76 0.00 2,897,809.38 668,725.38 3,566,534.76
November 2013....... 625,962.65 3,338,466.92 0.00 2,712,504.27 625,962.65 3,338,466.92
December 2013....... 583,243.91 3,110,633.67 0.00 2,527,389.76 583,243.91 3,110,633.67
January 2014........ 540,574.15 2,883,061.67 0.00 2,342,487.51 540,574.15 2,883,061.67
February 2014....... 497,958.23 2,655,776.80 0.00 2,157,818.57 497,958.23 2,655,776.80
March 2014.......... 455,400.92 2,428,804.50 0.00 1,973,403.58 455,400.92 2,428,804.50
April 2014.......... 412,906.83 2,202,169.42 0.00 1,789,262.58 412,906.84 2,202,169.42
May 2014............ 370,480.51 1,975,895.72 0.00 1,605,415.21 370,480.51 1,975,895.72
</TABLE>
B-18
<PAGE> 209
<TABLE>
<CAPTION>
SG CLASS A CLASS J CLASS FH CLASS SH CLASS K CLASS
DISTRIBUTION TARGETED TARGETED TARGETED TARGETED TARGETED TARGETED
DATE BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
June 2014........... $ 328,126.36 $ 1,750,006.96 $ 0.00 $ 1,421,880.60 $ 328,126.36 $ 1,750,006.96
July 2014........... 285,848.68 1,524,526.07 0.00 1,238,677.38 285,848.69 1,524,526.07
August 2014......... 243,651.68 1,299,475.43 0.00 1,055,823.75 243,651.68 1,299,475.43
September 2014...... 201,539.45 1,074,876.89 0.00 873,337.44 201,539.45 1,074,876.89
October 2014........ 159,515.97 850,751.74 0.00 691,235.76 159,515.98 850,751.74
November 2014....... 117,585.14 627,120.67 0.00 509,535.52 117,585.14 627,120.67
December 2014....... 75,750.75 404,003.93 0.00 328,253.18 75,750.75 404,003.93
January 2015........ 34,016.47 181,421.16 0.00 147,404.69 34,016.47 181,421.16
February 2015 and
thereafter........ 0.00 0.00 0.00 0.00 0.00 0.00
</TABLE>
B-19
<PAGE> 210
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE ADDITIONAL DISCLOSURE DOCUMENTS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
AFOREMENTIONED DOCUMENTS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY OF THE CERTIFICATES OFFERED HEREBY IN ANY STATE TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE.
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE AFOREMENTIONED DOCUMENTS AT
ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Table of Contents..................... S- 3
Reference Sheet....................... S- 4
Additional Risk Factors............... S- 9
Description of the Certificates....... S-10
Certain Additional Federal Income Tax
Consequences........................ S-38
Plan of Distribution.................. S-40
Legal Matters......................... S-40
Exhibit A............................. A- 1
Schedule 1............................ A- 2
Principal Balance Schedules........... B- 1
REMIC PROSPECTUS
Prospectus Supplement................. 2
Documents Incorporated by Reference... 3
Available Information................. 3
Summary of Prospectus................. 4
Certain Risk Factors.................. 10
Description of the Certificates....... 13
The Trust Agreement................... 27
Ginnie Mae and the Ginnie Mae
Programs............................ 30
Certain Federal Income Tax
Consequences........................ 31
Legal Investment Considerations....... 42
Legal Opinion......................... 42
ERISA Considerations.................. 42
Plan of Distribution.................. 43
Glossary.............................. 44
</TABLE>
======================================================
$636,015,467
[FANNIE MAE LOGO]
GUARANTEED REMIC
PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1998-42
------------------------
PROSPECTUS SUPPLEMENT
------------------------
BEAR, STEARNS & CO. INC.
MAY 29, 1998
================================================================================
<PAGE> 211
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 212
SUPPLEMENT TO PROSPECTUS SUPPLEMENT DATED MAY 29, 1998
$636,015,467
[FANNIE MAE LOGO]
GUARANTEED REMIC PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1998-42
------------------------
This is a Supplement to the Prospectus Supplement dated May 29, 1998 (the
"Prospectus Supplement"). Capitalized terms used but not defined herein shall
have the meanings assigned to such terms in the Prospectus Supplement.
Notwithstanding anything set forth on the cover of the Prospectus Supplement,
the CUSIP Number for the E Class is 31359T2R8.
SEE "ADDITIONAL RISK FACTORS" ON PAGE S-9 OF THE PROSPECTUS SUPPLEMENT AND
"CERTAIN RISK FACTORS" BEGINNING ON PAGE 10 OF THE REMIC PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE CERTIFICATES.
------------------------
THE CERTIFICATES MAY NOT BE SUITABLE INVESTMENTS FOR ALL INVESTORS. NO INVESTOR
SHOULD PURCHASE CERTIFICATES UNLESS SUCH INVESTOR UNDERSTANDS AND IS ABLE TO
BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND OTHER RISKS ASSOCIATED WITH SUCH
CERTIFICATES.
THE CERTIFICATES, TOGETHER WITH ANY INTEREST THEREON, ARE NOT GUARANTEED BY THE
UNITED STATES. THE OBLIGATIONS OF FANNIE MAE UNDER ITS GUARANTY OF THE
CERTIFICATES ARE OBLIGATIONS SOLELY OF FANNIE MAE AND DO NOT CONSTITUTE AN
OBLIGATION OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY THEREOF OTHER
THAN FANNIE MAE. THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES" WITHIN THE MEANING
OF THE SECURITIES EXCHANGE ACT OF 1934.
The date of this Supplement is June 24, 1998.
<PAGE> 213
OFFERING CIRCULAR SUPPLEMENT
(TO OFFERING CIRCULAR DATED JANUARY 1, 1997)
$337,000,000
FEDERAL HOME LOAN MORTGAGE CORPORATION
MULTICLASS MORTGAGE SECURITIES, PAYMENT EXCHANGE CERTIFICATES AND
MODIFIABLE AND COMBINABLE REMIC CERTIFICATES, SERIES G063
[FREDDIE MAC LOGO]
<TABLE>
<S> <C>
Offered Securities: Classes of Multiclass Securities and Payment Exchange
Certificates ("PECs") listed below; MACR Classes listed on
Appendix 1 to this Supplement
Guarantee: Principal and interest guaranteed by Freddie Mac, as
described in this Supplement
Tax Status: REMIC (Double-Tier)
Underlying Assets: Freddie Mac Stripped Giant Securities, Series GS007,
consisting of $500,187,500 of 8% Giant IO Securities and
$337,000,000 of Giant PO Securities, backed by
GNMA-Related Securities (GNMA Certificates and Giant
Securities)
Payment Dates: Monthly, beginning July 17, 1997
Form of Securities: Regular, PECs and MACR Classes: Book-entry (Participants
Trust Company)
Residual Classes (R and RS): Certificated
Offering Terms: Classes offered in negotiated transactions at varying prices
through Bear, Stearns & Co. Inc. (the "Underwriter")
Closing Date: June 30, 1997
</TABLE>
THE RISKS ASSOCIATED WITH THE SECURITIES MAY MAKE THEM UNSUITABLE FOR SOME
INVESTORS. SEE "CERTAIN RISK CONSIDERATIONS" AND "PREPAYMENT AND YIELD ANALYSIS"
IN THIS SUPPLEMENT.
INVESTORS SHOULD READ THIS SUPPLEMENT IN CONJUNCTION WITH THE DOCUMENTS LISTED
UNDER "AVAILABLE INFORMATION" IN THIS SUPPLEMENT.
THE OBLIGATIONS OF FREDDIE MAC UNDER ITS GUARANTEES OF THE SECURITIES ARE
OBLIGATIONS OF FREDDIE MAC ONLY. THE SECURITIES, INCLUDING ANY INTEREST THEREON,
ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT CONSTITUTE DEBTS OR
OBLIGATIONS OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED
STATES OTHER THAN FREDDIE MAC. INCOME ON THE SECURITIES HAS NO EXEMPTION UNDER
FEDERAL LAW FROM FEDERAL, STATE OR LOCAL TAXATION. THE SECURITIES ARE EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE
"EXEMPTED SECURITIES" WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934.
================================================================================
<TABLE>
<CAPTION>
ORIGINAL WEIGHTED AVERAGE
CLASS OF MULTICLASS PRINCIPAL PRINCIPAL OR CLASS INTEREST CUSIP FINAL PAYMENT LIFE AT
SECURITIES OR PECS AMOUNT(1) OTHER TYPE(2) COUPON TYPE(2) NUMBER DATE(3) 160% PSA(4)
------------------- --------- ------------- ------ -------- ------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
A ...................... $100,000,000 NTL(PT) (5) PEC/IO 3133TADZ2 June 17, 2027 --
F ...................... 161,000,000 PT (6) FLT 3133TA E 5 7 June 17, 2027 9.0Yrs
FA...................... 26,000,000 PT (6) FLT 3133TA E 6 5 June 17, 2027 9.0
FB ..................... 27,000,000 PT (6) FLT 3133TA E 7 3 June 17, 2027 9.0
FC ..................... 29,000,000 PT (6) FLT 3133TA E 8 1 June 17, 2027 9.0
FD...................... 30,000,000 PT (6) FLT 3133TA E 9 9 June 17, 2027 9.0
FE ..................... 31,000,000 PT (6) FLT 3133TA E A 6 June 17, 2027 9.0
FG...................... 33,000,000 PT (6) FLT 3133TA E B 4 June 17, 2027 9.0
IA ..................... 100,000,000 NTL(PT) 8% FIX/IO 3133TA E E 8 June 17, 2027 --
S ...................... 337,000,000 NTL(PT) (5) PEC/IO 3133TA F 6 4 June 17, 2027 --
SA...................... 337,000,000 NTL(PT) (6) INV/IO 3133TA F 7 2 June 17, 2027 --
SB ..................... 337,000,000 NTL(PT) (6) INV/IO 3133TA F 8 0 June 17, 2027 --
SC ..................... 337,000,000 NTL(PT) (6) INV/IO 3133TA F 9 8 June 17, 2027 --
R ...................... 0 NPR 0 NPR 3133TA F 4 9 June 17, 2027 --
RS ..................... 0 NPR 0 NPR 3133TA F 5 6 June 17, 2027 --
</TABLE>
================================================================================
(1) The amount shown for a Notional Class is its original notional principal
amount and does not represent principal that will be paid; see "Payments --
Interest" in this Supplement.
(2) See "Description of Multiclass Securities -- Standard Definitions and
Abbreviations for Classes" in the Multiclass Securities Offering Circular.
The abbreviation "PEC" denotes a Class whose Class Coupon varies, in whole
or in part, based upon payments of interest made to or from a related PECs
Class. The type of Class with which a Notional Class will reduce is
indicated in parentheses.
(3) See "Final Payment Dates" in this Supplement.
(4) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at the rate assumed, and the actual
weighted average lives of the Classes may differ significantly from those
shown.
(5) Calculated as described under "Terms Sheet -- Class Coupons -- PECs Classes"
in this Supplement. The minimum Class Coupons of the A and S Classes will be
8% and 0%, respectively.
(6) Calculated as shown under "Terms Sheet -- Class Coupons -- Floating Rate and
Inverse Floating Rate Classes" in this Supplement.
------------------------
BEAR, STEARNS & CO. INC.
OFFERING CIRCULAR SUPPLEMENT DATED JUNE 2, 1997
<PAGE> 214
CERTAIN RISK CONSIDERATIONS
THE SECURITIES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE SECURITIES OF ANY CLASS UNLESS THE
INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND
MARKET RISKS ASSOCIATED WITH THAT CLASS.
------------------------
THE SECURITIES ARE COMPLEX SECURITIES AND IT IS IMPORTANT THAT EACH
INVESTOR IN ANY CLASS POSSESS, EITHER ALONE OR TOGETHER WITH AN INVESTMENT
ADVISOR, THE EXPERTISE NECESSARY TO EVALUATE THE INFORMATION CONTAINED AND
INCORPORATED IN THIS SUPPLEMENT IN THE CONTEXT OF THAT INVESTOR'S FINANCIAL
SITUATION.
------------------------
The yield of each Class will depend upon its purchase price, its
sensitivity to the rate of principal payments on the Mortgages and the actual
characteristics of the Mortgages. In addition, the yields of the Floating Rate,
Inverse Floating Rate and PECs Classes will be sensitive to the level of LIBOR.
The Mortgages are subject to prepayment at any time without penalty. Mortgage
prepayment rates are likely to fluctuate significantly from time to time, as is
the level of LIBOR. Investors should consider the associated risks, including:
- Fast Mortgage prepayment rates can reduce the yields of the Interest
Only Classes and any other Classes purchased at a premium over their
principal amounts. Under some prepayment scenarios, investors in the
Interest Only Classes could fail to fully recover their investments.
- Slow Mortgage prepayment rates can reduce the yields of the Principal
Only Classes and any other Classes purchased at a discount to their
principal amounts.
- Small differences in the characteristics of the Mortgages can have a
significant effect on the weighted average lives and yields of the
Classes.
- Low levels of LIBOR can reduce the yields of the Floating Rate
Classes.
- High levels of LIBOR can significantly reduce the yields of the
Inverse Floating Rate and PECs Classes and (especially in combination
with fast Mortgage prepayment rates) may result in the failure of
investors in those Classes to fully recover their investments.
- Relatively high levels of LIBOR will reduce, and relatively low levels
of LIBOR will increase, the aggregate amount of interest available for
payments on the PECs Classes. Pursuant to the "Interest Payment
Exchange" feature of the PECs Classes, such interest will be allocated
to the A and S Classes in varying proportions from period to period,
based on applicable levels of LIBOR and on calculated or actual
Mortgage prepayment rates.
See "Prepayment and Yield Analysis" in this Supplement.
------------------------
THE UNDERWRITER INTENDS TO MAKE A MARKET FOR THE PURCHASE AND SALE OF THE
SECURITIES AFTER THEIR INITIAL ISSUANCE BUT HAS NO OBLIGATION TO DO SO. THERE IS
NO ASSURANCE THAT SUCH A SECONDARY MARKET WILL DEVELOP OR, IF IT DEVELOPS, THAT
IT WILL CONTINUE. CONSEQUENTLY, INVESTORS MAY NOT BE ABLE TO SELL THEIR
SECURITIES READILY OR AT PRICES THAT WILL ENABLE THEM TO REALIZE THEIR DESIRED
YIELD. THE MARKET VALUES OF THE SECURITIES ARE LIKELY TO FLUCTUATE; SUCH
FLUCTUATIONS MAY BE SIGNIFICANT AND COULD RESULT IN SIGNIFICANT LOSSES TO
INVESTORS.
------------------------
THE SECONDARY MARKETS FOR MORTGAGE-RELATED SECURITIES HAVE EXPERIENCED
PERIODS OF ILLIQUIDITY AND CAN BE EXPECTED TO DO SO IN THE FUTURE. ILLIQUIDITY
CAN HAVE A SEVERELY ADVERSE EFFECT ON THE PRICES OF SECURITIES THAT ARE
ESPECIALLY SENSITIVE TO PREPAYMENT OR INTEREST RATE RISK OR THAT HAVE BEEN
STRUCTURED TO MEET THE INVESTMENT REQUIREMENTS OF LIMITED CATEGORIES OF
INVESTORS.
FREDDIE MAC'S MULTICLASS MORTGAGE SECURITIES OFFERING CIRCULAR DATED
JANUARY 1, 1997 (THE "MULTICLASS SECURITIES OFFERING CIRCULAR") ACCOMPANIES THIS
SUPPLEMENT. CAPITALIZED TERMS THAT ARE USED IN THIS SUPPLEMENT WITHOUT FURTHER
DEFINITION HAVE THE MEANINGS GIVEN THEM IN THE MULTICLASS SECURITIES OFFERING
CIRCULAR. INVESTORS SHOULD PURCHASE SECURITIES ONLY IF THEY HAVE READ AND
UNDERSTOOD THIS SUPPLEMENT, THE MULTICLASS SECURITIES OFFERING CIRCULAR AND THE
DOCUMENTS LISTED UNDER "AVAILABLE INFORMATION" IN THIS SUPPLEMENT.
S-2
<PAGE> 215
TERMS SHEET
THIS TERMS SHEET CONTAINS SELECTED INFORMATION ABOUT THIS SERIES. INVESTORS
SHOULD REFER TO THE REMAINDER OF THIS SUPPLEMENT FOR FURTHER INFORMATION.
MACR CERTIFICATES
This Series provides for the issuance of Classes (each, a "MACR Class") of
Modifiable and Combinable REMIC Certificates ("MACR Certificates") in exchange
for certain Classes of Multiclass Securities. Holders of such Multiclass
Securities will be entitled to exchange all or a portion of their Multiclass
Securities for related MACR Certificates, and Holders of MACR Certificates will
be entitled to exchange all or a portion of their MACR Certificates for related
Multiclass Securities or MACR Certificates. Appendix 1 to this Supplement shows
the characteristics of the MACR Classes and the "Combinations" of Classes of
Multiclass Securities and MACR Certificates.
See "MACR Certificates" in the Multiclass Securities Offering Circular for
a description of MACR Certificates and procedures for effecting exchanges. The
fee payable to Freddie Mac in connection with each exchange will equal 2/32 of
1% of the outstanding principal amount (exclusive of any notional principal
amount) of the Securities submitted for exchange (but not less than $5,000).
PAYMENT EXCHANGE CERTIFICATES
This Series also provides for the issuance of Classes (each, a "PECs
Class") of Payment Exchange Certificates ("PECs"). On the Closing Date, each
PECs Class will represent the entire beneficial interest in a Class or Classes
of Multiclass Securities, together with the rights and obligations of such PECs
Class under the associated interest payment exchange ("Interest Payment
Exchange"), as described under Class Coupons -- PECs Classes" in this Terms
Sheet and "Payment Exchange Certificates" in this Supplement. On the Closing
Date, the A Class will represent the entire beneficial interest in the IA and SB
Classes, and the S Class will represent the entire beneficial interest in the SC
Class, in each case subject to the Interest Payment Exchange feature of the
PECs.
The Holders of each Class of PECs will be entitled to receive payments of
interest from the underlying Class or Classes of Multiclass Securities, adjusted
for payments under the Interest Payment Exchange. Pursuant to the Interest
Payment Exchange, the A Class in effect will transfer to the S Class the amount
of payments received on the SB Class on each Payment Date in exchange for the
"Interest Payment Supplement Amount," if any, for that Payment Date as described
below.
As described in this Supplement, a Holder or Holders of proportionate
amounts of the Classes of PECs will be entitled, on a one-time basis and upon
payment of a conversion fee, to convert all or a portion of their PECs into the
underlying Multiclass Securities. Once PECs are converted into Multiclass
Securities, the Interest Payment Exchange will terminate as to those PECs and
the converted PECs will not be reissued.
See "Payment Exchange Certificates" in this Supplement for a description of
PECs and procedures for effecting a conversion. The fee payable to Freddie Mac
in connection with a conversion of PECs into Multiclass Securities will equal
2/32 of 1% of the outstanding notional principal amount of the PECs submitted
for conversion (but not more than $60,000).
As used in this Supplement, unless the context requires otherwise, the term
"Securities" includes Multiclass Securities, MACR Certificates and PECs and the
term "Classes" includes Classes of Multiclass Securities, MACR Certificates and
PECs.
CLASS COUPONS
Fixed Rate Classes
The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement and on Appendix 1 to this Supplement.
S-3
<PAGE> 216
Principal Only Classes
The PC, PD, PE, PG, PH, PJ and PK Classes will be Principal Only Classes
and will not bear interest.
Floating Rate and Inverse Floating Rate Classes
The Floating Rate and Inverse Floating Rate Classes will bear interest as
follows:
<TABLE>
<CAPTION>
CLASS COUPON SUBJECT TO
---------------------------
CLASS INITIAL RATE* CLASS COUPON MINIMUM RATE MAXIMUM RATE
----- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
F, FA, FB, FC, FD, FE and FG............ 6.6875% LIBOR + 1% 1.0% 9.5%
SA...................................... 1.5 8.5% - LIBOR 0 1.5
SB...................................... 1.3125 7.0% - LIBOR 0 1.3125
SC...................................... 0 5.6875% - LIBOR 0 5.6875
</TABLE>
- ---------------
* Initial Rate will be in effect during the first Accrual Period; Class Coupon
will adjust monthly thereafter.
See "Payments -- Interest" in this Supplement and "Description of Multiclass
Securities -- Interest Rate Indices" in the Multiclass Securities Offering
Circular.
PECs Classes
Holders of each PECs Class will receive payments of interest from its
underlying Class or Classes of Multiclass Securities, adjusted as follows
pursuant to the Interest Payment Exchange.
The Holders of the A Class will be entitled to receive, on each Payment
Date, an amount of interest equal to (A) the aggregate amount of interest
received on that Payment Date on the underlying IA and SB Classes, minus (B) the
amount of interest received on that Payment Date on the underlying SB Class (the
"SB Amount") plus (C) commencing August 17, 1997, an amount of interest equal to
the "Interest Payment Supplement Amount" for that Payment Date.
The Holders of the S Class will be entitled to receive, on each Payment
Date, an amount of interest equal to (A) the amount of interest received on that
Payment Date on the underlying SC Class (the "SC Amount") plus (B) the SB Amount
for that Payment Date minus (C) commencing August 17, 1997, the Interest Payment
Supplement Amount for that Payment Date.
The "Interest Payment Supplement Amount" for any given Payment Date
("Payment Date II") is calculated as follows:
1. Determine the "Applicable PSA Rate" for the preceding Payment Date
("Payment Date I") using the "PSA Rate Table" shown below and the
level of LIBOR used to determine the Class Coupons of the Floating
Rate and Inverse Floating Rate Classes for the Accrual Period
applicable to Payment Date I. The "Applicable PSA Rate" for Payment
Date I will be equal to the lesser of (a) the "Calculated PSA Rate"
determined from the table (using linear interpolation for LIBOR
levels between those shown in the PSA Rate Table) and (b) the "Actual
PSA Rate" for Payment Date I. The Actual PSA Rate for Payment Date I
is the one-month PSA prepayment rate of the Mortgages applicable to
Payment Date I, as reflected by the actual reduction made on the
Stripped Giant Securities on Payment Date I.
2. Using the Applicable PSA Rate for Payment Date I and the "Premium
Table" attached as Appendix 2 to this Supplement, determine the
"Premium" for Payment Date I (using linear interpolation for
Applicable PSA Rates between those shown in the Premium Table).
3. The Interest Payment Supplement Amount for Payment Date II is equal
to the lesser of (a) the product of (i) the outstanding notional
principal amount of the A Class as of the Record Date for Payment
Date I, (ii) 1/100 of the Premium for Payment Date I and (iii)
1.006961062, and (b) the sum of the SB and SC Amounts for Payment
Date II.
S-4
<PAGE> 217
PSA RATE TABLE
<TABLE>
<CAPTION>
LIBOR CALCULATED PSA RATE
----- -------------------
<S> <C>
3.6875% and Lower............................. 1,000% PSA
4.6875........................................ 400% PSA
5.1875........................................ 275% PSA
5.6875........................................ 250% PSA
6.1875 and Higher............................. 160% PSA
</TABLE>
As a result of the Interest Payment Exchange, the Class Coupons of the PECs
Classes for each Accrual Period will equal:
<TABLE>
<CAPTION>
CLASS INITIAL RATE* CLASS COUPON
----- ------------- -------------------------------
<S> <C> <C>
A............................. 8.0% 8% + IPSA Percentage
S............................. 1.3125 7% - (LIBOR + IPSA Percentage),
but not less than 0%
</TABLE>
where the "IPSA Percentage" for either PECs Class is equal to the percentage
derived by dividing (a) 12 times the Interest Payment Supplement Amount for the
related Payment Date by (b) the outstanding notional principal amount of such
PECs Class as of the related Record Date.
- ---------------
* Initial Rate will be in effect during the first Accrual Period; Class Coupon
will adjust monthly thereafter.
NOTIONAL CLASSES
MULTICLASS SECURITIES
<TABLE>
<CAPTION>
ORIGINAL NOTIONAL
CLASS PRINCIPAL AMOUNT REDUCES PROPORTIONATELY WITH
- ----- ----------------- ----------------------------
<S> <C> <C>
IA $100,000,000 Stripped Giant Securities
SA 337,000,000 Stripped Giant Securities
SB 337,000,000 Stripped Giant Securities
SC 337,000,000 Stripped Giant Securities
</TABLE>
PECS CLASSES
<TABLE>
<CAPTION>
ORIGINAL NOTIONAL
CLASS PRINCIPAL AMOUNT REDUCES PROPORTIONATELY WITH
- ----- ----------------- ----------------------------
<S> <C> <C>
A $100,000,000 Stripped Giant Securities
S 337,000,000 Stripped Giant Securities
</TABLE>
MACR CLASSES
<TABLE>
<CAPTION>
ORIGINAL NOTIONAL
CLASS PRINCIPAL AMOUNT REDUCES PROPORTIONATELY WITH
- ----- ----------------- ----------------------------
<S> <C> <C>
IC $191,187,500 Stripped Giant Securities
ID 30,875,000 Stripped Giant Securities
IE 32,062,500 Stripped Giant Securities
IG 34,437,500 Stripped Giant Securities
IH 35,625,000 Stripped Giant Securities
IJ 36,812,500 Stripped Giant Securities
IK 39,187,500 Stripped Giant Securities
</TABLE>
See "Payments -- Interest -- Notional Classes" in this Supplement.
ALLOCATION OF PRINCIPAL
MULTICLASS SECURITIES
On each Payment Date, Freddie Mac will pay the "GNMA Principal Payment
Amount" for that Payment Date to F, FA, FB, FC, FD, FE and FG, pro rata, until
retired.
S-5
<PAGE> 218
MACR CLASSES
On any Payment Date when payments of principal are to be allocated from
Multiclass Securities to MACR Certificates, such payments will be allocated from
the applicable Class of Multiclass Securities to the related MACR Class.
See "Payments -- Principal" and "Prepayment and Yield Analysis" in this
Supplement.
FREDDIE MAC GUARANTEE
Freddie Mac guarantees to each Holder of a Security (i) the timely payment
of interest at the applicable Class Coupon and (ii) the payment of the principal
amount of the Holder's Security as described in this Supplement. The Government
National Mortgage Association ("GNMA") guarantees the payment of interest and
principal on GNMA Certificates.
REMIC STATUS
Freddie Mac will form an "Upper-Tier REMIC Pool" and a "Lower-Tier REMIC
Pool" for this Series. Elections will be made to treat each REMIC Pool as a
"real estate mortgage investment conduit" ("REMIC") pursuant to the Internal
Revenue Code (the "Code"). The R and RS Classes will be "Residual Classes" and
the other Classes of Multiclass Securities will be "Regular Classes." The
Residual Classes will be subject to transfer restrictions. See "Certain Federal
Income Tax Consequences" in this Supplement and in the Multiclass Securities
Offering Circular.
WEIGHTED AVERAGE LIVES (IN YEARS)*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
0% 100% 160% 300% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
C, D, E, F, FA, FB, FC, FD,
FE, FG, G, H, J, K, L, M, N,
O, PC, PD, PE, PG, PH, PJ,
PK, Q, T and U and
Underlying GNMA-Related
Securities.................. 20.5 11.7 9.0 5.6 3.7
</TABLE>
--------------------
* Determined as described under "Prepayment and Yield Analysis" in
this Supplement, and subject to the assumptions and qualifications
in that section. Prepayments will not occur at any assumed rate
shown or any other constant rate and the actual weighted average
lives of any or all of the Classes and of the GNMA-Related
Securities are likely to differ from those shown, perhaps
significantly.
THE STRIPPED GIANT SECURITIES
As of the Closing Date, the Stripped Giant Securities will consist of
$500,187,500 of 8% Giant IO Securities and $337,000,000 of Giant PO Securities.
The Stripped Giant Securities will be backed by GNMA-Related Securities having
interest rates of 8.0% per annum. See "General Information -- Structure of
Transaction" in this Supplement.
ASSUMED MORTGAGE CHARACTERISTICS (AS OF JUNE 1, 1997)
<TABLE>
<CAPTION>
PER ANNUM
INTEREST RATE
REMAINING TERM OF RELATED
TO MATURITY LOAN AGE PER ANNUM GNMA-RELATED
PRINCIPAL BALANCE (IN MONTHS) (IN MONTHS) INTEREST RATE SECURITIES
- ----------------- -------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
$337,000,000 356 3 8.5% 8.0%
</TABLE>
The actual remaining terms to maturity and loan ages of most of the
Mortgages differ from those shown above, in some cases significantly. See
"General Information -- Structure of Transaction" and "-- The Mortgages" in this
Supplement.
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AVAILABLE INFORMATION
Investors should purchase Securities only if they have read and understood
this Supplement, the Multiclass Securities Offering Circular and the following
documents:
- Freddie Mac's Giant GNMA-Backed Securities and Other Pass-Through
Securities Offering Circular dated January 1, 1997, which describes
Giant Securities generally, and its Stripped Giant Securities, Series
GS007 Offering Circular Supplement dated June 2, 1997 (together, the
"Giant Securities Offering Circular").
- Freddie Mac's Information Statement dated March 31, 1997, its
Information Statement Supplement dated May 15, 1997 and any other
Information Statement Supplements published by Freddie Mac through the
time of purchase.
This Supplement incorporates by reference the documents listed above.
Investors can order these documents: from Freddie Mac, by writing or calling its
Investor Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia 22102
(outside Washington, D.C. metropolitan area, phone 800/336-FMPC; within
Washington, D.C. metropolitan area, phone 703/450-3777); or from the
Underwriter, by writing or calling its Prospectus Department at One MetroTech
Center North, Brooklyn, New York 11201-3859 (phone 212/272-1581).
Freddie Mac will publish a Supplemental Statement applicable to this Series
(which will contain a description of the GNMA-Related Securities and other
information) shortly after the Closing Date. Investors can obtain the
Supplemental Statement, any offering materials for specific Giant Securities and
historic and current information concerning specific Giant Securities and the
Securities from Freddie Mac's Investor Inquiry Department.
Freddie Mac's Internet Web-Site (http://www.freddiemac.com) will display
this Supplement, the Supplemental Statement, schedules of the GNMA-Related
Securities and information, updated monthly, regarding each Class of this
Series.
GENERAL INFORMATION
MULTICLASS SECURITY AGREEMENT
Freddie Mac will create the Securities under the Multiclass Mortgage
Security Agreement, dated as of January 1, 1997, and a Terms Supplement, to be
dated the Closing Date (together, the "Multiclass Security Agreement").
Investors can order copies of the Multiclass Security Agreement by writing or
calling the Investor Inquiry Department at Freddie Mac at the address or phone
numbers shown under "Available Information" in this Supplement. The Multiclass
Security Agreement is incorporated by reference in this Supplement.
Holders and anyone having a beneficial interest in the Securities should
refer to the Multiclass Security Agreement for a complete description of their
rights and obligations and the rights and obligations of Freddie Mac. Holders
and beneficial owners of Securities will acquire their Securities subject to all
terms and conditions of the Multiclass Security Agreement, including the Terms
Supplement.
FORM OF SECURITIES
The Regular Classes of Multiclass Securities, the PECs Classes and the MACR
Classes will be maintained and transferred through the book-entry facilities of
Participants Trust Company or its successor (the "Depository") subject to the
rules and procedures of the Depository in effect from time to time. The
Depository is a New York-chartered limited purpose trust company registered with
the Securities and Exchange Commission as a clearing agency pursuant to Section
17A of the Securities Exchange Act of 1934. The Depository performs services for
its participants, principally brokerage firms and other financial institutions
("Depository Participants"), some of which own the Depository.
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Each such Class will be represented by one or more certificates held by or
on behalf of the Depository. Neither Holders nor beneficial owners of such
Classes will receive certificates. Beneficial ownership will be recorded on the
records of the brokerage firm, bank, thrift institution or other financial
intermediary where the beneficial owner maintains an account for that purpose.
In turn, the financial intermediary's interest in such a Class will be recorded
on the records of the Depository (or of a Depository Participant that acts as
agent for the financial intermediary, if the intermediary is not itself a
Depository Participant).
The Residual Classes will be issued and may be held of record only in
certificated form and will be transferable at Texas Commerce Bank National
Association or its successor (the "Registrar").
The Classes will be issued in the denominations specified under
"Description of Multiclass Securities -- Form of Multiclass Securities, Holders,
Minimum Principal Amounts and Transfers" in the Multiclass Securities Offering
Circular.
HOLDERS
The term "Holders" means (i) in the case of a Regular Class of Multiclass
Securities, a PECs Class or a MACR Class, the Depository Participants that
appear on the book-entry records of the Depository as registered holders of that
Class and (ii) in the case of a Residual Class, the entities or individuals that
appear on the records of the Registrar as the registered holders of that Class.
The beneficial owner of a Security is not necessarily the Holder.
STRUCTURE OF TRANSACTION
General
This Series will be a "Double-Tier Series." The Regular Classes of
Multiclass Securities and the R Class will represent beneficial ownership
interests in the Upper-Tier REMIC Pool. The Upper-Tier REMIC Pool will consist
of the classes of "regular interests" in the Lower-Tier REMIC Pool (the
"Mortgage Securities"). The RS Class will represent the residual interest in the
Lower-Tier REMIC Pool.
The Lower-Tier REMIC Pool will consist of Stripped Giant Securities (Giant
PO and Giant IO Securities) issued as part of Freddie Mac Stripped Giant
Securities, Series GS007, which is expected to settle prior to the Closing Date.
The Giant PO Securities will have an outstanding principal amount, as of the
Closing Date, of $337,000,000. The Giant IO Securities will have an outstanding
notional principal amount, as of the Closing Date, of $500,187,500 and an
interest rate of 8.0% per annum.
The GNMA-Related Securities underlying the Stripped Giant Securities will
have interest rates of 8.0% per annum. The GNMA-Related Securities may include
GNMA Certificates and/or Giant Securities. GNMA Certificates represent ownership
interests in pools consisting of specified Mortgages. Giant Securities represent
beneficial ownership interests in discrete pools consisting of specified GNMA
Certificates (or, in some cases, other Giant Securities). All of the
GNMA-Related Securities will be GNMA I Certificates or Giant Securities that are
backed by GNMA I Certificates. See "Description of Multiclass Securities -- GNMA
Certificates" in the Multiclass Securities Offering Circular.
The Underwriter expects to acquire the Stripped Giant Securities from
Freddie Mac prior to the Closing Date and to redeliver them to Freddie Mac on
the Closing Date in exchange for the Multiclass Securities.
THE MORTGAGES
The Mortgages underlying the GNMA-Related Securities are fixed-rate, first
lien residential mortgages and mortgage participations. For purposes of this
Supplement, Freddie Mac has made certain assumptions regarding the remaining
terms to maturity and loan ages of the Mortgages underlying the GNMA-Related
Securities. See "Terms Sheet -- Assumed Mortgage Characteristics" in this
Supplement. However, the characteristics of most of the Mortgages differ from
those assumed, in some cases significantly. This is the case even if the
weighted average characteristics of the Mortgages are the same as those of
mortgages having the characteristics assumed. Small differences in the
characteristics of the Mortgages can have a significant
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effect on the weighted average lives and yields of the Classes. See "Prepayment
and Yield Analysis" in this Supplement.
PAYMENT EXCHANGE CERTIFICATES
GENERAL
On the Closing Date, each Class of PECs will represent the entire
beneficial ownership interest in its underlying Class or Classes of Multiclass
Securities and, subject to its rights and obligations under the Interest Payment
Exchange, will be entitled to receive the entire cash flow from such underlying
Class or Classes of Multiclass Securities. Therefore, Holders of the A Class
will be treated as Holders of proportionate interests in the underlying IA and
SB Classes of Multiclass Securities and Holders of the S Class will be treated
as Holders of proportionate interests in the underlying SC Class of Multiclass
Securities, subject in each case to the Interest Payment Exchange.
Pursuant to the Interest Payment Exchange, the A Class in effect will
transfer to the S Class the amount of payments received on the SB Class on each
Payment Date in exchange for the Interest Payment Supplement Amount, if any, for
that Payment Date.
In general, the descriptions in the Multiclass Securities Offering Circular
of Regular Classes of Multiclass Securities also apply to PECs Classes, except
where the context requires otherwise. For example, PECs Classes are guaranteed
by Freddie Mac, are assigned Class Factors, are entitled to receive payments of
interest, are categorized by "Principal Type," "Interest Type" and "Other Type,"
and are issued in book-entry form to "Holders" in prescribed denominations, in
the same manner as are Regular Classes of Multiclass Securities. In addition,
the discussions under "ERISA Considerations" and "Legal Investment
Considerations" in the Multiclass Securities Offering Circular apply to PECs
Classes as well as Multiclass Securities.
On the Closing Date, Freddie Mac will issue the PECs Classes shown on the
cover page of this Supplement. As described below under "Procedures," Classes of
PECs may be converted, in whole or in part, into their underlying Classes of
Multiclass Securities.
CONVERSION
A Holder or Holders of both Classes of PECs will be permitted to convert
such Classes into their underlying Classes of Multiclass Securities so long as
the notional principal amounts of the Classes of PECs submitted for conversion
represent equal percentages of their outstanding notional principal amounts.
Each Holder of a Class of PECs submitted for conversion will receive in
conversion like percentages of the notional principal amounts of the Class or
Classes of Multiclass Securities underlying that Class of PECs; thus, the
converting Holder or Holders will receive proportionate amounts of the IA and SB
Classes in exchange for the A Class and proportionate amounts of the SC Class in
exchange for the S Class. Immediately after a conversion of PECs into Multiclass
Securities, the PECs so converted will be retired and will not be reissued, and
the Interest Payment Exchange will terminate as to such converted PECs.
Conversions will be on a one-time basis, so that Multiclass Securities received
in a conversion may not later be reconverted into PECs.
AT ANY GIVEN TIME, A HOLDER'S ABILITY TO CONVERT PECS INTO MULTICLASS
SECURITIES WILL BE LIMITED BY A NUMBER OF FACTORS. A HOLDER MUST, AT THE TIME OF
THE PROPOSED CONVERSION, OWN, TOGETHER WITH ANY OTHER HOLDERS PARTICIPATING IN
THE CONVERSION, BOTH CLASSES OF PECS IN THE APPROPRIATE PROPORTIONS IN ORDER TO
EFFECT A DESIRED CONVERSION. A HOLDER THAT DOES NOT OWN BOTH CLASSES OF PECS IN
THE APPROPRIATE AMOUNTS MAY NOT BE ABLE TO OBTAIN THE NECESSARY CLASS OF PECS.
THE HOLDER OF A NEEDED CLASS MAY REFUSE OR BE UNABLE TO SUBMIT SUCH CLASS FOR
CONVERSION OR SUCH CLASS MAY HAVE BEEN PURCHASED AND PLACED INTO OTHER FINANCIAL
STRUCTURES. IN ADDITION, REDUCTIONS IN THE NOTIONAL PRINCIPAL AMOUNTS OF THE PEC
CLASSES WILL, OVER TIME, DIMINISH THE AMOUNTS AVAILABLE FOR CONVERSION.
PROCEDURES
A Holder proposing to effectuate a conversion must notify Freddie Mac's
Structured Finance Department through a dealer who is a member of Freddie Mac's
"REMIC Dealer Group." Such notice must be
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given in writing or by telefax not later than two Business Days before the
proposed conversion date (which date, subject to Freddie Mac's approval, can be
any Business Day other than the first or last Business Day of the month). The
notice must include the outstanding notional principal amount of both the PECs
to be converted, the amounts owned by such Holders and the proposed conversion
date. Promptly after the receipt of a notice of conversion, Freddie Mac will
telephone the dealer to provide instructions for delivering the PECs and the
conversion fee to Freddie Mac by wire transfer. A notice of conversion becomes
irrevocable on the second Business Day before the proposed conversion date.
A fee will be payable to Freddie Mac in connection with each conversion
equal to 2/32 of 1% of the outstanding notional principal amount of the PECs to
be submitted for conversion (but not more than $60,000).
The last payment on the PECs surrendered in a conversion transaction will
be made on the Payment Date in the month of conversion. Such payment will be
made to the Holders of record as of the Record Date occurring on the last day of
the month preceding the conversion. The first payment on Multiclass Securities
received in a conversion transaction will be made on the Payment Date in the
month following the month of the conversion. Such payment will be made to the
Holders of record as of the Record Date occurring on the last day of the month
of the conversion.
The outstanding notional principal amounts of all Classes of Securities,
including PECs, are available from Freddie Mac's Internet Web-Site or by writing
or calling Freddie Mac's Investor Inquiry Department at the address or phone
numbers shown under "Available Information."
PAYMENTS
PAYMENT DATES; RECORD DATES
Freddie Mac will make payments of principal and interest on the Securities
to Holders entitled to such payments on the second "Business Day" after the 15th
calendar day of each month (a "Payment Date"), beginning in the month following
the Closing Date.
On each Payment Date, any payment on a Security will be made to the Holder
of record as of the end of the preceding calendar month (each, a "Record Date").
METHOD OF PAYMENT
The Depository will act as Freddie Mac's paying agent for the Regular
Classes of Multiclass Securities, the PECs Classes and the MACR Classes. The
Depository will credit payments on such Classes in immediately available funds
to the accounts of Holders of these Classes monthly on each Payment Date in
accordance with the rules and procedures of the Depository.
The Registrar will mail any payments on the Residual Classes by check to
the addresses of the Holders of these Classes as they appear on the Registrar's
records, not later than the applicable Payment Date. A Holder of a Residual
Class will be required to present the Holder's certificate to the Registrar for
payment under the circumstances described under "Description of Multiclass
Securities -- Form of Multiclass Securities, Holders, Minimum Principal Amounts
and Transfers" in the Multiclass Securities Offering Circular.
A Holder that is not also the beneficial owner of a Security, and each
other financial intermediary in the chain to the beneficial owner, will be
responsible for remitting payments to their customers.
CLASS FACTORS
Description of Factors
On or about the ninth business day of each month after the Closing Date,
Freddie Mac will make available (including on its Internet Web-Site) a Class
Factor for each Class having a principal amount. The Class Factor for any Class
for any month will be a truncated seven-digit decimal which, when multiplied by
the original principal amount of a Security of that Class (assuming such Class
was issued on the Closing
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Date), will equal its remaining principal amount, after giving effect to any
principal payment to be made on the Payment Date in the same month. For example,
the January Class Factor for any Class will reflect the remaining principal
amount of a Security of that Class, after giving effect to any principal payment
to be made on January 17. Freddie Mac will also make available a Class Factor
for each Notional Class, which will reflect the remaining notional principal
amount of a Security of that Class in an analogous manner. The Class Factor for
each Class for the month of the Closing Date is 1.0000000.
The Class Factors will reflect Freddie Mac's published Class Factors for
the Stripped Giant PCs, which will be based in part on preliminary GNMA
Certificate factors or, in some cases, on Freddie Mac's own calculation of
assumed Mortgage amortization schedules, and may not reflect payments actually
received on the GNMA Certificates in a given month. See "Description of
Multiclass Securities -- Class Factors" in the Multiclass Securities Offering
Circular.
Use of Factors
For any Payment Date, investors can calculate the reduction in the
principal amount of a Security of any Class entitled to principal payments by
multiplying the original principal amount of that Security by the difference
between its Class Factors for the preceding and current months. The amount of
interest to be paid on a Security of any Class on each Payment Date will equal
30 days' interest on its outstanding principal amount (or notional principal
amount) as determined by its Class Factor for the preceding month. See "General
Information -- Structure of Transaction" in this Supplement.
For example, the reduction in the principal amount of any Security entitled
to principal payments on February 17 will reflect the difference between its
January and February Class Factors. The amount of interest to be paid on any
Security on February 17 will equal 30 days' interest at its Class Coupon,
accrued during the month of January in the case of a Fixed Rate Class or the A
Class or from January 17 to February 17 in the case of a Floating Rate or
Inverse Floating Rate Class or the S Class, on the principal amount or notional
principal amount of such Security determined by its January 1 Class Factor. If
the outstanding balance of any Fixed Rate Class or the A Class is reduced on the
Payment Date that falls within an Accrual Period, that Class will accrue
interest during such Accrual Period on its reduced balance, even though its
balance had been higher for approximately the first 17 days of the Accrual
Period. No interest at all will be paid on any Class after its balance has been
reduced to zero.
INTEREST
Freddie Mac will pay interest on each Payment Date to the Holders of each
Class of Securities on which interest has accrued.
Categories of Classes
For purposes of interest payments, the Classes of Multiclass Securities and
the PECs Classes will be categorized as shown under "Interest Type" on the cover
page of this Supplement, and the MACR Classes will be categorized as shown under
"Interest Type" on Appendix 1 to this Supplement. The abbreviations used on the
cover page and Appendix 1 are explained under "Description of Multiclass
Securities -- Standard Definitions and Abbreviations for Classes" in the
Multiclass Securities Offering Circular.
Accrual Periods
The Accrual Period for the Fixed Rate and A Classes will be the calendar
month preceding the related Payment Date. The Accrual Period for the Floating
Rate, Inverse Floating Rate and S Classes will be from the 17th of the month
preceding the related Payment Date to the 17th of the month of that Payment
Date. In each case, interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Interest payable on any Class on any Payment
Date will consist of 30 days' interest on its balance as of the related Record
Date.
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Fixed Rate Classes
The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement and on Appendix 1 to this Supplement.
Principal Only Classes
The PC, PD, PE, PG, PH, PJ and PK Classes will be Principal Only Classes
and will not be entitled to payments of interest.
Notional Classes
The Notional Classes will not receive principal payments. For convenience
in describing interest payments, the Notional Classes will have notional
principal amounts. The table under "Terms Sheet -- Notional Classes" in this
Supplement shows the original notional principal amount of each Notional Class.
Each Notional Class will reduce proportionately with the Stripped Giant
Securities.
Floating Rate and Inverse Floating Rate Classes
The Floating Rate and Inverse Floating Rate Classes will bear interest as
shown under "Terms Sheet -- Class Coupons" in this Supplement. The Class Coupons
for the Floating Rate and Inverse Floating Rate Classes will be based on the
arithmetic mean of the London interbank offered quotations for one-month
Eurodollar deposits ("LIBOR").
For information regarding the manner in which Freddie Mac determines LIBOR
and calculates the Class Coupons for the Floating Rate and Inverse Floating Rate
Classes, see "Description of Multiclass Securities -- Interest Rate Indices" in
the Multiclass Securities Offering Circular.
Freddie Mac's determination of LIBOR and its calculation of the Class
Coupons will be final, except in the case of clear error. Investors can get
LIBOR levels and the Class Coupons for the current and preceding Accrual Periods
from Freddie Mac's Internet Web-Site or by writing or calling Freddie Mac's
Investor Inquiry Department at the address or phone numbers shown under
"Available Information" in this Supplement.
PECs Classes
Holders of each Class of PECs will receive payments of interest from its
underlying Class or Classes of Multiclass Securities, adjusted as set forth
under "Terms Sheet -- Class Coupons -- PECs Classes" pursuant to the Interest
Payment Exchange.
Freddie Mac's calculation of the Class Coupons of the PECs Classes will be
final, except in the case of clear error. Investors can get Class Coupons of the
PECs Classes for the current and preceding Accrual Periods from Freddie Mac's
Internet Web-Site or by writing or calling Freddie Mac's Investor Inquiry
Department at the address or phone numbers shown under "Available Information"
in this Supplement.
PRINCIPAL
Freddie Mac will pay principal on each applicable Payment Date to the
Holders of the Classes on which principal is then due. The Holders of each such
Class will receive principal payments on a pro rata basis among the Securities
of that Class.
Categories of Classes
For purposes of principal payments, the Classes of Multiclass Securities
and the PECs Classes will be categorized as shown under "Principal or Other
Type" on the cover page of this Supplement, and the MACR Classes will be
categorized as shown under "Principal or Other Type" on Appendix 1 to this
Supplement. The abbreviations used on the cover page and Appendix 1 are
explained under "Description of Multiclass Securities -- Standard Definitions
and Abbreviations for Classes" in the Multiclass Securities Offering Circular.
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Amount of Payments
The total amount of principal payments that will be made on the Securities
on each Payment Date will equal the amount of principal required to be paid on
the Giant PO Securities on that Payment Date (the "GNMA Principal Payment
Amount").
Allocation of Payments
On each Payment Date, Freddie Mac will pay the GNMA Principal Payment
Amount as described under "Terms Sheet -- Allocation of Principal" in this
Supplement.
GUARANTEES
Freddie Mac guarantees to each Holder of a Security (i) the timely payment
of interest at the applicable Class Coupon and (ii) the payment of the principal
amount of the Holder's Security as described in this Supplement. See
"Description of Multiclass Securities -- Guarantees" in the Multiclass
Securities Offering Circular.
Freddie Mac also guarantees the payment of interest and principal on the
Stripped Giant Securities and Giant Securities. See "Description of Pass-Through
Securities -- Guarantees" in the Giant Securities Offering Circular.
GNMA guarantees the timely payment of principal and interest on the GNMA
Certificates. The obligations of GNMA under its guarantees of the GNMA
Certificates are backed by the full faith and credit of the United States.
OPTIONAL REDEMPTION
Freddie Mac may redeem the Mortgage Securities and the RS Class, in whole
but not in part, on any Payment Date when their aggregate outstanding principal
amount would be less than 1% of their aggregate original principal amount. Upon
any redemption, the redemption price of the Mortgage Securities will be applied
to retire the outstanding Regular Classes and the R Class. Any outstanding PECs
or MACR Classes will be retired from the proceeds of redemption of their related
Regular Classes. The GNMA-Related Securities are not redeemable. See
"Description of Multiclass Securities -- Optional Redemption" in the Multiclass
Securities Offering Circular.
RESIDUAL PROCEEDS
Upon surrender of their certificates to the Registrar, the Holders of the
RS Class will receive the proceeds of the remaining assets of the Lower-Tier
REMIC Pool, if any, after all required principal and interest payments on the
Mortgage Securities and the RS Class have been made. Any such remaining assets
are not likely to be significant.
Upon like surrender, the Holders of the R Class will receive the proceeds
of the remaining assets of the Upper-Tier REMIC Pool after all required
principal and interest payments on the Regular Classes and the R Class have been
made. Any such remaining assets are not likely to be significant.
PREPAYMENT AND YIELD ANALYSIS
GENERAL
Mortgage Prepayments
The rate of principal payments on the GNMA-Related Securities and on the
Securities will depend on the rate of principal payments on the Mortgages.
Mortgage principal payments may be in the form of scheduled amortization or
partial or full prepayments. "Prepayments" include prepayments by the borrower,
liquidations resulting from default, casualty or condemnation and payments made
by GNMA pursuant to its
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guarantee of principal (other than scheduled amortization) on GNMA Certificates.
The Mortgages are subject to prepayment at any time without penalty.
Mortgage prepayment rates are likely to fluctuate significantly. In
general, when prevailing mortgage interest rates decline significantly below the
interest rates on the Mortgages, the prepayment rate on the Mortgages is likely
to increase, although a number of other factors also may influence the
prepayment rate, including general economic conditions, homeowner mobility,
geographic distribution, refinancing opportunities and government subsidy
programs, if any.
None of the Mortgages includes a "due-on-transfer" clause. Consequently,
the holder of a Mortgage generally may not demand the payment in full of the
remaining principal balance of that Mortgage on the sale or other transfer of
the mortgaged property to a creditworthy transferee.
PSA Model
Prepayments on pools of mortgages are commonly measured relative to a
variety of prepayment models. The particular model used in this Supplement is
the Public Securities Association's standard prepayment model, or "PSA." This
model assumes that mortgages will prepay at an annual rate of 0.2% in the first
month after origination, that the prepayment rate increases at an annual rate of
0.2% per month up to the 30th month after origination and that the prepayment
rate is constant at 6% per annum in the 30th and later months (this assumption
is called "100% PSA"). For example, at 100% PSA, mortgages with a loan age of
three months (i.e., mortgages in their fourth month after origination) are
assumed to prepay at an annual rate of 0.8%. "0% PSA" assumes no prepayments;
"50% PSA" assumes prepayment rates equal to 0.50 times 100% PSA; "200% PSA"
assumes prepayment rates equal to 2.00 times 100% PSA; and so forth. PSA is not
a description of historical prepayment experience or a prediction of the rate of
prepayment of the Mortgages.
Weighted Average Life
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal has been repaid to the investor. The weighted average lives of the
Classes will depend primarily on the rate at which principal is paid on the
Mortgages. This Supplement shows weighted average lives under various Mortgage
prepayment assumptions. In each case, Freddie Mac has calculated the weighted
average life by (i) multiplying the assumed net reduction, if any, in the
principal amount on each Payment Date by the number of years from the Closing
Date to such Payment Date, (ii) summing the results and (iii) dividing the sum
by the aggregate amount of the assumed net reductions in principal amount.
Yield
The yield of each Class will depend upon its purchase price, its
sensitivity to the rate of principal payments on the Mortgages and the actual
characteristics of the Mortgages. The yield of each Floating Rate, Inverse
Floating Rate or PECs Class will also depend on its sensitivity to the level of
LIBOR. This Supplement shows pre-tax yields to maturity under various scenarios.
In each case, Freddie Mac has calculated the pre-tax yield by (i) determining
the monthly discount rate (whether positive or negative) that, when applied to
an assumed stream of cash flows to be paid on the applicable Class, would cause
the discounted present value of such assumed stream of cash flows to equal an
assumed purchase price (including accrued interest, if any) of that Class and
(ii) converting such monthly rate to a corporate bond equivalent (i.e.,
semiannual payment) rate. The yield calculations do not take into account any
variations in the interest rates at which investors may be able to reinvest
payments received. Consequently, they do not reflect the return on any
investment when reinvestment rates other than the discount rate are considered.
Modeling Assumptions
In order to prepare the various tables and other statistical information in
this Supplement, Freddie Mac has made certain assumptions regarding the
GNMA-Related Securities and underlying Mortgages. Unless otherwise noted, each
table is based on the following assumptions (the "Modeling Assumptions"), among
others:
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- The Mortgages have the assumed characteristics shown under "Terms
Sheet -- Assumed Mortgage Characteristics" in this Supplement;
- As of the Closing Date, the Stripped Giant Securities have the
principal and notional principal balances set forth under "Terms
Sheet -- The Stripped Giant Securities";
- Payments on the Classes are always received on the 17th of the month,
whether or not a Business Day;
- Freddie Mac does not make an optional redemption; and
- Each Class is held from the Closing Date to retirement and is not
exchanged or converted in whole or in part.
When reading the tables and the related text, investors should bear in mind
that the Modeling Assumptions, like any other stated assumptions, are unlikely
to be entirely consistent with actual experience. For example, most of the
Mortgages do not have the characteristics assumed, many Payment Dates will occur
on a Business Day after the 17th of the month and Freddie Mac may make an
optional redemption as described under "Payments -- Optional Redemption" above.
In addition, payments on the Classes will depend in part on preliminary
GNMA Certificate factors and, in some cases, on Freddie Mac's own calculations
of assumed Mortgage amortization schedules, both of which may not reflect
payments actually received on the GNMA Certificates in a given month. See
"Payments -- Class Factors -- Description of Factors" in this Supplement and
"Description of Multiclass Securities -- Class Factors" in the Multiclass
Securities Offering Circular.
Principal Payment Uncertainty
Mortgages and mortgage securities, such as the Stripped Giant Securities,
the GNMA-Related Securities and the Securities, are subject to prepayment
uncertainty. The rate of principal payments on the GNMA-Related Securities and
on the Securities will depend on the rate of principal payments on the
Mortgages.
Suitability
The Securities, especially the Interest Only, Inverse Floating Rate,
Principal Only and Residual Classes, are not suitable investments for all
investors. The Securities are not appropriate investments for any investor that
requires a single lump sum payment on a predetermined date or an otherwise
certain payment stream. In addition, although the Underwriter intends to make a
market for the purchase and sale of the Securities after their initial issuance,
it has no obligation to do so. There is no assurance that such a secondary
market will develop, that any secondary market will continue, or that the price
at which an investor can sell an investment in any Class will enable the
investor to realize a desired yield on that investment. The market values of the
Classes are likely to fluctuate; such fluctuations may be significant and could
result in significant losses to investors. The secondary markets for
mortgage-related securities have experienced periods of illiquidity and can be
expected to do so in the future. Illiquidity can have a severely adverse effect
on the prices of Classes that are especially sensitive to prepayment or interest
rate risk or that have been structured to meet the investment requirements of
limited categories of investors. Investors are encouraged to consult their own
advisors regarding the financial, legal, tax and other aspects of an investment
in the Securities. The flexibility created by the ability to modify and combine
certain Classes of Multiclass Securities and MACR Classes or to convert PECs
Classes into Classes of Multiclass Securities may affect the liquidity of the
Classes and the prices that potential purchasers are willing to pay in the
secondary market. No investor should purchase Securities of any Class unless the
investor understands and is able to bear the prepayment, yield, liquidity and
market risks associated with that Class.
PREPAYMENT AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
Pass-Through Classes
Each Pass-Through Class will receive a portion of the principal payments
made on the GNMA-Related Securities on each Payment Date. The sensitivity of a
Pass-Through Class to prepayments on the Mortgages will be the same as that of
the GNMA-Related Securities.
S-15
<PAGE> 228
MACR Classes
The principal payment characteristics of a MACR Class will reflect the
principal payment characteristics of the Classes of Multiclass Securities or
MACR Certificates which are combined to form such MACR Class.
Declining Balances Table
The following table shows, for the indicated Classes of Securities and the
underlying GNMA-Related Securities, (i) the percentages of their original
principal amounts (or, in the case of the GNMA-Related Securities, their
outstanding principal amount as of the Closing Date) that would be outstanding
after each of the dates shown at various constant percentages of PSA and (ii)
their corresponding weighted average lives. Freddie Mac has prepared this table
using the Modeling Assumptions. The Mortgages do not have the characteristics
assumed, and Mortgage prepayment rates may differ from the constant rates shown.
These differences may affect the actual payment behavior and weighted average
life of any Class and of the GNMA-Related Securities. For example, because of
the diverse remaining terms to maturity and loan ages of the Mortgages,
principal payments on any Class may be faster or slower than indicated, even if
the Mortgages were to prepay at the constant rates shown. This may be the case
even if the weighted average remaining term to maturity and weighted average
loan age of the Mortgages are the same as those of mortgages having the
characteristics assumed.
S-16
<PAGE> 229
PERCENTAGES OF ORIGINAL PRINCIPAL AMOUNTS OUTSTANDING* AND WEIGHTED AVERAGE
LIVES
<TABLE>
<CAPTION>
C, D, E, F, FA, FB, FC, FD, FE, FG, G, H, J, K, L, M, N, O, PC, PD, PE, PG, PH,
PJ, PK, Q, T AND U AND UNDERLYING GNMA-RELATED SECURITIES
----------------------------------------------------------------------------------
PSA PREPAYMENT ASSUMPTION
----------------------------------------------------------------------------------
DATE 0% 100% 160% 300% 500%
- ------------------------------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100
June 17, 1998................. 99 97 96 94 90
June 17, 1999................. 98 92 89 81 70
June 17, 2000................. 97 86 80 66 49
June 17, 2001................. 96 80 71 53 34
June 17, 2002................. 95 74 64 43 23
June 17, 2003................. 94 69 57 35 16
June 17, 2004................. 93 64 51 28 11
June 17, 2005................. 91 59 45 23 8
June 17, 2006................. 90 55 40 18 5
June 17, 2007................. 88 51 36 15 4
June 17, 2008................. 86 47 31 12 2
June 17, 2009................. 84 43 28 10 2
June 17, 2010................. 82 39 25 8 1
June 17, 2011................. 80 36 22 6 1
June 17, 2012................. 77 33 19 5 1
June 17, 2013................. 75 29 16 4 0
June 17, 2014................. 72 27 14 3 0
June 17, 2015................. 68 24 12 2 0
June 17, 2016................. 65 21 11 2 0
June 17, 2017................. 61 19 9 1 0
June 17, 2018................. 57 16 8 1 0
June 17, 2019................. 52 14 6 1 0
June 17, 2020................. 47 12 5 1 0
June 17, 2021................. 41 10 4 0 0
June 17, 2022................. 36 8 3 0 0
June 17, 2023................. 29 6 2 0 0
June 17, 2024................. 22 4 2 0 0
June 17, 2025................. 14 3 1 0 0
June 17, 2026................. 6 1 0 0 0
June 17, 2027................. 0 0 0 0 0
Weighted Average
Life (Years)................ 20.5 11.7 9.0 5.6 3.7
</TABLE>
- ---------------
* Rounded to nearest whole percentage.
YIELD CONSIDERATIONS
An investor seeking to maximize yield should make a decision whether to
invest in any Class based on the anticipated yield of that Class resulting from
its purchase price, the investor's own projection of Mortgage prepayment rates
under a variety of scenarios and, in the case of the PECs, Floating Rate and
Inverse Floating Rate Classes, the investor's own projection of levels of LIBOR
under a variety of scenarios. Freddie Mac makes no representation regarding
Mortgage prepayment rates, the level of LIBOR or the yield of any Class.
Prepayments: Effect on Yields
The yields to investors will be sensitive in varying degrees to the rate of
prepayments on the underlying Mortgages. In the case of the Interest Only
Classes and any other Classes purchased at a premium over their principal
amounts, faster than anticipated rates of Mortgage principal payments could
result in actual yields to investors that are lower than the anticipated yields.
Investors in the Interest Only Classes should also consider the risk that rapid
rates of Mortgage principal payments could result in the failure of investors to
fully recover their investments. In the case of the Principal Only Classes and
any other Classes purchased at a discount to their principal amounts, slower
than anticipated rates of principal payments could result in actual yields to
investors that are lower than the anticipated yields.
S-17
<PAGE> 230
Rapid rates of prepayments on the Mortgages are likely to coincide with
periods of low prevailing interest rates. During such periods, the yields at
which an investor may be able to reinvest amounts received as principal payments
on the investor's Class may be lower than the yield on that Class. Conversely,
slow rates of prepayments on the Mortgages are likely to coincide with periods
of high prevailing interest rates. During such periods, the amount of principal
payments available to an investor for reinvestment at such high rates may be
relatively low.
The Mortgages will not prepay at any constant rate until maturity, nor will
all of the Mortgages prepay at the same rate at any one time. Moreover, as
described under "Description of Multiclass Securities -- Class Factors" in the
Multiclass Securities Offering Circular, a portion of the payments (including
prepayments) on the GNMA-Related Securities are likely to be distributed in the
month following the month in which they are received by Freddie Mac. The timing
of changes in the rate of prepayments, and of the actual receipt of such
payments, may affect the actual yield to an investor, even if the average rate
of principal prepayments is consistent with the investor's expectation. In
general, the earlier a prepayment of principal on the Mortgages, the greater the
effect on an investor's yield. As a result, the effect on an investor's yield of
principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the Closing
Date is not likely to be offset by a later equivalent reduction (or increase) in
the rate of principal prepayments.
LIBOR: Effect on Yields of the Floating Rate, Inverse Floating Rate and
PECs Classes
Investors in the Floating Rate Classes should consider the risk that lower
than anticipated levels of LIBOR could result in actual yields to investors that
are lower than the anticipated yields and the fact that their Class Coupon
cannot exceed their specified maximum rates. Conversely, investors in the
Inverse Floating Rate and PECs Classes should consider the risk that higher than
anticipated levels of LIBOR could result in actual yields to investors that are
significantly lower than the anticipated yields and the fact that their Class
Coupons can fall or remain as low as 0% (except in the case of the A Class,
which has a minimum Class Coupon of 8%). Further, high levels of LIBOR
(especially in combination with fast Mortgage prepayment rates) may result in
the failure of investors in the Inverse Floating Rate and PECs Classes to fully
recover their investments.
Changes in LIBOR may not correlate with changes in mortgage interest rates.
It is possible that lower prevailing mortgage interest rates (which would be
expected to result in faster prepayments) could occur concurrently with a higher
level of LIBOR. Conversely, higher prevailing mortgage interest rates (which
would be expected to result in slower prepayments) could occur concurrently with
a lower level of LIBOR.
LIBOR will not remain constant at any level. The timing of changes in the
level of LIBOR may affect the actual yield to an investor, even if the average
level is consistent with the investor's expectation. In general, the earlier a
change in the level of LIBOR, the greater the effect on an investor's yield. As
a result, the effect on an investor's yield of a LIBOR level that is higher (or
lower) than the rate anticipated by the investor during earlier periods is not
likely to be offset by a later equivalent reduction (or increase).
Payment Delay: Effect on Yields of Fixed Rate and A Classes
The effective yield on any Fixed Rate Class or the A Class will be less
than the yield otherwise produced by its Class Coupon and purchase price because
(i) on the first Payment Date 30 days' interest will be payable on that Class
even though interest began to accrue approximately 47 days earlier and (ii) on
each subsequent Payment Date the interest payable will accrue during the related
Accrual Period, which will end approximately 17 days earlier.
Interest Payment Exchange: Effect on Yields of PECs Classes
Relatively high levels of LIBOR will reduce, and relatively low levels of
LIBOR will increase, the aggregate amount of interest available for payments on
the PECs Classes. Pursuant to the Interest Payment Exchange, such interest will
be allocated to the A and S Classes in varying proportions from period to
period, based on applicable levels of LIBOR and on calculated or actual Mortgage
prepayment rates.
S-18
<PAGE> 231
The Interest Payment Exchange is designed to compensate Holders of the A
Class, in part, for the reduction in yield that would be expected to occur if
relatively fast Mortgage prepayments are made in low interest rate environments.
Other things being equal, the Interest Payment Supplement Amount generally will
increase as the level of LIBOR declines and will decline as the level of LIBOR
increases, up to a LIBOR level of 6.1875% (at which level and above the Interest
Payment Supplement Amount will equal $0 in all cases). Thus, the Interest
Payment Exchange in general will cause the yield of the A Class to be higher
than would be the case if it only received interest of 8% per annum from the IA
Class, and the yield of the S Class to be lower than would be the case if it
were entitled to receive all of the SB and SC Amounts. In some cases the
Interest Payment Supplement Amount payable from the S Class to the A Class may
exceed, and in other cases it may be less than, the SB Amount payable from the A
Class to the S Class.
Yield Tables
The following tables show the pre-tax yields to maturity (corporate bond
equivalent) of the Interest Only and Principal Only Classes at various constant
percentages of PSA and, in the case of the Inverse Floating Rate and PECs
Classes, at various constant levels of LIBOR. The tables for the Interest Only
Classes also show annual and total interest payments on those Classes. Freddie
Mac has prepared these tables using the Modeling Assumptions and the assumed
purchase prices shown in the table captions. Where the assumed price is
expressed as a dollar amount, it includes accrued interest. The assumed prices
are not necessarily those at which actual sales will occur.
INTEREST PAYMENTS AND PRE-TAX YIELDS
A CLASS
(ASSUMED PRICE: $42,222,569.44)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
6.1875% LIBOR
4.6875% LIBOR 5.6875% LIBOR AND HIGHER
-------------------------------------- -------------------------------------- ------------------
PSA PREPAYMENT PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE -------------------------------------- -------------------------------------- ------------------
MONTHS THROUGH 100% 160% 300% 500% 100% 160% 300% 500% 100% 160%
------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 7,918 $ 7,886 $ 8,810 $ 9,404 $ 7,918 $ 7,886 $ 8,450 $ 8,330 $ 7,918 $ 7,886
June 17, 1999................. 7,618 7,447 9,321 10,173 7,618 7,447 8,495 7,829 7,618 7,447
June 17, 2000................. 7,156 6,763 8,716 8,848 7,156 6,763 7,679 6,220 7,156 6,763
June 17, 2001................. 6,661 6,055 7,107 6,177 6,661 6,055 6,254 4,327 6,661 6,055
June 17, 2002................. 6,194 5,415 5,747 4,259 6,194 5,415 5,062 2,989 6,194 5,415
June 17, 2003................. 5,753 4,837 4,641 2,931 5,753 4,837 4,091 2,063 5,753 4,837
June 17, 2004................. 5,337 4,315 3,742 2,014 5,337 4,315 3,302 1,421 5,337 4,315
June 17, 2005................. 4,945 3,845 3,012 1,382 4,945 3,845 2,661 978 4,945 3,845
June 17, 2006................. 4,574 3,421 2,419 946 4,574 3,421 2,140 671 4,574 3,421
June 17, 2007................. 4,224 3,038 1,939 646 4,224 3,038 1,718 460 4,224 3,038
June 17, 2008................. 3,894 2,693 1,551 440 3,894 2,693 1,376 315 3,894 2,693
June 17, 2009................. 3,581 2,382 1,237 299 3,581 2,382 1,099 214 3,581 2,382
June 17, 2010................. 3,285 2,101 983 202 3,285 2,101 876 146 3,285 2,101
June 17, 2011................. 3,005 1,849 779 136 3,005 1,849 695 99 3,005 1,849
June 17, 2012................. 2,740 1,621 614 91 2,740 1,621 550 67 2,740 1,621
June 17, 2013................. 2,489 1,416 483 61 2,489 1,416 433 45 2,489 1,416
June 17, 2014................. 2,251 1,232 377 40 2,251 1,232 339 30 2,251 1,232
June 17, 2015................. 2,025 1,066 293 27 2,025 1,066 264 20 2,025 1,066
June 17, 2016................. 1,811 916 226 17 1,811 916 204 13 1,811 916
June 17, 2017................. 1,607 782 172 11 1,607 782 157 9 1,607 782
June 17, 2018................. 1,414 662 130 7 1,414 662 119 6 1,414 662
June 17, 2019................. 1,229 553 97 5 1,229 553 89 4 1,229 553
June 17, 2020................. 1,054 456 71 3 1,054 456 66 2 1,054 456
June 17, 2021................. 887 369 51 2 887 369 48 1 887 369
June 17, 2022................. 727 291 36 1 727 291 34 1 727 291
June 17, 2023................. 575 221 24 1 575 221 23 0 575 221
June 17, 2024................. 429 159 15 0 429 159 15 0 429 159
June 17, 2025................. 289 103 9 0 289 103 8 0 289 103
June 17, 2026................. 155 53 4 0 155 53 4 0 155 53
June 17, 2027................. 32 10 1 0 32 10 1 0 32 10
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Payments*............... $ 93,859 $ 71,958 $ 62,605 $ 48,122 $ 93,859 $ 71,958 $ 56,252 $ 36,260 $ 93,859 $ 71,958
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 12.8% 9.5% 9.8% 4.4% 12.8% 9.5% 6.9% (4.7)% 12.8% 9.5%
<CAPTION>
6.1875% LIBOR
AND HIGHER
------------------
PSA PREPAYMENT
ASSUMPTION
TWELVE CONSECUTIVE ------------------
MONTHS THROUGH 300% 500%
------------------ ---- ----
<S> <C> <C>
June 17, 1998................. $ 7,810 $ 7,700
June 17, 1999................. 7,050 6,494
June 17, 2000................. 5,894 4,760
June 17, 2001................. 4,787 3,301
June 17, 2002................. 3,883 2,286
June 17, 2003................. 3,146 1,581
June 17, 2004................. 2,546 1,092
June 17, 2005................. 2,058 754
June 17, 2006................. 1,661 519
June 17, 2007................. 1,338 357
June 17, 2008................. 1,076 245
June 17, 2009................. 863 168
June 17, 2010................. 691 115
June 17, 2011................. 551 78
June 17, 2012................. 438 53
June 17, 2013................. 347 36
June 17, 2014................. 274 24
June 17, 2015................. 215 16
June 17, 2016................. 168 11
June 17, 2017................. 130 7
June 17, 2018................. 100 5
June 17, 2019................. 76 3
June 17, 2020................. 57 2
June 17, 2021................. 42 1
June 17, 2022................. 30 1
June 17, 2023................. 21 0
June 17, 2024................. 13 0
June 17, 2025................. 8 0
June 17, 2026................. 4 0
June 17, 2027................. 1 0
-------- --------
Total Payments*............... $ 45,275 $ 29,612
======== ========
Pre-Tax Yield................. 1.6% (10.3)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
S-19
<PAGE> 232
S CLASS
(ASSUMED PRICE: $5,214,723.96)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
4.6875% LIBOR 5.6875% LIBOR 6.4375% LIBOR
-------------------------------------- -------------------------------------- ------------------
PSA PREPAYMENT PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE -------------------------------------- -------------------------------------- ------------------
MONTHS THROUGH 100% 160% 300% 500% 100% 160% 300% 500% 100% 160%
------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 7,433 $ 7,401 $ 6,327 $ 5,516 $ 4,378 $ 4,360 $ 3,678 $ 3,628 $ 2,087 $ 2,079
June 17, 1999................. 7,421 7,254 4,597 2,648 4,212 4,117 2,454 2,256 1,805 1,765
June 17, 2000................. 6,971 6,588 2,919 550 3,956 3,739 1,473 1,173 1,696 1,603
June 17, 2001................. 6,489 5,898 2,343 340 3,683 3,348 1,179 799 1,578 1,435
June 17, 2002................. 6,034 5,275 1,918 254 3,424 2,994 968 560 1,468 1,283
June 17, 2003................. 5,604 4,712 1,570 190 3,181 2,674 794 393 1,363 1,146
June 17, 2004................. 5,199 4,204 1,285 142 2,951 2,386 652 275 1,265 1,023
June 17, 2005................. 4,817 3,746 1,051 106 2,734 2,126 535 193 1,172 911
June 17, 2006................. 4,456 3,332 859 80 2,529 1,891 438 135 1,084 811
June 17, 2007................. 4,115 2,959 702 59 2,336 1,680 359 95 1,001 720
June 17, 2008................. 3,793 2,623 573 44 2,153 1,489 294 66 923 638
June 17, 2009................. 3,488 2,320 467 33 1,980 1,317 241 46 848 564
June 17, 2010................. 3,200 2,047 380 24 1,816 1,162 197 32 778 498
June 17, 2011................. 2,927 1,801 309 18 1,661 1,022 161 23 712 438
June 17, 2012................. 2,669 1,579 251 13 1,515 896 131 16 649 384
June 17, 2013................. 2,425 1,380 203 10 1,376 783 107 11 590 336
June 17, 2014................. 2,193 1,200 164 7 1,245 681 86 8 533 292
June 17, 2015................. 1,973 1,038 132 5 1,120 589 70 5 480 253
June 17, 2016................. 1,764 893 106 4 1,001 507 56 4 429 217
June 17, 2017................. 1,566 762 84 3 889 433 45 2 381 185
June 17, 2018................. 1,377 645 67 2 782 366 36 2 335 157
June 17, 2019................. 1,198 539 52 1 680 306 28 1 291 131
June 17, 2020................. 1,027 445 40 1 583 252 22 1 250 108
June 17, 2021................. 864 360 31 1 490 204 17 0 210 87
June 17, 2022................. 708 284 23 0 402 161 13 0 172 69
June 17, 2023................. 560 216 16 0 318 122 9 0 136 52
June 17, 2024................. 418 155 11 0 237 88 6 0 102 38
June 17, 2025................. 281 100 7 0 160 57 4 0 68 24
June 17, 2026................. 151 52 3 0 86 29 2 0 37 13
June 17, 2027................. 31 10 1 0 17 6 0 0 7 2
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Payments*............... $ 91,151 $ 69,816 $ 26,493 $ 10,055 $ 51,894 $ 39,785 $ 14,055 $ 9,724 $ 22,451 $ 17,261
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 199.0% 196.3% 139.6% 82.3% 99.2% 96.5% 51.7% 42.1% 35.3% 32.2%
<CAPTION>
7.0000% LIBOR AND
6.4375% LIBOR HIGHER
------------------ --------------------------------------
PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE ------------------ --------------------------------------
MONTHS THROUGH 300% 500% 100% 160% 300% 500%
------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 2,061 $ 2,035 $ 369 $ 369 $ 369 $ 369
June 17, 1999................. 1,671 1,539 0 0 0 0
June 17, 2000................. 1,397 1,128 0 0 0 0
June 17, 2001................. 1,134 782 0 0 0 0
June 17, 2002................. 920 542 0 0 0 0
June 17, 2003................. 745 375 0 0 0 0
June 17, 2004................. 603 259 0 0 0 0
June 17, 2005................. 488 179 0 0 0 0
June 17, 2006................. 394 123 0 0 0 0
June 17, 2007................. 317 85 0 0 0 0
June 17, 2008................. 255 58 0 0 0 0
June 17, 2009................. 204 40 0 0 0 0
June 17, 2010................. 164 27 0 0 0 0
June 17, 2011................. 131 19 0 0 0 0
June 17, 2012................. 104 13 0 0 0 0
June 17, 2013................. 82 9 0 0 0 0
June 17, 2014................. 65 6 0 0 0 0
June 17, 2015................. 51 4 0 0 0 0
June 17, 2016................. 40 3 0 0 0 0
June 17, 2017................. 31 2 0 0 0 0
June 17, 2018................. 24 1 0 0 0 0
June 17, 2019................. 18 1 0 0 0 0
June 17, 2020................. 13 0 0 0 0 0
June 17, 2021................. 10 0 0 0 0 0
June 17, 2022................. 7 0 0 0 0 0
June 17, 2023................. 5 0 0 0 0 0
June 17, 2024................. 3 0 0 0 0 0
June 17, 2025................. 2 0 0 0 0 0
June 17, 2026................. 1 0 0 0 0 0
June 17, 2027................. 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Payments*............... $ 10,939 $ 7,227 $ 369 $ 369 $ 369 $ 369
======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 24.9% 14.0% ** ** ** **
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
** Less than (99.9)%.
S-20
<PAGE> 233
SA CLASS
(ASSUMED PRICE: $17,032,541.67)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
7.0000% LIBOR
AND LOWER 7.5000% LIBOR 8.0000% LIBOR
-------------------------------------- -------------------------------------- ------------------
PSA PREPAYMENT PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE -------------------------------------- -------------------------------------- ------------------
MONTHS THROUGH 100% 160% 300% 500% 100% 160% 300% 500% 100% 160%
------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 5,003 $ 4,983 $ 4,935 $ 4,866 $ 3,476 $ 3,462 $ 3,430 $ 3,384 $ 1,949 $ 1,942
June 17, 1999................. 4,814 4,705 4,455 4,104 3,209 3,137 2,970 2,736 1,605 1,568
June 17, 2000................. 4,522 4,274 3,724 3,008 3,014 2,849 2,483 2,005 1,507 1,425
June 17, 2001................. 4,209 3,826 3,025 2,086 2,806 2,551 2,016 1,391 1,403 1,275
June 17, 2002................. 3,914 3,421 2,453 1,444 2,609 2,281 1,636 963 1,305 1,140
June 17, 2003................. 3,635 3,056 1,988 999 2,424 2,038 1,325 666 1,212 1,019
June 17, 2004................. 3,373 2,727 1,609 690 2,248 1,818 1,073 460 1,124 909
June 17, 2005................. 3,125 2,430 1,300 476 2,083 1,620 867 318 1,042 810
June 17, 2006................. 2,890 2,161 1,049 328 1,927 1,441 700 219 963 720
June 17, 2007................. 2,669 1,920 845 226 1,780 1,280 564 150 890 640
June 17, 2008................. 2,460 1,702 680 155 1,640 1,134 453 103 820 567
June 17, 2009................. 2,263 1,505 545 106 1,508 1,003 364 71 754 502
June 17, 2010................. 2,076 1,328 436 72 1,384 885 291 48 692 443
June 17, 2011................. 1,899 1,168 348 49 1,266 779 232 33 633 389
June 17, 2012................. 1,731 1,024 277 34 1,154 683 185 22 577 341
June 17, 2013................. 1,573 895 220 23 1,048 597 146 15 524 298
June 17, 2014................. 1,422 778 173 15 948 519 115 10 474 259
June 17, 2015................. 1,280 673 136 10 853 449 91 7 427 224
June 17, 2016................. 1,144 579 106 7 763 386 71 5 381 193
June 17, 2017................. 1,016 494 82 5 677 330 55 3 339 165
June 17, 2018................. 893 418 63 3 596 279 42 2 298 139
June 17, 2019................. 777 350 48 2 518 233 32 1 259 117
June 17, 2020................. 666 288 36 1 444 192 24 1 222 96
June 17, 2021................. 560 233 26 1 374 156 18 1 187 78
June 17, 2022................. 459 184 19 0 306 123 13 0 153 61
June 17, 2023................. 363 140 13 0 242 93 9 0 121 47
June 17, 2024................. 271 100 8 0 181 67 6 0 90 33
June 17, 2025................. 183 65 5 0 122 43 3 0 61 22
June 17, 2026................. 98 34 2 0 65 22 2 0 33 11
June 17, 2027................. 20 7 0 0 13 4 0 0 7 2
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Payments*............... $ 59,307 $ 45,469 $ 28,608 $ 18,711 $ 39,678 $ 30,453 $ 19,213 $ 12,614 $ 20,050 $ 15,437
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 25.4% 22.2% 14.6% 3.4% 14.0% 10.7% 2.8% (9.0)% 2.0% (1.4)%
<CAPTION>
8.5000% LIBOR
8.0000% LIBOR AND HIGHER
------------------ --------------------------------------
PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE ------------------ --------------------------------------
MONTHS THROUGH 300% 500% 100% 160% 300% 500%
------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 1,926 $ 1,903 $ 421 $ 421 $ 421 $ 421
June 17, 1999................. 1,485 1,368 0 0 0 0
June 17, 2000................. 1,241 1,003 0 0 0 0
June 17, 2001................. 1,008 695 0 0 0 0
June 17, 2002................. 818 481 0 0 0 0
June 17, 2003................. 663 333 0 0 0 0
June 17, 2004................. 536 230 0 0 0 0
June 17, 2005................. 433 159 0 0 0 0
June 17, 2006................. 350 109 0 0 0 0
June 17, 2007................. 282 75 0 0 0 0
June 17, 2008................. 227 52 0 0 0 0
June 17, 2009................. 182 35 0 0 0 0
June 17, 2010................. 145 24 0 0 0 0
June 17, 2011................. 116 16 0 0 0 0
June 17, 2012................. 92 11 0 0 0 0
June 17, 2013................. 73 8 0 0 0 0
June 17, 2014................. 58 5 0 0 0 0
June 17, 2015................. 45 3 0 0 0 0
June 17, 2016................. 35 2 0 0 0 0
June 17, 2017................. 27 2 0 0 0 0
June 17, 2018................. 21 1 0 0 0 0
June 17, 2019................. 16 1 0 0 0 0
June 17, 2020................. 12 0 0 0 0 0
June 17, 2021................. 9 0 0 0 0 0
June 17, 2022................. 6 0 0 0 0 0
June 17, 2023................. 4 0 0 0 0 0
June 17, 2024................. 3 0 0 0 0 0
June 17, 2025................. 2 0 0 0 0 0
June 17, 2026................. 1 0 0 0 0 0
June 17, 2027................. 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Payments*............... $ 9,817 $ 6,518 $ 421 $ 421 $ 421 $ 421
======== ======== ======== ======== ======== ========
Pre-Tax Yield................. (9.6)% (21.9)% ** ** ** **
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
** Less than (99.9)%.
S-21
<PAGE> 234
SB CLASS
(ASSUMED PRICE: $14,903,473.96)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
5.6875% LIBOR
AND LOWER 6.0000% LIBOR 6.6875% LIBOR
-------------------------------------- -------------------------------------- ------------------
PSA PREPAYMENT PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE -------------------------------------- -------------------------------------- ------------------
MONTHS THROUGH 100% 160% 300% 500% 100% 160% 300% 500% 100% 160%
------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 4,378 $ 4,360 $ 4,318 $ 4,257 $ 3,423 $ 3,410 $ 3,378 $ 3,332 $ 1,323 $ 1,319
June 17, 1999................. 4,212 4,117 3,898 3,591 3,209 3,137 2,970 2,736 1,003 980
June 17, 2000................. 3,956 3,739 3,259 2,632 3,014 2,849 2,483 2,005 942 890
June 17, 2001................. 3,683 3,348 2,646 1,825 2,806 2,551 2,016 1,391 877 797
June 17, 2002................. 3,424 2,994 2,147 1,264 2,609 2,281 1,636 963 815 713
June 17, 2003................. 3,181 2,674 1,739 874 2,424 2,038 1,325 666 757 637
June 17, 2004................. 2,951 2,386 1,408 604 2,248 1,818 1,073 460 703 568
June 17, 2005................. 2,734 2,126 1,138 417 2,083 1,620 867 318 651 506
June 17, 2006................. 2,529 1,891 918 287 1,927 1,441 700 219 602 450
June 17, 2007................. 2,336 1,680 740 197 1,780 1,280 564 150 556 400
June 17, 2008................. 2,153 1,489 595 136 1,640 1,134 453 103 513 354
June 17, 2009................. 1,980 1,317 477 93 1,508 1,003 364 71 471 314
June 17, 2010................. 1,816 1,162 382 63 1,384 885 291 48 432 277
June 17, 2011................. 1,661 1,022 305 43 1,266 779 232 33 396 243
June 17, 2012................. 1,515 896 242 29 1,154 683 185 22 361 213
June 17, 2013................. 1,376 783 192 20 1,048 597 146 15 328 186
June 17, 2014................. 1,245 681 152 13 948 519 115 10 296 162
June 17, 2015................. 1,120 589 119 9 853 449 91 7 267 140
June 17, 2016................. 1,001 507 93 6 763 386 71 5 238 121
June 17, 2017................. 889 433 72 4 677 330 55 3 212 103
June 17, 2018................. 782 366 55 3 596 279 42 2 186 87
June 17, 2019................. 680 306 42 2 518 233 32 1 162 73
June 17, 2020................. 583 252 31 1 444 192 24 1 139 60
June 17, 2021................. 490 204 23 1 374 156 18 1 117 49
June 17, 2022................. 402 161 16 0 306 123 13 0 96 38
June 17, 2023................. 318 122 11 0 242 93 9 0 76 29
June 17, 2024................. 237 88 7 0 181 67 6 0 56 21
June 17, 2025................. 160 57 4 0 122 43 3 0 38 14
June 17, 2026................. 86 29 2 0 65 22 2 0 20 7
June 17, 2027................. 17 6 0 0 13 4 0 0 4 1
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Payments*............... $ 51,894 $ 39,785 $ 25,032 $ 16,372 $ 39,626 $ 30,400 $ 19,160 $ 12,562 $ 12,636 $ 9,753
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 25.4% 22.2% 14.6% 3.4% 17.3% 14.0% 6.2% (5.4)% (1.9)% (5.3)%
<CAPTION>
7.0000% LIBOR
6.6875% LIBOR AND HIGHER
------------------ --------------------------------------
PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE ------------------ --------------------------------------
MONTHS THROUGH 300% 500% 100% 160% 300% 500%
------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 1,309 $ 1,295 $ 369 $ 369 $ 369 $ 369
June 17, 1999................. 928 855 0 0 0 0
June 17, 2000................. 776 627 0 0 0 0
June 17, 2001................. 630 435 0 0 0 0
June 17, 2002................. 511 301 0 0 0 0
June 17, 2003................. 414 208 0 0 0 0
June 17, 2004................. 335 144 0 0 0 0
June 17, 2005................. 271 99 0 0 0 0
June 17, 2006................. 219 68 0 0 0 0
June 17, 2007................. 176 47 0 0 0 0
June 17, 2008................. 142 32 0 0 0 0
June 17, 2009................. 114 22 0 0 0 0
June 17, 2010................. 91 15 0 0 0 0
June 17, 2011................. 73 10 0 0 0 0
June 17, 2012................. 58 7 0 0 0 0
June 17, 2013................. 46 5 0 0 0 0
June 17, 2014................. 36 3 0 0 0 0
June 17, 2015................. 28 2 0 0 0 0
June 17, 2016................. 22 1 0 0 0 0
June 17, 2017................. 17 1 0 0 0 0
June 17, 2018................. 13 1 0 0 0 0
June 17, 2019................. 10 0 0 0 0 0
June 17, 2020................. 7 0 0 0 0 0
June 17, 2021................. 5 0 0 0 0 0
June 17, 2022................. 4 0 0 0 0 0
June 17, 2023................. 3 0 0 0 0 0
June 17, 2024................. 2 0 0 0 0 0
June 17, 2025................. 1 0 0 0 0 0
June 17, 2026................. 0 0 0 0 0 0
June 17, 2027................. 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Payments*............... $ 6,241 $ 4,179 $ 369 $ 369 $ 369 $ 369
======== ======== ======== ======== ======== ========
Pre-Tax Yield................. (13.5)% (26.0)% ** ** ** **
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
** Less than (99.9)%.
S-22
<PAGE> 235
SC CLASS
(ASSUMED PRICE: $4,212,500.00)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
5.6875% LIBOR
3.6875% LIBOR 4.6875% LIBOR AND HIGHER
-------------------------------------- -------------------------------------- ------------------
PSA PREPAYMENT PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE -------------------------------------- -------------------------------------- ------------------
MONTHS THROUGH 100% 160% 300% 500% 100% 160% 300% 500% 100% 160%
------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 17, 1998................. $ 6,109 $ 6,082 $ 6,018 $ 5,926 $ 3,055 $ 3,041 $ 3,009 $ 2,963 $ 0 $ 0
June 17, 1999................. 6,419 6,274 5,940 5,472 3,209 3,137 2,970 2,736 0 0
June 17, 2000................. 6,029 5,698 4,965 4,011 3,014 2,849 2,483 2,005 0 0
June 17, 2001................. 5,612 5,101 4,033 2,781 2,806 2,551 2,016 1,391 0 0
June 17, 2002................. 5,218 4,562 3,271 1,926 2,609 2,281 1,636 963 0 0
June 17, 2003................. 4,847 4,075 2,651 1,332 2,424 2,038 1,325 666 0 0
June 17, 2004................. 4,497 3,636 2,145 920 2,248 1,818 1,073 460 0 0
June 17, 2005................. 4,166 3,239 1,734 635 2,083 1,620 867 318 0 0
June 17, 2006................. 3,854 2,882 1,399 437 1,927 1,441 700 219 0 0
June 17, 2007................. 3,559 2,559 1,127 301 1,780 1,280 564 150 0 0
June 17, 2008................. 3,280 2,269 906 207 1,640 1,134 453 103 0 0
June 17, 2009................. 3,017 2,007 727 141 1,508 1,003 364 71 0 0
June 17, 2010................. 2,768 1,770 582 97 1,384 885 291 48 0 0
June 17, 2011................. 2,532 1,558 464 66 1,266 779 232 33 0 0
June 17, 2012................. 2,309 1,366 369 45 1,154 683 185 22 0 0
June 17, 2013................. 2,097 1,193 293 30 1,048 597 146 15 0 0
June 17, 2014................. 1,896 1,038 231 20 948 519 115 10 0 0
June 17, 2015................. 1,706 898 181 14 853 449 91 7 0 0
June 17, 2016................. 1,526 772 141 9 763 386 71 5 0 0
June 17, 2017................. 1,354 659 109 6 677 330 55 3 0 0
June 17, 2018................. 1,191 558 84 4 596 279 42 2 0 0
June 17, 2019................. 1,036 466 64 3 518 233 32 1 0 0
June 17, 2020................. 888 384 48 2 444 192 24 1 0 0
June 17, 2021................. 747 311 35 1 374 156 18 1 0 0
June 17, 2022................. 613 245 25 1 306 123 13 0 0 0
June 17, 2023................. 484 186 17 0 242 93 9 0 0 0
June 17, 2024................. 361 134 11 0 181 67 6 0 0 0
June 17, 2025................. 243 87 7 0 122 43 3 0 0 0
June 17, 2026................. 131 45 3 0 65 22 2 0 0 0
June 17, 2027................. 27 9 1 0 13 4 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Payments*............... $ 78,514 $ 60,063 $ 37,583 $ 24,386 $ 39,257 $ 30,032 $ 18,791 $ 12,193 $ 0 $ 0
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 198.9% 196.3% 189.9% 180.7% 84.9% 82.1% 75.5% 65.8% ** **
<CAPTION>
5.6875% LIBOR
AND HIGHER
------------------
PSA PREPAYMENT
ASSUMPTION
TWELVE CONSECUTIVE ------------------
MONTHS THROUGH 300% 500%
------------------ ---- ----
<S> <C> <C>
June 17, 1998................. $ 0 $ 0
June 17, 1999................. 0 0
June 17, 2000................. 0 0
June 17, 2001................. 0 0
June 17, 2002................. 0 0
June 17, 2003................. 0 0
June 17, 2004................. 0 0
June 17, 2005................. 0 0
June 17, 2006................. 0 0
June 17, 2007................. 0 0
June 17, 2008................. 0 0
June 17, 2009................. 0 0
June 17, 2010................. 0 0
June 17, 2011................. 0 0
June 17, 2012................. 0 0
June 17, 2013................. 0 0
June 17, 2014................. 0 0
June 17, 2015................. 0 0
June 17, 2016................. 0 0
June 17, 2017................. 0 0
June 17, 2018................. 0 0
June 17, 2019................. 0 0
June 17, 2020................. 0 0
June 17, 2021................. 0 0
June 17, 2022................. 0 0
June 17, 2023................. 0 0
June 17, 2024................. 0 0
June 17, 2025................. 0 0
June 17, 2026................. 0 0
June 17, 2027................. 0 0
-------- --------
Total Payments*............... $ 0 $ 0
======== ========
Pre-Tax Yield................. ** **
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
** Less than (99.9)%.
S-23
<PAGE> 236
IA CLASS
(ASSUMED PRICE: $38,644,444.44)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998............................................... $ 7,918 $ 7,886 $ 7,810 $ 7,775 $ 7,700
June 17, 1999............................................... 7,618 7,447 7,050 6,871 6,494
June 17, 2000............................................... 7,156 6,763 5,894 5,517 4,760
June 17, 2001............................................... 6,661 6,055 4,787 4,271 3,301
June 17, 2002............................................... 6,194 5,415 3,883 3,303 2,286
June 17, 2003............................................... 5,753 4,837 3,146 2,551 1,581
June 17, 2004............................................... 5,337 4,315 2,546 1,968 1,092
June 17, 2005............................................... 4,945 3,845 2,058 1,516 754
June 17, 2006............................................... 4,574 3,421 1,661 1,166 519
June 17, 2007............................................... 4,224 3,038 1,338 895 357
June 17, 2008............................................... 3,894 2,693 1,076 686 245
June 17, 2009............................................... 3,581 2,382 863 525 168
June 17, 2010............................................... 3,285 2,101 691 400 115
June 17, 2011............................................... 3,005 1,849 551 304 78
June 17, 2012............................................... 2,740 1,621 438 231 53
June 17, 2013............................................... 2,489 1,416 347 174 36
June 17, 2014............................................... 2,251 1,232 274 131 24
June 17, 2015............................................... 2,025 1,066 215 98 16
June 17, 2016............................................... 1,811 916 168 73 11
June 17, 2017............................................... 1,607 782 130 54 7
June 17, 2018............................................... 1,414 662 100 39 5
June 17, 2019............................................... 1,229 553 76 28 3
June 17, 2020............................................... 1,054 456 57 20 2
June 17, 2021............................................... 887 369 42 14 1
June 17, 2022............................................... 727 291 30 10 1
June 17, 2023............................................... 575 221 21 6 0
June 17, 2024............................................... 429 159 13 4 0
June 17, 2025............................................... 289 103 8 2 0
June 17, 2026............................................... 155 53 4 1 0
June 17, 2027............................................... 32 10 1 0 0
-------- -------- -------- -------- --------
Total Payments*............................................. $ 93,859 $ 71,958 $ 45,275 $ 38,636 $ 29,612
======== ======== ======== ======== ========
Pre-Tax Yield............................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
S-24
<PAGE> 237
IC CLASS
(ASSUMED PRICE: $73,883,347.22)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998................................... $ 15,139 $ 15,077 $ 14,932 $ 14,865 $ 14,722
June 17, 1999................................... 14,565 14,237 13,479 13,137 12,417
June 17, 2000................................... 13,681 12,931 11,268 10,548 9,101
June 17, 2001................................... 12,735 11,576 9,151 8,166 6,311
June 17, 2002................................... 11,842 10,352 7,423 6,314 4,371
June 17, 2003................................... 10,999 9,247 6,015 4,877 3,023
June 17, 2004................................... 10,204 8,251 4,868 3,762 2,089
June 17, 2005................................... 9,454 7,351 3,934 2,898 1,441
June 17, 2006................................... 8,746 6,540 3,175 2,229 993
June 17, 2007................................... 8,076 5,808 2,558 1,712 683
June 17, 2008................................... 7,444 5,148 2,057 1,312 469
June 17, 2009................................... 6,846 4,554 1,650 1,003 321
June 17, 2010................................... 6,281 4,017 1,321 765 219
June 17, 2011................................... 5,745 3,534 1,054 582 149
June 17, 2012................................... 5,239 3,099 838 441 101
June 17, 2013................................... 4,759 2,708 664 333 69
June 17, 2014................................... 4,304 2,355 524 251 46
June 17, 2015................................... 3,872 2,038 411 188 31
June 17, 2016................................... 3,462 1,752 321 139 21
June 17, 2017................................... 3,073 1,496 248 103 14
June 17, 2018................................... 2,703 1,265 191 75 9
June 17, 2019................................... 2,351 1,058 145 54 6
June 17, 2020................................... 2,015 872 108 39 4
June 17, 2021................................... 1,695 706 79 27 2
June 17, 2022................................... 1,390 557 57 19 1
June 17, 2023................................... 1,098 423 39 12 1
June 17, 2024................................... 819 304 26 8 0
June 17, 2025................................... 552 197 15 4 0
June 17, 2026................................... 296 102 7 2 0
June 17, 2027................................... 60 20 1 0 0
-------- -------- -------- -------- --------
Total Payments*................................. $179,446 $137,575 $ 86,560 $ 73,866 $ 56,614
======== ======== ======== ======== ========
Pre-Tax Yield................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
S-25
<PAGE> 238
ID CLASS
(ASSUMED PRICE: $11,931,472.22)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998...................................... $ 2,445 $ 2,435 $ 2,411 $ 2,401 $ 2,377
June 17, 1999...................................... 2,352 2,299 2,177 2,121 2,005
June 17, 2000...................................... 2,209 2,088 1,820 1,703 1,470
June 17, 2001...................................... 2,057 1,869 1,478 1,319 1,019
June 17, 2002...................................... 1,912 1,672 1,199 1,020 706
June 17, 2003...................................... 1,776 1,493 971 788 488
June 17, 2004...................................... 1,648 1,332 786 608 337
June 17, 2005...................................... 1,527 1,187 635 468 233
June 17, 2006...................................... 1,412 1,056 513 360 160
June 17, 2007...................................... 1,304 938 413 276 110
June 17, 2008...................................... 1,202 831 332 212 76
June 17, 2009...................................... 1,106 735 266 162 52
June 17, 2010...................................... 1,014 649 213 124 35
June 17, 2011...................................... 928 571 170 94 24
June 17, 2012...................................... 846 501 135 71 16
June 17, 2013...................................... 768 437 107 54 11
June 17, 2014...................................... 695 380 85 40 7
June 17, 2015...................................... 625 329 66 30 5
June 17, 2016...................................... 559 283 52 23 3
June 17, 2017...................................... 496 242 40 17 2
June 17, 2018...................................... 436 204 31 12 1
June 17, 2019...................................... 380 171 23 9 1
June 17, 2020...................................... 325 141 17 6 1
June 17, 2021...................................... 274 114 13 4 0
June 17, 2022...................................... 224 90 9 3 0
June 17, 2023...................................... 177 68 6 2 0
June 17, 2024...................................... 132 49 4 1 0
June 17, 2025...................................... 89 32 2 1 0
June 17, 2026...................................... 48 16 1 0 0
June 17, 2027...................................... 10 3 0 0 0
-------- -------- -------- -------- --------
Total Payments*.................................... $ 28,979 $ 22,217 $ 13,979 $ 11,929 $ 9,143
======== ======== ======== ======== ========
Pre-Tax Yield...................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
S-26
<PAGE> 239
IE CLASS
(ASSUMED PRICE: $12,390,375.00)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998...................................... $ 2,539 $ 2,528 $ 2,504 $ 2,493 $ 2,469
June 17, 1999...................................... 2,443 2,388 2,261 2,203 2,082
June 17, 2000...................................... 2,294 2,168 1,890 1,769 1,526
June 17, 2001...................................... 2,136 1,941 1,535 1,369 1,058
June 17, 2002...................................... 1,986 1,736 1,245 1,059 733
June 17, 2003...................................... 1,845 1,551 1,009 818 507
June 17, 2004...................................... 1,711 1,384 816 631 350
June 17, 2005...................................... 1,585 1,233 660 486 242
June 17, 2006...................................... 1,467 1,097 532 374 166
June 17, 2007...................................... 1,354 974 429 287 114
June 17, 2008...................................... 1,248 863 345 220 79
June 17, 2009...................................... 1,148 764 277 168 54
June 17, 2010...................................... 1,053 674 221 128 37
June 17, 2011...................................... 964 593 177 98 25
June 17, 2012...................................... 879 520 141 74 17
June 17, 2013...................................... 798 454 111 56 12
June 17, 2014...................................... 722 395 88 42 8
June 17, 2015...................................... 649 342 69 31 5
June 17, 2016...................................... 581 294 54 23 3
June 17, 2017...................................... 515 251 42 17 2
June 17, 2018...................................... 453 212 32 13 1
June 17, 2019...................................... 394 177 24 9 1
June 17, 2020...................................... 338 146 18 7 1
June 17, 2021...................................... 284 118 13 5 0
June 17, 2022...................................... 233 93 10 3 0
June 17, 2023...................................... 184 71 7 2 0
June 17, 2024...................................... 137 51 4 1 0
June 17, 2025...................................... 93 33 3 1 0
June 17, 2026...................................... 50 17 1 0 0
June 17, 2027...................................... 10 3 0 0 0
-------- -------- -------- -------- --------
Total Payments*.................................... $ 30,093 $ 23,072 $ 14,516 $ 12,388 $ 9,494
======== ======== ======== ======== ========
Pre-Tax Yield...................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
S-27
<PAGE> 240
IG CLASS
(ASSUMED PRICE: $13,308,180.56)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998..................................... $ 2,727 $ 2,716 $ 2,690 $ 2,678 $ 2,652
June 17, 1999..................................... 2,624 2,564 2,428 2,366 2,237
June 17, 2000..................................... 2,464 2,329 2,030 1,900 1,639
June 17, 2001..................................... 2,294 2,085 1,648 1,471 1,137
June 17, 2002..................................... 2,133 1,865 1,337 1,137 787
June 17, 2003..................................... 1,981 1,666 1,083 878 545
June 17, 2004..................................... 1,838 1,486 877 678 376
June 17, 2005..................................... 1,703 1,324 709 522 260
June 17, 2006..................................... 1,575 1,178 572 402 179
June 17, 2007..................................... 1,455 1,046 461 308 123
June 17, 2008..................................... 1,341 927 370 236 84
June 17, 2009..................................... 1,233 820 297 181 58
June 17, 2010..................................... 1,131 724 238 138 40
June 17, 2011..................................... 1,035 637 190 105 27
June 17, 2012..................................... 944 558 151 80 18
June 17, 2013..................................... 857 488 120 60 12
June 17, 2014..................................... 775 424 94 45 8
June 17, 2015..................................... 697 367 74 34 6
June 17, 2016..................................... 624 316 58 25 4
June 17, 2017..................................... 553 269 45 19 2
June 17, 2018..................................... 487 228 34 14 2
June 17, 2019..................................... 423 191 26 10 1
June 17, 2020..................................... 363 157 19 7 1
June 17, 2021..................................... 305 127 14 5 0
June 17, 2022..................................... 250 100 10 3 0
June 17, 2023..................................... 198 76 7 2 0
June 17, 2024..................................... 148 55 5 1 0
June 17, 2025..................................... 99 35 3 1 0
June 17, 2026..................................... 53 18 1 0 0
June 17, 2027..................................... 11 4 0 0 0
-------- -------- -------- -------- --------
Total Payments*................................... $ 32,323 $ 24,781 $ 15,592 $ 13,305 $ 10,198
======== ======== ======== ======== ========
Pre-Tax Yield..................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
S-28
<PAGE> 241
IH CLASS
(ASSUMED PRICE: $13,767,083.33)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998..................................... $ 2,821 $ 2,809 $ 2,782 $ 2,770 $ 2,743
June 17, 1999..................................... 2,714 2,653 2,512 2,448 2,314
June 17, 2000..................................... 2,549 2,409 2,100 1,966 1,696
June 17, 2001..................................... 2,373 2,157 1,705 1,522 1,176
June 17, 2002..................................... 2,207 1,929 1,383 1,177 814
June 17, 2003..................................... 2,050 1,723 1,121 909 563
June 17, 2004..................................... 1,901 1,537 907 701 389
June 17, 2005..................................... 1,762 1,370 733 540 269
June 17, 2006..................................... 1,630 1,219 592 415 185
June 17, 2007..................................... 1,505 1,082 477 319 127
June 17, 2008..................................... 1,387 959 383 244 87
June 17, 2009..................................... 1,276 848 307 187 60
June 17, 2010..................................... 1,170 749 246 143 41
June 17, 2011..................................... 1,071 659 196 108 28
June 17, 2012..................................... 976 578 156 82 19
June 17, 2013..................................... 887 505 124 62 13
June 17, 2014..................................... 802 439 98 47 9
June 17, 2015..................................... 721 380 77 35 6
June 17, 2016..................................... 645 326 60 26 4
June 17, 2017..................................... 573 279 46 19 3
June 17, 2018..................................... 504 236 36 14 2
June 17, 2019..................................... 438 197 27 10 1
June 17, 2020..................................... 375 163 20 7 1
June 17, 2021..................................... 316 132 15 5 0
June 17, 2022..................................... 259 104 11 3 0
June 17, 2023..................................... 205 79 7 2 0
June 17, 2024..................................... 153 57 5 1 0
June 17, 2025..................................... 103 37 3 1 0
June 17, 2026..................................... 55 19 1 0 0
June 17, 2027..................................... 11 4 0 0 0
-------- -------- -------- -------- --------
Total Payments*................................... $ 33,437 $ 25,635 $ 16,129 $ 13,764 $ 10,549
======== ======== ======== ======== ========
Pre-Tax Yield..................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
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IJ CLASS
(ASSUMED PRICE: $14,225,986.11)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998..................................... $ 2,915 $ 2,903 $ 2,875 $ 2,862 $ 2,835
June 17, 1999..................................... 2,805 2,741 2,595 2,529 2,391
June 17, 2000..................................... 2,634 2,490 2,170 2,031 1,752
June 17, 2001..................................... 2,452 2,229 1,762 1,572 1,215
June 17, 2002..................................... 2,280 1,993 1,429 1,216 842
June 17, 2003..................................... 2,118 1,781 1,158 939 582
June 17, 2004..................................... 1,965 1,589 937 724 402
June 17, 2005..................................... 1,820 1,415 758 558 277
June 17, 2006..................................... 1,684 1,259 611 429 191
June 17, 2007..................................... 1,555 1,118 492 330 131
June 17, 2008..................................... 1,433 991 396 253 90
June 17, 2009..................................... 1,318 877 318 193 62
June 17, 2010..................................... 1,209 774 254 147 42
June 17, 2011..................................... 1,106 681 203 112 29
June 17, 2012..................................... 1,009 597 161 85 20
June 17, 2013..................................... 916 521 128 64 13
June 17, 2014..................................... 829 453 101 48 9
June 17, 2015..................................... 746 392 79 36 6
June 17, 2016..................................... 667 337 62 27 4
June 17, 2017..................................... 592 288 48 20 3
June 17, 2018..................................... 520 244 37 14 2
June 17, 2019..................................... 453 204 28 10 1
June 17, 2020..................................... 388 168 21 7 1
June 17, 2021..................................... 326 136 15 5 0
June 17, 2022..................................... 268 107 11 4 0
June 17, 2023..................................... 211 81 8 2 0
June 17, 2024..................................... 158 58 5 1 0
June 17, 2025..................................... 106 38 3 1 0
June 17, 2026..................................... 57 20 1 0 0
June 17, 2027..................................... 12 4 0 0 0
-------- -------- -------- -------- --------
Total Payments*................................... $ 34,552 $ 26,490 $ 16,667 $ 14,223 $ 10,901
======== ======== ======== ======== ========
Pre-Tax Yield..................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
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<PAGE> 243
IK CLASS
(ASSUMED PRICE: $15,143,791.67)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
TWELVE CONSECUTIVE --------------------------------------------------------
MONTHS THROUGH 100% 160% 300% 364% 500%
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
June 17, 1998..................................... $ 3,103 $ 3,090 $ 3,061 $ 3,047 $ 3,018
June 17, 1999..................................... 2,985 2,918 2,763 2,693 2,545
June 17, 2000..................................... 2,804 2,650 2,310 2,162 1,865
June 17, 2001..................................... 2,610 2,373 1,876 1,674 1,294
June 17, 2002..................................... 2,427 2,122 1,522 1,294 896
June 17, 2003..................................... 2,255 1,895 1,233 1000 620
June 17, 2004..................................... 2,092 1,691 998 771 428
June 17, 2005..................................... 1,938 1,507 806 594 295
June 17, 2006..................................... 1,793 1,340 651 457 203
June 17, 2007..................................... 1,655 1,190 524 351 140
June 17, 2008..................................... 1,526 1,055 422 269 96
June 17, 2009..................................... 1,403 933 338 206 66
June 17, 2010..................................... 1,287 823 271 157 45
June 17, 2011..................................... 1,178 724 216 119 31
June 17, 2012..................................... 1,074 635 172 90 21
June 17, 2013..................................... 975 555 136 68 14
June 17, 2014..................................... 882 483 107 51 9
June 17, 2015..................................... 794 418 84 38 6
June 17, 2016..................................... 710 359 66 29 4
June 17, 2017..................................... 630 307 51 21 3
June 17, 2018..................................... 554 259 39 15 2
June 17, 2019..................................... 482 217 30 11 1
June 17, 2020..................................... 413 179 22 8 1
June 17, 2021..................................... 347 145 16 6 0
June 17, 2022..................................... 285 114 12 4 0
June 17, 2023..................................... 225 87 8 2 0
June 17, 2024..................................... 168 62 5 2 0
June 17, 2025..................................... 113 40 3 1 0
June 17, 2026..................................... 61 21 1 0 0
June 17, 2027..................................... 12 4 0 0 0
June 17, 2028 and after........................... 0 0 0 0 0
-------- -------- -------- -------- --------
Total Payments*................................... $ 36,781 $ 28,199 $ 17,742 $ 15,140 $ 11,604
======== ======== ======== ======== ========
Pre-Tax Yield..................................... 14.9% 11.6% 3.7% 0.0% (8.1)%
</TABLE>
- ---------------
* Total payments may not equal sums of columns due to rounding.
PRE-TAX YIELDS
PC, PD, PE, PG, PH, PJ AND PK CLASSES
(ASSUMED PRICE: 66.0%)
<TABLE>
<CAPTION>
100% PSA 160% PSA 300% PSA 500% PSA
-------- -------- -------- --------
<S> <C> <C> <C>
4.0% 5.3% 8.7% 13.2%
</TABLE>
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The Mortgages will not prepay at any constant rate, nor will LIBOR remain
constant at any level. Moreover, the Mortgages have characteristics that differ
from those of the Modeling Assumptions. Therefore, the actual pre-tax yield of
any Class may differ from any of those shown in the table for that Class, even
if purchased at the assumed price shown, and the actual annual and total
payments for the Interest Only Classes may also differ from those shown.
FINAL PAYMENT DATES
The Final Payment Date for each Class is the latest date by which it will
be retired. The assumptions used in calculating the Final Payment Dates are
highly conservative, and the actual retirement of any Class may occur earlier
than its Final Payment Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following generally describes the anticipated material federal income
tax consequences of purchasing, owning and disposing of Multiclass Securities,
PECs Classes and MACR Classes. It does not address special rules which may apply
to particular types of investors. The authorities on which this discussion is
based are subject to change or differing interpretations, and any such change or
interpretation could apply retroactively. Investors should consult their own tax
advisors regarding the federal, state, local and other tax consequences to them
of the purchase, ownership, exchange or disposition of the Classes.
Subject to the assumptions described in "Certain Federal Income Tax
Consequences -- REMIC Election" in the Multiclass Securities Offering Circular,
the Upper-Tier REMIC Pool and the Lower-Tier REMIC Pool will each qualify as a
REMIC for federal income tax purposes.
The arrangement pursuant to which each PECs Class is created, sold and
administered (a "PECs Pool") should be classified as a grantor trust under
subpart E, part I of subchapter J of the Code, and Freddie Mac intends to report
income, gain, loss and deduction to the Internal Revenue Service and to Holders
in accordance with this characterization. If the PECs Pools are not so
classified, however, the PECs Classes will be treated as interests in a
partnership. Certain federal income tax consequences that might result from such
partnership characterization are discussed below under "PECs
Classes -- Partnership Rules."
The arrangement pursuant to which the MACR Classes are created, sold and
administered (the "MACR Pool") will be classified as a grantor trust under
subpart E, part I of subchapter J of the Code. The interests in the Regular
Classes that have been exchanged with Freddie Mac for the MACR Classes
(including any exchanges effective on the Closing Date) will be the assets of
the MACR Pool and the MACR Classes will represent beneficial ownership of these
assets.
REGULAR CLASSES
The Regular Classes will be the "regular interests" in the Upper-Tier REMIC
Pool. The Regular Classes will be treated as debt instruments for federal income
tax purposes and may be issued with original issue discount ("OID") or at a
premium. Based in part on the level of LIBOR as of the date of this Supplement
and on assumptions regarding the initial prices at which substantial portions of
the Regular Classes will be sold to the public, Freddie Mac expects to report
income to the Internal Revenue Service and to Holders of the Regular Classes
assuming they are issued as follows:
- OID: IA, SA, SB and SC Classes.
- Premium: F, FA, FB, FC, FD, FE and FG Classes.
OID generally will result in recognition of taxable income in advance of the
receipt of cash attributable to such income. The "Prepayment Assumption" used in
determining whether OID is de minimis and in computing the rate of accrual of
OID or the amortization of premium is 160% PSA. See "Certain Federal Income Tax
Consequences -- Taxation of Regular Classes -- Original Issue Discount" and
"-- Premium" in the Multiclass Securities Offering Circular.
Freddie Mac intends to report any original issue or market discount or
premium with respect to the Floating Rate Classes assuming that each variable
rate is a fixed rate equal to the value of the variable rate as
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of the date of this Supplement. See "Certain Federal Income Tax
Consequences -- Taxation of Regular Classes -- Floating Rate and Inverse
Floating Rate Classes" in the Multiclass Securities Offering Circular.
RESIDUAL CLASSES
The R Class will be the "residual interest" in the Upper-Tier REMIC Pool
and the RS Class will be the "residual interest" in the Lower-Tier REMIC Pool.
Special tax considerations apply to the Residual Classes. The taxation of the
Residual Classes can produce a significantly less favorable after-tax return
than if (i) the Residual Classes were taxable as debt instruments or (ii) no
portion of the taxable income on the Residual Classes were treated as "excess
inclusions." In certain periods, taxable income and the resulting tax liability
on the R Class may exceed any payments on that Class. See "Certain Federal
Income Tax Consequences -- Taxation of Residual Classes" in the Multiclass
Securities Offering Circular. In addition, a substantial tax may be imposed on
certain transferors of the Residual Classes and certain beneficial owners of
such Classes that are "pass-through entities." See "Certain Federal Income Tax
Consequences -- Transfers of Interests in a Residual Class -- Disqualified
Organizations" in the Multiclass Securities Offering Circular. Investors should
not purchase a Residual Class before consulting their tax advisors.
Certain Transfers of Residual Classes
The REMIC Regulations (as defined under "Certain Federal Income Tax
Consequences -- Transfers of Interests in a Residual Class -- Additional
Transfer Restrictions" in the Multiclass Securities Offering Circular)
disregard:
- A transfer of a "noneconomic residual" unless no significant purpose
of the transfer is to impede the assessment or collection of tax; and
- Except in certain cases, a transfer of a residual interest to a
foreign investor or a transfer of a residual interest from a foreign
investor to a U.S. investor (accordingly, the Multiclass Security
Agreement prohibits the transfer of an interest in a Residual Class to
or from a foreign investor without Freddie Mac's written consent).
In such cases, the transferor would continue to be treated as the owner of the
residual interest and thus would continue to be subject to tax on its allocable
portion of the net income of the REMIC. See "Certain Federal Income Tax
Consequences -- Transfers of Interests in a Residual Class -- Additional
Transfer Restrictions" in the Multiclass Securities Offering Circular.
Residual Classes with Negative Fair Market Values
The federal income tax consequences of any consideration paid to a
transferee on a transfer of a Residual Class are unclear. The REMIC Regulations
do not address whether a residual interest could have a negative basis and a
negative issue price. The preamble indicates that the Internal Revenue Service
is considering the tax treatment of these types of residual interests. Any
transferee receiving consideration should consult its tax advisors.
Reporting and Administrative Matters
Freddie Mac will furnish Holders of the Residual Classes the information it
deems necessary or appropriate to enable them to prepare any reports required
under the Code or applicable Treasury regulations. Freddie Mac does not intend
to hold the Residual Classes for its account, and applicable law may not permit
Freddie Mac to perform tax administrative functions for the REMIC Pools.
Accordingly, the Holders of the Residual Classes may have certain tax
administrative obligations (for which Freddie Mac will act as attorney-in-fact
and agent). See "Certain Federal Income Tax Consequences -- Reporting and
Administrative Matters" in the Multiclass Securities Offering Circular.
PECS CLASSES
A beneficial owner of a PECs Class will be treated as owning (i) a
proportionate interest in the Regular Class or Classes underlying the PECs Class
and (ii) a proportionate interest in a notional principal contract represented
by the rights and obligations of the PECs Class under the Interest Payment
Exchange (the "Swap Agreement"). Amounts paid by a PECs Class to the other PECs
Class under the Interest Payment Exchange will be treated as payments made
pursuant to the Swap Agreement and amounts received by a PECs Class
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<PAGE> 246
from the other PECs Class under the Interest Payment Exchange will be treated as
payments received pursuant to the Swap Agreement.
Tax Status
The federal income tax status of the Regular Class or Classes underlying a
PECs Class is described under "Certain Federal Income Tax Consequences -- Status
of Multiclass Securities" in the Multiclass Securities Offering Circular.
A beneficial owner's interest in the Swap Agreement will not constitute (i)
a "real estate asset" within the meaning of Code Section 856(c)(5)(A) if held by
a real estate investment trust, (ii) a "qualified mortgage" under Code Section
860G(a)(3) if held by a REMIC or (iii) an asset described in Code Section
7701(a)(19)(C) if held by a thrift. Income received under the Swap Agreement
will not constitute income described in Code Section 856(c)(3)(B) for a real
estate investment trust, but should constitute income described in Code Section
851(b)(2) for a regulated investment company.
Allocations
A beneficial owner of a PECs Class will be treated as purchasing each of
the underlying Regular Class or Classes for an amount equal to its fair market
value at the time of purchase of the PECs Class. If the aggregate amount of such
fair market value or values exceeds the cost of the PECs Class, the excess will
be treated as a premium payment received with respect to the Swap Agreement. If
the cost of the PECs Class exceeds the aggregate amount of such fair market
value or values, the excess will be treated as a premium payment made with
respect to the Swap Agreement. Accordingly, a beneficial owner's basis in its
underlying Regular Class or Classes may be greater or less than the amount the
beneficial owner paid for its PECs Class.
Similarly, a beneficial owner that sells its PECs Class will be treated as
selling each of the underlying Regular Class or Classes for its fair market
value at the time of sale of the PECs Class. Any difference between the
aggregate amount of the fair market value or values and the sales price of the
PECs Class should be treated as a payment made or received, as appropriate, with
respect to a termination of the Swap Agreement.
If a beneficial owner of a PECs Class acquires a proportionate interest in
the other PECs Class, the beneficial owner's offsetting interests in the Swap
Agreement will cancel. Consequently, to the extent of such proportionate
interest, such acquisition should be treated as (i) an acquisition of the
Regular Class or Classes underlying the other PECs Class and (ii) a termination
of the Swap Agreement. Any difference between the fair market value of the
Regular Class or Classes underlying the other PECs Class at the time of its
purchase and the amount paid for the other PECs Class should be treated as a
payment made or received, as appropriate, with respect to the termination of the
Swap Agreement.
Taxation of Underlying Regular Classes
The material federal income tax consequences to a beneficial owner of a
PECs Class of purchasing, owning and disposing of its interests in the Regular
Class or Classes underlying the PECs Class are described above under "Regular
Classes" and under "Certain Federal Income Tax Consequences -- Taxation of
Regular Classes," "-- Sale or Exchange of Multiclass Securities" and
"-- Taxation of Certain Foreign Investors" in the Multiclass Securities Offering
Circular.
Taxation of Swap Agreement
The Swap Agreement is a notional principal contract within the meaning of
Treasury Regulation Section 1.446-3 (the "Swap Regulations").
Periodic Payments. A beneficial owner of a PECs Class will be treated as
having made or received a payment each month pursuant to the notional principal
contract in an amount equal to the net amount paid or received by the beneficial
owner under the Interest Payment Exchange. Such a payment will constitute a
"periodic payment" within the meaning of the Swap Regulations. The Swap
Regulations provide that all taxpayers, regardless of their method of
accounting, must recognize the ratable daily portion of a periodic payment for
the taxable year to which it relates. Net income or deduction with respect to a
periodic payment should be considered to be ordinary income or deduction.
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<PAGE> 247
In the case of a beneficial owner that is an individual, estate or trust,
Code Section 67 may limit the deductibility of a net payment made pursuant to
the Swap Agreement. Code Section 67 allows certain itemized deductions only to
the extent that the aggregate of such deductions exceeds 2% of the taxpayer's
adjusted gross income. Also, a net payment may not be deductible by such
taxpayers for purposes of the alternative minimum tax. A beneficial owner that
is an individual, estate or trust should consult its tax advisor regarding the
application of Code Section 67 and the alternative minimum tax.
Nonperiodic Payments. Any amount that is treated as a premium payment made
or received with respect to the Swap Agreement, as described above under "PECs
Classes -- Allocations," will constitute a "nonperiodic payment" under the Swap
Regulations. A nonperiodic payment generally must be amortized over the term of
the Swap Agreement in a manner that reflects the economic substance of the
transaction. For information reporting purposes, Freddie Mac intends (i) to
assume that all of a PECs Class will be held by the original purchasers and (ii)
to amortize any initial premium deemed paid or received with respect to the Swap
Agreement under a constant yield method, by assuming that the notional principal
amount under the Swap Agreement will reduce in accordance with the Prepayment
Assumption and making adjustments for actual prepayments. The amount of any
premium payment that is amortized in any taxable year will be treated as a
periodic payment deemed received or made under the Swap Agreement. A beneficial
owner of a PECs Class that is deemed to have made or received a premium payment
with respect to the Swap Agreement should consult its tax advisor regarding the
appropriate method of amortizing that premium.
The Swap Regulations treat a nonperiodic payment made with respect to a
notional principal contract as a loan for federal income tax purposes if the
payment is "significant." If a premium payment is deemed to be made or received,
beneficial owners should consult their tax advisors as to whether such deemed
payment would be treated as a loan under the Swap Regulations.
Termination Payments. Any amount that is treated as made or received with
respect to the termination of the Swap Agreement, as described above under "PECs
Classes -- Allocations," will be considered a "termination payment" under the
Swap Regulations. A beneficial owner will have gain or loss from a termination
of the Swap Agreement equal to (i) the sum of the unamortized portion of any
nonperiodic payment deemed received upon entering into the Swap Agreement plus
any termination payment deemed received, minus (ii) the sum of the unamortized
portion of any premium payment deemed made by the beneficial owner upon entering
into the Swap Agreement plus any termination payment deemed made. The character
of gain or loss upon the termination of the Swap Agreement is not clear. If the
Swap Agreement were treated as "actively traded" property for purposes of Code
Section 1092, the gain or loss on termination of the Swap Agreement would be
capital gain or loss as a result of the application of Code Section 1234A.
Foreign Investors. If a beneficial owner is a non-U.S. person not engaged
in trade or business within the U.S., such owner will not be subject to U.S.
withholding tax on income or gain from the Swap Agreement.
Tax-Exempt Organizations. In general, income or gain from the Swap
Agreement will not be subject to the tax on unrelated business taxable income
for a tax-exempt organization if the PECs Class does not constitute
"debt-financed" property. A portion of any income or gain from the underlying
Regular Class or Classes would constitute unrelated business taxable income if a
beneficial owner that is a tax-exempt organization were considered to have
borrowed funds as a result of a significant nonperiodic payment, as described
above under "PECs Classes -- Taxation of Swap Agreement -- Nonperiodic
Payments."
Conversion
A conversion of a PECs Class into its underlying Regular Class or Classes,
as described under "Payment Exchange Certificates -- Conversion" in this
Supplement, will not be a taxable exchange as to the beneficial owner's interest
in the underlying Regular Class or Classes. The beneficial owner will be treated
as continuing to own after the exchange the same interests in the Regular Class
or Classes that it owned immediately prior to the exchange.
Information Reporting
Freddie Mac will furnish or make available to Holders of a PECs Class,
within a reasonable time after the end of each calendar year, such information
as Freddie Mac deems necessary or desirable to assist Holders in preparing their
federal income tax returns, or to enable Holders to make such information
available to
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<PAGE> 248
beneficial owners or other financial intermediaries for which such Holders hold
such PECs Classes as nominees. The amount reported by Freddie Mac may not be
correct for any particular beneficial owner of a PECs Class.
Application of the Straddle Rules
If the interest of a beneficial owner of a PECs Class in the Swap Agreement
substantially offsets the beneficial owner's interest in the underlying Regular
Class or Classes, the Internal Revenue Service might take the position that such
interests in the Swap Agreement and the Regular Class or Classes constitute
positions in a straddle. If this contention were correct, the straddle rules of
Code Section 1092 would apply, with the following consequences. On sale of a
PECs Class, a selling beneficial owner's gain or loss with respect to its
interest in the underlying Regular Class or Classes would be short-term because
the beneficial owner's holding period would be tolled. Similarly, gain or loss
realized with respect to the Swap Agreement in connection with a sale of a PECs
Class would be short-term. In addition, the straddle rules might require a
beneficial owner to capitalize, rather than deduct, a portion of any interest
and carrying charges allocable to such beneficial owner's PECs Class. Beneficial
owners are advised to consult their own tax advisors regarding this issue and
potential elections that may be made concerning straddles.
Partnership Rules
As discussed above, Freddie Mac intends to treat PECs Classes as beneficial
interests in grantor trusts. The Internal Revenue Service, however, could assert
that the interests are partnership interests. If the PECs Classes were treated
as partnership interests: (i) they would not be classified as interests in a
taxable mortgage pool, (ii) they would not be classified as interests in a
publicly traded partnership taxable as a corporation, (iii) they would be
treated as "real estate assets" for purposes of Section 856(c)(5)(A) of the Code
as if the underlying Regular Classes were held directly (but only to the extent
that the underlying Regular Classes are so treated) and (iv) the income
attributable to the underlying Regular Classes would be treated as "interest on
obligations secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code to the same extent that the interest and OID on the
underlying Regular Classes is so treated. A partnership interest would not,
however, be treated as a qualifying asset for a REMIC. Moreover, it is possible
that a partnership interest will not be treated as a qualifying asset for
purposes of Section 7701(a)(19)(C) of the Code. Although the matter is not free
from doubt, there should be no U.S. income or withholding tax on payments to
investors that are non-U.S. persons in the event a PECs Class were classified as
a partnership interest, provided such persons otherwise are not engaged in trade
or business within the U.S. and applicable certification requirements are
satisfied. If a PECs Class were classified as a partnership interest, investment
therein should not cause a non-U.S. person to be treated as engaged in a trade
or business within the U.S..
MACR CLASSES
For a discussion of certain federal income tax consequences applicable to
the MACR Classes, see "Certain Federal Income Tax Consequences -- Taxation of
MACR Classes," "-- Exchanges of MACR Classes and Multiclass Securities" and
"-- Taxation of Certain Foreign Investors" in the Multiclass Securities Offering
Circular.
LEGAL INVESTMENT CONSIDERATIONS; ERISA CONSIDERATIONS
Investors should consult their legal advisors to determine whether and to
what extent any Classes constitute legal investments for such investors. An
institution under the jurisdiction of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration, the Department of the Treasury or any other federal or state
agency with similar authority should review any applicable regulations, policy
statements and guidelines before purchasing or pledging any Class. See "Legal
Investment Considerations" in the Multiclass Securities Offering Circular.
Fiduciaries of ERISA plans should review "ERISA Considerations" in the
Multiclass Securities Offering Circular.
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<PAGE> 249
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Purchase Agreement between
Freddie Mac and the Underwriter, Freddie Mac has agreed to sell, and the
Underwriter has agreed to purchase, all of the Multiclass Securities and PECs,
if any are sold and purchased.
The Underwriter proposes to offer the Securities directly to the public
from time to time for sale in negotiated transactions at varying prices to be
determined at the time of sale, plus accrued interest from June 1, 1997 on the
Fixed Rate and A Classes and from June 17, 1997 on the Floating Rate, Inverse
Floating Rate and S Classes. The Securities are offered by the Underwriter,
subject to sale by Freddie Mac and receipt and acceptance by the Underwriter and
subject to the Underwriter's right to reject any order in whole or in part. The
Underwriter may effect such transactions by sales to or through certain
securities dealers (which may include Freddie Mac through its Securities Sales
and Trading Group). Such dealers may receive compensation in the form of
discounts, concessions or commissions from the Underwriter and/or commissions
from any purchasers for which they act as agents.
The Purchase Agreement provides that Freddie Mac will indemnify the
Underwriter against certain liabilities.
It is expected that the Regular Classes of Multiclass Securities, the PECs
Classes and the MACR Classes will be available through the book-entry facilities
of the Depository, and the Residual Classes will be available (in certificated
form) at the offices of the Underwriter, on or about the Closing Date.
LEGAL MATTERS
The legality of the Securities will be passed upon for Freddie Mac by Maud
Mater, Esq., Senior Vice President -- General Counsel and Secretary of Freddie
Mac. Certain legal matters relating to the Securities will be passed upon for
the Underwriter by Stroock & Stroock & Lavan LLP.
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<PAGE> 250
APPENDIX 1
AVAILABLE COMBINATIONS
<TABLE>
<CAPTION>
MULTICLASS SECURITIES MACR CERTIFICATES
- ---------------------------------------------------------------------- ---------------------------------------------
ORIGINAL PRINCIPAL MAXIMUM ORIGINAL
OR NOTIONAL PRINCIPAL MACR PRINCIPAL OR NOTIONAL EXCHANGE
CLASS AMOUNT EXCHANGE PROPORTIONS(1) CLASS PRINCIPAL AMOUNT(2) PROPORTIONS(1)
----- --------------------- ----------------------- ----- --------------------- --------------
<S> <C> <C> <C> <C> <C>
COMBINATION 1(6)
F $161,000,000 100% C $161,000,000 100%
SA 161,000,000 (7)
SB 161,000,000 (7)
SC 161,000,000 (7)
COMBINATION 2(6)
FA $ 26,000,000 100% D $ 26,000,000 100%
SA 26,000,000 (7)
SB 26,000,000 (7)
SC 26,000,000 (7)
COMBINATION 3(6)
FB $ 27,000,000 100% E $ 27,000,000 100%
SA 27,000,000 (7)
SB 27,000,000 (7)
SC 27,000,000 (7)
COMBINATION 4(6)
FC $ 29,000,000 100% G $ 29,000,000 100%
SA 29,000,000 (7)
SB 29,000,000 (7)
SC 29,000,000 (7)
COMBINATION 5(6)
FD $ 30,000,000 100% H $ 30,000,000 100%
SA 30,000,000 (7)
SB 30,000,000 (7)
SC 30,000,000 (7)
COMBINATION 6(6)
FE $ 31,000,000 100% J $ 31,000,000 100%
SA 31,000,000 (7)
SB 31,000,000 (7)
SC 31,000,000 (7)
COMBINATION 7(6)
FG $ 33,000,000 100% K $ 33,000,000 100%
SA 33,000,000 (7)
SB 33,000,000 (7)
SC 33,000,000 (7)
COMBINATION 8(6)
C (MACR Class) $161,000,000 100% PC $161,000,000 100%
IC 191,187,500 (8)
COMBINATION 9(6)
D (MACR Class) $ 26,000,000 100% PD $ 26,000,000 100%
ID 30,875,000 (8)
COMBINATION 10(6)
E (MACR Class) $ 27,000,000 100% PE $ 27,000,000 100%
IE 32,062,500 (8)
<CAPTION>
MACR CERTIFICATES
- --------------------- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE
PRINCIPAL OR CLASS INTEREST CUSIP LIFE AT 160%
CLASS OTHER TYPE(3) COUPON TYPE(3) NUMBER FINAL PAYMENT DATE(4) PSA(5)
----- -------------- ------ -------- --------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
COMBINATION 1(6)
F PT 9.5 % FIX 3133TA E 2 4 June 17, 2027 9.0Yrs
SA
SB
SC
COMBINATION 2(6)
FA PT 9.5 % FIX 3133TA E 3 2 June 17, 2027 9.0Yrs
SA
SB
SC
COMBINATION 3(6)
FB PT 9.5 % FIX 3133TA E 4 0 June 17, 2027 9.0Yrs
SA
SB
SC
COMBINATION 4(6)
FC PT 9.5 % FIX 3133TA E C 2 June 17, 2027 9.0Yrs
SA
SB
SC
COMBINATION 5(6)
FD PT 9.5 % FIX 3133TA E D 0 June 17, 2027 9.0Yrs
SA
SB
SC
COMBINATION 6(6)
FE PT 9.5 % FIX 3133TA E N 8 June 17, 2027 9.0Yrs
SA
SB
SC
COMBINATION 7(6)
FG PT 9.5 % FIX 3133TA E P 3 June 17, 2027 9.0Yrs
SA
SB
SC
COMBINATION 8(6)
C (MACR Class) PT 0 % PO 3133TA E U 2 June 17, 2027 9.0Yrs
NTL(PT) 8 FIX/IO 3133TA E F 5 June 17, 2027 --
COMBINATION 9(6)
D (MACR Class) PT 0 % PO 3133TA E V 0 June 17, 2027 9.0Yrs
NTL(PT) 8 FIX/IO 3133TA E G 3 June 17, 2027 --
COMBINATION 10(6)
E (MACR Class) PT 0 % PO 3133TAEW8 June 17, 2027 9.0Yrs
NTL(PT) 8 FIX/IO 3133TA E H 1 June 17, 2027 --
</TABLE>
A-1
<PAGE> 251
<TABLE>
<CAPTION>
MULTICLASS SECURITIES MACR CERTIFICATES
- ---------------------------------------------------------------------- ---------------------------------------------
ORIGINAL PRINCIPAL MAXIMUM ORIGINAL
OR NOTIONAL PRINCIPAL MACR PRINCIPAL OR NOTIONAL EXCHANGE
CLASS AMOUNT EXCHANGE PROPORTIONS(1) CLASS PRINCIPAL AMOUNT(2) PROPORTIONS(1)
----- --------------------- ----------------------- ----- --------------------- --------------
<S> <C> <C> <C> <C> <C>
COMBINATION 11(6)
G (MACR Class) $ 29,000,000 100% PG $ 29,000,000 100%
IG 34,437,500 (8)
COMBINATION 12(6)
H (MACR Class) $ 30,000,000 100% PH $ 30,000,000 100%
IH 35,625,000 (8)
COMBINATION 13(6)
J (MACR Class) $ 31,000,000 100% PJ $ 31,000,000 100%
IJ 36,812,500 (8)
COMBINATION 14(6)
K (MACR Class) $ 33,000,000 100% PK $ 33,000,000 100%
IK 39,187,500 (8)
COMBINATION 15(6)
PC (MACR Class) $161,000,000 100% L $161,000,000 100%
IC (MACR Class) 161,000,000 (9)
COMBINATION 16(6)
PD (MACR Class) $ 26,000,000 100% M $ 26,000,000 100%
ID (MACR Class) 26,000,000 (9)
COMBINATION 17(6)
PE (MACR Class) $ 27,000,000 100% N $ 27,000,000 100%
IE (MACR Class) 27,000,000 (9)
COMBINATION 18(6)
PG (MACR Class) $ 29,000,000 100% O $ 29,000,000 100%
IG (MACR Class) 29,000,000 (9)
COMBINATION 19(6)
PH (MACR Class) $ 30,000,000 100% Q $ 30,000,000 100%
IH (MACR Class) 30,000,000 (9)
COMBINATION 20(6)
PJ (MACR Class) $ 31,000,000 100% T $ 31,000,000 100%
IJ (MACR Class) 31,000,000 (9)
COMBINATION 21(6)
PK (MACR Class) $ 33,000,000 100% U $ 33,000,000 100%
IK (MACR Class) 33,000,000 (9)
<CAPTION>
MACR CERTIFICATES
- --------------------- ----------------------------------------------------------------------------------------
WEIGHTED AVERAGE
PRINCIPAL OR CLASS INTEREST CUSIP LIFE AT 160%
CLASS OTHER TYPE(3) COUPON TYPE(3) NUMBER FINAL PAYMENT DATE(4) PSA(5)
----- -------------- ------ -------- --------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
COMBINATION 11(6)
G (MACR Class) PT 0 % PO 3133TA E X 6 June 17, 2027 9.0Yrs
NTL(PT) 8 FIX/IO 3133TA E J 7 June 17, 2027 --
COMBINATION 12(6)
H (MACR Class) PT 0 % PO 3133TA E Y 4 June 17, 2027 9.0Yrs
NTL(PT) 8 FIX/IO 3133TA E K 4 June 17, 2027 --
COMBINATION 13(6)
J (MACR Class) PT 0 % PO 3133TA E Z 1 June 17, 2027 9.0Yrs
NTL(PT) 8 FIX/IO 3133TA E L 2 June 17, 2027 --
COMBINATION 14(6)
K (MACR Class) PT 0 % PO 3133TA F 2 3 June 17, 2027 9.0Yrs
NTL(PT) 8 FIX/IO 3133TA E M 0 June 17, 2027 --
COMBINATION 15(6)
PC (MACR Class) PT 8 % FIX 3133TA E Q 1 June 17, 2027 9.0Yrs
IC (MACR Class)
COMBINATION 16(6)
PD (MACR Class) PT 8 % FIX 3133TA E R 9 June 17, 2027 9.0Yrs
ID (MACR Class)
COMBINATION 17(6)
PE (MACR Class) PT 8 % FIX 3133TA E S 7 June 17, 2027 9.0Yrs
IE (MACR Class)
COMBINATION 18(6)
PG (MACR Class) PT 8 % FIX 3133TA E T 5 June 17, 2027 9.0Yrs
IG (MACR Class)
COMBINATION 19(6)
PH (MACR Class) PT 8 % FIX 3133TA F 3 1 June 17, 2027 9.0Yrs
IH (MACR Class)
COMBINATION 20(6)
PJ (MACR Class) PT 8 % FIX 3133TA F A 5 June 17, 2027 9.0Yrs
IJ (MACR Class)
COMBINATION 21(6)
PK (MACR Class) PT 8 % FIX 3133TA F B 3 June 17, 2027 9.0Yrs
IK (MACR Class)
</TABLE>
- ---------------
(1) Exchange proportions shown are constant proportions of the original
principal amounts of the Classes of Multiclass Securities or MACR
Certificates. In accordance with the exchange proportions, Multiclass
Securities may be exchanged for MACR Certificates, and vice versa (and, in
the case of Combinations 8 through 21, MACR Certificates may be exchanged
for MACR Certificates).
(2) The amount shown for a Notional Class is its original notional principal
amount and does not represent principal that will be paid; see
"Payments -- Interest" in this Supplement.
(3) See "Description of Multiclass Securities -- Standard Definitions and
Abbreviations for Classes" in the Multiclass Securities Offering Circular.
The type of Class with which a Notional Class will reduce is indicated in
parentheses.
(4) See "Final Payment Dates" in this Supplement.
(5) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Prepayments will not occur at the rate assumed and the actual
weighted average lives of the MACR Classes may differ significantly from
those shown.
(6) Combinations 1 through 21 will not be available unless the PECs Classes have
been converted into Multiclass Securities in whole or in part.
(7) Original notional principal amount of each of the SA, SB and SC Classes
being exchanged equals the original principal amount of the Floating Rate
Class being exchanged.
(8) Original notional principal amount of the Notional Class being exchanged
equals 1.1875 times the original principal amount of the Principal Only
Class being exchanged.
(9) Original notional principal amount of the Notional Class being exchanged
equals the original principal amount of the Principal Only Class being
exchanged.
A-2
<PAGE> 252
APPENDIX 2
PREMIUM TABLE
APPLICABLE PSA RATE
<TABLE>
<CAPTION>
160% PSA
PAYMENT DATE AND BELOW 200% PSA 250% PSA 300% PSA 350% PSA 400% PSA 450% PSA 500% PSA
------------ --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 17, 1997......... 0.000000000 0.011822361 0.026649972 0.041533165 0.056472376 0.071468050 0.086520633 0.101630579
August 17, 1997....... 0.000000000 0.014733997 0.033229213 0.051811577 0.070481952 0.089241215 0.108090256 0.127029977
September 17, 1997.... 0.000000000 0.017631580 0.039783174 0.062060727 0.084465748 0.106999770 0.129664355 0.152461097
October 17, 1997...... 0.000000000 0.020516904 0.046315952 0.072287122 0.098432832 0.124755554 0.151257811 0.177942184
November 17, 1997..... 0.000000000 0.023391787 0.052831703 0.082497372 0.112392445 0.142520662 0.172885857 0.203491962
December 17, 1997..... 0.000000000 0.026258074 0.059334652 0.092698213 0.126354015 0.160307461 0.194564108 0.229129674
January 17, 1998...... 0.000000000 0.029117637 0.065829095 0.102896510 0.140327176 0.178128618 0.216308597 0.254875129
February 17, 1998..... 0.000000000 0.031972379 0.072319411 0.113099273 0.154321788 0.195997124 0.238135808 0.280748743
March 17, 1998........ 0.000000000 0.034824241 0.078810070 0.123313671 0.168347953 0.213926324 0.260062710 0.306771591
April 17, 1998........ 0.000000000 0.037675199 0.085305638 0.133547045 0.182416040 0.231929940 0.282106801 0.332965457
May 17, 1998.......... 0.000000000 0.040527274 0.091810788 0.143806922 0.196536701 0.250022107 0.304286142 0.359352888
June 17, 1998......... 0.000000000 0.043382532 0.098330310 0.154101032 0.210720899 0.268217401 0.326619405 0.385957252
July 17, 1998......... 0.000000000 0.046243089 0.104869116 0.164437320 0.224979927 0.286530871 0.349125917 0.412802798
August 17, 1998....... 0.000000000 0.049111114 0.111432257 0.174823968 0.239325438 0.304978080 0.371825707 0.439914722
September 17, 1998.... 0.000000000 0.051988837 0.118024926 0.185269409 0.253769466 0.323575136 0.394739559 0.467319236
October 17, 1998...... 0.000000000 0.054878547 0.124652474 0.195782347 0.268324457 0.342338734 0.417889063 0.495043645
November 17, 1998..... 0.000000000 0.057782604 0.131320421 0.206371775 0.283003300 0.361286200 0.441296677 0.523116417
December 17, 1998..... 0.000000000 0.060703439 0.138034465 0.217046998 0.297819353 0.380435529 0.464985784 0.551567278
January 17, 1999...... 0.000000000 0.063643562 0.144800498 0.227817656 0.312786480 0.399805439 0.488980762 0.580427292
February 17, 1999..... 0.000000000 0.066605565 0.151624620 0.238693740 0.327919086 0.419415415 0.513307048 0.609728962
March 17, 1999........ 0.000000000 0.069592131 0.158513149 0.249685625 0.343232150 0.439285768 0.537991214 0.639506333
April 17, 1999........ 0.000000000 0.072606037 0.165472641 0.260804091 0.358741268 0.459437684 0.563061049 0.669795098
May 17, 1999.......... 0.000000000 0.075650163 0.172509902 0.272060351 0.374462694 0.479893288 0.588545638 0.700632718
June 17, 1999......... 0.000000000 0.078727496 0.179632009 0.283466080 0.390413382 0.500675709 0.614475456 0.732058549
July 17, 1999......... 0.000000000 0.081841143 0.186846324 0.295033446 0.406611034 0.521809143 0.640882459 0.764113975
August 17, 1999....... 0.000000000 0.084994330 0.194160512 0.306775144 0.423074150 0.543318930 0.667800194 0.796842555
September 17, 1999.... 0.000000000 0.088190418 0.201582569 0.318704427 0.439822081 0.565231628 0.695263902 0.830290177
October 17, 1999...... 0.000000000 0.088129650 0.201443668 0.318484824 0.439519022 0.564842155 0.694784831 0.829718066
November 17, 1999..... 0.000000000 0.088068433 0.201303741 0.318263598 0.439213723 0.564449804 0.694302219 0.829141727
December 17, 1999..... 0.000000000 0.088006764 0.201162780 0.318040736 0.438906166 0.564054552 0.693816039 0.828561126
January 17, 2000...... 0.000000000 0.087944639 0.201020776 0.317816226 0.438596336 0.563656378 0.693326264 0.827976233
February 17, 2000..... 0.000000000 0.087882054 0.200877722 0.317590057 0.438284215 0.563255259 0.692832867 0.827387014
March 17, 2000........ 0.000000000 0.087819007 0.200733610 0.317362214 0.437969785 0.562851173 0.692335821 0.826793438
April 17, 2000........ 0.000000000 0.087755493 0.200588432 0.317132685 0.437653028 0.562444098 0.691835097 0.826195469
May 17, 2000.......... 0.000000000 0.087691509 0.200442180 0.316901459 0.437333928 0.562034011 0.691330669 0.825593077
June 17, 2000......... 0.000000000 0.087627051 0.200294845 0.316668521 0.437012467 0.561620889 0.690822508 0.824986226
July 17, 2000......... 0.000000000 0.087562117 0.200146420 0.316433859 0.436688626 0.561204709 0.690310585 0.824374884
August 17, 2000....... 0.000000000 0.087496701 0.199996896 0.316197460 0.436362388 0.560785448 0.689794873 0.823759016
September 17, 2000.... 0.000000000 0.087430802 0.199846265 0.315959310 0.436033734 0.560363083 0.689275342 0.823138587
October 17, 2000...... 0.000000000 0.087364414 0.199694518 0.315719397 0.435702646 0.559937590 0.688751964 0.822513565
November 17, 2000..... 0.000000000 0.087297535 0.199541648 0.315477707 0.435369106 0.559508945 0.688224709 0.821883912
December 17, 2000..... 0.000000000 0.087230160 0.199387645 0.315234226 0.435033095 0.559077125 0.687693548 0.821249595
January 17, 2001...... 0.000000000 0.087162286 0.199232501 0.314988941 0.434694595 0.558642105 0.687158451 0.820610578
February 17, 2001..... 0.000000000 0.087093909 0.199076207 0.314741839 0.434353585 0.558203862 0.686619389 0.819966825
March 17, 2001........ 0.000000000 0.087025025 0.198918754 0.314492905 0.434010048 0.557762370 0.686076331 0.819318301
April 17, 2001........ 0.000000000 0.086955630 0.198760134 0.314242125 0.433663965 0.557317605 0.685529248 0.818664969
May 17, 2001.......... 0.000000000 0.086885721 0.198600339 0.313989486 0.433315315 0.556869542 0.684978107 0.818006792
June 17, 2001......... 0.000000000 0.086815293 0.198439358 0.313734973 0.432964079 0.556418156 0.684422880 0.817343734
July 17, 2001......... 0.000000000 0.086744343 0.198277183 0.313478573 0.432610238 0.555963422 0.683863533 0.816675758
August 17, 2001....... 0.000000000 0.086672867 0.198113805 0.313220270 0.432253772 0.555505315 0.683300038 0.816002827
September 17, 2001.... 0.000000000 0.086600860 0.197949214 0.312960050 0.431894662 0.555043808 0.682732361 0.815324902
October 17, 2001...... 0.000000000 0.086528319 0.197783402 0.312697900 0.431532885 0.554578876 0.682160471 0.814641946
November 17, 2001..... 0.000000000 0.086455240 0.197616359 0.312433803 0.431168424 0.554110493 0.681584335 0.813953921
December 17, 2001..... 0.000000000 0.086381618 0.197448077 0.312167746 0.430801257 0.553638633 0.681003923 0.813260787
January 17, 2002...... 0.000000000 0.086307449 0.197278544 0.311899713 0.430431363 0.553163268 0.680419201 0.812562507
February 17, 2002..... 0.000000000 0.086232729 0.197107752 0.311629689 0.430058722 0.552684374 0.679830136 0.811859040
March 17, 2002........ 0.000000000 0.086157454 0.196935692 0.311357660 0.429683313 0.552201922 0.679236695 0.811150348
April 17, 2002........ 0.000000000 0.086081620 0.196762354 0.311083610 0.429305115 0.551715885 0.678638845 0.810436391
May 17, 2002.......... 0.000000000 0.086005223 0.196587727 0.310807523 0.428924106 0.551226237 0.678036553 0.809717128
June 17, 2002......... 0.000000000 0.085928258 0.196411802 0.310529384 0.428540266 0.550732950 0.677429784 0.808992519
July 17, 2002......... 0.000000000 0.085850720 0.196234570 0.310249177 0.428153572 0.550235995 0.676818505 0.808262524
August 17, 2002....... 0.000000000 0.085772606 0.196056020 0.309966888 0.427764003 0.549735346 0.676202680 0.807527101
September 17, 2002.... 0.000000000 0.085693911 0.195876142 0.309682499 0.427371537 0.549230974 0.675582276 0.806786210
<CAPTION>
PAYMENT DATE 550% PSA
------------ --------
<S> <C>
July 17, 1997......... 0.116798348
August 17, 1997....... 0.146061295
September 17, 1997.... 0.175391616
October 17, 1997...... 0.204811309
November 17, 1997..... 0.234343009
December 17, 1997..... 0.264010042
January 17, 1998...... 0.293836487
February 17, 1998..... 0.323847228
March 17, 1998........ 0.354068024
April 17, 1998........ 0.384525572
May 17, 1998.......... 0.415247583
June 17, 1998......... 0.446262855
July 17, 1998......... 0.477601359
August 17, 1998....... 0.509294323
September 17, 1998.... 0.541374326
October 17, 1998...... 0.573875400
November 17, 1998..... 0.606833135
December 17, 1998..... 0.640284796
January 17, 1999...... 0.674269443
February 17, 1999..... 0.708828067
March 17, 1999........ 0.744003727
April 17, 1999........ 0.779841711
May 17, 1999.......... 0.816389693
June 17, 1999......... 0.853697916
July 17, 1999......... 0.891819380
August 17, 1999....... 0.930810055
September 17, 1999.... 0.970729097
October 17, 1999...... 0.970060217
November 17, 1999..... 0.969386393
December 17, 1999..... 0.968707587
January 17, 2000...... 0.968023763
February 17, 2000..... 0.967334881
March 17, 2000........ 0.966640904
April 17, 2000........ 0.965941793
May 17, 2000.......... 0.965237509
June 17, 2000......... 0.964528013
July 17, 2000......... 0.963813265
August 17, 2000....... 0.963093226
September 17, 2000.... 0.962367856
October 17, 2000...... 0.961637114
November 17, 2000..... 0.960900960
December 17, 2000..... 0.960159351
January 17, 2001...... 0.959412248
February 17, 2001..... 0.958659608
March 17, 2001........ 0.957901390
April 17, 2001........ 0.957137550
May 17, 2001.......... 0.956368047
June 17, 2001......... 0.955592836
July 17, 2001......... 0.954811876
August 17, 2001....... 0.954025122
September 17, 2001.... 0.953232530
October 17, 2001...... 0.952434056
November 17, 2001..... 0.951629655
December 17, 2001..... 0.950819281
January 17, 2002...... 0.950002891
February 17, 2002..... 0.949180437
March 17, 2002........ 0.948351873
April 17, 2002........ 0.947517154
May 17, 2002.......... 0.946676232
June 17, 2002......... 0.945829060
July 17, 2002......... 0.944975590
August 17, 2002....... 0.944115775
September 17, 2002.... 0.943249566
</TABLE>
A-3
<PAGE> 253
<TABLE>
<CAPTION>
160% PSA
PAYMENT DATE AND BELOW 200% PSA 250% PSA 300% PSA 350% PSA 400% PSA 450% PSA 500% PSA
------------ --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
October 17, 2002...... 0.000000000 0.085614631 0.195694926 0.309395994 0.426976153 0.548722850 0.674957258 0.806039807
November 17, 2002..... 0.000000000 0.085534761 0.195512362 0.309107359 0.426577826 0.548210946 0.674327590 0.805287852
December 17, 2002..... 0.000000000 0.085454297 0.195328440 0.308816575 0.426176536 0.547695233 0.673693237 0.804530302
January 17, 2003...... 0.000000000 0.085373234 0.195143149 0.308523628 0.425772260 0.547175683 0.673054163 0.803767115
February 17, 2003..... 0.000000000 0.085291568 0.194956479 0.308228500 0.425364974 0.546652265 0.672410332 0.802998246
March 17, 2003........ 0.000000000 0.085209293 0.194768419 0.307931175 0.424954656 0.546124950 0.671761708 0.802223654
April 17, 2003........ 0.000000000 0.085126406 0.194578958 0.307631636 0.424541283 0.545593709 0.671108255 0.801443294
May 17, 2003.......... 0.000000000 0.085042902 0.194388087 0.307329866 0.424124831 0.545058512 0.670449934 0.800657122
June 17, 2003......... 0.000000000 0.084958775 0.194195794 0.307025849 0.423705278 0.544519328 0.669786710 0.799865094
July 17, 2003......... 0.000000000 0.084874022 0.194002068 0.306719566 0.423282598 0.543976126 0.669118544 0.799067165
August 17, 2003....... 0.000000000 0.084788638 0.193806899 0.306411001 0.422856768 0.543428877 0.668445400 0.798263290
September 17, 2003.... 0.000000000 0.084702617 0.193610275 0.306100136 0.422427765 0.542877549 0.667767238 0.797453423
October 17, 2003...... 0.000000000 0.084615954 0.193412185 0.305786954 0.421995564 0.542322111 0.667084021 0.796637520
November 17, 2003..... 0.000000000 0.084528646 0.193212619 0.305471437 0.421560140 0.541762532 0.666395710 0.795815533
December 17, 2003..... 0.000000000 0.084440686 0.193011564 0.305153566 0.421121469 0.541198780 0.665702266 0.794987416
January 17, 2004...... 0.000000000 0.084352070 0.192809009 0.304833325 0.420679526 0.540630823 0.665003650 0.794153122
February 17, 2004..... 0.000000000 0.084262794 0.192604943 0.304510695 0.420234286 0.540058628 0.664299821 0.793312604
March 17, 2004........ 0.000000000 0.084172851 0.192399355 0.304185657 0.419785724 0.539482165 0.663590741 0.792465814
April 17, 2004........ 0.000000000 0.084082237 0.192192232 0.303858194 0.419333814 0.538901398 0.662876369 0.791612705
May 17, 2004.......... 0.000000000 0.083990946 0.191983563 0.303528286 0.418878531 0.538316297 0.662156664 0.790753227
June 17, 2004......... 0.000000000 0.083898974 0.191773336 0.303195915 0.418419849 0.537726827 0.661431586 0.789887333
July 17, 2004......... 0.000000000 0.083806315 0.191561540 0.302861062 0.417957741 0.537132956 0.660701094 0.789014972
August 17, 2004....... 0.000000000 0.083712964 0.191348161 0.302523708 0.417492182 0.536534649 0.659965145 0.788136096
September 17, 2004.... 0.000000000 0.083618915 0.191133189 0.302183834 0.417023145 0.535931872 0.659223699 0.787250655
October 17, 2004...... 0.000000000 0.083524164 0.190916610 0.301841420 0.416550604 0.535324592 0.658476713 0.786358597
November 17, 2004..... 0.000000000 0.083428705 0.190698413 0.301496448 0.416074531 0.534712773 0.657724144 0.785459873
December 17, 2004..... 0.000000000 0.083332532 0.190478584 0.301148896 0.415594899 0.534096381 0.656965950 0.784554432
January 17, 2005...... 0.000000000 0.083235641 0.190257113 0.300798747 0.415111682 0.533475380 0.656202088 0.783642221
February 17, 2005..... 0.000000000 0.083138024 0.190033985 0.300445979 0.414624852 0.532849736 0.655432514 0.782723189
March 17, 2005........ 0.000000000 0.083039678 0.189809188 0.300090573 0.414134380 0.532219413 0.654657184 0.781797283
April 17, 2005........ 0.000000000 0.082940596 0.189582710 0.299732508 0.413640239 0.531584375 0.653876054 0.780864451
May 17, 2005.......... 0.000000000 0.082840773 0.189354537 0.299371764 0.413142402 0.530944585 0.653089080 0.779924640
June 17, 2005......... 0.000000000 0.082740202 0.189124657 0.299008321 0.412640838 0.530300007 0.652296216 0.778977795
July 17, 2005......... 0.000000000 0.082638879 0.188893056 0.298642157 0.412135521 0.529650605 0.651497418 0.778023863
August 17, 2005....... 0.000000000 0.082536797 0.188659721 0.298273252 0.411626420 0.528996341 0.650692640 0.777062790
September 17, 2005.... 0.000000000 0.082433951 0.188424639 0.297901585 0.411113507 0.528337178 0.649881836 0.776094520
October 17, 2005...... 0.000000000 0.082330335 0.188187796 0.297527133 0.410596753 0.527673078 0.649064959 0.775118999
November 17, 2005..... 0.000000000 0.082225942 0.187949180 0.297149877 0.410076128 0.527004003 0.648241963 0.774136170
December 17, 2005..... 0.000000000 0.082120768 0.187708775 0.296769795 0.409551602 0.526329916 0.647412800 0.773145977
January 17, 2006...... 0.000000000 0.082014805 0.187466569 0.296386864 0.409023146 0.525650777 0.646577425 0.772148364
February 17, 2006..... 0.000000000 0.081908048 0.187222547 0.296001063 0.408490728 0.524966547 0.645735787 0.771143273
March 17, 2006........ 0.000000000 0.081800490 0.186976696 0.295612370 0.407954319 0.524277188 0.644887840 0.770130648
April 17, 2006........ 0.000000000 0.081692126 0.186729002 0.295220762 0.407413888 0.523582660 0.644033535 0.769110429
May 17, 2006.......... 0.000000000 0.081582950 0.186479450 0.294826217 0.406869404 0.522882923 0.643172823 0.768082559
June 17, 2006......... 0.000000000 0.081472954 0.186228025 0.294428712 0.406320835 0.522177937 0.642305654 0.767046978
July 17, 2006......... 0.000000000 0.081362133 0.185974715 0.294028225 0.405768150 0.521467662 0.641431978 0.766003628
August 17, 2006....... 0.000000000 0.081250481 0.185719503 0.293624733 0.405211318 0.520752056 0.640551747 0.764952448
September 17, 2006.... 0.000000000 0.081137990 0.185462376 0.293218212 0.404650307 0.520031079 0.639664908 0.763893377
October 17, 2006...... 0.000000000 0.081024655 0.185203319 0.292808639 0.404085083 0.519304690 0.638771412 0.762826356
November 17, 2006..... 0.000000000 0.080910469 0.184942316 0.292395991 0.403515615 0.518572846 0.637871206 0.761751323
December 17, 2006..... 0.000000000 0.080795425 0.184679353 0.291980243 0.402941871 0.517835505 0.636964240 0.760668215
January 17, 2007...... 0.000000000 0.080679517 0.184414415 0.291561372 0.402363816 0.517092626 0.636050460 0.759576972
February 17, 2007..... 0.000000000 0.080562738 0.184147486 0.291139355 0.401781419 0.516344165 0.635129815 0.758477529
March 17, 2007........ 0.000000000 0.080445082 0.183878551 0.290714165 0.401194644 0.515590080 0.634202251 0.757369824
April 17, 2007........ 0.000000000 0.080326541 0.183607595 0.290285780 0.400603459 0.514830326 0.633267715 0.756253793
May 17, 2007.......... 0.000000000 0.080207109 0.183334601 0.289854174 0.400007829 0.514064860 0.632326153 0.755129372
June 17, 2007......... 0.000000000 0.080086779 0.183059555 0.289419323 0.399407721 0.513293638 0.631377510 0.753996495
July 17, 2007......... 0.000000000 0.079965544 0.182782440 0.288981201 0.398803099 0.512516616 0.630421733 0.752855098
August 17, 2007....... 0.000000000 0.079843397 0.182503240 0.288539783 0.398193928 0.511733749 0.629458766 0.751705114
September 17, 2007.... 0.000000000 0.079720331 0.182221940 0.288095044 0.397580174 0.510944991 0.628488553 0.750546477
October 17, 2007...... 0.000000000 0.079596338 0.181938523 0.287646958 0.396961802 0.510150297 0.627511039 0.749379121
November 17, 2007..... 0.000000000 0.079471413 0.181652972 0.287195499 0.396338774 0.509349621 0.626526167 0.748202978
December 17, 2007..... 0.000000000 0.079345546 0.181365271 0.286740641 0.395711056 0.508542917 0.625533879 0.747017980
January 17, 2008...... 0.000000000 0.079218732 0.181075404 0.286282357 0.395078610 0.507730138 0.624534120 0.745824058
February 17, 2008..... 0.000000000 0.079090963 0.180783354 0.285820622 0.394441401 0.506911238 0.623526830 0.744621144
March 17, 2008........ 0.000000000 0.078962231 0.180489103 0.285355409 0.393799392 0.506086168 0.622511952 0.743409168
April 17, 2008........ 0.000000000 0.078832530 0.180192636 0.284886690 0.393152545 0.505254881 0.621489426 0.742188059
May 17, 2008.......... 0.000000000 0.078701850 0.179893934 0.284414438 0.392500823 0.504417329 0.620459194 0.740957747
June 17, 2008......... 0.000000000 0.078570186 0.179592980 0.283938627 0.391844189 0.503573463 0.619421196 0.739718161
<CAPTION>
PAYMENT DATE 550% PSA
------------ --------
<S> <C>
October 17, 2002...... 0.942376913
November 17, 2002..... 0.941497770
December 17, 2002..... 0.940612084
January 17, 2003...... 0.939719808
February 17, 2003..... 0.938820890
March 17, 2003........ 0.937915279
April 17, 2003........ 0.937002926
May 17, 2003.......... 0.936083777
June 17, 2003......... 0.935157782
July 17, 2003......... 0.934224888
August 17, 2003....... 0.933285042
September 17, 2003.... 0.932338191
October 17, 2003...... 0.931384282
November 17, 2003..... 0.930423260
December 17, 2003..... 0.929455072
January 17, 2004...... 0.928479662
February 17, 2004..... 0.927496975
March 17, 2004........ 0.926506956
April 17, 2004........ 0.925509547
May 17, 2004.......... 0.924504694
June 17, 2004......... 0.923492339
July 17, 2004......... 0.922472423
August 17, 2004....... 0.921444890
September 17, 2004.... 0.920409681
October 17, 2004...... 0.919366737
November 17, 2004..... 0.918315999
December 17, 2004..... 0.917257407
January 17, 2005...... 0.916190901
February 17, 2005..... 0.915116420
March 17, 2005........ 0.914033902
April 17, 2005........ 0.912943287
May 17, 2005.......... 0.911844512
June 17, 2005......... 0.910737514
July 17, 2005......... 0.909622230
August 17, 2005....... 0.908498597
September 17, 2005.... 0.907366550
October 17, 2005...... 0.906226024
November 17, 2005..... 0.905076955
December 17, 2005..... 0.903919277
January 17, 2006...... 0.902752923
February 17, 2006..... 0.901577827
March 17, 2006........ 0.900393921
April 17, 2006........ 0.899201138
May 17, 2006.......... 0.897999410
June 17, 2006......... 0.896788666
July 17, 2006......... 0.895568839
August 17, 2006....... 0.894339858
September 17, 2006.... 0.893101652
October 17, 2006...... 0.891854150
November 17, 2006..... 0.890597281
December 17, 2006..... 0.889330972
January 17, 2007...... 0.888055150
February 17, 2007..... 0.886769743
March 17, 2007........ 0.885474676
April 17, 2007........ 0.884169875
May 17, 2007.......... 0.882855263
June 17, 2007......... 0.881530767
July 17, 2007......... 0.880196309
August 17, 2007....... 0.878851812
September 17, 2007.... 0.877497199
October 17, 2007...... 0.876132391
November 17, 2007..... 0.874757310
December 17, 2007..... 0.873371876
January 17, 2008...... 0.871976009
February 17, 2008..... 0.870569628
March 17, 2008........ 0.869152653
April 17, 2008........ 0.867725000
May 17, 2008.......... 0.866286588
June 17, 2008......... 0.864837333
</TABLE>
A-4
<PAGE> 254
<TABLE>
<CAPTION>
160% PSA
PAYMENT DATE AND BELOW 200% PSA 250% PSA 300% PSA 350% PSA 400% PSA 450% PSA 500% PSA
------------ --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 17, 2008......... 0.000000000 0.078437529 0.179289757 0.283459228 0.391182603 0.502723235 0.618375372 0.738469228
August 17, 2008....... 0.000000000 0.078303871 0.178984247 0.282976213 0.390516028 0.501866595 0.617321661 0.737210877
September 17, 2008.... 0.000000000 0.078169206 0.178676433 0.282489556 0.389844425 0.501003494 0.616260001 0.735943035
October 17, 2008...... 0.000000000 0.078033524 0.178366297 0.281999226 0.389167756 0.500133880 0.615190333 0.734665627
November 17, 2008..... 0.000000000 0.077896819 0.178053820 0.281505197 0.388485980 0.499257705 0.614112592 0.733378580
December 17, 2008..... 0.000000000 0.077759081 0.177738985 0.281007439 0.387799058 0.498374917 0.613026717 0.732081818
January 17, 2009...... 0.000000000 0.077620304 0.177421773 0.280505923 0.387106951 0.497485464 0.611932644 0.730775267
February 17, 2009..... 0.000000000 0.077480479 0.177102166 0.280000621 0.386409617 0.496589295 0.610830311 0.729458851
March 17, 2009........ 0.000000000 0.077339598 0.176780145 0.279491502 0.385707018 0.495686358 0.609719652 0.728132493
April 17, 2009........ 0.000000000 0.077197653 0.176455692 0.278978537 0.384999110 0.494776600 0.608600603 0.726796115
May 17, 2009.......... 0.000000000 0.077054635 0.176128787 0.278461697 0.384285855 0.493859969 0.607473099 0.725449640
June 17, 2009......... 0.000000000 0.076910537 0.175799412 0.277940951 0.383567209 0.492936410 0.606337075 0.724092990
July 17, 2009......... 0.000000000 0.076765349 0.175467547 0.277416269 0.382843131 0.492005871 0.605192464 0.722726085
August 17, 2009....... 0.000000000 0.076619064 0.175133173 0.276887620 0.382113578 0.491068296 0.604039199 0.721348846
September 17, 2009.... 0.000000000 0.076471672 0.174796271 0.276354973 0.381378509 0.490123632 0.602877213 0.719961193
October 17, 2009...... 0.000000000 0.076323166 0.174456820 0.275818298 0.380637881 0.489171822 0.601706439 0.718563044
November 17, 2009..... 0.000000000 0.076173536 0.174114802 0.275277562 0.379891649 0.488212812 0.600526807 0.717154318
December 17, 2009..... 0.000000000 0.076022774 0.173770195 0.274732735 0.379139771 0.487246546 0.599338250 0.715734933
January 17, 2010...... 0.000000000 0.075870871 0.173422981 0.274183785 0.378382202 0.486272966 0.598140697 0.714304805
February 17, 2010..... 0.000000000 0.075717818 0.173073138 0.273630679 0.377618899 0.485292017 0.596934079 0.712863851
March 17, 2010........ 0.000000000 0.075563607 0.172720646 0.273073386 0.376849816 0.484303641 0.595718326 0.711411987
April 17, 2010........ 0.000000000 0.075408227 0.172365485 0.272511872 0.376074909 0.483307779 0.594493365 0.709949128
May 17, 2010.......... 0.000000000 0.075251671 0.172007633 0.271946104 0.375294132 0.482304374 0.593259125 0.708475189
June 17, 2010......... 0.000000000 0.075093928 0.171647071 0.271376050 0.374507440 0.481293367 0.592015534 0.706990082
July 17, 2010......... 0.000000000 0.074934990 0.171283776 0.270801677 0.373714787 0.480274698 0.590762520 0.705493721
August 17, 2010....... 0.000000000 0.074774847 0.170917727 0.270222950 0.372916125 0.479248309 0.589500008 0.703986019
September 17, 2010.... 0.000000000 0.074613490 0.170548904 0.269639835 0.372111409 0.478214138 0.588227925 0.702466886
October 17, 2010...... 0.000000000 0.074450910 0.170177283 0.269052299 0.371300591 0.477172126 0.586946196 0.700936234
November 17, 2010..... 0.000000000 0.074287097 0.169802844 0.268460307 0.370483623 0.476122210 0.585654746 0.699393974
December 17, 2010..... 0.000000000 0.074122041 0.169425565 0.267863823 0.369660457 0.475064330 0.584353499 0.697840013
January 17, 2011...... 0.000000000 0.073955732 0.169045423 0.267262814 0.368831046 0.473998422 0.583042379 0.696274262
February 17, 2011..... 0.000000000 0.073788162 0.168662396 0.266657244 0.367995340 0.472924426 0.581721308 0.694696627
March 17, 2011........ 0.000000000 0.073619319 0.168276461 0.266047077 0.367153290 0.471842277 0.580390209 0.693107017
April 17, 2011........ 0.000000000 0.073449194 0.167887597 0.265432277 0.366304847 0.470751911 0.579049003 0.691505338
May 17, 2011.......... 0.000000000 0.073277778 0.167495779 0.264812809 0.365449961 0.469653265 0.577697612 0.689891496
June 17, 2011......... 0.000000000 0.073105059 0.167100985 0.264188635 0.364588582 0.468546275 0.576335957 0.688265395
July 17, 2011......... 0.000000000 0.072931029 0.166703191 0.263559718 0.363720658 0.467430873 0.574963956 0.686626939
August 17, 2011....... 0.000000000 0.072755675 0.166302375 0.262926023 0.362846138 0.466306996 0.573581530 0.684976034
September 17, 2011.... 0.000000000 0.072578989 0.165898512 0.262287511 0.361964972 0.465174577 0.572188596 0.683312580
October 17, 2011...... 0.000000000 0.072400960 0.165491579 0.261644145 0.361077107 0.464033548 0.570785072 0.681636480
November 17, 2011..... 0.000000000 0.072221577 0.165081552 0.260995887 0.360182490 0.462883844 0.569370876 0.679947635
December 17, 2011..... 0.000000000 0.072040830 0.164668406 0.260342699 0.359281070 0.461725395 0.567945925 0.678245945
January 17, 2012...... 0.000000000 0.071858707 0.164252117 0.259684541 0.358372792 0.460558133 0.566510133 0.676531311
February 17, 2012..... 0.000000000 0.071675199 0.163832661 0.259021376 0.357457603 0.459381990 0.565063417 0.674803629
March 17, 2012........ 0.000000000 0.071490295 0.163410012 0.258353163 0.356535449 0.458196896 0.563605690 0.673062800
April 17, 2012........ 0.000000000 0.071303983 0.162984146 0.257679864 0.355606275 0.457002780 0.562136867 0.671308718
May 17, 2012.......... 0.000000000 0.071116252 0.162555038 0.257001439 0.354670027 0.455799573 0.560656860 0.669541282
June 17, 2012......... 0.000000000 0.070927091 0.162122662 0.256317847 0.353726649 0.454587203 0.559165583 0.667760385
July 17, 2012......... 0.000000000 0.070736490 0.161686992 0.255629048 0.352776085 0.453365598 0.557662946 0.665965923
August 17, 2012....... 0.000000000 0.070544437 0.161248003 0.254935002 0.351818279 0.452134686 0.556148861 0.664157790
September 17, 2012.... 0.000000000 0.070350920 0.160805669 0.254235666 0.350853174 0.450894394 0.554623238 0.662335878
October 17, 2012...... 0.000000000 0.070155928 0.160359964 0.253531000 0.349880713 0.449644648 0.553085987 0.660500079
November 17, 2012..... 0.000000000 0.069959449 0.159910860 0.252820962 0.348900838 0.448385375 0.551537016 0.658650284
December 17, 2012..... 0.000000000 0.069761473 0.159458332 0.252105510 0.347913491 0.447116499 0.549976233 0.656786384
January 17, 2013...... 0.000000000 0.069561986 0.159002352 0.251384600 0.346918614 0.445837945 0.548403547 0.654908268
February 17, 2013..... 0.000000000 0.069360978 0.158542894 0.250658191 0.345916147 0.444549638 0.546818862 0.653015825
March 17, 2013........ 0.000000000 0.069158435 0.158079930 0.249926240 0.344906031 0.443251500 0.545222086 0.651108941
April 17, 2013........ 0.000000000 0.068954347 0.157613432 0.249188702 0.343888205 0.441943455 0.543613124 0.649187504
May 17, 2013.......... 0.000000000 0.068748701 0.157143374 0.248445534 0.342862610 0.440625425 0.541991879 0.647251399
June 17, 2013......... 0.000000000 0.068541485 0.156669726 0.247696691 0.341829184 0.439297331 0.540358255 0.645300511
July 17, 2013......... 0.000000000 0.068332686 0.156192461 0.246942130 0.340787866 0.437959094 0.538712155 0.643334725
August 17, 2013....... 0.000000000 0.068122292 0.155711551 0.246181805 0.339738593 0.436610635 0.537053482 0.641353922
September 17, 2013.... 0.000000000 0.067910291 0.155226966 0.245415670 0.338681304 0.435251873 0.535382135 0.639357985
October 17, 2013...... 0.000000000 0.067696670 0.154738678 0.244643681 0.337615934 0.433882728 0.533698016 0.637346796
November 17, 2013..... 0.000000000 0.067481416 0.154246657 0.243865791 0.336542422 0.432503117 0.532001024 0.635320233
December 17, 2013..... 0.000000000 0.067264516 0.153750875 0.243081954 0.335460702 0.431112958 0.530291057 0.633278177
January 17, 2014...... 0.000000000 0.067045958 0.153251302 0.242292122 0.334370710 0.429712169 0.528568015 0.631220504
February 17, 2014..... 0.000000000 0.066825727 0.152747908 0.241496250 0.333272381 0.428300666 0.526831794 0.629147094
March 17, 2014........ 0.000000000 0.066603812 0.152240662 0.240694288 0.332165649 0.426878364 0.525082289 0.627057821
<CAPTION>
PAYMENT DATE 550% PSA
------------ --------
<S> <C>
July 17, 2008......... 0.863377151
August 17, 2008....... 0.861905957
September 17, 2008.... 0.860423665
October 17, 2008...... 0.858930191
November 17, 2008..... 0.857425447
December 17, 2008..... 0.855909346
January 17, 2009...... 0.854381799
February 17, 2009..... 0.852842718
March 17, 2009........ 0.851292014
April 17, 2009........ 0.849729596
May 17, 2009.......... 0.848155372
June 17, 2009......... 0.846569252
July 17, 2009......... 0.844971143
August 17, 2009....... 0.843360952
September 17, 2009.... 0.841738585
October 17, 2009...... 0.840103947
November 17, 2009..... 0.838456943
December 17, 2009..... 0.836797476
January 17, 2010...... 0.835125451
February 17, 2010..... 0.833440768
March 17, 2010........ 0.831743329
April 17, 2010........ 0.830033036
May 17, 2010.......... 0.828309788
June 17, 2010......... 0.826573484
July 17, 2010......... 0.824824022
August 17, 2010....... 0.823061300
September 17, 2010.... 0.821285215
October 17, 2010...... 0.819495662
November 17, 2010..... 0.817692536
December 17, 2010..... 0.815875732
January 17, 2011...... 0.814045142
February 17, 2011..... 0.812200660
March 17, 2011........ 0.810342176
April 17, 2011........ 0.808469582
May 17, 2011.......... 0.806582767
June 17, 2011......... 0.804681620
July 17, 2011......... 0.802766030
August 17, 2011....... 0.800835883
September 17, 2011.... 0.798891065
October 17, 2011...... 0.796931462
November 17, 2011..... 0.794956958
December 17, 2011..... 0.792967438
January 17, 2012...... 0.790962782
February 17, 2012..... 0.788942873
March 17, 2012........ 0.786907592
April 17, 2012........ 0.784856817
May 17, 2012.......... 0.782790429
June 17, 2012......... 0.780708304
July 17, 2012......... 0.778610319
August 17, 2012....... 0.776496350
September 17, 2012.... 0.774366271
October 17, 2012...... 0.772219957
November 17, 2012..... 0.770057281
December 17, 2012..... 0.767878112
January 17, 2013...... 0.765682324
February 17, 2013..... 0.763469784
March 17, 2013........ 0.761240361
April 17, 2013........ 0.758993924
May 17, 2013.......... 0.756730338
June 17, 2013......... 0.754449468
July 17, 2013......... 0.752151180
August 17, 2013....... 0.749835336
September 17, 2013.... 0.747501798
October 17, 2013...... 0.745150426
November 17, 2013..... 0.742781082
December 17, 2013..... 0.740393623
January 17, 2014...... 0.737987907
February 17, 2014..... 0.735563791
March 17, 2014........ 0.733121129
</TABLE>
A-5
<PAGE> 255
<TABLE>
<CAPTION>
160% PSA
PAYMENT DATE AND BELOW 200% PSA 250% PSA 300% PSA 350% PSA 400% PSA 450% PSA 500% PSA
------------ --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
April 17, 2014........ 0.000000000 0.066380199 0.151729535 0.239886191 0.331050449 0.425445179 0.523319398 0.624952560
May 17, 2014.......... 0.000000000 0.066154875 0.151214496 0.239071908 0.329926713 0.424001024 0.521543014 0.622831187
June 17, 2014......... 0.000000000 0.065927825 0.150695514 0.238251391 0.328794374 0.422545814 0.519753031 0.620693574
July 17, 2014......... 0.000000000 0.065699037 0.150172558 0.237424592 0.327653365 0.421079461 0.517949341 0.618539592
August 17, 2014....... 0.000000000 0.065468497 0.149645597 0.236591460 0.326503617 0.419601878 0.516131838 0.616369114
September 17, 2014.... 0.000000000 0.065236190 0.149114599 0.235751946 0.325345062 0.418112976 0.514300412 0.614182009
October 17, 2014...... 0.000000000 0.065002104 0.148579533 0.234906000 0.324177630 0.416612666 0.512454953 0.611978147
November 17, 2014..... 0.000000000 0.064766224 0.148040366 0.234053571 0.323001251 0.415100857 0.510595351 0.609757394
December 17, 2014..... 0.000000000 0.064528535 0.147497066 0.233194607 0.321815854 0.413577460 0.508721495 0.607519618
January 17, 2015...... 0.000000000 0.064289024 0.146949601 0.232329058 0.320621369 0.412042383 0.506833271 0.605264685
February 17, 2015..... 0.000000000 0.064047677 0.146397937 0.231456870 0.319417723 0.410495533 0.504930567 0.602992459
March 17, 2015........ 0.000000000 0.063804478 0.145842041 0.230577993 0.318204845 0.408936818 0.503013268 0.600702804
April 17, 2015........ 0.000000000 0.063559413 0.145281881 0.229692373 0.316982661 0.407366145 0.501081259 0.598395582
May 17, 2015.......... 0.000000000 0.063312468 0.144717422 0.228799956 0.315751099 0.405783418 0.499134424 0.596070655
June 17, 2015......... 0.000000000 0.063063627 0.144148630 0.227900690 0.314510083 0.404188543 0.497172646 0.593727882
July 17, 2015......... 0.000000000 0.062812876 0.143575472 0.226994520 0.313259540 0.402581424 0.495195806 0.591367124
August 17, 2015....... 0.000000000 0.062560199 0.142997912 0.226081391 0.311999394 0.400961964 0.493203787 0.588988237
September 17, 2015.... 0.000000000 0.062305582 0.142415916 0.225161250 0.310729569 0.399330065 0.491196468 0.586591079
October 17, 2015...... 0.000000000 0.062049008 0.141829450 0.224234039 0.309449989 0.397685630 0.489173728 0.584175506
November 17, 2015..... 0.000000000 0.061790463 0.141238477 0.223299703 0.308160577 0.396028558 0.487135445 0.581741371
December 17, 2015..... 0.000000000 0.061529931 0.140642962 0.222358187 0.306861255 0.394358751 0.485081497 0.579288528
January 17, 2016...... 0.000000000 0.061267396 0.140042868 0.221409432 0.305551944 0.392676108 0.483011759 0.576816829
February 17, 2016..... 0.000000000 0.061002842 0.139438161 0.220453383 0.304232566 0.390980526 0.480926107 0.574326125
March 17, 2016........ 0.000000000 0.060736254 0.138828803 0.219489981 0.302903041 0.389271904 0.478824414 0.571816265
April 17, 2016........ 0.000000000 0.060467615 0.138214758 0.218519168 0.301563289 0.387550139 0.476706555 0.569287099
May 17, 2016.......... 0.000000000 0.060196910 0.137595988 0.217540885 0.300213228 0.385815126 0.474572400 0.566738473
June 17, 2016......... 0.000000000 0.059924120 0.136972456 0.216555074 0.298852778 0.384066761 0.472421821 0.564170233
July 17, 2016......... 0.000000000 0.059649231 0.136344125 0.215561675 0.297481855 0.382304938 0.470254688 0.561582224
August 17, 2016....... 0.000000000 0.059372226 0.135710955 0.214560627 0.296100378 0.380529550 0.468070870 0.558974290
September 17, 2016.... 0.000000000 0.059093088 0.135072910 0.213551870 0.294708262 0.378740490 0.465870235 0.556346272
October 17, 2016...... 0.000000000 0.058811799 0.134429950 0.212535343 0.293305423 0.376937650 0.463652649 0.553698011
November 17, 2016..... 0.000000000 0.058528343 0.133782037 0.211510984 0.291891776 0.375120920 0.461417978 0.551029348
December 17, 2016..... 0.000000000 0.058242703 0.133129131 0.210478732 0.290467236 0.373290191 0.459166086 0.548340120
January 17, 2017...... 0.000000000 0.057954861 0.132471193 0.209438523 0.289031715 0.371445350 0.456896838 0.545630164
February 17, 2017..... 0.000000000 0.057664801 0.131808182 0.208390296 0.287585128 0.369586288 0.454610096 0.542899316
March 17, 2017........ 0.000000000 0.057372503 0.131140059 0.207333985 0.286127386 0.367712890 0.452305720 0.540147411
April 17, 2017........ 0.000000000 0.057077951 0.130466782 0.206269527 0.284658401 0.365825042 0.449983571 0.537374281
May 17, 2017.......... 0.000000000 0.056781127 0.129788312 0.205196858 0.283178084 0.363922632 0.447643508 0.534579757
June 17, 2017......... 0.000000000 0.056482013 0.129104607 0.204115911 0.281686344 0.362005542 0.445285389 0.531763671
July 17, 2017......... 0.000000000 0.056180590 0.128415625 0.203026622 0.280183091 0.360073656 0.442909071 0.528925851
August 17, 2017....... 0.000000000 0.055876840 0.127721324 0.201928925 0.278668234 0.358126857 0.440514408 0.526066124
September 17, 2017.... 0.000000000 0.055570745 0.127021662 0.200822751 0.277141680 0.356165026 0.438101256 0.523184317
October 17, 2017...... 0.000000000 0.055262286 0.126316597 0.199708035 0.275603337 0.354188045 0.435669467 0.520280253
November 17, 2017..... 0.000000000 0.054951444 0.125606086 0.198584709 0.274053111 0.352195792 0.433218894 0.517353758
December 17, 2017..... 0.000000000 0.054638200 0.124890085 0.197452703 0.272490908 0.350188146 0.430749387 0.514404651
January 17, 2018...... 0.000000000 0.054322536 0.124168551 0.196311949 0.270916631 0.348164986 0.428260795 0.511432753
February 17, 2018..... 0.000000000 0.054004432 0.123441440 0.195162377 0.269330186 0.346126187 0.425752968 0.508437884
March 17, 2018........ 0.000000000 0.053683868 0.122708707 0.194003917 0.267731476 0.344071625 0.423225752 0.505419861
April 17, 2018........ 0.000000000 0.053360826 0.121970307 0.192836500 0.266120403 0.342001175 0.420678992 0.502378499
May 17, 2018.......... 0.000000000 0.053035285 0.121226197 0.191660052 0.264496869 0.339914711 0.418112534 0.499313612
June 17, 2018......... 0.000000000 0.052707225 0.120476330 0.190474503 0.262860774 0.337812105 0.415526221 0.496225015
July 17, 2018......... 0.000000000 0.052376627 0.119720660 0.189279780 0.261212019 0.335693229 0.412919895 0.493112518
August 17, 2018....... 0.000000000 0.052043470 0.118959141 0.188075810 0.259550503 0.333557954 0.410293397 0.489975930
September 17, 2018.... 0.000000000 0.051707734 0.118191728 0.186862520 0.257876124 0.331406148 0.407646565 0.486815061
October 17, 2018...... 0.000000000 0.051369398 0.117418371 0.185639835 0.256188781 0.329237680 0.404979238 0.483629716
November 17, 2018..... 0.000000000 0.051028442 0.116639026 0.184407680 0.254488369 0.327052418 0.402291253 0.480419701
December 17, 2018..... 0.000000000 0.050684845 0.115853643 0.183165981 0.252774784 0.324850227 0.399582446 0.477184820
January 17, 2019...... 0.000000000 0.050338585 0.115062175 0.181914660 0.251047923 0.322630973 0.396852650 0.473924874
February 17, 2019..... 0.000000000 0.049989642 0.114264573 0.180653642 0.249307678 0.320394521 0.394101698 0.470639664
March 17, 2019........ 0.000000000 0.049637994 0.113460788 0.179382849 0.247553944 0.318140732 0.391329422 0.467328988
April 17, 2019........ 0.000000000 0.049283619 0.112650771 0.178102203 0.245786612 0.315869468 0.388535652 0.463992643
May 17, 2019.......... 0.000000000 0.048926497 0.111834473 0.176811625 0.244005575 0.313580591 0.385720216 0.460630425
June 17, 2019......... 0.000000000 0.048566604 0.111011843 0.175511037 0.242210722 0.311273960 0.382882941 0.457242127
July 17, 2019......... 0.000000000 0.048203919 0.110182830 0.174200358 0.240401945 0.308949433 0.380023654 0.453827541
August 17, 2019....... 0.000000000 0.047838420 0.109347384 0.172879509 0.238579131 0.306606868 0.377142179 0.450386458
September 17, 2019.... 0.000000000 0.047470083 0.108505454 0.171548407 0.236742169 0.304246120 0.374238338 0.446918666
October 17, 2019...... 0.000000000 0.047098887 0.107656988 0.170206972 0.234890946 0.301867045 0.371311953 0.443423953
November 17, 2019..... 0.000000000 0.046724809 0.106801933 0.168855120 0.233025348 0.299469496 0.368362845 0.439902102
December 17, 2019..... 0.000000000 0.046347826 0.105940237 0.167492768 0.231145261 0.297053326 0.365390831 0.436352898
<CAPTION>
PAYMENT DATE 550% PSA
------------ --------
<S> <C>
April 17, 2014........ 0.730659776
May 17, 2014.......... 0.728179584
June 17, 2014......... 0.725680405
July 17, 2014......... 0.723162090
August 17, 2014....... 0.720624488
September 17, 2014.... 0.718067447
October 17, 2014...... 0.715490813
November 17, 2014..... 0.712894432
December 17, 2014..... 0.710278149
January 17, 2015...... 0.707641807
February 17, 2015..... 0.704985246
March 17, 2015........ 0.702308309
April 17, 2015........ 0.699610833
May 17, 2015.......... 0.696892658
June 17, 2015......... 0.694153619
July 17, 2015......... 0.691393551
August 17, 2015....... 0.688612289
September 17, 2015.... 0.685809666
October 17, 2015...... 0.682985511
November 17, 2015..... 0.680139656
December 17, 2015..... 0.677271928
January 17, 2016...... 0.674382156
February 17, 2016..... 0.671470163
March 17, 2016........ 0.668535775
April 17, 2016........ 0.665578815
May 17, 2016.......... 0.662599103
June 17, 2016......... 0.659596459
July 17, 2016......... 0.656570703
August 17, 2016....... 0.653521651
September 17, 2016.... 0.650449119
October 17, 2016...... 0.647352920
November 17, 2016..... 0.644232867
December 17, 2016..... 0.641088771
January 17, 2017...... 0.637920442
February 17, 2017..... 0.634727686
March 17, 2017........ 0.631510311
April 17, 2017........ 0.628268122
May 17, 2017.......... 0.625000921
June 17, 2017......... 0.621708509
July 17, 2017......... 0.618390688
August 17, 2017....... 0.615047254
September 17, 2017.... 0.611678005
October 17, 2017...... 0.608282736
November 17, 2017..... 0.604861240
December 17, 2017..... 0.601413308
January 17, 2018...... 0.597938731
February 17, 2018..... 0.594437297
March 17, 2018........ 0.590908791
April 17, 2018........ 0.587353000
May 17, 2018.......... 0.583769705
June 17, 2018......... 0.580158689
July 17, 2018......... 0.576519730
August 17, 2018....... 0.572852607
September 17, 2018.... 0.569157094
October 17, 2018...... 0.565432966
November 17, 2018..... 0.561679996
December 17, 2018..... 0.557897952
January 17, 2019...... 0.554086605
February 17, 2019..... 0.550245720
March 17, 2019........ 0.546375061
April 17, 2019........ 0.542474392
May 17, 2019.......... 0.538543474
June 17, 2019......... 0.534582064
July 17, 2019......... 0.530589921
August 17, 2019....... 0.526566798
September 17, 2019.... 0.522512449
October 17, 2019...... 0.518426624
November 17, 2019..... 0.514309072
December 17, 2019..... 0.510159540
</TABLE>
A-6
<PAGE> 256
<TABLE>
<CAPTION>
160% PSA
PAYMENT DATE AND BELOW 200% PSA 250% PSA 300% PSA 350% PSA 400% PSA 450% PSA 500% PSA
------------ --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 17, 2020...... 0.000000000 0.045967913 0.105071847 0.166119833 0.229250568 0.294618386 0.362395730 0.432776122
February 17, 2020..... 0.000000000 0.045585049 0.104196709 0.164736230 0.227341152 0.292164525 0.359377356 0.429171553
March 17, 2020........ 0.000000000 0.045199209 0.103314770 0.163341874 0.225416897 0.289691594 0.356335524 0.425538971
April 17, 2020........ 0.000000000 0.044810370 0.102425975 0.161936679 0.223477684 0.287199440 0.353270046 0.421878150
May 17, 2020.......... 0.000000000 0.044418508 0.101530270 0.160520559 0.221523393 0.284687908 0.350180733 0.418188866
June 17, 2020......... 0.000000000 0.044023598 0.100627599 0.159093425 0.219553904 0.282156844 0.347067395 0.414470891
July 17, 2020......... 0.000000000 0.043625616 0.099717906 0.157655190 0.217569095 0.279606093 0.343929840 0.410723995
August 17, 2020....... 0.000000000 0.043224538 0.098801136 0.156205765 0.215568843 0.277035496 0.340767873 0.406947948
September 17, 2020.... 0.000000000 0.042820339 0.097877231 0.154745061 0.213553026 0.274444895 0.337581301 0.403142515
October 17, 2020...... 0.000000000 0.042412994 0.096946136 0.153272988 0.211521519 0.271834129 0.334369925 0.399307463
November 17, 2020..... 0.000000000 0.042002477 0.096007791 0.151789454 0.209474195 0.269203038 0.331133549 0.395442554
December 17, 2020..... 0.000000000 0.041588764 0.095062139 0.150294368 0.207410930 0.266551459 0.327871970 0.391547548
January 17, 2021...... 0.000000000 0.041171828 0.094109123 0.148787637 0.205331594 0.263879228 0.324584989 0.387622207
February 17, 2021..... 0.000000000 0.040751644 0.093148681 0.147269168 0.203236060 0.261186179 0.321272401 0.383666285
March 17, 2021........ 0.000000000 0.040328187 0.092180757 0.145738867 0.201124197 0.258472146 0.317934001 0.379679539
April 17, 2021........ 0.000000000 0.039901429 0.091205288 0.144196640 0.198995875 0.255736961 0.314569583 0.375661722
May 17, 2021.......... 0.000000000 0.039471344 0.090222216 0.142642391 0.196850962 0.252980454 0.311178938 0.371612585
June 17, 2021......... 0.000000000 0.039037906 0.089231478 0.141076023 0.194689326 0.250202455 0.307761857 0.367531877
July 17, 2021......... 0.000000000 0.038601088 0.088233014 0.139497440 0.192510831 0.247402792 0.304318127 0.363419345
August 17, 2021....... 0.000000000 0.038160862 0.087226762 0.137906543 0.190315344 0.244581290 0.300847535 0.359274733
September 17, 2021.... 0.000000000 0.037717202 0.086212659 0.136303234 0.188102728 0.241737774 0.297349865 0.355097786
October 17, 2021...... 0.000000000 0.037270079 0.085190642 0.134687414 0.185872845 0.238872069 0.293824901 0.350888243
November 17, 2021..... 0.000000000 0.036819467 0.084160648 0.133058981 0.183625557 0.235983997 0.290272424 0.346645844
December 17, 2021..... 0.000000000 0.036365337 0.083122613 0.131417836 0.181360725 0.233073377 0.286692212 0.342370324
January 17, 2022...... 0.000000000 0.035907660 0.082076473 0.129763875 0.179078207 0.230140030 0.283084044 0.338061419
February 17, 2022..... 0.000000000 0.035446409 0.081022162 0.128096996 0.176777863 0.227183772 0.279447695 0.333718859
March 17, 2022........ 0.000000000 0.034981555 0.079959614 0.126417096 0.174459548 0.224204420 0.275782939 0.329342376
April 17, 2022........ 0.000000000 0.034513069 0.078888764 0.124724070 0.172123119 0.221201788 0.272089548 0.324931697
May 17, 2022.......... 0.000000000 0.034040921 0.077809546 0.123017812 0.169768430 0.218175690 0.268367293 0.320486547
June 17, 2022......... 0.000000000 0.033565083 0.076721891 0.121298217 0.167395335 0.215125938 0.264615941 0.316006650
July 17, 2022......... 0.000000000 0.033085524 0.075625732 0.119565177 0.165003686 0.212052341 0.260835259 0.311491726
August 17, 2022....... 0.000000000 0.032602215 0.074521001 0.117818584 0.162593333 0.208954707 0.257025011 0.306941495
September 17, 2022.... 0.000000000 0.032115125 0.073407629 0.116058330 0.160164127 0.205832845 0.253184959 0.302355673
October 17, 2022...... 0.000000000 0.031624225 0.072285546 0.114284304 0.157715916 0.202686558 0.249314866 0.297733973
November 17, 2022..... 0.000000000 0.031129484 0.071154683 0.112496397 0.155248547 0.199515652 0.245414488 0.293076108
December 17, 2022..... 0.000000000 0.030630870 0.070014969 0.110694495 0.152761867 0.196319927 0.241483582 0.288381787
January 17, 2023...... 0.000000000 0.030128353 0.068866333 0.108878488 0.150255720 0.193099184 0.237521904 0.283650716
February 17, 2023..... 0.000000000 0.029621901 0.067708703 0.107048261 0.147729949 0.189853223 0.233529205 0.278882601
March 17, 2023........ 0.000000000 0.029111482 0.066542007 0.105203700 0.145184398 0.186581841 0.229505237 0.274077143
April 17, 2023........ 0.000000000 0.028597066 0.065366171 0.103344690 0.142618906 0.183284832 0.225449747 0.269234042
May 17, 2023.......... 0.000000000 0.028078618 0.064181123 0.101471115 0.140033313 0.179961992 0.221362483 0.264352995
June 17, 2023......... 0.000000000 0.027556108 0.062986788 0.099582857 0.137427458 0.176613111 0.217243188 0.259433698
July 17, 2023......... 0.000000000 0.027029503 0.061783091 0.097679798 0.134801178 0.173237981 0.213091605 0.254475841
August 17, 2023....... 0.000000000 0.026498769 0.060569958 0.095761820 0.132154308 0.169836390 0.208907474 0.249479115
September 17, 2023.... 0.000000000 0.025963873 0.059347311 0.093828802 0.129486682 0.166408126 0.204690532 0.244443208
October 17, 2023...... 0.000000000 0.025424782 0.058115076 0.091880622 0.126798134 0.162952973 0.200440517 0.239367802
November 17, 2023..... 0.000000000 0.024881461 0.056873173 0.089917160 0.124088494 0.159470714 0.196157161 0.234252581
December 17, 2023..... 0.000000000 0.024333878 0.055621526 0.087938291 0.121357593 0.155961133 0.191840195 0.229097224
January 17, 2024...... 0.000000000 0.023781997 0.054360056 0.085943892 0.118605260 0.152424008 0.187489350 0.223901407
February 17, 2024..... 0.000000000 0.023225784 0.053088684 0.083933838 0.115831323 0.148859118 0.183104352 0.218664805
March 17, 2024........ 0.000000000 0.022665204 0.051807330 0.081908002 0.113035606 0.145266239 0.178684927 0.213387088
April 17, 2024........ 0.000000000 0.022100222 0.050515914 0.079866257 0.110217934 0.141645145 0.174230795 0.208067926
May 17, 2024.......... 0.000000000 0.021530802 0.049214354 0.077808476 0.107378131 0.137995609 0.169741679 0.202706984
June 17, 2024......... 0.000000000 0.020956909 0.047902569 0.075734528 0.104516018 0.134317401 0.165217295 0.197303926
July 17, 2024......... 0.000000000 0.020378506 0.046580476 0.073644283 0.101631415 0.130610291 0.160657360 0.191858411
August 17, 2024....... 0.000000000 0.019795557 0.045247992 0.071537611 0.098724141 0.126874046 0.156061586 0.186370098
September 17, 2024.... 0.000000000 0.019208026 0.043905033 0.069414377 0.095794013 0.123108430 0.151429685 0.180838642
October 17, 2024...... 0.000000000 0.018615875 0.042551516 0.067274450 0.092840846 0.119313206 0.146761364 0.175263693
November 17, 2024..... 0.000000000 0.018019068 0.041187354 0.065117694 0.089864455 0.115488135 0.142056332 0.169644902
December 17, 2024..... 0.000000000 0.017417566 0.039812461 0.062943973 0.086864652 0.111632977 0.137314290 0.163981915
January 17, 2025...... 0.000000000 0.016811331 0.038426752 0.060753150 0.083841248 0.107747489 0.132534940 0.158274374
February 17, 2025..... 0.000000000 0.016200326 0.037030139 0.058545088 0.080794053 0.103831426 0.127717982 0.152521921
March 17, 2025........ 0.000000000 0.015584513 0.035622533 0.056319647 0.077722874 0.099884541 0.122863111 0.146724191
April 17, 2025........ 0.000000000 0.014963851 0.034203847 0.054076686 0.074627519 0.095906586 0.117970021 0.140880821
May 17, 2025.......... 0.000000000 0.014338302 0.032773989 0.051816065 0.071507791 0.091897308 0.113038404 0.134991441
June 17, 2025......... 0.000000000 0.013707827 0.031332872 0.049537641 0.068363494 0.087856456 0.108067948 0.129055680
July 17, 2025......... 0.000000000 0.013072386 0.029880402 0.047241269 0.065194429 0.083783773 0.103058340 0.123073162
August 17, 2025....... 0.000000000 0.012431938 0.028416489 0.044926805 0.062000397 0.079679004 0.098009263 0.117043511
September 17, 2025.... 0.000000000 0.011786444 0.026941040 0.042594103 0.058781195 0.075541888 0.092920398 0.110966345
<CAPTION>
PAYMENT DATE 550% PSA
------------ --------
<S> <C>
January 17, 2020...... 0.505977772
February 17, 2020..... 0.501763511
March 17, 2020........ 0.497516498
April 17, 2020........ 0.493236470
May 17, 2020.......... 0.488923164
June 17, 2020......... 0.484576314
July 17, 2020......... 0.480195652
August 17, 2020....... 0.475780907
September 17, 2020.... 0.471331807
October 17, 2020...... 0.466848077
November 17, 2020..... 0.462329440
December 17, 2020..... 0.457775617
January 17, 2021...... 0.453186326
February 17, 2021..... 0.448561282
March 17, 2021........ 0.443900201
April 17, 2021........ 0.439202792
May 17, 2021.......... 0.434468766
June 17, 2021......... 0.429697829
July 17, 2021......... 0.424889685
August 17, 2021....... 0.420044037
September 17, 2021.... 0.415160582
October 17, 2021...... 0.410239019
November 17, 2021..... 0.405279041
December 17, 2021..... 0.400280342
January 17, 2022...... 0.395242609
February 17, 2022..... 0.390165530
March 17, 2022........ 0.385048789
April 17, 2022........ 0.379892068
May 17, 2022.......... 0.374695046
June 17, 2022......... 0.369457400
July 17, 2022......... 0.364178802
August 17, 2022....... 0.358858925
September 17, 2022.... 0.353497437
October 17, 2022...... 0.348094003
November 17, 2022..... 0.342648286
December 17, 2022..... 0.337159946
January 17, 2023...... 0.331628642
February 17, 2023..... 0.326054026
March 17, 2023........ 0.320435752
April 17, 2023........ 0.314773468
May 17, 2023.......... 0.309066820
June 17, 2023......... 0.303315451
July 17, 2023......... 0.297519000
August 17, 2023....... 0.291677107
September 17, 2023.... 0.285789403
October 17, 2023...... 0.279855521
November 17, 2023..... 0.273875090
December 17, 2023..... 0.267847733
January 17, 2024...... 0.261773072
February 17, 2024..... 0.255650728
March 17, 2024........ 0.249480315
April 17, 2024........ 0.243261447
May 17, 2024.......... 0.236993732
June 17, 2024......... 0.230676776
July 17, 2024......... 0.224310184
August 17, 2024....... 0.217893554
September 17, 2024.... 0.211426482
October 17, 2024...... 0.204908563
November 17, 2024..... 0.198339385
December 17, 2024..... 0.191718535
January 17, 2025...... 0.185045596
February 17, 2025..... 0.178320147
March 17, 2025........ 0.171541764
April 17, 2025........ 0.164710021
May 17, 2025.......... 0.157824485
June 17, 2025......... 0.150884723
July 17, 2025......... 0.143890297
August 17, 2025....... 0.136840763
September 17, 2025.... 0.129735679
</TABLE>
A-7
<PAGE> 257
<TABLE>
<CAPTION>
160% PSA
PAYMENT DATE AND BELOW 200% PSA 250% PSA 300% PSA 350% PSA 400% PSA 450% PSA 500% PSA
------------ --------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
October 17, 2025...... 0.000000000 0.011135861 0.025453962 0.040243015 0.055536620 0.071372164 0.087791424 0.104841279
November 17, 2025..... 0.000000000 0.010480150 0.023955160 0.037873392 0.052266466 0.067169569 0.082622016 0.098667928
December 17, 2025..... 0.000000000 0.009819269 0.022444541 0.035485085 0.048970528 0.062933837 0.077411848 0.092445900
January 17, 2026...... 0.000000000 0.009153176 0.020922008 0.033077943 0.045648596 0.058664699 0.072160590 0.086174802
February 17, 2026..... 0.000000000 0.008481828 0.019387465 0.030651812 0.042300460 0.054361886 0.066867909 0.079854236
March 17, 2026........ 0.000000000 0.007805184 0.017840816 0.028206541 0.038925908 0.050025125 0.061533470 0.073483804
April 17, 2026........ 0.000000000 0.007123200 0.016281961 0.025741973 0.035524728 0.045654142 0.056156937 0.067063100
May 17, 2026.......... 0.000000000 0.006435833 0.014710802 0.023257952 0.032096702 0.041248659 0.050737967 0.060591719
June 17, 2026......... 0.000000000 0.005743040 0.013127240 0.020754322 0.028641614 0.036808397 0.045276217 0.054069251
July 17, 2026......... 0.000000000 0.005044777 0.011531174 0.018230923 0.025159244 0.032333076 0.039771342 0.047495281
August 17, 2026....... 0.000000000 0.004340999 0.009922504 0.015687596 0.021649373 0.027822410 0.034222992 0.040869393
September 17, 2026.... 0.000000000 0.003631662 0.008301126 0.013124178 0.018111776 0.023276114 0.028630814 0.034191167
October 17, 2026...... 0.000000000 0.002916721 0.006666938 0.010540508 0.014546231 0.018693900 0.022994455 0.027460178
November 17, 2026..... 0.000000000 0.002196130 0.005019837 0.007936421 0.010952510 0.014075475 0.017313557 0.020676000
December 17, 2026..... 0.000000000 0.001469844 0.003359717 0.005311752 0.007330384 0.009420548 0.011587758 0.013838201
January 17, 2027...... 0.000000000 0.000737816 0.001686474 0.002666335 0.003679625 0.004728823 0.005816694 0.006946347
February 17, 2027..... 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
March 17, 2027........ 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
April 17, 2027........ 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
May 17, 2027.......... 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
June 17, 2027......... 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
<CAPTION>
PAYMENT DATE 550% PSA
------------ --------
<S> <C>
October 17, 2025...... 0.122574593
November 17, 2025..... 0.115357054
December 17, 2025..... 0.108082605
January 17, 2026...... 0.100750785
February 17, 2026..... 0.093361132
March 17, 2026........ 0.085913176
April 17, 2026........ 0.078406447
May 17, 2026.......... 0.070840468
June 17, 2026......... 0.063214761
July 17, 2026......... 0.055528841
August 17, 2026....... 0.047782221
September 17, 2026.... 0.039974411
October 17, 2026...... 0.032104913
November 17, 2026..... 0.024173229
December 17, 2026..... 0.016178855
January 17, 2027...... 0.008121282
February 17, 2027..... 0.000000000
March 17, 2027........ 0.000000000
April 17, 2027........ 0.000000000
May 17, 2027.......... 0.000000000
June 17, 2027......... 0.000000000
</TABLE>
A-8
<PAGE> 258
<TABLE>
<CAPTION>
PAYMENT DATE 600% PSA 650% PSA 700% PSA 750% PSA 800% PSA 850% PSA 900% PSA 950% PSA
------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July 17, 1997......... 0.132024403 0.147309216 0.162653261 0.178057022 0.193520986 0.209045648 0.224631507 0.240279070
August 17, 1997....... 0.165185141 0.184402462 0.203714217 0.223121382 0.242624947 0.262225921 0.281925325 0.301724198
September 17, 1997.... 0.198457565 0.221660627 0.245002517 0.268484983 0.292109807 0.315878806 0.339793832 0.363856774
October 17, 1997...... 0.231867881 0.259114654 0.286554447 0.314190140 0.342024681 0.370061086 0.398302439 0.426751899
November 17, 1997..... 0.265443131 0.296796571 0.328407682 0.360280933 0.392420908 0.424832320 0.457520004 0.490488933
December 17, 1997..... 0.299211266 0.334739581 0.370601405 0.406803354 0.443352243 0.480255096 0.517519160 0.555151905
January 17, 1998...... 0.333201219 0.372978155 0.413176427 0.453805475 0.494875065 0.536395305 0.578376660 0.620829969
February 17, 1998..... 0.367442978 0.411548141 0.456175325 0.501337618 0.547048613 0.593322437 0.640173777 0.687617913
March 17, 1998........ 0.401967678 0.450486866 0.499642584 0.549452546 0.599935227 0.651109910 0.702996728 0.755616724
April 17, 1998........ 0.436807684 0.489833260 0.543624755 0.598205672 0.653600630 0.709835434 0.766937156 0.824934219
May 17, 1998.......... 0.471996689 0.529627978 0.588170621 0.647655281 0.708114220 0.769581410 0.832092661 0.895685756
June 17, 1998......... 0.507569816 0.569913541 0.633331382 0.697862775 0.763549402 0.830435369 0.898567395 0.967995026
July 17, 1998......... 0.543563727 0.610734480 0.679160851 0.748892939 0.819983951 0.892490464 0.966472720 1.041994951
August 17, 1998....... 0.580016742 0.652137495 0.725715670 0.800814237 0.877500406 0.955846011 1.035927955 1.117828697
September 17, 1998.... 0.616968964 0.694171628 0.773055542 0.853699127 0.936186510 1.020608093 1.107061205 1.195650825
October 17, 1998...... 0.654462415 0.736888446 0.821243489 0.907624414 0.996135697 1.086890239 1.180010305 1.275628598
November 17, 1998..... 0.692541183 0.780342245 0.870346124 0.962671636 1.057447633 1.154814175 1.254923879 1.357943478
December 17, 1998..... 0.731251579 0.824590264 0.920433960 1.018927489 1.120228811 1.224510677 1.331962548 1.442792845
January 17, 1999...... 0.770642309 0.869692925 0.971581738 1.076484296 1.184593221 1.296120522 1.411300302 1.530391969
February 17, 1999..... 0.810764653 0.915714090 1.023868794 1.135440525 1.250663095 1.369795570 1.493126066 1.620976306
March 17, 1999........ 0.851672669 0.962721340 1.077379455 1.195901366 1.318569744 1.445699985 1.577645503 1.714804157
April 17, 1999........ 0.893423407 1.010786280 1.132203481 1.257979369 1.388454494 1.524011624 1.665083084 1.812159779
May 17, 1999.......... 0.936077139 1.059984877 1.188436551 1.321795158 1.460469746 1.604923625 1.755684491 1.913357046
June 17, 1999......... 0.979697618 1.110397822 1.246180795 1.387478221 1.534780169 1.688646223 1.849719403 2.018743770
July 17, 1999......... 1.024352347 1.162110932 1.305545389 1.455167803 1.611564054 1.775408841 1.947484764 2.128706845
August 17, 1999....... 1.070112884 1.215215588 1.366647209 1.525013907 1.691014861 1.865462502 2.049308608 2.243678410
September 17, 1999.... 1.117055163 1.269809224 1.429611565 1.597178412 1.773342973 1.959082638 2.155554597 2.364143276
October 17, 1999...... 1.116285457 1.268934263 1.428626493 1.596077877 1.772121053 1.957732734 2.154069314 2.362514265
November 17, 1999..... 1.115510062 1.268052834 1.427634139 1.594969208 1.770890100 1.956372851 2.152573052 2.360873213
December 17, 1999..... 1.114728934 1.267164890 1.426634449 1.593852343 1.769650048 1.955002916 2.151065729 2.359220029
January 17, 2000...... 1.113942031 1.266270380 1.425627367 1.592727220 1.768400826 1.953622851 2.149547261 2.357554622
February 17, 2000..... 1.113149308 1.265369255 1.424612837 1.591593776 1.767142367 1.952232580 2.148017563 2.355876898
March 17, 2000........ 1.112350722 1.264461464 1.423590804 1.590451948 1.765874598 1.950832026 2.146476551 2.354186765
April 17, 2000........ 1.111546228 1.263546958 1.422561209 1.589301673 1.764597451 1.949421111 2.144924138 2.352484129
May 17, 2000.......... 1.110735782 1.262625686 1.421523997 1.588142887 1.763310854 1.947999756 2.143360239 2.350768894
June 17, 2000......... 1.109919337 1.261697595 1.420479108 1.586975526 1.762014736 1.946567883 2.141784766 2.349040966
July 17, 2000......... 1.109096850 1.260762635 1.419426486 1.585799524 1.760709024 1.945125411 2.140197632 2.347300248
August 17, 2000....... 1.108268274 1.259820753 1.418366071 1.584614816 1.759393646 1.943672261 2.138598748 2.345546644
September 17, 2000.... 1.107433563 1.258871898 1.417297804 1.583421336 1.758068529 1.942208351 2.136988026 2.343780055
October 17, 2000...... 1.106592670 1.257916015 1.416221626 1.582219018 1.756733598 1.940733599 2.135365375 2.342000383
November 17, 2000..... 1.105745549 1.256953053 1.415137477 1.581007794 1.755388779 1.939247924 2.133730705 2.340207530
December 17, 2000..... 1.104892152 1.255982956 1.414045296 1.579787597 1.754033998 1.937751244 2.132083926 2.338401395
January 17, 2001...... 1.104032431 1.255005671 1.412945023 1.578558359 1.752669178 1.936243473 2.130424944 2.336581877
February 17, 2001..... 1.103166340 1.254021144 1.411836595 1.577320012 1.751294244 1.934724528 2.128753668 2.334748875
March 17, 2001........ 1.102293829 1.253029320 1.410719952 1.576072485 1.749909119 1.933194325 2.127070004 2.332902286
April 17, 2001........ 1.101414849 1.252030142 1.409595031 1.574815710 1.748513724 1.931652777 2.125373858 2.331042008
May 17, 2001.......... 1.100529352 1.251023556 1.408461768 1.573549616 1.747107984 1.930099799 2.123665136 2.329167935
June 17, 2001......... 1.099637288 1.250009505 1.407320101 1.572274132 1.745691818 1.928535304 2.121943741 2.327279965
July 17, 2001......... 1.098738607 1.248987932 1.406169965 1.570989188 1.744265147 1.926959205 2.120209578 2.325377990
August 17, 2001....... 1.097833259 1.247958780 1.405011297 1.569694711 1.742827893 1.925371412 2.118462549 2.323461905
September 17, 2001.... 1.096921193 1.246921992 1.403844032 1.568390628 1.741379973 1.923771838 2.116702557 2.321531602
October 17, 2001...... 1.096002358 1.245877509 1.402668103 1.567076867 1.739921308 1.922160393 2.114929504 2.319586974
November 17, 2001..... 1.095076703 1.244825273 1.401483446 1.565753355 1.738451816 1.920536986 2.113143289 2.317627911
December 17, 2001..... 1.094144175 1.243765225 1.400289994 1.564420016 1.736971413 1.918901526 2.111343813 2.315654303
January 17, 2002...... 1.093204723 1.242697305 1.399087679 1.563076777 1.735480018 1.917253922 2.109530975 2.313666040
February 17, 2002..... 1.092258294 1.241621455 1.397876435 1.561723561 1.733977546 1.915594082 2.107704673 2.311663011
March 17, 2002........ 1.091304834 1.240537612 1.396656194 1.560360294 1.732463914 1.913921912 2.105864805 2.309645102
April 17, 2002........ 1.090344291 1.239445717 1.395426887 1.558986897 1.730939036 1.912237319 2.104011267 2.307612202
May 17, 2002.......... 1.089376610 1.238345708 1.394188445 1.557603296 1.729402826 1.910540207 2.102143956 2.305564194
June 17, 2002......... 1.088401736 1.237237524 1.392940798 1.556209410 1.727855199 1.908830482 2.100262766 2.303500966
July 17, 2002......... 1.087419616 1.236121102 1.391683877 1.554805163 1.726296068 1.907108047 2.098367592 2.301422399
August 17, 2002....... 1.086430193 1.234996378 1.390417610 1.553390476 1.724725344 1.905372805 2.096458327 2.299328379
September 17, 2002.... 1.085433413 1.233863291 1.389141927 1.551965268 1.723142939 1.903624660 2.094534864 2.297218786
October 17, 2002...... 1.084429219 1.232721777 1.387856755 1.550529459 1.721548765 1.901863512 2.092597095 2.295093503
November 17, 2002..... 1.083417554 1.231571770 1.386562023 1.549082970 1.719942731 1.900089262 2.090644910 2.292952409
December 17, 2002..... 1.082398362 1.230413206 1.385257657 1.547625717 1.718324747 1.898301812 2.088678199 2.290795384
January 17, 2003...... 1.081371586 1.229246021 1.383943584 1.546157620 1.716694723 1.896501058 2.086696853 2.288622306
February 17, 2003..... 1.080337166 1.228070147 1.382619730 1.544678595 1.715052565 1.894686902 2.084700758 2.286433054
March 17, 2003........ 1.079295046 1.226885520 1.381286020 1.543188559 1.713398182 1.892859239 2.082689803 2.284227503
April 17, 2003........ 1.078245165 1.225692071 1.379942379 1.541687428 1.711731480 1.891017967 2.080663874 2.282005529
<CAPTION>
PAYMENT DATE 1,000% PSA
------------ ----------
<S> <C>
July 17, 1997......... 0.255988850
August 17, 1997....... 0.321623598
September 17, 1997.... 0.388069556
October 17, 1997...... 0.455412697
November 17, 1997..... 0.523744212
December 17, 1997..... 0.593161042
January 17, 1998...... 0.663766463
February 17, 1998..... 0.735670747
March 17, 1998........ 0.808991898
April 17, 1998........ 0.883856488
May 17, 1998.......... 0.960400596
June 17, 1998......... 1.038770870
July 17, 1998......... 1.119125742
August 17, 1998....... 1.201636809
September 17, 1998.... 1.286490419
October 17, 1998...... 1.373889494
November 17, 1998..... 1.464055637
December 17, 1998..... 1.557231582
January 17, 1999...... 1.653684050
February 17, 1999..... 1.753707101
March 17, 1999........ 1.857626092
April 17, 1999........ 1.965802370
May 17, 1999.......... 2.078638891
June 17, 1999......... 2.196586972
July 17, 1999......... 2.320154487
August 17, 1999....... 2.449915895
September 17, 1999.... 2.586524606
October 17, 1999...... 2.584742363
November 17, 1999..... 2.582946947
December 17, 1999..... 2.581138258
January 17, 2000...... 2.579316195
February 17, 2000..... 2.577480658
March 17, 2000........ 2.575631543
April 17, 2000........ 2.573768750
May 17, 2000.......... 2.571892173
June 17, 2000......... 2.570001709
July 17, 2000......... 2.568097251
August 17, 2000....... 2.566178696
September 17, 2000.... 2.564245934
October 17, 2000...... 2.562298859
November 17, 2000..... 2.560337362
December 17, 2000..... 2.558361334
January 17, 2001...... 2.556370665
February 17, 2001..... 2.554365243
March 17, 2001........ 2.552344956
April 17, 2001........ 2.550309692
May 17, 2001.......... 2.548259337
June 17, 2001......... 2.546193776
July 17, 2001......... 2.544112893
August 17, 2001....... 2.542016573
September 17, 2001.... 2.539904698
October 17, 2001...... 2.537777149
November 17, 2001..... 2.535633808
December 17, 2001..... 2.533474555
January 17, 2002...... 2.531299268
February 17, 2002..... 2.529107825
March 17, 2002........ 2.526900103
April 17, 2002........ 2.524675979
May 17, 2002.......... 2.522435328
June 17, 2002......... 2.520178023
July 17, 2002......... 2.517903938
August 17, 2002....... 2.515612945
September 17, 2002.... 2.513304915
October 17, 2002...... 2.510979719
November 17, 2002..... 2.508637224
December 17, 2002..... 2.506277301
January 17, 2003...... 2.503899814
February 17, 2003..... 2.501504631
March 17, 2003........ 2.499091617
April 17, 2003........ 2.496660634
</TABLE>
A-9
<PAGE> 259
<TABLE>
<CAPTION>
PAYMENT DATE 600% PSA 650% PSA 700% PSA 750% PSA 800% PSA 850% PSA 900% PSA 950% PSA
------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 17, 2003.......... 1.077187466 1.224489735 1.378588731 1.540175117 1.710052366 1.889162982 2.078622857 2.279767006
June 17, 2003......... 1.076121888 1.223278442 1.377225000 1.538651541 1.708360743 1.887294179 2.076566637 2.277511809
July 17, 2003......... 1.075048371 1.222058124 1.375851109 1.537116614 1.706656518 1.885411453 2.074495096 2.275239810
August 17, 2003....... 1.073966854 1.220828713 1.374466979 1.535570249 1.704939592 1.883514697 2.072408119 2.272950881
September 17, 2003.... 1.072877276 1.219590139 1.373072534 1.534012358 1.703209871 1.881603805 2.070305588 2.270644891
October 17, 2003...... 1.071779577 1.218342332 1.371667693 1.532442854 1.701467254 1.879678667 2.068187382 2.268321712
November 17, 2003..... 1.070673692 1.217085221 1.370252378 1.530861648 1.699711645 1.877739176 2.066053384 2.265981210
December 17, 2003..... 1.069559561 1.215818735 1.368826508 1.529268650 1.697942944 1.875785221 2.063903471 2.263623255
January 17, 2004...... 1.068437119 1.214542803 1.367390003 1.527663770 1.696161050 1.873816692 2.061737522 2.261247712
February 17, 2004..... 1.067306304 1.213257352 1.365942781 1.526046917 1.694365862 1.871833476 2.059555415 2.258854446
March 17, 2004........ 1.066167050 1.211962309 1.364484760 1.524417999 1.692557279 1.869835463 2.057357025 2.256443323
April 17, 2004........ 1.065019295 1.210657601 1.363015858 1.522776925 1.690735199 1.867822538 2.055142229 2.254014205
May 17, 2004.......... 1.063862972 1.209343154 1.361535991 1.521123601 1.688899517 1.865794587 2.052910900 2.251566954
June 17, 2004......... 1.062698015 1.208018894 1.360045075 1.519457932 1.687050130 1.863751496 2.050662911 2.249101433
July 17, 2004......... 1.061524360 1.206684744 1.358543026 1.517779826 1.685186933 1.861693148 2.048398136 2.246617500
August 17, 2004....... 1.060341938 1.205340630 1.357029759 1.516089186 1.683309820 1.859619426 2.046116445 2.244115015
September 17, 2004.... 1.059150683 1.203986474 1.355505186 1.514385916 1.681418684 1.857530213 2.043817710 2.241593835
October 17, 2004...... 1.057950528 1.202622201 1.353969222 1.512669920 1.679513418 1.855425390 2.041501798 2.239053818
November 17, 2004..... 1.056741403 1.201247732 1.352421780 1.510941100 1.677593913 1.853304836 2.039168580 2.236494818
December 17, 2004..... 1.055523241 1.199862989 1.350862771 1.509199357 1.675660061 1.851168433 2.036817921 2.233916690
January 17, 2005...... 1.054295971 1.198467894 1.349292106 1.507444592 1.673711751 1.849016057 2.034449688 2.231319288
February 17, 2005..... 1.053059524 1.197062367 1.347709697 1.505676707 1.671748872 1.846847586 2.032063746 2.228702464
March 17, 2005........ 1.051813830 1.195646328 1.346115453 1.503895599 1.669771312 1.844662897 2.029659960 2.226066068
April 17, 2005........ 1.050558817 1.194219696 1.344509282 1.502101167 1.667778959 1.842461865 2.027238192 2.223409950
May 17, 2005.......... 1.049294415 1.192782389 1.342891095 1.500293309 1.665771700 1.840244366 2.024798304 2.220733959
June 17, 2005......... 1.048020550 1.191334327 1.341260797 1.498471922 1.663749418 1.838010271 2.022340157 2.218037943
July 17, 2005......... 1.046737150 1.189875426 1.339618297 1.496636902 1.661712001 1.835759455 2.019863611 2.215321747
August 17, 2005....... 1.045444142 1.188405603 1.337963501 1.494788144 1.659659330 1.833491787 2.017368525 2.212585216
September 17, 2005.... 1.044141452 1.186924774 1.336296313 1.492925543 1.657591289 1.831207140 2.014854755 2.209828194
October 17, 2005...... 1.042829006 1.185432854 1.334616639 1.491048992 1.655507759 1.828905382 2.012322159 2.207050523
November 17, 2005..... 1.041506728 1.183929759 1.332924383 1.489158384 1.653408622 1.826586381 2.009770591 2.204252045
December 17, 2005..... 1.040174543 1.182415402 1.331219448 1.487253611 1.651293757 1.824250006 2.007199906 2.201432600
January 17, 2006...... 1.038832375 1.180889696 1.329501736 1.485334564 1.649163044 1.821896122 2.004609957 2.198592027
February 17, 2006..... 1.037480147 1.179352555 1.327771149 1.483401132 1.647016360 1.819524595 2.002000595 2.195730162
March 17, 2006........ 1.036117781 1.177803890 1.326027588 1.481453206 1.644853583 1.817135289 1.999371671 2.192846842
April 17, 2006........ 1.034745200 1.176243612 1.324270954 1.479490674 1.642674589 1.814728067 1.996723034 2.189941902
May 17, 2006.......... 1.033362325 1.174671633 1.322501145 1.477513423 1.640479252 1.812302791 1.994054533 2.187015175
June 17, 2006......... 1.031969076 1.173087861 1.320718059 1.475521340 1.638267448 1.809859323 1.991366014 2.184066494
July 17, 2006......... 1.030565374 1.171492207 1.318921596 1.473514310 1.636039048 1.807397521 1.988657324 2.181095689
August 17, 2006....... 1.029151138 1.169884578 1.317111651 1.471492219 1.633793926 1.804917245 1.985928306 2.178102590
September 17, 2006.... 1.027726287 1.168264883 1.315288121 1.469454951 1.631531952 1.802418352 1.983178805 2.175087026
October 17, 2006...... 1.026290739 1.166633028 1.313450901 1.467402387 1.629252996 1.799900699 1.980408662 2.172048822
November 17, 2006..... 1.024844412 1.164988919 1.311599885 1.465334411 1.626956928 1.797364141 1.977617719 2.168987804
December 17, 2006..... 1.023387222 1.163332463 1.309734968 1.463250904 1.624643615 1.794808532 1.974805814 2.165903797
January 17, 2007...... 1.021919085 1.161663563 1.307856041 1.461151746 1.622312925 1.792233726 1.971972786 2.162796623
February 17, 2007..... 1.020439918 1.159982123 1.305962997 1.459036815 1.619964723 1.789639574 1.969118472 2.159666103
March 17, 2007........ 1.018949634 1.158288048 1.304055727 1.456905991 1.617598875 1.787025927 1.966242708 2.156512057
April 17, 2007........ 1.017448149 1.156581239 1.302134120 1.454759150 1.615215243 1.784392634 1.963345329 2.153334303
May 17, 2007.......... 1.015935376 1.154861599 1.300198067 1.452596169 1.612813691 1.781739544 1.960426166 2.150132659
June 17, 2007......... 1.014411227 1.153129027 1.298247455 1.450416923 1.610394080 1.779066503 1.957485052 2.146906940
July 17, 2007......... 1.012875615 1.151383424 1.296282173 1.448221287 1.607956271 1.776373359 1.954521818 2.143656960
August 17, 2007....... 1.011328451 1.149624690 1.294302106 1.446009134 1.605500123 1.773659954 1.951536293 2.140382531
September 17, 2007.... 1.009769645 1.147852722 1.292307141 1.443780336 1.603025495 1.770926133 1.948528303 2.137083464
October 17, 2007...... 1.008199109 1.146067419 1.290297162 1.441534765 1.600532243 1.768171739 1.945497676 2.133759570
November 17, 2007..... 1.006616750 1.144268678 1.288272053 1.439272290 1.598020223 1.765396611 1.942444237 2.130410655
December 17, 2007..... 1.005022478 1.142456394 1.286231698 1.436992782 1.595489291 1.762600589 1.939367809 2.127036527
January 17, 2008...... 1.003416201 1.140630463 1.284175978 1.434696108 1.592939300 1.759783512 1.936268214 2.123636991
February 17, 2008..... 1.001797825 1.138790779 1.282104774 1.432382135 1.590370102 1.756945217 1.933145272 2.120211849
March 17, 2008........ 1.000167257 1.136937235 1.280017966 1.430050730 1.587781550 1.754085540 1.929998805 2.116760903
April 17, 2008........ 0.998524403 1.135069725 1.277915435 1.427701758 1.585173492 1.751204314 1.926828628 2.113283955
May 17, 2008.......... 0.996869167 1.133188140 1.275797057 1.425335082 1.582545778 1.748301374 1.923634558 2.109780802
June 17, 2008......... 0.995201453 1.131292372 1.273662711 1.422950566 1.579898256 1.745376551 1.920416411 2.106251241
July 17, 2008......... 0.993521165 1.129382310 1.271512272 1.420548071 1.577230772 1.742429676 1.917174000 2.102695069
August 17, 2008....... 0.991828206 1.127457843 1.269345616 1.418127458 1.574543172 1.739460577 1.913907137 2.099112078
September 17, 2008.... 0.990122477 1.125518860 1.267162617 1.415688587 1.571835300 1.736469082 1.910615633 2.095502061
October 17, 2008...... 0.988403879 1.123565249 1.264963149 1.413231315 1.569106998 1.733455019 1.907299295 2.091864808
November 17, 2008..... 0.986672312 1.121596896 1.262747083 1.410755501 1.566358108 1.730418210 1.903957932 2.088200109
December 17, 2008..... 0.984927676 1.119613686 1.260514291 1.408261001 1.563588471 1.727358482 1.900591350 2.084507749
January 17, 2009...... 0.983169870 1.117615504 1.258264644 1.405747669 1.560797925 1.724275654 1.897199353 2.080787515
February 17, 2009..... 0.981398791 1.115602235 1.255998010 1.403215359 1.557986308 1.721169549 1.893781744 2.077039191
<CAPTION>
PAYMENT DATE 1,000% PSA
------------ ----------
<S> <C>
May 17, 2003.......... 2.494211547
June 17, 2003......... 2.491744217
July 17, 2003......... 2.489258504
August 17, 2003....... 2.486754268
September 17, 2003.... 2.484231367
October 17, 2003...... 2.481689660
November 17, 2003..... 2.479129001
December 17, 2003..... 2.476549246
January 17, 2004...... 2.473950249
February 17, 2004..... 2.471331863
March 17, 2004........ 2.468693939
April 17, 2004........ 2.466036328
May 17, 2004.......... 2.463358879
June 17, 2004......... 2.460661440
July 17, 2004......... 2.457943857
August 17, 2004....... 2.455205978
September 17, 2004.... 2.452447645
October 17, 2004...... 2.449668703
November 17, 2004..... 2.446868993
December 17, 2004..... 2.444048356
January 17, 2005...... 2.441206632
February 17, 2005..... 2.438343657
March 17, 2005........ 2.435459271
April 17, 2005........ 2.432553308
May 17, 2005.......... 2.429625602
June 17, 2005......... 2.426675986
July 17, 2005......... 2.423704293
August 17, 2005....... 2.420710352
September 17, 2005.... 2.417693993
October 17, 2005...... 2.414655043
November 17, 2005..... 2.411593329
December 17, 2005..... 2.408508675
January 17, 2006...... 2.405400905
February 17, 2006..... 2.402269841
March 17, 2006........ 2.399115304
April 17, 2006........ 2.395937113
May 17, 2006.......... 2.392735086
June 17, 2006......... 2.389509039
July 17, 2006......... 2.386258788
August 17, 2006....... 2.382984145
September 17, 2006.... 2.379684924
October 17, 2006...... 2.376360934
November 17, 2006..... 2.373011984
December 17, 2006..... 2.369637882
January 17, 2007...... 2.366238434
February 17, 2007..... 2.362813444
March 17, 2007........ 2.359362715
April 17, 2007........ 2.355886048
May 17, 2007.......... 2.352383244
June 17, 2007......... 2.348854100
July 17, 2007......... 2.345298413
August 17, 2007....... 2.341715977
September 17, 2007.... 2.338106587
October 17, 2007...... 2.334470033
November 17, 2007..... 2.330806105
December 17, 2007..... 2.327114592
January 17, 2008...... 2.323395281
February 17, 2008..... 2.319647955
March 17, 2008........ 2.315872400
April 17, 2008........ 2.312068395
May 17, 2008.......... 2.308235720
June 17, 2008......... 2.304374154
July 17, 2008......... 2.300483473
August 17, 2008....... 2.296563451
September 17, 2008.... 2.292613860
October 17, 2008...... 2.288634472
November 17, 2008..... 2.284625055
December 17, 2008..... 2.280585377
January 17, 2009...... 2.276515202
February 17, 2009..... 2.272414295
</TABLE>
A-10
<PAGE> 260
<TABLE>
<CAPTION>
PAYMENT DATE 600% PSA 650% PSA 700% PSA 750% PSA 800% PSA 850% PSA 900% PSA 950% PSA
------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 17, 2009........ 0.979614335 1.113573761 1.253714257 1.400663925 1.555153457 1.718039986 1.890338324 2.073262558
April 17, 2009........ 0.977816401 1.111529964 1.251413253 1.398093217 1.552299207 1.714886782 1.886868892 2.069457396
May 17, 2009.......... 0.976004882 1.109470725 1.249094864 1.395503086 1.549423391 1.711709754 1.883373247 2.065623485
June 17, 2009......... 0.974179673 1.107395924 1.246758954 1.392893381 1.546525843 1.708508717 1.879851185 2.061760600
July 17, 2009......... 0.972340667 1.105305440 1.244405388 1.390263950 1.543606393 1.705283484 1.876302501 2.057868517
August 17, 2009....... 0.970487759 1.103199151 1.242034029 1.387614640 1.540664871 1.702033867 1.872726988 2.053947008
September 17, 2009.... 0.968620839 1.101076935 1.239644737 1.384945296 1.537701105 1.698759677 1.869124437 2.049995845
October 17, 2009...... 0.966739798 1.098938668 1.237237374 1.382255762 1.534714923 1.695460723 1.865494638 2.046014798
November 17, 2009..... 0.964844527 1.096784224 1.234811799 1.379545882 1.531706150 1.692136812 1.861837379 2.042003634
December 17, 2009..... 0.962934916 1.094613479 1.232367871 1.376815497 1.528674611 1.688787750 1.858152447 2.037962119
January 17, 2010...... 0.961010852 1.092426305 1.229905446 1.374064448 1.525620128 1.685413341 1.854439627 2.033890016
February 17, 2010..... 0.959072222 1.090222573 1.227424381 1.371292574 1.522542524 1.682013388 1.850698700 2.029787088
March 17, 2010........ 0.957118915 1.088002157 1.224924530 1.368499712 1.519441617 1.678587693 1.846929450 2.025653094
April 17, 2010........ 0.955150815 1.085764925 1.222405748 1.365685700 1.516317226 1.675136055 1.843131654 2.021487794
May 17, 2010.......... 0.953167807 1.083510747 1.219867887 1.362850372 1.513169170 1.671658271 1.839305092 2.017290943
June 17, 2010......... 0.951169776 1.081239490 1.217310798 1.359993563 1.509997262 1.668154138 1.835449538 2.013062294
July 17, 2010......... 0.949156603 1.078951022 1.214734332 1.357115106 1.506801319 1.664623452 1.831564767 2.008801602
August 17, 2010....... 0.947128171 1.076645208 1.212138337 1.354214831 1.503581151 1.661066005 1.827650551 2.004508615
September 17, 2010.... 0.945084362 1.074321913 1.209522662 1.351292568 1.500336571 1.657481587 1.823706661 2.000183083
October 17, 2010...... 0.943025055 1.071981002 1.206887152 1.348348147 1.497067388 1.653869990 1.819732865 1.995824751
November 17, 2010..... 0.940950129 1.069622336 1.204231654 1.345381394 1.493773410 1.650231002 1.815728930 1.991433363
December 17, 2010..... 0.938859463 1.067245777 1.201556011 1.342392135 1.490454443 1.646564408 1.811694622 1.987008663
January 17, 2011...... 0.936752933 1.064851186 1.198860067 1.339380195 1.487110294 1.642869993 1.807629702 1.982550389
February 17, 2011..... 0.934630417 1.062438421 1.196143662 1.336345396 1.483740765 1.639147540 1.803533933 1.978058281
March 17, 2011........ 0.932491788 1.060007342 1.193406637 1.333287561 1.480345658 1.635396830 1.799407073 1.973532073
April 17, 2011........ 0.930336922 1.057557804 1.190648831 1.330206509 1.476924774 1.631617643 1.795248880 1.968971500
May 17, 2011.......... 0.928165692 1.055089665 1.187870082 1.327102059 1.473477912 1.627809757 1.791059109 1.964376293
June 17, 2011......... 0.925977970 1.052602778 1.185070227 1.323974028 1.470004867 1.623972946 1.786837514 1.959746182
July 17, 2011......... 0.923773626 1.050096996 1.182249099 1.320822232 1.466505437 1.620106986 1.782583845 1.955080895
August 17, 2011....... 0.921552532 1.047572174 1.179406534 1.317646485 1.462979414 1.616211648 1.778297852 1.950380155
September 17, 2011.... 0.919314556 1.045028161 1.176542363 1.314446601 1.459426590 1.612286702 1.773979283 1.945643687
October 17, 2011...... 0.917059566 1.042464807 1.173656418 1.311222390 1.455846758 1.608331918 1.769627883 1.940871210
November 17, 2011..... 0.914787429 1.039881962 1.170748528 1.307973662 1.452239704 1.604347062 1.765243394 1.936062444
December 17, 2011..... 0.912498011 1.037279473 1.167818522 1.304700226 1.448605216 1.600331899 1.760825560 1.931217104
January 17, 2012...... 0.910191177 1.034657186 1.164866227 1.301401888 1.444943080 1.596286192 1.756374117 1.926334905
February 17, 2012..... 0.907866790 1.032014947 1.161891468 1.298078454 1.441253080 1.592209701 1.751888804 1.921415557
March 17, 2012........ 0.905524714 1.029352598 1.158894070 1.294729726 1.437534996 1.588102185 1.747369356 1.916458771
April 17, 2012........ 0.903164809 1.026669984 1.155873855 1.291355507 1.433788609 1.583963403 1.742815504 1.911464252
May 17, 2012.......... 0.900786937 1.023966944 1.152830644 1.287955597 1.430013699 1.579793109 1.738226981 1.906431706
June 17, 2012......... 0.898390956 1.021243319 1.149764258 1.284529796 1.426210040 1.575591056 1.733603513 1.901360835
July 17, 2012......... 0.895976724 1.018498948 1.146674515 1.281077899 1.422377409 1.571356995 1.728944828 1.896251339
August 17, 2012....... 0.893544099 1.015733669 1.143561232 1.277599704 1.418515578 1.567090676 1.724250650 1.891102914
September 17, 2012.... 0.891092936 1.012947317 1.140424224 1.274095003 1.414624317 1.562791846 1.719520700 1.885915256
October 17, 2012...... 0.888623091 1.010139727 1.137263306 1.270563589 1.410703398 1.558460250 1.714754698 1.880688058
November 17, 2012..... 0.886134415 1.007310732 1.134078290 1.267005252 1.406752586 1.554095631 1.709952361 1.875421008
December 17, 2012..... 0.883626763 1.004460166 1.130868987 1.263419782 1.402771648 1.549697730 1.705113404 1.870113796
January 17, 2013...... 0.881099985 1.001587858 1.127635206 1.259806965 1.398760347 1.545266286 1.700237541 1.864766104
February 17, 2013..... 0.878553930 0.998693638 1.124376755 1.256166587 1.394718444 1.540801035 1.695324480 1.859377617
March 17, 2013........ 0.875988449 0.995777334 1.121093442 1.252498431 1.390645701 1.536301713 1.690373932 1.853948014
April 17, 2013........ 0.873403387 0.992838773 1.117785070 1.248802280 1.386541874 1.531768053 1.685385600 1.848476972
May 17, 2013.......... 0.870798592 0.989877779 1.114451443 1.245077914 1.382406720 1.527199783 1.680359189 1.842964165
June 17, 2013......... 0.868173908 0.986894178 1.111092362 1.241325111 1.378239993 1.522596633 1.675294400 1.837409266
July 17, 2013......... 0.865529180 0.983887790 1.107707629 1.237543647 1.374041444 1.517958329 1.670190931 1.831811945
August 17, 2013....... 0.862864249 0.980858438 1.104297040 1.233733298 1.369810824 1.513284594 1.665048478 1.826171867
September 17, 2013.... 0.860178957 0.977805940 1.100860393 1.229893837 1.365547880 1.508575150 1.659866734 1.820488697
October 17, 2013...... 0.857473144 0.974730115 1.097397483 1.226025034 1.361252359 1.503829717 1.654645392 1.814762095
November 17, 2013..... 0.854746649 0.971630780 1.093908104 1.222126660 1.356924004 1.499048011 1.649384139 1.808991722
December 17, 2013..... 0.851999309 0.968507748 1.090392047 1.218198481 1.352562557 1.494229746 1.644082663 1.803755478
January 17, 2014...... 0.849230959 0.965360835 1.086849102 1.214240263 1.348167758 1.489374637 1.638740645 1.797280641
February 17, 2014..... 0.846441435 0.962189852 1.083279059 1.210251770 1.343739344 1.484482392 1.633357768 1.791376159
March 17, 2014........ 0.843630571 0.958994610 1.079681703 1.206232763 1.339277052 1.479552720 1.627933710 1.785426497
April 17, 2014........ 0.840798197 0.955774918 1.076056821 1.202183002 1.334780613 1.474585325 1.622468147 1.779431297
May 17, 2014.......... 0.837944146 0.952530583 1.072404194 1.198102246 1.330249760 1.469579911 1.616960751 1.773390201
June 17, 2014......... 0.835068245 0.949261411 1.068723605 1.193990250 1.325684222 1.464536179 1.611411195 1.767302848
July 17, 2014......... 0.832170323 0.945967207 1.065014834 1.189846768 1.321083725 1.459453827 1.605819145 1.761168874
August 17, 2014....... 0.829250207 0.942647773 1.061277658 1.185671552 1.316447994 1.454332550 1.600184266 1.754987909
September 17, 2014.... 0.826307722 0.939302911 1.057511853 1.181464352 1.311776751 1.449172042 1.594506223 1.748759585
October 17, 2014...... 0.823342690 0.935932421 1.053717195 1.177224916 1.307069716 1.443971993 1.588784673 1.742483527
November 17, 2014..... 0.820354936 0.932536099 1.049893455 1.172952990 1.302326608 1.438732092 1.583019274 1.737601004
December 17, 2014..... 0.817344279 0.929113743 1.046040404 1.168648318 1.297547141 1.433452025 1.577209681 1.729692828
<CAPTION>
PAYMENT DATE 1,000% PSA
------------ ----------
<S> <C>
March 17, 2009........ 2.268282416
April 17, 2009........ 2.264119324
May 17, 2009.......... 2.259924779
June 17, 2009......... 2.255698535
July 17, 2009......... 2.251440345
August 17, 2009....... 2.247149963
September 17, 2009.... 2.242827137
October 17, 2009...... 2.238471616
November 17, 2009..... 2.234083145
December 17, 2009..... 2.229661467
January 17, 2010...... 2.225206325
February 17, 2010..... 2.220717459
March 17, 2010........ 2.216194604
April 17, 2010........ 2.211637498
May 17, 2010.......... 2.207045873
June 17, 2010......... 2.202419460
July 17, 2010......... 2.197757989
August 17, 2010....... 2.193061186
September 17, 2010.... 2.188328775
October 17, 2010...... 2.183560480
November 17, 2010..... 2.178756020
December 17, 2010..... 2.173915114
January 17, 2011...... 2.169037476
February 17, 2011..... 2.164122821
March 17, 2011........ 2.159170859
April 17, 2011........ 2.154181299
May 17, 2011.......... 2.149153848
June 17, 2011......... 2.144088209
July 17, 2011......... 2.138984084
August 17, 2011....... 2.133841173
September 17, 2011.... 2.128659173
October 17, 2011...... 2.123437777
November 17, 2011..... 2.118176678
December 17, 2011..... 2.112875565
January 17, 2012...... 2.107534125
February 17, 2012..... 2.102152043
March 17, 2012........ 2.096729000
April 17, 2012........ 2.091264676
May 17, 2012.......... 2.085758747
June 17, 2012......... 2.080210889
July 17, 2012......... 2.074620771
August 17, 2012....... 2.069415649
September 17, 2012.... 2.063281816
October 17, 2012...... 2.057562360
November 17, 2012..... 2.051799294
December 17, 2012..... 2.045992274
January 17, 2013...... 2.040140957
February 17, 2013..... 2.034244994
March 17, 2013........ 2.028304034
April 17, 2013........ 2.022317726
May 17, 2013.......... 2.016285711
June 17, 2013......... 2.011247701
July 17, 2013......... 2.004008629
August 17, 2013....... 1.997835932
September 17, 2013.... 1.991616046
October 17, 2013...... 1.985348599
November 17, 2013..... 1.979033218
December 17, 2013..... 1.974435110
January 17, 2014...... 1.966130649
February 17, 2014..... 1.959666783
March 17, 2014........ 1.953153402
April 17, 2014........ 1.949158570
May 17, 2014.......... 1.939792494
June 17, 2014......... 1.933124687
July 17, 2014......... 1.926405705
August 17, 2014....... 1.923140162
September 17, 2014.... 1.912561411
October 17, 2014...... 1.910103429
November 17, 2014..... 1.898431975
December 17, 2014..... 1.891439758
</TABLE>
A-11
<PAGE> 261
<TABLE>
<CAPTION>
PAYMENT DATE 600% PSA 650% PSA 700% PSA 750% PSA 800% PSA 850% PSA 900% PSA 950% PSA
------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 17, 2015...... 0.814310538 0.925665148 1.042157811 1.164310641 1.292731030 1.428131475 1.571355545 1.723269474
February 17, 2015..... 0.811253533 0.922190106 1.038245443 1.159939698 1.287877985 1.422770122 1.565456515 1.716796821
March 17, 2015........ 0.808173078 0.918688408 1.034303066 1.155535229 1.282987714 1.417367645 1.559512235 1.710274481
April 17, 2015........ 0.805068990 0.915159844 1.030330441 1.151096968 1.278059924 1.411923719 1.553522350 1.703702060
May 17, 2015.......... 0.801941081 0.911604203 1.026327331 1.146624647 1.273094318 1.406438017 1.547486500 1.697079161
June 17, 2015......... 0.798789164 0.908021270 1.022293495 1.142117999 1.268090599 1.400910209 1.542224478 1.692910631
July 17, 2015......... 0.795613048 0.904410830 1.018228690 1.137576753 1.263048465 1.395339963 1.535227011 1.683517148
August 17, 2015....... 0.792412544 0.900772666 1.014132672 1.133000634 1.257967613 1.389726943 1.529050117 1.676737182
September 17, 2015.... 0.789187457 0.897106558 1.010005194 1.128389368 1.252847736 1.384070811 1.522825767 1.669905050
October 17, 2015...... 0.785937595 0.893412286 1.005846007 1.123742677 1.247688527 1.378371227 1.516553586 1.666675808
November 17, 2015..... 0.782662760 0.889689628 1.001654861 1.119060281 1.242489675 1.372627848 1.510233194 1.655844469
December 17, 2015..... 0.779362756 0.885938358 0.997431503 1.114341897 1.237250866 1.366840327 1.503864210 1.648848580
January 17, 2016...... 0.776037384 0.882158250 0.993175678 1.109587241 1.231971784 1.361008315 1.497446250 1.641798735
February 17, 2016..... 0.772686442 0.878349077 0.988887130 1.104796026 1.226652110 1.355131460 1.490978925 1.639698915
March 17, 2016........ 0.769309730 0.874510609 0.984565600 1.099967963 1.221291525 1.349209407 1.484461846 1.627209353
April 17, 2016........ 0.765907042 0.870642613 0.980210827 1.095102761 1.215889704 1.343241800 1.477894617 1.619988463
May 17, 2016.......... 0.762478173 0.866744857 0.975822548 1.090200125 1.210446320 1.337228277 1.471276842 1.619163567
June 17, 2016......... 0.759022917 0.862817104 0.971400497 1.085259759 1.204961045 1.331168475 1.466712678 1.604958185
July 17, 2016......... 0.755541063 0.858859117 0.966944407 1.080281364 1.199433546 1.325062027 1.457763681 1.597559825
August 17, 2016....... 0.752032402 0.854870657 0.962454009 1.075264640 1.193863491 1.318908565 1.450989314 1.598194978
September 17, 2016.... 0.748496721 0.850851482 0.957929031 1.070209283 1.188250541 1.312707716 1.444162718 1.582062988
October 17, 2016...... 0.744933807 0.846801349 0.953369199 1.065114986 1.182594357 1.306459104 1.437283479 1.584224299
November 17, 2016..... 0.741343442 0.842720013 0.948774236 1.059981441 1.176894596 1.300162351 1.430351177 1.566202986
December 17, 2016..... 0.737725411 0.838607226 0.944143865 1.054808338 1.171150912 1.293817075 1.423365391 1.570043004
January 17, 2017...... 0.734079492 0.834462739 0.939477805 1.049595362 1.165362959 1.287422892 1.416325694 1.549960021
February 17, 2017..... 0.730405467 0.830286300 0.934775772 1.044342197 1.159530384 1.280979414 1.412990329 1.555644261
March 17, 2017........ 0.726703110 0.826077657 0.930037482 1.039048525 1.153652834 1.275741930 1.401860627 1.548693339
April 17, 2017........ 0.722972198 0.821836554 0.925262646 1.033714024 1.147729951 1.267875885 1.394651963 1.524315494
May 17, 2017.......... 0.719212505 0.817562733 0.920450976 1.028338370 1.141761377 1.261280757 1.387387537 1.533934518
June 17, 2017......... 0.715423801 0.813255935 0.915602178 1.022921238 1.135746749 1.254634716 1.380066900 1.526749280
July 17, 2017......... 0.711605856 0.808915898 0.910715957 1.017462297 1.129685701 1.247937359 1.378315071 1.497416155
August 17, 2017....... 0.707758439 0.804542358 0.905792018 1.011961215 1.123577865 1.241188276 1.364922491 1.511600585
September 17, 2017.... 0.703881315 0.800135048 0.900830060 1.006417659 1.117422869 1.234387057 1.357423434 1.504153869
October 17, 2017...... 0.699974249 0.795693702 0.895829781 1.000831290 1.111220339 1.227533286 1.349866165 1.496588656
November 17, 2017..... 0.696037002 0.791218048 0.890790877 0.995201769 1.104969896 1.220626545 1.349991143 1.488898061
December 17, 2017..... 0.692069335 0.786707814 0.885713041 0.989528752 1.098671161 1.213666412 1.334117150 1.481074752
January 17, 2018...... 0.688071006 0.782162725 0.880595964 0.983811895 1.092323750 1.206652463 1.326372522 1.473110925
February 17, 2018..... 0.684041771 0.777582504 0.875439334 0.978050849 1.085927275 1.199584268 1.328588220 1.464998270
March 17, 2018........ 0.679981385 0.772966872 0.870242836 0.972245261 1.079481347 1.192461395 1.310108686 1.501870203
April 17, 2018........ 0.675889600 0.768315547 0.865006153 0.966394779 1.072985572 1.188626881 1.302168507 1.448018583
May 17, 2018.......... 0.671766166 0.763628245 0.859728966 0.960499045 1.066439554 1.177870974 1.306786818 1.439282473
June 17, 2018......... 0.667610831 0.758904680 0.854410952 0.954557699 1.059842893 1.170577508 1.285353989 1.490059664
July 17, 2018......... 0.663423341 0.754144564 0.849051787 0.948570379 1.053195187 1.163227496 1.277209114 1.420420532
August 17, 2018....... 0.659203442 0.749347605 0.843651142 0.942536717 1.046496028 1.155820485 1.284582911 1.483018922
September 17, 2018.... 0.654950874 0.744513510 0.838208689 0.936456346 1.039745008 1.148356018 1.259803558 1.399901715
October 17, 2018...... 0.650665377 0.739641985 0.832724094 0.930328894 1.032941714 1.140833632 1.269983073 1.475899785
November 17, 2018..... 0.646346690 0.734732730 0.827197022 0.924153985 1.026085729 1.133252863 1.241919628 1.473346828
December 17, 2018..... 0.641994548 0.729785445 0.821627133 0.917931242 1.019176634 1.131662586 1.255194241 1.364295820
January 17, 2019...... 0.637608685 0.724799827 0.816014088 0.911660283 1.012214005 1.117590380 1.248331394 1.465857971
February 17, 2019..... 0.633188831 0.719775571 0.810357542 0.905340725 1.007267294 1.109824265 1.213370432 1.462888739
March 17, 2019........ 0.628734716 0.714712369 0.804657148 0.898972180 0.998026590 1.101997661 1.233229003 1.459671212
April 17, 2019........ 0.624246067 0.709609910 0.798912557 0.892554258 0.990898496 1.094110078 1.194024035 1.612701499
May 17, 2019.......... 0.619722608 0.704467882 0.793123417 0.886086564 0.983715079 1.086161016 1.217917681 1.453435519
June 17, 2019......... 0.615164063 0.699285968 0.787289373 0.879568703 0.976475894 1.087498963 1.210703762 1.448956541
July 17, 2019......... 0.610570150 0.694063851 0.781410066 0.873000273 0.969180496 1.069575540 1.203376037 1.655405689
August 17, 2019....... 0.605940588 0.688801210 0.775485135 0.866380873 0.961828433 1.061427298 1.151012057 1.438666654
September 17, 2019.... 0.601275093 0.683497722 0.769514216 0.859710094 0.954419252 1.053215207 1.187549975 1.690467576
October 17, 2019...... 0.596573378 0.678153061 0.763496942 0.852987526 0.946952495 1.044938735 1.179935657 1.713088957
November 17, 2019..... 0.591835153 0.672766898 0.757432943 0.846212758 0.939427700 1.049880123 1.172178448 1.736683128
December 17, 2019..... 0.587060128 0.667338901 0.751321847 0.839385371 0.931844402 1.027478384 1.164267599 1.761233287
January 17, 2020...... 0.582248007 0.661868737 0.745163276 0.832504945 0.924202130 1.018988409 1.156191548 1.786715781
February 17, 2020..... 0.577398496 0.656356069 0.738956853 0.825571058 0.916500412 1.027751014 1.147937863 1.813099213
March 17, 2020........ 0.572511295 0.650800558 0.732702194 0.818583281 0.908738769 1.000877754 1.139493173 1.840343465
April 17, 2020........ 0.567586103 0.645201860 0.726398914 0.811541185 0.900916721 0.992162096 1.220398870 2.422575883
May 17, 2020.......... 0.562622617 0.639559632 0.720046625 0.804444335 0.893033782 1.005359672 1.121627396 1.904655012
June 17, 2020......... 0.557620530 0.633873524 0.713644935 0.797292293 0.891185798 0.973342066 1.112324624 0.000000000
July 17, 2020......... 0.552579534 0.628143187 0.707193449 0.790084619 0.876788599 0.964386559 1.102752530 0.000000000
August 17, 2020....... 0.547499318 0.622368266 0.700691769 0.782820868 0.868712653 0.982726369 1.219581684 0.000000000
September 17, 2020.... 0.542379569 0.616548405 0.694139493 0.775500590 0.860573599 0.944788654 1.081289075 0.000000000
October 17, 2020...... 0.537219969 0.610683245 0.687536217 0.768123335 0.852370919 0.968327334 1.222830143 0.000000000
<CAPTION>
PAYMENT DATE 1,000% PSA
------------ ----------
<S> <C>
January 17, 2015...... 1.889923410
February 17, 2015..... 1.876896815
March 17, 2015........ 1.876380680
April 17, 2015........ 1.862039016
May 17, 2015.......... 1.862621628
June 17, 2015......... 1.855869775
July 17, 2015......... 1.838796890
August 17, 2015....... 1.841756730
September 17, 2015.... 1.834784344
October 17, 2015...... 1.827717981
November 17, 2015..... 1.805950266
December 17, 2015..... 1.813077822
January 17, 2016...... 1.805758994
February 17, 2016..... 1.798330573
March 17, 2016........ 1.790787150
April 17, 2016........ 1.806350013
May 17, 2016.......... 1.775211757
June 17, 2016......... 1.767208692
July 17, 2016......... 1.759060625
August 17, 2016....... 1.784506208
September 17, 2016.... 1.741743098
October 17, 2016...... 1.773984168
November 17, 2016..... 1.769221133
December 17, 2016..... 1.764289917
January 17, 2017...... 1.701967086
February 17, 2017..... 1.752895081
March 17, 2017........ 1.747437895
April 17, 2017........ 1.818985187
May 17, 2017.......... 1.736218816
June 17, 2017......... 1.729710174
July 17, 2017......... 1.828322057
August 17, 2017....... 1.715350927
September 17, 2017.... 1.836878582
October 17, 2017...... 1.843259845
November 17, 2017..... 1.849763979
December 17, 2017..... 1.856344134
January 17, 2018...... 1.862946744
February 17, 2018..... 1.869510846
March 17, 2018........ 2.130052076
April 17, 2018........ 1.885131513
May 17, 2018.......... 2.208599105
June 17, 2018......... 2.257162522
July 17, 2018......... 2.308829405
August 17, 2018....... 2.363733646
September 17, 2018.... 2.422011863
October 17, 2018...... 2.483803069
November 17, 2018..... 1.289530482
December 17, 2018..... 0.000000000
January 17, 2019...... 0.000000000
February 17, 2019..... 0.000000000
March 17, 2019........ 0.000000000
April 17, 2019........ 0.000000000
May 17, 2019.......... 0.000000000
June 17, 2019......... 0.000000000
July 17, 2019......... 0.000000000
August 17, 2019....... 0.000000000
September 17, 2019.... 0.000000000
October 17, 2019...... 0.000000000
November 17, 2019..... 0.000000000
December 17, 2019..... 0.000000000
January 17, 2020...... 0.000000000
February 17, 2020..... 0.000000000
March 17, 2020........ 0.000000000
April 17, 2020........ 0.000000000
May 17, 2020.......... 0.000000000
June 17, 2020......... 0.000000000
July 17, 2020......... 0.000000000
August 17, 2020....... 0.000000000
September 17, 2020.... 0.000000000
October 17, 2020...... 0.000000000
</TABLE>
A-12
<PAGE> 262
<TABLE>
<CAPTION>
PAYMENT DATE 600% PSA 650% PSA 700% PSA 750% PSA 800% PSA 850% PSA 900% PSA 950% PSA
------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 17, 2020..... 0.532020200 0.604772423 0.680881532 0.760688645 0.844104093 0.924530397 1.057137013 0.000000000
December 17, 2020..... 0.526779941 0.598815574 0.674175028 0.753196062 0.835772595 0.915121043 1.226901679 0.000000000
January 17, 2021...... 0.521498868 0.592812329 0.667416290 0.745645122 0.827375892 0.945369508 1.231531640 0.000000000
February 17, 2021..... 0.516176653 0.586762317 0.660604899 0.738035358 0.830227694 0.893930316 1.236242004.. 0.000000000
March 17, 2021........ 0.510812968 0.580665163 0.653740434 0.730366299 0.809837120 0.930801855 1.240994270 0.000000000
April 17, 2021........ 0.505407480 0.574520491 0.646822470 0.722637470 0.801227087 0.924711224 0.973420936 0.000000000
May 17, 2021.......... 0.499959855 0.568327918 0.639850578 0.714848392 0.792549177 0.859159154 1.246524777 0.000000000
June 17, 2021......... 0.494469755 0.562087063 0.632824326 0.711107960 0.783802811 0.910049541 1.580595122 0.000000000
July 17, 2021......... 0.488936840 0.555797537 0.625743279 0.698909117 0.774987400 0.835581836 1.259457925 0.000000000
August 17, 2021....... 0.483360766 0.549458952 0.618606998 0.690931515 0.766102351 0.895335337 1.263639364 0.000000000
September 17, 2021.... 0.477741188 0.543070912 0.611415040 0.682891535 0.775524459 0.889086087 1.267501058 0.000000000
October 17, 2021...... 0.472077756 0.536633023 0.604166958 0.674788672 0.747230171 0.882746921 1.757989586 0.000000000
November 17, 2021..... 0.466370120 0.530144884 0.596862303 0.666622413 0.738107643 0.780508162 1.275438452 0.000000000
December 17, 2021..... 0.460617925 0.523606093 0.589500621 0.658392241 0.728912095 0.867865464 1.872832929 0.000000000
January 17, 2022...... 0.454820813 0.517016242 0.582081455 0.650097637 0.719642846 0.861345983 0.000000000 0.000000000
February 17, 2022..... 0.448978423 0.510374923 0.574604342 0.641738074 0.737015881 0.854697143 0.000000000 0.000000000
March 17, 2022........ 0.443090394 0.503681723 0.567068819 0.633313021 0.699583901 0.847902591 0.000000000 0.000000000
April 17, 2022........ 0.437156358 0.496936224 0.559474416 0.624821942 0.690051357 0.840944319 0.000000000 0.000000000
May 17, 2022.......... 0.431175945 0.490138008 0.551820661 0.616264296 0.680440755 0.833802499 0.000000000 0.000000000
June 17, 2022......... 0.425148785 0.483286651 0.544107077 0.607639537 0.707186024 0.826455306 0.000000000 0.000000000
July 17, 2022......... 0.419074500 0.476381726 0.536333185 0.598947113 0.659211816 0.818878711 0.000000000 0.000000000
August 17, 2022....... 0.412952714 0.469422803 0.528498498 0.590186467 0.649307933 0.811046262 0.000000000 0.000000000
September 17, 2022.... 0.406783044 0.462409448 0.520602530 0.581357036 0.686394729 0.802928831 0.000000000 0.000000000
October 17, 2022...... 0.400565105 0.455341224 0.512644788 0.572458252 0.626958355 0.794494338 0.000000000 0.000000000
November 17, 2022..... 0.394298510 0.448217690 0.504624775 0.577038001 0.616727617 1.053878586 0.000000000 0.000000000
December 17, 2022..... 0.387982868 0.441038402 0.496541991 0.553859207 0.666169037 0.775020692 0.000000000 0.000000000
January 17, 2023...... 0.381617783 0.433802911 0.488395932 0.544729771 0.593084315 0.764939626 0.000000000 0.000000000
February 17, 2023..... 0.375202860 0.426510765 0.480186088 0.535527779 0.582483274 1.106512764 0.000000000 0.000000000
March 17, 2023........ 0.368737697 0.419161510 0.471911947 0.526252573 0.646724739 0.739641017 0.000000000 0.000000000
April 17, 2023........ 0.362221889 0.411754685 0.463572991 0.516903488 0.557329012 1.152470855 0.000000000 0.000000000
May 17, 2023.......... 0.355655031 0.404289827 0.455168699 0.507479842 0.636363819 0.708626757 0.000000000 0.000000000
June 17, 2023......... 0.349036710 0.396766470 0.446698546 0.497980943 0.530766620 1.204733132 0.000000000 0.000000000
July 17, 2023......... 0.342366512 0.389184142 0.438162002 0.488406082 0.519359069 1.239871704 0.000000000 0.000000000
August 17, 2023....... 0.335644021 0.381542370 0.429558531 0.478754537 0.619005089 0.643399095 0.000000000 0.000000000
September 17, 2023.... 0.328868816 0.373840674 0.420887596 0.497736302 0.490733687 0.000000000 0.000000000 0.000000000
October 17, 2023...... 0.322040470 0.366078573 0.412148654 0.457959958 0.610586106 0.000000000 0.000000000 0.000000000
November 17, 2023..... 0.315158558 0.358255579 0.403341156 0.448026824 0.610088795 0.000000000 0.000000000 0.000000000
December 17, 2023..... 0.308222648 0.350371203 0.394464550 0.438011327 0.440274338 0.000000000 0.000000000 0.000000000
January 17, 2024...... 0.301232304 0.342424949 0.385518280 0.427912435 0.603450534 0.000000000 0.000000000 0.000000000
February 17, 2024..... 0.294187087 0.334416320 0.376501785 0.417729063 0.405453464 0.000000000 0.000000000 0.000000000
March 17, 2024........ 0.287086557 0.326344813 0.379183417 0.407460074 0.598215548 0.000000000 0.000000000 0.000000000
April 17, 2024........ 0.279930267 0.318209920 0.357794288 0.447653755 0.599622711 0.000000000 0.000000000 0.000000000
May 17, 2024.......... 0.272717767 0.310011132 0.348544410 0.384433874 0.341526240 0.000000000 0.000000000 0.000000000
June 17, 2024......... 0.265448604 0.301747933 0.339220776 0.373805461 0.597094469 0.000000000 0.000000000 0.000000000
July 17, 2024......... 0.258122322 0.293419803 0.329822686 0.363079877 0.600013639 0.000000000 0.000000000 0.000000000
August 17, 2024....... 0.250738460 0.285026219 0.320349418 0.352254954 0.603445365 0.000000000 0.000000000 0.000000000
September 17, 2024.... 0.243296553 0.276566653 0.310800227 0.420518263 0.607418699 0.000000000 0.000000000 0.000000000
October 17, 2024...... 0.235796134 0.268040572 0.301174345 0.326792255 0.192887226 0.000000000 0.000000000 0.000000000
November 17, 2024..... 0.228236729 0.259447441 0.291470972 0.315485280 0.611407119 0.000000000 0.000000000 0.000000000
December 17, 2024..... 0.220617863 0.250786717 0.281689276 0.304054809 0.617633642 0.000000000 0.000000000 0.000000000
January 17, 2025...... 0.212939056 0.242057856 0.271828386 0.292495696 0.624617645 0.000000000 0.000000000 0.000000000
February 17, 2025..... 0.205199825 0.233260307 0.261887382 0.403287908 0.632416522 0.000000000 0.000000000 0.000000000
March 17, 2025........ 0.197399680 0.224393515 0.251865291 0.263508246 0.000000000 0.000000000 0.000000000 0.000000000
April 17, 2025........ 0.189538131 0.215456922 0.241761076 0.251218744 0.000000000 0.000000000 0.000000000 0.000000000
May 17, 2025.......... 0.181614682 0.206449964 0.231573616 0.238742524 0.000000000 0.000000000 0.000000000 0.000000000
June 17, 2025......... 0.173628832 0.197372072 0.221301695 0.406613312 0.000000000 0.000000000 0.000000000 0.000000000
July 17, 2025......... 0.165580077 0.188222673 0.210943978 0.205057024 0.000000000 0.000000000 0.000000000 0.000000000
August 17, 2025....... 0.157467909 0.179001190 0.200498977 0.191390871 0.000000000 0.000000000 0.000000000 0.000000000
September 17, 2025.... 0.149291816 0.169707039 0.189965012 0.429852581 0.000000000 0.000000000 0.000000000 0.000000000
October 17, 2025...... 0.141051280 0.160339634 0.242607875 0.151601962 0.000000000 0.000000000 0.000000000 0.000000000
November 17, 2025..... 0.132745781 0.150898383 0.166059243 0.135960788 0.000000000 0.000000000 0.000000000 0.000000000
December 17, 2025..... 0.124374794 0.141382687 0.155041907 0.477112862 0.000000000 0.000000000 0.000000000 0.000000000
January 17, 2026...... 0.115937789 0.131791946 0.143896029 0.086374436 0.000000000 0.000000000 0.000000000 0.000000000
February 17, 2026..... 0.107434231 0.122125551 0.132610753 0.067087334 0.000000000 0.000000000 0.000000000 0.000000000
March 17, 2026........ 0.098863583 0.112382892 0.121171826 0.567025044 0.000000000 0.000000000 0.000000000 0.000000000
April 17, 2026........ 0.090225302 0.102563351 0.109560056 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
May 17, 2026.......... 0.081518841 0.092666306 0.097748847 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
June 17, 2026......... 0.072743647 0.082691130 0.085700088 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
July 17, 2026......... 0.063899165 0.072637190 0.073356961 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
August 17, 2026....... 0.054984833 0.062503849 0.060630578 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
<CAPTION>
PAYMENT DATE 1,000% PSA
------------ ----------
<S> <C>
November 17, 2020..... 0.000000000
December 17, 2020..... 0.000000000
January 17, 2021...... 0.000000000
February 17, 2021..... 0.000000000
March 17, 2021........ 0.000000000
April 17, 2021........ 0.000000000
May 17, 2021.......... 0.000000000
June 17, 2021......... 0.000000000
July 17, 2021......... 0.000000000
August 17, 2021....... 0.000000000
September 17, 2021.... 0.000000000
October 17, 2021...... 0.000000000
November 17, 2021..... 0.000000000
December 17, 2021..... 0.000000000
January 17, 2022...... 0.000000000
February 17, 2022..... 0.000000000
March 17, 2022........ 0.000000000
April 17, 2022........ 0.000000000
May 17, 2022.......... 0.000000000
June 17, 2022......... 0.000000000
July 17, 2022......... 0.000000000
August 17, 2022....... 0.000000000
September 17, 2022.... 0.000000000
October 17, 2022...... 0.000000000
November 17, 2022..... 0.000000000
December 17, 2022..... 0.000000000
January 17, 2023...... 0.000000000
February 17, 2023..... 0.000000000
March 17, 2023........ 0.000000000
April 17, 2023........ 0.000000000
May 17, 2023.......... 0.000000000
June 17, 2023......... 0.000000000
July 17, 2023......... 0.000000000
August 17, 2023....... 0.000000000
September 17, 2023.... 0.000000000
October 17, 2023...... 0.000000000
November 17, 2023..... 0.000000000
December 17, 2023..... 0.000000000
January 17, 2024...... 0.000000000
February 17, 2024..... 0.000000000
March 17, 2024........ 0.000000000
April 17, 2024........ 0.000000000
May 17, 2024.......... 0.000000000
June 17, 2024......... 0.000000000
July 17, 2024......... 0.000000000
August 17, 2024....... 0.000000000
September 17, 2024.... 0.000000000
October 17, 2024...... 0.000000000
November 17, 2024..... 0.000000000
December 17, 2024..... 0.000000000
January 17, 2025...... 0.000000000
February 17, 2025..... 0.000000000
March 17, 2025........ 0.000000000
April 17, 2025........ 0.000000000
May 17, 2025.......... 0.000000000
June 17, 2025......... 0.000000000
July 17, 2025......... 0.000000000
August 17, 2025....... 0.000000000
September 17, 2025.... 0.000000000
October 17, 2025...... 0.000000000
November 17, 2025..... 0.000000000
December 17, 2025..... 0.000000000
January 17, 2026...... 0.000000000
February 17, 2026..... 0.000000000
March 17, 2026........ 0.000000000
April 17, 2026........ 0.000000000
May 17, 2026.......... 0.000000000
June 17, 2026......... 0.000000000
July 17, 2026......... 0.000000000
August 17, 2026....... 0.000000000
</TABLE>
A-13
<PAGE> 263
<TABLE>
<CAPTION>
PAYMENT DATE 600% PSA 650% PSA 700% PSA 750% PSA 800% PSA 850% PSA 900% PSA 950% PSA
------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 17, 2026.... 0.046000086 0.052290464 0.357396973 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
October 17, 2026...... 0.036944353 0.041996386 0.019136354 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
November 17, 2026..... 0.027817061 0.031620963 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
December 17, 2026..... 0.018617628 0.021163534 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
January 17, 2027...... 0.009345471 0.010623437 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
February 17, 2027..... 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
March 17, 2027........ 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
April 17, 2027........ 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
May 17, 2027.......... 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
June 17, 2027......... 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000 0.000000000
<CAPTION>
PAYMENT DATE 1,000% PSA
------------ ----------
<S> <C>
September 17, 2026.... 0.000000000
October 17, 2026...... 0.000000000
November 17, 2026..... 0.000000000
December 17, 2026..... 0.000000000
January 17, 2027...... 0.000000000
February 17, 2027..... 0.000000000
March 17, 2027........ 0.000000000
April 17, 2027........ 0.000000000
May 17, 2027.......... 0.000000000
June 17, 2027......... 0.000000000
</TABLE>
A-14
<PAGE> 264
==========================================================
THIS SUPPLEMENT, TOGETHER WITH THE MULTICLASS SECURITIES OFFERING CIRCULAR,
CONSTITUTES AN OFFER TO SELL ONLY THE SECURITIES OFFERED HEREBY. FREDDIE MAC HAS
NOT AUTHORIZED ANY BROKER, DEALER OR SALESPERSON, OR ANYONE ELSE, TO MAKE ANY
STATEMENTS, WRITTEN OR ORAL, IN CONNECTION WITH THE OFFER, EXCEPT FOR THOSE
CONTAINED IN THIS SUPPLEMENT AND IN THE OTHER DOCUMENTS AND SOURCES OF
INFORMATION PREPARED BY FREDDIE MAC THAT ARE LISTED UNDER "AVAILABLE
INFORMATION" IN THIS SUPPLEMENT. INVESTORS MUST NOT RELY ON ANY OTHER STATEMENTS
AS HAVING BEEN AUTHORIZED BY EITHER FREDDIE MAC OR THE UNDERWRITER. THIS
SUPPLEMENT AND THE MULTICLASS SECURITIES OFFERING CIRCULAR DO NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES BY ANYONE IN
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL, OR WHERE
THE PERSON MAKING SUCH AN OFFER OR SOLICITATION WOULD NOT BE QUALIFIED TO DO SO,
OR TO ANYONE TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
FREDDIE MAC MAKES NO REPRESENTATION THAT THE STATEMENTS IN THIS SUPPLEMENT OR
ANY OTHER DOCUMENT WILL BE CORRECT AT ANY TIME AFTER THE DATE OF SUCH DOCUMENT,
EVEN THOUGH DELIVERY OF THE DOCUMENT AND THE SALE OF THE SECURITIES TAKE PLACE
ON A LATER DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
OFFERING CIRCULAR SUPPLEMENT
Certain Risk Considerations.......................... S-2
Terms Sheet.......................................... S-3
Available Information................................ S-7
General Information.................................. S-7
Multiclass Security Agreement.................... S-7
Form of Securities............................... S-7
Holders.......................................... S-8
Structure of Transaction......................... S-8
The Mortgages.................................... S-8
Payment Exchange Certificates........................ S-9
General.......................................... S-9
Conversion....................................... S-9
Procedures....................................... S-9
Payments............................................. S-10
Payment Dates; Record Dates...................... S-10
Method of Payment................................ S-10
Class Factors.................................... S-10
Interest......................................... S-11
Principal........................................ S-12
Guarantees....................................... S-13
Optional Redemption.............................. S-13
Residual Proceeds................................ S-13
Prepayment and Yield Analysis........................ S-13
General.......................................... S-13
Prepayment and Weighted Average Life
Considerations................................. S-15
Yield Considerations............................. S-17
Final Payment Dates.................................. S-32
Certain Federal Income Tax Consequences.............. S-32
General.......................................... S-32
Regular Classes.................................. S-32
Residual Classes................................. S-33
PECs Classes..................................... S-33
MACR Classes..................................... S-36
Legal Investment Considerations; ERISA
Considerations..................................... S-36
Plan of Distribution................................. S-37
Legal Matters........................................ S-37
Appendix 1 -- Available Combinations................. A-1
Appendix 2 -- Premium Table.......................... A-2
MULTICLASS SECURITIES OFFERING CIRCULAR
Offering Circular Summary............................ 3
Federal Home Loan Mortgage Corporation............... 9
Availability of Information and Incorporation by
Reference.......................................... 9
Description of Multiclass Securities................. 9
MACR Certificates.................................... 26
The Multiclass Security Agreement.................... 29
Certain Federal Income Tax Consequences.............. 31
ERISA Considerations................................. 42
Legal Investment Considerations...................... 43
Plan of Distribution................................. 43
Increase in Size of Offering......................... 43
Accounting Considerations............................ 43
</TABLE>
==========================================================
==========================================================
$337,000,000
FEDERAL HOME LOAN
MORTGAGE CORPORATION
MULTICLASS MORTGAGE
SECURITIES, PAYMENT
EXCHANGE CERTIFICATES
AND MODIFIABLE AND COMBINABLE
REMIC CERTIFICATES,
SERIES G063
[FREDDIE MAC LOGO]
BEAR, STEARNS & CO. INC.
OFFERING CIRCULAR SUPPLEMENT
DATED JUNE 2, 1997
==========================================================
<PAGE> 265
OFFERING CIRCULAR SUPPLEMENT
(TO OFFERING CIRCULARS DATED JANUARY 1, 1997)
$609,094,428
FREDDIE MAC
MULTICLASS MORTGAGE PARTICIPATION CERTIFICATES, MULTICLASS MORTGAGE SECURITIES
AND MODIFIABLE AND COMBINABLE REMIC CERTIFICATES, SERIES 2008
[FREDDIE MAC LOGO]
<TABLE>
<S> <C>
Offered Securities: Classes of Multiclass PCs and Multiclass Securities listed
below; MACR Classes listed on Appendix 1 to this
Supplement
Guarantee: Principal and interest guaranteed by Freddie Mac, as
described in this Supplement
Tax Status: REMIC (Single-Tier)
Underlying Assets: Five Asset Groups, consisting of one Group of Freddie Mac
6.5% PCs (Gold PCs and Gold Giant PCs), three Groups of
Freddie Mac Multiclass PCs and one Group of 7.0%
GNMA-Related Securities (GNMA Certificates and Giant
Securities)
Payment Dates: Monthly, beginning in December 1997, as described in this
Supplement
Form of Securities: Regular Classes of Multiclass PCs and MACR Classes:
Book-entry (Federal Reserve Banks)
Regular Classes of Multiclass Securities: Book-entry
(Participants Trust Company)
Residual Class (R): Certificated
Offering Terms: Classes offered in negotiated transactions at varying prices
through Bear, Stearns & Co. Inc. (the "Underwriter")
Closing Date: November 28, 1997
</TABLE>
THE RISKS ASSOCIATED WITH THE SECURITIES MAY MAKE THEM UNSUITABLE FOR SOME
INVESTORS. SEE "CERTAIN RISK CONSIDERATIONS" AND "PREPAYMENT AND YIELD ANALYSIS"
IN THIS SUPPLEMENT.
INVESTORS SHOULD READ THIS SUPPLEMENT IN CONJUNCTION WITH THE DOCUMENTS LISTED
UNDER "AVAILABLE INFORMATION" IN THIS SUPPLEMENT.
THE OBLIGATIONS OF FREDDIE MAC UNDER ITS GUARANTEES OF THE SECURITIES ARE
OBLIGATIONS OF FREDDIE MAC ONLY. THE SECURITIES, INCLUDING ANY INTEREST THEREON,
ARE NOT GUARANTEED BY THE UNITED STATES AND DO NOT CONSTITUTE DEBTS OR
OBLIGATIONS OF THE UNITED STATES OR ANY AGENCY OR INSTRUMENTALITY OF THE UNITED
STATES OTHER THAN FREDDIE MAC. INCOME ON THE SECURITIES HAS NO EXEMPTION UNDER
FEDERAL LAW FROM FEDERAL, STATE OR LOCAL TAXATION. THE SECURITIES ARE EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE
"EXEMPTED SECURITIES" WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934.
================================================================================
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL OR WEIGHTED
CLASS OF MULTICLASS PCS PRINCIPAL OTHER CLASS INTEREST CUSIP FINAL PAYMENT AVERAGE
OR MULTICLASS SECURITIES(1) AMOUNT TYPE(2) COUPON TYPE(2) NUMBER DATE(3) LIFE(4)
- --------------------------- --------- ------------ ------ -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
GROUP 1
A ........................ $201,381,000 SEQ 6.5% FIX 3133TC6A1 November 15, 2023 4.5Yrs
B ........................ 38,619,000 SEQ 6.5 FIX 3133TC6B9 August 15, 2025 12.2
D ........................ 30,000,000 SEQ 6.5 FIX 3133TC6D5 October 15, 2026 16.5
E ........................ 30,000,000 SEQ 6.5 FIX 3133TC6E3 November 15, 2027 22.9
GROUP 2
F ........................ 19,686,076 SC/PT (5) FLT/DLY 3133TC6F0 November 15, 2023 17.1
S ........................ 6,057,255 SC/PT (5) INV/DLY 3133TC6U7 November 15, 2023 17.1
GROUP 3
FA........................ 17,723,160 SC/PT (5) FLT 3133TC6G8 February 15, 2024 5.0
SA........................ 6,801,140 SC/PT (5) INV 3133TC6V5 February 15, 2024 5.0
SB........................ 2,114,695 SC/PT (5) INV 3133TC6W3 February 15, 2024 5.0
GROUP 4
FE........................ 17,681,261 SC/SUP (5) FLT 3133TC6H6 December 15, 2023 13.7
G ........................ 25,242,000 SC/PAC 7.0 FIX 3133TC6J2 December 15, 2023 11.0
SE........................ 3,788,841 SC/SUP (5) INV 3133TC6Z6 December 15, 2023 13.7
GROUP 5
J ........................ 119,294,156 SEQ 6.75 FIX 3133TC6L7 November 20, 2022 5.0
K ........................ 11,929,400 SEQ 9.5 FIX 3133TC6M5 November 20, 2022 5.0
L ........................ 25,156,444 SEQ 7.0 FIX 3133TC6N3 October 20, 2024 11.9
M ........................ 53,620,000 SEQ 7.0 FIX 3133TC6P8 November 20, 2027 19.7
RESIDUAL
R ........................ 0 NPR 0.0 NPR 3133TC6T0 November 20, 2027 --
</TABLE>
================================================================================
(1) The Group 1, Group 2, Group 3 and Group 4 Classes are Multiclass PCs; the
Group 5 and Residual Classes are Multiclass Securities.
(2) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circular and "Description of
Multiclass Securities -- Standard Definitions and Abbreviations for Classes"
in the Multiclass Securities Offering Circular.
(3) See "Final Payment Dates" in this Supplement.
(4) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Weighted average lives are calculated at 145% PSA for the Group 1,
Group 2 and Group 5 Classes, 205% PSA for the Group 3 Classes and 195% PSA
for the Group 4 Classes. Prepayments will not occur at the rates assumed,
and the actual weighted average lives of the Classes may differ
significantly from those shown.
(5) Calculated as shown under "Terms Sheet -- Class Coupons" in this Supplement.
----------------------------
BEAR, STEARNS & CO. INC.
OFFERING CIRCULAR SUPPLEMENT DATED OCTOBER 15, 1997
<PAGE> 266
CERTAIN RISK CONSIDERATIONS
THE SECURITIES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE SECURITIES OF ANY CLASS UNLESS THE
INVESTOR UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND
MARKET RISKS ASSOCIATED WITH THAT CLASS.
------------------------
THE SECURITIES ARE COMPLEX SECURITIES AND IT IS IMPORTANT THAT EACH
INVESTOR IN ANY CLASS POSSESS, EITHER ALONE OR TOGETHER WITH AN INVESTMENT
ADVISOR, THE EXPERTISE NECESSARY TO EVALUATE THE INFORMATION CONTAINED AND
INCORPORATED IN THIS SUPPLEMENT IN THE CONTEXT OF THAT INVESTOR'S FINANCIAL
SITUATION.
------------------------
The yield of each Class will depend upon its purchase price, the rate of
principal payments on the related Assets (which will be sensitive to the rate of
principal payments on the related Mortgages) and the actual characteristics of
the related Mortgages. The yields of the Floating Rate and Inverse Floating Rate
Classes will also be sensitive to the level of LIBOR. The Mortgages are subject
to prepayment at any time without penalty. Mortgage prepayment rates are likely
to fluctuate significantly from time to time, as is the level of LIBOR. In
addition, payments on the Mortgages underlying the Group 2, Group 3 and Group 4
Assets will be allocated among the various classes of the related Series, and
the manner of such allocations will affect the sensitivity of the yield of each
related Class of this Series to Mortgage prepayment rates generally. Investors
should consider the associated risks, including:
- Fast prepayment rates on the related Mortgages can reduce the yields
of the Interest Only Classes and any other Classes purchased at a
premium over their principal amounts. Under some prepayment scenarios,
investors in the Interest Only Classes could fail to fully recover
their investments.
- Slow prepayment rates on the related Mortgages can reduce the yields
of the Principal Only Classes and any other Classes purchased at a
discount to their principal amounts.
- Small differences in the characteristics of the Mortgages can have a
significant effect on the weighted average lives and yields of the
related Classes.
- Low levels of LIBOR can reduce the yields of the Floating Rate
Classes.
- High levels of LIBOR can significantly reduce the yields of the
Inverse Floating Rate Classes and (especially in combination with fast
Mortgage prepayment rates) may result in the failure of investors in
the SC and SD Classes to fully recover their investments.
- In general, principal payment rates on the Support Classes are likely
to exhibit a higher sensitivity to prepayments on the related Mortgages
than is the principal payment rate on the PAC Class.
- The Group 2 and Group 4 Assets are Support Classes. In general,
principal payment rates on the Group 2 and Group 4 Assets (and,
therefore, on the related Classes of this Series) are likely to exhibit
a high degree of sensitivity to Mortgage prepayment rates.
- The Group 3 Assets were structured as Type II PAC Classes. However,
such Type II PAC Classes have not received principal payments in
accordance with their schedules and they will not do so in the future.
See "Prepayment and Yield Analysis" in this Supplement.
------------------------
THE UNDERWRITER INTENDS TO MAKE A MARKET FOR THE PURCHASE AND SALE OF THE
SECURITIES AFTER THEIR INITIAL ISSUANCE BUT HAS NO OBLIGATION TO DO SO. THERE IS
NO ASSURANCE THAT SUCH A SECONDARY MARKET WILL DEVELOP OR, IF IT DEVELOPS, THAT
IT WILL CONTINUE. CONSEQUENTLY, INVESTORS MAY NOT BE ABLE TO SELL THEIR
SECURITIES READILY OR AT PRICES THAT WILL ENABLE THEM TO REALIZE THEIR DESIRED
YIELD. THE MARKET VALUES OF THE SECURITIES ARE LIKELY TO FLUCTUATE; SUCH
FLUCTUATIONS MAY BE SIGNIFICANT AND COULD RESULT IN SIGNIFICANT LOSSES TO
INVESTORS.
------------------------
THE SECONDARY MARKETS FOR MORTGAGE-RELATED SECURITIES HAVE EXPERIENCED
PERIODS OF ILLIQUIDITY AND CAN BE EXPECTED TO DO SO IN THE FUTURE. ILLIQUIDITY
CAN HAVE A SEVERELY ADVERSE EFFECT ON THE PRICES OF SECURITIES THAT ARE
ESPECIALLY SENSITIVE TO PREPAYMENT OR INTEREST RATE RISK OR THAT HAVE BEEN
STRUCTURED TO MEET THE INVESTMENT REQUIREMENTS OF LIMITED CATEGORIES OF
INVESTORS.
FREDDIE MAC'S MULTICLASS MORTGAGE PARTICIPATION CERTIFICATES OFFERING
CIRCULAR DATED JANUARY 1, 1997 (THE "MULTICLASS PC OFFERING CIRCULAR") AND ITS
MULTICLASS MORTGAGE SECURITIES OFFERING CIRCULAR DATED JANUARY 1, 1997 (THE
"MULTICLASS SECURITIES OFFERING CIRCULAR" AND, TOGETHER WITH THE MULTICLASS PC
OFFERING CIRCULAR, THE "MULTICLASS OFFERING CIRCULARS") ACCOMPANY THIS
SUPPLEMENT. CAPITALIZED TERMS THAT ARE USED IN THIS SUPPLEMENT WITHOUT FURTHER
DEFINITION HAVE THE MEANINGS GIVEN THEM IN THE MULTICLASS OFFERING CIRCULARS.
INVESTORS SHOULD PURCHASE SECURITIES ONLY IF THEY HAVE READ AND UNDERSTOOD THIS
SUPPLEMENT, THE MULTICLASS OFFERING CIRCULARS AND THE DOCUMENTS LISTED UNDER
"AVAILABLE INFORMATION" IN THIS SUPPLEMENT.
S-2
<PAGE> 267
TERMS SHEET
THIS TERMS SHEET CONTAINS SELECTED INFORMATION ABOUT THIS SERIES. INVESTORS
SHOULD REFER TO THE REMAINDER OF THIS SUPPLEMENT FOR FURTHER INFORMATION.
MACR CERTIFICATES
This Series provides for the issuance of Classes (each, a "MACR Class") of
Modifiable and Combinable REMIC Certificates ("MACR Certificates") in exchange
for certain Classes of Multiclass PCs. Holders of such Multiclass PCs will be
entitled to exchange all or a portion of their Multiclass PCs for related MACR
Certificates, and Holders of MACR Certificates will be entitled to exchange all
or a portion of their MACR Certificates for related Multiclass PCs. Appendix 1
to this Supplement shows the characteristics of the MACR Classes and the
"Combinations" of Classes of Multiclass PCs and related MACR Certificates. As
used in this Supplement, unless the context requires otherwise, the term
"Securities" includes Multiclass PCs and MACR Certificates and the term
"Classes" includes Classes of Multiclass PCs and MACR Certificates.
See "MACR Certificates" in the Multiclass PC Offering Circular for a
description of MACR Certificates and procedures for effecting exchanges. The fee
payable to Freddie Mac in connection with each exchange will equal 2/32 of 1% of
the outstanding principal amount (exclusive of any notional principal amount) of
the Securities submitted for exchange (but not less than $5,000).
CLASS COUPONS
The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement or on Appendix 1 to this Supplement.
The PC and PD Classes are Principal Only Classes and will not bear
interest.
The Floating Rate and Inverse Floating Rate Classes will bear interest as
follows:
MULTICLASS PCS
<TABLE>
<CAPTION>
CLASS COUPON SUBJECT TO
---------------------------
CLASS INITIAL RATE(1) CLASS COUPON MINIMUM RATE MAXIMUM RATE
----- --------------- ------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
F(2).................... 6.575% LIBOR + 0.95% 0.95% 8.5%
FA...................... 6.075 LIBOR + 0.45% 0.45 9.0
FE...................... 6.575 LIBOR + 0.95% 0.95 8.5
S(2).................... 6.25625 24.5375% - (LIBOR X 3.25) 0 24.5375
SA...................... 4.88607 19.54432% - (LIBOR X 2.60591) 0 19.54432
SB...................... 8.8 71.65713% - (LIBOR X 8.380952) 0 8.8
SE...................... 8.983328 35.23333% - (LIBOR X 4.666667) 0 35.23333
</TABLE>
MACR CLASSES
<TABLE>
<CAPTION>
CLASS COUPON SUBJECT TO
---------------------------
CLASS INITIAL RATE(1) CLASS COUPON MINIMUM RATE MAXIMUM RATE
----- --------------- ------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
SC...................... 4.88607% 19.54432% - (LIBOR X 2.60591) 0% 19.54432%
SD(2)................... 6.25625 24.5375% - (LIBOR X 3.25) 0 24.5375
</TABLE>
- ---------------
(1) Initial Rate will be in effect during the first Accrual Period; Class Coupon
will adjust monthly thereafter.
(2) Delay Classes.
See "Payments -- Interest" in this Supplement and "Description of Multiclass
PCs -- Interest Rate Indices" in the Multiclass PC Offering Circular.
S-3
<PAGE> 268
NOTIONAL CLASSES
<TABLE>
<CAPTION>
ORIGINAL NOTIONAL
CLASS PRINCIPAL AMOUNT REDUCES PROPORTIONATELY WITH
- ----- ----------------- ----------------------------
<S> <C> <C>
SC $6,801,140 SA (Pass-Through Class)
SD 6,057,255 S (Pass-Through Class)
</TABLE>
See "Payments -- Interest -- Notional Classes" in this Supplement.
ALLOCATION OF PRINCIPAL
On each Payment Date, Freddie Mac will pay:
MULTICLASS PCS
SEQUENTIAL - The "Group 1 Asset Principal Amount" for that Payment Date to
PAY A, B, D and E, in that order, until retired
PASS- - The "Group 2 Asset Principal Amount" for that Payment Date to
THROUGH F and S, pro rata, until retired
PASS- - The "Group 3 Asset Principal Amount" for that Payment Date to
THROUGH FA, SA and SB, pro rata, until retired
- The "Group 4 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:
PAC 1. Beginning May 15, 2005, to G, until reduced to its "Targeted
Balance" for that Payment Date
SUPPORT 2. To FE and SE, pro rata, until retired
PAC 3. To G, until retired
MULTICLASS SECURITIES
- The "Group 5 Asset Principal Amount" for that Payment Date to the
Classes shown below in the following order of priority:
SEQUENTIAL 1. To J and K, pro rata, until retired
PAY
2. To L and M, in that order, until retired
The Targeted Balances for the PAC Class (shown under
"Payments -- Principal -- Targeted Balances Schedule") were structured using a
structuring range of 165% PSA through 225% PSA.
MACR CLASSES
On any Payment Date when payments of principal are to be allocated from
Multiclass PCs to related MACR Certificates, such payments will be allocated
from the applicable Class or Classes of Multiclass PCs to the related MACR Class
that is entitled to payments of principal.
See "Payments -- Principal" and "Prepayment and Yield Analysis" in this
Supplement.
GUARANTEE
Freddie Mac guarantees to each Holder of a Security (i) the timely payment
of interest at the applicable Class Coupon and (ii) the payment of the principal
amount of the Holder's Security as described in this Supplement. The Government
National Mortgage Association ("GNMA") guarantees the payment of interest and
principal on GNMA Certificates.
REMIC STATUS
Freddie Mac will form a single "REMIC Pool" for this Series. An election
will be made to treat the REMIC Pool as a "real estate mortgage investment
conduit" ("REMIC") pursuant to the Internal Revenue Code. The R Class will be
the "Residual Class" and the other Classes of Multiclass PCs and Multiclass
S-4
<PAGE> 269
Securities will be "Regular Classes." The Residual Class will be subject to
transfer restrictions. See "Certain Federal Income Tax Consequences" in this
Supplement and in the Multiclass Offering Circulars.
WEIGHTED AVERAGE LIVES (IN YEARS)*
Group 1
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
0% 75% 145% 250% 400%
-- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A............................. 14.9 7.2 4.5 2.8 1.8
B............................. 24.5 18.0 12.2 7.7 4.9
C............................. 26.9 24.0 19.7 14.0 9.1
D............................. 26.2 22.0 16.5 10.8 6.9
E............................. 27.5 26.0 22.9 17.1 11.4
Group 1 Assets................ 18.5 12.0 8.5 5.7 3.7
</TABLE>
Group 2
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
0% 75% 145% 250% 400%
-- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
F, PD, S and Group 2 Assets... 23.5 21.1 17.1 9.7 2.5
</TABLE>
Group 3
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
0% 100% 205% 350% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FA, PC, SA, SB and Group 3
Assets...................... 19.5 11.0 5.0 1.6 0.8
</TABLE>
Group 4
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
0% 165% 195% 225% 450%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FE and SE..................... 23.9 17.2 13.7 10.4 1.1
G............................. 21.5 11.0 11.0 11.0 4.6
H and Group 4 Assets.......... 22.6 13.8 12.3 10.7 3.0
</TABLE>
Group 5
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
---------------------------------
0% 75% 145% 250% 400%
-- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
J and K....................... 15.9 7.7 5.0 3.4 2.5
L............................. 25.5 17.7 11.9 7.7 5.2
M............................. 28.2 24.6 19.7 13.9 9.3
Group 5 Assets................ 20.2 13.2 9.6 6.6 4.6
</TABLE>
--------------------
* Determined as described under "Prepayment and Yield Analysis" in
this Supplement, and subject to the assumptions and qualifications
in that section. Prepayments will not occur at any assumed rate
shown or any other constant rate and the actual weighted average
lives of any or all of the Classes and of the Assets are likely to
differ from those shown, perhaps significantly.
S-5
<PAGE> 270
THE ASSETS
The Assets will consist of:
(i) $300,000,000 of Freddie Mac 6.5% per annum PCs (the "Group 1 Assets")
(ii) $210,000,000 of 7.0% per annum GNMA-Related Securities (the "Group 5
Assets")
(iii) the Group 2, Group 3 and Group 4 Assets, which will have the
following characteristics:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT IN
REMIC POOL
ASSET PERCENTAGE OF CLASS AS OF THE NOVEMBER 1997 CLASS PRINCIPAL TYPE/
GROUP CLASS IN REMIC POOL CLOSING DATE CLASS FACTOR COUPON INTEREST TYPE(1) FINAL PAYMENT DATE
- ----- ------- ------------------- ------------------- ------------- ------ ---------------- ------------------
<C> <S> <C> <C> <C> <C> <C> <C>
1619-FE 82.2949357408% $18,592,406 1.0000000 (2) SUP/FLT/DLY November 15, 2023
2 1619-SE 82.2949353355 5,498,267 1.0000000 (2) SUP/INV/DLY November 15, 2023
1619-SG 82.2949147850 1,652,658 1.0000000 (2) SUP/INV/DLY November 15, 2023
1686-FC 66.6666666667 16,777,774 0.9244896 (2) PAC II/FLT February 15, 2024
3 1686-SC 66.6666666667 9,244,896 0.9244896 (2) PAC II/INV/DLY February 15, 2024
1686-SG 66.6666000000 616,326 0.9244896 (2) PAC II/INV/DLY February 15, 2024
1644-S 17.1917639001 36,331,635 0.9841349 (2) SUP/FLT/DLY December 15, 2023
4 1644-T 17.1917639209 8,382,227 0.9841349 (2) SUP/INV/DLY December 15, 2023
1644-U 17.1917676111 1,998,240 0.9841349 (2) SUP/INV/DLY December 15, 2023
</TABLE>
- ---------------
(1) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circular. The Group 3 Assets were
structured as Type II PAC Classes, but they do not have any constant range
of Mortgage prepayments at which they would adhere to their schedules.
(2) Calculated as shown in the related Asset Offering Circular. See Exhibits I,
II and III to this Supplement.
See "General Information -- Structure of Transaction" and "Prepayment and Yield
Analysis -- Prepayment and Weighted Average Life Considerations -- The Assets"
in this Supplement and Exhibits I through III to this Supplement.
MORTGAGE CHARACTERISTICS (AS OF NOVEMBER 1, 1997)
GROUP 1 AND GROUP 5 ASSETS -- ASSUMED MORTGAGE CHARACTERISTICS
<TABLE>
<CAPTION>
PER ANNUM
INTEREST RATE
OF RELATED PCS
REMAINING TERM OR GNMA-
ASSET TO MATURITY LOAN AGE PER ANNUM RELATED
GROUP PRINCIPAL BALANCE (IN MONTHS) (IN MONTHS) INTEREST RATE SECURITIES
- ----- ----------------- -------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1 $300,000,000 338 17 7.125% 6.5%
5 210,000,000 358 1 7.750 7.0
</TABLE>
GROUP 2, GROUP 3 AND GROUP 4 ASSETS -- MORTGAGE CHARACTERISTICS
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE PER ANNUM
REMAINING TERM AVERAGE PER ANNUM INTEREST RATE
ASSET TO MATURITY LOAN AGE INTEREST OF RELATED
GROUP (IN MONTHS) (IN MONTHS) RATE PCS
- ----- ----------------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
2 297 49 7.120% 6.5%
3 293 52 7.927 7.5*
4 297 49 7.437 7.0
</TABLE>
--------------------
* The Group 3 Assets are backed by Freddie Mac Stripped Giant Mortgage
Participation Certificates issued as part of Freddie Mac's Gold MACS
(Modifiable And Combinable Securities), Series 162 (the "Stripped Giant
PCs"). The Stripped Giant PCs have a weighted average interest rate of 5%
per annum.
The actual remaining terms to maturity, loan ages and interest rates of
most of the Mortgages differ from those shown above, in some cases
significantly. See "General Information -- Structure of Transaction" and "-- The
Mortgages" in this Supplement.
S-6
<PAGE> 271
AVAILABLE INFORMATION
Investors should purchase Securities only if they have read and understood
this Supplement, the Multiclass Offering Circulars and the following documents:
- Freddie Mac's Offering Circular Supplement for its Series 1619, 1644
and 1686 Multiclass PCs, the cover pages and Terms Sheets from which
are attached to this Supplement (the "Asset Offering Circulars").
- Freddie Mac's Mortgage Participation Certificates Offering Circular
dated September 1, 1995 (the "PC Offering Circular"), which describes
Gold PCs generally.
- Freddie Mac's Giant Participation Certificates and Other Pass-Through
Participation Certificates Offering Circular dated January 1, 1997
(the "Giant PC Offering Circular"), which describes Gold Giant PCs
generally.
- Freddie Mac's Gold MACS (Modifiable And Combinable Securities), Series
162, Offering Circular Supplement dated January 10, 1994, which
describes the Stripped Giant PCs.
- Freddie Mac's Giant GNMA-Backed Securities and Other Pass-Through
Securities Offering Circular dated January 1, 1997 (the "Giant
Securities Offering Circular"), which describes Giant Securities
generally.
- Freddie Mac's Information Statement dated March 31, 1997, its
Information Statement Supplements dated May 15, 1997, August 14, 1997
and November 14, 1997 and any other Information Statement Supplements
published by Freddie Mac through the time of purchase.
This Supplement incorporates by reference the documents listed above.
Investors can order these documents: from Freddie Mac, by writing or calling its
Investor Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia 22102
(outside Washington, D.C. metropolitan area, phone 800/336-FMPC; within
Washington, D.C. metropolitan area, phone 703/450-3777); or from the
Underwriter, by writing or calling its Prospectus Department at One MetroTech
Center North, Brooklyn, New York 11201-3859 (phone 212/272-1581).
Freddie Mac will publish a Supplemental Statement applicable to this Series
(which will contain a schedule of the Assets and other information) shortly
after the Closing Date. Investors can obtain the Supplemental Statement, any
offering materials for specific PCs, Stripped Giant PCs and Giant Securities and
historic and current information concerning specific PCs, Stripped Giant PCs,
Giant Securities and Securities from Freddie Mac's Investor Inquiry Department.
Freddie Mac's Internet Web-Site (http://www.freddiemac.com) will display
this Supplement, the Supplemental Statement, a schedule of the Assets and
information, updated monthly, regarding each Class of this Series.
GENERAL INFORMATION
MULTICLASS AGREEMENT
Freddie Mac will create the Securities under the Multiclass Mortgage
Participation Certificate Agreement and the Multiclass Mortgage Security
Agreement, each dated as of January 1, 1997, and a Terms Supplement, to be dated
the Closing Date (collectively, the "Multiclass Agreement"). Investors can order
copies of the Multiclass Agreement by writing or calling the Investor Inquiry
Department at Freddie Mac at the address or phone numbers shown under "Available
Information" in this Supplement. The Multiclass Agreement is incorporated by
reference in this Supplement.
Holders and anyone having a beneficial interest in the Securities should
refer to the Multiclass Agreement for a complete description of their rights and
obligations and the rights and obligations of Freddie Mac. Holders and
beneficial owners of Securities will acquire their Securities subject to all
terms and conditions of the Multiclass Agreement, including the Terms
Supplement.
S-7
<PAGE> 272
FORM OF SECURITIES
The Regular Classes of Multiclass PCs and the MACR Classes will be issued
and may be held of record and transferred only on the book-entry system of the
Federal Reserve Banks by entities eligible to maintain book-entry accounts with
a Federal Reserve Bank ("Fed Participants").
The Regular Classes of Multiclass Securities will be maintained and
transferred through the book-entry facilities of Participants Trust Company or
its successor (the "Depository") subject to the rules and procedures of the
Depository in effect from time to time. The Depository is a New York-chartered
limited purpose trust company registered with the Securities and Exchange
Commission as a clearing agency pursuant to Section 17A of the Securities
Exchange Act of 1934. The Depository performs services for its participants,
principally brokerage firms and other financial institutions ("Depository
Participants"), some of which own the Depository.
Each Regular Class of Multiclass Securities will be represented by one or
more certificates held by or on behalf of the Depository. Neither Holders nor
beneficial owners of such a Class will receive certificates. Beneficial
ownership will be recorded on the records of the brokerage firm, bank, thrift
institution or other financial intermediary where the beneficial owner maintains
an account for that purpose. In turn, the financial intermediary's interest in
such a Class will be recorded on the records of the Depository (or of a
Depository Participant that acts as agent for the financial intermediary, if the
intermediary is not itself a Depository Participant).
The R Class will be issued and may be held of record only in certificated
form and will be transferable at Texas Commerce Bank National Association or its
successor (the "Registrar").
The Classes will be issued in the denominations specified under
"Description of Multiclass PCs -- Form of Multiclass PCs, Holders, Minimum
Principal Amounts and Transfers" in the Multiclass PC Offering Circular or
"Description of Multiclass Securities -- Form of Multiclass Securities, Holders,
Minimum Principal Amounts and Transfers" in the Multiclass Securities Offering
Circular.
HOLDERS
The term "Holders" means (i) in the case of a Regular Class of Multiclass
PCs or a MACR Class, the Fed Participants that appear on the book-entry records
of a Federal Reserve Bank as holders of that Class, (ii) in the case of a
Regular Class of Multiclass Securities, the Depository Participants that appear
on the book-entry records of the Depository as registered holders of that Class
and (iii) in the case of the R Class, the entities or individuals that appear on
the records of the Registrar as the registered holders of that Class. The
beneficial owner of a Security is not necessarily the Holder.
STRUCTURE OF TRANSACTION
General
This Series will be a "Single-Tier Series." The Classes of Multiclass PCs
and Multiclass Securities and the R Class will represent beneficial ownership
interests in the REMIC Pool. The REMIC Pool will consist of the Assets and the
rights of the REMIC Pool under a Guaranteed Investment and Fee Contract to be
executed by Freddie Mac in its corporate capacity and dated the Closing Date,
and pursuant to which payments on the Group 5 Assets are invested with Freddie
Mac from the date of receipt by the REMIC Pool at a rate of return guaranteed by
Freddie Mac. Such investments will be at Freddie Mac's discretion and for its
own risk and benefit. See "Description of Multiclass Securities -- General" and
"-- REMIC Pool Assets" in the Multiclass Securities Offering Circular.
The Underwriter currently holds, or will acquire, the Assets and intends to
deliver them to Freddie Mac on the Closing Date. On the Closing Date, Freddie
Mac expects to acquire the Assets from the Underwriter in exchange for the
Multiclass PCs and Multiclass Securities.
S-8
<PAGE> 273
The Group 1 Assets
The Group 1 Assets are PCs, which may include Gold PCs and/or Gold Giant
PCs. Gold PCs represent undivided interests in discrete pools consisting of
specified Mortgages. Gold Giant PCs represent beneficial ownership interests in
discrete pools consisting of specified Gold PCs (or, in some cases, other Gold
Giant PCs).
The Group 2, Group 3 and Group 4 Assets
The Group 2, Group 3 and Group 4 Assets consist of Classes of Freddie Mac
Multiclass PCs and are described generally under "Terms Sheet -- The Assets" in
this Supplement. For additional information about such Assets, see the Asset
Offering Circulars and "Prepayment and Yield Analysis -- Prepayment and Weighted
Average Life Considerations -- The Assets" in this Supplement. The cover pages
and terms sheets from the Asset Offering Circulars are reproduced as Exhibits I
through III to this Supplement.
It should be noted that there have been material changes in facts and
circumstances since the dates of the Asset Offering Circulars, including changes
in prepayment rates, prevailing interest rates and other economic factors, which
may limit the usefulness of, and be directly contrary to the assumptions used in
preparing the information set forth in, such documents.
The Group 5 Assets
The Group 5 Assets are GNMA-Related Securities, which may include GNMA
Certificates and/or Giant Securities. GNMA Certificates represent ownership
interests in pools consisting of specified Mortgages. Giant Securities represent
beneficial ownership interests in discrete pools consisting of specified GNMA
Certificates (or, in some cases, other Giant Securities). All of the
GNMA-Related Securities included in the Group 5 Assets are "GNMA II
Certificates" or Giant Securities that are backed by GNMA II Certificates. See
"Description of Multiclass Securities -- GNMA Certificates" in the Multiclass
Securities Offering Circular.
THE MORTGAGES
The Mortgages underlying the Assets are fixed-rate, first lien residential
mortgages and mortgage participations. For purposes of this Supplement, Freddie
Mac has made certain assumptions regarding the remaining terms to maturity, loan
ages and interest rates of the Mortgages underlying the Group 1 and Group 5
Assets. See "Terms Sheet -- Mortgage Characteristics" in this Supplement. The
weighted average remaining term to maturity, weighted average loan age and
weighted average interest rate of the Mortgages underlying the Group 2, Group 3
and Group 4 Assets, as of November 1, 1997, are shown under "Terms
Sheet -- Mortgage Characteristics" in this Supplement. However, the
characteristics of most of the Mortgages differ from those assumed or shown, in
some cases significantly. This is the case even if the weighted average
characteristics of the Mortgages are the same as those of mortgages having the
characteristics assumed or shown. Small differences in the characteristics of
the Mortgages can have a significant effect on the weighted average lives and
yields of the related Classes. See "Prepayment and Yield Analysis" in this
Supplement.
PAYMENTS
PAYMENT DATES; RECORD DATES
Freddie Mac will make payments of principal and interest on the Securities
to Holders entitled to such payments on each Payment Date, beginning in the
month following the Closing Date. A "Payment Date" means (i) in the case of the
Group 1, Group 2, Group 3 and Group 4 Classes, the 15th of each month or, if the
15th is not a "Business Day" (as defined under "Offering Circular
Summary -- Payment Dates" in the Multiclass PC Offering Circular), the next
Business Day or (ii) in the case of the Group 5 and R Classes, the 20th of each
month or, if the 19th or 20th is not a "Business Day" (as defined under
"Offering Circular
S-9
<PAGE> 274
Summary -- Payment Dates" in the Multiclass Securities Offering Circular), the
first Business Day following the 20th.
On each Payment Date, any payment on a Security will be made to the Holder
of record as of the end of the preceding calendar month (each, a "Record Date").
METHOD OF PAYMENT
A Federal Reserve Bank will credit payments on the Group 1, Group 2, Group
3 and Group 4 Classes to the accounts of Holders of these Classes monthly on
each Payment Date.
The Depository will act as Freddie Mac's paying agent for the Group 5
Classes. The Depository will credit payments on such Classes in immediately
available funds to the accounts of Holders of these Classes monthly on each
Payment Date in accordance with the rules and procedures of the Depository.
The Registrar will mail any payments on the R Class by check to the
addresses of the Holders of that Class as they appear on the Registrar's
records, not later than the applicable Payment Date. A Holder of the R Class
will be required to present the Holder's certificate to the Registrar for
payment under the circumstances described under "Description of Multiclass
Securities -- Form of Multiclass Securities, Holders, Minimum Principal Amounts
and Transfers" in the Multiclass Securities Offering Circular.
INTEREST
Freddie Mac will pay interest on each Payment Date to the Holders of each
Class of Securities on which interest has accrued.
Categories of Classes
For purposes of interest payments, the Classes of Multiclass PCs and
Multiclass Securities will be categorized as shown under "Interest Type" on the
cover page of this Supplement, and the MACR Classes will be categorized as shown
under "Interest Type" on Appendix 1 to this Supplement. The abbreviations used
on the cover page and Appendix 1 are explained under "Description of Multiclass
PCs -- Standard Definitions and Abbreviations for Classes" in the Multiclass PC
Offering Circular and "Description of Multiclass Securities -- Standard
Definitions and Abbreviations for Classes" in the Multiclass Securities Offering
Circular.
Accrual Periods
The Accrual Period for the Fixed Rate and Delay Classes will be the
calendar month preceding the related Payment Date. The Accrual Period for the
Floating Rate and Inverse Floating Rate Classes other than the Delay Classes
(the "Non-Delay Classes") will be from the 15th of the month preceding the
related Payment Date to the 15th of the month of that Payment Date. In each
case, interest will be calculated on the basis of a 360-day year consisting of
twelve 30-day months. Interest payable on any Class on any Payment Date will
consist of 30 days' interest on its balance as of the related Record Date.
Fixed Rate Classes
The Fixed Rate Classes will bear interest at the Class Coupons shown on the
cover page of this Supplement or on Appendix 1 to this Supplement.
Principal Only Classes
The PC and PD Classes will be Principal Only Classes and will not bear
interest.
Notional Classes
The Notional Classes will not receive principal payments. For convenience
in describing interest payments, the Notional Classes will have notional
principal amounts. The table under "Terms Sheet --
S-10
<PAGE> 275
Notional Classes" in this Supplement shows the original notional principal
amounts of the Notional Classes and the Classes with which their notional
principal amounts will reduce proportionately.
Floating Rate and Inverse Floating Rate Classes
The Floating Rate and Inverse Floating Rate Classes will bear interest as
shown under "Terms Sheet -- Class Coupons" in this Supplement. The Class Coupons
for the Floating Rate and Inverse Floating Rate Classes will be based on the
arithmetic mean of the London interbank offered quotations for one-month
Eurodollar deposits ("LIBOR").
For information regarding the manner in which Freddie Mac determines LIBOR
and calculates the Class Coupons for the Floating Rate and Inverse Floating Rate
Classes, see "Description of Multiclass PCs -- Interest Rate Indices" in the
Multiclass PC Offering Circular.
Freddie Mac's determination of LIBOR and its calculation of the Class
Coupons will be final, except in the case of clear error. Investors can get the
level of LIBOR and the Class Coupons for the current and preceding Accrual
Periods from Freddie Mac's Internet Web-Site or by writing or calling Freddie
Mac's Investor Inquiry Department at the address or phone numbers shown under
"Available Information" in this Supplement.
PRINCIPAL
Freddie Mac will pay principal on each Payment Date to the Holders of the
Classes on which principal is then due. The Holders of each such Class will
receive principal payments on a pro rata basis among the Securities of that
Class.
Categories of Classes
For purposes of principal payments, the Classes of Multiclass PCs and
Multiclass Securities will be categorized as shown under "Principal or Other
Type" on the cover page of this Supplement, and the MACR Classes will be
categorized as shown under "Principal or Other Type" on Appendix 1 to this
Supplement. The abbreviations used on the cover page and Appendix 1 are
explained under "Description of Multiclass PCs -- Standard Definitions and
Abbreviations for Classes" in the Multiclass PC Offering Circular and
"Description of Multiclass Securities -- Standard Definitions and Abbreviations
for Classes" in the Multiclass Securities Offering Circular.
Amount of Payments
The total amount of principal payments that will be made on the Securities
on each Payment Date will equal the sum of:
- the amount of principal payments required to be made on that Payment
Date on the Group 1 Assets (the "Group 1 Asset Principal Amount");
- the amount of principal payments, if any, required to be made on that
Payment Date on the Group 2 Assets (the "Group 2 Asset Principal
Amount");
- the amount of principal payments, if any, required to be made on that
Payment Date on the Group 3 Assets (the "Group 3 Asset Principal
Amount");
- the amount of principal payments, if any, required to be made on that
Payment Date on the Group 4 Assets (the "Group 4 Asset Principal
Amount"); and
- the "Group 5 Asset Principal Amount" (as defined under "Class
Factors -- Group 5 Classes" below) for that Payment Date.
Allocation of Payments
On each Payment Date, Freddie Mac will pay the Group 1 through Group 5
Asset Principal Amounts as described under "Terms Sheet -- Allocation of
Principal" in this Supplement. Principal that is allocable to
S-11
<PAGE> 276
the Classes receiving payments from a particular Asset Group will be allocated
only to those Classes and will not be available for Classes receiving payments
from the other Asset Group.
Targeted Balances Schedule
The schedule of "Targeted Balances" for the PAC Class is shown below.
TARGETED BALANCES*
PAC CLASS
<TABLE>
<CAPTION>
PAYMENT DATE
------------
G
<S> <C>
April 15, 2005
and before........ $25,242,000.00
May 15, 2005........ 25,238,012.19
June 15, 2005....... 24,852,948.49
July 15, 2005....... 24,470,555.40
August 15, 2005..... 24,090,859.92
September 15,
2005.............. 23,713,887.23
October 15, 2005.... 23,339,660.68
November 15, 2005... 22,968,201.94
December 15, 2005... 22,599,530.99
January 15, 2006.... 22,233,666.19
February 15, 2006... 21,870,624.34
March 15, 2006...... 21,510,420.73
April 15, 2006...... 21,153,069.21
May 15, 2006........ 20,798,582.19
June 15, 2006....... 20,446,970.75
July 15, 2006....... 20,098,244.64
August 15, 2006..... 19,752,412.33
September 15,
2006.............. 19,409,481.08
October 15, 2006.... 19,069,456.96
November 15, 2006... 18,732,344.90
December 15, 2006... 18,398,148.73
January 15, 2007.... 18,066,871.22
February 15, 2007... 17,738,514.10
March 15, 2007...... 17,413,078.14
April 15, 2007...... 17,090,563.13
May 15, 2007........ 16,770,967.96
June 15, 2007....... 16,454,290.64
July 15, 2007....... 16,140,528.34
August 15, 2007..... 15,829,677.37
September 15,
2007.............. 15,521,733.32
October 15, 2007.... 15,216,690.95
November 15, 2007... 14,914,544.35
December 15, 2007... 14,615,286.89
January 15, 2008.... 14,318,911.27
February 15, 2008... 14,025,409.55
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE
------------
G
CONTINUED
<S> <C>
March 15, 2008...... $13,734,773.18
April 15, 2008...... 13,446,992.99
May 15, 2008........ 13,162,059.27
June 15, 2008....... 12,879,961.76
July 15, 2008....... 12,600,689.67
August 15, 2008..... 12,324,231.72
September 15,
2008.............. 12,050,576.15
October 15, 2008.... 11,779,710.75
November 15, 2008... 11,511,622.87
December 15, 2008... 11,246,299.44
January 15, 2009.... 10,983,727.00
February 15, 2009... 10,723,891.72
March 15, 2009...... 10,466,779.39
April 15, 2009...... 10,212,375.48
May 15, 2009........ 9,960,665.13
June 15, 2009....... 9,711,633.16
July 15, 2009....... 9,465,264.11
August 15, 2009..... 9,221,542.25
September 15,
2009.............. 8,980,451.57
October 15, 2009.... 8,741,975.81
November 15, 2009... 8,506,098.51
December 15, 2009... 8,272,802.96
January 15, 2010.... 8,042,072.26
February 15, 2010... 7,813,889.30
March 15, 2010...... 7,588,236.80
April 15, 2010...... 7,365,097.32
May 15, 2010........ 7,144,453.25
June 15, 2010....... 6,926,286.83
July 15, 2010....... 6,710,580.18
August 15, 2010..... 6,497,315.28
September 15,
2010.............. 6,286,474.01
October 15, 2010.... 6,078,038.13
November 15, 2010... 5,871,989.31
December 15, 2010... 5,668,309.16
January 15, 2011.... 5,466,979.16
</TABLE>
<TABLE>
<CAPTION>
PAYMENT DATE
------------
G
CONTINUED
<S> <C>
February 15, 2011... $ 5,267,980.76
March 15, 2011...... 5,071,295.35
April 15, 2011...... 4,876,904.24
May 15, 2011........ 4,684,788.74
June 15, 2011....... 4,494,930.06
July 15, 2011....... 4,307,309.44
August 15, 2011..... 4,121,908.07
September 15,
2011.............. 3,938,707.12
October 15, 2011.... 3,757,687.75
November 15, 2011... 3,578,831.13
December 15, 2011... 3,402,118.43
January 15, 2012.... 3,227,530.81
February 15, 2012... 3,055,049.47
March 15, 2012...... 2,884,655.59
April 15, 2012...... 2,716,330.43
May 15, 2012........ 2,550,055.22
June 15, 2012....... 2,385,811.27
July 15, 2012....... 2,223,579.89
August 15, 2012..... 2,063,342.46
September 15,
2012.............. 1,905,080.41
October 15, 2012.... 1,748,775.19
November 15, 2012... 1,594,408.34
December 15, 2012... 1,441,961.43
January 15, 2013.... 1,291,416.11
February 15, 2013... 1,142,754.09
March 15, 2013...... 995,957.15
April 15, 2013...... 851,007.14
May 15, 2013........ 707,885.99
June 15, 2013....... 566,575.70
July 15, 2013....... 427,058.34
August 15, 2013..... 289,316.10
September 15,
2013.............. 153,331.23
October 15, 2013.... 19,086.05
November 15, 2013
and after......... 0.00
</TABLE>
- ---------------
* The Targeted Balances were calculated using, among other things, the
"structuring range" shown under "Terms Sheet -- Allocation of Principal" in
this Supplement. See "Prepayment and Yield Analysis" in this Supplement.
CLASS FACTORS
Description of Factors
On or about the first business day of each month after the Closing Date in
the case of the Group 1 through Group 4 Classes, and on or about the ninth
business day of each month after the Closing Date in the case of the Group 5
Classes, Freddie Mac will make available (including on its Internet Web-Site) a
Class Factor for each Class having a principal amount. The Class Factor for any
Class for any month will be a truncated seven-digit decimal which, when
multiplied by the original principal amount of a Security of that Class
(assuming such Class was issued on the Closing Date), will equal its remaining
principal amount, after giving effect to any principal payment to be made on the
Payment Date in the same month. For example, the January Class Factor for any
Class will reflect the remaining principal amount of a Security of that Class,
after
S-12
<PAGE> 277
giving effect to any principal payment to be made on January 15 or January 20,
as applicable. Freddie Mac will also make available a Class Factor for each
Notional Class, which will reflect the remaining notional principal amount of a
Security of that Class in an analogous manner. The Class Factor for each Class
for the month of the Closing Date is 1.0000000.
Group 5 Classes
Freddie Mac will calculate the amount of principal to be paid on, and the
Class Factor for, each Group 5 Class in each month based in part on GNMA
Certificate "factors" reported on or about the sixth business day of the same
month. Freddie Mac will determine the remaining principal balance to which each
underlying GNMA Certificate in the REMIC Pool would be reduced in that month on
the basis of those reported factors.
Currently such reported factors are preliminary and subject to revision. In
addition, there may not be reported factors for some GNMA Certificates. For any
GNMA Certificate for which a factor has not been reported, Freddie Mac (or its
agent) will calculate the remaining principal balance to which the applicable
GNMA Certificate would be reduced on the basis of assumed Mortgage amortization
schedules. Freddie Mac (or its agent) will create those schedules by using
available remaining term to maturity and interest rate information and adjusting
such remaining term to maturity to the current month. Such calculations will
reflect payment factor information previously reported to Freddie Mac and
estimated subsequent scheduled amortization (but not prepayments) on the related
Mortgages. In the event that GNMA makes available additional information that
may be useful in determining assumed Mortgage amortization schedules, Freddie
Mac (or its agent) may create such schedules using that information.
In the case of Giant Securities, Freddie Mac will determine the applicable
remaining principal balances using the published factors for those securities.
Freddie Mac will then calculate the aggregate of the remaining principal
balances described above (the "Aggregate Remaining Balance"). Principal payments
on the Group 5 Classes on any Payment Date will be based in part on the
difference between (i) the Aggregate Remaining Balance of the underlying GNMA-
Related Securities for the preceding month (or their aggregate principal balance
on the Closing Date, in the case of the first Payment Date) and (ii) their
Aggregate Remaining Balance for the current month. Such difference is called the
"Group 5 Asset Principal Amount." See "Terms Sheet -- Allocation of Principal"
and "Principal -- Amount of Payments" above.
Because the Aggregate Remaining Balance is based on factors that may be
preliminary, or on Freddie Mac's (or its agent's) calculations when reported
factors are not available, there may be variances between the principal payments
actually received by Freddie Mac in any month and the Group 5 Asset Principal
Amount for that month. However, the Group 5 Asset Principal Amount for any month
will reconcile any variances that occurred in the preceding month. Freddie Mac's
determination of the Class Factors and principal payments by the methodology
described above will be final.
Use of Factors
For any Payment Date, investors can calculate the reduction in the
principal amount of a Security of any Class entitled to principal payments by
multiplying the original principal amount of that Security by the difference
between its Class Factors for the preceding and current months. The amount of
interest to be paid on a Security of any Class on each Payment Date will equal
30 days' interest on its outstanding principal amount (or notional principal
amount) as determined by its Class Factor for the preceding month.
For example, the reduction in the principal amount of any Security entitled
to principal payments in February will reflect the difference between its
January and February Class Factors. The amount of interest to be paid on any
Security in February will equal 30 days' interest at its Class Coupon, accrued
during the month of January (in the case of a Fixed Rate or Delay Class) or from
January 15 to February 15 (in the case of a Non-Delay Class), on the principal
amount or notional principal amount of such Security determined by its January
Class Factor. If the outstanding balance of any Fixed Rate or Delay Class is
reduced on the Payment Date that falls within an Accrual Period, that Class will
accrue interest during such Accrual Period on its
S-13
<PAGE> 278
reduced balance, even though its balance had been higher for approximately the
first 15 or 20 days of the Accrual Period. No interest at all will be paid on
any Class after its balance has been reduced to zero.
GUARANTEES
Freddie Mac guarantees to each Holder of a Security (i) the timely payment
of interest at the applicable Class Coupon and (ii) the payment of the principal
amount of the Holder's Security as described in this Supplement. See
"Description of Multiclass PCs -- Guarantees" in the Multiclass PC Offering
Circular and "Description of Multiclass Securities -- Guarantees" in the
Multiclass Securities Offering Circular.
Freddie Mac also guarantees the payment of interest and principal on the
Group 2 Assets, Group 3 Assets, Group 4 Assets, Gold PCs, Gold Giant PCs,
Stripped Giant PCs and Giant Securities. See "PC Security
Structure -- Guarantees" in the PC Offering Circular, "Description of
Pass-Through PCs -- Guarantees" in the Giant PC Offering Circular and
"Description of Pass-Through Securities -- Guarantees" in the Giant Securities
Offering Circular.
GNMA guarantees the timely payment of principal and interest on the GNMA
Certificates. The obligations of GNMA under its guarantees of the GNMA
Certificates are backed by the full faith and credit of the United States.
OPTIONAL REDEMPTION
Freddie Mac may redeem the Multiclass PCs and Multiclass Securities, in
whole but not in part, on any Payment Date when their aggregate outstanding
principal amount would be less than 1% of their aggregate original principal
amount. Any outstanding MACR Classes will be retired from the proceeds of any
redemption of their related Regular Classes. The Group 2, Group 3 and Group 4
Assets may become subject to the similar optional redemption provisions
applicable to their Series. The PCs, Stripped Giant PCs and GNMA-Related
Securities are not redeemable. See "Description of Multiclass PCs -- Optional
Redemption" in the Multiclass PC Offering Circular and "Description of
Multiclass Securities -- Optional Redemption" in the Multiclass Securities
Offering Circular.
RESIDUAL PROCEEDS
Upon surrender of their certificates to the Registrar, the Holders of the R
Class will receive the proceeds of the remaining assets of the REMIC Pool, if
any, after all required principal and interest payments on the Securities have
been made. Any such remaining assets are not likely to be significant.
PREPAYMENT AND YIELD ANALYSIS
GENERAL
Mortgage Prepayments
The rates of principal payments on the Group 1 and Group 5 Assets will
depend directly, and the rates of principal payments on the Group 2, Group 3 and
Group 4 Assets and the Securities will depend indirectly, on the rates of
principal payments on the related Mortgages. Mortgage principal payments may be
in the form of scheduled amortization or partial or full prepayments.
"Prepayments" include prepayments by the borrower, liquidations resulting from
default, casualty or condemnation and payments made by Freddie Mac or GNMA, as
applicable, pursuant to its guarantee of principal (other than scheduled
amortization) on PCs or GNMA Certificates. The Mortgages are subject to
prepayment at any time without penalty.
Mortgage prepayment rates are likely to fluctuate significantly. In
general, when prevailing mortgage interest rates decline significantly below the
interest rates on the Mortgages, the prepayment rate on the Mortgages is likely
to increase, although a number of other factors also may influence the
prepayment rate. See "Prepayments, Yields and Suitability" in the PC Offering
Circular.
Acceleration of mortgage payments as a result of transfers of mortgaged
properties is an important factor affecting prepayment rates. The Mortgages
underlying the Group 1 through Group 4 Assets generally provide
S-14
<PAGE> 279
that, in the event of the transfer or prospective transfer of the underlying
mortgaged property, the full unpaid principal balance is due and payable at the
option of the holder. Freddie Mac, in most cases, requires mortgage servicers to
enforce such "due-on-transfer" provisions where permitted by applicable law. See
"The Mortgages -- Mortgage Purchase and Servicing Standards -- Mortgage
Servicing -- Assumption and Due-on-Transfer Policies" in the PC Offering
Circular.
None of the Mortgages underlying the Group 5 Assets includes a
"due-on-transfer" clause. Consequently, the holder of such a Mortgage generally
may not demand the payment in full of the remaining principal balance of that
Mortgage on the sale or other transfer of the mortgaged property to a
creditworthy transferee.
Information on the principal payment history of the PCs and Giant
Securities is available from the Investor Inquiry Department at Freddie Mac at
the address or phone numbers shown under "Available Information" in this
Supplement. However, historical payment experience is not likely to be
indicative of future payment experience on the PCs and Giant Securities and
related Mortgages.
PSA Model
Prepayments on pools of mortgages are commonly measured relative to a
variety of prepayment models. The particular model used in this Supplement,
"PSA," is the standard prepayment model of PSA The Bond Market Trade
Association. This model assumes that mortgages will prepay at an annual rate of
0.2% in the first month after origination, that the prepayment rate increases at
an annual rate of 0.2% per month up to the 30th month after origination and that
the prepayment rate is constant at 6% per annum in the 30th and later months
(this assumption is called "100% PSA"). For example, at 100% PSA, mortgages with
a loan age of three months (i.e., mortgages in their fourth month after
origination) are assumed to prepay at an annual rate of 0.8%. "0% PSA" assumes
no prepayments; "50% PSA" assumes prepayment rates equal to 0.50 times 100% PSA;
"200% PSA" assumes prepayment rates equal to 2.00 times 100% PSA; and so forth.
PSA is not a description of historical prepayment experience or a prediction of
the rate of prepayment of the Mortgages.
Weighted Average Life
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal has been repaid to the investor. The weighted average lives of the
Classes will depend primarily on the rates at which principal is paid on the
related Mortgages and, in the case of the Group 2, Group 3 or Group 4 Classes,
on the manner in which principal is allocated to their related Assets. This
Supplement shows weighted average lives under various Mortgage prepayment
assumptions. In each case, Freddie Mac has calculated the weighted average life
by (i) multiplying the assumed net reduction, if any, in the principal amount on
each Payment Date by the number of years from the Closing Date to such Payment
Date, (ii) summing the results and (iii) dividing the sum by the aggregate
amount of the assumed net reductions in principal amount.
Yield
The yield of each Class will depend upon its purchase price, the rate of
principal payments on the related Assets (which will be sensitive to the rate of
principal payments on the related Mortgages), the manner in which principal is
allocated to the Assets and the actual characteristics of the related Mortgages.
The yield of each Floating Rate or Inverse Floating Rate Class will also depend
on its sensitivity to the level of LIBOR. This Supplement shows pre-tax yields
to maturity under various scenarios. In each case, Freddie Mac has calculated
the pre-tax yield by (i) determining the monthly discount rate (whether positive
or negative) that, when applied to an assumed stream of cash flows to be paid on
the applicable Class, would cause the discounted present value of such assumed
stream of cash flows to equal an assumed purchase price (including accrued
interest, if any) of that Class and (ii) converting such monthly rate to a
corporate bond equivalent (i.e., semiannual payment) rate. The yield
calculations do not take into account any variations in the interest rates at
which investors may be able to reinvest payments received. Consequently, they do
not reflect the return on any investment when reinvestment rates other than the
discount rate are considered.
S-15
<PAGE> 280
Modeling Assumptions
In order to prepare the various tables and other statistical information in
this Supplement, Freddie Mac has made certain assumptions regarding the Assets
and underlying Mortgages. Unless otherwise noted, each table is based on the
following assumptions (the "Modeling Assumptions"), among others:
- The Mortgages underlying the Group 1 and Group 5 Assets have the
assumed characteristics shown under "Terms Sheet -- Mortgage
Characteristics" in this Supplement;
- As of November 1, 1997, each Mortgage underlying the Group 2, Group 3
or Group 4 Assets has a remaining term to maturity equal to the
weighted average remaining term to maturity, a loan age equal to the
weighted average loan age, and an interest rate equal to the weighted
average interest rate, of all the Mortgages underlying the same PC;
- As of the Closing Date, the Group 2, Group 3 and Group 4 Assets have
the principal balances shown under "Terms Sheet -- The Assets" in this
Supplement;
- Payments on the Group 2, Group 3 and Group 4 Assets are made as
described in the related Asset Offering Circulars;
- Payments on the Group 1 through Group 4 Classes and their underlying
Assets are always received on the 15th of the month, whether or not a
Business Day;
- Payments on the Group 5 Classes and their underlying Assets are always
received on the 20th of the month, whether or not a Business Day;
- Freddie Mac does not make an optional redemption; and
- Each Class is held from the Closing Date to retirement and is not
exchanged in whole or in part.
When reading the tables and the related text, investors should bear in mind
that the Modeling Assumptions, like any other stated assumptions, are unlikely
to be entirely consistent with actual experience. For example, most of the
Mortgages do not have the characteristics assumed, many Payment Dates will occur
on the first Business Day after the 15th or 20th of the month and Freddie Mac
may make an optional redemption as described under "Payments -- Optional
Redemption" above.
In addition, payments on the Group 5 Classes will depend in part on
preliminary GNMA Certificate factors and, in some cases, on Freddie Mac's own
calculations of assumed Mortgage amortization schedules, both of which may not
reflect payments actually received on the GNMA Certificates in a given month.
See "Payments -- Class Factors -- Group 5 Classes" in this Supplement and
"Description of Multiclass Securities -- Class Factors" in the Multiclass
Securities Offering Circular.
Principal Payment Stability
Mortgages and mortgage securities, such as the Assets and Securities, are
subject to prepayment uncertainty. The rates of principal payments on the Group
1 and Group 5 Assets will depend directly, and the rates of principal payments
on the Group 2, Group 3 and Group 4 Assets and the Securities will depend
indirectly, on the rates of principal payments on their related Mortgages.
However, within certain limits, some Classes of Securities, such as the PAC
Class, are expected to exhibit a lower level of prepayment uncertainty than the
related Mortgages and Assets. Such Classes are said to have a degree of
"stability." Stability in one Class or group of Classes is necessarily offset by
instability in other Classes, such as the Support Classes, which are said to
"support" the more stable Classes.
Suitability
The Securities, especially the Inverse Floating Rate, Interest Only,
Principal Only and Residual Classes, are not suitable investments for all
investors. The Securities are not appropriate investments for any investor that
requires a single lump sum payment on a predetermined date or an otherwise
certain payment stream. In addition, although the Underwriter intends to make a
market for the purchase and sale of the Securities after their initial issuance,
it has no obligation to do so. There is no assurance that such a secondary
market will develop, that any secondary market will continue, or that the price
at which an investor can sell an investment in any Class will enable the
investor to realize a desired yield on that investment. The market values of the
S-16
<PAGE> 281
Classes are likely to fluctuate; such fluctuations may be significant and could
result in significant losses to investors. The secondary markets for
mortgage-related securities have experienced periods of illiquidity and can be
expected to do so in the future. Illiquidity can have a severely adverse effect
on the prices of Classes that are especially sensitive to prepayment or interest
rate risk or that have been structured to meet the investment requirements of
limited categories of investors. Investors are encouraged to consult their own
advisors regarding the financial, legal, tax and other aspects of an investment
in the Securities. The flexibility created by the ability to modify and combine
certain Classes of Multiclass PCs and related MACR Classes may affect the
liquidity of the Classes and the prices that potential purchasers are willing to
pay in the secondary market. No investor should purchase Securities of any Class
unless the investor understands and is able to bear the prepayment, yield,
liquidity and market risks associated with that Class.
PREPAYMENT AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
PAC Class
Payments of principal on the G Class are likely to be relatively stable
because it will receive principal payments in accordance with its schedule of
Targeted Balances, so long as prepayments on the related Mortgages occur at
rates that are neither too fast nor too slow to support its schedule. Moreover,
the G Class will have a cumulative priority for future payments if it falls
behind its schedule. There is a range of constant Mortgage prepayment rates (an
"Effective Range") at which the G Class would adhere to its schedule of Targeted
Balances. The Effective Range at any time depends on the actual or assumed
characteristics of the Mortgages at that time. Based on the Modeling
Assumptions, the G Class would adhere to its Targeted Balances schedule if the
Mortgages were to prepay at any constant percentage of PSA from 165% PSA through
225% PSA, until that Class has been retired.
The Mortgages will have characteristics that differ from those of the
Modeling Assumptions. The initial Effective Range, if calculated using the
actual characteristics of the Mortgages, could differ from that stated above.
Therefore, even if the Mortgages were to prepay at a constant rate within the
initial Effective Range for the G Class, but near its upper or lower end, the G
Class could fail to adhere to its Targeted Balances schedule.
Moreover, the Mortgages will not prepay at any constant rate. Non-constant
prepayment rates can cause the G Class not to adhere to its Targeted Balances
schedule, even if such rates remain within its initial Effective Range. The
Effective Range for the G Class can narrow or "drift" upward or downward over
time.
The principal payment stability of the G Class will be supported in part by
the Support Classes. When the Support Classes are retired, the G Class, if
outstanding, will no longer have an Effective Range and will become more
sensitive to Mortgage prepayments.
If the underlying Mortgages prepay at rates that are generally below the
Effective Range for the G Class, the Group 4 Asset Principal Amount may be
insufficient to reduce that Class to its Targeted Balance and its weighted
average life may be extended, perhaps significantly. If the Mortgages prepay at
rates that are generally above the Effective Range for the G Class, its weighted
average life may be shortened, perhaps significantly. However, the weighted
average life of the G Class could be extended under certain scenarios involving
Mortgage prepayments at rates that are generally above its Effective Range.
The entire Group 4 Asset Principal Amount will be distributed monthly on
each Payment Date and will not be retained for distribution on subsequent
Payment Dates. Thus, the likelihood that the G Class will adhere to its Targeted
Balances schedule will not be enhanced by averaging high and low principal
payments in different months.
Support Classes
The Support Classes will support the principal payment stability of the G
Class. Thus, the Support Classes are likely to be much more sensitive to
Mortgage prepayments than the G Class. The Support Classes may receive principal
payments that vary widely from period to period. Relatively fast Mortgage
prepayments may significantly shorten, and relatively slow Mortgage prepayments
may significantly extend, the weighted average lives of the Support Classes.
S-17
<PAGE> 282
Sequential Pay Classes
As described above, the Sequential Pay Classes will receive payments of
principal from the Group 1 or Group 5 Assets, as applicable, in a prescribed
sequence. While it is receiving such principal payments, the sensitivity of each
Sequential Pay Class to prepayments on the underlying Mortgages will be
approximately the same as that of the related Assets.
Pass-Through Classes
Each Pass-Through Class will receive all or a specified portion of the
principal payments made on its related Assets on each Payment Date. The
sensitivity of each Pass-Through Class to prepayments on the related Mortgages
will be the same as that of the related Assets. See "The Assets" below.
The Assets
The Group 2 and Group 4 Assets are Support Classes which support certain
other classes of their related Series. Consequently, the Group 2 and Group 4
Assets and the related Classes of this Series are likely to be much more
sensitive to Mortgage prepayments than the classes in their related Series
supported by the Group 2 and Group 4 Assets. The Group 2 and Group 4 Assets and
such related Classes may receive no principal payments for extended periods of
time, and may receive principal payments that vary widely from period to period.
The Group 3 Assets were structured as Type II PAC Classes to receive
principal payments in accordance with schedules. However, such Assets will not
adhere to their schedules.
See "Prepayment and Yield Analysis -- Prepayment and Weighted Average Life
Considerations" in the Asset Offering Circulars.
MACR Classes
The principal payment characteristics of a MACR Class will reflect the
principal payment characteristics of the Classes of Multiclass PCs which are
combined to form such MACR Class.
Declining Balances Table
The following table shows, for the indicated Classes of Securities and the
underlying Assets, (i) the percentages of their original principal amounts (or,
in the case of the Assets, their outstanding principal amounts as of the Closing
Date) that would be outstanding after each of the dates shown at various
constant percentages of PSA and (ii) their corresponding weighted average lives.
Freddie Mac has prepared this table using the Modeling Assumptions. The
Mortgages do not have the characteristics assumed, and Mortgage prepayment rates
may differ from the constant rates shown. These differences may affect the
actual payment behavior and weighted average life of any Class or Asset. For
example, because of the diverse remaining terms to maturity, loan ages and
interest rates of the Mortgages, principal payments on any Class or Asset may be
faster or slower than indicated, even if the Mortgages were to prepay at the
constant rates shown. This may be the case even if the weighted average
remaining term to maturity, weighted average loan age and weighted average
interest rate of the Mortgages are the same as those of mortgages having the
characteristics assumed.
S-18
<PAGE> 283
PERCENTAGES OF ORIGINAL PRINCIPAL AMOUNTS OUTSTANDING* AND WEIGHTED AVERAGE
LIVES
Group 1
<TABLE>
<CAPTION>
A B
------------------------------------- -------------------------------------
PSA PREPAYMENT ASSUMPTION PSA PREPAYMENT ASSUMPTION
------------------------------------- -------------------------------------
DATE 0% 75% 145% 250% 400% 0% 75% 145% 250% 400%
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100 100 100 100 100 100
November 15, 1998............. 98 93 88 81 71 100 100 100 100 100
November 15, 1999............. 96 85 75 60 41 100 100 100 100 100
November 15, 2000............. 94 77 62 42 18 100 100 100 100 100
November 15, 2001............. 92 70 51 28 1 100 100 100 100 100
November 15, 2002............. 90 63 41 15 0 100 100 100 100 41
November 15, 2003............. 88 56 32 5 0 100 100 100 100 0
November 15, 2004............. 85 49 23 0 0 100 100 100 77 0
November 15, 2005............. 82 43 16 0 0 100 100 100 38 0
November 15, 2006............. 79 37 9 0 0 100 100 100 5 0
November 15, 2007............. 76 31 2 0 0 100 100 100 0 0
November 15, 2008............. 72 25 0 0 0 100 100 82 0 0
November 15, 2009............. 69 19 0 0 0 100 100 55 0 0
November 15, 2010............. 65 14 0 0 0 100 100 30 0 0
November 15, 2011............. 60 9 0 0 0 100 100 7 0 0
November 15, 2012............. 56 4 0 0 0 100 100 0 0 0
November 15, 2013............. 51 0 0 0 0 100 96 0 0 0
November 15, 2014............. 45 0 0 0 0 100 72 0 0 0
November 15, 2015............. 40 0 0 0 0 100 48 0 0 0
November 15, 2016............. 33 0 0 0 0 100 26 0 0 0
November 15, 2017............. 27 0 0 0 0 100 4 0 0 0
November 15, 2018............. 20 0 0 0 0 100 0 0 0 0
November 15, 2019............. 12 0 0 0 0 100 0 0 0 0
November 15, 2020............. 4 0 0 0 0 100 0 0 0 0
November 15, 2021............. 0 0 0 0 0 75 0 0 0 0
November 15, 2022............. 0 0 0 0 0 26 0 0 0 0
November 15, 2023............. 0 0 0 0 0 0 0 0 0 0
November 15, 2024............. 0 0 0 0 0 0 0 0 0 0
November 15, 2025............. 0 0 0 0 0 0 0 0 0 0
November 15, 2026............. 0 0 0 0 0 0 0 0 0 0
November 15, 2027............. 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)................. 14.9 7.2 4.5 2.8 1.8 24.5 18.0 12.2 7.7 4.9
<CAPTION>
C
-------------------------------------
PSA PREPAYMENT ASSUMPTION
-------------------------------------
DATE 0% 75% 145% 250% 400%
- ------------------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100
November 15, 1998............. 100 100 100 100 100
November 15, 1999............. 100 100 100 100 100
November 15, 2000............. 100 100 100 100 100
November 15, 2001............. 100 100 100 100 100
November 15, 2002............. 100 100 100 100 100
November 15, 2003............. 100 100 100 100 94
November 15, 2004............. 100 100 100 100 70
November 15, 2005............. 100 100 100 100 52
November 15, 2006............. 100 100 100 100 39
November 15, 2007............. 100 100 100 86 29
November 15, 2008............. 100 100 100 71 21
November 15, 2009............. 100 100 100 58 16
November 15, 2010............. 100 100 100 48 11
November 15, 2011............. 100 100 100 39 8
November 15, 2012............. 100 100 92 32 6
November 15, 2013............. 100 100 80 26 4
November 15, 2014............. 100 100 69 21 3
November 15, 2015............. 100 100 59 17 2
November 15, 2016............. 100 100 50 13 2
November 15, 2017............. 100 100 42 10 1
November 15, 2018............. 100 89 35 8 1
November 15, 2019............. 100 75 28 6 1
November 15, 2020............. 100 62 22 4 0
November 15, 2021............. 100 50 17 3 0
November 15, 2022............. 100 37 12 2 0
November 15, 2023............. 82 25 8 1 0
November 15, 2024............. 46 13 4 1 0
November 15, 2025............. 7 2 1 0 0
November 15, 2026............. 0 0 0 0 0
November 15, 2027............. 0 0 0 0 0
Weighted Average
Life (Years)................. 26.9 24.0 19.7 14.0 9.1
</TABLE>
<TABLE>
<CAPTION>
D E
------------------------------------- -------------------------------------
PSA PREPAYMENT ASSUMPTION PSA PREPAYMENT ASSUMPTION
------------------------------------- -------------------------------------
DATE 0% 75% 145% 250% 400% 0% 75% 145% 250% 400%
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100 100 100 100 100 100
November 15, 1998............. 100 100 100 100 100 100 100 100 100 100
November 15, 1999............. 100 100 100 100 100 100 100 100 100 100
November 15, 2000............. 100 100 100 100 100 100 100 100 100 100
November 15, 2001............. 100 100 100 100 100 100 100 100 100 100
November 15, 2002............. 100 100 100 100 100 100 100 100 100 100
November 15, 2003............. 100 100 100 100 89 100 100 100 100 100
November 15, 2004............. 100 100 100 100 41 100 100 100 100 100
November 15, 2005............. 100 100 100 100 5 100 100 100 100 100
November 15, 2006............. 100 100 100 100 0 100 100 100 100 78
November 15, 2007............. 100 100 100 71 0 100 100 100 100 58
November 15, 2008............. 100 100 100 42 0 100 100 100 100 43
November 15, 2009............. 100 100 100 17 0 100 100 100 100 31
November 15, 2010............. 100 100 100 0 0 100 100 100 96 23
November 15, 2011............. 100 100 100 0 0 100 100 100 78 17
November 15, 2012............. 100 100 83 0 0 100 100 100 64 12
November 15, 2013............. 100 100 59 0 0 100 100 100 52 9
November 15, 2014............. 100 100 38 0 0 100 100 100 41 6
November 15, 2015............. 100 100 18 0 0 100 100 100 33 5
November 15, 2016............. 100 100 0 0 0 100 100 100 26 3
November 15, 2017............. 100 100 0 0 0 100 100 84 20 2
November 15, 2018............. 100 77 0 0 0 100 100 70 16 2
November 15, 2019............. 100 50 0 0 0 100 100 57 12 1
November 15, 2020............. 100 24 0 0 0 100 100 45 9 1
November 15, 2021............. 100 0 0 0 0 100 99 34 6 0
November 15, 2022............. 100 0 0 0 0 100 74 24 4 0
November 15, 2023............. 65 0 0 0 0 100 50 16 3 0
November 15, 2024............. 0 0 0 0 0 92 27 8 1 0
November 15, 2025............. 0 0 0 0 0 14 4 1 0 0
November 15, 2026............. 0 0 0 0 0 0 0 0 0 0
November 15, 2027............. 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)................. 26.2 22.0 16.5 10.8 6.9 27.5 26.0 22.9 17.1 11.4
<CAPTION>
GROUP 1 ASSETS
-------------------------------------
PSA PREPAYMENT ASSUMPTION
-------------------------------------
DATE 0% 75% 145% 250% 400%
- ------------------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100
November 15, 1998............. 99 95 92 87 80
November 15, 1999............. 98 90 83 73 60
November 15, 2000............. 96 85 75 61 45
November 15, 2001............. 95 80 67 51 34
November 15, 2002............. 93 75 60 43 25
November 15, 2003............. 92 70 54 36 19
November 15, 2004............. 90 66 49 30 14
November 15, 2005............. 88 62 43 25 10
November 15, 2006............. 86 57 39 21 8
November 15, 2007............. 84 53 34 17 6
November 15, 2008............. 81 50 31 14 4
November 15, 2009............. 79 46 27 12 3
November 15, 2010............. 76 42 24 10 2
November 15, 2011............. 73 39 21 8 2
November 15, 2012............. 70 36 18 6 1
November 15, 2013............. 67 32 16 5 1
November 15, 2014............. 63 29 14 4 1
November 15, 2015............. 59 26 12 3 0
November 15, 2016............. 55 23 10 3 0
November 15, 2017............. 51 20 8 2 0
November 15, 2018............. 46 18 7 2 0
November 15, 2019............. 41 15 6 1 0
November 15, 2020............. 36 12 4 1 0
November 15, 2021............. 30 10 3 1 0
November 15, 2022............. 23 7 2 0 0
November 15, 2023............. 16 5 2 0 0
November 15, 2024............. 9 3 1 0 0
November 15, 2025............. 1 0 0 0 0
November 15, 2026............. 0 0 0 0 0
November 15, 2027............. 0 0 0 0 0
Weighted Average
Life (Years)................. 18.5 12.0 8.5 5.7 3.7
</TABLE>
- ---------------
* Rounded to nearest whole percentage.
S-19
<PAGE> 284
Group 2
<TABLE>
<CAPTION>
F, PD, S AND GROUP 2 ASSETS
-------------------------------------
PSA PREPAYMENT ASSUMPTION
-------------------------------------
DATE 0% 75% 145% 250% 400%
- ------------------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100
November 15, 1998............. 100 100 100 100 100
November 15, 1999............. 100 100 100 100 58
November 15, 2000............. 100 100 100 100 27
November 15, 2001............. 100 100 100 96 10
November 15, 2002............. 100 100 100 84 0
November 15, 2003............. 100 100 100 73 0
November 15, 2004............. 100 100 100 63 0
November 15, 2005............. 100 100 100 54 0
November 15, 2006............. 100 100 100 46 0
November 15, 2007............. 100 100 100 39 0
November 15, 2008............. 100 100 100 33 0
November 15, 2009............. 100 100 95 27 0
November 15, 2010............. 100 100 85 23 0
November 15, 2011............. 100 100 74 19 0
November 15, 2012............. 100 100 65 15 0
November 15, 2013............. 100 100 56 12 0
November 15, 2014............. 100 100 47 10 0
November 15, 2015............. 100 94 39 7 0
November 15, 2016............. 100 79 32 6 0
November 15, 2017............. 100 65 25 4 0
November 15, 2018............. 100 51 19 3 0
November 15, 2019............. 100 37 13 2 0
November 15, 2020............. 68 23 8 1 0
November 15, 2021............. 32 10 3 0 0
November 15, 2022............. 2 1 0 0 0
November 15, 2023............. 0 0 0 0 0
Weighted Average
Life (Years)................ 23.5 21.1 17.1 9.7 2.5
</TABLE>
S-20
<PAGE> 285
Group 3
<TABLE>
<CAPTION>
FA, PC, SA, SB AND GROUP 3 ASSETS
-------------------------------------
PSA PREPAYMENT ASSUMPTION
-------------------------------------
DATE 0% 100% 205% 350% 500%
- ------------------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100
November 15, 1998............. 100 100 100 68 31
November 15, 1999............. 100 100 92 35 0
November 15, 2000............. 100 100 81 10 0
November 15, 2001............. 100 100 67 0 0
November 15, 2002............. 100 100 51 0 0
November 15, 2003............. 100 100 34 0 0
November 15, 2004............. 100 100 18 0 0
November 15, 2005............. 100 94 3 0 0
November 15, 2006............. 100 79 0 0 0
November 15, 2007............. 100 64 0 0 0
November 15, 2008............. 100 50 0 0 0
November 15, 2009............. 100 35 0 0 0
November 15, 2010............. 100 21 0 0 0
November 15, 2011............. 100 7 0 0 0
November 15, 2012............. 100 0 0 0 0
November 15, 2013............. 100 0 0 0 0
November 15, 2014............. 100 0 0 0 0
November 15, 2015............. 86 0 0 0 0
November 15, 2016............. 63 0 0 0 0
November 15, 2017............. 37 0 0 0 0
November 15, 2018............. 9 0 0 0 0
November 15, 2019............. 0 0 0 0 0
November 15, 2020............. 0 0 0 0 0
November 15, 2021............. 0 0 0 0 0
November 15, 2022............. 0 0 0 0 0
November 15, 2023............. 0 0 0 0 0
November 15, 2024............. 0 0 0 0 0
Weighted Average
Life (Years)................ 19.5 11.0 5.0 1.6 0.8
</TABLE>
S-21
<PAGE> 286
Group 4
<TABLE>
<CAPTION>
FE AND SE G
------------------------------------- -------------------------------------
PSA PREPAYMENT ASSUMPTION PSA PREPAYMENT ASSUMPTION
------------------------------------- -------------------------------------
DATE 0% 165% 195% 225% 450% 0% 165% 195% 225% 450%
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100 100 100 100 100 100
November 15, 1998............. 100 100 100 100 58 100 100 100 100 100
November 15, 1999............. 100 100 100 100 0 100 100 100 100 91
November 15, 2000............. 100 100 100 100 0 100 100 100 100 58
November 15, 2001............. 100 100 100 95 0 100 100 100 100 41
November 15, 2002............. 100 100 100 84 0 100 100 100 100 34
November 15, 2003............. 100 100 100 68 0 100 100 100 100 29
November 15, 2004............. 100 100 76 45 0 100 100 100 100 20
November 15, 2005............. 100 99 64 34 0 100 91 91 91 13
November 15, 2006............. 100 97 63 34 0 100 74 74 74 9
November 15, 2007............. 100 94 61 34 0 100 59 59 59 6
November 15, 2008............. 100 90 59 34 0 100 46 46 46 4
November 15, 2009............. 100 85 57 34 0 100 34 34 34 3
November 15, 2010............. 100 81 55 34 0 100 23 23 23 2
November 15, 2011............. 100 76 52 34 0 100 14 14 14 1
November 15, 2012............. 100 71 50 34 0 100 6 6 6 1
November 15, 2013............. 100 66 47 34 0 100 0 0 0 0
November 15, 2014............. 100 55 39 27 0 100 0 0 0 0
November 15, 2015............. 100 45 31 21 0 100 0 0 0 0
November 15, 2016............. 100 36 24 16 0 100 0 0 0 0
November 15, 2017............. 100 27 18 12 0 100 0 0 0 0
November 15, 2018............. 100 20 13 8 0 70 0 0 0 0
November 15, 2019............. 100 14 9 6 0 33 0 0 0 0
November 15, 2020............. 92 8 5 3 0 0 0 0 0 0
November 15, 2021............. 44 4 2 1 0 0 0 0 0 0
November 15, 2022............. 7 0 0 0 0 0 0 0 0 0
November 15, 2023............. 0 0 0 0 0 0 0 0 0 0
November 15, 2024............. 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)................. 23.9 17.2 13.7 10.4 1.1 21.5 11.0 11.0 11.0 4.6
<CAPTION>
H AND GROUP 4 ASSETS
-------------------------------------
PSA PREPAYMENT ASSUMPTION
-------------------------------------
DATE 0% 165% 195% 225% 450%
- ------------------------------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100
November 15, 1998............. 100 100 100 100 81
November 15, 1999............. 100 100 100 100 49
November 15, 2000............. 100 100 100 100 31
November 15, 2001............. 100 100 100 98 22
November 15, 2002............. 100 100 100 93 18
November 15, 2003............. 100 100 100 85 15
November 15, 2004............. 100 100 89 75 11
November 15, 2005............. 100 95 79 65 7
November 15, 2006............. 100 85 69 56 5
November 15, 2007............. 100 75 60 48 3
November 15, 2008............. 100 66 52 40 2
November 15, 2009............. 100 57 44 34 1
November 15, 2010............. 100 50 38 28 1
November 15, 2011............. 100 43 32 23 1
November 15, 2012............. 100 36 26 19 0
November 15, 2013............. 100 30 22 15 0
November 15, 2014............. 100 25 18 12 0
November 15, 2015............. 100 21 14 10 0
November 15, 2016............. 100 16 11 7 0
November 15, 2017............. 100 13 8 5 0
November 15, 2018............. 84 9 6 4 0
November 15, 2019............. 64 6 4 3 0
November 15, 2020............. 42 4 2 1 0
November 15, 2021............. 20 2 1 1 0
November 15, 2022............. 3 0 0 0 0
November 15, 2023............. 0 0 0 0 0
November 15, 2024............. 0 0 0 0 0
Weighted Average
Life (Years)................. 22.6 13.8 12.3 10.7 3.0
</TABLE>
Group 5
<TABLE>
<CAPTION>
J AND K L
------------------------------------- -------------------------------------
PSA PREPAYMENT ASSUMPTION PSA PREPAYMENT ASSUMPTION
------------------------------------- -------------------------------------
DATE 0% 75% 145% 250% 400% 0% 75% 145% 250% 400%
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100 100 100 100 100 100
November 20, 1998............. 99 97 95 93 89 100 100 100 100 100
November 20, 1999............. 97 91 85 76 64 100 100 100 100 100
November 20, 2000............. 95 83 71 55 34 100 100 100 100 100
November 20, 2001............. 94 75 58 37 11 100 100 100 100 100
November 20, 2002............. 92 67 47 21 0 100 100 100 100 65
November 20, 2003............. 90 60 36 8 0 100 100 100 100 0
November 20, 2004............. 87 52 26 0 0 100 100 100 84 0
November 20, 2005............. 85 46 18 0 0 100 100 100 36 0
November 20, 2006............. 82 39 10 0 0 100 100 100 0 0
November 20, 2007............. 79 33 2 0 0 100 100 100 0 0
November 20, 2008............. 76 27 0 0 0 100 100 77 0 0
November 20, 2009............. 73 21 0 0 0 100 100 45 0 0
November 20, 2010............. 69 15 0 0 0 100 100 16 0 0
November 20, 2011............. 65 9 0 0 0 100 100 0 0 0
November 20, 2012............. 61 4 0 0 0 100 100 0 0 0
November 20, 2013............. 57 0 0 0 0 100 94 0 0 0
November 20, 2014............. 52 0 0 0 0 100 68 0 0 0
November 20, 2015............. 46 0 0 0 0 100 42 0 0 0
November 20, 2016............. 41 0 0 0 0 100 18 0 0 0
November 20, 2017............. 35 0 0 0 0 100 0 0 0 0
November 20, 2018............. 28 0 0 0 0 100 0 0 0 0
November 20, 2019............. 21 0 0 0 0 100 0 0 0 0
November 20, 2020............. 13 0 0 0 0 100 0 0 0 0
November 20, 2021............. 4 0 0 0 0 100 0 0 0 0
November 20, 2022............. 0 0 0 0 0 76 0 0 0 0
November 20, 2023............. 0 0 0 0 0 25 0 0 0 0
November 20, 2024............. 0 0 0 0 0 0 0 0 0 0
November 20, 2025............. 0 0 0 0 0 0 0 0 0 0
November 20, 2026............. 0 0 0 0 0 0 0 0 0 0
November 20, 2027............. 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)................. 15.9 7.7 5.0 3.4 2.5 25.5 17.7 11.9 7.7 5.2
<CAPTION>
M GROUP 5 ASSETS
------------------------------------- -------------------------------------
PSA PREPAYMENT ASSUMPTION PSA PREPAYMENT ASSUMPTION
------------------------------------- -------------------------------------
DATE 0% 75% 145% 250% 400% 0% 75% 145% 250% 400%
- ------------------------------ ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.................. 100 100 100 100 100 100 100 100 100 100
November 20, 1998............. 100 100 100 100 100 99 98 97 95 93
November 20, 1999............. 100 100 100 100 100 98 94 91 85 78
November 20, 2000............. 100 100 100 100 100 97 89 82 72 59
November 20, 2001............. 100 100 100 100 100 96 84 74 61 44
November 20, 2002............. 100 100 100 100 100 95 79 67 51 33
November 20, 2003............. 100 100 100 100 98 93 75 60 43 25
November 20, 2004............. 100 100 100 100 73 92 70 54 36 19
November 20, 2005............. 100 100 100 100 55 91 66 49 30 14
November 20, 2006............. 100 100 100 97 41 89 62 43 25 10
November 20, 2007............. 100 100 100 81 30 87 58 39 21 8
November 20, 2008............. 100 100 100 67 23 85 54 35 17 6
November 20, 2009............. 100 100 100 56 17 83 50 31 14 4
November 20, 2010............. 100 100 100 46 12 81 47 27 12 3
November 20, 2011............. 100 100 95 38 9 78 43 24 10 2
November 20, 2012............. 100 100 84 31 7 76 40 21 8 2
November 20, 2013............. 100 100 74 26 5 73 37 19 7 1
November 20, 2014............. 100 100 65 21 4 70 34 17 5 1
November 20, 2015............. 100 100 56 17 3 67 31 14 4 1
November 20, 2016............. 100 100 49 14 2 63 28 12 3 0
November 20, 2017............. 100 97 42 11 1 59 25 11 3 0
November 20, 2018............. 100 86 35 9 1 55 22 9 2 0
November 20, 2019............. 100 76 30 7 1 50 19 8 2 0
November 20, 2020............. 100 65 24 5 0 46 17 6 1 0
November 20, 2021............. 100 55 20 4 0 40 14 5 1 0
November 20, 2022............. 100 45 15 3 0 35 12 4 1 0
November 20, 2023............. 100 35 12 2 0 28 9 3 1 0
November 20, 2024............. 86 26 8 1 0 22 7 2 0 0
November 20, 2025............. 57 17 5 1 0 15 4 1 0 0
November 20, 2026............. 27 8 2 0 0 7 2 1 0 0
November 20, 2027............. 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)................. 28.2 24.6 19.7 13.9 9.3 20.2 13.2 9.6 6.6 4.6
</TABLE>
S-22
<PAGE> 287
YIELD CONSIDERATIONS
An investor seeking to maximize yield should make a decision whether to
invest in any Class based on the anticipated yield of that Class resulting from
its purchase price, the investor's own projection of Mortgage prepayment rates
and Asset principal payment rates under a variety of scenarios and, in the case
of the Floating Rate and Inverse Floating Rate Classes, the investor's own
projection of levels of LIBOR under a variety of scenarios. Freddie Mac makes no
representation regarding Mortgage prepayment rates, Asset principal payment
rates, the level of LIBOR or the yield of any Class.
Prepayments: Effect on Yields
The yields to investors will be sensitive in varying degrees to the rates
of prepayments on the related Mortgages. In the case of the Interest Only
Classes and any other Classes purchased at a premium over their principal
amounts, faster than anticipated rates of Mortgage principal payments could
result in actual yields to investors that are lower than the anticipated yields.
Investors in the Interest Only Classes should also consider the risk that rapid
rates of Mortgage principal payments could result in the failure of investors to
fully recover their investments. In the case of the Principal Only Classes and
any other Classes purchased at a discount to their principal amounts, slower
than anticipated rates of principal payments could result in actual yields to
investors that are lower than the anticipated yields.
Rapid rates of prepayments on the Mortgages are likely to coincide with
periods of low prevailing interest rates. During such periods, the yields at
which an investor may be able to reinvest amounts received as principal payments
on the investor's Class may be lower than the yield on that Class. Conversely,
slow rates of prepayments on the Mortgages are likely to coincide with periods
of high prevailing interest rates. During such periods, the amount of principal
payments available to an investor for reinvestment at such high rates may be
relatively low.
The Mortgages will not prepay at any constant rate until maturity, nor will
all of the Mortgages prepay at the same rate at any one time. Moreover, a
portion of the payments (including prepayments) on the Group 5 Assets are likely
to be distributed in the month following the month in which they are received by
Freddie Mac. The timing of changes in the rate of prepayments, and of the actual
receipt of payments on the Group 5 Assets, may affect the actual yield to an
investor, even if the average rate of principal prepayments is consistent with
the investor's expectation. In general, the earlier a prepayment of principal on
the Mortgages, the greater the effect on an investor's yield. As a result, the
effect on an investor's yield of principal prepayments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the Closing Date is not likely to be offset by a later
equivalent reduction (or increase) in the rate of principal prepayments.
LIBOR: Effect on Yields of the Floating Rate and Inverse Floating Rate
Classes
Investors in the Floating Rate Classes should consider the risk that lower
than anticipated levels of LIBOR could result in actual yields to investors that
are lower than the anticipated yields and the fact that their Class Coupons
cannot exceed their specified maximum rates. Conversely, investors in the
Inverse Floating Rate Classes should consider the risk that higher than
anticipated levels of LIBOR could result in actual yields to investors that are
significantly lower than the anticipated yields and the fact that their Class
Coupons can fall as low as 0%. Further, high levels of LIBOR (especially in
combination with fast Mortgage prepayment rates) may result in the failure of
investors in the SC and SD Classes to fully recover their investments.
Changes in LIBOR may not correlate with changes in mortgage interest rates.
It is possible that lower prevailing mortgage interest rates (which would be
expected to result in faster prepayments) could occur concurrently with a higher
level of LIBOR. Conversely, higher prevailing mortgage interest rates (which
would be expected to result in slower prepayments) could occur concurrently with
a lower level of LIBOR.
LIBOR will not remain constant at any level. The timing of changes in the
level of LIBOR may affect the actual yield to an investor, even if the average
level is consistent with the investor's expectation. In general, the earlier a
change in the level of LIBOR, the greater the effect on an investor's yield. As
a result, the effect on
S-23
<PAGE> 288
an investor's yield of a level of LIBOR that is higher (or lower) than the rate
anticipated by the investor during earlier periods is not likely to be offset by
a later equivalent reduction (or increase).
Payment Delay: Effect on Yields
The effective yield on any Fixed Rate or Delay Class will be less than the
yield otherwise produced by its Class Coupon and purchase price because (i) on
the first Payment Date 30 days' interest will be payable on that Class even
though interest began to accrue approximately 45 or 50 days earlier and (ii) on
each subsequent Payment Date the interest payable will accrue during the related
Accrual Period, which will end approximately 15 or 20 days earlier.
Yield Tables
The following tables show the pre-tax yields to maturity (corporate bond
equivalent) of the Principal Only and Inverse Floating Rate Classes (i) at
various constant percentages of PSA and (ii) in the case of the Inverse Floating
Rate Classes, at various constant levels of LIBOR. The tables for the Interest
Only Classes also show annual and total interest payments on those Classes.
Freddie Mac has prepared these tables using the Modeling Assumptions and the
assumed purchase prices shown in the table captions. Where the assumed price is
expressed as a dollar amount, it includes accrued interest. Where the assumed
price is expressed as a percentage of original amount, it excludes accrued
interest and Freddie Mac has added accrued interest, if any, in calculating the
yields shown. The assumed prices are not necessarily those at which actual sales
will occur.
PRE-TAX YIELDS
Group 2
PD CLASS
(ASSUMED PRICE: 55.875%)
<TABLE>
<CAPTION>
50% PSA 75% PSA 145% PSA 250% PSA 400% PSA
- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C>
2.6% 2.8% 3.5% 6.6% 26.6%
</TABLE>
S CLASS
(ASSUMED PRICE: 71.875%)
<TABLE>
<CAPTION>
LIBOR 75% PSA 145% PSA 250% PSA 400% PSA
----- ------- -------- -------- --------
<S> <C> <C> <C> <C>
4.6250%............................................... 13.9% 14.2% 16.0% 26.8%
5.6250................................................ 9.5 9.8 11.6 22.4
6.5625................................................ 5.5 5.9 7.6 18.5
7.5625 and Higher..................................... 1.6 2.0 3.6 14.4
</TABLE>
S-24
<PAGE> 289
SD CLASS
(ASSUMED PRICE: $997,582.58)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
4.6250% LIBOR 5.6250% LIBOR 6.5625% LIBOR
-------------------------------------- -------------------------------------- ------------------
PSA PREPAYMENT PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE -------------------------------------- -------------------------------------- ------------------
MONTHS THROUGH 75% 145% 250% 400% 75% 145% 250% 400% 75% 145%
------------------ --- ---- ---- ---- --- ---- ---- ---- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 15, 1998............. $ 559 $ 559 $ 559 $ 559 $ 379 $ 379 $ 379 $ 379 $ 210 $ 210
November 15, 1999............. 576 576 576 473 379 379 379 311 194 194
November 15, 2000............. 576 576 576 245 379 379 379 161 194 194
November 15, 2001............. 576 576 573 108 379 379 377 71 194 194
November 15, 2002............. 576 576 528 34 379 379 348 22 194 194
November 15, 2003............. 576 576 456 0 379 379 300 0 194 194
November 15, 2004............. 576 576 394 0 379 379 259 0 194 194
November 15, 2005............. 576 576 339 0 379 379 223 0 194 194
November 15, 2006............. 576 576 289 0 379 379 190 0 194 194
November 15, 2007............. 576 576 246 0 379 379 162 0 194 194
November 15, 2008............. 576 576 207 0 379 379 136 0 194 194
November 15, 2009............. 576 571 174 0 379 376 114 0 194 193
November 15, 2010............. 576 521 144 0 379 343 95 0 194 176
November 15, 2011............. 576 460 119 0 379 303 78 0 194 155
November 15, 2012............. 576 402 97 0 379 265 64 0 194 136
November 15, 2013............. 576 348 78 0 379 229 52 0 194 117
November 15, 2014............. 576 297 62 0 379 195 41 0 194 100
November 15, 2015............. 569 249 49 0 375 164 32 0 192 84
November 15, 2016............. 500 205 37 0 329 135 25 0 169 69
November 15, 2017............. 418 164 28 0 275 108 18 0 141 55
November 15, 2018............. 336 127 20 0 221 83 13 0 113 43
November 15, 2019............. 256 92 13 0 168 61 9 0 86 31
November 15, 2020............. 176 61 8 0 116 40 5 0 60 21
November 15, 2021............. 99 33 3 0 65 21 2 0 34 11
November 15, 2022............. 30 9 0 0 20 6 0 0 10 3
November 15, 2023............. 1 0 0 0 1 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Payments*............... $ 12,158 $ 9,857 $ 5,578 $ 1,419 $ 8,012 $ 6,498 $ 3,682 $ 944 $ 4,126 $ 3,349
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 65.5% 65.4% 63.6% 28.0% 41.7% 41.6% 38.2% (3.7)% 20.4% 19.7%
<CAPTION>
7.5625% LIBOR AND
6.5625% LIBOR HIGHER
------------------ --------------------------------------
PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE ------------------ --------------------------------------
MONTHS THROUGH 250% 400% 75% 145% 250% 400%
------------------ ---- ---- --- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
November 15, 1998............. $ 210 $ 210 $ 32 $ 32 $ 32 $ 32
November 15, 1999............. 194 160 0 0 0 0
November 15, 2000............. 194 83 0 0 0 0
November 15, 2001............. 194 36 0 0 0 0
November 15, 2002............. 178 11 0 0 0 0
November 15, 2003............. 154 0 0 0 0 0
November 15, 2004............. 133 0 0 0 0 0
November 15, 2005............. 114 0 0 0 0 0
November 15, 2006............. 98 0 0 0 0 0
November 15, 2007............. 83 0 0 0 0 0
November 15, 2008............. 70 0 0 0 0 0
November 15, 2009............. 59 0 0 0 0 0
November 15, 2010............. 49 0 0 0 0 0
November 15, 2011............. 40 0 0 0 0 0
November 15, 2012............. 33 0 0 0 0 0
November 15, 2013............. 26 0 0 0 0 0
November 15, 2014............. 21 0 0 0 0 0
November 15, 2015............. 17 0 0 0 0 0
November 15, 2016............. 13 0 0 0 0 0
November 15, 2017............. 9 0 0 0 0 0
November 15, 2018............. 7 0 0 0 0 0
November 15, 2019............. 4 0 0 0 0 0
November 15, 2020............. 3 0 0 0 0 0
November 15, 2021............. 1 0 0 0 0 0
November 15, 2022............. 0 0 0 0 0 0
November 15, 2023............. 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Payments*............... $ 1,904 $ 500 $ 32 $ 32 $ 32 $ 32
======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 13.9% (37.2)% ** ** ** **
</TABLE>
- ---------------
* Total payments may not equal sums due to rounding.
** Less than (99.9)%.
Group 3
PC CLASS
(ASSUMED PRICE: 65.0%)
<TABLE>
<CAPTION>
50% PSA 100% PSA 205% PSA 350% PSA 500% PSA
- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
2.9% 4.0% 9.2% 30.5% 68.5%
</TABLE>
SA CLASS
(ASSUMED PRICE: 81.0%)
<TABLE>
<CAPTION>
LIBOR 100% PSA 205% PSA 350% PSA 500% PSA
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
4.6250%.............................................. 10.6% 13.2% 23.1% 39.7%
5.6250............................................... 7.6 10.1 19.9 36.4
6.5625............................................... 4.7 7.2 16.9 33.4
7.5000 and Higher.................................... 2.0 4.4 14.0 30.4
</TABLE>
S-25
<PAGE> 290
SB CLASS
(ASSUMED PRICE: 99.25%)
<TABLE>
<CAPTION>
LIBOR 100% PSA 205% PSA 350% PSA 500% PSA
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
7.5000% and Lower.................................... 9.1% 9.2% 9.5% 10.0%
8.0625............................................... 4.2 4.3 4.8 5.4
8.5625 and Higher.................................... 0.1 0.2 0.7 1.5
</TABLE>
SC CLASS
(ASSUMED PRICE: $1,100,182.43)
(PAYMENTS IN THOUSANDS)
<TABLE>
<CAPTION>
4.6250% LIBOR 5.6250% LIBOR 6.5625% LIBOR
-------------------------------------- -------------------------------------- ------------------
PSA PREPAYMENT PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE -------------------------------------- -------------------------------------- ------------------
MONTHS THROUGH 100% 205% 350% 500% 100% 205% 350% 500% 100% 205%
------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
November 15, 1998............. $ 495 $ 495 $ 440 $ 351 $ 332 $ 332 $ 297 $ 238 $ 180 $ 180
November 15, 1999............. 510 496 262 49 332 323 171 32 166 162
November 15, 2000............. 510 447 118 0 332 291 77 0 166 146
November 15, 2001............. 510 381 14 0 332 248 9 0 166 124
November 15, 2002............. 510 303 0 0 332 197 0 0 166 99
November 15, 2003............. 510 220 0 0 332 144 0 0 166 72
November 15, 2004............. 510 138 0 0 332 90 0 0 166 45
November 15, 2005............. 504 58 0 0 329 38 0 0 164 19
November 15, 2006............. 444 3 0 0 289 2 0 0 145 1
November 15, 2007............. 369 0 0 0 240 0 0 0 120 0
November 15, 2008............. 293 0 0 0 191 0 0 0 96 0
November 15, 2009............. 219 0 0 0 143 0 0 0 71 0
November 15, 2010............. 146 0 0 0 95 0 0 0 48 0
November 15, 2011............. 75 0 0 0 49 0 0 0 25 0
November 15, 2012............. 12 0 0 0 8 0 0 0 4 0
November 15, 2013 and after... 0 0 0 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Payments*............... $ 5,613 $ 2,540 $ 835 $ 399 $ 3,670 $ 1,666 $ 554 $ 270 $ 1,849 $ 847
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Pre-Tax Yield................. 50.6% 39.7% (22.0)% ** 30.8% 16.6% (47.1)% ** 10.5% (8.5)%
<CAPTION>
7.5000% LIBOR AND
6.5625% LIBOR HIGHER
------------------ --------------------------------------
PSA PREPAYMENT PSA PREPAYMENT
ASSUMPTION ASSUMPTION
TWELVE CONSECUTIVE ------------------ --------------------------------------
MONTHS THROUGH 350% 500% 100% 205% 350% 500%
------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
November 15, 1998............. $ 162 $ 133 $ 28 $ 28 $ 28 $ 28
November 15, 1999............. 85 16 0 0 0 0
November 15, 2000............. 39 0 0 0 0 0
November 15, 2001............. 5 0 0 0 0 0
November 15, 2002............. 0 0 0 0 0 0
November 15, 2003............. 0 0 0 0 0 0
November 15, 2004............. 0 0 0 0 0 0
November 15, 2005............. 0 0 0 0 0 0
November 15, 2006............. 0 0 0 0 0 0
November 15, 2007............. 0 0 0 0 0 0
November 15, 2008............. 0 0 0 0 0 0
November 15, 2009............. 0 0 0 0 0 0
November 15, 2010............. 0 0 0 0 0 0
November 15, 2011............. 0 0 0 0 0 0
November 15, 2012............. 0 0 0 0 0 0
November 15, 2013 and after... 0 0 0 0 0 0
-------- -------- -------- -------- -------- --------
Total Payments*............... $ 291 $ 149 $ 28 $ 28 $ 28 $ 28
======== ======== ======== ======== ======== ========
Pre-Tax Yield................. (75.7)% ** ** ** ** **
</TABLE>
- ---------------
* Total payments may not equal sums due to rounding.
** Less than (99.9)%.
Group 4
SE CLASS
(ASSUMED PRICE: 86.0%)
<TABLE>
<CAPTION>
LIBOR 100% PSA 165% PSA 195% PSA 225% PSA 450% PSA
----- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
4.6250%.................................... 16.4% 16.5% 16.8% 17.3% 29.5%
5.6250..................................... 10.8 11.0 11.3 11.8 24.1
6.5625..................................... 5.8 6.0 6.3 6.7 19.1
7.5625 and Higher.......................... 0.7 0.9 1.1 1.5 14.0
</TABLE>
S-26
<PAGE> 291
The Mortgages will not prepay at any constant rate, nor will LIBOR remain
constant at any level. Moreover, the Mortgages have characteristics that differ
from those of the Modeling Assumptions. Therefore, the actual pre-tax yield of
any Class may differ from any of those shown in the table for that Class, even
if purchased at the assumed price shown, and the actual annual and total
payments for the Interest Only Classes may also differ from those shown.
FINAL PAYMENT DATES
The Final Payment Date for each Class is the latest date by which it will
be retired. The assumptions used in calculating the Final Payment Dates are
highly conservative, and the actual retirement of any Class may occur earlier
than its Final Payment Date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
Subject to the assumptions described in "Certain Federal Income Tax
Consequences -- REMIC Election" in the Multiclass PC Offering Circular, the
REMIC Pool will qualify as a REMIC for federal income tax purposes.
The arrangement pursuant to which the MACR Classes are created, sold and
administered (the "MACR Pool") will be classified as a grantor trust under
subpart E, part I of subchapter J of the Internal Revenue Code. The interests in
the Regular Classes that have been exchanged with Freddie Mac for the MACR
Classes (including any exchanges effective on the Closing Date) will be the
assets of the MACR Pool and the MACR Classes will represent beneficial ownership
of these assets.
REGULAR CLASSES
The Regular Classes will be the "regular interests" in the REMIC Pool. The
Regular Classes will be treated as debt instruments for federal income tax
purposes and may be issued with original issue discount ("OID") or at a premium.
Based in part on the level of LIBOR as of the date of this Supplement and
assumptions regarding the initial prices at which substantial portions of the
Regular Classes will be sold to the public, Freddie Mac expects to report income
to the Internal Revenue Service and to Holders of the Regular Classes assuming
they are issued as follows:
- OID: S, SA and SE Classes.
- De Minimis OID: B, D, E, FA, G, L and SB Classes.
- Premium: A, F, J, K and M Classes.
OID generally will result in recognition of taxable income in advance of the
receipt of cash attributable to such income. The "Prepayment Assumption" used in
determining whether OID is de minimis and in computing the rate of accrual of
OID or the amortization of premium is 145% PSA for the Group 1, Group 2 and
Group 5 Classes, 205% PSA for the Group 3 Classes and 195% PSA for the Group 4
Classes. See "Certain Federal Income Tax Consequences -- Taxation of Regular
Classes -- Original Issue Discount" and "-- Premium" in the Multiclass Offering
Circulars.
Freddie Mac intends to report any original issue or market discount or
premium with respect to the Floating Rate Classes assuming that each variable
rate is a fixed rate equal to the value of the variable rate as of the date of
this Supplement. See "Certain Federal Income Tax Consequences -- Taxation of
Regular Classes -- Floating Rate and Inverse Floating Rate Classes" in the
Multiclass Offering Circulars.
RESIDUAL CLASS
The R Class will be the "residual interest" in the REMIC Pool. Special tax
considerations apply to the R Class. The taxation of the R Class can produce a
significantly less favorable after-tax return than if (i) the R Class were
taxable as a debt instrument or (ii) no portion of the taxable income on the R
Class were treated
S-27
<PAGE> 292
as "excess inclusions." In certain periods, taxable income and the resulting tax
liability on the R Class may exceed any payments on that Class. See "Certain
Federal Income Tax Consequences -- Taxation of Residual Classes" in the
Multiclass Offering Circulars. In addition, a substantial tax may be imposed on
certain transferors of the R Class and certain beneficial owners of such Class
that are "pass-through entities." See "Certain Federal Income Tax
Consequences -- Transfers of Interests in a Residual Class -- Disqualified
Organizations" in the Multiclass Offering Circulars. Investors should not
purchase the R Class before consulting their tax advisors.
Freddie Mac intends to report accruals of original issue discount and
market discount and to amortize premium with respect to the Group 2, Group 3 and
Group 4 Assets using the applicable Prepayment Assumptions set forth above
rather than the prepayment assumptions used in their respective Series.
Certain Transfers of Residual Class
The REMIC Regulations (as defined under "Certain Federal Income Tax
Consequences -- Transfers of Interests in a Residual Class -- Additional
Transfer Restrictions" in the Multiclass Offering Circulars) disregard:
- A transfer of a "noneconomic residual" unless no significant purpose
of the transfer is to impede the assessment or collection of tax; and
- Except in certain cases, a transfer of a residual interest to a
foreign investor or a transfer of a residual interest from a foreign
investor to a U.S. investor (accordingly, the Multiclass Agreement
prohibits the transfer of an interest in the R Class to or from a
foreign investor without Freddie Mac's written consent).
In such cases, the transferor would continue to be treated as the owner of the
residual interest and thus would continue to be subject to tax on its allocable
portion of the net income of the REMIC. See "Certain Federal Income Tax
Consequences -- Transfers of Interests in a Residual Class -- Additional
Transfer Restrictions" in the Multiclass Offering Circulars.
Residual Class with Negative Fair Market Value
The federal income tax consequences of any consideration paid to a
transferee on a transfer of the R Class are unclear. The REMIC Regulations do
not address whether a residual interest could have a negative basis and a
negative issue price. The preamble indicates that the Internal Revenue Service
is considering the tax treatment of these types of residual interests. Any
transferee receiving consideration should consult its tax advisors.
Reporting and Administrative Matters
Freddie Mac will furnish Holders of the R Class the information it deems
necessary or appropriate to enable them to prepare any reports required under
the Internal Revenue Code or applicable Treasury regulations. Freddie Mac does
not intend to hold the R Class for its account, and applicable law may not
permit Freddie Mac to perform tax administrative functions for the REMIC Pool.
Accordingly, the Holders of the R Class may have certain tax administrative
obligations (for which Freddie Mac will act as attorney-in-fact and agent). See
"Certain Federal Income Tax Consequences -- Reporting and Administrative
Matters" in the Multiclass Offering Circulars.
MACR CLASSES
For a discussion of certain federal income tax consequences applicable to
the MACR Classes, see "Certain Federal Income Tax Consequences -- Taxation of
MACR Classes," "-- Exchanges of MACR Classes and Multiclass PCs" and
"-- Taxation of Certain Foreign Investors" in the Multiclass PC Offering
Circular.
S-28
<PAGE> 293
LEGAL INVESTMENT CONSIDERATIONS; ERISA CONSIDERATIONS
Investors should consult their legal advisors to determine whether and to
what extent any Classes constitute legal investments for such investors. An
institution under the jurisdiction of the Comptroller of the Currency, the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit Union
Administration, the Department of the Treasury or any other federal or state
agency with similar authority should review any applicable regulations, policy
statements and guidelines before purchasing or pledging any Class. See "Legal
Investment Considerations" in the Multiclass Offering Circulars. Fiduciaries of
ERISA plans should review "ERISA Considerations" in the Multiclass Offering
Circulars.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Purchase Agreement between
Freddie Mac and the Underwriter, Freddie Mac has agreed to sell, and the
Underwriter has agreed to purchase, all of the Multiclass PCs, if any are sold
and purchased.
The Underwriter proposes to offer the Securities directly to the public
from time to time for sale in negotiated transactions at varying prices to be
determined at the time of sale, plus accrued interest from November 1, 1997 on
the Fixed Rate and Delay Classes and from November 15, 1997 on the Non-Delay
Classes. The Securities are offered by the Underwriter, subject to sale by
Freddie Mac and receipt and acceptance by the Underwriter and subject to the
Underwriter's right to reject any order in whole or in part. The Underwriter may
effect such transactions by sales to or through certain securities dealers
(which may include Freddie Mac through its Securities Sales and Trading Group).
Such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriter and/or commissions from any purchasers for
which they act as agents.
The Purchase Agreement provides that Freddie Mac will indemnify the
Underwriter against certain liabilities.
It is expected that (i) the Regular Classes of Multiclass PCs and the MACR
Classes will be available for deposit (in book-entry form) at any Federal
Reserve Bank, (ii) the Regular Classes of Multiclass Securities will be
available through the book-entry facilities of the Depository and (iii) the R
Class will be available (in certificated form) at the offices of the
Underwriter, on or about the Closing Date.
LEGAL MATTERS
The legality of the Securities will be passed upon for Freddie Mac by Maud
Mater, Esq., Senior Vice President -- General Counsel and Secretary of Freddie
Mac. Certain legal matters relating to the Securities will be passed upon for
the Underwriter by Stroock & Stroock & Lavan LLP.
S-29
<PAGE> 294
EXHIBIT I -- SERIES 1619 OFFERING CIRCULAR SUPPLEMENT COVER PAGE AND TERMS SHEET
[PASTE-UP]
S-30
<PAGE> 295
[PASTE-UP]
S-31
<PAGE> 296
[PASTE-UP]
S-32
<PAGE> 297
[PASTE-UP]
S-33
<PAGE> 298
[PASTE-UP]
S-34
<PAGE> 299
EXHIBIT II -- SERIES 1686 OFFERING CIRCULAR SUPPLEMENT COVER PAGE AND TERMS
SHEET
[PASTE-UP]
S-35
<PAGE> 300
[PASTE-UP]
S-36
<PAGE> 301
[PASTE-UP]
S-37
<PAGE> 302
EXHIBIT III -- SERIES 1644 OFFERING CIRCULAR SUPPLEMENT COVER PAGE AND TERMS
SHEET
[PASTE-UP]
S-38
<PAGE> 303
[PASTE-UP]
S-39
<PAGE> 304
[PASTE-UP]
S-40
<PAGE> 305
[PASTE-UP]
S-41
<PAGE> 306
APPENDIX 1
AVAILABLE COMBINATIONS
<TABLE>
<CAPTION>
MULTICLASS PCS MACR CERTIFICATES
- ------------------------------------------------------------ -------------------------------------------------------------
ORIGINAL MAXIMUM ORIGINAL
PRINCIPAL MACR PRINCIPAL OR NOTIONAL EXCHANGE PRINCIPAL OR
CLASS AMOUNT EXCHANGE PROPORTIONS(1) CLASS PRINCIPAL AMOUNT(2) PROPORTIONS(1) OTHER TYPE(3)
----- ----------- ----------------------- ----- --------------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMBINATION 1
D $30,000,000 50% C $60,000,000 100% SEQ
E 30,000,000 50
COMBINATION 2
S $ 6,057,255 100% PD $ 6,057,255 100% SC/PT
SD 6,057,255 (7) SC/NTL(PT)
COMBINATION 3
SA $ 6,801,140 100% PC $ 6,801,140 100% SC/PT
SC 6,801,140 (9) SC/NTL(PT)
COMBINATION 4
FE $17,681,261 37.8515636055% H $46,712,102 100% SC/PT
G 25,242,000 54.0373884267
SE 3,788,841 8.1110479678
<CAPTION>
MACR CERTIFICATES
-------------------------------------------------------------------------
CLASS INTEREST CUSIP WEIGHTED AVERAGE
CLASS COUPON TYPE(3) NUMBER FINAL PAYMENT DATE(4) LIFE(5)
----- ------ ---------- --------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
COMBINATION 1
D 6.5% FIX 3133TC6C7 November 15, 2027 19.7 Yrs
E
COMBINATION 2
S 0.0% PO(6) 3133TC6R4 November 15, 2023 17.1 Yrs
(8) INV/IO/DLY 3133TC6Y9 November 15, 2023 --
COMBINATION 3
SA 0.0% PO(6) 3133TC6Q6 February 15, 2024 5.0 Yrs
(8) INV/IO 3133TC6X1 February 15, 2024 --
COMBINATION 4
FE 7.0% FIX 3133TC6K9 December 15, 2023 12.3 Yrs
G
SE
</TABLE>
- ---------------
(1) Exchange proportions shown are constant proportions of the original
principal amounts or notional principal amounts of the Classes of Multiclass
PCs or MACR Certificates. In accordance with the exchange proportions,
Multiclass PCs may be exchanged for MACR Certificates, and vice versa.
(2) The amount shown for a Notional Class is its original notional principal
amount and does not represent principal that will be paid; see
"Payments -- Interest" in this Supplement.
(3) See "Description of Multiclass PCs -- Standard Definitions and Abbreviations
for Classes" in the Multiclass PC Offering Circular. The type of Class with
which a Notional Class will reduce is indicated in parentheses.
(4) See "Final Payment Dates" in this Supplement.
(5) Determined as described under "Prepayment and Yield Analysis" in this
Supplement, and subject to the assumptions and qualifications in that
section. Weighted average lives are calculated at 145% PSA for the C and PD
Classes, 205% PSA for the PC Class and 195% PSA for the H Class. Prepayments
will not occur at the rates assumed, and the actual weighted average lives
of the MACR Classes may differ from those shown.
(6) Solely for purposes of facilitating trading, the PC and PD Classes are
"Delay" Classes.
(7) The notional principal amount of the SD Class being exchanged equals the
principal amount of the PD Class being exchanged.
(8) Calculated as shown under "Terms Sheet -- Class Coupons" in this Supplement.
(9) The notional principal amount of the SC Class being exchanged equals the
principal amount of the PC Class being exchanged.
A-1
<PAGE> 307
==========================================================
THIS SUPPLEMENT, TOGETHER WITH THE MULTICLASS OFFERING CIRCULARS, CONSTITUTES AN
OFFER TO SELL ONLY THE SECURITIES OFFERED HEREBY. FREDDIE MAC HAS NOT AUTHORIZED
ANY BROKER, DEALER OR SALESPERSON, OR ANYONE ELSE, TO MAKE ANY STATEMENTS,
WRITTEN OR ORAL, IN CONNECTION WITH THE OFFER, EXCEPT FOR THOSE CONTAINED IN
THIS SUPPLEMENT AND IN THE OTHER DOCUMENTS AND SOURCES OF INFORMATION PREPARED
BY FREDDIE MAC THAT ARE LISTED UNDER "AVAILABLE INFORMATION" IN THIS SUPPLEMENT.
INVESTORS MUST NOT RELY ON ANY OTHER STATEMENTS AS HAVING BEEN AUTHORIZED BY
EITHER FREDDIE MAC OR THE UNDERWRITER. THIS SUPPLEMENT AND THE MULTICLASS
OFFERING CIRCULARS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES BY ANYONE IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL, OR WHERE THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION WOULD NOT BE QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT WOULD BE
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. FREDDIE MAC MAKES NO
REPRESENTATION THAT THE STATEMENTS IN THIS SUPPLEMENT OR ANY OTHER DOCUMENT WILL
BE CORRECT AT ANY TIME AFTER THE DATE OF SUCH DOCUMENT, EVEN THOUGH DELIVERY OF
THE DOCUMENT AND THE SALE OF THE SECURITIES TAKE PLACE ON A LATER DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
OFFERING CIRCULAR SUPPLEMENT
Certain Risk Considerations................................. S-2
Terms Sheet................................................. S-3
Available Information....................................... S-7
General Information......................................... S-7
Multiclass Agreement..................................... S-7
Form of Securities....................................... S-8
Holders.................................................. S-8
Structure of Transaction................................. S-8
The Mortgages............................................ S-9
Payments.................................................... S-9
Payment Dates; Record Dates.............................. S-9
Method of Payment........................................ S-10
Interest................................................. S-10
Principal................................................ S-11
Class Factors............................................ S-12
Guarantees............................................... S-14
Optional Redemption...................................... S-14
Residual Proceeds........................................ S-14
Prepayment and Yield Analysis............................... S-14
General.................................................. S-14
Prepayment and Weighted Average Life Considerations...... S-17
Yield Considerations..................................... S-23
Final Payment Dates......................................... S-27
Certain Federal Income Tax Consequences..................... S-27
General.................................................. S-27
Regular Classes.......................................... S-27
Residual Class........................................... S-27
MACR Classes............................................. S-28
Legal Investment Considerations; ERISA Considerations....... S-29
Plan of Distribution........................................ S-29
Legal Matters............................................... S-29
Exhibit I -- Series 1619 Offering Circular Supplement Cover
Page and Terms Sheet....................................... S-30
Exhibit II -- Series 1686 Offering Circular Supplement Cover
Page and Terms Sheet....................................... S-35
Exhibit III -- Series 1644 Offering Circular Supplement
Cover Page and Terms Sheet................................. S-38
Appendix 1--Available Combinations.......................... A-1
MULTICLASS PC OFFERING CIRCULAR
Offering Circular Summary................................... 3
Freddie Mac................................................. 8
Availability of Information and Incorporation by
Reference.................................................. 8
Description of Multiclass PCs............................... 8
MACR Certificates........................................... 22
The Multiclass PC Agreement................................. 26
Certain Federal Income Tax Consequences..................... 28
ERISA Considerations........................................ 39
Legal Investment Considerations............................. 39
Plan of Distribution........................................ 39
Increase in Size of Offering................................ 40
Accounting Considerations................................... 40
MULTICLASS SECURITIES OFFERING CIRCULAR
Offering Circular Summary................................... 3
Freddie Mac................................................. 9
Availability of Information and Incorporation by
Reference.................................................. 9
Description of Multiclass Securities........................ 9
MACR Certificates........................................... 26
The Multiclass Security Agreement........................... 29
Certain Federal Income Tax Consequences..................... 31
ERISA Considerations........................................ 42
Legal Investment Considerations............................. 43
Plan of Distribution........................................ 43
Increase in Size of Offering................................ 43
Accounting Considerations................................... 43
</TABLE>
==========================================================
==========================================================
$609,094,428
FREDDIE MAC
MULTICLASS MORTGAGE
PARTICIPATION CERTIFICATES,
MULTICLASS MORTGAGE SECURITIES
AND MODIFIABLE AND COMBINABLE
REMIC CERTIFICATES,
SERIES 2008
[FREDDIE MAC LOGO]
BEAR, STEARNS & CO. INC.
OFFERING CIRCULAR SUPPLEMENT
DATED OCTOBER 15, 1997
==========================================================
<PAGE> 308
OFFERING CIRCULAR SUPPLEMENT
(TO BASE OFFERING CIRCULAR DATED NOVEMBER 1, 1997)
$1,132,684,180
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
GINNIE MAE
GUARANTEED REMIC PASS-THROUGH SECURITIES
AND MX SECURITIES
GINNIE MAE REMIC TRUST 1998-14
------------------------
[LOGO]
The Ginnie Mae REMIC Trust 1998-14 Guaranteed REMIC Pass-Through Securities
(the "Securities") represent interests in Ginnie Mae REMIC Trust 1998-14 (the
"Trust"). The assets of the Trust (the "Trust Assets") consist primarily of (i)
Ginnie Mae Certificates guaranteed pursuant to Ginnie Mae programs for first
lien, single-family, fixed rate, residential mortgage loans (the "Trust MBS")
and (ii) a previously issued REMIC certificate (the "Underlying REMIC
Certificate"), as further described in Exhibits A and B hereto, evidencing an
interest in a trust consisting primarily of Ginnie Mae Certificates.
Guaranteed REMIC Pass-Through Securities ("REMIC Securities") specified
herein may, upon notice and payment of an exchange fee, be exchanged for one or
more Classes (each an "MX Class") of Modifiable and Exchangeable Securities ("MX
Securities") as described under "Description of the Securities--Modification and
Exchange" herein. In addition, as described herein, Classes of MX Securities are
exchangeable for one or more specified REMIC Classes and MX Classes. Unless the
context requires otherwise, the term "Securities" includes REMIC Securities and
MX Securities and the term "Classes" includes Classes of REMIC Securities and MX
Securities.
The Classes listed in the table below and the MX Classes are offered
pursuant to this Offering Circular Supplement and the Base Offering Circular.
The Regular and MX Classes comprise two Security Groups. Payments on Security
Group 1 will be based solely on payments on the Group 1 Trust Assets, and
payments on Security Group 2 will be based solely on payments on the Group 2
Trust Assets. Unless indicated otherwise, capitalized terms used herein shall
have the meanings assigned to them in the glossary attached as Appendix III to
the Base Offering Circular. FOR A DISCUSSION OF CERTAIN MATERIAL RISKS IN
CONNECTION WITH THE PURCHASE OF THE SECURITIES, SEE "RISK FACTORS--CLASS
INVESTMENT CONSIDERATIONS" ON PAGE S-16 OF THIS SUPPLEMENT.
------------------------
GINNIE MAE GUARANTEES THE TIMELY PAYMENT OF PRINCIPAL AND INTEREST ON THE
SECURITIES. THE GINNIE MAE GUARANTY IS BACKED BY THE FULL FAITH AND CREDIT OF
THE UNITED STATES OF AMERICA. THE SECURITIES ARE EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND CONSTITUTE EXEMPTED SECURITIES
UNDER THE SECURITIES EXCHANGE ACT OF 1934.
================================================================================
<TABLE>
<CAPTION>
WEIGHTED
CLASS AVERAGE
OF ORIGINAL FINAL LIFE
REMIC PRINCIPAL INTEREST PRINCIPAL INTEREST DISTRIBUTION (IN YEARS) CUSIP
SECURITIES BALANCE(2) RATE TYPE(3) TYPE(3) DATE(4) (5) NUMBER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SECURITY GROUP 1
BA(1)................ $ 24,883,765 0.000% AD/SUP PO November 2025 5.2 3837H1NY3
F(1) ................ 46,864,088 (6) AD/SUP FLT November 2025 6.0 3837H1NZ0
FA(1)................ 80,872,235 (6) AD/SUP FLT November 2025 5.2 3837H1PA3
FB(1) ............... 21,456,352 (6) AD/SUP FLT November 2025 6.0 3837H1PB1
FC(1) ............... 20,000,000 (6) AD/SUP FLT November 2025 6.0 3837H1PC9
FD(1)................ 21,000,000 (6) AD/SUP FLT November 2025 6.0 3837H1PD7
PA ................. 14,067,338 6.500 NTL(PAC) FIX/IO November 2026 5.8 3837H1PE5
PB ................. 25,000,000 6.500 PAC FIX June 2023 4.0 3837H1PF2
PC ................. 41,857,000 6.000 PAC FIX September 2021 4.0 3837H1PG0
PD ................. 88,266,000 6.000 PAC FIX June 2023 6.0 3837H1PH8
PE ................. 84,132,000 6.250 PAC FIX October 2024 8.0 3837H1PJ4
PG(1)................ 147,086,000 6.375 PAC FIX November 2026 11.0 3837H1PK1
PH(1)................ 149,766,750 6.500 PAC FIX June 2028 18.3 3837H1PL9
PJ ................. 94,795,000 6.000 PAC FIX July 2019 2.0 3837H1PM7
PK ................. 9,940,998 6.500 NTL(PAC) FIX/IO November 2026 5.1 3837H1PN5
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
CLASS AVERAGE
OF ORIGINAL FINAL LIFE
REMIC PRINCIPAL INTEREST PRINCIPAL INTEREST DISTRIBUTION (IN YEARS) CUSIP
SECURITIES BALANCE(2) RATE TYPE(3) TYPE(3) DATE(4) (5) NUMBER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PL ................. $ 50,226,000 6.500% PAC FIX September 2021 4.0 3837H1PP0
PM .................. 49,714,500 6.500 PAC FIX January 2025 5.0 3837H1PQ8
PN .................. 16,705,750 6.250 PAC FIX November 2026 11.2 3837H1PR6
S(1) ................ 33,637,060 (6) AD/SUP INV November 2025 6.0 3837H1PS4
SB(1) ............... 18,662,824 (6) NTL(AD/SUP) INV/IO November 2025 5.2 3837H1PT2
SC(1) ............... 6,220,941 (6) NTL(AD/SUP) INV/IO November 2025 5.2 3837H1PU9
VA .................. 25,558,750 6.500 AD/SUP/CPT FIX June 2005 3.8 3837H1PV7
VB ................. 15,187,250 6.500 AD/SUP/CPT FIX June 2008 8.5 3837H1PW5
VC .................. 43,233,500 6.500 AD/SUP/CPT FIX February 2016 13.5 3837H1PX3
Z .................. 6,400,000 6.500 AD/SUP FIX/Z June 2018 16.1 3837H1PY1
ZA .................. 38,358,000 6.500 SUP FIX/Z June 2028 22.9 3837H1PZ8
SECURITY GROUP 2
EM .................. 7,684,180 0.000 PT/SC PO October 2022 4.7 3837H1QA2
SM .................. 7,684,180 (6) NTL/(PT/SC) INV/IO/DLY October 2022 4.7 3837H1QB0
RESIDUAL
RR .................. 0 0.000 NPR NPR June 2028 -- 3837H1QC8
</TABLE>
================================================================================
(1) Denotes a Class which is exchangeable for an MX Class. See Schedule II to
this Supplement for a description of the MX Classes.
(2) Subject to increase as described under "Increase in Size" in this
Supplement. The amount shown for each Notional Class (indicated by "NTL"
under Principal Type) is its original Class Notional Balance and does not
represent principal that will be paid.
(3) As defined under "Class Types" in Appendix I to the Base Offering Circular.
The type of Class with which the Class Notional Balance of each Notional
Class will be reduced is indicated in parentheses.
(4) See "Yield, Maturity and Prepayment Considerations--Final Distribution Date"
in this Supplement.
(5) The Weighted Average Lives of Security Groups 1 and 2 are calculated at 135%
PSA and 325% PSA, respectively, in each case, as described under "Yield,
Maturity and Prepayment Considerations" in this Supplement. Prepayments will
not occur at any assumed rate shown or at any other constant rate and the
actual Weighted Average Lives of any or all of the Classes are likely to
differ from those shown, perhaps significantly.
(6) The Floating Rate and Inverse Floating Rate Classes will bear interest as
described under "Terms Sheet--Interest Rates" in this Supplement.
---------------------------
The Securities are being offered by Bear, Stearns & Co. Inc. (the "Sponsor")
and The Williams Capital Group, L.P. (the "Co-Sponsor") from time to time in
negotiated transactions at varying prices to be determined at the time of sale,
plus accrued interest from June 1, 1998, in the case of all interest bearing
classes other than Classes F, FA, FB, FC, FD, S, SB, SC, FE, SA, SD, SE and SG
and from June 20, 1998 in the case of Classes F, FA, FB, FC, FD, S, SB, SC, FE,
SA, SD, SE and SG .
The Securities are offered subject to prior sale and to the Sponsor's right
to reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that the Regular Securities will be ready
for delivery in Book-Entry Form through the facilities of Participants Trust
Company and that the Residual Securities will be delivered in certificated form
to the offices of Bear, Stearns & Co. Inc. in New York, New York, on or about
June 30, 1998.
------------------------
BEAR, STEARNS & CO. INC. THE WILLIAMS CAPITAL GROUP, L.P.
The date of this Offering Circular Supplement is June 24, 1998.
<PAGE> 309
Investors should consider the following general investment characteristics
of Securities backed by single-family mortgage loans such as the Mortgage Loans:
- The Mortgage Loans generally are assumable and may be prepaid at any time
without penalty. Accordingly, the rate of prepayments on the Mortgage Loans
is likely to vary considerably over time. Rapid rates of prepayments on the
Mortgage Loans are likely to coincide with periods of low prevailing
interest rates. During such periods, the yields at which an investor may be
able to reinvest amounts received as principal payments on the investor's
Class of Securities may be lower than the yield on that Class. Slow rates
of prepayments on the Mortgage Loans are likely to coincide with periods of
high prevailing interest rates. During such periods, the amount of
principal payments available to an investor for reinvestment at such high
rates may be relatively low.
- Slight variations in Mortgage Loan characteristics could substantially
affect the Weighted Average Lives and yields of some or all of the Classes,
particularly the Support Classes.
- In the case of Principal Only Securities or other Securities purchased at
a discount, a slower than anticipated rate of principal payments is likely
to result in a lower than anticipated yield.
- In the case of Interest Only Securities or other Securities purchased at a
premium, a faster than anticipated rate of principal payments is likely to
result in a lower than anticipated yield.
- Low levels of LIBOR could reduce the yield of the Floating Rate Classes.
Conversely, high levels of LIBOR or COFI, as applicable, could
significantly reduce the yields of the Inverse Floating Rate Classes
(especially, in the case of the Interest Only Inverse Floating Rate
Classes, in combination with fast prepayments on the related Mortgage
Loans) and may result in the failure of an investor in the Interest Only
Inverse Floating Rate Classes to fully recover its investment.
- The rate of principal distributions of the Securities is uncertain. The
actual final payment of any Class may occur earlier, and could occur much
earlier, than the Final Distribution Date for that Class.
- Investors whose investment activities are subject to legal investment laws
and regulations or to review by regulatory authorities may be subject to
restrictions on investment in certain Classes. Investors should consult
their legal advisors to determine whether and to what extent any Class may
constitute a legal investment or is subject to restrictions on investment.
- The secondary markets for mortgage-related securities have experienced
periods of illiquidity and can be expected to do so in the future.
Illiquidity can have a severely adverse effect on the prices of Classes
that are especially sensitive to prepayment or interest rate risk or that
have been structured to meet the investment requirements of limited
categories of investors.
As described herein, the Group 2 Trust Assets consist of an Underlying REMIC
Certificate. Investors in the Group 2 Securities are urged to review the
information set forth in Exhibits A and B hereto describing the Underlying REMIC
Certificate and the discussion under "Risk Factors -- Class Investment
Considerations" of significant factors that should be considered by prospective
investors in the Group 2 Securities.
THE YIELDS TO INVESTORS IN THE GROUP 1 SECURITIES WILL BE SENSITIVE IN
VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE OF PRINCIPAL DISTRIBUTIONS ON
THE TRUST MBS, WHICH IN TURN WILL BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS
OF THE RELATED MORTGAGE LOANS. THE YIELDS TO INVESTORS IN THE GROUP 2 SECURITIES
WILL BE SENSITIVE IN VARYING DEGREES TO, AMONG OTHER THINGS, THE RATE OF
PRINCIPAL DISTRIBUTIONS ON THE UNDERLYING REMIC CERTIFICATE, WHICH IN TURN WILL
BE SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS OF THE RELATED MORTGAGE LOANS AND
THE PRIORITIES FOR DISTRIBUTION OF PRINCIPAL AMONG THE CLASSES OF THE RELATED
UNDERLYING REMIC SERIES. SEE "YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS"
HEREIN.
The Securities may not be suitable investments for all investors, in
particular, certain individual investors. The Sponsor has expressed its
intention to make a market in the Securities, but has no obligation to do so.
There can be no assurance that such a market will develop or, if developed, that
it will continue. Thus, investors may not be able to sell their Securities
readily or at prices that will enable them to realize their anticipated yield.
The market values of the Securities are likely to fluctuate. The fluctuations
may be significant and could result in significant losses to investors. NO
INVESTOR SHOULD PURCHASE ANY SECURITY UNLESS THE INVESTOR UNDERSTANDS AND IS
ABLE TO BEAR (i) THE PREPAYMENT AND YIELD RISKS ASSOCIATED WITH THAT CLASS AND
(ii) THE RISK THAT THE VALUE OF SUCH SECURITIES WILL FLUCTUATE OVER TIME AND
THAT SUCH SECURITIES MAY NOT BE READILY SALABLE. Each investor is urged to
consult with its investment advisor regarding whether the Securities are an
appropriate investment and suitable for such investor.
S-2
<PAGE> 310
AVAILABLE INFORMATION
The Chase Manhattan Bank will act as Information Agent for the Trust.
Following the issuance of the Securities, a Final Data Statement will be
prepared setting forth information regarding the Trust Assets. The contents of
the Final Data Statement and other data specific to the Trust Assets and the
Securities are available in electronic form on gREX or by calling (800)
234-GNMA. The Trustee will calculate current Class Factors for each Class of the
Securities as described in "Description of the Securities--Distributions" in the
Base Offering Circular and report the Class Factors to the Information Agent.
Current Class Factors will be available to investors each month, beginning in
July 1998, on gREX. Investors should purchase the Securities offered hereby only
if they have read and understood this Offering Circular Supplement, the Base
Offering Circular, and, in the case of the Group 2 Securities, the disclosure
document pursuant to which the Underlying REMIC Certificate was offered (the
"Underlying REMIC Disclosure Document"). By request, investors may order copies
of the Underlying REMIC Disclosure Document from the Information Agent by
calling (800) 234-GNMA.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GINNIE MAE REMIC TRUST 1998-14 TERMS SHEET........ S-4
THE TRUST ASSETS.................................. S-9
General......................................... S-9
The Trust MBS (Group 1)......................... S-9
The Underlying REMIC Certificate (Group 2)...... S-9
The Mortgage Loans.............................. S-9
GINNIE MAE GUARANTY............................... S-10
DESCRIPTION OF THE SECURITIES..................... S-10
General......................................... S-10
Form of Securities.............................. S-10
Distributions................................... S-11
Interest Distributions.......................... S-11
Principal Distributions......................... S-12
Residual Securities............................. S-13
Class Factors................................... S-13
Termination..................................... S-13
Modification and Exchange....................... S-14
RISK FACTORS--CLASS INVESTMENT CONSIDERATIONS..... S-16
The Group 2 Securities.......................... S-16
Interest Only Classes and Other Securities
Purchased at a Premium........................ S-16
Principal Only Classes and Other Securities
Purchased at a Discount....................... S-17
Floating Rate and Inverse Floating Rate
Classes....................................... S-17
PAC Classes..................................... S-17
Accrual Classes................................. S-19
Support Classes and Accretion Directed Classes.. S-19
MX Classes...................................... S-19
Residual Securities............................. S-19
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.......................... S-19
Suitability..................................... S-20
YIELD, MATURITY AND PREPAYMENT CONSIDERATIONS..... S-20
General......................................... S-20
Assumability.................................... S-21
Final Distribution Date......................... S-21
Modeling Assumptions............................ S-21
Decrement Tables................................ S-22
Yield Considerations............................ S-27
Yield Tables.................................... S-28
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........... S-33
REMIC Elections................................. S-33
Regular Securities.............................. S-33
Residual Securities............................. S-34
MX Securities................................... S-35
ERISA MATTERS..................................... S-37
LEGAL INVESTMENT CONSIDERATIONS................... S-37
PLAN OF DISTRIBUTION.............................. S-37
INCREASE IN SIZE.................................. S-38
LEGAL MATTERS..................................... S-38
SCHEDULE I: SCHEDULED PRINCIPAL BALANCES.......... S-I-1
SCHEDULE II: AVAILABLE COMBINATIONS............... S-II-1
EXHIBIT A: UNDERLYING REMIC CERTIFICATE........... A- 1
EXHIBIT B: COVER PAGE FROM UNDERLYING REMIC
DISCLOSURE DOCUMENT............................. B- 1
</TABLE>
S-3
<PAGE> 311
GINNIE MAE REMIC TRUST 1998-14
TERMS SHEET
This terms sheet (the "Terms Sheet") contains selected information for
quick reference only. Prospective investors should read this Supplement,
particularly "Risk Factors--Class Investment Considerations," and the Base
Offering Circular for further information. Prospective investors in the Group 2
Securities are also urged to read the information included in Exhibits A and B
hereto relating to the Underlying REMIC Certificate.
SPONSOR: Bear, Stearns & Co. Inc.
TRUSTEE: State Street Bank and Trust Company
TAX ADMINISTRATOR: The Trustee
CLOSING DATE: June 30, 1998
DISTRIBUTION DATE: For the Group 1 Securities, the 20th day of each month or,
if the 19th day or 20th day is not a Business Day, the first Business Day
following the 20th day, commencing in July 1998. For the Group 2 Securities, the
first Business Day following each Underlying REMIC Distribution Date, commencing
in July 1998. The "Underlying REMIC Distribution Date" for the Group 2
Securities is the 25th day of each month or, if the 25th is not a business day,
the first business day following the 25th day. For purposes of the definition of
Underlying REMIC Distribution Date, "business day" will have the meaning
assigned thereto in the Underlying REMIC Disclosure Document.
TRUST ASSETS:
<TABLE>
<CAPTION>
ORIGINAL TERM
TRUST ASSET TO MATURITY
GROUP TRUST ASSET TYPE CERTIFICATE RATE (IN YEARS)
- ----------- ---------------- ---------------- -------------
<S> <C> <C> <C>
1 Ginnie Mae II 6.50% 30
2 Underlying REMIC Certificate * *
</TABLE>
----------
* Information regarding the Underlying REMIC Certificate and the
related Mortgage Loans is set forth in Exhibits A and B hereto. See
"Risk Factors -- Class Investment Considerations -- The Group 2
Securities" for a discussion of the Underlying REMIC Certificate.
SECURITY GROUPS:
<TABLE>
<S> <C>
Group 1 Securities: Classes BA, F, FA, FB, FC, FD, PA, PB, PC, PD, PE, PG, PH,
PJ, PK, PL, PM, PN, S, SB, SC, VA, VB, VC, Z and ZA (REMIC
Securities); AB, AC, AD, AE, AF, AG, AH, AI, AJ, AK, AL, AM,
AN, AO, AP, AY, AR, AS, AT, AU, A, B, FE, SA, SD, SE and SG
(MX Securities)
Group 2 Securities: Classes EM and SM (REMIC Securities)
</TABLE>
TRUSTEE FEE: 210,000/1,125,210,000 of all principal and interest distributions
on the Group 1 Trust Assets.
ASSUMED MORTGAGE LOAN CHARACTERISTICS OF THE MORTGAGE LOANS UNDERLYING THE GROUP
1 TRUST ASSETS (AS OF JUNE 1, 1998):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
PRINCIPAL REMAINING TERM TO LOAN AGE WEIGHTED AVERAGE
GROUP BALANCE MATURITY (IN MONTHS) (IN MONTHS) MORTGAGE RATE*
- ----- --------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 $1,125,210,000 356 4 7.30%
</TABLE>
----------
* The Mortgage Loans underlying the Group 1 Trust Assets may bear
interest at rates varying from 7.00% to 8.00% per annum.
The actual remaining terms to maturity, loan ages and Mortgage Rates of many of
the Mortgage Loans underlying the Group 1 Trust Assets will differ from the
weighted averages shown above, perhaps significantly. See "The Trust Assets--The
Mortgage Loans" in this Supplement. See Exhibit A hereto for information
regarding the characteristics of the Mortgage Loans included in the Underlying
REMIC Trust.
S-4
<PAGE> 312
MODELING ASSUMPTIONS: Set forth under "Yield, Maturity and Prepayment
Considerations" in this Supplement.
MODIFICATION AND EXCHANGE: Beneficial Owners of certain Classes of REMIC
Securities will be entitled, upon notice and payment of an exchange fee, to
exchange all or a portion of such Classes for a proportionate interest in the
related MX Class as shown on Schedule II to this Supplement. Similarly,
Beneficial Owners of an MX Class will be entitled, upon like notice and payment
of an exchange fee, to exchange all or a portion of such Class for proportionate
interests in the related Classes of REMIC Securities or, in some cases, other
related MX Classes. Each MX Security will represent a proportionate beneficial
ownership interest in, and will entitle the Holder thereof to receive a
proportionate share of the distributions on, the related Classes of REMIC
Securities. See "Description of the Securities--Modification and Exchange" in
this Supplement. Schedule II to this Supplement sets forth the available
combinations of the Classes of REMIC Securities and the related MX Classes.
INCREASED MINIMUM DENOMINATION CLASSES: Each REMIC Class that is an Interest
Only Security, Principal Only Security, Inverse Floating Rate Security or
Interest Only Inverse Floating Rate Security and each MX Class.
INTEREST RATES: The Interest Rates for the Fixed Rate Classes are shown on the
cover page of this Supplement or on Schedule II to this Supplement.
The Floating Rate Classes and the Inverse Floating Rate Classes will bear
interest at per annum rates based on one-month LIBOR (hereafter referred to as
"LIBOR") or COFI, as follows:
<TABLE>
<CAPTION>
INTEREST INITIAL MINIMUM MAXIMUM DELAY
CLASS RATE FORMULA INTEREST RATE* RATE RATE (IN DAYS)
----- ------------ -------------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
F, FB, FC, FD and FE+ LIBOR + 0.45% 6.10625% 0.45% 8.50% 0
FA LIBOR + 0.40% 6.05625% 0.40% 8.50% 0
S 26.162499% - (LIBOR X 3.25) 7.779687% 0.00% 26.162499% 0
SA+ and SD+ 26.325% - (LIBOR X 3.25) 7.942187% 0.00% 26.325% 0
SB and SE+ 32.5% - (LIBOR X 4.333333) 7.98958% 0.00% 32.5% 0
SC and SG+ 105.3% - (LIBOR X 13) 7.8% 0.00% 7.8% 0
SM 20.76666% - (COFI X 2.33334) 9.32629%** 0.00% 20.76666% 25
</TABLE>
- ---------------
* The initial Interest Rate will be in effect during the first Accrual Period;
the Interest Rate will adjust monthly thereafter.
** The initial interest rate for this Class is an assumed rate. The actual
initial interest rate for this Class will be calculated on the basis of the
applicable formula for the calculation of such interest rate on the Floating
Rate Adjustment Date occurring on June 23, 1998.
+ MX Class.
ALLOCATION OF PRINCIPAL: On each Distribution Date for a Security Group the
following distributions will be made to the related Securities:
SECURITY GROUP 1
210,000/1,125,210,000 of the Group 1 Principal Distribution Amount (as
defined below) will be applied to the Trustee Fee, and the remaining
1,125,000,000/1,125,210,000 of the Group 1 Principal Distribution Amount
(the "Group 1 Adjusted Principal Distribution Amount") and the Accrual
Amount (as defined below) will be allocated as follows:
- The Accrual Amount as follows:
1. The Z Accrual Amount and 44.4444444444% of the ZA Accrual
Amount as follows:
a. To VA1, VB1 and VC1, in that order, until retired
b. To Z, until retired
c. To BA and FA, pro rata, until retired
d. To ZA, until retired
2. 55.5555555556% of the ZA Accrual Amount as follows:
a. To VA2, VB2 and VC2, in that order, until retired
b. To F, FB, FC, FD and S, pro rata, until retired
c. to ZA, until retired
S-5
<PAGE> 313
- The Group 1 Adjusted Principal Distribution Amount in the following
order of priority:
1. Concurrently,
a. 7.4038535577% to PB, until reduced to its Scheduled Principal
Balance
b. 11.1111111111% to PM, until reduced to its Scheduled
Principal Balance and
c. 81.4850353312%, in the following order of priority:
(i) To PJ, until reduced to its Scheduled Principal
Balance
(ii) To PC and PL, pro rata, until reduced to their
Scheduled Principal Balances; and
(iii) To PD, until reduced to its Scheduled Principal
Balance
2. Concurrently, 88.8888888889% to PE and PG, in that order, and
11.1111111111% to PM, until PM is reduced to its Scheduled
Principal Balance
3. Concurrently, 88.8888888889% to PG and 11.1111111111% to PN,
until reduced to their Scheduled Principal Balances
4. To PH, until reduced to its Scheduled Principal Balance
5. Concurrently,
a. 44.4444444444%, in the following order of priority:
(i) To BA and FA, pro rata, until retired
(ii) VA1, VB1, VC1 and Z, in that order, until retired
b. 55.5555555556%, in the following order of priority:
(i) To F, FB, FC, FD and S, pro rata, until retired
(ii) To VA2, VB2 and VC2, in that order, until retired
6. To ZA, until retired
7. Concurrently,
a. 7.4038535577% to PB, until retired
b 11.1111111111% to PM, until retired and
c. 81.4850353312%, in the following order of priority:
(i) To PJ, until retired
(ii) To PC and PL, pro rata, until retired
(iii) To PD, until retired
8. Concurrently, 88.8888888889% to PE and PG, in that order, until
retired, and 11.1111111111% to PM, until PE and PM are retired
9. Concurrently, 88.8888888889% to PG, until retired, and
11.1111111111% to PN, until retired
10. To PH, until retired
SECURITY GROUP 2
The Group 2 Principal Distribution Amount to EM until retired
As to any Distribution Date, the "Group 1 Principal Distribution Amount" and
"Group 2 Principal Distribution Amount" mean that portion of the Principal
Distribution Amount for such date attributable to the Group 1 and Group 2 Trust
Assets, respectively.
ACCRUAL CLASSES: Class Z and Class ZA are Accrual Classes. Interest will accrue
on the Accrual Classes at the per annum rate set forth on the cover page of this
Supplement. However, no interest will be distributed thereon as interest.
Interest so accrued on the Accrual Classes on each Distribution Date will
constitute in the aggregate the Accrual Amount or in the case of Class Z, the "Z
Accrual Amount," and in the case of Class ZA, the "ZA Accrual Amount," which
will be
S-6
<PAGE> 314
added to the Class Principal Balance of the respective Classes on each
Distribution Date and will be distributable as principal as set forth in this
Terms Sheet under "Allocation of Principal."
MX CLASSES: On any Distribution Date when distributions of principal are to be
allocated from REMIC Securities to MX Securities (or from MX Securities to other
MX Securities), such distributions will be allocated from the applicable Classes
of REMIC Securities to the related MX Classes (or from the applicable Classes of
MX Securities to the related MX Classes).
NOTIONAL CLASSES: The Notional Classes will not receive distributions of
principal but have Class Notional Balances for convenience in describing their
entitlement to interest. The Class Notional Balance of each Notional Class
represents the percentage indicated below of, and reduces to that extent with,
the Class Principal Balance indicated:
<TABLE>
<CAPTION>
APPROXIMATE
ORIGINAL CLASS
CLASS NOTIONAL BALANCE REPRESENTS APPROXIMATELY
----- ---------------- -----------------------------------
<S> <C> <C>
PA...................... $ 3,219,769 7.6923076923% of PC (PAC Class)
3,086,385 3.4966864923% of PD (PAC Class)
3,314,684 3.4966864923% of PJ (PAC Class)
1,617,923 1.9230769231% of PE (PAC Class)
2,828,577 1.9230769231% of PG (PAC Class)
------------
$ 14,067,338
============
PK...................... $ 3,703,307 4.1956212% of PD (PAC Class)
3,977,239 4.1956212% of PJ (PAC Class)
1,617,923 1.9230769231% of PE (PAC Class)
642,529 3.8461538462% of PN (PAC Class)
------------
$ 9,940,998
============
AB+..................... $147,086,000 100% of PG (PAC Class)
AL+..................... $149,766,750 100% of PH (PAC Class)
SB...................... $ 18,662,824 75.0000010047% of BA (AD/SUP Class)
SC...................... $ 6,220,941 24.9999989953% of BA (AD/SUP Class)
SD+..................... $ 24,883,765 100% of BA (AD/SUP Class)
SM...................... $ 7,684,180 100% of EM (PT/SC Class)
</TABLE>
--------------------
+ MX Class
COMPONENT CLASSES: For purposes of calculating distributions of principal,
Classes VA, VB and VC are each comprised of multiple components having the
designations and characteristics set forth below. Components are not separately
transferable from the related Class of Securities.
<TABLE>
<CAPTION>
PRINCIPAL ORIGINAL PRINCIPAL
CLASS COMPONENTS TYPE INTEREST RATE BALANCE
- ----- ---------- --------- ------------- ------------------
<S> <C> <C> <C> <C>
VA VA1 AD/SUP 6.5% $13,390,000
VA2 AD/SUP 6.5% 12,168,750
VB VB1 AD/SUP 6.5% 7,956,000
VB2 AD/SUP 6.5% 7,231,250
VC VC1 AD/SUP 6.5% 17,206,000
VC2 AD/SUP 6.5% 26,027,500
</TABLE>
STRUCTURING RANGE. The PAC Classes were structured using, among other things,
the following Structuring Range:
<TABLE>
<CAPTION>
CLASS RANGE
----- -----
<S> <C>
PAC................................................... 80% PSA through 220% PSA
</TABLE>
The Effective Range for a Class may differ from its Structuring Range. The
initial Effective Range for each PAC Class is set forth under "Risk
Factors--Class Investment Considerations--PAC Classes" in this Supplement.
S-7
<PAGE> 315
SCHEDULED PRINCIPAL BALANCES: The Scheduled Principal Balances for each PAC
Class are included as Schedule I to this Supplement.
WEIGHTED AVERAGE LIVES (YEARS)*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
CLASS -------------------------------------
----- 0% 80% 135% 220% 400%
SECURITY GROUP 1 -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
A+, BA, FA, SA+, SB**, SC**,
SD+**, SE+ and SG+.......... 24.6 15.8 5.2 1.9 1.1
B+, F, FB, FC, FD, FE+ and
S........................... 24.2 16.1 6.0 2.1 1.2
PA**.......................... 14.1 5.8 5.8 5.8 4.0
PB .......................... 11.0 4.0 4.0 4.0 3.1
PC and PL..................... 11.9 4.0 4.0 4.0 3.3
PD ........................... 16.0 6.0 6.0 6.0 4.0
PE .......................... 18.8 8.0 8.0 8.0 4.9
AB+**, AC+, AD+, AE+, AF+,
AG+, AH+, AI+, AJ+, AK+ and
PG.......................... 21.6 11.0 11.0 11.0 6.5
AL+**, AM+, AN+, AO+, AP+,
AY+, AR+, AS+, AT+, AU+ and
PH.......................... 24.6 18.3 18.3 18.3 11.2
PJ .......................... 5.6 2.0 2.0 2.0 2.0
PK**.......................... 12.7 5.1 5.1 5.1 3.5
PM ........................... 13.0 5.0 5.0 5.0 3.6
PN ........................... 21.8 11.2 11.2 11.2 6.6
VA ........................... 3.8 3.8 3.8 3.0 1.8
VB ........................... 8.5 8.5 8.5 4.3 2.2
VC ........................... 13.5 13.5 13.5 5.0 2.4
Z .......................... 17.6 17.6 16.1 5.4 2.5
ZA ........................... 28.8 25.9 22.9 7.0 2.8
</TABLE>
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
-------------------------------------
0% 150% 325% 450% 600%
SECURITY GROUP 2 -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EM and SM**................... 15.3 7.2 4.7 3.7 2.8
</TABLE>
----------
* Determined as described under "Yield, Maturity and Prepayment
Considerations" in this Supplement. Prepayments will not occur at
any assumed rate shown or at any other constant rate and the actual
Weighted Average Lives of any or all of the Classes are likely to
differ from those shown, perhaps significantly.
** The information shown for each Notional Class is for illustrative
purposes only.
+ MX Class.
TAX STATUS: Double REMIC Series. See "Certain Federal Income Tax Consequences"
in this Supplement and in the Base Offering Circular.
REGULAR AND RESIDUAL CLASSES: Class RR is a Residual Class and includes the
Residual Interests of the Issuing REMIC and the Pooling REMIC; all other Classes
of REMIC Securities are Regular Classes.
SUITABILITY: The Securities of any Class may not be suitable investments for
all investors. The Sponsor intends to make a market for the Securities but is
not obligated to do so. There can be no assurance that such a secondary market
will develop or, if developed, that it will continue. Thus, investors may not be
able to sell their Securities readily or at prices that will enable them to
realize their anticipated yield. The market values of the Securities are likely
to fluctuate. The fluctuations may be significant and could result in
significant losses to investors. NO INVESTOR SHOULD PURCHASE SECURITIES OF ANY
CLASS UNLESS THE INVESTOR UNDERSTANDS AND IS ABLE TO BEAR (i) THE PREPAYMENT AND
YIELD RISKS ASSOCIATED WITH THAT CLASS AND (ii) THE RISK THAT THE VALUE OF SUCH
SECURITIES WILL FLUCTUATE OVER TIME AND THAT SUCH SECURITIES MAY NOT BE READILY
SALABLE. Each investor is urged to consult with its investment advisor regarding
whether the Securities are an appropriate investment for such investor.
S-8
<PAGE> 316
THE TRUST ASSETS
GENERAL
The Sponsor intends to acquire the Trust Assets in privately negotiated
transactions prior to the Closing Date and to sell them to the Trust pursuant to
a Trust Agreement between the Sponsor and the Trustee, dated as of the Closing
Date. The Sponsor will make certain representations and warranties with respect
to the Trust Assets. All Trust Assets, regardless of whether such assets consist
of Trust MBS or the Underlying REMIC Certificate, will evidence directly or
indirectly, Ginnie Mae Certificates.
THE TRUST MBS (GROUP 1)
The Group 1 Trust Assets are either Ginnie Mae II MBS Certificates
guaranteed by Ginnie Mae pursuant to its Ginnie Mae II Program or Ginnie Mae
Platinum Certificates backed by Ginnie Mae II MBS Certificates and guaranteed by
Ginnie Mae pursuant to its Ginnie Mae Platinum Program. Each Mortgage Loan
underlying a Ginnie Mae II MBS Certificate bears interest at a Mortgage Rate
0.50% to 1.50% per annum greater than the related Certificate Rate. Ginnie Mae
receives a fee (the "Ginnie Mae Certificate Guaranty Fee") for its guaranty of
each Ginnie Mae II MBS Certificate of 0.06% per annum of the outstanding
principal balance of each related Mortgage Loan. The difference between (a) the
Mortgage Rate and (b) the sum of the Certificate Rate and the Ginnie Mae
Certificate Guaranty Fee is used to pay the related servicers of the Mortgage
Loans a monthly servicing fee.
THE UNDERLYING REMIC CERTIFICATE (GROUP 2)
The Group 2 Trust Assets are an Underlying REMIC Certificate that
represents a beneficial ownership interest in a separate trust, (the "Underlying
REMIC Trust"), the assets of which evidence direct or indirect beneficial
ownership interests in certain Ginnie Mae Certificates. The Underlying REMIC
Certificate constitutes a portion of a class of a separate series of
certificates (the "Underlying REMIC Series") described in the related Underlying
REMIC Disclosure Document, the cover page of which is attached as Exhibit B
hereto. The Underlying REMIC Disclosure Document is incorporated by reference
herein and may be obtained from the Information Agent as described under
"Available Information." Investors are cautioned that material changes in facts
and circumstances may have occurred since the date of the Underlying REMIC
Disclosure Document, including changes in prepayment rates, prevailing interest
rates and other economic factors, which may limit the usefulness of, and be
directly contrary to the assumptions used in preparing the information included
in, such offering document. See "Underlying REMIC Certificates" in the
accompanying Base Offering Circular.
The Underlying REMIC Certificate provides for monthly distributions and is
further described in the table contained in Exhibit A hereto. The table also
sets forth information regarding approximate weighted average remaining term to
maturity, loan age and Mortgage Rate of the Mortgage Loans underlying the
related Ginnie Mae Certificates.
THE MORTGAGE LOANS
The Mortgage Loans underlying the Group 1 Trust Assets are expected to
have, on a weighted average basis, the characteristics set forth in the Terms
Sheet under "Assumed Mortgage Loan Characteristics of Mortgage Loans Underlying
the Trust Assets (as of June 1, 1998)" and the general characteristics described
in the Base Offering Circular. The Mortgage Loans underlying the Underlying
REMIC Certificate are expected to have, on a weighted average basis, the
characteristics set forth in Exhibit A hereto. The Mortgage Loans will consist
of first lien, single-family, fixed rate, residential mortgage loans that are
insured or guaranteed by the Federal Housing Administration, the United States
Department of Veterans Affairs, the Rural
S-9
<PAGE> 317
Housing Service (formerly the Farmers Home Administration) or the United States
Department of Housing and Urban Development ("HUD"). See "The Ginnie Mae
Certificates--General" in the Base Offering Circular.
Specific information regarding the characteristics of the Mortgage Loans is
not available. For purposes of this Supplement, certain assumptions have been
made regarding the remaining terms to maturity, loan ages and Mortgage Rates of
the Mortgage Loans underlying the Trust MBS. However, the actual remaining terms
to maturity, loan ages and Mortgage Rates of many of the Mortgage Loans
underlying the Trust MBS will differ from the characteristics assumed, perhaps
significantly. This will be the case even if the weighted average
characteristics of the Mortgage Loans underlying the Trust MBS are the same as
those of mortgage loans having the characteristics assumed. Small differences in
the characteristics of the Mortgage Loans can have a significant effect on the
weighted average lives and yields of the Classes. See "Risk Factors--Class
Investment Considerations" and "Yield, Maturity and Prepayment Considerations"
in this Supplement.
GINNIE MAE GUARANTY
The Government National Mortgage Association ("Ginnie Mae"), a wholly-owned
corporate instrumentality of the United States of America within HUD, guarantees
the timely payment of principal and interest on the Securities (the "Ginnie Mae
Guaranty"). The General Counsel of HUD has provided an opinion to the effect
that Ginnie Mae has the authority to guarantee multiclass securities and that
such Ginnie Mae guaranties will constitute general obligations of the United
States, for which the full faith and credit of the United States is pledged. See
"Ginnie Mae Guaranty" in the Base Offering Circular.
DESCRIPTION OF THE SECURITIES
GENERAL
The description of the Securities contained in this Supplement does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Trust Agreement. See "Description of
the Securities" in the Base Offering Circular.
FORM OF SECURITIES
Each Class of Regular Securities and MX Securities initially will be issued
and maintained in Book-Entry Form and may be transferred only on the book-entry
system of Participants Trust Company ("PTC," and, together with any successor,
the "Book-Entry Depository"). Beneficial Owners of Securities in Book-Entry Form
will ordinarily hold such Securities through one or more financial
intermediaries, such as banks, brokerage firms and securities clearing
organizations. By request accompanied by the payment of a transfer fee of
$25,000 per physical certificate to be issued, a Beneficial Owner may receive a
Regular Security in certificated form.
The Residual Securities will not be issued in Book-Entry Form but will be
issued in fully registered, certificated form and may be transferred or
exchanged (subject to the transfer restrictions applicable to Residual
Securities set forth in the Trust Agreement) at the Corporate Trust Office of
the Trustee in Boston, Massachusetts. Beneficial Owners of Certificated
Securities other than the Residual Securities may exchange such Securities for
Securities in Book-Entry Form, subject to compliance with procedures established
by the Book-Entry Depository and payment of any expenses in connection with the
exchange. See "Description of the Securities--Forms of Securities; Book-Entry
Procedures" in the Base Offering Circular.
Each Class (other than the Increased Minimum Denomination Classes) will be
issued in the denominations specified under "Description of the
Securities--Minimum Denominations" in
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<PAGE> 318
the Base Offering Circular. The Increased Minimum Denomination Classes will be
issued in the following minimum denominations: Class Principal Balances of
$100,000 for Class F, Class FA, Class FB, Class FC and Class FD, $126,000 for
Class BA, $109,000 for Class S and $128,000 for Class EM and Class Notional
Balances of $388,000 for Class PA, $434,000 for Class PK, $640,000 for Class SB,
$1,096,000 for Class SC and $371,000 for Class SM. See Schedule II to this
Supplement for the minimum denominations of the MX Classes.
DISTRIBUTIONS
Distributions on each Class of Securities will be made on each Distribution
Date for such Class, as specified under "Terms Sheet--Distribution Date" herein.
On each Distribution Date, the Trustee will distribute the Distribution Amount
to Holders of record as of the close of business on the last Business Day of the
calendar month immediately preceding the month in which such Distribution Date
occurs (each, a "Record Date"). For Book-Entry Securities, the Trustee will
distribute principal and interest to the Book-Entry Depository, and Beneficial
Owners will receive distributions through credits to accounts maintained for
their benefit on the books and records of appropriate financial intermediaries.
See "Description of the Securities--Distributions" and "--Method of
Distributions" in the Base Offering Circular.
INTEREST DISTRIBUTIONS
The Interest Distribution Amount will be distributed to the Holders of all
Classes of Securities (other than the Accrual Classes) on which interest has
accrued. Interest will be calculated on the basis of a 360-day year consisting
of twelve 30-day months. Interest distributable on any Class on any Distribution
Date will consist of 30 days' interest on its Class Principal Balance (or Class
Notional Balance). Investors can calculate the amount of interest to be
distributed on each Class of Regular Securities (other than the Accrual Classes)
on any Distribution Date by using the Class Factors published in the preceding
month. See "--Class Factors" below.
Categories of Classes
For purposes of interest distributions, the Classes will be categorized as
shown under "Interest Type" on the cover page of this Supplement and on Schedule
II to this Supplement. The abbreviations used on the cover page and on Schedule
II are explained under "Class Types" in Appendix I to the Base Offering
Circular.
Accrual Periods
The Accrual Period for the F, FA, FB, FC, FD, S, SB, SC, FE, SA, SD, SE and
SG Securities will be from the 20th of the month preceding the related
Distribution Date through the 19th of the month of that Distribution Date. The
Accrual Period for all other Classes will be the calendar month preceding the
related Distribution Date.
Fixed Rate Classes
Each Fixed Rate Class will bear interest on its Class Principal Balance or
Class Notional Balance at the per annum Interest Rate shown on the cover page of
this Supplement or on Schedule II to this Supplement.
Accrual Classes
Class Z and Class ZA are Accrual Classes. Interest will accrue and be
distributed on the Accrual Classes as described under "Terms Sheet--Accrual
Classes" in this Supplement.
S-11
<PAGE> 319
Floating Rate and Inverse Floating Rate Classes
The Floating Rate and Inverse Floating Rate Classes will bear interest as
shown under "Terms Sheet--Interest Rates" in this Supplement. The Interest Rates
for Classes F, FA, FB, FC, FD, S, SB, SC, FE, SA, SD, SE and SG will be based on
LIBOR and the interest rate for Class SM will be based on COFI.
Notwithstanding the Base Offering Circular, LIBOR will be determined on the
basis of the British Bankers' Association ("BBA") "Interest Settlement Rate" for
one-month deposits in U.S. dollars reported by publicly available financial news
services as of 11:00 a.m. London time on each Floating Rate Adjustment Date.
Interest Settlement Rates currently are based on rates quoted by sixteen BBA
designated banks as being, in the view of such banks, the offered rate at which
deposits are being quoted to prime banks in the London interbank market. Such
Interest Settlement Rates are calculated by eliminating the four highest rates
and the four lowest rates, averaging the eight remaining rates, carrying the
result (expressed as a percentage) out to six decimal places, and rounding to
five decimal places.
If on any Floating Rate Adjustment Date, the Trustee is unable to calculate
LIBOR in accordance with the method set forth in the immediately preceding
paragraph, LIBOR for the next Accrual Period shall be calculated in accordance
with the LIBOR method described under "Description of the Securities--Interest
Rate Indices--Determination of LIBOR" in the Base Offering Circular.
Notwithstanding the Base Offering Circular, the Trustee will determine COFI
for Class SM for the applicable Accrual Period to be equal to COFI as determined
by Fannie Mae for the corresponding accrual period with respect to the
Underlying REMIC Certificate, as described in the Underlying REMIC Disclosure
Document.
The Trustee's determination of LIBOR and COFI and its calculation of
Interest Rates will be final, except in the case of clear error. Investors can
obtain LIBOR and COFI levels and Interest Rates for the current and preceding
Accrual Periods from gREX or by calling the Information Agent at (800) 234-GNMA.
The historical levels of LIBOR set forth in Appendix II to the Base Offering
Circular have been prepared in the manner described in the Base Offering
Circular and are not based on the BBA's Interest Settlement Rates. See
"Description of the Securities--Interest Rate Indices--Determination of LIBOR"
in the Base Offering Circular.
PRINCIPAL DISTRIBUTIONS
The Group 1 Adjusted Principal Distribution Amount and the Group 2
Principal Distribution Amount and the Accrual Amount will be distributed to the
Holders entitled thereto as described above under "Terms Sheet--Allocation of
Principal." Investors can calculate the amount of principal to be distributed
with respect to any Distribution Date by using the Class Factors published in
the preceding and current months. See "--Class Factors" below.
Categories of Classes and Components
For purposes of principal distributions, the Classes will be categorized as
shown under "Principal Type" on the cover page of this Supplement and on
Schedule II to this Supplement and Components will be categorized as shown above
under "Terms Sheet--Component Classes" in this Supplement. The abbreviations
used on the cover page, in the Terms Sheet and on Schedule II are explained
under "Class Types" in Appendix I to the Base Offering Circular.
Component Classes
Each of Class VA, VB and VC will be a Component Class and will have the
characteristics shown under "Terms Sheet--Component Classes" in this Supplement.
Components will not be separately issued or transferable.
S-12
<PAGE> 320
Notional Classes
The Notional Classes will not receive principal distributions. For
convenience in describing interest distributions, the Notional Classes will have
the original Class Notional Balances shown on the cover page of this Supplement
and on Schedule II to this Supplement. The Class Notional Balances will be
reduced as shown under "Terms Sheet--Notional Classes" in this Supplement.
Scheduled Principal Balances for PAC Classes
The Scheduled Principal Balances for each PAC Class are included on
Schedule I to this Supplement.
RESIDUAL SECURITIES
The Class RR Securities will represent the beneficial ownership of the
Residual Interest in the Issuing REMIC and the beneficial ownership of the
Residual Interest in the Pooling REMIC, as described under "Certain Federal
Income Tax Consequences" in the Base Offering Circular. The Class RR Securities
have no Class Principal Balance and do not accrue interest. The Class RR
Securities will be entitled to receive the proceeds of the disposition of any
assets remaining in the related Trust REMIC after the Class Principal Balance
(or Class Notional Balance) of each Class of Regular Securities has been reduced
to zero. However, any remaining proceeds are not likely to be significant. The
Residual Securities may not be transferred to (i) a Plan Investor, (ii) a
Non-U.S. Person or (iii) a Disqualified Organization.
CLASS FACTORS
The Trustee will calculate and make available for each Class of Securities,
no later than the day preceding the applicable Distribution Date, the factor
(carried out to eight decimal places) that when multiplied by the Original Class
Principal Balance (or Original Class Notional Balance) of that Class, determines
the Class Principal Balance (or Class Notional Balance) after giving effect to
the distribution of principal to be made on the Securities and any addition to
the Class Principal Balance of an Accrual Class on that Distribution Date (each,
a "Class Factor"). For example, the July 1998 Class Factor for any Class of
Securities will reflect its remaining Class Principal Balance (or Class Notional
Balance) after giving effect to any principal distribution or addition to
principal to be made on the Distribution Date occurring in July 1998. The Class
Factors for the MX Classes and the Classes of REMIC Securities that are
exchangeable for the MX Classes will be calculated assuming that the maximum
possible amount of such Class is outstanding at all times, regardless of any
exchanges that may occur. The June 1998 Class Factor for each Class is
1.00000000. Based on the Class Factors published each month (and Interest
Rates), investors in any Class (other than the Accrual Classes) can calculate
the amount of principal and interest to be distributed to that Class, and
investors in each Accrual Class can calculate the total amount of principal to
be distributed to (and interest to be added to the Class Principal Balance of)
that Class. See "Description of the Securities--Distributions" in the Base
Offering Circular. Investors may obtain current Class Factors on gREX.
TERMINATION
The Trustee, at its option, may purchase or cause the sale of the Trust
Assets and thereby terminate the Trust on any Distribution Date on which the
aggregate of the Class Principal Balances of the Securities is less than 1% of
the aggregate Original Class Principal Balances of the Securities. The Trustee
will terminate the Trust and retire the Securities on any Distribution Date upon
the Trustee's determination that the REMIC status of any Trust REMIC has been
lost or that a substantial risk exists that this status will be lost for the
then current taxable year.
Upon any termination of the Trust, the Holder of any outstanding Security
will be entitled to receive that Holder's allocable share of the Class Principal
Balance of that Class plus any
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<PAGE> 321
accrued and unpaid interest thereon at the applicable Interest Rate and any
Holder of any Notional Class will be entitled to receive that Holder's allocable
share of any accrued and unpaid interest thereon at the applicable Interest
Rate. The Residual Holders will be entitled to their pro rata share of any
assets remaining in the related Trust REMIC after payment in full of the amounts
described in the foregoing sentence. However, any such assets are not likely to
be significant.
MODIFICATION AND EXCHANGE
Subject to the rules, regulations and procedures of the Book-Entry
Depository, all or a portion of specified Classes of REMIC Securities may be
exchanged for a proportionate interest in the related MX Class or Classes shown
on Schedule II to this Supplement. Similarly, all or a portion of the related MX
Class or Classes may be exchanged for proportionate interests in the related
Class or Classes of REMIC Securities or, in certain cases, other related MX
Classes. This process may occur repeatedly.
Each MX Security issued in an exchange will represent a beneficial
ownership interest in, and will be entitled to receive a proportionate share of
the distributions on, the related REMIC Securities and the Beneficial Owners of
the MX Classes will be treated as the beneficial owners of proportionate
interests in the related Classes of REMIC Securities.
The Classes of REMIC Securities and MX Securities that are outstanding at
any given time, and the outstanding Class Principal Balances (or Class Notional
Balances) of such Classes, will depend upon principal distributions of such
Classes as well as any exchanges that occur.
Each exchange of REMIC Securities for MX Securities, MX Securities for
REMIC Securities or MX Securities for other MX Securities shown on Schedule II
to this Supplement must meet the following criteria:
- The exchange must be made in the proportions specified under "Exchange
Proportions" shown on Schedule II to this Supplement (or, in the case of
Combination 1 or 2, as described below), which are based on the original
Class Principal Balances (or original Class Notional Balances) of the
Classes being exchanged.
- The aggregate principal balance (exclusive of any notional balance) of
the Securities received must equal that of the Securities surrendered
(except for de minimis differences due to rounding).
- The aggregate monthly interest entitlement on the Securities received
must equal that of the Securities surrendered (except for de minimis
differences due to rounding).
In the case of Combination 1 or 2 set forth on Schedule II to this
Supplement, interests in the Class PG or the Class PH Securities may be
exchanged for proportionate interests in various subcombinations of MX Classes.
Similarly, all or a portion of such MX Classes may be exchanged for such REMIC
Securities or other subcombinations of such MX Classes. Each subcombination may
be effected only in such proportions that result in the principal and interest
entitlements of the Securities received being equal to such entitlements of the
Securities surrendered. The following tables illustrate certain subcombinations
(and the applicable exchange proportions) of MX Classes under Combination 1 or 2
that may be exchanged for the other subcombinations of MX Classes included in
such Combination. A holder could, for example, exchange any of the three
subcombinations of Classes shown in each of the following tables for any other
such subcombination in that table. Numerous subcombinations are possible.
S-14
<PAGE> 322
SUBCOMBINATIONS
COMBINATION 1
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL
OR ORIGINAL CLASS ANNUAL
SUBCOMBINATION CLASS NOTIONAL BALANCE CLASS COUPON INTEREST AMOUNT
- -------------- ----- ------------------ ------------ ---------------
<C> <S> <C> <C> <C>
1 AB $147,086,000(NTL) 6.375% $9,376,733
AC $147,086,000 0.000% $ 0
------------ ----------
$147,086,000 $9,376,733
============ ==========
2 AB $ 31,724,432(NTL) 6.375% $2,022,433
AF $147,086,000 5.000% $7,354,300
------------ ----------
$147,086,000 $9,376,733
============ ==========
3 AF $ 73,543,000 5.000% $3,677,150
AH $ 73,543,000 5.500% $4,044,865
AB $ 25,956,354(NTL) 6.375% $1,654,718
------------ ----------
$147,086,000 $9,376,733
============ ==========
</TABLE>
COMBINATION 2
<TABLE>
<CAPTION>
ORIGINAL PRINCIPAL
OR ORIGINAL CLASS ANNUAL
SUBCOMBINATION CLASS NOTIONAL BALANCE CLASS COUPON INTEREST AMOUNT
- -------------- ----- ------------------ ------------ ---------------
<C> <S> <C> <C> <C>
1 AL $149,766,750(NTL) 6.500% $9,734,839
AM $149,766,750 0.000% $ 0
------------ ----------
$149,766,750 $9,734,839
============ ==========
2 AL $ 34,561,558(NTL) 6.500% $2,246,501
AP $149,766,750 5.000% $7,488,338
------------ ----------
$149,766,750 $9,734,839
============ ==========
3 AN $ 74,883,375 4.500% $3,369,752
AS $ 74,883,375 5.750% $4,305,794
AL $ 31,681,428(NTL) 6.500% $2,059,293
------------ ----------
$149,766,750 $9,734,839
============ ==========
</TABLE>
AT ANY GIVEN TIME, A BENEFICIAL OWNER'S ABILITY TO EXCHANGE REMIC
SECURITIES FOR MX SECURITIES, MX SECURITIES FOR REMIC SECURITIES OR MX
SECURITIES FOR OTHER MX SECURITIES WILL BE LIMITED BY A NUMBER OF FACTORS. A
BENEFICIAL OWNER MUST, AT THE TIME OF THE PROPOSED EXCHANGE, OWN THE APPROPRIATE
CLASSES IN THE APPROPRIATE PROPORTIONS IN ORDER TO EFFECT A DESIRED EXCHANGE. A
BENEFICIAL OWNER THAT DOES NOT OWN THE APPROPRIATE CLASSES OR THE APPROPRIATE
PROPORTIONS OF SUCH CLASSES MAY NOT BE ABLE TO OBTAIN THE NECESSARY CLASS OR
CLASSES OF REMIC SECURITIES OR MX SECURITIES. THE BENEFICIAL OWNER OF A NEEDED
CLASS MAY REFUSE OR BE UNABLE TO SELL AT A REASONABLE PRICE OR ANY PRICE, OR
CERTAIN CLASSES MAY HAVE BEEN PURCHASED AND PLACED INTO OTHER FINANCIAL
STRUCTURES. PRINCIPAL DISTRIBUTIONS WILL, OVER TIME, DIMINISH THE AMOUNTS
AVAILABLE FOR EXCHANGE. ONLY THE COMBINATIONS CONTEMPLATED BY SCHEDULE II TO
THIS SUPPLEMENT ARE PERMITTED. IN ADDITION, REMIC SECURITIES OR MX SECURITIES
ISSUED IN EXCHANGE FOR THE RELATED MX SECURITIES MAY BE ISSUED ONLY IN
DENOMINATIONS NOT LESS THAN THE MINIMUM DENOMINATIONS SPECIFIED HEREIN.
A Beneficial Owner proposing to effect an exchange must so notify the
Trustee through the Beneficial Owner's PTC Participant. Such notice must be
received by the Trustee not later than two Business Days before the proposed
exchange date. The exchange date can be any Business
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<PAGE> 323
Day other than the last Business Day of the month. The notice must contain the
outstanding principal balance (or notional balance) of both the REMIC
Securities, if any, and the MX Securities to be included in the exchange and the
proposed exchange date. Any such notice is required to be delivered to the
Trustee in writing at its Corporate Trust Office, Two International Place, 4th
Floor, Bond Operations Department, Boston, Massachusetts 02110. The Trustee may
be contacted by telephone at (617) 664-5439 and by fax at (617) 664-5368.
The Securities to be exchanged must be in the correct exchange proportions.
The Trustee will verify that the proper proportions are being exchanged and, in
the case of any subcombinations, that the proposed proportions ensure that the
principal and interest entitlements of the securities received equal such
entitlements of the securities surrendered. If there is an error, the Trustee
will notify the PTC Participant of the error and will not process the exchange
until such error is corrected. Unless rejected for error, the notice of exchange
will become irrevocable two Business Days prior to the proposed exchange.
A fee will be payable to the Trustee in connection with each exchange equal
to 1/32 of 1% of the outstanding principal balance (or notional balance) of the
Securities surrendered for exchange (but not less than $2,000 or greater than
$25,000); provided, however that no fee will be payable in respect of an
interest only security, unless all securities involved in an exchange are
interest only securities. The fee must be paid not later than two Business Days
prior to the exchange.
The first distribution on a REMIC Security or an MX Security received in an
exchange will be made on the Distribution Date in the month following the month
of the exchange. Such distribution will be made to the Holder of record as of
the Record Date in the month of exchange.
RISK FACTORS--CLASS INVESTMENT CONSIDERATIONS
Prospective investors in any Class of Securities should consider the
following in connection with the purchase of such Class. Classes are categorized
as shown under "Principal Type" and "Interest Type" on the cover page of this
Supplement and on Schedule II to this Supplement.
THE GROUP 2 SECURITIES
The rate of distributions of principal (or reductions of the Class Notional
Balances) of the Group 2 Securities will be directly related to the rate of
principal distributions of the Underlying REMIC Certificate which, in turn, will
be sensitive to the rate of payments of principal (including prepayments) of the
related Mortgage Loans and the priorities for the distribution of principal
among the classes of the Underlying REMIC Series.
The principal entitlement of the Underlying REMIC Certificate in Trust
Asset Group 2 on any payment date is calculated on the basis of a schedule; no
assurance can be given that the Underlying REMIC Certificate will adhere to its
schedule. Further, prepayments on the related Mortgage Loans may have occurred
at rates faster or slower than those initially assumed. This Offering Circular
Supplement contains no information as to whether the Underlying REMIC
Certificate has adhered to its principal balance schedule or has generally
performed as originally anticipated. Additional information as to the Underlying
REMIC Certificate may be obtained by performing an analysis of the current
principal factor of the Underlying REMIC Certificate in light of applicable
information contained in the Underlying REMIC Disclosure Document.
INTEREST ONLY CLASSES AND OTHER SECURITIES PURCHASED AT A PREMIUM
Prepayments on the related Mortgage Loans that occur at faster than
anticipated rates can reduce the anticipated Weighted Average Lives of and,
thus, the anticipated yields on the Interest Only Classes and other Classes
purchased at premiums to their principal balances.
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<PAGE> 324
Because distributions on the Interest Only Classes consist entirely of interest,
the yield to maturity on such Classes will be extremely sensitive to the timing
and amount of principal prepayments on the related Mortgage Loans. INVESTORS IN
THE INTEREST ONLY CLASSES SHOULD CONSIDER FULLY THE ASSOCIATED RISKS, INCLUDING
THE RISK THAT RAPID RATES OF PRINCIPAL PREPAYMENTS ON THE RELATED MORTGAGE LOANS
COULD RESULT IN THE FAILURE OF INVESTORS IN THOSE CLASSES TO RECOVER FULLY THEIR
INVESTMENTS.
PRINCIPAL ONLY CLASSES AND OTHER SECURITIES PURCHASED AT A DISCOUNT
Prepayments on the related Mortgage Loans that occur at slower than
anticipated rates can increase the anticipated Weighted Average Lives of and,
thus, reduce the yields on the Principal Only Classes and other Classes
purchased at discounts to their principal balances. Because distributions on
Principal Only Classes will consist solely of principal, the yield to maturity
of such Classes will be particularly sensitive to the timing and amount of
principal prepayments on the related Mortgage Loans.
FLOATING RATE AND INVERSE FLOATING RATE CLASSES
Investors in the Floating Rate Classes should consider the risk that lower
than anticipated levels of LIBOR could result in actual yields to investors that
are lower than anticipated yields. In addition, such investors should consider
the fact that the Interest Rate cannot exceed its specified maximum rate,
regardless of the level of LIBOR.
Investors in the Inverse Floating Rate Classes should consider the risks
that higher than anticipated levels of LIBOR or COFI, as applicable, could
result in actual yields to investors that are significantly lower than
anticipated yields and that at levels of LIBOR of 8.05% or above, 7.50% or above
or 8.10% or above, the Interest Rate on Class S, or Classes SB and SE or Classes
SC, SA, SD and SG, respectively, will be 0% and that at levels of COFI of 8.90%
or above, the Interest Rate on Class SM will be 0%. In addition, investors in
the Inverse Floating Rate Classes should consider the fact that the respective
Interest Rate cannot exceed its specified maximum rate, regardless of the level
of LIBOR or COFI. Further, high levels of LIBOR or COFI, as applicable,
(especially in combination with fast prepayment rates on the related Mortgage
Loans, in the case of the Interest Only Inverse Floating Rate Classes) may
result in the failure of investors in the Inverse Floating Rate Classes to
recover fully their investment.
Changes in LIBOR or COFI may not correlate with changes in fixed mortgage
interest rates. A higher level of LIBOR or COFI could occur concurrently with
lower prevailing fixed mortgage interest rates.
It is highly unlikely that LIBOR or COFI will remain constant at any level.
The timing of changes in the level of LIBOR or COFI may affect the actual yield
to an investor, even if the average level is consistent with the investor's
expectation. In general, the earlier a change in the level of LIBOR or COFI, the
greater the effect on an investor's yield. As a result, the effect on an
investor's yield of a LIBOR or COFI level that is higher (or lower) than the
rate anticipated by the investor during earlier periods is not likely to be
offset by a later equivalent reduction (or increase).
PAC CLASSES
Effective Ranges
Each PAC Class exhibits an Effective Range, which is a range of constant
Mortgage Loan prepayment rates within which such Class would adhere to its
Scheduled Principal Balances. At any time, the Effective Range of any PAC Class
depends on the then current characteristics of
S-17
<PAGE> 325
the related Mortgage Loans. Based on the Modeling Assumptions, the initial
Effective Range for each PAC Class (each of which is a Group 1 Security) is as
follows:
<TABLE>
<CAPTION>
PAC CLASSES INITIAL EFFECTIVE RANGES
----------- ------------------------
<S> <C>
PG, PM and PN............................. 80% PSA through 220% PSA
PB and PD................................. 80% PSA through 233% PSA
PC and PL................................. 80% PSA through 273% PSA
PE........................................ 80% PSA through 221% PSA
PH........................................ 73% PSA through 220% PSA
PJ........................................ 80% PSA through 389% PSA
</TABLE>
The principal payment stability of the PAC Classes will be supported by the
Support Classes. If all of the Classes supporting a given Class are retired
before the Class being supported is retired, the outstanding Class will no
longer have an Effective Range and will become more sensitive to prepayments on
the related Mortgage Loans.
General Investment Considerations
There is no assurance that the Mortgage Loans underlying the Group 1 Trust
Assets will have the characteristics assumed in the Modeling Assumptions, which
were used to determine the initial Effective Ranges. If the initial Effective
Ranges were calculated using the actual characteristics of such Mortgage Loans,
the initial Effective Ranges could differ from those shown in the table.
Therefore, even if such Mortgage Loans were to prepay at a constant rate within
the initial Effective Range shown for any Class in the above table, that Class
could fail to adhere to its respective Scheduled Principal Balances.
Moreover, the related Mortgage Loans will not prepay at any constant rate.
Non-constant prepayment rates can cause any PAC Class not to adhere to its
Scheduled Principal Balances, even if such rates remain within the initial
Effective Range for that Class. Further, the Effective Range for any Class can
shift over time depending on the actual characteristics of the related Mortgage
Loans.
If the related Mortgage Loans prepay at rates that are generally below the
Effective Range for a PAC Class, the Group 1 Adjusted Principal Distribution
Amount may be insufficient to reduce such PAC Class to its Scheduled Principal
Balance, and its Weighted Average Life may be extended, perhaps significantly.
If the related Mortgage Loans prepay at rates that are generally above the
Effective Range for a PAC Class, the Weighted Average Life of such PAC Class may
be shortened, perhaps significantly. Notwithstanding these general principles,
there are circumstances in which the Weighted Average Life of a PAC Class might
be (a) extended, despite related Mortgage Loan prepayment rates that are
generally above the Effective Range for such Class if prepayment rates are low
at particular times and (b) shortened, despite prepayment rates that are
generally below the Effective Range for such Class, if prepayment rates are high
at particular times.
The entire Group 1 Adjusted Principal Distribution Amount will be
distributed monthly on each Distribution Date and will not be retained for
distribution on subsequent Distribution Dates. Therefore, the likelihood that
the PAC Classes will adhere to their Scheduled Principal Balances will not be
enhanced by averaging high and low principal payments in different months.
ACCRUAL CLASSES
Class Z and Class ZA are Accrual Classes. No interest as such will be paid
on Class Z or Class ZA at any time. Interest accrued on Class Z and Class ZA
will be applied to make principal distributions on the related Accretion
Directed Classes until they are retired, and then to make principal
distributions on Classes Z and ZA. Interest accrued on Class Z and Class ZA will
be
S-18
<PAGE> 326
added to the respective Class Principal Balances of such Classes on each
Distribution Date and will accrue interest at the Class Z and Class ZA Interest
Rates, respectively.
SUPPORT CLASSES AND ACCRETION DIRECTED CLASSES
The Support Classes will support the principal payment stability of the PAC
Classes. If principal prepayments result in a Group 1 Adjusted Principal
Distribution Amount for any Distribution Date which is equal to or less than the
amount needed to reduce the related PAC Classes to their respective Scheduled
Principal Balances for that Distribution Date, the related Support Classes will
not receive any distribution from the related Group 1 Adjusted Principal
Distribution Amount in reduction of their Class Principal Balances on that
Distribution Date. If prepayments result in a Group 1 Adjusted Principal
Distribution Amount on any Distribution Date greater than the amount needed to
reduce the PAC Classes to their respective Scheduled Principal Balances for that
Distribution Date, such excess will be distributed to the related Support
Classes to reduce their Class Principal Balances.
Thus, the Weighted Average Lives (and, to the extent purchased at a
discount or a premium, the yields to maturity) of the Support Classes are likely
to be much more sensitive to the timing and amount of prepayments on the related
Mortgage Loans than the PAC Classes. The Support Classes may receive no
principal payments from the Group 1 Adjusted Principal Distribution Amounts for
extended periods of time and may receive principal payments that vary widely
from period to period. Relatively fast prepayments on the related Mortgage Loans
may significantly shorten, and relatively slow prepayments on the related
Mortgage Loans may significantly extend, the Weighted Average Lives of the
Support Classes.
Classes BA, F, FA, FB, FC, FD, S, VA, VB, VC and Z have also been
classified as Accretion Directed Classes because they are entitled to receive
principal payments from interest accrued on Classes Z and ZA, as applicable.
They will be somewhat more stable under slow prepayment scenarios than would be
the case if they were not entitled to receive such principal payments. However,
they will not have all of the principal payment stability usually associated
with Accretion Directed Classes, especially under relatively fast prepayment
scenarios.
MX CLASSES
The characteristics of each MX Class will reflect a combination of the
characteristics of its related Classes of REMIC Securities (or related MX
Classes).
RESIDUAL SECURITIES
The Residual Securities may experience significant adverse tax timing
consequences. Accordingly, prospective investors are urged to consult their own
tax advisors and consider the after-tax effect of ownership of a Residual
Security and the suitability of the Residual Securities to their investment
objectives. See "Certain Federal Income Tax Consequences" in this Supplement and
in the Base Offering Circular.
ADDITIONAL INFORMATION
For a more complete discussion of the factors affecting mortgage loan
prepayments and the effect of prepayments and other factors on the Weighted
Average Lives and yields of the Securities, see "Yield, Maturity and Prepayment
Considerations" in this Supplement and in the Base Offering Circular.
S-19
<PAGE> 327
PERCENTAGES OF ORIGINAL CLASS PRINCIPAL (OR CLASS NOTIONAL) BALANCES
AND WEIGHTED AVERAGE LIVES
<TABLE>
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
A+, BA, FA, SA+, SB*, SC*,
SD+*, SE+ AND SG+ CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 96 89 83 75 57
June 2000........... 96 89 73 48 0
June 2001........... 96 89 60 17 0
June 2002........... 96 89 49 0 0
June 2003........... 96 89 40 0 0
June 2004........... 96 89 33 0 0
June 2005........... 96 89 27 0 0
June 2006........... 96 89 23 0 0
June 2007........... 96 89 20 0 0
June 2008........... 96 89 18 0 0
June 2009........... 96 88 15 0 0
June 2010........... 96 85 12 0 0
June 2011........... 96 81 9 0 0
June 2012........... 96 75 5 0 0
June 2013........... 96 69 0 0 0
June 2014........... 96 62 0 0 0
June 2015........... 96 54 0 0 0
June 2016........... 96 46 0 0 0
June 2017........... 96 38 0 0 0
June 2018........... 96 28 0 0 0
June 2019........... 92 16 0 0 0
June 2020........... 88 2 0 0 0
June 2021........... 83 0 0 0 0
June 2022........... 79 0 0 0 0
June 2023........... 74 0 0 0 0
June 2024........... 52 0 0 0 0
June 2025........... 16 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 24.6 15.8 5.2 1.9 1.1
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
B+, F, FB, FC, FD,
FE+ AND S CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 97 90 85 77 60
June 2000........... 97 90 75 52 5
June 2001........... 97 90 63 24 0
June 2002........... 97 90 53 1 0
June 2003........... 97 90 45 0 0
June 2004........... 97 90 38 0 0
June 2005........... 97 90 33 0 0
June 2006........... 97 90 29 0 0
June 2007........... 97 90 26 0 0
June 2008........... 97 90 24 0 0
June 2009........... 97 89 22 0 0
June 2010........... 97 86 19 0 0
June 2011........... 97 82 16 0 0
June 2012........... 97 77 12 0 0
June 2013........... 97 71 8 0 0
June 2014........... 97 65 4 0 0
June 2015........... 97 58 0 0 0
June 2016........... 95 49 0 0 0
June 2017........... 92 38 0 0 0
June 2018........... 89 26 0 0 0
June 2019........... 85 14 0 0 0
June 2020........... 81 2 0 0 0
June 2021........... 77 0 0 0 0
June 2022........... 73 0 0 0 0
June 2023........... 68 0 0 0 0
June 2024........... 48 0 0 0 0
June 2025........... 14 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 24.2 16.1 6.0 2.1 1.2
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PA* CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 99 99 99 99
June 2000........... 98 89 89 89 89
June 2001........... 96 77 77 77 75
June 2002........... 93 65 65 65 43
June 2003........... 91 53 53 53 24
June 2004........... 88 42 42 42 14
June 2005........... 85 32 32 32 6
June 2006........... 81 26 26 26 0
June 2007........... 78 20 20 20 0
June 2008........... 74 14 14 14 0
June 2009........... 70 9 9 9 0
June 2010........... 65 5 5 5 0
June 2011........... 60 1 1 1 0
June 2012........... 55 0 0 0 0
June 2013........... 49 0 0 0 0
June 2014........... 43 0 0 0 0
June 2015........... 36 0 0 0 0
June 2016........... 30 0 0 0 0
June 2017........... 25 0 0 0 0
June 2018........... 20 0 0 0 0
June 2019........... 14 0 0 0 0
June 2020........... 8 0 0 0 0
June 2021........... 1 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 14.1 5.8 5.8 5.8 4.0
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PB CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 99 99 99 99
June 2000........... 97 84 84 84 84
June 2001........... 93 66 66 66 63
June 2002........... 90 48 48 48 17
June 2003........... 86 32 32 32 0
June 2004........... 82 16 16 16 0
June 2005........... 77 0 0 0 0
June 2006........... 73 0 0 0 0
June 2007........... 67 0 0 0 0
June 2008........... 62 0 0 0 0
June 2009........... 55 0 0 0 0
June 2010........... 49 0 0 0 0
June 2011........... 42 0 0 0 0
June 2012........... 34 0 0 0 0
June 2013........... 25 0 0 0 0
June 2014........... 16 0 0 0 0
June 2015........... 6 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 11.0 4.0 4.0 4.0 3.1
</TABLE>
- ---------------
+ MX Class.
* The information shown for a Notional Class is for illustrative purposes only,
as a Notional Class is not entitled to distributions of principal and has no
weighted average life. Because the Class Notional Balance of a Notional Class
will be determined by reference to the Class Principal Balance of the Class or
Classes with which that Class Notional Balance is reduced, reductions in the
aggregate Class Notional Balance of a Notional Class will occur concurrently
with reductions in the Class Principal Balance of such Class or Classes as
described herein. The weighted average life shown for a Notional Class has
been calculated on the assumption that a reduction in the Class Notional
Balance thereof is a distribution of principal.
ASSUMABILITY
Each Mortgage Loan is subject to assumption upon the sale of the related
Mortgaged Property. See "Yield, Maturity and Prepayment
Considerations--Assumability of Government Loans" in the Base Offering Circular.
FINAL DISTRIBUTION DATE
The Final Distribution Date for each Class, which is set forth on the cover
page of this Supplement or on Schedule II to this Supplement, is the latest date
on which the related Class Principal Balance or Class Notional Balance will be
reduced to zero. The actual retirement of any Class may occur earlier than its
Final Distribution Date. Pursuant to the Ginnie Mae Guaranty, Ginnie Mae will
guaranty payment in full of the Class Principal Balance of each Class of
Securities no later than its Final Distribution Date.
MODELING ASSUMPTIONS
Unless otherwise indicated, the various tables that follow have been
prepared on the basis of the characteristics of the Mortgage Loans underlying
the Trust Assets, the characteristics of the Underlying REMIC Certificate, the
priorities for distributions on the Underlying REMIC Certificate and the
following assumptions (the "Modeling Assumptions"), among others:
1. The Mortgage Loans underlying the Group 1 Trust Assets have the
assumed characteristics shown under "Assumed Mortgage Loan Characteristics
of the Mortgage Loans
S-20
<PAGE> 328
Underlying the Group 1 Trust Assets (as of June 1, 1998)" in the Terms
Sheet, except in the case of information set forth under the 0% PSA
Prepayment Assumption Rate, for which each Mortgage Loan is assumed to have
an original and a remaining term to maturity of 360 months and a Mortgage
Rate of 8.0% per annum.
2. The Mortgage Loans prepay at the constant percentages of PSA
(described below) shown in the related table.
3. Distributions are always received on the 20th day of the month, in
the case of the Group 1 Securities, and on the 26th day of the month, in
the case of the Group 2 Securities whether or not a Business Day,
commencing in July 1998.
4. A termination of the Trust and the Underlying REMIC Trust does not
occur.
5. The Closing Date for the Securities is June 30, 1998.
6. The only expense of the Trust is the monthly payment of the Trustee
Fee in the manner described under "Terms Sheet--Trustee Fee" in this
Supplement.
7. Distributions on the Underlying REMIC Certificate are made as
described in the Underlying REMIC Disclosure Document.
8. Each class is held from the Closing Date and is not exchanged in
whole or in part.
When reading the tables and the related text, investors should bear in mind
that the Modeling Assumptions, like any other stated assumptions, are unlikely
to be entirely consistent with actual experience. For example, most of the
Mortgage Loans will not have the characteristics assumed, many Distribution
Dates will occur on a Business Day after the 20th or 26th of the month, and the
Trustee may cause a termination of the Trust as described under "Description of
the Securities--Termination" in this Supplement. In addition, distributions on
the Securities are based on Certificate Factors and Calculated Certificate
Factors, which may not reflect actual receipts on the Ginnie Mae Certificates.
See "Description of the Securities--Distributions" in the Base Offering
Circular.
DECREMENT TABLES
Prepayments of mortgage loans are commonly measured by a prepayment
standard or model. The model used in this Supplement ("PSA") is the standard
prepayment assumption model of The Bond Market Trade Association. PSA represents
an assumed rate of prepayment each month relative to the then outstanding
principal balance of the Mortgage Loans to which the model is applied. See
"Yield, Maturity and Prepayment Considerations--Standard Prepayment Assumption
Models" in the Base Offering Circular. The decrement tables set forth below are
based on the assumption that the Mortgage Loans prepay at the indicated
percentages of PSA (the "PSA Prepayment Assumption Rates"). As used in the
table, each of the PSA Prepayment Assumption Rates reflects a percentage of the
100% PSA assumed prepayment rate. The Mortgage Loans will not prepay at any of
the PSA Prepayment Assumption Rates and the timing of changes in the rate of
prepayments actually experienced on the Mortgage Loans will not follow the
pattern described for the PSA assumption.
The decrement tables set forth below illustrate the percentage of the
Original Class Principal Balance (or in the case of a Notional Class, the
original Class Notional Balance) that would remain outstanding following the
distribution made each June for each Regular or MX Class, based on the
assumption that the Mortgage Loans prepay at the PSA Prepayment Assumption
Rates. The percentages set forth in the following decrement tables have been
rounded to the nearest whole percentage (including rounding down to zero).
The decrement tables also indicate the Weighted Average Life of each
Regular or MX Class under each PSA Prepayment Assumption Rate. The Weighted
Average Life of each Regular or MX Class is calculated by (a) multiplying the
net reduction, if any, of the Class Principal Balance (or the net reduction of
the Class Notional Balance, in the case of any Notional Class)
S-21
<PAGE> 329
from one Distribution Date to the next Distribution Date thereon by the number
of years from the date of issuance thereof to the related Distribution Date, (b)
summing the results, and (c) dividing the sum by (i) in the case of a Regular or
MX Class other than a Notional Class or an Accrual Class, the related Original
Class Principal Balance thereof or (ii) in the case of each Notional Class, the
original Class Notional Balance thereof or (iii) in the case of each Accrual
Class, the aggregate amount of the assumed net reductions in principal balance
referred to in clause (a).
The Weighted Average Lives are likely to vary, perhaps significantly, from
those set forth in the tables below based upon the differences between the
actual characteristics of the Mortgage Loans underlying the related Trust Assets
and the Modeling Assumptions.
PERCENTAGES OF ORIGINAL CLASS PRINCIPAL (OR CLASS NOTIONAL) BALANCES
AND WEIGHTED AVERAGE LIVES
<TABLE>
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
A+, BA, FA, SA+, SB*, SC*,
SD+*, SE+ AND SG+ CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 96 89 83 75 57
June 2000........... 96 89 73 48 0
June 2001........... 96 89 60 17 0
June 2002........... 96 89 49 0 0
June 2003........... 96 89 40 0 0
June 2004........... 96 89 33 0 0
June 2005........... 96 89 27 0 0
June 2006........... 96 89 23 0 0
June 2007........... 96 89 20 0 0
June 2008........... 96 89 18 0 0
June 2009........... 96 88 15 0 0
June 2010........... 96 85 12 0 0
June 2011........... 96 81 9 0 0
June 2012........... 96 75 5 0 0
June 2013........... 96 69 0 0 0
June 2014........... 96 62 0 0 0
June 2015........... 96 54 0 0 0
June 2016........... 96 46 0 0 0
June 2017........... 96 38 0 0 0
June 2018........... 96 28 0 0 0
June 2019........... 92 16 0 0 0
June 2020........... 88 2 0 0 0
June 2021........... 83 0 0 0 0
June 2022........... 79 0 0 0 0
June 2023........... 74 0 0 0 0
June 2024........... 52 0 0 0 0
June 2025........... 16 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 24.6 15.8 5.2 1.9 1.1
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
B+, F, FB, FC, FD,
FE+ AND S CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 97 90 85 77 60
June 2000........... 97 90 75 52 5
June 2001........... 97 90 63 24 0
June 2002........... 97 90 53 1 0
June 2003........... 97 90 45 0 0
June 2004........... 97 90 38 0 0
June 2005........... 97 90 33 0 0
June 2006........... 97 90 29 0 0
June 2007........... 97 90 26 0 0
June 2008........... 97 90 24 0 0
June 2009........... 97 89 22 0 0
June 2010........... 97 86 19 0 0
June 2011........... 97 82 16 0 0
June 2012........... 97 77 12 0 0
June 2013........... 97 71 8 0 0
June 2014........... 97 65 4 0 0
June 2015........... 97 58 0 0 0
June 2016........... 95 49 0 0 0
June 2017........... 92 38 0 0 0
June 2018........... 89 26 0 0 0
June 2019........... 85 14 0 0 0
June 2020........... 81 2 0 0 0
June 2021........... 77 0 0 0 0
June 2022........... 73 0 0 0 0
June 2023........... 68 0 0 0 0
June 2024........... 48 0 0 0 0
June 2025........... 14 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 24.2 16.1 6.0 2.1 1.2
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PA* CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 99 99 99 99
June 2000........... 98 89 89 89 89
June 2001........... 96 77 77 77 75
June 2002........... 93 65 65 65 43
June 2003........... 91 53 53 53 24
June 2004........... 88 42 42 42 14
June 2005........... 85 32 32 32 6
June 2006........... 81 26 26 26 0
June 2007........... 78 20 20 20 0
June 2008........... 74 14 14 14 0
June 2009........... 70 9 9 9 0
June 2010........... 65 5 5 5 0
June 2011........... 60 1 1 1 0
June 2012........... 55 0 0 0 0
June 2013........... 49 0 0 0 0
June 2014........... 43 0 0 0 0
June 2015........... 36 0 0 0 0
June 2016........... 30 0 0 0 0
June 2017........... 25 0 0 0 0
June 2018........... 20 0 0 0 0
June 2019........... 14 0 0 0 0
June 2020........... 8 0 0 0 0
June 2021........... 1 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 14.1 5.8 5.8 5.8 4.0
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PB CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 99 99 99 99
June 2000........... 97 84 84 84 84
June 2001........... 93 66 66 66 63
June 2002........... 90 48 48 48 17
June 2003........... 86 32 32 32 0
June 2004........... 82 16 16 16 0
June 2005........... 77 0 0 0 0
June 2006........... 73 0 0 0 0
June 2007........... 67 0 0 0 0
June 2008........... 62 0 0 0 0
June 2009........... 55 0 0 0 0
June 2010........... 49 0 0 0 0
June 2011........... 42 0 0 0 0
June 2012........... 34 0 0 0 0
June 2013........... 25 0 0 0 0
June 2014........... 16 0 0 0 0
June 2015........... 6 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 11.0 4.0 4.0 4.0 3.1
</TABLE>
- ---------------
+ MX Class.
* The information shown for a Notional Class is for illustrative purposes only,
as a Notional Class is not entitled to distributions of principal and has no
weighted average life. Because the Class Notional Balance of a Notional Class
will be determined by reference to the Class Principal Balance of the Class or
Classes with which that Class Notional Balance is reduced, reductions in the
aggregate Class Notional Balance of a Notional Class will occur concurrently
with reductions in the Class Principal Balance of such Class or Classes as
described herein. The weighted average life shown for a Notional Class has
been calculated on the assumption that a reduction in the Class Notional
Balance thereof is a distribution of principal.
S-22
<PAGE> 330
<TABLE>
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PC AND PL CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 92
June 2002........... 100 48 48 48 0
June 2003........... 100 0 0 0 0
June 2004........... 100 0 0 0 0
June 2005........... 100 0 0 0 0
June 2006........... 100 0 0 0 0
June 2007........... 100 0 0 0 0
June 2008........... 88 0 0 0 0
June 2009........... 70 0 0 0 0
June 2010........... 50 0 0 0 0
June 2011........... 28 0 0 0 0
June 2012........... 5 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 11.9 4.0 4.0 4.0 3.3
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PD CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 52
June 2003........... 100 98 98 98 0
June 2004........... 100 48 48 48 0
June 2005........... 100 1 1 1 0
June 2006........... 100 0 0 0 0
June 2007........... 100 0 0 0 0
June 2008........... 100 0 0 0 0
June 2009........... 100 0 0 0 0
June 2010........... 100 0 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 79 0 0 0 0
June 2014........... 50 0 0 0 0
June 2015........... 19 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 16.0 6.0 6.0 6.0 4.0
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PE CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 100 100 100 100 36
June 2004........... 100 100 100 100 0
June 2005........... 100 100 100 100 0
June 2006........... 100 48 48 48 0
June 2007........... 100 0 0 0 0
June 2008........... 100 0 0 0 0
June 2009........... 100 0 0 0 0
June 2010........... 100 0 0 0 0
June 2011........... 100 0 0 0 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 83 0 0 0 0
June 2017........... 41 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 18.8 8.0 8.0 8.0 4.9
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
AB+*, AC+, AD+, AE+, AF+,
AG+, AH+, AI+, AJ+,
AK+ AND PG CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 100 100 100 100 100
June 2004........... 100 100 100 100 68
June 2005........... 100 100 100 100 28
June 2006........... 100 100 100 100 0
June 2007........... 100 99 99 99 0
June 2008........... 100 71 71 71 0
June 2009........... 100 47 47 47 0
June 2010........... 100 26 26 26 0
June 2011........... 100 7 7 7 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 98 0 0 0 0
June 2019........... 70 0 0 0 0
June 2020........... 39 0 0 0 0
June 2021........... 7 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 21.6 11.0 11.0 11.0 6.5
</TABLE>
<TABLE>
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
AL+*, AM+, AN+, AO+,
AP+, AY+, AR+, AS+, AT+,
AU+ AND PH CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 100 100 100 100 100
June 2004........... 100 100 100 100 100
June 2005........... 100 100 100 100 100
June 2006........... 100 100 100 100 98
June 2007........... 100 100 100 100 73
June 2008........... 100 100 100 100 54
June 2009........... 100 100 100 100 40
June 2010........... 100 100 100 100 30
June 2011........... 100 100 100 100 22
June 2012........... 100 91 91 91 16
June 2013........... 100 76 76 76 12
June 2014........... 100 63 63 63 9
June 2015........... 100 53 53 53 6
June 2016........... 100 43 43 43 5
June 2017........... 100 36 36 36 3
June 2018........... 100 29 29 29 2
June 2019........... 100 23 23 23 2
June 2020........... 100 18 18 18 1
June 2021........... 100 14 14 14 1
June 2022........... 68 11 11 11 1
June 2023........... 26 8 8 8 0
June 2024........... 6 6 6 6 0
June 2025........... 4 4 4 4 0
June 2026........... 2 2 2 2 0
June 2027........... 1 1 1 1 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 24.6 18.3 18.3 18.3 11.2
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PJ CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 99 97 97 97 97
June 2000........... 91 54 54 54 54
June 2001........... 81 1 1 1 0
June 2002........... 71 0 0 0 0
June 2003........... 60 0 0 0 0
June 2004........... 48 0 0 0 0
June 2005........... 35 0 0 0 0
June 2006........... 21 0 0 0 0
June 2007........... 5 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 5.6 2.0 2.0 2.0 2.0
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PK* CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 99 99 99 99
June 2000........... 96 81 81 81 81
June 2001........... 92 60 60 60 60
June 2002........... 88 60 60 60 42
June 2003........... 84 59 59 59 12
June 2004........... 79 41 41 41 5
June 2005........... 74 23 23 23 2
June 2006........... 68 14 14 14 0
June 2007........... 62 6 6 6 0
June 2008........... 60 5 5 5 0
June 2009........... 60 3 3 3 0
June 2010........... 60 2 2 2 0
June 2011........... 60 1 1 1 0
June 2012........... 60 0 0 0 0
June 2013........... 52 0 0 0 0
June 2014........... 41 0 0 0 0
June 2015........... 30 0 0 0 0
June 2016........... 20 0 0 0 0
June 2017........... 13 0 0 0 0
June 2018........... 6 0 0 0 0
June 2019........... 5 0 0 0 0
June 2020........... 3 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 12.7 5.1 5.1 5.1 3.5
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PM CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 99 99 99 99
June 2000........... 98 88 88 88 88
June 2001........... 95 74 74 74 72
June 2002........... 92 61 61 61 37
June 2003........... 90 48 48 48 11
June 2004........... 86 36 36 36 0
June 2005........... 83 25 25 25 0
June 2006........... 79 14 14 14 0
June 2007........... 75 3 3 3 0
June 2008........... 71 0 0 0 0
June 2009........... 66 0 0 0 0
June 2010........... 61 0 0 0 0
June 2011........... 56 0 0 0 0
June 2012........... 50 0 0 0 0
June 2013........... 44 0 0 0 0
June 2014........... 37 0 0 0 0
June 2015........... 29 0 0 0 0
June 2016........... 21 0 0 0 0
June 2017........... 12 0 0 0 0
June 2018........... 3 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 13.0 5.0 5.0 5.0 3.6
</TABLE>
- ---------------
+ MX Class.
* The information shown for a Notional Class is for illustrative purposes only,
as a Notional Class is not entitled to distributions of principal and has no
weighted average life. Because the Class Notional Balance of a Notional Class
will be determined by reference to the Class Principal Balance of the Class or
Classes with which that Class Notional Balance is reduced, reductions in the
aggregate Class Notional Balance of a Notional Class will occur concurrently
with reductions in the Class Principal Balance of such Class or Classes as
described herein. The weighted average life shown for a Notional Class has
been calculated on the assumption that a reduction in the Class Notional
Balance thereof is a distribution of principal.
S-23
<PAGE> 331
<TABLE>
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
PN CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 100
June 2002........... 100 100 100 100 100
June 2003........... 100 100 100 100 100
June 2004........... 100 100 100 100 74
June 2005........... 100 100 100 100 31
June 2006........... 100 100 100 100 0
June 2007........... 100 100 100 100 0
June 2008........... 100 79 79 79 0
June 2009........... 100 51 51 51 0
June 2010........... 100 28 28 28 0
June 2011........... 100 8 8 8 0
June 2012........... 100 0 0 0 0
June 2013........... 100 0 0 0 0
June 2014........... 100 0 0 0 0
June 2015........... 100 0 0 0 0
June 2016........... 100 0 0 0 0
June 2017........... 100 0 0 0 0
June 2018........... 100 0 0 0 0
June 2019........... 77 0 0 0 0
June 2020........... 43 0 0 0 0
June 2021........... 7 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 21.8 11.2 11.2 11.2 6.6
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
VA CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 88 88 88 88 88
June 2000........... 76 76 76 76 65
June 2001........... 62 62 62 62 0
June 2002........... 48 48 48 23 0
June 2003........... 33 33 33 0 0
June 2004........... 17 17 17 0 0
June 2005........... 0 0 0 0 0
June 2006........... 0 0 0 0 0
June 2007........... 0 0 0 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 3.8 3.8 3.8 3.0 1.8
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
VB CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 96 0
June 2003........... 100 100 100 0 0
June 2004........... 100 100 100 0 0
June 2005........... 99 99 99 0 0
June 2006........... 68 68 68 0 0
June 2007........... 35 35 35 0 0
June 2008........... 0 0 0 0 0
June 2009........... 0 0 0 0 0
June 2010........... 0 0 0 0 0
June 2011........... 0 0 0 0 0
June 2012........... 0 0 0 0 0
June 2013........... 0 0 0 0 0
June 2014........... 0 0 0 0 0
June 2015........... 0 0 0 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 8.5 8.5 8.5 4.3 2.2
</TABLE>
<TABLE>
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
VC CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 100 100 100 100
June 2000........... 100 100 100 100 100
June 2001........... 100 100 100 100 0
June 2002........... 100 100 100 100 0
June 2003........... 100 100 100 41 0
June 2004........... 100 100 100 0 0
June 2005........... 100 100 100 0 0
June 2006........... 100 100 100 0 0
June 2007........... 100 100 100 0 0
June 2008........... 100 100 100 0 0
June 2009........... 87 87 87 0 0
June 2010........... 72 72 72 0 0
June 2011........... 57 57 57 0 0
June 2012........... 41 41 41 0 0
June 2013........... 24 24 24 0 0
June 2014........... 15 15 15 0 0
June 2015........... 6 6 3 0 0
June 2016........... 0 0 0 0 0
June 2017........... 0 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 13.5 13.5 13.5 5.0 2.4
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
Z CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 107 107 107 107 107
June 2000........... 114 114 114 114 114
June 2001........... 121 121 121 121 0
June 2002........... 130 130 130 130 0
June 2003........... 138 138 138 138 0
June 2004........... 148 148 148 0 0
June 2005........... 157 157 157 0 0
June 2006........... 168 168 168 0 0
June 2007........... 179 179 179 0 0
June 2008........... 191 191 191 0 0
June 2009........... 204 204 204 0 0
June 2010........... 218 218 218 0 0
June 2011........... 232 232 232 0 0
June 2012........... 248 248 248 0 0
June 2013........... 264 264 264 0 0
June 2014........... 217 217 146 0 0
June 2015........... 167 167 19 0 0
June 2016........... 113 113 0 0 0
June 2017........... 56 56 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 17.6 17.6 16.1 5.4 2.5
<CAPTION>
SECURITY GROUP 1
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
ZA CLASS
-------------------------------------
DISTRIBUTION DATE 0% 80% 135% 220% 400%
----------------- -- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 107 107 107 107 107
June 2000........... 114 114 114 114 114
June 2001........... 121 121 121 121 0
June 2002........... 130 130 130 130 0
June 2003........... 138 138 138 138 0
June 2004........... 148 148 148 123 0
June 2005........... 157 157 157 64 0
June 2006........... 168 168 168 26 0
June 2007........... 179 179 179 5 0
June 2008........... 191 191 191 0 0
June 2009........... 204 204 204 0 0
June 2010........... 218 218 218 0 0
June 2011........... 232 232 232 0 0
June 2012........... 248 248 248 0 0
June 2013........... 264 264 264 0 0
June 2014........... 282 282 282 0 0
June 2015........... 301 301 301 0 0
June 2016........... 321 321 279 0 0
June 2017........... 343 343 250 0 0
June 2018........... 366 366 222 0 0
June 2019........... 390 390 194 0 0
June 2020........... 416 416 167 0 0
June 2021........... 444 374 141 0 0
June 2022........... 474 317 117 0 0
June 2023........... 506 260 93 0 0
June 2024........... 539 204 71 0 0
June 2025........... 576 147 50 0 0
June 2026........... 468 92 30 0 0
June 2027........... 244 36 12 0 0
June 2028........... 0 0 0 0 0
Weighted Average
Life (years)....... 28.8 25.9 22.9 7.0 2.8
</TABLE>
S-24
<PAGE> 332
<TABLE>
<CAPTION>
SECURITY GROUP 2
PSA PREPAYMENT ASSUMPTION RATES
-------------------------------------
EM AND SM* CLASSES
-------------------------------------
DISTRIBUTION DATE 0% 150% 325% 450% 600%
----------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percent..... 100 100 100 100 100
June 1999........... 100 99 98 97 96
June 2000........... 100 98 96 80 62
June 2001........... 100 97 73 55 37
June 2002........... 100 92 55 37 21
June 2003........... 99 77 40 24 11
June 2004........... 99 63 28 14 5
June 2005........... 99 50 18 7 1
June 2006........... 98 38 10 2 0
June 2007........... 98 28 4 0 0
June 2008........... 98 18 0 0 0
June 2009........... 96 10 0 0 0
June 2010........... 87 1 0 0 0
June 2011........... 78 0 0 0 0
June 2012........... 68 0 0 0 0
June 2013........... 57 0 0 0 0
June 2014........... 45 0 0 0 0
June 2015........... 32 0 0 0 0
June 2016........... 19 0 0 0 0
June 2017........... 4 0 0 0 0
June 2018........... 0 0 0 0 0
June 2019........... 0 0 0 0 0
June 2020........... 0 0 0 0 0
June 2021........... 0 0 0 0 0
June 2022........... 0 0 0 0 0
June 2023........... 0 0 0 0 0
June 2024........... 0 0 0 0 0
June 2025........... 0 0 0 0 0
June 2026........... 0 0 0 0 0
June 2027........... 0 0 0 0 0
June 2028........... 0 0 0 0 0
Weighted average
Life (years)....... 15.3 7.2 4.7 3.7 2.8
</TABLE>
- ---------------
* The information shown for a Notional Class is for illustrative purposes only,
as a Notional Class is not entitled to distributions of principal and has no
weighted average life. Because the Class Notional Balance of a Notional Class
will be determined by reference to the Class Principal Balance of the Class or
Classes with which that Class Notional Balance is reduced, reductions in the
aggregate Class Notional Balance of a Notional Class will occur concurrently
with reductions in the Class Principal Balance of such Class or Classes as
described herein. The weighted average life shown for a Notional Class has
been calculated on the assumption that a reduction in the Class Notional
Balance thereof is a distribution of principal.
S-25
<PAGE> 333
YIELD CONSIDERATIONS
An investor seeking to maximize yield should make a decision whether to
invest in any Class based on (i) the anticipated yield of that Class resulting
from its purchase price, (ii) the investor's own projection of Mortgage Loan
prepayment rates under a variety of scenarios, (iii) in the case of the Group 2
Securities, the investor's own projection of payment rates on the Underlying
REMIC Certificate under a variety of scenarios, and (iv) in the case of a
Floating Rate or Inverse Floating Rate Class, the investor's own projection of
levels of LIBOR or COFI, as applicable, under a variety of scenarios. No
representation is made regarding Mortgage Loan prepayment rates, Underlying
REMIC Certificate payment rates, LIBOR or COFI levels or the yield of any Class.
Prepayments: Effect on Yields
The yields to investors will be sensitive in varying degrees to the rate of
prepayments on the related Mortgage Loans. In the case of Securities (especially
the Interest Only Classes) purchased at a premium, faster than anticipated rates
of principal payments could result in actual yields to investors that are lower
than the anticipated yields. Investors in the Interest Only Classes should also
consider the risk that rapid rates of principal payments could result in the
failure of investors to recover fully their investments. In the case of
Securities purchased at a discount (especially the Principal Only Classes),
slower than anticipated rates of principal payments could result in actual
yields to investors that are lower than the anticipated yields. See "Risk
Factors--Class Investment Considerations" in this Supplement.
Rapid rates of prepayments on the Mortgage Loans are likely to coincide
with periods of low prevailing interest rates. During such periods, the yields
at which an investor may be able to reinvest amounts received as principal
payments on the investor's Class of Securities may be lower than the yield on
that Class. Slow rates of prepayments on the Mortgage Loans are likely to
coincide with periods of high prevailing interest rates. During such periods,
the amount of principal payments available to an investor for reinvestment at
such high rates may be relatively low.
The Mortgage Loans will not prepay at any constant rate until maturity, nor
will all of the Mortgage Loans underlying any Group of Trust Assets prepay at
the same rate at any one time. The timing of changes in the rate of prepayments
may affect the actual yield to an investor, even if the average rate of
principal prepayments is consistent with the investor's expectation. In general,
the earlier a prepayment of principal on the Mortgage Loans, the greater the
effect on an investor's yield. As a result, the effect on an investor's yield of
principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the Closing
Date is not likely to be offset by a later equivalent reduction (or increase) in
the rate of principal prepayments.
LIBOR and COFI: Effect on Yields of the Floating Rate and Inverse Floating
Rate Classes
Low levels of LIBOR can reduce the yield of the Floating Rate Classes. High
levels of LIBOR or COFI, as applicable, can significantly reduce the yield of
the applicable Inverse Floating Rate Classes. See "Risk Factors--Class
Investment Considerations" in this Supplement.
Payment Delay: Effect on Yields of the Fixed Rate and Delay Classes
The effective yield on any Fixed Rate or Delay Class will be less than the
yield otherwise produced by its Interest Rate and purchase price because (i) on
the first Distribution Date, 30 days' interest will be payable on that Class
even though interest began to accrue approximately (x) 50 days earlier in the
case of the Group 1 Securities and (y) 56 days earlier in the case of the Group
2 Securities (ii) on each subsequent Distribution Date, the interest payable
will accrue during the related Accrual Period, which will end approximately (x)
20 days earlier in the case of the Group 1 Securities and (y) 26 days earlier in
the case of the Group 2 Securities.
S-26
<PAGE> 334
YIELD TABLES
The following tables show the pre-tax yields to maturity on a corporate
bond equivalent basis of the specified Classes at various constant percentages
of PSA and, in the cases indicated, at various constant levels of LIBOR or COFI.
The Mortgage Loans will not prepay at any constant rate until maturity, and
it is unlikely that LIBOR or COFI will remain constant. Moreover, the Mortgage
Loans will have characteristics that differ from those of the Modeling
Assumptions. Therefore, the actual pre-tax yield of the specified Classes may
differ from those shown in the tables below for those Classes even if those
Classes are purchased at the assumed prices shown.
The yields set forth in the tables below were calculated by determining the
monthly discount rates that, when applied to the applicable assumed streams of
cash flows to be paid on the applicable Classes, would cause the discounted
present value of such assumed streams of cash flows to equal each assumed
purchase price of those Classes plus accrued interest (in the case of interest
bearing classes) and converting such monthly rates to corporate bond equivalent
rates. Such calculations do not take into account variations that may occur in
the interest rates at which investors may be able to reinvest funds received by
them as distributions on such Classes and consequently do not purport to reflect
the return on any investment in those Classes when such reinvestment rates are
considered.
For additional information regarding yield and other investment
considerations relating to various Classes of the Securities, see "Risk
Factors--Class Investment Considerations" in this Supplement.
Interest Only Fixed Rate Securities
As indicated in the table below, the yields to investors in Classes PA, PK,
AB and AL will be sensitive in varying degrees to the rate of principal payments
(including prepayments) of the related Mortgage Loans, which generally can be
repaid at any time. On the basis of the assumptions described below, and
assuming that the purchase price for each such Class is as indicated in the
applicable table below (expressed in each case as a percentage of its respective
original Class Notional Balance) plus accrued interest, the pre-tax yield to
maturity on Classes PA, PK, AB and AL would be 0% if prepayments were to occur
at a constant rate of approximately 395%, 391%, 425% and 607% PSA respectively.
If the actual prepayment rate of the related Mortgage Loans were to exceed the
foregoing level for any such Class for as little as one month while equaling
that level for the remaining months, the investors in the applicable Class would
not recover fully their investments.
The information set forth in the following tables was prepared on the basis
of the Modeling Assumptions and the assumption that the purchase price of each
of Class PA, PK, AB and AL (expressed as a percentage of its respective original
Class Notional Balance) is as indicated in such table. The assumed purchase
price is not necessarily that at which actual sales will occur.
SENSITIVITY OF CLASS PA TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 25.8125%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
-----------------------------------------
CLASS 80% 135% 220% 400%
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
PA....................................................... 11.1% 11.1% 11.1% (0.3)%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
S-27
<PAGE> 335
SENSITIVITY OF CLASS PK TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 23.046875%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
-----------------------------------------
CLASS 80% 135% 220% 400%
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
PK....................................................... 11.5% 11.5% 11.5% (0.7)%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
SENSITIVITY OF CLASS AB TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 38.8125%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
-----------------------------------------
CLASS 80% 135% 220% 400%
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
AB......................................................... 12.0% 12.0% 12.0% 1.7%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
SENSITIVITY OF CLASS AL TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 47.96875%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
--------------------------------
CLASS 80% 135% 220% 400%
----- ------ ------ ------ -----
<S> <C> <C> <C> <C>
AL.......................................................... 12.0% 12.0% 12.0% 7.6%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
Inverse Floating Rate Securities
As indicated in the tables below, the yields to investors in Class S, SA,
SE and SG will be highly sensitive to the level of LIBOR and to the rate of
principal payments (including prepayments) of the related Mortgage Loans, which
generally can be prepaid at any time. In addition, a high level of LIBOR alone
will have a negative effect on the yields to investors in Classes S, SA, SE and
SG.
The information set forth in the following tables was prepared on the basis
of the Modeling Assumptions and the assumptions that (i) the Interest Rate
applicable to Classes S, SA, SE and SG for each Accrual Period subsequent to
their initial Accrual Period will be based on the indicated level of LIBOR and
(ii) the purchase price of each such Class (expressed as a percentage of its
Original Class Principal Balance) is as indicated below. The assumed purchase
price is not necessarily that at which actual sales will occur.
S-28
<PAGE> 336
SENSITIVITY OF CLASS S TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 92.25%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
---------------------------------
LIBOR 80% 135% 220% 400%
----- ------ ------ ------ ------
<S> <C> <C> <C> <C>
4.65625%.................................................... 12.5% 13.6% 16.0% 19.0%
5.65625%.................................................... 8.9% 10.0% 12.5% 15.6%
6.65625%.................................................... 5.4% 6.4% 9.0% 12.1%
8.0500% and above........................................... 0.5% 1.5% 4.3% 7.4%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
SENSITIVITY OF CLASS SA TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 93.5%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
---------------------------------
LIBOR 80% 135% 220% 400%
----- ------ ------ ------ ------
<S> <C> <C> <C> <C>
4.65625%.................................................... 12.5% 13.5% 15.7% 18.2%
5.65625%.................................................... 8.9% 10.0% 12.2% 14.8%
6.65625%.................................................... 5.4% 6.4% 8.7% 11.4%
8.1000% and above........................................... 0.5% 1.4% 3.9% 6.6%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the above table.
SENSITIVITY OF CLASS SE TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 91.625*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
---------------------------------
LIBOR 80% 135% 220% 400%
----- ------ ------ ------ ------
<S> <C> <C> <C> <C>
4.65625%.................................................... 14.1% 15.5% 18.2% 21.6%
5.65625%.................................................... 9.2% 10.6% 13.5% 17.0%
6.65625%.................................................... 4.5% 5.8% 8.8% 12.3%
7.5000% and above........................................... 0.6% 1.8% 5.0% 8.5%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the above tables.
SENSITIVITY OF CLASS SG TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 99.125%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
---------------------------------
LIBOR 80% 135% 220% 400%
----- ------ ------ ------ ------
<S> <C> <C> <C> <C>
7.50% and below............................................. 8.0% 8.2% 8.5% 8.8%
7.80%....................................................... 4.0% 4.2% 4.5% 5.0%
8.10% and above............................................. 0.1% 0.3% 0.7% 1.2%
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the above tables.
Interest Only Inverse Floating Rate Securities
As indicated in the tables below, the yields to investors in Classes SB,
SC, SM and SD will be highly sensitive to the level of LIBOR or COFI, as
applicable, and to the rate of principal
S-29
<PAGE> 337
payments (including prepayments) of the related Mortgage Loans, which generally
can be prepaid at any time. On the basis of the assumptions described below, and
assuming (i) that the purchase price for each Class is as indicated in the
applicable table below (expressed as a percentage of its original Class Notional
Balance) plus accrued interest, and (ii) LIBOR of 5.65625% for Class SB, SC and
SD and COFI of 4.903% for Class SM, the pre-tax yield to maturity on Classes SB,
SC, SM and SD would be 0% if prepayments were to occur at a constant rate of
approximately 215% PSA, 378% PSA, 574% PSA and 236% PSA, respectively. If the
actual prepayment rate of the related Mortgage Loans were to exceed the
applicable foregoing level for as little as one month while equaling such level
for the remaining months, the investors in Classes SB, SC, SM and SD would not
recover fully their investments. In addition, a high level of LIBOR alone will
have a negative effect on the yield to investors in Classes SB, SC and SD and a
high level of COFI alone will have a negative effect on the yield to investors
in Class SM. As indicated in the tables below, at a constant rate of LIBOR
higher than or equal to 7.50% for Class SB, 8.10% for Classes SC and SD and at a
constant rate of COFI higher than or equal to 8.90% for Class SM, investors
would not recover any of their investment after the first Distribution Date.
Changes in LIBOR or COFI may not correlate with changes in prevailing fixed
mortgage interest rates. A high level of LIBOR or COFI could occur concurrently
with low prevailing fixed mortgage interest rates (which would be expected to
result in faster prepayments), thereby compounding the negative effects of each
factor on the yield of the Interest Only Inverse Floating Rate Classes.
An investor considering the purchase of an Interest Only Inverse Floating
Rate Class in the expectation that LIBOR or COFI, as applicable, will decline
over time, thus increasing the Interest Rate on such Class, should consider the
risk that if mortgage interest rates decline concurrently with LIBOR or COFI, as
applicable, the related Mortgage Loans may experience a rapid rate of
prepayments which may result in a significant reduction in the weighted average
life of an Interest Only Inverse Floating Rate Class.
The information set forth in each of the following tables was prepared on
the basis of the Modeling Assumptions and the assumptions that (i) the Interest
Rate applicable to each Class for each Accrual Period subsequent to the initial
Accrual Period will be based on the indicated level of LIBOR or COFI, as
applicable, and (ii) the purchase price of each Class (expressed as a percentage
of its original Class Notional Balance) is as indicated in such table. The
assumed purchase price is not necessarily that at which actual sales will occur.
SENSITIVITY OF CLASS SB TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 15.625%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
---------------------------------
LIBOR 80% 135% 220% 400%
----- ----- ----- ------- -------
<S> <C> <C> <C> <C>
4.65625%............................................... 83.2% 68.8% 37.4% (17.6)%
5.65625%............................................... 51.3% 36.1% (2.1)% (58.0)%
6.65625%............................................... 21.6% 5.2% (47.1)% **
7.50000% and above..................................... ** ** ** **
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
** Indicates that investors will suffer a loss of virtually all of their
investment.
S-30
<PAGE> 338
SENSITIVITY OF CLASS SC TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 9.125%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
---------------------------------
LIBOR 80% 135% 220% 400%
----- ----- ----- ------- -------
<S> <C> <C> <C> <C>
7.50% and below........................................ 93.1% 79.0% 48.9% (5.7)%
7.80%.................................................. 43.1% 27.6% (13.3)% (69.4)%
8.10% and above........................................ ** ** ** **
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
** Indicates that investors will suffer a loss of virtually all of their
investment.
SENSITIVITY OF CLASS SM TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 27.0%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
-----------------------------------
COFI 150% 325% 450% 600%
---- ----- ------- ------- -------
<S> <C> <C> <C> <C>
2.903%.............................................. 51.1% 42.2% 33.9% 21.8%
4.903%.............................................. 29.4% 19.1% 10.2% (2.2)%
6.903%.............................................. 5.4% (6.9)% (16.5)% (29.5)%
8.90% and above..................................... ** ** ** **
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
** Indicates that investors will suffer a loss of virtually all of their
investment.
SENSITIVITY OF CLASS SD TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 14.0%*
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
--------------------------------
LIBOR 80% 135% 220% 400%
----- ----- ----- ------- -------
<S> <C> <C> <C> <C>
4.65625%............................................... 84.7% 70.4% 39.2% (15.7)%
5.65625%............................................... 57.7% 42.7% 6.4% (49.4)%
6.65625%............................................... 32.5% 16.6% (29.1)% (85.5)%
8.1000% and above...................................... ** ** ** **
</TABLE>
- ---------------
* The price does not include accrued interest. Accrued interest has been added
to such price in calculating the yields set forth in the table.
** Indicates that investors will suffer a loss of virtually all of their
investment.
Principal Only Securities
Classes BA, EM, AC and AM are Principal Only Classes and will not bear
interest. As indicated in the tables below, a low rate of principal payments
(including prepayments) will have a negative effect on the yield to investors in
the Class BA, EM, AC and AM Securities.
The information set forth in the following tables was prepared on the basis
of the Modeling Assumptions and the assumption that the aggregate purchase price
of each Class (expressed as a percentage of its Original Class Principal
Balance) is as indicated below. The assumed purchase price is not necessarily
that at which actual sales will occur.
S-31
<PAGE> 339
SENSITIVITY OF CLASS BA TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 79.5%
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION RATES
-----------------------------------------
CLASS 80% 135% 220% 400%
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
BA.......................................................... 1.5% 4.9% 12.9% 22.2%
</TABLE>
SENSITIVITY OF CLASS EM TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 78.25%
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
RATES
-----------------------------------------
CLASS 150% 325% 450% 600%
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
EM.......................................................... 3.5% 5.4% 7.0% 9.2%
</TABLE>
SENSITIVITY OF CLASS AC TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 60.0625%
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
RATES
-----------------------------------------
CLASS 80% 135% 220% 400%
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
AC.......................................................... 4.7% 4.7% 4.7% 8.0%
</TABLE>
SENSITIVITY OF CLASS AM TO PREPAYMENTS
(PRE-TAX YIELDS TO MATURITY)
ASSUMED PRICE 51.25%
<TABLE>
<CAPTION>
PSA PREPAYMENT ASSUMPTION
RATES
-----------------------------------------
CLASS 80% 135% 220% 400%
----- -------- -------- -------- --------
<S> <C> <C> <C> <C>
AM.......................................................... 3.7% 3.7% 3.7% 6.2%
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following tax discussion, when read in conjunction with the discussion
of "Certain Federal Income Tax Consequences" in the Base Offering Circular,
describes the material federal income tax considerations for investors in the
Securities. However, these two tax discussions do not purport to deal with all
federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Investors should consult their own tax
advisors in determining the federal, state, local and any other tax consequences
to them of the purchase, ownership and disposition of the Securities.
REMIC ELECTIONS
In the opinion of Stroock & Stroock & Lavan LLP, for federal income tax
purposes, the Trust will constitute a Double REMIC Series. Separate REMIC
elections will be made for the Pooling REMIC and the Issuing REMIC.
REGULAR SECURITIES
The Regular Securities will be treated as debt instruments issued by the
Issuing REMIC for federal income tax purposes. Income on the Regular Securities
must be reported under an accrual method of accounting.
S-32
<PAGE> 340
The Class BA and EM Securities are Principal Only Securities. Principal
Only Securities are treated for federal income tax purposes as having been
issued with an amount of original issue discount ("OID") equal to the difference
between their principal balance and their issue price.
The Class Z and ZA Securities are Accrual Securities. Holders of Accrual
Securities are required to accrue all income from such Securities (other than
income attributable to market discount or de minimis market discount) under the
OID rules based on the expected payments on such Securities at the prepayment
assumption described below.
The Class PA, PK, SB, SC and SM Securities are "Interest Weighted
Securities" as described in "Certain Federal Income Tax Consequences--Tax
Treatment of Regular Securities--Interest Weighted Securities and Non-VRDI
Securities" in the Base Offering Circular. Although the tax treatment of
Interest Weighted Securities is not entirely certain, Holders of such Securities
should expect to accrue all income on such Securities (other than income
attributable to market discount or de minimis market discount) under the OID
rules based on the expected payments on such securities at the prepayment
assumptions described below.
Based on anticipated prices (including accrued interest), the assumed
Mortgage Loan characteristics, the prepayment assumptions described below and,
in the case of the Floating Rate Classes and Inverse Floating Rate Classes the
constant LIBOR or COFI value, as applicable described below, the Regular
Securities are expected to be issued with OID, with de minimis OID, or with a
premium as follows:
With OID: Classes: BA, PA, PK, S, SB, SC, Z, ZA, EM and SM
With de minimis OID: Classes PC, PD, PE, PG, PH, PN and VC
With a premium: Classes F, FB, FC, FD, PB, PJ, PL, PM, VA and VB
Prospective investors in the Securities should be aware, however, that the
foregoing expectations about OID, de minimis OID, or premium could change
because of differences (i) between anticipated purchase prices and actual
purchase prices or (ii) between the assumed characteristics of the Trust Assets
and the characteristics of the Trust Assets actually delivered to the Trust. The
prepayment assumption that should be used in determining the rates of accrual of
OID and that may be used in determining the amortization of premium, if any, on
the Regular Securities is 135% PSA in the case of Security Group 1 and 325% PSA
in the case of Security Group 2 (as described in "Yield, Maturity and Prepayment
Considerations" in this Supplement). The value of LIBOR to be used for such
determinations is 5.65625% in the case of the Floating Rate and Inverse Floating
Rate Securities (other than the Class SM Securities) and the value of COFI to be
used for such determination is 4.903% in the case of the Class SM Securities. No
representation is made, however, about the rate at which prepayments on the
Mortgage Loans underlying any Group of Trust Assets actually will occur or the
level of LIBOR or COFI at any time after the date of this Supplement. See
"Certain Federal Income Tax Consequences" in the Base Offering Circular.
The Regular Securities generally will be treated as "regular interests" in
a REMIC for domestic building and loan associations, "permitted assets" for
financial asset securitization investment trusts ("FASITs"), and "real estate
assets" for real estate investment trusts ("REITs") as described in "Certain
Federal Income Tax Consequences" in the Base Offering Circular. Similarly,
interest on the Regular Securities will be considered "interest on obligations
secured by mortgages on real property" for REITs.
RESIDUAL SECURITIES
The Class RR Securities will represent the beneficial ownership of the
Residual Interest in the Pooling REMIC and the beneficial ownership of the
Residual Interest in the Issuing REMIC. The Residual Securities, i.e., the Class
RR Securities, generally will be treated as "residual interests" in a REMIC for
domestic building and loan associations and as "real estate assets" for REITS,
as described in "Certain Federal Income Tax Consequences" in the Base Offering
S-33
<PAGE> 341
Circular, but will not be treated as debt for federal income tax purposes.
Instead, the Holders of the Residual Securities will be required to report, and
will be taxed on, their pro rata shares of the taxable income or loss of the
related Trust REMIC, and such requirements will continue until there are no
outstanding Regular Interests in the respective Trust REMICs. Thus, Residual
Holders will have taxable income attributable to the Residual Securities even
though they will not receive principal or interest distributions with respect to
such Securities, which could result in a negative after-tax return for such
Holders. It is not expected that the Pooling REMIC will have a substantial
amount of such income or loss in any period. However, even though the Holders of
the Class RR Securities are not entitled to any stated principal or interest
payments on such Securities, the Issuing REMIC may have substantial taxable
income in certain periods, and offsetting tax losses may not occur until much
later periods. Accordingly, a Holder of the Class RR Securities may experience
substantial adverse tax timing consequences. Prospective investors are urged to
consult their own tax advisors and consider the after-tax effect of ownership of
the Residual Securities and the suitability of the Residual Securities to their
investment objectives.
OID accruals on the Underlying REMIC Certificates will be computed using
the same prepayment assumption as set forth above under the caption "--Regular
Securities."
Prospective Holders of Residual Securities should be aware that, at
issuance, based on the expected prices of the Regular and Residual Securities
and the prepayment assumptions described above, the residual interests
represented by the Residual Securities will be treated as "noneconomic residual
interests" as that term is defined in the Base Offering Circular under "Certain
Federal Income Tax Consequences--Tax Treatment of Residual Securities--Non-
Recognition of Certain Transfers for Federal Income Tax Purposes."
MX SECURITIES
General
The arrangement pursuant to which the MX Classes are created, sold and
administered (an "MX Pool") will be classified as a grantor trust under subpart
E, part I of subchapter J of the Code. The interests in the Regular Classes that
have been exchanged for MX Classes (including any exchanges effective on the
date of issuance of the Regular Classes) will be the assets of the MX Pool and
the MX Classes will represent beneficial ownership of these interests in the
Regular Classes.
Tax Status
The MX Classes should be considered to represent "real estate assets"
within the meaning of section 856(c)(4)(A) of the Code and assets described in
section 7701(a)(19)(C) of the Code. Original issue discount and interest
accruing on the MX Classes should be considered to represent "interest on
obligations secured by mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code. MX Classes will be "qualified mortgages" under section
860G(a)(3) of the Code for a REMIC.
Tax Accounting for MX Securities
An MX Class will represent beneficial ownership of an interest in one or
more related Regular Classes. If it represents an interest in more than one
Regular Class, a purchaser must allocate its basis in an MX Class among the
interests in the Regular Classes in accordance with their relative fair market
values as of the time of acquisition. Similarly, on the sale of such an MX
Class, the Owner must allocate the amount received on the sale among the
interests in the Regular Classes in accordance with their relative fair market
values as of the time of sale.
The Holder of an MX Class must account separately for each interest in a
Regular Class (there may be only one such interest). Where the interest
represents a pro rata part of a Regular Class, the Holder of an MX Class should
account for such interest as described under "Regular
S-34
<PAGE> 342
Securities" above and "Certain Federal Income Tax Consequences -- Tax Treatment
of Regular Securities" in the Base Offering Circular. Where the interest
represents beneficial ownership of a disproportionate part of the principal and
interest payments on a Regular Class (a "Strip"), the Holder will be treated as
owning, pursuant to section 1286 of the Code, "stripped bonds" to the extent of
its share of principal payments and "stripped coupons" to the extent of its
share of interest payments on such Regular Class (except as described below in
the case of a Holder that acquires in one transaction a combination of MX
Classes that may be exchanged for a Regular Class). Although the tax treatment
of a Strip is unclear, the Tax Administrator intends to treat each Strip as a
single debt instrument for purposes of information reporting. The Internal
Revenue Service, however, could take a different position. For example, the
Internal Revenue Service could contend that a Strip should be treated as a pro
rata part of the Regular Class to the extent that the Strip represents a pro
rata portion thereof, and "stripped bonds" or "stripped coupons" with respect to
the remainder. An investor should consult its tax advisor regarding this matter.
A Holder of an MX Class should calculate original issue discount with
respect to each Strip and, if such original issue discount is more than de
minimis, include it in ordinary income as it accrues, which may be prior to the
receipt of cash attributable to such income, in accordance with a constant
interest method that takes into account the compounding of interest. The Holder
should determine its yield to maturity based on its purchase price allocated to
the Strip and on a schedule of payments projected using a prepayment assumption,
and then make periodic adjustments to take into account actual prepayment
experience. With respect to a particular Holder, it is not clear whether the
prepayment assumption used to calculate original issue discount would be
determined at the time of purchase of the Strip or would be the original
prepayment assumption with respect to the related Regular Class.
If original issue discount accruing with respect to a Strip, computed as
described above, is negative for any period, the MX Holder will be entitled to
offset such amount only against future positive original issue discount accruing
from such Strip, and the Tax Administrator intends to report income in all cases
in this manner. Although not entirely free from doubt, such a Holder may be
entitled to deduct a loss to the extent that its remaining basis would exceed
the maximum amount of future payments to which the Holder is entitled with
respect to such Strip, assuming no further prepayments of the Mortgages (or,
perhaps, assuming prepayments at a rate equal to the prepayment assumption with
respect to the related Regular Class). Although the issue is not free from
doubt, all or a portion of such loss may be treated as a capital loss if the
Strip is a capital asset in the hands of the Holder. An investor should consult
its tax advisor regarding this matter.
An MX Holder will realize gain or loss on the sale of a Strip in an amount
equal to the difference between the amount realized and its adjusted basis in
such Strip. The seller's adjusted basis generally is equal to the seller's
allocated cost of the Strip, increased by income previously included, and
reduced (but not below zero) by distributions previously received. Except as
described below, any gain or loss on such sale will be capital gain or loss if
the MX Holder has held its interest as a capital asset and will be long-term if
the interest has been held for the long-term capital gain holding period (more
than one year). Such gain or loss will be ordinary income or loss (i) for a bank
or thrift institution or (ii) to the extent income recognized by the Holder is
less than the income that would have been recognized if the yield on such
interest (or perhaps, to the extent a Strip is treated as representing (i) a
pro-rata portion of a Regular Class and, (ii) a stripped bond or a stripped
coupon, the yields, as separately computed, on such pro rata portion and such
stripped bond or stripped coupon) were 110% of the applicable federal rate under
section 1274(d) of the Code.
If an investor exchanges a Regular Class for two MX Classes and then sells
one of such MX Classes, the sale will subject the investor to the coupon
stripping rules of section 1286 of the Code. The investor must allocate its
basis in the exchanged Regular Class between the part of the
S-35
<PAGE> 343
Regular Class underlying the MX Class sold and the part of the Regular Class
underlying the MX Class retained in proportion to their relative fair market
values as of the date of such sale. The investor is treated as purchasing the
interest retained for the amount of basis allocated to such interest. The
investor must calculate original issue discount with respect to the retained
interest as described above.
Although the matter is not free from doubt, an investor that acquires in
one transaction a combination of MX Classes that may be exchanged for a Regular
Class should be treated as owning the Regular Class.
Exchanges
An exchange, as described under "Description of the
Securities -- Modification and Exchange" herein, by a beneficial owner of (i)
REMIC Securities for MX Securities, (ii) MX Securities for the related REMIC
Securities or (iii) MX Securities for other MX Securities will not be a taxable
exchange. Such owner will be treated as continuing to own after the exchange the
same combination of interests in the related REMIC Securities that it owned
immediately prior to the exchange.
ERISA MATTERS
Ginnie Mae guarantees distributions of principal and interest with respect
to the Securities. The Ginnie Mae Guaranty is supported by the full faith and
credit of the United States of America. The Regular and MX Securities will
qualify as "guaranteed governmental mortgage pool certificates" within the
meaning of a Department of Labor regulation, the effect of which is to provide
that mortgage loans underlying a "guaranteed governmental mortgage pool
certificate" will not be considered assets of an employee benefit plan subject
to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
solely by reason of the Plan's purchase and holding of that certificate. Plan
investors should consult with their advisors, however, to determine whether the
acquisition, holding or disposition of a Security could give rise to a
transaction that is prohibited or is not otherwise permissible under either
ERISA or the Code. See "ERISA Considerations" in the Base Offering Circular. The
Residual Securities are not offered to, and may not be transferred to, Plans.
LEGAL INVESTMENT CONSIDERATIONS
Institutions whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be
subject to restrictions on investment in the Securities. No representation is
made about the proper characterization of any Class for legal investment or
other purposes, or about the permissibility of the purchase by particular
investors of any Class under applicable legal investment restrictions. Investors
should consult their own legal advisors regarding applicable investment
restrictions and the effect of any restrictions on the liquidity of the
Securities prior to investing in the Securities. See "Legal Investment
Considerations" in the Base Offering Circular.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Sponsor Agreement, the Sponsor
has agreed to purchase all of the Securities if any are sold and purchased. The
Sponsor proposes to offer each Class to the public from time to time for sale in
negotiated transactions at varying prices to be determined at the time of sale,
plus accrued interest, if any, from June 1, 1998 on each interest bearing class
other than Classes F, FA, FB, FC, FD, S, SB, SC, FE, SA, SD, SE and SG and from
June 20, 1998 on Classes F, FA, FB, FC, FD, S, SB, SC, FE, SA, SD, SE and SG.
The Sponsor may effect these transactions by sales to or through certain
securities dealers. These dealers may receive compensation in the form of
discounts, concessions or commissions from the Sponsor and/or commissions from
any purchasers for which they act as agents. Some of the Securities
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<PAGE> 344
may be sold through dealers in relatively small sales. In the usual case, the
commission charged on a relatively small sale of securities will be a higher
percentage of the sales price than that charged on a large sale of securities.
INCREASE IN SIZE
Before the Closing Date, Ginnie Mae, the Trustee and the Sponsor may agree
to increase the size of this offering. In that event, the Securities will have
the same characteristics as described in this Supplement, except that (i) the
Original Class Principal Balance (or original Class Notional Balance) of each
Class receiving (or based upon Classes receiving) principal distributions from
the same Trust Asset Group and (ii) the Scheduled Principal Balances will
increase by the same proportion. The Trust Agreement, the Final Data Statement
and the Supplemental Statement, if any, will reflect any increase in the size of
the transaction.
LEGAL MATTERS
Certain legal matters will be passed upon for Ginnie Mae by Brown & Wood
LLP, Washington, DC; for the Trust by Stroock & Stroock & Lavan LLP, New York,
New York and the Law Offices of Joseph C. Reid, P.A. Baltimore, Maryland; and
for the Trustee by Peabody & Arnold LLP, Boston, Massachusetts.
S-37
<PAGE> 345
SCHEDULE I: PRINCIPAL BALANCE SCHEDULES
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PB PC PD PE PG
------------ -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Initial Balance..... $25,000,000.00 $41,857,000.00 $88,266,000.00 $84,132,000.00 $147,086,000.00
July 1998........... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
August 1998......... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
September 1998...... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
October 1998........ 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
November 1998....... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
December 1998....... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
January 1999........ 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
February 1999....... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
March 1999.......... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
April 1999.......... 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
May 1999............ 25,000,000.00 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
June 1999........... 24,754,931.22 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
July 1999........... 24,499,049.32 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
August 1999......... 24,232,439.54 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
September 1999...... 23,955,191.53 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
October 1999........ 23,667,399.36 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
November 1999....... 23,369,161.42 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
December 1999....... 23,060,580.42 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
January 2000........ 22,741,763.29 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
February 2000....... 22,412,821.11 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
March 2000.......... 22,073,869.10 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
April 2000.......... 21,725,026.52 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
May 2000............ 21,366,416.58 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
June 2000........... 20,998,166.43 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
July 2000........... 20,620,407.02 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
August 2000......... 20,233,273.07 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
September 2000...... 19,847,580.46 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
October 2000........ 19,463,323.02 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
November 2000....... 19,080,494.59 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
December 2000....... 18,699,089.06 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
January 2001........ 18,319,100.31 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
February 2001....... 17,940,522.27 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
March 2001.......... 17,563,348.88 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
April 2001.......... 17,187,574.12 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
May 2001............ 16,813,191.98 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
June 2001........... 16,440,196.48 41,857,000.00 88,266,000.00 84,132,000.00 147,086,000.00
July 2001........... 16,068,581.66 40,265,119.09 88,266,000.00 84,132,000.00 147,086,000.00
August 2001......... 15,698,341.59 38,412,901.11 88,266,000.00 84,132,000.00 147,086,000.00
September 2001...... 15,329,470.35 36,567,531.05 88,266,000.00 84,132,000.00 147,086,000.00
October 2001........ 14,961,962.07 34,728,979.53 88,266,000.00 84,132,000.00 147,086,000.00
November 2001....... 14,595,810.87 32,897,217.13 88,266,000.00 84,132,000.00 147,086,000.00
December 2001....... 14,231,010.92 31,072,214.71 88,266,000.00 84,132,000.00 147,086,000.00
January 2002........ 13,867,556.41 29,253,943.18 88,266,000.00 84,132,000.00 147,086,000.00
February 2002....... 13,505,441.53 27,442,373.48 88,266,000.00 84,132,000.00 147,086,000.00
March 2002.......... 13,144,660.53 25,637,476.85 88,266,000.00 84,132,000.00 147,086,000.00
April 2002.......... 12,785,207.64 23,839,224.43 88,266,000.00 84,132,000.00 147,086,000.00
May 2002............ 12,427,077.16 22,047,587.68 88,266,000.00 84,132,000.00 147,086,000.00
June 2002........... 12,070,263.37 20,262,538.00 88,266,000.00 84,132,000.00 147,086,000.00
July 2002........... 11,714,760.61 18,484,047.08 88,266,000.00 84,132,000.00 147,086,000.00
August 2002......... 11,360,563.20 16,712,086.49 88,266,000.00 84,132,000.00 147,086,000.00
September 2002...... 11,007,665.53 14,946,628.17 88,266,000.00 84,132,000.00 147,086,000.00
</TABLE>
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<PAGE> 346
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PB PC PD PE PG
------------ -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
October 2002........ $10,656,061.98 $13,187,644.02 $88,266,000.00 $84,132,000.00 $147,086,000.00
November 2002....... 10,305,746.97 11,435,106.10 88,266,000.00 84,132,000.00 147,086,000.00
December 2002....... 9,956,714.92 9,688,986.51 88,266,000.00 84,132,000.00 147,086,000.00
January 2003........ 9,608,960.29 7,949,257.54 88,266,000.00 84,132,000.00 147,086,000.00
February 2003....... 9,262,477.56 6,215,891.56 88,266,000.00 84,132,000.00 147,086,000.00
March 2003.......... 8,917,261.24 4,488,861.11 88,266,000.00 84,132,000.00 147,086,000.00
April 2003.......... 8,573,305.84 2,768,138.73 88,266,000.00 84,132,000.00 147,086,000.00
May 2003............ 8,230,605.91 1,053,697.14 88,266,000.00 84,132,000.00 147,086,000.00
June 2003........... 7,889,156.01 0.00 86,826,157.63 84,132,000.00 147,086,000.00
July 2003........... 7,548,950.74 0.00 83,081,940.08 84,132,000.00 147,086,000.00
August 2003......... 7,209,984.69 0.00 79,351,361.09 84,132,000.00 147,086,000.00
September 2003...... 6,872,252.51 0.00 75,634,361.77 84,132,000.00 147,086,000.00
October 2003........ 6,535,748.84 0.00 71,930,883.14 84,132,000.00 147,086,000.00
November 2003....... 6,200,468.35 0.00 68,240,866.53 84,132,000.00 147,086,000.00
December 2003....... 5,866,405.75 0.00 64,564,253.73 84,132,000.00 147,086,000.00
January 2004........ 5,533,555.74 0.00 60,900,986.40 84,132,000.00 147,086,000.00
February 2004....... 5,201,913.07 0.00 57,251,006.77 84,132,000.00 147,086,000.00
March 2004.......... 4,871,472.48 0.00 53,614,256.94 84,132,000.00 147,086,000.00
April 2004.......... 4,542,228.77 0.00 49,990,679.69 84,132,000.00 147,086,000.00
May 2004............ 4,214,176.72 0.00 46,380,217.56 84,132,000.00 147,086,000.00
June 2004........... 3,887,311.16 0.00 42,782,813.66 84,132,000.00 147,086,000.00
July 2004........... 3,561,626.93 0.00 39,198,411.19 84,132,000.00 147,086,000.00
August 2004......... 3,237,118.88 0.00 35,626,953.48 84,132,000.00 147,086,000.00
September 2004...... 2,913,781.91 0.00 32,068,384.39 84,132,000.00 147,086,000.00
October 2004........ 2,591,610.90 0.00 28,522,647.58 84,132,000.00 147,086,000.00
November 2004....... 2,270,600.79 0.00 24,989,687.35 84,132,000.00 147,086,000.00
December 2004....... 1,950,746.52 0.00 21,469,448.02 84,132,000.00 147,086,000.00
January 2005........ 1,632,043.04 0.00 17,961,874.00 84,132,000.00 147,086,000.00
February 2005....... 1,314,485.34 0.00 14,466,910.16 84,132,000.00 147,086,000.00
March 2005.......... 998,068.43 0.00 10,984,501.59 84,132,000.00 147,086,000.00
April 2005.......... 682,787.32 0.00 7,514,593.36 84,132,000.00 147,086,000.00
May 2005............ 368,637.05 0.00 4,057,130.89 84,132,000.00 147,086,000.00
June 2005........... 55,612.69 0.00 612,059.91 84,132,000.00 147,086,000.00
July 2005........... 0.00 0.00 0.00 81,055,035.50 147,086,000.00
August 2005......... 0.00 0.00 0.00 77,323,797.92 147,086,000.00
September 2005...... 0.00 0.00 0.00 73,605,901.22 147,086,000.00
October 2005........ 0.00 0.00 0.00 69,901,287.06 147,086,000.00
November 2005....... 0.00 0.00 0.00 66,209,897.29 147,086,000.00
December 2005....... 0.00 0.00 0.00 62,531,674.04 147,086,000.00
January 2006........ 0.00 0.00 0.00 58,866,559.62 147,086,000.00
February 2006....... 0.00 0.00 0.00 55,214,496.60 147,086,000.00
March 2006.......... 0.00 0.00 0.00 51,575,427.76 147,086,000.00
April 2006.......... 0.00 0.00 0.00 47,949,296.13 147,086,000.00
May 2006............ 0.00 0.00 0.00 44,336,044.95 147,086,000.00
June 2006........... 0.00 0.00 0.00 40,735,617.67 147,086,000.00
July 2006........... 0.00 0.00 0.00 37,147,957.99 147,086,000.00
August 2006......... 0.00 0.00 0.00 33,573,009.81 147,086,000.00
September 2006...... 0.00 0.00 0.00 30,010,717.28 147,086,000.00
October 2006........ 0.00 0.00 0.00 26,461,024.75 147,086,000.00
November 2006....... 0.00 0.00 0.00 22,923,876.79 147,086,000.00
December 2006....... 0.00 0.00 0.00 19,399,218.19 147,086,000.00
January 2007........ 0.00 0.00 0.00 15,886,993.98 147,086,000.00
</TABLE>
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<PAGE> 347
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PB PC PD PE PG
------------ -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
February 2007....... $ 0.00 $ 0.00 $ 0.00 $12,387,149.36 $147,086,000.00
March 2007.......... 0.00 0.00 0.00 8,899,629.80 147,086,000.00
April 2007.......... 0.00 0.00 0.00 5,424,380.96 147,086,000.00
May 2007............ 0.00 0.00 0.00 1,961,348.70 147,086,000.00
June 2007........... 0.00 0.00 0.00 0.00 145,596,479.11
July 2007........... 0.00 0.00 0.00 0.00 142,157,718.51
August 2007......... 0.00 0.00 0.00 0.00 138,731,013.40
September 2007...... 0.00 0.00 0.00 0.00 135,316,310.51
October 2007........ 0.00 0.00 0.00 0.00 131,913,556.78
November 2007....... 0.00 0.00 0.00 0.00 128,522,699.34
December 2007....... 0.00 0.00 0.00 0.00 125,143,685.55
January 2008........ 0.00 0.00 0.00 0.00 121,776,462.97
February 2008....... 0.00 0.00 0.00 0.00 118,420,979.38
March 2008.......... 0.00 0.00 0.00 0.00 115,077,182.73
April 2008.......... 0.00 0.00 0.00 0.00 111,745,021.21
May 2008............ 0.00 0.00 0.00 0.00 108,424,443.20
June 2008........... 0.00 0.00 0.00 0.00 105,139,172.76
July 2008........... 0.00 0.00 0.00 0.00 101,895,016.86
August 2008......... 0.00 0.00 0.00 0.00 98,691,478.54
September 2008...... 0.00 0.00 0.00 0.00 95,528,066.76
October 2008........ 0.00 0.00 0.00 0.00 92,404,296.32
November 2008....... 0.00 0.00 0.00 0.00 89,319,687.79
December 2008....... 0.00 0.00 0.00 0.00 86,273,767.44
January 2009........ 0.00 0.00 0.00 0.00 83,266,067.19
February 2009....... 0.00 0.00 0.00 0.00 80,296,124.53
March 2009.......... 0.00 0.00 0.00 0.00 77,363,482.45
April 2009.......... 0.00 0.00 0.00 0.00 74,467,689.38
May 2009............ 0.00 0.00 0.00 0.00 71,608,299.13
June 2009........... 0.00 0.00 0.00 0.00 68,784,870.82
July 2009........... 0.00 0.00 0.00 0.00 65,996,968.84
August 2009......... 0.00 0.00 0.00 0.00 63,244,162.73
September 2009...... 0.00 0.00 0.00 0.00 60,526,027.20
October 2009........ 0.00 0.00 0.00 0.00 57,842,141.98
November 2009....... 0.00 0.00 0.00 0.00 55,192,091.85
December 2009....... 0.00 0.00 0.00 0.00 52,575,466.51
January 2010........ 0.00 0.00 0.00 0.00 49,991,860.56
February 2010....... 0.00 0.00 0.00 0.00 47,440,873.42
March 2010.......... 0.00 0.00 0.00 0.00 44,922,109.31
April 2010.......... 0.00 0.00 0.00 0.00 42,435,177.13
May 2010............ 0.00 0.00 0.00 0.00 39,979,690.48
June 2010........... 0.00 0.00 0.00 0.00 37,555,267.53
July 2010........... 0.00 0.00 0.00 0.00 35,161,531.03
August 2010......... 0.00 0.00 0.00 0.00 32,798,108.22
September 2010...... 0.00 0.00 0.00 0.00 30,464,630.79
October 2010........ 0.00 0.00 0.00 0.00 28,160,734.80
November 2010....... 0.00 0.00 0.00 0.00 25,886,060.68
December 2010....... 0.00 0.00 0.00 0.00 23,640,253.13
January 2011........ 0.00 0.00 0.00 0.00 21,422,961.10
February 2011....... 0.00 0.00 0.00 0.00 19,233,837.72
March 2011.......... 0.00 0.00 0.00 0.00 17,072,540.27
April 2011.......... 0.00 0.00 0.00 0.00 14,938,730.11
May 2011............ 0.00 0.00 0.00 0.00 12,832,072.64
</TABLE>
S-I-3
<PAGE> 348
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PB PC PD PE PG
------------ -------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
June 2011........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 10,752,237.27
July 2011........... 0.00 0.00 0.00 0.00 8,698,897.34
August 2011......... 0.00 0.00 0.00 0.00 6,671,730.09
September 2011...... 0.00 0.00 0.00 0.00 4,670,416.63
October 2011........ 0.00 0.00 0.00 0.00 2,694,641.86
November 2011....... 0.00 0.00 0.00 0.00 744,094.45
December 2011 and
thereafter........ 0.00 0.00 0.00 0.00 0.00
</TABLE>
S-I-4
<PAGE> 349
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PH PJ PL PM PN
------------ --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Initial Balance..... $149,766,750.00 $94,795,000.00 $50,226,000.00 $49,714,500.00 $16,705,750.00
July 1998........... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
August 1998......... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
September 1998...... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
October 1998........ 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
November 1998....... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
December 1998....... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
January 1999........ 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
February 1999....... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
March 1999.......... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
April 1999.......... 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
May 1999............ 149,766,750.00 94,795,000.00 50,226,000.00 49,714,500.00 16,705,750.00
June 1999........... 149,766,750.00 92,097,831.82 50,226,000.00 49,346,720.38 16,705,750.00
July 1999........... 149,766,750.00 89,281,657.04 50,226,000.00 48,962,713.29 16,705,750.00
August 1999......... 149,766,750.00 86,347,413.78 50,226,000.00 48,562,606.66 16,705,750.00
September 1999...... 149,766,750.00 83,296,088.73 50,226,000.00 48,146,535.03 16,705,750.00
October 1999........ 149,766,750.00 80,128,717.18 50,226,000.00 47,714,639.57 16,705,750.00
November 1999....... 149,766,750.00 76,846,381.98 50,226,000.00 47,267,067.93 16,705,750.00
December 1999....... 149,766,750.00 73,450,213.56 50,226,000.00 46,803,974.25 16,705,750.00
January 2000........ 149,766,750.00 69,941,388.75 50,226,000.00 46,325,519.01 16,705,750.00
February 2000....... 149,766,750.00 66,321,130.07 50,226,000.00 45,831,868.90 16,705,750.00
March 2000.......... 149,766,750.00 62,590,705.60 50,226,000.00 45,323,196.84 16,705,750.00
April 2000.......... 149,766,750.00 58,751,427.88 50,226,000.00 44,799,681.80 16,705,750.00
May 2000............ 149,766,750.00 54,804,652.94 50,226,000.00 44,261,508.69 16,705,750.00
June 2000........... 149,766,750.00 50,751,780.17 50,226,000.00 43,708,868.33 16,705,750.00
July 2000........... 149,766,750.00 46,594,250.76 50,226,000.00 43,141,957.23 16,705,750.00
August 2000......... 149,766,750.00 42,333,547.41 50,226,000.00 42,560,977.57 16,705,750.00
September 2000...... 149,766,750.00 38,088,707.12 50,226,000.00 41,982,160.96 16,705,750.00
October 2000........ 149,766,750.00 33,859,661.96 50,226,000.00 41,405,498.14 16,705,750.00
November 2000....... 149,766,750.00 29,646,344.13 50,226,000.00 40,830,979.86 16,705,750.00
December 2000....... 149,766,750.00 25,448,686.40 50,226,000.00 40,258,596.95 16,705,750.00
January 2001........ 149,766,750.00 21,266,621.41 50,226,000.00 39,688,340.23 16,705,750.00
February 2001....... 149,766,750.00 17,100,082.37 50,226,000.00 39,120,200.60 16,705,750.00
March 2001.......... 149,766,750.00 12,949,002.56 50,226,000.00 38,554,168.95 16,705,750.00
April 2001.......... 149,766,750.00 8,813,315.74 50,226,000.00 37,990,236.25 16,705,750.00
May 2001............ 149,766,750.00 4,692,955.76 50,226,000.00 37,428,393.49 16,705,750.00
June 2001........... 149,766,750.00 587,856.80 50,226,000.00 36,868,631.68 16,705,750.00
July 2001........... 149,766,750.00 0.00 48,315,834.19 36,310,941.89 16,705,750.00
August 2001......... 149,766,750.00 0.00 46,093,278.82 35,755,315.21 16,705,750.00
September 2001...... 149,766,750.00 0.00 43,878,940.54 35,201,742.76 16,705,750.00
October 2001........ 149,766,750.00 0.00 41,672,784.14 34,650,215.73 16,705,750.00
November 2001....... 149,766,750.00 0.00 39,474,774.30 34,100,725.30 16,705,750.00
December 2001....... 149,766,750.00 0.00 37,284,876.03 33,553,262.72 16,705,750.00
January 2002........ 149,766,750.00 0.00 35,103,054.45 33,007,819.27 16,705,750.00
February 2002....... 149,766,750.00 0.00 32,929,274.69 32,464,386.23 16,705,750.00
March 2002.......... 149,766,750.00 0.00 30,763,502.22 31,922,954.97 16,705,750.00
April 2002.......... 149,766,750.00 0.00 28,605,702.41 31,383,516.83 16,705,750.00
May 2002............ 149,766,750.00 0.00 26,455,841.04 30,846,063.25 16,705,750.00
June 2002........... 149,766,750.00 0.00 24,313,883.79 30,310,585.66 16,705,750.00
July 2002........... 149,766,750.00 0.00 22,179,796.65 29,777,075.56 16,705,750.00
August 2002......... 149,766,750.00 0.00 20,053,545.55 29,245,524.42 16,705,750.00
September 2002...... 149,766,750.00 0.00 17,935,096.80 28,715,923.83 16,705,750.00
</TABLE>
S-I-5
<PAGE> 350
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PH PJ PL PM PN
------------ --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
October 2002........ $149,766,750.00 $ 0.00 $15,824,416.66 $28,188,265.35 $16,705,750.00
November 2002....... 149,766,750.00 0.00 13,721,471.65 27,662,540.61 16,705,750.00
December 2002....... 149,766,750.00 0.00 11,626,228.27 27,138,741.23 16,705,750.00
January 2003........ 149,766,750.00 0.00 9,538,653.25 26,616,858.90 16,705,750.00
February 2003....... 149,766,750.00 0.00 7,458,713.46 26,096,885.34 16,705,750.00
March 2003.......... 149,766,750.00 0.00 5,386,375.95 25,578,812.30 16,705,750.00
April 2003.......... 149,766,750.00 0.00 3,321,607.75 25,062,631.55 16,705,750.00
May 2003............ 149,766,750.00 0.00 1,264,376.15 24,548,334.91 16,705,750.00
June 2003........... 149,766,750.00 0.00 0.00 24,035,914.22 16,705,750.00
July 2003........... 149,766,750.00 0.00 0.00 23,525,361.37 16,705,750.00
August 2003......... 149,766,750.00 0.00 0.00 23,016,668.24 16,705,750.00
September 2003...... 149,766,750.00 0.00 0.00 22,509,826.80 16,705,750.00
October 2003........ 149,766,750.00 0.00 0.00 22,004,829.01 16,705,750.00
November 2003....... 149,766,750.00 0.00 0.00 21,501,666.87 16,705,750.00
December 2003....... 149,766,750.00 0.00 0.00 21,000,332.45 16,705,750.00
January 2004........ 149,766,750.00 0.00 0.00 20,500,817.78 16,705,750.00
February 2004....... 149,766,750.00 0.00 0.00 20,003,114.99 16,705,750.00
March 2004.......... 149,766,750.00 0.00 0.00 19,507,216.19 16,705,750.00
April 2004.......... 149,766,750.00 0.00 0.00 19,013,113.57 16,705,750.00
May 2004............ 149,766,750.00 0.00 0.00 18,520,799.30 16,705,750.00
June 2004........... 149,766,750.00 0.00 0.00 18,030,265.62 16,705,750.00
July 2004........... 149,766,750.00 0.00 0.00 17,541,504.78 16,705,750.00
August 2004......... 149,766,750.00 0.00 0.00 17,054,509.06 16,705,750.00
September 2004...... 149,766,750.00 0.00 0.00 16,569,270.80 16,705,750.00
October 2004........ 149,766,750.00 0.00 0.00 16,085,782.32 16,705,750.00
November 2004....... 149,766,750.00 0.00 0.00 15,604,036.03 16,705,750.00
December 2004....... 149,766,750.00 0.00 0.00 15,124,024.33 16,705,750.00
January 2005........ 149,766,750.00 0.00 0.00 14,645,739.64 16,705,750.00
February 2005....... 149,766,750.00 0.00 0.00 14,169,174.45 16,705,750.00
March 2005.......... 149,766,750.00 0.00 0.00 13,694,321.27 16,705,750.00
April 2005.......... 149,766,750.00 0.00 0.00 13,221,172.60 16,705,750.00
May 2005............ 149,766,750.00 0.00 0.00 12,749,721.01 16,705,750.00
June 2005........... 149,766,750.00 0.00 0.00 12,279,959.09 16,705,750.00
July 2005........... 149,766,750.00 0.00 0.00 11,811,879.46 16,705,750.00
August 2005......... 149,766,750.00 0.00 0.00 11,345,474.76 16,705,750.00
September 2005...... 149,766,750.00 0.00 0.00 10,880,737.67 16,705,750.00
October 2005........ 149,766,750.00 0.00 0.00 10,417,660.90 16,705,750.00
November 2005....... 149,766,750.00 0.00 0.00 9,956,237.18 16,705,750.00
December 2005....... 149,766,750.00 0.00 0.00 9,496,459.27 16,705,750.00
January 2006........ 149,766,750.00 0.00 0.00 9,038,319.97 16,705,750.00
February 2006....... 149,766,750.00 0.00 0.00 8,581,812.09 16,705,750.00
March 2006.......... 149,766,750.00 0.00 0.00 8,126,928.49 16,705,750.00
April 2006.......... 149,766,750.00 0.00 0.00 7,673,662.04 16,705,750.00
May 2006............ 149,766,750.00 0.00 0.00 7,222,005.64 16,705,750.00
June 2006........... 149,766,750.00 0.00 0.00 6,771,952.23 16,705,750.00
July 2006........... 149,766,750.00 0.00 0.00 6,323,494.77 16,705,750.00
August 2006......... 149,766,750.00 0.00 0.00 5,876,626.25 16,705,750.00
September 2006...... 149,766,750.00 0.00 0.00 5,431,339.68 16,705,750.00
October 2006........ 149,766,750.00 0.00 0.00 4,987,628.11 16,705,750.00
November 2006....... 149,766,750.00 0.00 0.00 4,545,484.62 16,705,750.00
December 2006....... 149,766,750.00 0.00 0.00 4,104,902.30 16,705,750.00
January 2007........ 149,766,750.00 0.00 0.00 3,665,874.27 16,705,750.00
</TABLE>
S-I-6
<PAGE> 351
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PH PJ PL PM PN
------------ --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
February 2007....... $149,766,750.00 $ 0.00 $ 0.00 $ 3,228,393.69 $16,705,750.00
March 2007.......... 149,766,750.00 0.00 0.00 2,792,453.75 16,705,750.00
April 2007.......... 149,766,750.00 0.00 0.00 2,358,047.65 16,705,750.00
May 2007............ 149,766,750.00 0.00 0.00 1,925,168.62 16,705,750.00
June 2007........... 149,766,750.00 0.00 0.00 1,493,809.92 16,705,750.00
July 2007........... 149,766,750.00 0.00 0.00 1,063,964.85 16,705,750.00
August 2007......... 149,766,750.00 0.00 0.00 635,626.71 16,705,750.00
September 2007...... 149,766,750.00 0.00 0.00 208,788.85 16,705,750.00
October 2007........ 149,766,750.00 0.00 0.00 0.00 16,489,194.63
November 2007....... 149,766,750.00 0.00 0.00 0.00 16,065,337.45
December 2007....... 149,766,750.00 0.00 0.00 0.00 15,642,960.73
January 2008........ 149,766,750.00 0.00 0.00 0.00 15,222,057.91
February 2008....... 149,766,750.00 0.00 0.00 0.00 14,802,622.46
March 2008.......... 149,766,750.00 0.00 0.00 0.00 14,384,647.88
April 2008.......... 149,766,750.00 0.00 0.00 0.00 13,968,127.69
May 2008............ 149,766,750.00 0.00 0.00 0.00 13,553,055.44
June 2008........... 149,766,750.00 0.00 0.00 0.00 13,142,396.64
July 2008........... 149,766,750.00 0.00 0.00 0.00 12,736,877.15
August 2008......... 149,766,750.00 0.00 0.00 0.00 12,336,434.86
September 2008...... 149,766,750.00 0.00 0.00 0.00 11,941,008.39
October 2008........ 149,766,750.00 0.00 0.00 0.00 11,550,537.09
November 2008....... 149,766,750.00 0.00 0.00 0.00 11,164,961.02
December 2008....... 149,766,750.00 0.00 0.00 0.00 10,784,220.98
January 2009........ 149,766,750.00 0.00 0.00 0.00 10,408,258.45
February 2009....... 149,766,750.00 0.00 0.00 0.00 10,037,015.62
March 2009.......... 149,766,750.00 0.00 0.00 0.00 9,670,435.36
April 2009.......... 149,766,750.00 0.00 0.00 0.00 9,308,461.23
May 2009............ 149,766,750.00 0.00 0.00 0.00 8,951,037.45
June 2009........... 149,766,750.00 0.00 0.00 0.00 8,598,108.91
July 2009........... 149,766,750.00 0.00 0.00 0.00 8,249,621.16
August 2009......... 149,766,750.00 0.00 0.00 0.00 7,905,520.40
September 2009...... 149,766,750.00 0.00 0.00 0.00 7,565,753.46
October 2009........ 149,766,750.00 0.00 0.00 0.00 7,230,267.81
November 2009....... 149,766,750.00 0.00 0.00 0.00 6,899,011.54
December 2009....... 149,766,750.00 0.00 0.00 0.00 6,571,933.37
January 2010........ 149,766,750.00 0.00 0.00 0.00 6,248,982.63
February 2010....... 149,766,750.00 0.00 0.00 0.00 5,930,109.24
March 2010.......... 149,766,750.00 0.00 0.00 0.00 5,615,263.73
April 2010.......... 149,766,750.00 0.00 0.00 0.00 5,304,397.21
May 2010............ 149,766,750.00 0.00 0.00 0.00 4,997,461.38
June 2010........... 149,766,750.00 0.00 0.00 0.00 4,694,408.51
July 2010........... 149,766,750.00 0.00 0.00 0.00 4,395,191.45
August 2010......... 149,766,750.00 0.00 0.00 0.00 4,099,763.60
September 2010...... 149,766,750.00 0.00 0.00 0.00 3,808,078.92
October 2010........ 149,766,750.00 0.00 0.00 0.00 3,520,091.92
November 2010....... 149,766,750.00 0.00 0.00 0.00 3,235,757.66
December 2010....... 149,766,750.00 0.00 0.00 0.00 2,955,031.72
January 2011........ 149,766,750.00 0.00 0.00 0.00 2,677,870.22
February 2011....... 149,766,750.00 0.00 0.00 0.00 2,404,229.80
March 2011.......... 149,766,750.00 0.00 0.00 0.00 2,134,067.62
April 2011.......... 149,766,750.00 0.00 0.00 0.00 1,867,341.35
May 2011............ 149,766,750.00 0.00 0.00 0.00 1,604,009.17
</TABLE>
S-I-7
<PAGE> 352
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PH PJ PL PM PN
------------ --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
June 2011........... $149,766,750.00 $ 0.00 $ 0.00 $ 0.00 $ 1,344,029.75
July 2011........... 149,766,750.00 0.00 0.00 0.00 1,087,362.26
August 2011......... 149,766,750.00 0.00 0.00 0.00 833,966.35
September 2011...... 149,766,750.00 0.00 0.00 0.00 583,802.17
October 2011........ 149,766,750.00 0.00 0.00 0.00 336,830.32
November 2011....... 149,766,750.00 0.00 0.00 0.00 93,011.89
December 2011....... 148,437,525.16 0.00 0.00 0.00 0.00
January 2012........ 146,298,886.85 0.00 0.00 0.00 0.00
February 2012....... 144,187,603.49 0.00 0.00 0.00 0.00
March 2012.......... 142,103,341.28 0.00 0.00 0.00 0.00
April 2012.......... 140,045,770.41 0.00 0.00 0.00 0.00
May 2012............ 138,014,564.99 0.00 0.00 0.00 0.00
June 2012........... 136,009,403.05 0.00 0.00 0.00 0.00
July 2012........... 134,029,966.46 0.00 0.00 0.00 0.00
August 2012......... 132,075,940.89 0.00 0.00 0.00 0.00
September 2012...... 130,147,015.78 0.00 0.00 0.00 0.00
October 2012........ 128,242,884.26 0.00 0.00 0.00 0.00
November 2012....... 126,363,243.16 0.00 0.00 0.00 0.00
December 2012....... 124,507,792.91 0.00 0.00 0.00 0.00
January 2013........ 122,676,237.55 0.00 0.00 0.00 0.00
February 2013....... 120,868,284.64 0.00 0.00 0.00 0.00
March 2013.......... 119,083,645.25 0.00 0.00 0.00 0.00
April 2013.......... 117,322,033.90 0.00 0.00 0.00 0.00
May 2013............ 115,583,168.53 0.00 0.00 0.00 0.00
June 2013........... 113,866,770.46 0.00 0.00 0.00 0.00
July 2013........... 112,172,564.35 0.00 0.00 0.00 0.00
August 2013......... 110,500,278.14 0.00 0.00 0.00 0.00
September 2013...... 108,849,643.05 0.00 0.00 0.00 0.00
October 2013........ 107,220,393.50 0.00 0.00 0.00 0.00
November 2013....... 105,612,267.10 0.00 0.00 0.00 0.00
December 2013....... 104,025,004.61 0.00 0.00 0.00 0.00
January 2014........ 102,458,349.89 0.00 0.00 0.00 0.00
February 2014....... 100,912,049.85 0.00 0.00 0.00 0.00
March 2014.......... 99,385,854.48 0.00 0.00 0.00 0.00
April 2014.......... 97,879,516.71 0.00 0.00 0.00 0.00
May 2014............ 96,392,792.48 0.00 0.00 0.00 0.00
June 2014........... 94,925,440.64 0.00 0.00 0.00 0.00
July 2014........... 93,477,222.91 0.00 0.00 0.00 0.00
August 2014......... 92,047,903.89 0.00 0.00 0.00 0.00
September 2014...... 90,637,251.01 0.00 0.00 0.00 0.00
October 2014........ 89,245,034.48 0.00 0.00 0.00 0.00
November 2014....... 87,871,027.25 0.00 0.00 0.00 0.00
December 2014....... 86,515,005.03 0.00 0.00 0.00 0.00
January 2015........ 85,176,746.20 0.00 0.00 0.00 0.00
February 2015....... 83,856,031.80 0.00 0.00 0.00 0.00
March 2015.......... 82,552,645.49 0.00 0.00 0.00 0.00
April 2015.......... 81,266,373.56 0.00 0.00 0.00 0.00
May 2015............ 79,997,004.84 0.00 0.00 0.00 0.00
June 2015........... 78,744,330.70 0.00 0.00 0.00 0.00
July 2015........... 77,508,145.02 0.00 0.00 0.00 0.00
August 2015......... 76,288,244.16 0.00 0.00 0.00 0.00
September 2015...... 75,084,426.90 0.00 0.00 0.00 0.00
</TABLE>
S-I-8
<PAGE> 353
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PH PJ PL PM PN
------------ --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
October 2015........ $ 73,896,494.49 $ 0.00 $ 0.00 $ 0.00 $ 0.00
November 2015....... 72,724,250.52 0.00 0.00 0.00 0.00
December 2015....... 71,567,500.97 0.00 0.00 0.00 0.00
January 2016........ 70,426,054.13 0.00 0.00 0.00 0.00
February 2016....... 69,299,720.63 0.00 0.00 0.00 0.00
March 2016.......... 68,188,313.33 0.00 0.00 0.00 0.00
April 2016.......... 67,091,647.39 0.00 0.00 0.00 0.00
May 2016............ 66,009,540.16 0.00 0.00 0.00 0.00
June 2016........... 64,941,811.19 0.00 0.00 0.00 0.00
July 2016........... 63,888,282.23 0.00 0.00 0.00 0.00
August 2016......... 62,848,777.15 0.00 0.00 0.00 0.00
September 2016...... 61,823,121.93 0.00 0.00 0.00 0.00
October 2016........ 60,811,144.68 0.00 0.00 0.00 0.00
November 2016....... 59,812,675.56 0.00 0.00 0.00 0.00
December 2016....... 58,827,546.78 0.00 0.00 0.00 0.00
January 2017........ 57,855,592.55 0.00 0.00 0.00 0.00
February 2017....... 56,896,649.12 0.00 0.00 0.00 0.00
March 2017.......... 55,950,554.68 0.00 0.00 0.00 0.00
April 2017.......... 55,017,149.37 0.00 0.00 0.00 0.00
May 2017............ 54,096,275.29 0.00 0.00 0.00 0.00
June 2017........... 53,187,776.40 0.00 0.00 0.00 0.00
July 2017........... 52,291,498.57 0.00 0.00 0.00 0.00
August 2017......... 51,407,289.53 0.00 0.00 0.00 0.00
September 2017...... 50,534,998.83 0.00 0.00 0.00 0.00
October 2017........ 49,674,477.85 0.00 0.00 0.00 0.00
November 2017....... 48,825,579.75 0.00 0.00 0.00 0.00
December 2017....... 47,988,159.48 0.00 0.00 0.00 0.00
January 2018........ 47,162,073.72 0.00 0.00 0.00 0.00
February 2018....... 46,347,180.91 0.00 0.00 0.00 0.00
March 2018.......... 45,543,341.16 0.00 0.00 0.00 0.00
April 2018.......... 44,750,416.30 0.00 0.00 0.00 0.00
May 2018............ 43,968,269.83 0.00 0.00 0.00 0.00
June 2018........... 43,196,766.88 0.00 0.00 0.00 0.00
July 2018........... 42,435,774.22 0.00 0.00 0.00 0.00
August 2018......... 41,685,160.23 0.00 0.00 0.00 0.00
September 2018...... 40,944,794.89 0.00 0.00 0.00 0.00
October 2018........ 40,214,549.73 0.00 0.00 0.00 0.00
November 2018....... 39,494,297.86 0.00 0.00 0.00 0.00
December 2018....... 38,783,913.91 0.00 0.00 0.00 0.00
January 2019........ 38,083,274.04 0.00 0.00 0.00 0.00
February 2019....... 37,392,255.88 0.00 0.00 0.00 0.00
March 2019.......... 36,710,738.57 0.00 0.00 0.00 0.00
April 2019.......... 36,038,602.70 0.00 0.00 0.00 0.00
May 2019............ 35,375,730.31 0.00 0.00 0.00 0.00
June 2019........... 34,722,004.88 0.00 0.00 0.00 0.00
July 2019........... 34,077,311.27 0.00 0.00 0.00 0.00
August 2019......... 33,441,535.78 0.00 0.00 0.00 0.00
September 2019...... 32,814,566.04 0.00 0.00 0.00 0.00
October 2019........ 32,196,291.07 0.00 0.00 0.00 0.00
November 2019....... 31,586,601.24 0.00 0.00 0.00 0.00
December 2019....... 30,985,388.24 0.00 0.00 0.00 0.00
January 2020........ 30,392,545.06 0.00 0.00 0.00 0.00
</TABLE>
S-I-9
<PAGE> 354
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PH PJ PL PM PN
------------ --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
February 2020....... $ 29,807,966.02 $ 0.00 $ 0.00 $ 0.00 $ 0.00
March 2020.......... 29,231,546.70 0.00 0.00 0.00 0.00
April 2020.......... 28,663,183.94 0.00 0.00 0.00 0.00
May 2020............ 28,102,775.87 0.00 0.00 0.00 0.00
June 2020........... 27,550,221.81 0.00 0.00 0.00 0.00
July 2020........... 27,005,422.33 0.00 0.00 0.00 0.00
August 2020......... 26,468,279.20 0.00 0.00 0.00 0.00
September 2020...... 25,938,695.40 0.00 0.00 0.00 0.00
October 2020........ 25,416,575.07 0.00 0.00 0.00 0.00
November 2020....... 24,901,823.51 0.00 0.00 0.00 0.00
December 2020....... 24,394,347.19 0.00 0.00 0.00 0.00
January 2021........ 23,894,053.72 0.00 0.00 0.00 0.00
February 2021....... 23,400,851.81 0.00 0.00 0.00 0.00
March 2021.......... 22,914,651.30 0.00 0.00 0.00 0.00
April 2021.......... 22,435,363.12 0.00 0.00 0.00 0.00
May 2021............ 21,962,899.29 0.00 0.00 0.00 0.00
June 2021........... 21,497,172.90 0.00 0.00 0.00 0.00
July 2021........... 21,038,098.09 0.00 0.00 0.00 0.00
August 2021......... 20,585,590.06 0.00 0.00 0.00 0.00
September 2021...... 20,139,565.03 0.00 0.00 0.00 0.00
October 2021........ 19,699,940.25 0.00 0.00 0.00 0.00
November 2021....... 19,266,633.97 0.00 0.00 0.00 0.00
December 2021....... 18,839,565.46 0.00 0.00 0.00 0.00
January 2022........ 18,418,654.94 0.00 0.00 0.00 0.00
February 2022....... 18,003,823.63 0.00 0.00 0.00 0.00
March 2022.......... 17,594,993.69 0.00 0.00 0.00 0.00
April 2022.......... 17,192,088.27 0.00 0.00 0.00 0.00
May 2022............ 16,795,031.40 0.00 0.00 0.00 0.00
June 2022........... 16,403,748.09 0.00 0.00 0.00 0.00
July 2022........... 16,018,164.24 0.00 0.00 0.00 0.00
August 2022......... 15,638,206.65 0.00 0.00 0.00 0.00
September 2022...... 15,263,803.04 0.00 0.00 0.00 0.00
October 2022........ 14,894,882.00 0.00 0.00 0.00 0.00
November 2022....... 14,531,372.98 0.00 0.00 0.00 0.00
December 2022....... 14,173,206.31 0.00 0.00 0.00 0.00
January 2023........ 13,820,313.18 0.00 0.00 0.00 0.00
February 2023....... 13,472,625.59 0.00 0.00 0.00 0.00
March 2023.......... 13,130,076.41 0.00 0.00 0.00 0.00
April 2023.......... 12,792,599.31 0.00 0.00 0.00 0.00
May 2023............ 12,460,128.78 0.00 0.00 0.00 0.00
June 2023........... 12,132,600.10 0.00 0.00 0.00 0.00
July 2023........... 11,809,949.36 0.00 0.00 0.00 0.00
August 2023......... 11,492,113.43 0.00 0.00 0.00 0.00
September 2023...... 11,179,029.95 0.00 0.00 0.00 0.00
October 2023........ 10,870,637.33 0.00 0.00 0.00 0.00
November 2023....... 10,566,874.72 0.00 0.00 0.00 0.00
December 2023....... 10,267,682.04 0.00 0.00 0.00 0.00
January 2024........ 9,972,999.94 0.00 0.00 0.00 0.00
February 2024....... 9,682,769.78 0.00 0.00 0.00 0.00
March 2024.......... 9,396,933.67 0.00 0.00 0.00 0.00
April 2024.......... 9,115,434.42 0.00 0.00 0.00 0.00
May 2024............ 8,838,215.53 0.00 0.00 0.00 0.00
</TABLE>
S-I-10
<PAGE> 355
<TABLE>
<CAPTION>
DISTRIBUTION
DATE PH PJ PL PM PN
------------ --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
June 2024........... $ 8,565,221.21 $ 0.00 $ 0.00 $ 0.00 $ 0.00
July 2024........... 8,296,396.35 0.00 0.00 0.00 0.00
August 2024......... 8,031,686.52 0.00 0.00 0.00 0.00
September 2024...... 7,771,037.97 0.00 0.00 0.00 0.00
October 2024........ 7,514,397.59 0.00 0.00 0.00 0.00
November 2024....... 7,261,712.94 0.00 0.00 0.00 0.00
December 2024....... 7,012,932.22 0.00 0.00 0.00 0.00
January 2025........ 6,768,004.27 0.00 0.00 0.00 0.00
February 2025....... 6,526,878.57 0.00 0.00 0.00 0.00
March 2025.......... 6,289,505.20 0.00 0.00 0.00 0.00
April 2025.......... 6,055,834.88 0.00 0.00 0.00 0.00
May 2025............ 5,825,818.92 0.00 0.00 0.00 0.00
June 2025........... 5,599,409.25 0.00 0.00 0.00 0.00
July 2025........... 5,376,558.38 0.00 0.00 0.00 0.00
August 2025......... 5,157,219.39 0.00 0.00 0.00 0.00
September 2025...... 4,941,345.99 0.00 0.00 0.00 0.00
October 2025........ 4,728,892.41 0.00 0.00 0.00 0.00
November 2025....... 4,519,813.47 0.00 0.00 0.00 0.00
December 2025....... 4,314,064.55 0.00 0.00 0.00 0.00
January 2026........ 4,111,601.58 0.00 0.00 0.00 0.00
February 2026....... 3,912,381.04 0.00 0.00 0.00 0.00
March 2026.......... 3,716,359.92 0.00 0.00 0.00 0.00
April 2026.......... 3,523,495.79 0.00 0.00 0.00 0.00
May 2026............ 3,333,746.70 0.00 0.00 0.00 0.00
June 2026........... 3,147,071.26 0.00 0.00 0.00 0.00
July 2026........... 2,963,428.56 0.00 0.00 0.00 0.00
August 2026......... 2,782,778.23 0.00 0.00 0.00 0.00
September 2026...... 2,605,080.36 0.00 0.00 0.00 0.00
October 2026........ 2,430,295.58 0.00 0.00 0.00 0.00
November 2026....... 2,258,384.97 0.00 0.00 0.00 0.00
December 2026....... 2,089,310.12 0.00 0.00 0.00 0.00
January 2027........ 1,923,033.09 0.00 0.00 0.00 0.00
February 2027....... 1,759,516.40 0.00 0.00 0.00 0.00
March 2027.......... 1,598,723.06 0.00 0.00 0.00 0.00
April 2027.......... 1,440,616.51 0.00 0.00 0.00 0.00
May 2027............ 1,285,160.68 0.00 0.00 0.00 0.00
June 2027........... 1,132,319.92 0.00 0.00 0.00 0.00
July 2027........... 982,059.04 0.00 0.00 0.00 0.00
August 2027......... 834,343.27 0.00 0.00 0.00 0.00
September 2027...... 689,138.31 0.00 0.00 0.00 0.00
October 2027........ 546,410.24 0.00 0.00 0.00 0.00
November 2027....... 406,125.61 0.00 0.00 0.00 0.00
December 2027....... 268,251.35 0.00 0.00 0.00 0.00
January 2028........ 132,754.83 0.00 0.00 0.00 0.00
February 2028 and
thereafter........ 0.00 0.00 0.00 0.00 0.00
</TABLE>
S-I-11
<PAGE> 356
SCHEDULE II
<TABLE>
<CAPTION>
AVAILABLE COMBINATIONS
- ------------------------------------------------------------------------------------------------
REMIC SECURITIES MX SECURITIES
- ------------------------------------------------- --------------------------------------------
ORIGINAL MAXIMUM ORIGINAL
PRINCIPAL PRINCIPAL OR
BALANCE OR NOTIONAL
CLASS NOTIONAL EXCHANGE RELATED PRINCIPAL EXCHANGE
CLASS BALANCE PROPORTIONS(1) MX CLASS AMOUNT(2) PROPORTIONS(1)
- -------------- -------------- -------------- -------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
COMBINATION 1
PG $147,086,000 100% AB $147,086,000 N/A
AC $147,086,000 N/A
AD $147,086,000 N/A
AE $147,086,000 N/A
AF $147,086,000 N/A
AG $147,086,000 N/A
AH $147,086,000 N/A
AI $147,086,000 N/A
AJ $147,086,000 N/A
AK $147,086,000 N/A
COMBINATION 2
PH 149,766,750 100% AL $149,766,750 N/A
AM $149,766,750 N/A
AN $149,766,750 N/A
AO $149,766,750 N/A
AP $149,766,750 N/A
AY $149,766,750 N/A
AR $149,766,750 N/A
AS $149,766,750 N/A
AT $149,766,750 N/A
AU $149,766,750 N/A
COMBINATION 3
FA 80,872,235 76.4705879572% A $105,756,000 100%
SA(7) 24,883,765 23.5294120428%
COMBINATION 4
F 46,864,088 32.7818323628% B $142,957,500 100%
FB 21,456,352 15.0089026459%
FC 20,000,000 13.9901719042%
FD 21,000,000 14.6896804994%
S 33,637,060 23.5294125877%
COMBINATION 5
F 46,864,088 42.8685504742% FE $109,320,440 100%
FB 21,456,352 19.6270267482%
FC 20,000,000 18.2948403793%
FD 21,000,000 19.2095823983%
COMBINATION 6
BA 24,883,765 100% SA $ 24,883,765 100%
SB 18,662,824 (9)
SC 6,220,941 (10)
COMBINATION 7
SB 18,662,824 75.0000010047% SD $ 24,883,765 100%
SC 6,220,941 24.9999989953%
<CAPTION>
AVAILABLE COMBINATIONS
- ---------------------------------------------------------------------------------------------------------------
MX SECURITIES
-----------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
PRINCIPAL OR FINAL LIFE @ INCREASED
OTHER CLASS INTEREST CUSIP PAYMENT 135% PSA MINIMUM
CLASS TYPE(3) COUPON TYPE(3) NUMBER DATE(4) (IN YEARS)(5) DENOMINATIONS(6)
- -------------- ------------ ------ ------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINATION 1
PG NTL (PAC) 6.375% FIX/IO 3837H1QD6 November 2026 11.0 $258,000
PAC 0.000% PO 3837H1QE4 November 2026 11.0 $167,000
PAC 4.500% FIX 3837H1QF1 November 2026 11.0 $115,000
PAC 4.750% FIX 3837H1QG9 November 2026 11.0 $113,000
PAC 5.000% FIX 3837H1QH7 November 2026 11.0 $111,000
PAC 5.250% FIX 3837H1QJ3 November 2026 11.0 $109,000
PAC 5.500% FIX 3837H1QK0 November 2026 11.0 $108,000
PAC 5.750% FIX 3837H1QL8 November 2026 11.0 $106,000
PAC 6.000% FIX 3837H1QM6 November 2026 11.0 $104,000
PAC 6.250% FIX 3837H1QN4 November 2026 11.0 $102,000
COMBINATION 2
PH NTL (PAC) 6.500% FIX/IO 3837H1QP9 June 2028 18.3 $209,000
PAC 0.000% PO 3837H1QQ7 June 2028 18.3 $196,000
PAC 4.500% FIX 3837H1QR5 June 2028 18.3 $119,000
PAC 4.750% FIX 3837H1QS3 June 2028 18.3 $116,000
PAC 5.000% FIX 3837H1QT1 June 2028 18.3 $114,000
PAC 5.250% FIX 3837H1QU8 June 2028 18.3 $112,000
PAC 5.500% FIX 3837H1QV6 June 2028 18.3 $109,000
PAC 5.750% FIX 3837H1QW4 June 2028 18.3 $107,000
PAC 6.000% FIX 3837H1QX2 June 2028 18.3 $105,000
PAC 6.250% FIX 3837H1QY0 June 2028 18.3 $103,000
COMBINATION 3
FA AD/SUP 6.500% FIX 3837H1QZ7 November 2025 5.2 $102,000
SA(7)
COMBINATION 4
F AD/SUP 6.500% FIX 3837H1RA1 November 2025 6.0 $102,000
FB
FC
FD
S
COMBINATION 5
F AD/SUP (8) FLT 3837H1RB9 November 2025 6.0 $100,000
FB
FC
FD
COMBINATION 6
BA AD/SUP (8) INV 3837H1RC7 November 2025 5.2 $107,000
SB
SC
COMBINATION 7
SB NTL (AD/SUP) (8) INV/IO 3837H1RD5 November 2025 5.2 $715,000
SC
</TABLE>
S-II-1
<PAGE> 357
<TABLE>
<CAPTION>
AVAILABLE COMBINATIONS
- ------------------------------------------------------------------------------------------------
REMIC SECURITIES MX SECURITIES
- ------------------------------------------------- --------------------------------------------
ORIGINAL MAXIMUM ORIGINAL
PRINCIPAL PRINCIPAL OR
BALANCE OR NOTIONAL
CLASS NOTIONAL EXCHANGE RELATED PRINCIPAL EXCHANGE
CLASS BALANCE PROPORTIONS(1) MX CLASS AMOUNT(2) PROPORTIONS(1)
- -------------- -------------- -------------- -------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
COMBINATION 8
BA $ 18,662,824 100% SE $ 18,662,824 100%
SB 18,662,824 (11)
COMBINATION 9
BA $ 6,220,941 100% SG $ 6,220,941 100%
SC 6,220,941 (12)
<CAPTION>
AVAILABLE COMBINATIONS
- ---------------------------------------------------------------------------------------------------------------
MX SECURITIES
-----------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
PRINCIPAL OR FINAL LIFE @ INCREASED
OTHER CLASS INTEREST CUSIP PAYMENT 135% PSA MINIMUM
CLASS TYPE(3) COUPON TYPE(3) NUMBER DATE(4) (IN YEARS)(5) DENOMINATIONS(6)
- -------------- ------------ ------ ------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINATION 8
BA AD/SUP (8) INV 3837H1RE3 November 2025 5.2 $110,000
SB
COMBINATION 9
BA AD/SUP (8) INV 3837H1RF0 November 2025 5.2 $101,000
SC
</TABLE>
- ---------------
(1) Exchange proportions shown are constant proportions of the original Class
Principal Balances (or original Class Notional Balances) of the related
Classes of REMIC Securities or MX Securities, as applicable, assuming each
such Classes were to be issued on the Closing Date. In accordance with the
exchange proportions, Classes of REMIC Securities may be exchanged for the
related MX Class and MX Classes for the related REMIC Securities and, in
certain cases, MX Securities.
(2) The amount shown for each MX Class represents the maximum original Class
Principal Balance (or original Class Notional Balance) of that Class,
assuming it were to be issued on the Closing Date.
(3) As defined under "Class Types" in Appendix 1 to the Base Offering Circular.
(4) See "Yield, Maturity and Prepayment Considerations -- Final Distribution
Date" in this Supplement
(5) Determined as described under "Yield, Maturity and Prepayment
Considerations" in this Supplement. Prepayments will not occur at the
assumed rate shown or at any other constant rate and the actual Weighted
Average Life of the MX Class is likely to differ from that shown, perhaps
significantly.
(6) Each Class will be issued in the denominations specified. If no
denomination is indicated for a Class, that Class will be issued in the
denomination specified under "Description of the Securities -- Minimum
Denominations" in the Base Offering Circular.
(7) MX Class.
(8) See "Terms Sheet -- Interest Rates".
(9) The original Class Notional Balance of Class SB being exchanged is equal to
approximately 75.0000010047% of the original Class Principal Balance of BA
being exchanged.
(10) The original Class Notional Balance of Class SC being exchanged is equal to
approximately 24.9999989953% of the original Class Principal Balance of BA
being exchanged.
(11) The original Class Notional Balance of Class SB being exchanged is equal to
the original Class Principal Balance of BA being exchanged.
(12) The original Class Notional Balance of Class SC being exchanged is equal to
the original Class Principal Balance of BA being exchanged.
S-II-2
<PAGE> 358
EXHIBIT A
UNDERLYING REMIC CERTIFICATE
<TABLE>
<CAPTION>
TRUST UNDERLYING
ASSET REMIC ISSUE CUSIP INTEREST
GROUP TRUST CLASS DATE NUMBER RATE
- -------- ------------------- ----- ---------------- --------- --------
<S> <C> <C> <C> <C> <C>
2 Fannie Mae 1992-G61 SJ October 30, 1992 31358RAC7 (3)
<CAPTION>
ORIGINAL
TRUST FINAL PRINCIPAL
ASSET INTEREST DISTRIBUTION PRINCIPAL BALANCE CLASS
GROUP TYPE(1) DATE TYPE(1) OF CLASS FACTOR(2)
- -------- -------- ------------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
2 INV October 2022 TAC $36,000,000 0.81877252
<CAPTION>
APPROXIMATE
WEIGHTED
AVERAGE APPROXIMATE
APPROXIMATE REMAINING WEIGHTED
WEIGHTED TERM TO AVERAGE
AVERAGE MATURITY OF LOAN AGE
TRUST PRINCIPAL PERCENTAGE COUPON OF MORTGAGE OF MORTGAGE
ASSET BALANCE IN OF CLASS MORTGAGE LOANS LOANS
GROUP THE TRUST IN TRUST LOANS (IN MONTHS) (IN MONTHS)
- -------- ---------- -------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
2 $7,684,180 26.0694444444% 9.003% 274 75
</TABLE>
- ---------------
(1) As defined under "Class Types" in Appendix I to the accompanying Base
Offering Circular.
(2) Underlying REMIC Certificate Factor is as of June 1998.
(3) Calculated as shown in the related Underlying REMIC Disclosure Document.
A-1
<PAGE> 359
EXHIBIT B
COVER PAGE FROM FANNIE MAE 1992-G61
PROSPECTUS
$998,284,000
FEDERAL NATIONAL MORTGAGE ASSOCIATION
[FANNIE MAE LOGO]
GUARANTEED REMIC PASS-THROUGH CERTIFICATES
FANNIE MAE REMIC TRUST 1992-G61
The Guaranteed REMIC Pass-Through Certificates offered hereby (the "REMIC
Certificates") represent beneficial ownership interests in one of two trust
funds. The REMIC Certificates, other than the Class 61-RL Certificate, represent
beneficial ownership interests in Fannie Mae REMIC Trust 1992-G61 (the "Trust").
The assets of the Trust consist of the "regular interests" in a separate trust
fund (the "Lower Tier REMIC"). The assets of the Lower Tier REMIC consist of
"fully modified pass-through" mortgage-backed securities ("GNMA Certificates")
guaranteed as to timely payment of principal and interest by the Government
National Mortgage Association ("GNMA"). Each GNMA Certificate is based on and
backed by a pool of first lien, single-family, fixed-rate residential mortgage
loans (the "Mortgage Loans") which are either insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Department of Veterans
Affairs ("VA"). See "GNMA and the GNMA Programs" herein. Bear, Stearns & Co.
Inc. ("Bear Stearns") is to receive the REMIC Certificates in exchange for the
GNMA Certificates pursuant to a Fannie Mae commitment and will sell the REMIC
Certificates to the public as described below and under "Plan of Distribution"
herein.
Elections will be made to treat the Lower Tier REMIC and the Trust as "real
estate mortgage investment conduits" ("REMICs") pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). The REMIC Certificates (other than the
Class 61-R and Class 61-RL REMIC Certificates) will be designated as the
"regular interests," and the Class 61-R REMIC Certificate will be designated as
the "residual interest," in the REMIC constituted by the Trust. The interests in
the Lower Tier REMIC other than the Class 61-RL REMIC Certificate (the "Lower
Tier Regular Interests") will be designated as the "regular interests," and the
Class 61-RL REMIC Certificate will be designated as the "residual interest," in
the Lower Tier REMIC. See "certain Federal Income Tax Consequences" herein.
(Cover continued on next page)
------------------------
THE OBLIGATIONS OF FANNIE MAE UNDER ITS GUARANTY OF THE REMIC CERTIFICATES ARE
OBLIGATIONS OF FANNIE MAE ONLY AND ARE NOT BACKED BY THE FULL FAITH AND CREDIT
OF THE UNITED STATES. THE REMIC CERTIFICATES ARE EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ARE "EXEMPTED SECURITIES" WITHIN
THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934.
================================================================================
<TABLE>
<CAPTION>
ORIGINAL FINAL
PRINCIPAL INTEREST DISTRIBUTION
BALANCE RATE DATE
<S> <C> <C> <C>
Class 61-F......... $103,769,000 (1) July 2022
Class 61-FA........ 3,178,000 (1) October 2022
Class 61-S......... (2) (1) October 2022
Class 61-FB........ 13,167,000 (3) October 2005
Class 61-SB........ 3,762,000 (3) October 2005
Class 61-A......... 5,269,000 7.000% October 2005
Class 61-FC........ 103,136,000 (4) October 2022
Class 61-SC........ (5) (4) October 2022
Class 61-B......... 341,092,000 6.250% October 2022
Class 61-C......... 50,000,000 6.250% October 2022
Class 61-D......... 21,452,000 6.250% October 2022
Class 61-E......... 57,761,000 7.000% October 2022
Class 61-FJ........ 84,000,000 (6) October 2022
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL FINAL
PRINCIPAL INTEREST DISTRIBUTION
BALANCE RATE DATE
<S> <C> <C> <C>
Class 61-SJ........ $ 36,000,000 (6) October 2022
Class 61-G......... 41,233,000 7.000% October 2022
Class 61-Z......... 34,095,000 7.000% October 2022
Class 61-FD........ 11,004,000 (1) October 2022
Class 61-SD........ 4,716,000 (1) October 2022
Class 61-FE........ 25,000,000 (6) October 2022
Class 61-SE........ 5,280,639 (6) October 2022
Class 61-FG........ 33,005,000 (6) October 2022
Class 61-SG........ 16,750,361 (6) October 2022
Class 61-SH........ 4,614,000 (6) October 2022
Class 61-IO........ (7) 8.500% October 2022
Class 61-R......... (8) (8) October 2022
Class 61-RL........ (9) (9) October 2022
</TABLE>
================================================================================
(1) The interest rate is subject to monthly adjustment by reference to the
London interbank offered rate for one-month U.S. dollar deposits ("LIBOR"),
as described herein under "Description of the REMIC
Certificates -- Distributions of Interest."
(2) The Class 61-S REMIC Certificates are interest only certificates, have no
principal balance and will bear interest on a notional principal balance
(initially $42,358,352) as described herein under "Description of the REMIC
Certificates -- Distributions of Interest."
(3) The interest rate is subject to monthly adjustment by reference to the
average level of the 3-month Treasury Index (the "Treasury Index"), as
described herein under "Description of the REMIC
Certificate -- Distributions of Interest."
(4) The interest rate will be fixed for the first twelve Interest Accrual
Periods, as described herein under "Description of the REMIC
Certificates -- Distributions of Interest." Subsequent to the initial twelve
Interest Accrual Periods, the interest rate is subject to monthly adjustment
by reference to LIBOR.
(5) The Class 61-SC REMIC Certificates are interest only certificates, have no
principal balance and will bear interest on a notional principal balance
(initially $44,201,142) as described herein under "Description of the REMIC
Certificates -- Distributions of Interest."
(6) The interest rate is subject to monthly adjustment by reference to the
Monthly Weighted Average Cost of Funds for Eleventh District Savings
Institutions as published by the Federal Home Loan Bank of San Francisco or,
in certain events, an alternative index determined as specified herein
("COFI") under "Description of the REMIC Certificates -- Distributions of
Interest."
(7) The Class 61-IO Certificates are interest only certificates, have no
principal balance and will bear interest on a notional principal balance
(initially $138,421,764) as described herein under "Description of the REMIC
Certificates -- Distributions of Interest."
(8) The Class 61-R REMIC Certificate has no principal balance and does not bear
interest. The Holder of the Class 61-R REMIC Certificate will be entitled to
receive the proceeds of the remaining assets of the Trust, if any, after the
principal balances of the "regular interests" therein have been reduced to
zero. It is not anticipated that there will be any material assets remaining
in such circumstance.
(9) The Class 61-RL REMIC certificate has no principal balance and does not bear
interest. The Holder of the Class 61-RL REMIC Certificate will be entitled
to receive the proceeds of the remaining assets of the Lower Tier REMIC, if
any, after the principal balances of the "regular interests" therein have
been reduced to zero. It is not anticipated that there will be any material
assets remaining in such circumstance.
------------------------
The REMIC Certificates are being offered by Bear Stearns from time to time
in negotiated transactions, at varying prices to be determined at the time of
sale.
The REMIC Certificates are offered by Bear Stearns, subject to issuance by
Fannie Mae, to prior sale or to withdrawal or modification of the offer without
notice, when, as and if delivered to and accepted by Bear Stearns, and subject
to the approval of certain legal matters by counsel. It is expected that the
REMIC Certificates, except for the Class 61-R and Class 61-RL REMIC
Certificates, will be available through the book-entry system of the Federal
Reserve Banks on or about October 30, 1992. It is expected that the Class 61-R
and Class 61-RL REMIC Certificates in registered, certificated form will be
available for delivery at the offices of Bear Stearns, 245 Park Avenue, New
York, New York 10167, on or about October 30, 1992.
------------------------
BEAR, STEARNS & CO. INC.
SEPTEMBER 16, 1992
B-1
<PAGE> 360
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE OFFERING CIRCULAR SUPPLEMENT
AND THE ACCOMPANYING BASE OFFERING CIRCULAR AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE TRUST, THE SPONSOR OR THE CO-SPONSOR. THIS OFFERING CIRCULAR SUPPLEMENT
AND THE ACCOMPANYING BASE OFFERING CIRCULAR DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE OR OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH STATE OR JURISDICTION. NEITHER THE DELIVERY
OF THIS OFFERING CIRCULAR SUPPLEMENT AND THE ACCOMPANYING BASE OFFERING CIRCULAR
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------------
TABLE OF CONTENTS
OFFERING CIRCULAR SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ginnie Mae REMIC Trust 1998-14 Terms Sheet.......... S- 4
The Trust Assets.................................... S- 9
Ginnie Mae Guaranty................................. S-10
Description of the Securities....................... S-10
Risk Factors--Class Investment Considerations....... S-16
Yield, Maturity and Prepayment Considerations....... S-20
Certain Federal Income Tax Consequences............. S-33
ERISA Matters....................................... S-37
Legal Investment Considerations..................... S-37
Plan of Distribution................................ S-37
Increase in Size.................................... S-38
Legal Matters....................................... S-38
Schedule I: Scheduled Principal Balances............ S-I-1
Schedule II: Available Combinations................. S-II-1
Exhibit A: Underlying REMIC Certificate............. A- 1
Exhibit B: Cover Page from Underlying REMIC
Disclosure Document................................ B- 1
BASE OFFERING CIRCULAR
Offering Circular Supplement........................ 2
Defined Terms....................................... 2
Description of the Securities....................... 4
The Government National Mortgage Association........ 10
Ginnie Mae Guaranty................................. 11
The Ginnie Mae Certificates......................... 11
Underlying REMIC Certificates....................... 14
Yield, Maturity and Prepayment Considerations....... 14
The Trusts.......................................... 17
Certain Federal Income Tax Consequences............. 18
State Tax Considerations............................ 42
ERISA Considerations................................ 42
Legal Investment Considerations..................... 42
Secondary Market.................................... 43
Appendix I-Class Types.............................. 44
Appendix II-Indices................................. 47
Appendix III-Glossary............................... 52
</TABLE>
[LOGO]
$1,132,684,180
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
GINNIE MAE
GUARANTEED REMIC
PASS-THROUGH SECURITIES
AND MX SECURITIES
GINNIE MAE REMIC TRUST 1998-14
------------------------------------------------------
OFFERING CIRCULAR SUPPLEMENT
------------------------------------------------------
BEAR, STEARNS & CO. INC.
THE WILLIAMS CAPITAL GROUP, L.P.
JUNE 24, 1998
================================================================================
<PAGE> 361
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 10, 1996)
$54,672,353
BEAR STEARNS MORTGAGE SECURITIES INC.
PASS-THROUGH CERTIFICATES,
SERIES 1997-3
The Pass-Through Certificates, Series 1997-3 (the "Certificates"), consist
of the Class identified in the chart below. It is a condition to their issuance
that the Certificates receive a rating of "Aaa" from Moody's Investors Service,
Inc. ("Moody's") and a rating of "AAA" from Fitch Investors Service, L.P.
("Fitch"). See "Summary of Terms -- Certificate Rating".
Prospective investors should consider the factors set forth on page S-3 and
under "Yield and Prepayment Considerations."
(cover continued on next page)
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN BSMSI,
THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES. THE CERTIFICATES ARE NOT
INSURED OR GUARANTEED BY ANY GOVERNMENTAL ENTITY, BSMSI OR ANY OF THEIR
AFFILIATES, OR ANY OTHER PERSON. DISTRIBUTIONS ON THE CERTIFICATES WILL BE
PAYABLE SOLELY FROM ASSETS TRANSFERRED OR PLEDGED TO THE TRUST FOR THE
BENEFIT OF THE CERTIFICATEHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INITIAL PRINCIPAL AMOUNT PASS-THROUGH RATE
Class A-1 $54,672,353 (1)
Certificates
- - ---------------
(1) The effective per annum interest rate borne by the Certificates
during each Interest Accrual Period (as defined herein) with
respect to a Distribution Date (as defined herein) will equal a
fraction, expressed as a percentage truncated at the fourth
decimal place, the numerator of which is equal to the aggregate
amount in respect of interest paid to the Certificateholders for
the related Interest Accrual Period multiplied by 12, and the
denominator of which is the principal amount of the Certificates
immediately prior to such Distribution Date. Under certain
circumstances, the principal amount of the Certificates could be
paid in full while interest would remain payable, in which case,
the calculation of the effective per annum interest rate borne by
the Certificates would not be meaningful. The effective per annum
interest rate borne by the Certificates during the first Interest
Accrual Period is projected to be approximately 11.5328%.
The Certificates will be purchased by Bear, Stearns & Co. Inc. (the
"Underwriter") from Bear Stearns Mortgage Securities, Inc. ("BSMSI") and will be
offered by the Underwriter from time to time in negotiated transactions at
varying prices to be determined at the time of sale. Proceeds to BSMSI from the
sale of the Certificates are expected to be approximately 100.4% of the
aggregate principal balance of the Certificates, plus accrued interest thereon
from March 25, 1997 to but not including the Closing Date, but before deducting
expenses payable by BSMSI, estimated to be $200,000.
The Certificates are offered by the Underwriter when, as and if issued,
delivered to and accepted by the Underwriter and subject to certain other
conditions. Delivery of the Certificates is expected to be made in book entry
form only, through the same day funds settlement system of The Depository Trust
Company on or about March 27, 1997.
BEAR, STEARNS & CO. INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MARCH 25, 1997
<PAGE> 362
(cover continued from previous page)
The Certificates will represent, in the aggregate, the entire beneficial
ownership interest in a trust (the "Trust") consisting primarily of all or a
portion of (i) three classes of Guaranteed REMIC Pass-Through Certificates
issued by the Federal National Mortgage Association ("FNMA") representing
beneficial ownership interests in three separate FNMA REMIC Trusts (the "FNMA
REMIC Certificates"), (ii) one class of Stripped Mortgage-Backed Securities
issued by FNMA (the "FNMA SMBS" and together with the FNMA REMIC Certificates,
the "Pooled FNMA Certificates") and (iii) seven classes of Multiclass Mortgage
Securities, Multiclass Mortgage Participation Certificates, or Modifiable and
Combinable REMIC Certificates ("MACRs") issued by the Federal Home Loan Mortgage
Corporation ("FHLMC") as part of six separate series of such securities or
certificates (the "Pooled FHLMC Certificates" and together with the Pooled FNMA
Certificates, the "Pooled Certificates"). The designations used herein for each
Pooled Certificate is set forth under "Description of the Pooled Certificates -
General" and the characteristics of the Pooled Certificates are described herein
under "Description of the Pooled Certificates" and in Annex 1 and Annex 2
attached hereto.
The Pooled FNMA Certificates are guaranteed as to timely distribution of
principal and interest by FNMA, except to the extent set forth under
"Description of the Pooled Certificates - Pooled FNMA 93-246/F Certificates."
The Pooled FHLMC Certificates are guaranteed as to the timely payment of
interest at the rates described herein and the payment of the principal amount
of the Pooled FHLMC Certificates.
The Pooled FNMA Certificates are each one class of four separate series of
FNMA SMBS or FNMA REMIC Certificates (each, an "Underlying FNMA Series") which
represent beneficial ownership interests in separate trusts established by FNMA
(the "Underlying FNMA Trusts"). The assets of the Underlying FNMA Trusts consist
of direct or indirect beneficial ownership interests in certain FNMA MBS and/or
certain "fully modified pass-through" mortgage backed securities ("GNMA
Certificates") guaranteed as to timely payment of principal and interest by the
Government National Mortgage Association. Each FNMA MBS represents a beneficial
ownership interest in a pool of first lien, single-family, fixed rate
residential mortgage loans having the characteristics described herein. Each
GNMA Certificate is based on and backed by a pool of first lien, single-family,
fixed-rate residential mortgage loans (together with the mortgage loans
underlying the FNMA MBS, the "FNMA Mortgages") which are either insured by the
Federal Housing Administration or partially guaranteed by the Department of
Veterans Affairs.
The Pooled FHLMC Certificates are each one class of six separate series of
FHLMC Multiclass Mortgage Securities, Multiclass Mortgage Participation
Certificates, or MACRs (each, an "Underlying FHLMC Series" and together with the
Underlying FNMA Series, each an "Underlying Series") which receive payments from
the cash flows provided by separate groups of FHLMC Gold Mortgage Participation
Certificates ("Gold PCs") and/or FHLMC Gold Giant Mortgage Participation
Certificates ("Gold Giant PCs") or by GNMA Certificates. Underlying the Gold PCs
and Gold Giant PCs are pools of fixed-rate, first lien, residential mortgages
and mortgage participations ("FHLMC Mortgages").
Four classes of the Pooled Certificates are entitled to receive
distributions of or accrue interest on the principal balance or notional
principal balance thereof at fixed rates of interest ("Pooled Fixed Rate
Certificates"). One class of the Pooled Certificates is entitled to receive
distributions of interest on the principal balance thereof based on a formula
that varies directly with the London interbank offered quotations for one-month
Euro dollar deposits ("LIBOR"), subject to minimum and maximum rates and to cash
flows from the securities included in the applicable Underlying FNMA Trust
("Pooled Floating Rate Certificates"). Six classes of the Pooled Certificates
are entitled to receive distributions of interest on the principal or notional
principal balance thereof based on separate formulae that vary inversely with
LIBOR, subject to minimum and maximum rates ("Pooled Inverse Floating Rate
Certificates"). Four of the classes of the Pooled Certificates are "interest
only" certificates ("Pooled IO Certificates"). Two of the classes of the Pooled
FNMA Certificates are accrual classes ("Z Classes").
Distributions of principal and interest on the Certificates with respect to
a month will be made on the 25th day of such month (each, a "Distribution Date")
or, if such day is not a Business Day (as defined herein), then on the next
succeeding Business Day. A "Business Day" means a day other than a Saturday, a
Sunday or a day on which banking institutions in New York, New York or the city
in which the corporate trust office of the Trustee is located are authorized or
obligated by law or executive order to be closed. On each Distribution Date,
holders of Certificates will be entitled to receive interest from funds received
as interest on the Pooled Certificates and principal from funds received as
principal on the Pooled Certificates, as more fully described herein under
"Description of the Certificates".
THE CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS. IN
PARTICULAR, NO INVESTOR SHOULD PURCHASE CERTIFICATES UNLESS THE INVESTOR
UNDERSTANDS AND IS ABLE TO BEAR THE PREPAYMENT, YIELD, LIQUIDITY AND MARKET
RISKS ASSOCIATED WITH THE CERTIFICATES.
The Certificates are complex securities and it is important that each
investor in the Certificates possess, either alone or together with an
investment advisor, the expertise necessary to evaluate the information
contained and incorporated in this Prospectus Supplement in the context of that
investor's financial situation.
<PAGE> 363
The yield to maturity on the Certificates will depend on the purchase price
and the rate and timing of principal payments on the Pooled Certificates which
in turn will be affected by the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations) on the FNMA Mortgages and
the FHLMC Mortgages (collectively, the "Mortgage Loans" and with respect to any
Pooled Certificates, the "Underlying Mortgage Loans" or a "Mortgage Pool").
Generally, the Mortgage Loans may be prepaid at any time without penalty. The
yield to maturity on the Certificates will also be sensitive to the level of
LIBOR. Mortgage Loan prepayment rates are likely to fluctuate significantly from
time to time as is the level of LIBOR. Investors should consider the associated
risks, including:
. Low levels of LIBOR can reduce the interest due on the Pooled
Floating Rate Certificates. High levels of LIBOR can
significantly reduce the interest due on the Pooled Inverse
Floating Rate Certificates. Generally, a high level of LIBOR
will have a negative effect on the yield to investors in the
Certificates.
. If the notional principal balances of the Pooled IO
Certificates are reduced to zero (or, alternatively, in the
case of the Pooled Inverse Floating Rate Certificates, if
increased LIBOR levels reduce the interest rate payable on
such certificates to zero), interest payments on the
Certificates will be significantly reduced.
. Slight variations in Mortgage Loan characteristics could
substantially affect the weighted average lives and yields of
the Certificates.
. The Pooled Certificates were issued as parts of different
Underlying Series and the rates of prepayments on the
Underlying Mortgage Loans will be different. Under various
circumstances, including differing prepayment rates of the
Underlying Mortgage Loans, the Pooled FNMA Certificates or
the Pooled FHLMC Certificates could mature at times other
than expected by investors and the Certificates could take on
a cash flow profile different from that expected by
investors. For example, if the Pooled Fixed Rate Certificates
and the Pooled Floating Rate Certificates were to mature
prior to the maturity of one or more of the Pooled Inverse
Floating Rate Certificates, the Certificates would at that
point have the yield characteristics of an inverse floating
rate security.
. If, on any Distribution Date, the amount by which the Z Classes
have accreted exceeds the aggregate distributions of
principal on the other Pooled Certificates, the Class Balance
of the Certificates will be increased by the amount of such
excess.
. The yield to investors in the Certificates can be expected to
decrease to the extent that the notional principal balances
of the Pooled IO Certificates reduce faster than anticipated.
. The yield to maturity of Certificates purchased at a discount
or premium will be more sensitive to the rate and timing of
payments thereon. Holders of Certificates purchased at a
discount (or premium) should consider the risk that a slower
(or faster) than anticipated rate of principal payments to
the Certificates could result in an actual yield that is
lower than the anticipated yield.
<PAGE> 364
To the extent statements contained herein do not relate to historic or
current information, this Prospectus Supplement may be deemed to contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "1933 Act"), and Section 21E of the Securities and
Exchange Act of 1934, as amended (the "1934 Act"). Actual results could differ
materially from those projected in such statements as a result of the matters
set forth below, under "Summary of Terms -- Yield and Prepayment Considerations"
and "Yield and Prepayment Considerations" and elsewhere in this Prospectus
Supplement.
There is currently no secondary market for the Certificates and there can
be no assurance that one will develop. The Underwriter intends to establish a
market in the Certificates, but is not obligated to do so. There is no assurance
that any such market, if established, will continue.
No election will be made to treat the Trust or any of its assets as a "real
estate mortgage investment conduit" ("REMIC") for Federal income tax purposes.
Certificates offered by this Prospectus Supplement constitute a separate
series of Certificates being offered by BSMSI pursuant to its Prospectus dated
October 10, 1996, of which this Prospectus Supplement is a part and which
accompanies this Prospectus Supplement. The Prospectus contains important
information regarding this offering which is not contained herein and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full. Prospective investors are also urged to read the documents
relating to the Pooled Certificates described under "Description of the Pooled
Certificates -- Additional Information."
<PAGE> 365
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying prospectus dated October 10, 1996 (the "Prospectus"). A
description of the Pooled Certificates being deposited into the Trust is set
forth under "Description of the Pooled Certificates -- General". Unless
otherwise specified herein, references herein to an amount or percentage of
Pooled Certificates refers to the amount or percentage calculated based on the
aggregate outstanding principal balance or notional principal balance as
reported by the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC") with respect to the Underlying Series
(in the case of the Pooled Certificates, other than the Pooled IO Certificates,
"Pooled Certificate Principal Balance") of such Pooled Certificates as of March
25, 1997 in the case of the Pooled FNMA Certificates, except for the Pooled FNMA
97-G2/Z Certificates, which is as of March 17, 1997, and March 15, 1997 in the
case of the Pooled FHLMC Certificates , except for the Pooled FHLMC G003/SA
Certificates, which is as of March 25, 1997, in each case, after giving effect
to distributions made on the Pooled Certificates on or prior to such dates.
Title of Series..................... Pass-Through Certificates, Series
1997-3, Class A-1 (the "Certificates").
Trust................................The Certificates will represent
the entire beneficial ownership
interest in a trust (the "Trust")
formed pursuant to a Pooling Agreement
(the "Agreement") between Bear Stearns
Mortgage Securities Inc., as depositor
("BSMSI" or the "Depositor"), and First
Trust National Association, as trustee
(the "Trustee"). BSMSI is an affiliate
of Bear, Stearns & Co. Inc. (the
"Underwriter"). See "The Seller" in the
Prospectus.
Book-Entry;
Denominations.........................The Certificates will be
registered as a single Certificate held
by a nominee of The Depository Trust
Company ("DTC"), and beneficial
interests will be held by investors
through the book-entry facilities of
DTC in minimum denominations of $25,000
and increments of $1 in excess thereof.
Notwithstanding the foregoing, one
Certificate may be held by investors in
a different denomination to accommodate
the remainder of the initial principal
amount of the Certificates. See
"Description of the Certificates --
Book Entry; Physical Certificates"
herein.
Pooled Certificates..................The Trust will include primarily the
Pooled Certificates, which will consist
of all or a portion of (i) three
classes of Guaranteed REMIC
Pass-Through Certificates issued by
FNMA representing beneficial ownership
interests in three separate FNMA REMIC
Trusts (the "FNMA REMIC Certificates"),
(ii) one class of Stripped Mortgage-
Backed Securities issued by FNMA (the
"FNMA SMBS" and together with the FNMA
REMIC Certificates, the "Pooled FNMA
Certificates") and (iii) seven classes
of Multiclass Mortgage Securities,
Multiclass Mortgage Participation
Certificates, or MACRs issued by FHLMC
as part of six separate series of such
securities or certificates (the "Pooled
FHLMC Certificates" and together with
the Pooled FNMA Certificates, the
"Pooled Certificates"). The
designations used herein for each
Pooled Certificate is set forth under
"Description of the Pooled Certificates
- General" and the characteristics of
the Pooled Certificates are described
herein under "Description of the Pooled
Certificates" and in Annex 1 and Annex
2 attached hereto.
The Pooled FNMA Certificates are
guaranteed as to timely distribution of
principal and interest by FNMA, except
to the extent set forth under
"Description of the Certificates Pooled
FNMA 93- 246/F Certificates." FHLMC
guarantees to the record holder of the
Pooled FHLMC Certificates the timely
payment of interest at the rates
described herein and the payment of the
principal amount of the Pooled FHLMC
Certificates. See "Description of the
Pooled Certificates -- Pooled FHLMC
Certificates - General."
<PAGE> 366
The Pooled FNMA Certificates are each
one class of four separate series of
FNMA SMBS or FNMA REMIC Certificates
(each, an "Underlying FNMA Series")
which represent beneficial ownership
interests in separate trusts
established by FNMA (the "Underlying
FNMA Trusts"). The assets of the
Underlying FNMA Trusts are direct or
indirect beneficial ownership interests
in certain FNMA MBS and certain "fully
modified pass-through" mortgage backed
securities ("GNMA Certificates")
guaranteed as to timely payment of
principal and interest by the
Government National Mortgage
Association ("GNMA"). Each FNMA MBS
represents a beneficial ownership
interest in a pool of first lien,
single-family, fixed rate residential
mortgage loans having the
characteristics described herein. Each
GNMA Certificate is based on and backed
by a Pool of first lien, single-family,
fixed-rate residential mortgage loans
(together with the mortgage loans
underlying the MBS, the "FNMA
Mortgages") which are either insured by
the Federal Housing Administration
("FHA") or partially guaranteed by the
Department of Veterans Affairs ("VA").
See "Description of the Pooled
Certificates" herein for additional
information concerning the FNMA Pooled
Certificates.
The Pooled FHLMC Certificates are
each one class of six separate series
of FHLMC Multiclass Mortgage
Securities, Multiclass Mortgage
Participation Certificates, or MACRs
(each, an "Underlying FHLMC Series"
and, with the Underlying FNMA Series,
each an "Underlying Series") will
receive payments from the cash flows
provided by separate groups of FHLMC
Gold Mortgage Participation
Certificates ("Gold PCs") and/or FHLMC
Gold Giant Mortgage Participation
Certificates ("Gold Giant PCs" ) or by
GNMA Certificates. Underlying the Gold
PCs and Gold Giant PCs are pools of
fixed-rate, first lien, residential
mortgages and mortgage participations
(the "FHLMC Mortgages").
Each Underlying Series was issued
pursuant to a separate agreement (each,
an "Underlying Agreement").
In the case of the Pooled FNMA
Certificates, the distribution date is
the 25th day of each month and, in the
case of the Pooled FNMA 97- G2/Z
Certificates, the distribution date is
the 17th day of each month (in each
case, the "FNMA Pooled Certificate
Distribution Date") and, in the case of
the Pooled FHLMC Certificates, the
distribution date is the 15th day of
each month and, in the case of the
Pooled FHLMC G003/SA Certificates, the
distribution date is the 25th day of
each month (in each case, the "FHLMC
Pooled Certificate Distribution Date"
and, with the FNMA Pooled Certificate
Distribution Date, a "Pooled
Certificate Distribution Date") or if,
in each case, such day is not a
business day as defined in the
applicable Underlying Agreement then
the next succeeding business day, as so
defined in each case.
<PAGE> 367
Four classes of the Pooled
Certificates are entitled to receive
distributions of or accrue interest on
the principal balance or notional
principal balance thereof at fixed
rates of interest ("Pooled Fixed Rate
Certificates"). One class of the Pooled
Certificates is entitled to receive
distributions of interest on the
principal balance thereof based on a
formula that varies directly with the
London interbank offered quotations for
one-month Euro dollar deposits
("LIBOR"), subject to minimum and
maximum rates and to cash flows from
the securities included in the
applicable Underlying FNMA Trust
("Pooled Floating Rate Certificates").
Six classes of the Pooled Certificates
are entitled to receive distributions
of interest on the principal or
notional principal balance thereof
based on separate formulae that vary
inversely with LIBOR, subject to
minimum and maximum rates ("Pooled
Inverse Floating Rate Certificates").
Four of the classes of the Pooled
Certificates are "interest only"
certificates ("Pooled IO
Certificates"). Two of the classes of
Pooled Certificates are Z Classes (as
defined herein).
Annex 2 hereto contains the
Prospectus Supplements for each of the
Pooled FNMA Certificates, except for
the Pooled FNMA 97-G2/Z Certificates,
for which it contains the cover page
and the reference sheet (the
"Underlying FNMA Prospectus
Information"), and the cover page and
terms sheet from the Offering Circular
Supplements for each of the Pooled
FHLMC Certificates (the "Underlying
FHLMC Offering Circular Term Sheets"
and together with the Underlying FNMA
Prospectus Information, the "Underlying
Prospectus Information"). The
Prospectuses underlying the Prospectus
Supplements for each of the Pooled FNMA
Certificates are incorporated herein by
reference, and the Offering Circular
Supplements and the related Offering
Circulars for each of the Pooled FHLMC
Certificates are incorporated herein by
reference. The related Prospectuses and
Offering Circulars are hereinafter
referred to as the "Underlying
Prospectuses." Investors should
purchase Certificates only if they have
read and understood this Supplement,
the Prospectus, the Underlying
Prospectus Information and the other
documents described under "Description
of the Pooled Certificates--Additional
Information."
It should be noted that there have
been material changes in facts and
circumstances since the dates of the
Underlying Prospectus Information,
including changes in prepayment rates,
prevailing interest rates and other
economic factors, which may limit the
usefulness of, and be directly contrary
to the assumptions used in preparing
the information set forth in, such
documents.
Annex 1 hereto sets forth approximate
information for each of the Pooled
Certificates. The tables and the
descriptions of the Pooled Certificates
herein are subject to and qualified by
reference to the provisions of the
Underlying Prospectus Information and
the other documents related to the
Pooled Certificates or the other
mortgage- backed securities issued as
part of the Underlying Series. THE
INFORMATION SET FORTH IN THE TABLES AND
ELSEWHERE HEREIN HAS BEEN DERIVED FROM
FNMA AND FHLMC, BUT SUCH INFORMATION
HAS NOT BEEN INDEPENDENTLY VERIFIED.
THIS INFORMATION COMPRISES ALL MATERIAL
INFORMATION ON THE SUBJECT THAT THE
DEPOSITOR AND THE UNDERWRITER POSSESS
OR CAN ACQUIRE WITHOUT UNREASONABLE
EFFORT AND EXPENSE.
<PAGE> 368
Closing Date......................... On or about March 27, 1997 (the "Closing
Date").
Distribution Dates................... Distributions of principal and
interest on the Certificates with
respect to a month will be made on the
25th day of such month (each, a
"Distribution Date") or, if such day is
not a Business Day (as defined herein),
then on the next succeeding Business
Day. A "Business Day" means a day other
than a Saturday, a Sunday or a day on
which banking institutions in New York,
New York or the city in which the
corporate trust office of the Trustee
is located are authorized or obligated
by law or executive order to be closed.
The first Distribution Date is expected
to be April 25, 1997. In addition, if
the Trustee has not received a
distribution on, or distribution
information with respect to, any of the
Pooled Certificates by noon on the
Distribution Date (the "Determination
Time"), the distribution allocable to
such Pooled Certificates will not be
made on the Distribution Date, but, (i)
if such distribution and such
distribution information are received
by noon on the third Business Day after
the Determination Time, it will be made
on the third Business Day after the
Determination Time (a "Supplemental
Distribution Date") or (ii) if received
after noon on the third Business Day
after the Determination Time, it will
be made on the next succeeding
Distribution Date, and in neither case
will additional interest be paid
thereon.
Record Date..........................Distributions will be made on each
Distribution Date to holders of record
as of the close of business on the last
Business Day of the calendar month
preceding the month in which such
Distribution Date occurs; provided that
for this purpose the Distribution Date
is deemed to occur on the 25th of each
month, without regard to whether such
day is a Business Day (the "Record
Date"). See "Description of the
Certificates -- Distributions of
Interest and Principal."
Original Principal Amount............The initial aggregate principal
amount of the Certificates (the
"Original Principal Balance") will be
equal to the Pooled Certificate
Principal Balance of the Pooled
Certificates following the March 1997
Pooled Certificate Distribution Date.
Distributions of Interest
and Principal........................The effective per annum interest
rate borne by the Certificates during
the one month period beginning on the
25th day of the month preceding the
month of the Distribution Date and
ending on the 24th day of the month of
the Distribution Date (each, an
"Interest Accrual Period") will equal a
fraction, expressed as a percentage
truncated at the fourth decimal place,
the numerator of which is equal to the
aggregate amount in respect of interest
paid to the Certificateholders for the
related Interest Accrual Period
multiplied by 12, and the denominator
of which is the principal amount of the
Certificates immediately prior to such
Distribution Date. Under certain
circumstances, the principal amount of
the Certificates could be paid in full
while interest would remain payable, in
which case, the calculation of the
effective per annum interest rate borne
by the Certificates would not be
meaningful. The effective per annum
interest rate borne by the Certificates
during the first Interest Accrual
Period is projected to be approximately
11.5328%.
On each Distribution Date, holders of
the Certificates will be entitled to
receive interest from funds received as
interest on the Pooled Certificates and
principal from funds received as
principal on the Pooled Certificates,
as more fully described herein under
"Description of the Certificates."
Optional Termination by
the Depositor......................The Trust may be terminated, at
the option of the Depositor on any
Distribution Date on or after the date
on which the aggregate Pooled
Certificate Principal Balance has
declined to 10% or less of the
aggregate Pooled Certificate Principal
Balance on the Closing Date. In such
event, the Certificateholders will
receive the unpaid principal balance of
the Certificates plus accrued interest
thereon [plus, in the case of the
Pooled FNMA 93-246/F Certificates, any
Interest Deficiency (as defined herein)
and interest thereon as described under
"Description of the Pooled Certificates
-- Pooled FNMA 93-246/F Certificates."
See "Description of the Certificates --
Optional Termination."
<PAGE> 369
Mandatory Termination..............The Trust will be terminated on the
Distribution Date following the first
Distribution Date on which the
principal balance or the notional
principal balance of all but one of the
Pooled Certificates has been reduced to
zero and, in the case of the Pooled
FNMA 93- 246/F Certificates, if the
principal balance of such Pooled FNMA
93-246/F Certificates has been reduced
to zero and no further amount is
payable in respect of any Interest
Deficiency and interest thereon. See
"Description of the Certificates --
Mandatory Termination."
Exchange of Certificates...........Beginning on the Distribution Date
in April 1998, holders of a minimum of
10% of the outstanding principal amount
of the Certificates will be entitled to
exchange such Certificates for a pro
rata portion of each of the Pooled
Certificates. Holders of Certificates
to be exchanged will be charged an
exchange fee by the Trustee equal to
the greater of (i) $500 and (ii) 0.02%
of the outstanding principal amount of
such Certificates.
Yield and Prepayment
Considerations.......................General Considerations. The yield
to maturity and weighted average life
of the Certificates will be affected
by, among other things, the amount and
timing of principal and interest
payments, the level of LIBOR, the
payment priorities and other
characteristics of the Pooled
Certificates, the occurrence of an
optional or mandatory termination with
respect to the Pooled Certificates and
the purchase price paid for the
Certificates. In addition to the
discussion below, prospective investors
should review the discussion under
"Yield and Prepayment Considerations"
herein.
Mortgage Loan Prepayments. If
prevailing mortgage rates fall
significantly below the mortgage rates
on the FNMA Mortgages or the FHLMC
Mortgages (collectively, the "Mortgage
Loans" and with respect to any Pooled
Certificates, the "Underlying Mortgage
Loans" or a "Mortgage Pool"), the
Mortgage Loans are likely to be subject
to higher prepayment rates than if
prevailing rates remain at or above the
mortgage rates on the Mortgage Loans.
Other factors affecting prepayments of
Mortgage Loans include changes in
mortgagors' housing needs, job
transfers, unemployment, net equity in
the mortgaged properties and servicing
decisions. The Mortgage Loans may be
prepaid at any time without penalty and
usually have due-on-sale clauses. Since
FNMA and FHLMC guarantee the timely
payment of installments of principal of
and interest on the respective
Underlying Mortgage Loans, losses in
respect of the respective Underlying
Mortgage Loans will have the effect of
a prepayment.
Timing of Payments. The timing and
amount of payments on the Mortgage
Loans may significantly affect an
investor's yield. In general, the
earlier a prepayment of principal on a
Mortgage Loan, the greater will be the
effect on an investor's yield to
maturity. As a result, the effect on an
investor's yield of principal
prepayments occurring at a rate higher
(or lower) than the rate anticipated
during the period immediately following
the issuance of the Certificates will
not be offset by a subsequent like
reduction (or increase) in the rate of
principal prepayments.
Underlying Securities. The Trust
contains Pooled Certificates which were
issued at different times, are backed
by different Mortgage Pools, have
different allocations of principal and
interest among various classes and will
perform differently in various interest
and prepayment rate environments. In
addition, certain of the Pooled
Certificates are backed by underlying
securities that are also unrelated. The
performance characteristics of the
Certificates will reflect a combination
of the performance characteristics of
the Pooled Certificates. As a result,
it may be more difficult to analyze the
likely yield and payment experience of
the Certificates.
Discounts and Premiums. In the case
of any Certificates purchased at a
discount, a slower than anticipated
rate of principal payments to the
Certificates, other things being equal,
could result in an actual yield that is
lower than the anticipated yield. In
the case of any Certificates purchased
at a premium, a faster than anticipated
rate of principal payments to the
Certificates, other things being equal,
could result in an actual yield that is
lower than the anticipated yield.
<PAGE> 370
Reinvestment Risk. Since prevailing
interest rates are subject to
fluctuation, there can be no assurance
that investors in the Certificates will
be able to reinvest the distributions
thereon at yields equaling or exceeding
the yield on the Certificates. Yields
on any such reinvestments may be lower,
and may even be significantly lower,
than the yield on the Certificates.
Generally, when prevailing interest
rates increase, prepayment rates on
mortgage loans tend to decrease,
resulting in a reduced return of
principal to investors at a time when
reinvestment at such higher prevailing
rates would be desirable. Conversely,
when prevailing interest rates decline,
prepayment rates on mortgage loans tend
to increase, resulting in a greater
return of principal to investors at a
time when reinvestment at comparable
yields may not be possible. Prospective
investors in the Certificates should
consider the related reinvestment risks
in light of other investments that may
be available to such investors.
Pooled FNMA 93-246/F Certificates. The
amount of interest distributions on the
Pooled FNMA 93-246/F Certificates is
dependent on the level of LIBOR and on
amounts available from cash flows on
the securities held in the Underlying
FNMA REMIC Trust of which the Pooled
FNMA 93-246/F Certificates represent a
beneficial interest. There can be no
assurance as to whether holders of the
Pooled FNMA 93-246/F Certificates will
in the future receive full
distributions of interest at the rate
calculated according to their interest
rate formula on a timely basis or as to
the payment of any of the Interest
Deficiency (as defined herein).
Notional Balances. Four classes of
Pooled Certificates have notional
principal balances which reduce
proportionately with the aggregate
outstanding principal balances of
certain related classes in the same
Underlying Series (the "Related
Certificates"). Accordingly, the amount
and timing of payments on such Pooled
Certificates, and accordingly the yield
on the Certificates, will be sensitive
to the rate and timing of principal
payments on such Related Certificates.
Relatively fast prepayments of the
underlying Mortgages may significantly
shorten, and relatively slow underlying
Mortgage prepayments may significantly
extend, the life of the Related
Certificates and therefore the Pooled
IO Certificates. Generally, a rapid
rate of principal prepayments on the
Mortgages will have a negative effect
on the yield on the Certificates.
Similarly, the exercise of any optional
redemption rights with respect to the
Underlying Series of which any of the
Pooled Certificates are a part may have
a negative effect on the yield on the
Certificates. If the life of any of the
Related Certificates is significantly
shortened, the life of the related
Pooled IO Certificates will be
significantly shortened and the yield
to investors in the Certificates can be
expected to decrease.
LIBOR. The amount of interest payable on the
Pooled Floating Rate Certificates will
be sensitive, and the amount of
interest payable on the Pooled Inverse
Floating Rate Certificates will be
highly sensitive, to the level of
LIBOR. In general, a high level of
LIBOR will reduce the yield to
investors in the Certificates. In
addition, a high rate of principal
payments (including prepayments) on the
Mortgage Loans underlying the Pooled
Inverse Floating Rate Certificates
and/or a high level of LIBOR will have
a materially negative effect on the
amount of interest payable on the
Pooled Inverse Floating Rate
Certificates.
Unrelated Underlying Securities. The assets
of the Trust consist of only the Pooled
FNMA Certificates and the Pooled FHLMC
Certificates. Because each of the
Pooled Certificates were issued as
parts of different Underlying Series,
the rates of prepayment of each of the
Pooled Certificates will be different
from the rates of prepayment on each of
the other Pooled Certificates. Under
various circumstances, the principal
balance or the notional principal
balance of one or more of the Pooled
Certificates could be reduced to zero
prior to the other Pooled Certificates.
In addition, either one or more of the
Pooled Certificates could be
repurchased as described under "The
Pooling Agreement -- Assignment of
Pooled Certificates" or any of the
Underlying Agreements could be
terminated. In such event, the Trust
might consist solely of one or more of
the Pooled FNMA Certificates or one or
more of the Pooled FHLMC Certificates,
or a combination thereof, and investors
would be exposed to the risk that the
Certificates could take on a cash flow
profile different from that expected by
investors. For example, if the Pooled
Fixed Rate Certificates and the Pooled
Floating Rate Certificates were to
mature prior to the maturity of one or
more of the Pooled Inverse Floating
Rate Certificates, the Certificates
would at that point have the yield
characteristics of an inverse floating
rate security.
Liquidity............................There is currently no secondary
market for the Certificates, and there
can be no assurance that one will
develop. The Underwriter intends to
establish a market in the Certificates,
but it is not obligated to do so. There
is no assurance that any such market,
if established, will continue. Each
Certificateholder will receive monthly
reports pertaining to the Certificates
as described under "The Pooling
Agreement -- Reports to
Certificateholders" herein. There are a
limited number of sources which provide
certain information about mortgage
pass-through certificates in the
secondary market; however, there can be
no assurance that any of these sources
will provide information about the
Certificates. Investors should consider
the effect of limited information on
the liquidity of the Certificates.
<PAGE> 371
Certain Federal Income Tax
Consequences.........................No election will be made to treat
the Trust as a real estate mortgage
investment conduit (a "REMIC") for
federal income tax purposes. For
federal income tax purposes, the Trust
will be classified as a grantor trust
under Subpart E, part I of Subchapter J
of the Code and not as a partnership or
as an association taxable as a
corporation. See "Federal Income Tax
Considerations" herein and "Certain
Federal Income Tax Consequences --
Non-REMIC Certificates" in the
Prospectus.
ERISA Considerations.................Fiduciaries of employee benefit
plans subject to Title I of the
Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), should
consider the ERISA fiduciary investment
standards before authorizing an
investment by a plan in the
Certificates. In addition, fiduciaries
of employee benefit plans or other
retirement arrangements (such as
individual retirement accounts or
certain Keogh plans) which are subject
to Title I of ERISA, and/or Section
4975 of the Code, as well as any
entity, including an insurance company
general account, whose underlying
assets include plan assets by reason of
a plan or account investing in such
entity (collectively, "Plan(s)"),
should consult with their legal counsel
to determine whether an investment in
the Certificates will cause the assets
of the Trust ("Trust Assets") to be
considered plan assets pursuant to the
plan asset regulations set forth in 29
C.F.R. ' 2510.3-101, thereby subjecting
the Plan to the prohibited transaction
rules with respect to the Trust Assets
and the Trustee to the fiduciary
investment standards of ERISA, or cause
the excise tax provisions of Section
4975 of the Internal Revenue Code of
1986, as amended (the "Code") to apply
to the Trust Assets, unless some
exemption granted by the Department of
Labor applies to the acquisition,
holding or transfer of the
Certificates.
Subject to the considerations set
forth under "ERISA Considerations"
herein and in the Prospectus, the
purchase or holding of the Certificates
by, on behalf of, or with plan assets
of, a Plan may qualify for exemptive
relief under Prohibited Transaction
Exemption 90-30.
Legal Investment.....................Institutions whose investment
activities are subject to legal
investment laws and regulations or to
review by certain regulatory
authorities may be subject to
restrictions on investment in the
Certificates. Any such institution
should consult its legal advisors in
determining whether and to what extent
there may be restrictions on its
ability to invest in the Certificates.
The Certificates will constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984
("SMMEA"). See "Legal Investment"
herein and in the Prospectus.
Rating...............................As a condition of their issuance,
the Certificates will be rated "Aaa" by
Moody's and "AAA" by Fitch. Moody's and
Fitch are referred to herein as the
"Rating Agencies."
The ratings of the Certificates should
be evaluated independently from similar
ratings on other types of securities. A
rating is not a recommendation to buy,
sell or hold securities and may be
subject to revision or withdrawal at
any time by the rating Agencies. See
"Ratings" herein.
BSMSI has not requested a rating
of the Certificates by any rating
agency other than the Rating Agencies.
However, there can be no assurance as
to whether any other rating agency will
rate the Certificates or, if it does,
what rating would be assigned by such
other rating agency. The rating
assigned by such other rating agency to
the Certificates could be lower than
the respective ratings assigned by the
Rating Agencies.
<PAGE> 372
DESCRIPTION OF THE CERTIFICATES
The following summaries describing certain provisions of the Certificates
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the Prospectus and the provisions of the Agreement
relating to the Certificates offered hereby.
BOOK ENTRY; PHYSICAL CERTIFICATES
The Certificates will be represented by a single certificate registered in
the name of Cede & Co. ("Cede") as the nominee of DTC, and beneficial interests
therein will be held by investors through the book-entry facilities of DTC, in
minimum denominations of $25,000 and increments of $1 in excess thereof, except
that one Certificate may be held by investors in a different denomination. The
Certificate registered in the name of Cede can be held in physical certificate
form by investors only if (i) BSMSI advises the Trustee in writing that DTC is
no longer willing or able to discharge properly its responsibilities as
depository with respect to the Certificates and BSMSI is unable to locate a
qualified successor within 30 days or (ii) BSMSI, at its option, elects to
terminate the book-entry system through DTC.
With respect to the Certificate registered in the name of Cede, all
references herein to actions by holders of the Certificates shall refer to
actions taken by DTC upon instructions from its participants, and all references
herein to distributions, notices, reports and statements to holders of the
Certificates shall refer to distributions, notices, reports and statements to
DTC or Cede, as the case may be, for distribution to the beneficial owners of
the Certificates in accordance with DTC procedures. Because DTC can only act on
behalf of participants, who in turn act on behalf of indirect participants and
certain banks, the ability of a beneficial owner of a Certificate to pledge such
Certificate to persons or entities who do not participate in the DTC system may
be limited. In addition, beneficial owners of Certificates held through DTC may
experience delays in the receipt of distributions on such Certificates. The book
entry procedures of DTC are more fully described under "Description of the
Certificates -- Book-Entry Registration" in the Prospectus.
Certificates in physical certificate form will be transferable and
exchangeable on a "Certificate Register" to be maintained by the Trustee at the
office or agency of the Trustee maintained for that purpose in St. Paul,
Minnesota. Certificates surrendered to the Trustee for registration of transfer
or exchange must be accompanied by a written instrument of transfer in form
satisfactory to the Trustee. No service charge will be made for any registration
of transfer or exchange of Certificates, but payment of a sum sufficient to
cover any tax or other governmental charge may be required. Such office or
agency of the Trustee is currently located at 180 East 5th Street, St. Paul,
Minnesota 55101.
PAYMENTS OF INTEREST AND PRINCIPAL
Distributions of principal and interest on the Certificates with respect to
a month will be made on the 25th day of such month (each, a "Distribution Date")
or, if such day is not a Business Day (as defined below) then on the next
succeeding Business Day. A "Business Day" means a day other than a Saturday, a
Sunday or a day on which banking institutions in New York, New York or St. Paul,
Minnesota, the city in which the corporate trust office of the Trustee is
located, are authorized or obligated by law or executive order to be closed. The
first Distribution Date is expected to be April 25, 1997. In addition, if the
Trustee has not received a distribution on, or distribution information with
respect to, any of the Pooled Certificates by noon on the Distribution Date (the
"Determination Time"), the distribution allocable to such Pooled Certificates
will not be made on such Distribution Date, but (i) if such distribution and
such distribution information are received by noon on the third Business Day
after the Determination Time, it will be made on the third Business Day after
the Determination Time (a "Supplemental Distribution Date") or (ii) if received
after noon on the third Business Day after the Determination Time, it will be
made on the next succeeding Distribution Date, and in neither case will
additional interest be paid thereon. Notwithstanding the foregoing, for
accounting purposes, each Distribution Date is deemed to occur in the same month
as the concurrent or immediately preceding Pooled Certificate Distribution Date.
Distributions will be made on each Distribution Date to holders of record
as of the close of business on the last Business Day of the calendar month
preceding the month in which such Distribution Date occurs; provided that for
this purpose the Distribution Date is deemed to occur on the 25th of each month,
without regard to whether such day is a Business Day (the "Record Date").
The effective per annum interest rate borne by the Certificates during the
one month period beginning on the 25th day of the month preceding the month of
the Distribution Date and ending on the 24th day of the month of the
Distribution Date (each, an "Interest Accrual Period") will equal a fraction,
expressed as a percentage truncated at the fourth decimal place, the numerator
of which is equal to the aggregate amount in respect of interest paid to
Certificateholders for the related Interest Accrual Period, multiplied by 12,
and the denominator of which is the principal amount of the Certificates
immediately prior to such Distribution Date. Under certain circumstances, the
principal amount of the Certificates could be paid in full while interest would
remain payable, in which case, the calculation of the effective per annum
interest rate borne by the Certificates would not be meaningful. The effective
per annum interest rate borne by the Certificates during the first Interest
Accrual Period is projected to be approximately 11.5328%.
On each Distribution Date, holders of the Certificates will be entitled to
receive interest from funds received as interest and, to the extent described
below, principal on the Pooled Certificates, and principal from funds received
as principal on the Pooled Certificates.
The Trustee will cause all distributions received on the Pooled
Certificates by the Trustee in its capacity as holder of the Pooled
Certificates, from whatever source, to be deposited directly into one or more
accounts held in trust by the Trustee for the benefit of the Certificateholders
(such accounts referred to collectively herein as the "Certificate Account").
On each Distribution Date, the Trustee will apply the Available Funds (as
defined herein) on deposit in the Certificate Account as of such Distribution
Date, in the following manner and order of priority:
first, from amounts with respect to interest received on the Pooled
Certificates, to the Trustee, to pay the portion of the Trustee Fee not being
covered by a withdrawal from the Trustee Fee Escrow Account (as defined herein)
and, after payment of the Trustee Fee, to deposit the Escrow Amount (as defined
herein) in the Trustee Fee Escrow Account;
second, from amounts with respect to principal received on the Pooled
Certificates, to the Certificateholders, an amount with respect to principal, if
any, such that the principal balance of the Certificates after such distribution
is equal to the aggregate balance of the Pooled Certificates; and
<PAGE> 373
third, from the remaining Available Funds, to the Certificateholders as
interest.
"Available Funds" means, as of any Distribution Date, the aggregate
amount on deposit in the Certificate Account.
The "Trustee Fee" means, with respect to any Distribution Date, the
monthly fee equal to 1/12th of the product of 0.0175% and the Certificate
Balance immediately prior to the Distribution Date, but not less than $300 with
respect to any Distribution Date. In addition, an amount equal to 1/12th of the
product of .0025% and the Certificate Balance immediately prior to each
Distribution Date (the "Escrow Amount") will be deposited by the Trustee in a
separate escrow account (the "Trustee Fee Escrow Account'). The Trustee Fee
Escrow Account will not be part of the Trust. Any amount deposited in the
Trustee Fee Escrow Account will be permitted to be invested as described in the
Agreement. If on any Distribution Date, the Trustee Fee exceeds the amount of
interest received on the Pooled Certificates for such Distribution Date, the
Trustee shall withdraw the amount of the excess from the Trustee Fee Escrow
Account. If the Trustee resigns or is removed and a successor trustee is
appointed, any amounts on deposit in the Trustee Fee Escrow Account shall
thereafter be held by and for the benefit of the successor trustee. Any funds
remaining in the Trustee Fee Escrow Account upon the termination of the Trust
will be remitted to the Depositor or any successor thereto.
The full name of each abbreviated Underlying Series is set forth under
"Description of the Pooled Certificates -- General." Copies of the Underlying
Agreements are available from the Underwriter, at 245 Park Avenue New York, New
York, Attention: Mortgage Department.
Notwithstanding the foregoing, if, as described under the "The Pooling
Agreement -- Assignment of Pooled Certificates," the Depositor breaches a
representation or warranty with respect to the Pooled Certificates which
materially and adversely affects the interests of the Certificateholders and the
Depositor repurchases, or in the case of any Pooled Certificates which are not
IO Certificates elects to substitute one or more mortgage related securities
for, a Pooled Certificate, the foregoing definition will be modified with
respect to the related Distribution Date to delete the portion thereof relating
to the Pooled Certificate being repurchased or in the case of any Pooled
Certificates which are not IO Certificates substituted for and to reflect, in
the case of a repurchase, the repurchase price received with respect thereto as
described under "The Pooling Agreement -- Assignment of Pooled Certificates" or
in the case of a substitution, the addition of a comparable provision with
respect to the new mortgage related security or securities
The "Class Balance" of the Certificates means the principal amount of the
Certificates outstanding as of any date of determination, which is equal to the
Original Principal Balance of the Certificates minus all amounts received as
principal on the Pooled Certificates plus all amounts of accreted interest added
to the outstanding principal balance of the Z Classes.
If, on any Distribution Date, the amount by which the Z Classes have
accreted exceeds the aggregate distributions of principal on the other Pooled
Certificates, the Class Balance of the Certificates will be increased by the
amount of such excess.
The sole source of payment on the Certificates will be distributions on the
Pooled Certificates. The Certificates will not be guaranteed by the Depositor,
Bear, Stearns & Co. Inc., the Trustee or any other person.
OPTIONAL TERMINATION
The Trust may be terminated at the option of the Depositor on any
Distribution Date on or after the date on which the aggregate Pooled Certificate
Principal Balance has declined to 10% or less of the aggregate Pooled
Certificate Principal Balance on the Closing Date. In such event, the
Certificateholders will receive the unpaid principal balance of the Certificate
plus accrued interest thereon, plus, in the case of the Pooled FNMA 93-246/F
Certificates, any Interest Deficiency (as defined herein) and interest thereon
as described under "Description of the Pooled Certificates - Pooled FNMA
93-246/F Certificates." Following such purchase, the Available Funds then on
deposit in the Certificate Account will be disbursed to the Trustee,
Certificateholders and other persons entitled thereto, in accordance with the
terms of the Agreement.
MANDATORY TERMINATION
The Trust will be terminated on the Distribution Date following the first
Distribution Date on which the principal balance or the notional principal
balance of all but one of the Pooled Certificates has been reduced to zero and,
in the case of the Pooled FNMA 93-246/F Certificates, if the principal balance
of such Pooled FNMA 93-246/F Certificates has been reduced to zero and no
further amount is payable in respect of any Interest Deficiency and interest
thereon.
EXCHANGE OF CERTIFICATES
Beginning on the Distribution Date in April 1998, holders of a minimum of
10% of the outstanding principal amount of the Certificates will be entitled to
exchange such Certificates for a pro rata portion of each of the Pooled
Certificates. Holders of Certificates to be exchanged will be charged an
exchange fee by the Trustee equal to the greater of (i) $500 and (ii) .02% of
the outstanding principal amount of such Certificates. Holders will be required
to provide the Trustee with irrevocable written notice, accompanied by the
exchange fee, of any proposed exchange of Certificates at least five Business
Days prior to the proposed date of such exchange, which must be a Business Day.
DESCRIPTION OF THE POOLED CERTIFICATES
GENERAL
The Certificates will represent, in the aggregate, the entire beneficial
ownership interest in the Trust containing primarily the Pooled Certificates.
The following is a list of the Pooled Certificates with the designations used
herein for such Pooled Certificates and other related information.
Pooled FNMA Certificates
Guaranteed REMIC Pass-Through Certificates,
Fannie Mae REMIC Trust 1992-45, Class 45-Z
Designation: Pooled FNMA 92-45/Z Certificates
Class % in Trust: 35.29%
Principal Type: Sequential Pay
Principal Amount: $7,893,773
Interest Type: Fixed; Accrual
Interest Rate or Formula: 6.0%
Stripped Mortgage Backed Securities
Trust Number 000252-CL, Class 2
Designation: Pooled FNMA 252-CL/2 Certificates
Class % in Trust: 0.30%
Principal Type: Notional Strip
Notional Principal Amount: $4,314,176
Interest Type: Fixed; Interest Only
Interest Rate or Formula: 7.5%
<PAGE> 374
Guaranteed REMIC Pass-Through Certificates,
Fannie Mae REMIC Trust, 1993-246, Class F
Designation: Pooled FNMA 93-246/F Certificates
Class % in Trust: 48.90%
Principal Type: Cash Flow
Principal Amount: $38,190,967
Interest Type: Floating
Interest Rate or Formula: LIBOR + 1.75%; Minimum Rate:
1.75%; Maximum Rate: 11.00%
Guaranteed REMIC Pass-Through Certificates,
Fannie Mae REMIC Trust, 1997-G2, Class Z
Designation: Pooled FNMA 97-G2/Z Certificates
Class % in Trust: 13.96%
Principal Type: Targeted Amortization
Principal Amount: $2,809,532
Interest Type: Fixed; Accrual
Interest Rate or Formula: 8.5%
Pooled FHLMC Certificates
Multiclass Mortgage Securities, Series G003, Class SA
Designation: Pooled FHLMC G003/SA Certificates
Class % in Trust: 42.45%
Principal Type: Support
Principal Amount: $958,958
Interest Type: Inverse Floating
Interest Rate or Formula: 35% - (LIBOR x 4); Minimum
Rate: 0%; Maximum Rate: 35.0%
Multiclass Mortgage Participation Certificates
Series 1505, Class QB
Designation: Pooled FHLMC 1505/QB Certificates
Class % in Trust: 23.60%
Principal Type: Component/Scheduled
Principal Amount: $2,280,000
Interest Type: Inverse Floating
Interest Rate or Formula: 20.76666% - (LIBOR x 2.333333);
Minimum Rate: 0%; Maximum Rate:
20.76666 %
Multiclass Mortgage Participation Certificates
Series 1603, Class SB
Designation: Pooled FHLMC 1603/SB Certificates
Class % in Trust: 36.37%
Principal Type: Support
Principal Amount: $2,104,653
Interest Type: Inverse Floating
Interest Rate of Formula: 28.7% - (LIBOR x 3.5); Minimum Rate:
0%; Maximum Rate: 28.7%
Multiclass Mortgage Participation Certificates
Series 1723, Class SB
Designation: Pooled FHLMC 1723/SB Certificates
Class % in Trust: 20.53%
Principal Type: Support
Principal Amount: $434,470
Interest Type: Inverse Floating
Interest Rate or Formula: 43.7499853% - (LIBOR x 6.9999972);
Minimum Rate: 0%; Maximum Rate:
43.7499853%
Multiclass Mortgage Participation Certificates
Series 1869, Class TG
Designation: Pooled FHLMC 1869/TG Certificates
Class % in Trust: 47.05%
Principal Type: Notional/Targeted Amortization
Notional Principal
Amount: $10,548,406
Interest Type: Fixed; Interest Only
Interest Rate or Formula: 8.0%
Multiclass Mortgage Participation Certificates
Series 1933, Class SA
Designation: Pooled FHLMC 1933/SA Certificates
Class % in Trust: 100.00%
Principal Type: Notional/Planned Amortization
Notional Principal
Amount: $43,803,029
Interest Type: Inverse Floating; Interest Only
Interest Rate or Formula: 7.0% - LIBOR; Minimum Rate:
0%; Maximum Rate: 7.0%
Modifiable and Combinable REMIC Certificates
Series 1933, Class SG
Designation: Pooled FHLMC 1933/SG Certificates
Class % in Trust: 10.44%
Principal Type: Modifiable and Combinable/Notional/
Targeted Amortization
Notional Principal
Amount: $21,927,728
Interest Type: Inverse Floating; Interest Only
Interest Rate or Formula: 7.5% - LIBOR; Minimum Rate:
0%; Maximum Rate:7.5%
The Pooled FNMA Certificates are guaranteed as to timely distribution of
principal and interest by FNMA, except to the extent set forth under
"Description of the Pooled Certificates Pooled FNMA 93-246/F." FHLMC guarantees
to each holder of the Pooled FHLMC Certificates the timely payment of interest
at the rates described above and the payment of the principal amount of the
Pooled FHLMC Certificates.
The Pooled FNMA Certificates are each one class of four separate Underlying
FNMA Series which represent beneficial ownership interests in separate
Underlying FNMA Trusts. The assets of the Underlying FNMA REMIC Trusts consist
of direct or indirect beneficial ownership interests in certain FNMA MBS and
GNMA Certificates. Each FNMA MBS represents a beneficial ownership interest in a
pool of first lien, single-family, fixed rate residential mortgage loans having
the characteristics described herein. Each GNMA Certificate is based on and
backed by a pool of first lien, single- family, fixed-rate residential mortgage
loans which are either insured by the FHA or partially guaranteed by the VA.
The Underlying FHLMC Series will receive payments from the cash flows
provided by separate groups of Gold PCs and/or Gold Giant PCs or by GNMA
Certificates. Underlying the Gold PCs and Gold Giant PCs are pools of fixed-
rate, first lien, residential mortgages and mortgage participations.
<PAGE> 375
The Pooled FHLMC 1933/SG Certificates are MACRs. In the Agreement, the
Trustee has agreed not to exchange all or a portion of the Pooled FLHMC 1933/SG
Certificates for a related class or classes of Multiclass Mortgage Participation
Certificates pursuant to the relevant Underlying Agreement.
The distribution date for the FNMA Pooled Certificates is the 25th day of
each month (except for the Pooled FNMA 97-G2/Z Certificates, for which the
distribution date is the 17th day of each month) and the distribution date for
the FHLMC Pooled Certificates is the 15th day of each month (except for the
Pooled FHLMC G003/SA Certificates, for which the distribution date is the 25th
day of each month) or if, in each case, such day is not a business day as
defined in the applicable Underlying Agreement, then the next succeeding
business day, as so defined in each case.
Additional characteristics of the Pooled Certificates are described below
and in Annex 1 and Annex 2.
POOLED CERTIFICATES - PRINCIPAL TYPES
Certain of the Pooled Certificates were structured as planned amortization
classes ("PAC Classes"), targeted amortization classes ("TAC Classes"),
scheduled amortization classes ("Scheduled Classes") or support or companion
classes ("Support Classes").
A PAC Class is designed to receive principal payments using a predetermined
principal balance schedule (a "Planned Balance") derived by assuming two
constant prepayment rates for the underlying Mortgage Loans. These two rates are
the endpoints for the "structuring range" for the PAC Classes. A TAC Class is
designed to receive principal payments using a predetermined principal balance
schedule (a "Targeted Balance") derived by assuming a single constant prepayment
rate for the underlying Mortgage Loans. A Scheduled Class is designed to receive
principal payments using a predetermined principal balance schedule (a
"Scheduled Balance") but is not designated as a PAC or TAC Class. In many cases,
the schedule is derived by assuming two constant prepayment rates for the
underlying Mortgage Loans. These two rates are the endpoints for the
"structuring range" for the Scheduled Class. A Support Class receives principal
payments on a distribution date only if scheduled payments have been made on
specified PAC, TAC and/or Scheduled Classes and receives all excess
distributions of principal to the extent not required to make scheduled payments
on the related PAC, TAC or Scheduled Classes.
In general, since PAC, TAC or Scheduled Classes will receive distributions
of principal on a given distribution date in a pre-determined amount if
prepayments on the underlying mortgage loans occur within a certain range or at
a certain rate, distributions of principal should in such cases be relatively
stable. If prepayments on the underlying mortgage loans occur at different
rates, principal payments will be received at a greater or lesser rate. As a
result of receiving principal payments at a different rate, the weighted average
life of the PAC, TAC or Scheduled Classes will be shortened or extended. No
assurance can be given that any of the PAC, TAC or Scheduled Classes have paid
in accordance with their respective schedules or, to the extent that any such
class has done so, that such class will continue to do so in the future. No
assurance can be given that prepayments on the related underlying Mortgage Loans
will occur at a constant rate within any particular range in the future.
A sequential pay class receives principal payments in a prescribed
sequence, does not have a predetermined schedule and, in most cases, receives
payments of principal continuously from the first payment date on which it
receives principal until it retires.
A cash flow class (i) is entitled to receive the entire amount of principal
distributions on the underlying securities until it is retired and (ii) excess
interest above the amount payable under the stated formula will be applied to
principal.
POOLED CERTIFICATES - INTEREST TYPES
Four classes of the Pooled Certificates are entitled to receive
distributions of or accrue interest on the principal balance or notional
principal balance thereof at fixed rates of interest. One class of the Pooled
Certificates is entitled to receive distributions of interest on the principal
balance thereof based on a formula that varies directly with LIBOR, subject to
minimum and maximum rates and to cash flows from the securities included in the
applicable Underlying FNMA Trust. Six classes of the Pooled Certificates are
entitled to receive distributions of interest on the principal or notional
principal balance thereof based on separate formulae that vary inversely with
LIBOR, subject to minimum and maximum rates. Four of the classes of the Pooled
Certificates are "interest only" certificates.
Two classes of the Pooled FNMA Certificates are Z Classes. Z Classes
accrete all of their interest, which is added to the outstanding principal
balance. This accretion may continue until the class begins receiving principal
payments, until some other event has occurred or until the class is retired. In
the case of Pooled FNMA 92-45/Z Certificates, the accretion continues until the
principal balance of another specified class of the same Underlying FNMA Series
(Class H) has been reduced to zero. In the case of the Pooled FNMA 97-G2/Z
Certificates, the accretion continues so long as such class remains outstanding
and the accreted interest is paid as principal.
POOLED FNMA 93-246/F CERTIFICATES
The assets of the Underlying FNMA REMIC Trust of which the Pooled FNMA
93-246/F Certificates represent a beneficial interest include (i) a single
"principal only" FNMA Stripped Mortgage-Backed Security and (ii) five separate
FNMA Guaranteed REMIC Pass-Through Certificates evidencing beneficial ownership
interests in four separate FNMA REMIC Trusts. The REMIC Pass-Through
Certificates underlying Pooled FNMA 93-246/F include two principal only TAC
Classes, one floating rate class and two "interest only" inverse floating rate
classes.
The Pooled FNMA 93-256/F Certificates have several important features.
First, the interest payable is subject to the cash flows from the underlying
securities. Accordingly, the interest payable on any distribution date in
respect of the Pooled FNMA 93-246/F Certificates may be less than the amount
calculated accordingly to their interest rate formula (an "Interest
Deficiency"). Second, any excess interest payments will be used to pay
principal. Third, Interest Deficiencies may be payable after the principal
balance of the Pooled FNMA 92-246/F Certificate has been reduced to zero.
FNMA guarantees to the holders of the Pooled FNMA 93-246/F Certificates the
distribution of the principal distribution amount and the interest distribution
amount calculated as set forth in the applicable Underlying FNMA Prospectus
Supplement. The guaranty of FNMA does not cover any unpaid Interest Deficiency
carried forward once the principal balances or notional principal balances of
the underlying securities have been reduced to zero.
THE UNDERLYING MORTGAGE LOANS
The Mortgage Loans consist of conventional, fixed rate, one- to
four-family, fully-amortizing, level monthly payment, first mortgage loans with
original maturities of up to approximately 30 years.
<PAGE> 376
ADDITIONAL INFORMATION
The descriptions of the Pooled Certificates and the Mortgage Loans do not
purport to be complete. Documents relevant to the Pooled FNMA 92-45/Z
Certificates include the following:
. FNMA Prospectus for Guaranteed REMIC Pass-Through Certificates dated
January 4, 1990.
. FNMAProspectus for Guaranteed Mortgage Pass-Through Certificates
dated January 1, 1992.
. FNMA Information Statement dated November 21, 1991.
Documents relevant to the Pooled FNMA 252-CL/Z Certificates include the
following:
. FNMA Prospectus dated December 1, 1992.
Documents relevant to the Pooled FNMA 93-246/F Certificates include the
following:
. FNMA Prospectus for Guaranteed REMIC Pass-Through Certificates.
. FNMA Prospectus for Guaranteed Mortgage Pass-Through Certificates dated
October 1, 1993.
. FNMA Prospectus for Stripped Mortgage-Backed Securities dated December
1, 1992.
. FNMA Prospectus for Guaranteed MBS Pass-Through Certificates dated
December 1, 1992.
. FNMA Prospectus Supplements for Trust 1992-50, Trust 1992-150, Trust
1993-21 and Trust 1993-216 and the Information Statement dated
February 16, 1993 and any supplements thereto.
Documents relevant to the Pooled FNMA 97-G2/Z Certificates include the
following:
. FNMA Prospectus for Guaranteed REMIC Pass-Through Certificates dated
June 14, 1996.
. FNMA Prospectus for Guaranteed REMIC Pass-Through Certificates dated
June 14, 1996.
. FNMA Prospectus for Guaranteed Mortgage Pass-Through Certificates dated
January 1, 1997.
. FNMA Information Statement dated February 22, 1996.
Documents relevant to the Pooled FHLMC G003/SA Certificates include the
following:
. FHLMC Multiclass Mortgage Securities Offering Circular
dated September 1, 1992.
. FHLMCGiant GNMA-Backed Securities Offering Circular dated September 1,
1992.
. FHLMC Information Statement dated March 19, 1992, its Information
Statement Supplements dated April 28, 1992, July 30, 1992 and
November 13, 1992 and any other Information Statement Supplements
published by Freddie Mac through the time of purchase.
Documents relevant to the Pooled FHLMC 1505/QB Certificate include the
following:
. FHLMC Multiclass Mortgage Participation Certificates Offering Circular
dated January 1, 1993.
. FHLMC Mortgage Participation Certificates Offering Circular dated June
30, 1992 and its Mortgage Participation Certificates Offering
Circular Supplements dated August 3, 1992, November 2, 1992 and
April 30, 1993.
. FHLMC Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991 and its Giant Mortgage
Participation Certificates Offering Circular Supplement
dated December 3, 1992.
. FHLMC Information Statement dated April 9, 1993, its Information
Statement Supplement dated April 30, 1993 and any other
Information Statement Supplements published by FHLMC through the
time of purchase.
Documents relevant to the Pooled FHLMC 1603/SB Certificates include the
following:
. FHLMC Multiclass Mortgage Participation Certificates Offering Circular
dated August 1, 1993.
. FHLMC Mortgage Participation Certificates Offering Circular dated June
30, 1992 and its Mortgage Participation Certificates Offering
Circular Supplements dated August 3, 1992, November 2, 1992, April
30, 1993 and August 17, 1993.
. FHLMC Giant Mortgage Participation Certificates Offering
Circular dated December 23, 1991 and its Giant Mortgage
Participation Certificates Offering Circular Supplement
dated December 3, 1992.
. FHLMC Information Statement dated April 9, 1993, its Information
Statement Supplements dated April 30, 1993 and August 2, 1993 and
any other Information Statement Supplements published by FHLMC
through the time of purchase.
Documents relevant to the Pooled FHLMC 1723/SB Certificates include the
following:
. FHLMC Multiclass Mortgage Participation Certificates Offering Circular
dated January 18, 1994.
. FHLMC Mortgage Participation Certificates Offering Circular
dated February 15, 1994.
. FHLMC Giant Mortgage Participation Certificates Offering Circular dated
December 23, 1991, its Giant Mortgage Participation Certificates
Offering Circular Supplement dated December 3, 1992 and its
Stripped Giant Mortgage Participation Certificates, Series 165
Offering Circular Supplement dated March 29, 1994.
. FHLMC Information Statement dated March 31, 1994 and any Information
Statement Supplements published by FHLMC through the time of
purchase.
<PAGE> 377
Documents relevant to the Pooled FHLMC 1869/TG Certificates include the
following:
. FHLMC Offering Circular Supplement dated July 12, 1996 to Offering
Circular dated October 1, 1995.
. FHLMC Offering Circular Supplement dated August 31, 1993 to Offering
Circular dated August 1, 1993 and FHLMC Offering Circular
Supplement dated February 17, 1994 to Offering Circular Dated
January 18, 1994.
. FHLMC Mortgage Participation Certificates Offering Circular
dated September 1, 1995.
. FHLMC Giant Participation Certificates and Other Structured
Pass-Through Participation Certificates Offering
Circular dated September 1, 1995.
. FHLMC Information Statement dated March 29, 1996, its Information
Statement Supplements dated May 15, 1996 and August 14, 1996 and
any other Information Statement Supplements published subsequently
by FHLMC.
Documents relevant to the Pooled FHLMC 1933/SA Certificates and the Pooled FHLMC
1933/SG Certificates include the following:
. FHLMC Offering Circular Supplement dated January 16, 1997 to Offering
Circular dated January 1, 1997.
. FHLMC Offering Circular Supplement dated February 6, 1997 to Offering
Circular dated January 1, 1997 and FHLMC Offering Circular
Supplement dated January 4, 1994 to Offering Circular dated August
1, 1993.
. FHLMC Mortgage Participation Certificates Offering Circular
dated September 1, 1995.
. FHLMC Giant Participation Certificates and Other
Pass-Through Certificates Offering Circular dated January 1,
1997.
. FHLMC Information Statement dated March 29, 1996, its Information
Statement Supplements dated May 15, 1996, august 14, 1996,
November 14, 1996 and January 30, 1997 and any other Information
Statement Supplements published subsequently by FHLMC.
Copies of the respective Prospectus Supplements, Prospectuses and the other
documents set forth above relating to the Pooled Certificates may be obtained
from the Underwriter by writing Bear, Stearns & Co. Inc., 245 Park Avenue, New
York, New York 10167, Attention: Mortgage Department.
YIELD AND PREPAYMENT CONSIDERATIONS
GENERAL CONSIDERATIONS
The yield to maturity and weighted average life of the Certificates will be
affected by, among other things, the amount and timing of principal payments,
including prepayments (for this purpose the term "prepayments" includes payments
resulting from refinancing, liquidations, purchases by the original transferors
or others), and interest payments on the Mortgage Loans, the level of LIBOR, the
payment priorities and other characteristics of the Pooled Certificates, the
purchase price paid for the Certificates and the occurrence of an optional
termination with respect to the Certificates or the Pooled Certificates. No
representation is made as to the anticipated rate of prepayments on the Mortgage
Loans or the anticipated yield to maturity of the Certificates. Prospective
investors are urged to consider their own estimates as to the anticipated rate
of future prepayments on the Mortgage Loans and the suitability of the
Certificates to their investment objectives. If prevailing mortgage rates fall
significantly below the mortgage rates on the Mortgage Loans, the Mortgage Loans
are likely to be subject to higher prepayment rates than if prevailing rates
remain at or above the mortgage rates on the Mortgage Loans. Other factors
affecting prepayments of Mortgage Loans include changes in mortgagors' housing
needs, job transfers, unemployment, net equity in the mortgaged properties and
servicing decisions. The Mortgage Loans may be prepaid at any time without
penalty and generally have due-on-sale clauses. Since FNMA and FHLMC guarantee
the timely payment of installments of principal of and interest on the
respective Underlying Mortgage Loans, liquidations resulting from default,
casualty or condemnation in respect of the respective Underlying Mortgage Loans
will have the effect of a prepayment.
The timing and amount of payments, including prepayments, on the Mortgage
Loans may significantly affect an investor's yield. In general, the earlier a
prepayment of principal on the Mortgage Loans, the greater will be the effect on
an investor's yield to maturity. As a result, the effect on an investor's yield
of principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Certificates will not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments.
The Pooled Certificates were issued at different times, are backed by
different Mortgage Pools, have different allocations of principal and interest
and payment priorities among various classes, are subject to optional
termination to the extent described herein and in the Underlying Agreements and
will perform differently in various interest and prepayment rate environments.
In addition, certain of the Pooled Certificates are backed by underlying
securities that are also unrelated. The performance characteristics of the
Certificates will reflect a combination of the performance characteristics of
the Pooled Certificates. As a result, it will be difficult to predict the likely
yield and payment experience of the Certificates.
Since interest generally will be due on each Mortgage Loan on the first day
of the month, but the distribution of such interest will not be made until the
Pooled Certificate Distribution Dates and then the amounts received with respect
to a Pooled Certificate Distribution Date will not be distributed until the
related Distribution Date, the yield to investors in the Certificates will be
lower than the yield produced without such delays. Since the amount of the
distributions on the Certificates is based on information in respect of the
Underlying Series, if such information is not received in a timely manner,
payments will not be made until the following Distribution Date and the yield to
investors may be lower than the yield produced if such information had been
received in a timely manner.
In the case of any Certificates purchased at a discount, a slower than
anticipated rate of principal payments to the Certificates, other things being
equal, could result in an actual yield that is lower than the anticipated yield.
In the case of any Certificates purchased at a premium, a faster than
anticipated rate of principal payments to the Certificates, other things being
equal, could result in an actual yield that is lower than the anticipated yield.
Since prevailing interest rates are subject to fluctuation, there can be no
assurance that investors in the Certificates will be able to reinvest the
payments thereon at yields equaling or exceeding the yields on the Certificates.
Yields on any such reinvestments may be lower, and may even be significantly
lower, than yields on the Certificates. Prospective investors in the
Certificates should consider the related reinvestment risks in light of other
investments that may be available to such investors.
<PAGE> 378
The amount of interest distributions on the Pooled FNMA 93-246/F
Certificates is dependent on the level of LIBOR and on amounts available from
cash flows on the securities held in the Underlying FNMA REMIC Trust of which
the Pooled FNMA 93-246/F Certificates represent a beneficial interest. There can
be no assurance as to whether holders of the Pooled FNMA 93-246/F Certificates
will in the future receive full distributions of interest at the rate calculated
according to their interest rate formula on a timely basis or as to the payment
of any of the Interest Deficiency (as defined herein).
Four classes of Pooled Certificates have notional principal balances which
reduce proportionately with the principal balance of certain related classes in
the same Underlying Series. Accordingly, the amount and timing of payments on
the such Pooled Certificates, and accordingly the yield on the Certificates,
will be sensitive to the rate and timing of principal payments on such Related
Certificates.
Relatively fast prepayments of underlying Mortgages may significantly
shorten, and relatively slow prepayments of underlying Mortgages may
significantly extend, the life of the Related Certificates and therefore the
Pooled IO Certificates. Generally, a rapid rate of principal prepayments on the
Mortgage Loans underlying the Pooled IO Certificates will have a negative effect
on the yield on the Certificates. Similarly, the exercise of any optional
redemption rights with respect to the Underlying Series of which any of the
Pooled IO Certificates are a part may have a negative effect on the yield on the
Certificates. If the life of any of the Related Certificates is significantly
shortened, the life of the related Pooled IO Certificates will be significantly
shortened and the yield to investors in the Certificates can be expected to
decrease.
The yield to investors in the Certificates will also be affected by changes
in LIBOR. In general, a high level of LIBOR will reduce the yield to investors
in the Certificates. Changes in LIBOR may not correlate with changes in mortgage
interest rates. It is possible that lower mortgage interest rates could occur
concurrently with a decrease in the level of LIBOR. Conversely, higher mortgage
interest rates could occur concurrently with a decrease in the level of LIBOR.
The amount of interest payable on the Pooled Floating Rate Certificates
will be sensitive, and the amount of interest payable on the Pooled Inverse
Floating Rate Certificates will be highly sensitive, to the level of LIBOR. In
addition, a high rate of principal payments (including prepayments) on the
Mortgage Loans underlying the Pooled Inverse Floating Rate Certificates and/or a
high level of LIBOR will have a materially negative effect on the amount of
interest payable on the Pooled Inverse Floating Rate Certificates.
The assets of the Trust consist of only the Pooled FNMA Certificates and
the Pooled FHLMC Certificates. Because each of the Pooled Certificates were
issued as parts of different Underlying Series, the rates of prepayment of each
of the Pooled Certificates will be different from the rates of prepayment on
each of the other Pooled Certificates. Under various circumstances, the
principal balance of the notional principal balance of one or more of the Pooled
Certificates could be reduced to zero prior to the other Pooled Certificates. In
addition, either one or more of the Pooled Certificates could be repurchased as
described under "The Pooling Agreement - Assignment of Pooled Certificates" or
any of the Underlying Agreements could be terminated. In such an event, the
Trust might consist solely of one or more of the Pooled FNMA Certificates or one
or more of the Pooled FHLMC Certificates, or a combination thereof, and
investors would be exposed to the risk that the Certificates could take on a
cash flow profile different from that expected by investors. For example, if the
Pooled Fixed Rate Certificates and the Pooled Floating Rate Certificates were to
mature prior to the maturity of one or more of the Pooled Inverse Floating Rate
Certificates, the Certificates would at that point have the yield
characteristics of an inverse floating rate security.
ASSUMED FINAL DISTRIBUTION DATE
The "Assumed Final Distribution Date" for distributions on the Certificates
is the Distribution Date on April 25, 2025. The Assumed Final Distribution Date
is the Distribution Date one month after the latest final distribution date of
any of the Pooled Certificates. Since the rate of payment of principal on the
Mortgage Loans can be expected to exceed the rate of payments used in
calculating such final distribution date, the date of the final distribution on
the Certificates is expected to be earlier, and could be substantially earlier,
than the Assumed Final Distribution Date.
WEIGHTED AVERAGE LIVES
The weighted average life of a security refers to the average amount of
time that will elapse from the applicable settlement date until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Certificate is determined by (i) multiplying the [amount of
payments made] in respect of principal on such Certificate on each Distribution
Date by the number of years from the Closing Date to such Distribution Date;
(ii) summing the results and (iii) dividing the sum by the aggregate amount of
the principal [payments on such Certificate] referred to in clause (i). The
weighted average lives of the Certificates will be influenced by, among other
factors, the rate at which principal is paid on the Mortgage Loans.
SPA MODEL
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The standard prepayment assumption model used in
this Memorandum ("SPA") represents an assumed rate of prepayment each month of
the then outstanding principal balance of a pool of new mortgage loans. SPA does
not purport to be either a historical description of the prepayment experience
of any pool of mortgage loans or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans
underlying the Pooled Certificates. 100% SPA assumes prepayment rates of 0.2%
per annum of the then outstanding principal balance of such mortgage loans in
the first month of the life of the mortgage loans and an additional 0.2% per
annum in each month thereafter (for example 0.4% per annum in the second month)
until the thirtieth month. Beginning in the thirtieth month and in each month
thereafter during the life of the mortgage loans, 100% SPA assumes a constant
prepayment rate of 6% per annum. Multiples will be calculated from this
prepayment rate series; for example, 125% SPA assumes prepayment rates will be
0.25% per annum in month one, 0.5% per annum in month two, reaching 7.5% per
annum in month 30 and remaining constant at 7.5% per annum thereafter. 0% SPA
assumes no prepayments.
PRICING ASSUMPTION
The Certificates were structured assuming, among other things, a prepayment
assumption of 200% SPA with respect to the Pooled Certificates. The prepayment
assumptions to be used for pricing purposes for the Certificates may vary as
determined at the time of sale. The actual prepayment rates may vary
considerably from the rates used for any pricing assumption.
DECREMENT AND WEIGHTED AVERAGE LIFE TABLE
The following tables indicate the percentages of the Original Principal
Balance of the Certificates outstanding after certain dates and the weighted
average lives (in years), assuming various constant percentages of SPA and LIBOR
levels.
<PAGE> 379
For each of the following tables it was assumed, among other things, that
(i) the Trust consists of the Pooled Certificates in the principal and/or
notional amounts described in Annex 1 hereto; (ii) the Original Principal
Balance of the Certificates will be $54,672,353; (iii) Distribution Dates on the
Certificates occur on the 25th of each month commencing in April 1997; (iv) each
Mortgage Loan underlying a mortgage backed security issued by FNMA or GNMA or a
participation certificate issued by FHLMC has a mortgage rate, remaining term to
maturity and loan age equal to the weighted average mortgage rate, weighted
average remaining term to maturity and weighted average loan age, respectively,
of all of the Mortgage Loans underlying such mortgage backed security or
participation certificate; (v) the Mortgage Loans prepay at the constant
percentages of SPA specified in the tables; (vi) all amounts due with respect to
the Mortgage Loans underlying the Pooled Certificates are applied to the payment
of the respective Pooled Certificates on the 25th day of each month; (vii) there
are no optional terminations of the Certificates or the Pooled Certificate and
the mandatory termination is assumed not to occur; (viii) the settlement date is
the Closing Date, which is March 27, 1997; (ix) each month consists of 30 days;
(x) any reinvestment income on funds in the Certificate Account will be paid to
the Trustee and will not be available to make principal and interest payments on
the Certificates; (xi) the only expenses to be paid on any Distribution Date by
the Trust will be the monthly payment of the Trustee Fee and the Escrow Payment,
the sum of which is assumed to equal 1/12 of the product of 0.02% and the
Certificate Balance immediately prior to the applicable Distribution Date, but
without giving effect to the minimum Trustee Fee of $300 for any Distribution
Date; (xii) the effective interest rate borne by the Certificates during the
first Interest Accrual Period is 11.5328% per annum; (xiii) interest rates
applicable to the Certificates for each Interest Accrual Period subsequent to
the first Interest Accrual Period will be calculated based on the indicated
level of LIBOR; (xiv) there will be no substitution of Pooled Certificates; and
(xv) no Certificates will be exchanged for pro rata portions of each of the
Pooled Certificates.
<TABLE>
<CAPTION>
PERCENTAGE OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING
OF THE CERTIFICATES
LIBOR = 2.5%
% of SPA
50% 100% 200% 350% 500%
<S> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100
March 25, 1998 97 95 90 82 69
March 25, 1999 94 90 83 65 51
March 25, 2000 91 86 76 53 42
March 25, 2001 89 83 72 45 31
March 25, 2002 87 80 67 38 22
March 25, 2003 86 78 63 29 8
March 25, 2004 85 77 59 23 6
March 25, 2005 84 75 51 14 4
March 25, 2006 84 75 43 7 3
March 25, 2007 84 72 36 6 2
March 25, 2008 82 67 29 4 1
March 25, 2009 80 62 21 3 1
March 25, 2010 75 57 14 2 0
March 25, 2011 70 50 7 2 0
March 25, 2012 65 42 6 1 0
March 25, 2013 60 32 4 1 0
March 25, 2014 51 22 3 0 0
March 25, 2015 39 14 2 0 0
March 25, 2016 27 6 1 0 0
March 25, 2017 18 1 1 0 0
March 25, 2018 10 1 0 0 0
March 25, 2019 2 0 0 0 0
March 25, 2020 0 0 0 0 0
March 25, 2021 0 0 0 0 0
March 25, 2022 0 0 0 0 0
March 25, 2023 0 0 0 0 0
Weighted Average
Life (in years) 15.1 12.2 7.8 4.3 2.9
</TABLE>
<PAGE> 380
PERCENTAGE OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING
OF THE CERTIFICATES
<TABLE>
<CAPTION>
LIBOR = 3.5%
% of SPA
50% 100% 200% 350% 500%
<S> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100
March 25, 1998 97 95 91 82 70
March 25, 1999 95 91 84 66 52
March 25, 2000 93 88 78 54 42
March 25, 2001 91 85 73 46 32
March 25, 2002 90 83 69 39 23
March 25, 2003 89 81 65 31 9
March 25, 2004 88 79 61 24 6
March 25, 2005 88 78 53 15 4
March 25, 2006 87 77 45 7 3
March 25, 2007 87 74 38 6 2
March 25, 2008 86 69 31 4 1
March 25, 2009 83 65 23 3 1
March 25, 2010 79 60 16 2 0
March 25, 2011 74 53 9 2 0
March 25, 2012 69 45 6 1 0
March 25, 2013 64 35 4 1 0
March 25, 2014 55 25 3 0 0
March 25, 2015 43 16 2 0 0
March 25, 2016 31 8 1 0 0
March 25, 2017 21 1 1 0 0
March 25, 2018 14 1 0 0 0
March 25, 2019 5 0 0 0 0
March 25, 2020 0 0 0 0 0
March 25, 2021 0 0 0 0 0
March 25, 2022 0 0 0 0 0
March 25, 2023 0 0 0 0 0
Weighted 15.8 12.7 8.0 4.4 3.0
Average
Life (in
years)
</TABLE>
PERCENTAGE OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING
OF THE CERTIFICATES
<TABLE>
<CAPTION>
LIBOR = 4.5%
% OF SPA
50% 100% 200% 350% 500%
<S> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100
March 25, 1998 98 96 92 83 70
March 25, 1999 96 92 85 67 52
March 25, 2000 94 89 79 55 43
March 25, 2001 93 87 75 47 33
March 25, 2002 92 85 70 40 23
March 25, 2003 91 83 66 32 10
March 25, 2004 91 81 62 25 6
March 25, 2005 90 80 54 16 4
March 25, 2006 90 79 46 8 3
March 25, 2007 90 76 39 6 2
March 25, 2008 88 71 32 4 1
March 25, 2009 86 66 24 3 1
March 25, 2010 81 62 17 2 0
March 25, 2011 77 55 10 2 0
March 25, 2012 71 47 6 1 0
March 25, 2013 66 37 4 1 0
March 25, 2014 57 27 3 0 0
March 25, 2015 45 18 2 0 0
March 25, 2016 33 10 1 0 0
March 25, 2017 24 3 1 0 0
March 25, 2018 16 1 0 0 0
March 25, 2019 7 0 0 0 0
March 25, 2020 0 0 0 0 0
March 25, 2021 0 0 0 0 0
March 25, 2022 0 0 0 0 0
March 25, 2023 0 0 0 0 0
Weighted 16.3 13.0 8.2 4.4 3.0
Average
Life (in years)
</TABLE>
<PAGE> 381
PERCENTAGE OF ORIGINAL PRINCIPAL BALANCE OUTSTANDING
OF THE CERTIFICATES
<TABLE>
<CAPTION>
LIBOR 5.50% and higher
50% 100% 200% 350% 500%
<S> <C> <C> <C> <C> <C>
Initial Balance 100 100 100 100 100
March 25, 1998 98 96 92 83 70
March 25, 1999 97 93 85 67 53
March 25, 2000 95 90 80 55 43
March 25, 2001 94 88 75 47 33
March 25, 2002 93 85 71 41 24
March 25, 2003 92 83 67 32 10
March 25, 2004 92 82 63 25 6
March 25, 2005 91 81 54 17 4
March 25, 2006 91 80 47 8 3
March 25, 2007 91 77 40 6 2
March 25, 2008 89 72 33 4 1
March 25, 2009 87 67 24 3 1
March 25, 2010 82 63 17 2 0
March 25, 2011 78 56 11 2 0
March 25, 2012 72 48 6 1 0
March 25, 2013 67 38 4 1 0
March 25, 2014 58 27 3 0 0
March 25, 2015 46 19 2 0 0
March 25, 2016 34 11 1 0 0
March 25, 2017 25 4 1 0 0
March 25, 2018 17 1 0 0 0
March 25, 2019 8 0 0 0 0
March 25, 2020 0 0 0 0 0
March 25, 2021 0 0 0 0 0
March 25, 2022 0 0 0 0 0
March 25, 2023 0 0 0 0 0
Weighted 16.5 13.1 8.3 4.5 3.0
Average
Life (in years)
</TABLE>
<PAGE> 382
PRE-TAX YIELD TABLE
The significance of the effects of prepayments and changes in LIBOR on the
Certificates is illustrated in the following table entitled "Sensitivity of the
Certificates to Prepayments and LIBOR," which shows the pre-tax yield (on a
corporate bond equivalent basis) to the holders of such Certificates under
different constant percentages of SPA and levels of LIBOR. The yields of such
Certificates set forth in the following table were calculated using the
assumptions specified above under "---Decrement and Weighted Average Life
Tables" and assuming that (i) on each LIBOR determination date LIBOR will be at
the level shown, (ii) the aggregate purchase price (expressed as a percentage of
the Original Principal Balance) of the Certificates is 100.1% (including accrued
interest from March 25, 1997) and (iii) the Certificates are purchased on March
27, 1997.
THE YIELD TO INVESTORS IN THE CERTIFICATES WILL BE SENSITIVE TO THE LEVEL
OF LIBOR AND TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE MORTGAGE LOANS, WHICH GENERALLY CAN BE PREPAID AT ANY TIME.
GENERALLY, A HIGH LEVEL OF LIBOR WILL HAVE A MATERIAL NEGATIVE EFFECT ON THE
YIELD TO INVESTORS IN THE CERTIFICATES.
<PAGE> 383
Changes in LIBOR may not correlate with changes in prevailing mortgage
interest rates. It is possible that lower prevailing mortgage interest rates,
which might be expected to result in faster prepayments, could occur
concurrently with an increased level of LIBOR.
<TABLE>
<CAPTION>
SENSITIVITY OF THE CERTIFICATES
TO PREPAYMENTS AND LIBOR
(PRE-TAX YIELD TO MATURITY)
% of SPA
LIBOR 50% 100% 200% 350% 500%
<S> <C> <C> <C> <C> <C>
2.5% 11.6 11.2 11.3 11.6 12.4
3.5% 10.8 10.4 10.5 11.0 11.6
4.5% 9.9 9.5 9.6 10.4 10.9
5.5% 9.0 8.6 8.6 9.5 10.3
6.5% 8.1 7.8 7.7 8.6 9.5
7.5% 7.5 7.1 7.0 7.9 8.7
</TABLE>
The yields set forth in the above table were calculated by determining the
monthly discount rates which when applied to the assumed stream of cash flows to
be paid on the Certificates, would cause the discounted present value of such
assumed stream of cash flows to equal the assumed purchase price of the
Certificates indicated, and converting such monthly rates to corporate bond
equivalent rates. Such calculation does not take into account variations that
may occur in the interest rates at which investors may be able to reinvest funds
received by them as payments of principal of and interest on the Certificates
and consequently does not purport to reflect the return of any investment in the
Certificates when such reinvestment rates are considered.
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual Pooled
Certificates and Mortgage Loans and characteristics of the Pooled Certificates
and Mortgage Loans assumed in preparing the tables contained herein. To the
extent that the Pooled Certificates and Mortgage Loans have characteristics
which differ from those assumed in preparing the tables, the Certificates may
mature earlier or later than indicated by the tables, and the weighted average
lives and pre-tax yields and the cash flows on the Certificates may also differ.
In addition, it is unlikely that the Mortgage Loans will prepay at any constant
rate. The timing of changes in the rate of prepayment may significantly affect
the yield realized by a holder of the Certificates.
THE POOLING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling Agreement between
BSMSI, as the depositor, and First Trust National Association as the Trustee
(the "Agreement" ). BSMSI will provide to a prospective or actual
Certificateholder without charge, upon written request, a copy (without
exhibits) of the Agreement. Requests should be addressed to Bear Stearns
Mortgage Securities Inc., 245 Park Avenue, New York, New York 10167.
ASSIGNMENT OF POOLED CERTIFICATES
At the time of issuance of the Certificates, the Depositor will cause the
Pooled Certificates to be assigned to the Trustee. The Depositor will represent,
among other things, that as of the Closing Date (i) it is the owner of the
Pooled Certificates free and clear of any lien or adverse interests of any
person and (ii) that it has acquired its ownership in the Pooled Certificates in
good faith without notice of any adverse claim.
<PAGE> 384
Upon discovery or receipt of notice by either the Depositor or the Trustee
of a breach of any of the representations and warranties regarding the Pooled
Certificates which materially and adversely affects the interests of the
Certificateholders, the Depositor or the Trustee, the party discovering such
breach will give prompt notice to the other. Within thirty days of the earlier
of either discovery by or notice to the Depositor of any such breach, the
Depositor shall use its best efforts promptly to cure such breach in all
material respects and, if such breach cannot be cured, the Depositor shall, at
the election of the Majority Certificateholders, repurchase each Pooled
Certificate affected by the breach at a repurchase price equal to (i) with
respect to any Pooled Certificate that is not a Pooled IO Certificate, the
outstanding Pooled Certificate Principal Balance thereof as of the date of
repurchase plus accrued interest thereon plus any Interest Deficiency and
interest thereon as described under "Description of the Pooled Certificates -
Distributions of Interest", and (ii) with respect to any Pooled IO Certificates,
the highest bid obtained from three dealers then active in the market for such
Pooled IO Certificates (or such lesser number as may then be active). In the
event the Trustee is able to obtain a bid from only one active dealer, then the
Trustee may obtain an opinion (a "FMV Opinion") of an investment banking firm of
national reputation (other than an affiliate of the Depositor) to determine
whether such bid is at least equal to the fair market value of such Pooled IO
Certificates and the repurchase price shall be the higher of the bid or the fair
market value as stated in any such FMV Opinion. If the Trustee is unable to
obtain a bid from any active dealer, then the Trustee shall obtain a FMV Opinion
and the repurchase price shall be equal to the fair market value of such Pooled
IO Certificates as stated in such FMV Opinion.
Notwithstanding the foregoing, in the case of any Pooled Certificates, that
are not IO Certificates, for a period of two years following the Closing Date,
in lieu of repurchasing Pooled Certificates as described above, the Depositor
may substitute therefor one or more mortgage related securities issued by GNMA,
FNMA or FHLMC (each a "Substitute Pooled Certificate") which meet the following
criteria: (i) such substitution shall be (a) in the case of the Pooled FNMA
93-246/F Certificates, with at least one floating rate certificate which is
entitled to receive interest based on LIBOR and which has a formula of LIBOR
plus a minimum of 175 basis points, (b) in the case of the Pooled FNMA 92-45/Z
Certificates and the Pooled FNMA 97-G2/Z Certificates, with one or more fixed
rate or accrual certificates bearing a coupon no less than the coupon of the
Pooled Certificate being substituted for, or (c) in the case of the Pooled
Inverse Floating Rate Certificates, one or more inverse floating rate
certificates based on LIBOR whose combined coupon will be at least equal to the
coupon of the Pooled Certificates being substituted for at all levels of LIBOR,
(ii) the sum of the outstanding principal amounts of the Substitute Pooled
Certificates equals or exceeds the sum of the outstanding principal amounts of
the Pooled Certificates being substituted for and (iii) the Substitute Pooled
Certificates as of the date of substitution (a) ultimately are backed by
mortgage loans (I) with a weighted average pass-through rate no more than 50
basis points below or no more than 50 basis points above the weighted average
pass-through rate of the FNMA Mortgages and (II) which are conventional, fixed
rate, one- to four-family, fully amortizing, level payments, first mortgage
loans with original maturities of up to 30 years, (b) the inclusion of which in
the Trust Fund will not result in a withdrawal or downgrading in the ratings
assigned to the Certificates by the Rating Agencies, written confirmation of
which shall be provided by the Rating Agencies to the Trustee and (c) will not
cause the Trust to lose its status as a grantor trust for federal income tax
purposes as indicated in an opinion of counsel to be provided to the Trustee.
ACCOUNTS
The Trustee shall establish and maintain the Certificate Account in the
name of the Trustee for the benefit of the Certificateholders. The Certificate
Account shall be an Eligible Account as defined in the Agreement. The Trustee
will cause all distributions received on the Pooled Certificates by the Trustee
in its capacity as holder of the Pooled Certificates, from whatever source, to
be deposited directly into the Certificate Account. Amounts on deposit in the
Certificate Account will be invested in certain investments permitted by the
Agreement ("Permitted Investments"). Any income on such investments will be paid
to the Trustee as additional compensation and losses on such investments shall
be reimbursed by the Trustee from its own funds.
<PAGE> 385
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will prepare, and will forward by
mail, a statement to each Certificateholder and to the Depositor stating:
(i) the Available Funds for such Distribution Date;
(ii) the interest distribution amount and the principal
distribution amount for such Distribution Date and, with
respect to each, the components thereof as described in the
definitions of such terms and as reported in the related
distribution information;
(iii) the Certificate Balance before and after applying
payments on such Distribution Date;
(iv) the effective interest rate on the Certificates
for such Distribution Date;
(v) the outstanding principal and/or notional amount, as the case
may be, immediately prior to and after taking into account
distributions made on such Distribution Date of, and the
current interest rate, on each of the Pooled Certificates on
such Distribution Date; and
(vi) the amount of the Trustee Fee for such
Distribution Date.
In the case of the information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall also be expressed as a dollar amount per $1000 of
principal face amount.
In addition, the Trustee promptly will furnish to the Depositor and,
upon request, to the Certificateholders, copies of any notices, statements,
reports or other information, including, without limitation, the Pooled
Certificate Distribution Date Statements received by the Trustee in its capacity
as the holder of the Pooled Certificates.
On or before March 31st of each calendar year, commencing in 1998, the
Trustee will prepare and deliver by first class mail to the Depositor and each
person who at any time during the prior calendar year was a Certificateholder of
record a statement containing the information required to be contained in the
regular monthly report to Certificateholders, as set forth in clauses (ii) and
(v) above aggregated for such prior calendar year or in the case of a
Certificateholder, the applicable portion thereof during which such person was a
Certificateholder. Such obligation of the Trustee will be satisfied to the
extent that substantially comparable information is provided by the Trustee
pursuant to any requirements of the Code and regulations thereunder as from time
to time are in force.
AMENDMENTS
The Agreement may be amended by the Depositor and the Trustee, without the
prior written consent of any Certificateholder (i) to cure any ambiguity or
mistake, (ii) to correct or supplement any provision therein which may be
inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement that
are not materially inconsistent with other provisions of the Agreement and (iv)
to make such modifications as may be required in connection with a substitution
or repurchase of a Pooled Certificate permitted under the Agreement; provided,
however, that such amendment will not, as evidenced by an opinion of counsel
delivered to the Trustee, adversely affect in any material respect the interests
of any Certificateholder. The Agreement may also be amended by the Depositor and
the Trustee and the holders of Certificates evidencing more than 50% of the
aggregate Class Balance of the Certificates (the "Majority Certificateholders")
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or modifying in any manner
the rights of Certificateholders; provided, however, that no such amendment may
(i) reduce in any manner the amount of, or delay the timing of, amounts required
to be distributed on any Certificate without the consent of the holder of such
Certificate; (ii) modify the provisions of the Section of the Agreement
governing amendments of the Agreement, without the consent of the holders of all
Certificates; or (iii) be made unless the Trustee has received an opinion of
counsel (at the expense of the party seeking such amendment) that such amendment
will not adversely affect the status of the Trust as a grantor trust for federal
income tax purposes.
CERTIFICATEHOLDER ACTION
No Certificateholder will have any right to institute any action, suit or
proceeding in equity or at law upon or under or with respect to the Agreement
unless such holder previously has given to the Trustee and the Depositor a
written notice of default and unless also the Majority Certificateholders have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee thereunder and have offered to the Trustee
such reasonable indemnity as each may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 30 days
after its receipt of such notice, request and offer of indemnity, will have
neglected or refused to institute any such action, suit or proceeding.
<PAGE> 386
TERMINATION
The respective obligations and responsibilities of the Depositor and the
Trustee created by the Agreement will terminate upon the final distribution to
Certificateholders by the Trustee of all amounts required to be distributed
pursuant to the Agreement. Such distribution will occur, among other
circumstances, if the Depositor exercises its option to purchase the Pooled
Certificates as described herein under "Description of the Certificates --
Optional Termination."
INDEMNIFICATION OF THE TRUSTEE
The Trustee and its directors, officers, employees and agents, will be
indemnified by the Trust against any loss, liability or expense arising out of
or incurred in connection with, the exercise and performance of any powers and
duties of the Trustee under the Agreement, with certain exceptions described in
the Agreement. The Trustee and its directors, officers, employees and agents
will not be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of the
obligations and duties of the Trustee.
CERTAIN MATTERS REGARDING THE TRUSTEE
The Trustee for the Certificates will be First Trust National Association.
The Trustee's corporate office is located at 180 East 5th Street, St. Paul,
Minnesota 55101, Attention: Structured Finance Department, and its Bondholder
Services telephone number is (612) 973-6700.
The Trustee may at any time resign and be discharged from the trust by
giving 30 days' written notice thereof to the Depositor and the
Certificateholders. Upon receiving such notice of resignation, the Depositor
shall (in the latter case, with the written consent of the Certificate Insurer)
promptly appoint a successor trustee. If no successor trustee has been so
appointed and has accepted appointment within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. If at any time the
Trustee fails to meet the eligibility requirements or is incapable of acting, or
certain insolvency events occur, then the Depositor shall remove the Trustee and
appoint a successor trustee. The Majority Certificateholders may at any time
remove the Trustee and appoint a successor trustee. No resignation, discharge or
removal of the Trustee will become effective until a successor trustee shall
have assumed the Trustee's responsibilities and obligations under the Agreement.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion represents the opinion of Stroock & Stroock &
Lavan LLP, special tax counsel to the Trust ("Tax Counsel"), as to the material
Federal income tax consequences of the purchase, ownership and disposition of
Certificates. However, the discussion does not purport to deal with Federal
income tax consequences applicable to all categories of holders, some of which
may be subject to special rules. For example, it does not discuss the tax
treatment of Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. Prospective investors are urged
to consult their own tax advisors in determining the Federal, state, local,
foreign and any other tax consequences to them of the purchase, ownership and
disposition of Certificates.
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. No ruling on any of the
issues discussed below will be sought from the Internal Revenue Service (the
"IRS"). As a result, the IRS may disagree with all or part of the discussion
below.
TAX CHARACTERIZATION OF THE TRUST
Tax counsel is of the opinion that the Trust will be classified for Federal
income tax purposes as a grantor trust and not as an association taxable as a
corporation or a taxable mortgage pool taxable as a corporation. Accordingly,
each holder of a Certificate will be treated for Federal income tax purposes as
the owner of an undivided interest in the Pooled Certificates included in the
Trust. As further described below, each holder of a Certificate therefore must
report on its Federal income tax return the gross income from the portion of the
Pooled Certificates that is allocable to such Certificate and may deduct the
portion of the expenses incurred by the Trust that is allocable to such
Certificate, at the same time and to the same extent as such items would be
reported by such holder if it had purchased and held directly such interest in
the Pooled Certificates and incurred directly its share of expenses incurred by
the Trust.
A Certificateholder that is an individual, estate or trust will be allowed
deductions for such expenses only to the extent that the sum of those expenses
and the holder's other miscellaneous itemized deductions exceeds two percent of
such holder's adjusted gross income. In addition, in the case of a
Certificateholder who is an individual, certain otherwise allowable itemized
deductions will be reduced, but not by more than 80%, by an amount equal to 3%
of such Certificateholder's adjusted gross income in excess of a statutorily
defined threshold. Moreover, a Certificateholder that is not a corporation
cannot deduct such expenses for purposes of the alternative minimum tax (if
applicable). Such deductions will include servicing and administrative fees paid
to the Trustee.
<PAGE> 387
TAXATION OF CERTIFICATEHOLDERS
A Certificateholder must allocate the purchase price of its Certificates
among its share of the Pooled Certificates based upon the relative fair market
value of the Pooled Certificates as of the date such Certificateholder purchased
its Certificates.
The tax consequences to a Certificateholder of ownership of an undivided
interest in each Pooled Certificate are described in the Underlying
Prospectuses. The Underlying Prospectuses for each of the Pooled Certificates
(other than the Underlying Prospectus for the Pooled FNMA 252-CL/2 Certificates)
state that such Pooled Certificates are REMIC Regular Interests or beneficial
ownership of REMIC Regular Interests (a MACR class). The Underlying Prospectus
for the Pooled FNMA 252-CL/2 Certificates states that such Pooled Certificates
are stripped bonds or stripped coupons. A general discussion of the tax
consequences to a holder of REMIC Regular Interests can be found in "Certain
Federal Income Tax Consequences" in the Prospectus.
TAXABLE MORTGAGE POOLS
Entities classified as "taxable mortgage pools" are subject to corporate
level tax on their net income. A "taxable mortgage pool" is generally defined as
an entity or a portion of an entity that meets the following requirements: (i)
the entity is not a REMIC, (ii) substantially all of the assets of the entity
are debt obligations, and more than 50 percent of such debt obligations consist
of real estate mortgages (or interests therein), (iii) the entity is the obligor
under debt obligations with two or more maturities, and (iv) payments on the
debt obligations on which the entity is the obligor bear a relationship to the
payments on the debt obligations which the entity holds as assets. With respect
to requirement (iii), the Code authorizes the IRS to provide by regulations that
equity interests may be treated as debt for purposes of determining whether
there are two or more maturities. If the Certificates were treated as
obligations of a taxable mortgage pool, the Trust would be ineligible to file
consolidated returns with any other corporation and could be liable for
corporate tax.
The legislative history of the taxable mortgage pool provisions states that
entities treated as grantor trusts will not be considered to be taxable mortgage
pools. Based in part on the legislative history, Tax Counsel is of the opinion
that the Trust is not a taxable mortgage pool taxable as a corporation.
CERTAIN STATE TAX CONSIDERATIONS
Because the income tax laws of the states vary, it is impossible to predict
the income tax consequences to the Certificateholders in all of the state taxing
jurisdictions in which they are subject to tax. Certificateholders are urged to
consult their own advisors with respect to state income and franchise taxes.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans subject to Title I of ERISA should
consider the ERISA fiduciary investment standards before authorizing an
investment by a plan in the Certificates. In addition, fiduciaries of employee
benefit plans subject to Title I of ERISA, as well as certain plans or other
retirement arrangements not subject to ERISA, but which are subject to Section
4975 of the Code (such as individual retirement accounts and Keogh plans
covering only a sole proprietor, or partners), or any entity whose underlying
assets include plan assets by reason of a plan or account investing in such
entity, including an insurance company general account (collectively,
"Plan(s)"), should consult with their legal counsel to determine whether an
investment in the Certificates will cause the assets of the Trust ("Trust
Assets") to be considered plan assets pursuant to the plan asset regulations set
forth at 29 C.F.R. ' 2510.3-101 (the "Plan Asset Regulations"), thereby
subjecting the Plan to the prohibited transaction rules with respect to the
Trust Assets and the Trustee to the fiduciary investments standards of ERISA, or
cause the excise tax provisions of Section 4975 of the Code to apply to the
Trust Assets, unless an exemption granted by the Department of Labor applies to
the purchase, sale, transfer or holding of the Certificates and the operation
and management of the Trust and its assets. In particular, investors that are
insurance companies should consult with their legal counsel with respect to the
United States Supreme Court case John Hancock Mutual Life Insurance Co. v.
Harris Trust and Savings Bank, 114 S. Ct. 517 (1993). In John Hancock, the
Supreme Court ruled that assets held in an insurance company's general account
may be deemed to be plan assets under certain circumstances. Investors should
analyze whether that decision or federal legislation recently enacted affecting
insurance company general accounts (see Section 1460 of the Small Business Job
Protection Act of 1996) may have an impact with respect to purchases of
Certificates.
Prohibited Transaction Exemption 90-30 ("PTE 90-30") may be applicable to
the purchase, sale or transfer of the Certificates and the operation and
management of the Trust and its assets. The definition of an allowable "Trust"
under PTE 90-30 requires that the corpus of the Trust contain only three
categories of obligations: certain direct obligations (not here applicable),
"guaranteed governmental mortgage pool certificates" as defined in the Plan
Asset Regulations and fractional, undivided interests in either of the above
types of obligations. Both the Prospectuses pursuant to which the Pooled FNMA
Certificates were offered and the Offering Circulars relating to the Pooled
FHLMC Certificates state that FNMA and FHLMC, respectively, had been advised by
their respective counsel that each such respective class of Pooled Certificates
should qualify as "guaranteed governmental mortgage pool certificates" within
the meaning of the Plan Asset Regulations. Accordingly, such Pooled Certificates
should qualify as an allowable type of Trust obligation under PTE 90- 30.
However, any Plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with its own counsel and should make its own
determination as to the availability of exemptive relief under PTE 90-30, both
with respect to whether the Pooled Certificates qualify as "guaranteed
governmental mortgage pool certificates" and whether all of the specific and
general conditions of PTE 90-30 are satisfied with respect to any potential
prohibited transaction relating to the purchase, sale and transfer of the
Certificates and the operation and management of the Trust and its assets.
<PAGE> 388
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such governmental plan may be subject to
Federal, state and local law, which is, to a material extent, similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the propriety of such
investment under applicable fiduciary or other investment standards, and the
need for the availability of any exemptive relief under any Similar Law.
LEGAL INVESTMENT
Institutions whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be
subject to restrictions on investment in the Certificates. Any such institution
should consult its legal advisors in determining whether and to what extent
there may be restrictions on its ability to invest in the Certificates. The
Certificates will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Certificates are being purchased from BSMSI by the Underwriter,
an affiliate of BSMSI, upon issuance. Distribution of such Certificates will be
made from time to time in negotiated transactions or otherwise at varying prices
to be determined at the time of sale. In connection with the purchase and sale
of the Certificates, the Underwriter may be deemed to have received compensation
from BSMSI in the form of underwriting discounts. BSMSI will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
1933 Act, or will contribute to payments the Underwriter may be required to make
in respect thereof. BSMSI will acquire the Pooled Certificates from the
Underwriter.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
BSMSI and the Underwriter by Stroock & Stroock & Lavan LLP, New York, New York.
CERTIFICATE RATING
As a condition to their issuance, the Certificates will be rated "Aaa" by
Moody's and "AAA" by Fitch.
The rating assigned by Moody's to the Certificates address the likelihood
of the receipt by Certificateholders of all distributions to which such
Certificateholders are entitled. The rating is based principally on the
guarantees of FNMA and FHLMC on the Pooled Certificates. Moody's ratings do not
represent any assessment of the likelihood that prepayments will be made by
borrowers or the degree to which such prepayments will differ from that
originally anticipated. The rating does not address the possibility that, as a
result of prepayments, Certificateholders may suffer a lower than anticipated
yield on the Certificates.
The rating by Fitch on the Certificates addresses the likelihood of the
receipt by Certificateholders of all distributions to which such
Certificateholders are entitled. Fitch takes into consideration the credit
quality of the Mortgage Loans, structural and legal aspects associated with the
Certificates and the extent to which the payment stream on the Pooled
Certificates is adequate to make payments required under the Certificates. The
rating of Fitch does not constitute a statement regarding frequency of
prepayments on the Mortgage Loans or the corresponding effects on yield to
investors, and does not represent any assessment of the likelihood or rate of
prepayments.
The yield of the certificates is sensitive to principal prepayments on the
mortgage loans backing underlying interest-only securities, which the rating on
the certificates does not address. If prepayments are faster than anticipated,
investors may fail to receive interest payments on certain payment dates.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
Certificates are subsequently lowered for any reason, no person or entity is
obligated to provide any additional credit support or credit enhancement with
respect to the Certificates.
BSMSI has not requested a rating of the Certificates by any rating agency
other than Moody's and Fitch. However, there can be no assurance as to whether
any other rating agency will rate the Certificates or, in such event, what
rating would be assigned to the Certificates by such other rating agency. The
rating assigned by such other rating agency to the Certificates may be lower
than the rating assigned by or Moody's or Fitch.
<PAGE> 389
GLOSSARY
The abbreviations used for each Pooled Certificate are set forth under
"Description of the Pooled Certificates -- General"
Agreement......................................................S-4
Assumed Final Distribution Date................................S-24
Available Funds................................................S-14
BSMSI..........................................................S-1
Business Day ..................................................S-2
Cede...........................................................S-13
Certificates...................................................S-1
Certificate Account............................................S-14
Certificate Register...........................................S-13
Class Balance..................................................S-15
Closing Date...................................................S-7
Code...........................................................S-12
Depositor......................................................S-4
Determination Time.............................................S-7
Distribution Date..............................................S-2
DTC............................................................S-4
ERISA..........................................................S-11
Escrow Amount .................................................S-14
FHA............................................................S-5
FHLMC..........................................................S-2
FHLMC Pooled Certificate Distribution Date.....................S-5
FHLMC Mortgages................................................S-2
Fitch..........................................................S-1
FMV Opinion....................................................S-31
FNMA...........................................................S-2
FNMA Mortgages.................................................S-2
FNMA Pooled Certificate Distribution Date......................S-5
FNMA REMIC Certificates........................................S-4
FNMA SMBS......................................................S-2
FNMA Trust.....................................................S-2
GNMA...........................................................S-5
GNMA Certificates..............................................S-2
Gold Giant PC's................................................S-5
Gold PC's......................................................S-2
Interest Accrual Period........................................S-7
Interest Deficiency............................................S-19
LIBOR..........................................................S-2
IRS............................................................S-34
MACRs..........................................................S-2
Majority Certificateholders....................................S-33
MBS............................................................S-2
Moody's........................................................S-1
Mortgage Loans.................................................S-2
Mortgage Pool..................................................S-3
Original Principal Balance.....................................S-7
Permitted Investments..........................................S-32
Plan/s.........................................................S-11
Plan Asset Regulations.........................................S-35
Pooled Certificates............................................S-2
Pooled Certificate Distribution Date...........................S-5
Pooled Certificate Principal Balance...........................S-4
Pooled FHLMC Certificates......................................S-2
Pooled FNMA Certificates.......................................S-2
Pooled Fixed Rate Certificates.................................S-2
Pooled Floating Rate Certificates..............................S-2
Pooled Inverse Floating Rate Certificates.....................S-2
Prospectus.....................................................S-4
PTE 90-30......................................................S-35
Rating Agencies................................................S-12
Record Date....................................................S-7
Related Certificate............................................S-10
REMIC..........................................................S-3
Similar Law....................................................S-36
SMMEA..........................................................S-12
SPA............................................................S-24
Supplemental Distribution Date.................................S-4
Support Classes................................................S-18
Tax Counsel....................................................S-34
Trust..........................................................S-2
Trust Assets...................................................S-11
Trustee........................................................S-4
Trustee Fee....................................................S-14
Trustee Fee Escrow Account.....................................S-14
Underlying Agreement...........................................S-5
Underlying FHLMC Offering Circular ............................S-6
Underlying FHLMC Series........................................S-2
Underlying FNMA Prospectus Information ........................S-6
Underlying FNMA Series.........................................S-2
Underlying FNMA Trusts.........................................S-2
Underlying Mortgage Loans......................................S-3
Underlying Prospectuses........................................S-6
Underlying Series..............................................S-2
Underwriter....................................................S-1
VA.............................................................S-5
1933 Act.......................................................S-3
1934 Act.......................................................S-3
Z Classes......................................................S-2
<PAGE> 390
[This Page Intentionally Left Blank]
<PAGE> 391
ANNEX 1
POOLED CERTIFICATE CURRENT INFORMATION
The table in this Annex 1 sets forth information for each of the Pooled
Certificates concerning such Pooled Certificates and the related Mortgage Loans.
The table and the descriptions of the Pooled Certificates herein are subject to
and qualified by reference to the information with respect to the provisions of
the Underlying Agreements and Underlying Prospectuses and the other prospectuses
related to the Pooled Certificates. The information set forth in the table and
elsewhere herein has been derived from information provided by FNMA and FHLMC,
but such information has not been independently verified by the Depositor or the
Underwriter. This information comprises all material information on the subject
that the Depositor and the Underwriter possess or can acquire without
unreasonable expense or effort.
"Weighted average" numbers are calculated based on the loan balances as of
March 1, 1997.
The issue dates for the Pooled FNMA Certificates 1992-45/Z, 252-CL-2,
1993-246/F and 1997-GS/Z were April 30, 1992, November 1, 1993, November 30,
1993 and February 28, 1997, respectively. The issue dates for the Pooled FHLMC
Certificates G003/SA, 1505/QB, 1603/SB, 1723/SB, 1869/TG, 1933/SA and 1933/SG
were November 30, 1992, May 28, 1993, October 29, 1993, May 27, 1994, August 30,
1996, February 28, 1997 and February 28, 1997, respectively.
The following is a description of each item reported in the following
table. The table should be read in conjunction with these descriptions and the
additional information contained in Annex 2.
1. ISSUER AND SERIES/CLASS. These first two columns indicate,
collectively, and the "issuer" name and series designation of
each Underling Series. For the full name of each Pooled
Certificate, see "Description of the Pooled Certificates -
General".
2. CERTIFICATE TYPE. NTL/INV indicates that the Pooled
Certificates have a notional principal balance and
bear interest at rates that are based on an index (in
this case, LIBOR) and that vary inversely with changes
in the index. FLT indicates that the Pooled
Certificates bear interest at rates that are based on
an index (in this case, LIBOR) and that vary directly
with changes in the index. FIX indicates that the
Pooled Certificates bear interest at a fixed rate. Z
indicates that the Pooled Certificates accrete the
amount of accrual interest otherwise distributable on
such Pooled Certificates, which amount will be added as
principal to the principal balance of such Pooled Certificates
on each applicable distribution date. Such accretion will
continue until some specified event has occurred or until such
Pooled Certificates are retired.
3. CURRENT COUPON. This column indicates the interest rates
applicable to the April 1997 distribution on the
Pooled Certificates.
4. CLASS ORIGINAL PRINCIPAL OR NOTIONAL PRINCIPAL BALANCE.
This column lists the original principal balance of
the Pooled Certificates.
5. CLASS % IN TRUST. This is the percentage which the
respective Pooled Certificates constitute of its class.
6. CLASS CURRENT PRINCIPAL OR NOTIONAL PRINCIPAL BALANCE.
This column shows the principal balance of the Pooled
Certificates after the distribution made in March 1997.
7. ORIGINAL MORTGAGE LOAN BALANCE. This is the original
aggregate scheduled principal balance of the Mortgage
Loans underlying each Pooled Certificate.
8. CURRENT MORTGAGE LOAN BALANCE. This is the aggregate
scheduled principal balance of the Mortgage Loans
underlying each Pooled Certificate as of March 1, 1997.
9. WAC. Under this heading is the current weighted average
of the note rates on the Mortgage Loans underlying
each Pooled Certificate.
10. CNWAC. Under this heading is the current weighted
average of the net rates (that is, note rate less any
servicing fee and any other administrative fees) on the
Mortgage Loans underlying each Pooled Certificate.
11. WAM. Under this heading is the current weighted
average of the remaining terms to maturity of the
Mortgage Loans underlying each Pooled Certificate (in
months).
12. WALA/CAGE. Under this heading is the weighted average
months since origination for the Mortgage
Loans underlying each Pooled Certificate.
<PAGE> 392
<TABLE>
<CAPTION>
CLASS CLASS ORIGINAL
ORIGINAL CURRENT MORTGAGE CURRENT
PRINCIPAL CLASS % PRINCIPAL OR LOAN MORTGAGE WALA/
CURRENT OR NOTIONAL IN TRUST NOTIONAL BALANCE LOAN BALANCE WAC CNWAC WAM CAGE
ISSUER SERIES/ CERTIFICATE COUPON PRINCIPAL PRINCIPAL
CLASS TYPE BALANCE IN BALANCE
TRUST
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA 1992-45/Z FIX/Z 6.000 6,000,000 35.29412% 7,893,773 244,864,334 101,328,790 8.500 8.000 230 120
FNMA 252-CL/2 NTL/FIX 7.500 6,000,000 0.30380% 4,314,176 2,085,043,178 1,420,082,766 7.936 7.500 304 47
FNMA 1993-246/F FLT 7.406 52,725,397 48.89887% 38,190,967 107,825,397(1) 78,101,948(1) 7.599(2) 7.121(2) 307(2) 44(2)
FNMA 1997-G2/Z FIX/Z 8.500 3,000,000 13.95868% 2,809,532 358,381,687 347,098,583 9.000 8.500 354 5
FHLMC G003/SA INV 12.250 1,800,000 42.45283% 958,958 440,267,407 181,260,001 8.500 8.000 231 120
FHLMC 1505/QB INV 7.933 2,280,000 23.60248% 2,280,000 500,084,848 365,220,468 7.647 7.000 299 47
FHLMC 1603/SB INV 9.450 3,000,000 36.37387% 2,104,653 1,899,879,250 1,470,936,106 7.538 7.000 306 43
FHLMC 1723/SB INV 5.250 440,000 20.53333% 434,470 605,141,713 286,508,376 8.540 8.000 293 53
FHLMC 1869/TG(3) NTL/FIX 8.000 11,000,000 47.05265% 10,548,406 408,708,768 385,024,956 8.505 8.000 346 10
FHLMC 1933/SA(3) NTL/INV 1.500 44,233,880 100.00000% 43,803,029 583,508,423 579,987,433 8.107 7.500 356 3
FHLMC 1933/SG(3) NTL/INV 2.000 22,000,000 10.44466% 21,927,728 1,218,400,197 1,191,499,392 8.515 8.000 355 4
- ---------------------------
(1) Based on original and current principal balances of the underlying
securities, respectively, rather than the balance of the Mortgage
Loans underlying such securities.
(2) The weighted average calculations are based on the current principal
balance (excluding notional balances) of each of the underlying
securities as of the March distribution date.
(3) In cases where the Pooled Certificates receive payment from a
specified collateral group, only the characteristics of the group
relating to the Pooled Certificates has been used in calculating the
above information.
</TABLE>
<PAGE> 393
PROSPECTUS
COLLATERALIZED MORTGAGE OBLIGATIONS
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
AND CERTAIN NON-AGENCY CERTIFICATES
AND PRIVATE MORTGAGE-BACKED SECURITIES
FUND AMERICA INVESTORS CORPORATION II
AND CERTAIN TRUSTS, ALL OF THE BENEFICIAL OWNERSHIP INTEREST
IN WHICH IS OWNED BY FUND AMERICA INVESTORS CORPORATION II
This Prospectus relates to Collateralized Mortgage Obligations (the
"Bonds") and Asset-Backed Certificates (the "Certificates" and, together with
the Bonds, the "Securities"), which may be sold from time to time in one or more
series (a "Series") by Fund America Investors Corporation II (the "Company") on
terms determined at the time of sale and described in this Prospectus and the
related Prospectus Supplement (a "Prospectus Supplement"). As specified in the
related Prospectus Supplement, the Securities of each Series, which will include
one or more series of Bonds and/or Certificates, will be issued by either the
Company or a separate entity (each a "Trust") formed by the Company solely for
the purpose of issuing the Securities of the related Series (either such entity,
as applicable, the "Issuer"). If a Series of Securities includes Bonds, such
Bonds will be issued pursuant to an Indenture, and will represent indebtedness
of the related Issuer. If a Series of Securities includes Certificates, such
Certificates will evidence a beneficial ownership interest in the related Trust.
The Securities of each Series will be secured by or will represent a
beneficial interest in certain mortgage-related assets (the "Mortgage Assets")
and may also be secured by, represent beneficial interests in, or have the
benefits of certain other assets (together with the Mortgage Assets, the
"Assets") which may include reinvestment income, reserve funds, cash accounts,
insurance policies, guarantees, letters of credit or other credit enhancement
("Credit Enhancement") as described in the related Prospectus Supplement. The
Mortgage Assets with respect to a Series of Bonds will consist of one or more of
the following: (i) mortgage-backed certificates, mortgage pass-through
certificates, or mortgage participation certificates ("Agency Securities")
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"); (ii) pass-through certificates or participation
certificates, formed by the Company in connection with the issuance of the
related Series of Securities for purposes of ease of administration, which are
neither issued nor guaranteed by any agency or instrumentality of the United
States ("Non-Agency Certificates") and which evidence undivided interests in (a)
Agency Securities, (b) one or more pools of single family (one- to four-unit)
residential mortgage loans or loans for which the related proceeds were used to
finance property improvements, acquisition of personal property such as home
appliances or furnishings, debt consolidation, or a combination of property
improvements, debt consolidation and other consumer purposes, or participation
interests therein (collectively, "Mortgage Loans"), (c) conditional sales
contracts and installment sales or loan agreements or participation interests
therein either secured by manufactured housing ("Secured Contracts") or
unsecured ("Unsecured Contracts" and, together with the Secured Contracts, the
"Contracts") or (d) multifamily mortgage loans secured by rental apartment
buildings or projects containing five or more residential units, or cooperative
apartment building loans ("Multifamily
(Cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 28 HEREIN FOR A DESCRIPTION OF CERTAIN
RISKS AND OTHER FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT
IN THE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Securities of a Series may be made through one or more
different methods, including offerings through underwriters, as more fully
described under "Plan of Distribution" herein and in the related Prospectus
Supplement.
There will have been no public market for any Securities prior to the
offering thereof. There can be no assurance that a secondary market will develop
for the Securities of any Series or, if it does develop, that such market will
continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS JUNE 24, 1998.
<PAGE> 394
(Cover continued from previous page)
Loans"); (iii) mortgage pass-through or participation certificates representing
beneficial interests in certain mortgage loans or certain mortgage-backed
securities, collateralized mortgage obligations secured by certain mortgage
loans or certain mortgage-backed securities, and residual interest securities
relating to issuances of mortgage pass-through certificates or collateralized
mortgage obligations (collectively, "Private Mortgage-Backed Securities") and
(iv) participation or other interests in any of the foregoing. Private
Mortgage-Backed Securities may include securities formed or issued by the
Company (or an Owner Trust beneficially owned by the Company), an affiliate of
the Company, or by third parties. The Mortgage Assets with respect to a Series
of Certificates will consist of one or more of the following: (i) Agency
Securities, (ii) Non-Agency Certificates, (iii) Mortgage Loans, (iv) Contracts,
(v) Multifamily Loans, (vi) Private Mortgage-Backed Securities, and (vii)
participation or other interests in any of the foregoing. To the extent
specified in the related Prospectus Supplement, Mortgage Loans, Contracts and
Multifamily Loans may be secured by junior liens on the related mortgaged
properties, and may include Title I Loans.
Each Series will be issued in one more Classes, one or more of which may be
Principal Only Securities, Interest Only Securities, Compound Interest
Securities, Variable Interest Rate Securities, Scheduled Amortization
Securities, Companion Securities, Special Allocation Securities, or any other
Class of Securities, if any, included in such Series and described in the
related Prospectus Supplement. Principal Only Securities will not accrue, and
will not be entitled to receive, any interest. Payments or distributions of
interest on each Class of Securities other than Principal Only Securities and
Compound Interest Securities will be made on each Payment Date or Distribution
Date as specified in the Prospectus Supplement. Interest will not be paid or
distributed on Compound Interest Securities on a current basis until the date or
period specified in the related Prospectus Supplement. Prior to such time,
interest on such Class of Compound Interest Securities will accrue and the
amount of interest so accrued will be added to the principal thereof on each
Payment Date or Distribution Date. The amount of principal and interest
available and payable on each Series on each Payment Date or Distribution Date
will be applied to the Classes of such Series in the order and as otherwise
specified in the related Prospectus Supplement. Principal payments or
distributions on each Class of a Series will be made on a pro rata, random lot
or other selection basis among Securities of such Class, as specified in the
related Prospectus Supplement. Securities of a Series will be subject to
redemption or repurchase only under the circumstances and according to the
priorities described herein and in the related Prospectus Supplement. The
Company or its affiliates may retain or hold for sale from time to time all or a
portion of one or more Classes of a Series.
Bonds of a Series will constitute non-recourse obligations of the related
Issuer and Certificates of a Series will evidence an interest in the related
Trust only. Neither the Bonds nor the Certificates will be insured or guaranteed
by GNMA, FNMA, FHLMC, any governmental entity or, unless otherwise specified in
the related Prospectus Supplement, by any other person. Unless otherwise
specified in the related Prospectus Supplement, the Company's only obligations,
if any, with respect to a Series will be to obtain certain representations and
warranties from each Seller of the related Mortgage Assets and to assign to the
related Trustee (or, in the case of Bonds issued by a Trust, to such Trust) the
Company's rights with respect thereto, and its obligations pursuant to certain
representations and warranties made by it. Unless otherwise specified in the
Prospectus Supplement relating to a Series, no affiliate of the Company will
have any obligations with respect to such Series.
The yield on each Class of a Series will be affected by the rate of payment
of principal (including prepayments) on the related Trust Estate or Mortgage
Assets and the timing of receipt of such payments as described herein and in the
related Prospectus Supplement.
Each Private Mortgage-Backed Security and each participation or other
interest therein securing a Series of Bonds or underlying a Series of
Certificates (including Private Mortgage-Backed Securities formed or issued by
the Company or an affiliate of the Company) will have been acquired by the
Company, in a secondary market transaction, from a seller other than the issuer
thereof and any of its affiliates, and will have been (i) issued in an offering
registered under the Securities Act of 1933, as amended (the "Securities Act")
or (ii) issued in an offering exempt from the registration requirements of the
Securities Act and will have been held by persons other than the issuer of such
securities and its affiliates for at least three years.
If specified in the Prospectus Supplement for a Series, one or more
elections may be made to treat all or specified portions of the related Trust
Estate or Trust Fund as a "real estate mortgage investment conduit" ("REMIC") or
to treat the arrangement by which such Series is issued as a REMIC, for federal
income tax purposes. See "Certain Federal Income Tax Consequences".
-2-
<PAGE> 395
PROSPECTUS SUPPLEMENT AND CURRENT REPORT ON FORM 8-K
The Prospectus Supplement and Current Report on Form 8-K relating to a
Series to be offered hereunder will, among other things, set forth all of the
following with respect to such Series:
(i) whether the Securities of such Series are Bonds or
Certificates;
(ii) information as to the Assets, included in the related Trust
Property, or otherwise available for such Series including (A) the certain
characteristics of the Mortgage Assets included therein and (B) a description of
the Credit Enhancement, if any, with respect to such Series;
(iii) the aggregate original principal balance of each Class of such
Series entitled to payments or distributions allocable to principal and, if a
fixed rate of interest, the interest rate for each Class of such Series entitled
to distributions allocable to interest;
(iv) information as to any Class of such Series that has a rate of
interest that is subject to change from time to time and the basis on which such
interest rate will be determined;
(v) information as to any Class of such Series on which interest
will accrue and be added to the principal or, if applicable, notional principal
balance thereof;
(vi) information as to the method used to calculate the amount of
interest to be paid on any Class of such Series entitled to payments or
distributions of interest only;
(vii) information as to the nature and extent of subordination with
respect to any Class of such Series that is subordinate in right of payment to
any other Class of such Series;
(viii) the Stated Maturity of each Class of Bonds or the Assumed Final
Distribution Date of each Class of Certificates;
(ix) the circumstances, if any, under which the Securities of such
Series are subject to redemption or repurchase;
(x) the Payment Dates or Distribution Dates, as applicable, for
each Class of such Securities;
(xi) the method used to calculate the aggregate amounts of principal
and interest available and required to be applied to the Securities of such
Series on each Payment Date or Distribution Date, as applicable, and with
respect to a Series consisting of more than one Class, the basis on which such
amounts will be allocated among the Classes of such Series;
(xii) the identity of the Trustee for such Series;
(xiii) whether one or more elections will be made to treat all or
specified portions of the Assets securing such Series or included in the related
Trust Property as a REMIC and, if applicable, the designation of the regular
interests and residual interests therein; and
(xiv) information with respect to the plan of distribution of such
Series.
The actual characteristics of the Mortgage Assets relating to a
Series will not deviate in any material respect from the parameters specified in
the related Prospectus Supplement; provided, however, that if the
characteristics described in the initial related Prospectus Supplement
materially differ from the actual characteristics, a supplement to the related
Prospectus Supplement will be distributed.
- 3 -
<PAGE> 396
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith is required to file reports and other information (the
"Reports") with the Securities and Exchange Commission (the "Commission"). The
Company has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Securities. This
Prospectus, which forms a part of the Registration Statement, and the Prospectus
Supplement relating to each Series of Securities contain summaries of the
material documents referred to herein and therein, but do not contain all of the
information contained in such Registration Statement pursuant to the rules and
regulations of the Commission. The Registration Statement can be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., 1st Floor, Room
1024, Washington, D.C. 20549, and at the following regional offices of the
Commission: Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.
The Company does not plan to send any financial information to holders
of Securities. The Trustee, however, will include with each payment or
distribution on Securities of a Series a statement containing certain payment
information with respect to such Securities.
The Company's principal executive offices are located at 6400 S.
Fiddler's Green Circle, Suite 1200B, Englewood, Colorado 80111. Its telephone
number is (303) 290-6025.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission under
the Exchange Act are incorporated by reference in this Prospectus:
(1) the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1997; and
(2) the Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in an other subsequently filed document which also
is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, upon the request of such person, a copy
of any or all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
any such document). Requests for such copies should be directed to Helen M.
Dickens, Vice President, Fund America Investors Corporation II, 6400 S.
Fiddler's Green Circle, Suite 1200B, Englewood, Colorado 80111 (303/290-6025).
- 4 -
<PAGE> 397
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUPPLEMENT AND CURRENT REPORT ON FORM 8-K....................................3
AVAILABLE INFORMATION...................................................................4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.........................................4
TABLE OF CONTENTS.......................................................................5
INDEX OF PRINCIPAL TERMS................................................................9
SUMMARY OF PROSPECTUS..................................................................13
RISK FACTORS...........................................................................28
General .....................................................................28
Prepayment and Yield Considerations...........................................28
Risks Associated with Certain Loan Assets.....................................29
No Hazard Insurance for Title I Mortgage Loans.......................29
Contracts Secured by Manufactured Homes..............................29
Unsecured Contracts..................................................29
Consumer Protection Laws related to Contracts........................30
Reliance on Management of Timeshare Units............................30
Mortgaged Properties Not Located in the United States................30
Limited Liquidity.............................................................30
Limited Assets................................................................30
Limitations, Reduction and Substitution of Credit Enhancement.................31
Limitations on FHA Insurance for Title I Loans................................32
Limited Nature of Ratings.....................................................33
Original Issue Discount; Residual Certificates................................33
Funds Available for Redemptions or Repurchases at the Request of Holders......34
Book Entry Registration.......................................................34
Nature of Direct or Indirect Backing for Securities...........................34
Insurance Considerations for Certain Non-Agency Certificates and
Private Mortgage-Backed Securities...................................35
Certain Matters Relating to Insolvency........................................35
Junior Lien Mortgage Loans; Liquidation of Mortgage Loans.....................35
Geographic Concentration......................................................36
Remedies Following Default....................................................36
Deposits, Substitutions and Withdrawals of Assets.............................36
Other Legal Considerations....................................................36
DESCRIPTION OF THE SECURITIES..........................................................37
General .....................................................................37
The Bonds - General...........................................................37
The Certificates - General....................................................38
Form of Securities; Transfer and Exchange.....................................38
REMIC Election................................................................39
Classes of Securities.........................................................39
Payments or Distributions of Principal and Interest...........................41
</TABLE>
- 5 -
<PAGE> 398
<TABLE>
<S> <C>
General ............................................................41
Payments or Distributions of Interest................................41
Payments or Distributions of Principal...............................42
Unscheduled Payments or Distributions................................43
Redemption of Bonds; Termination or Repurchase with Respect to Certificates...43
Book Entry Registration.......................................................43
ASSETS SECURING OR UNDERLYING THE SECURITIES...........................................44
Mortgage Loans................................................................44
Agency Securities.............................................................46
Government National Mortgage Association (GNMA)......................46
Federal National Mortgage Association (FNMA).........................48
Federal Home Loan Mortgage Corporation (FHLMC).......................49
Stripped Agency Securities...........................................51
Other Agency Securities..............................................51
Non-Agency Certificates.......................................................51
Multifamily Loans.............................................................52
Contracts.....................................................................53
Private Mortgage-Backed Securities............................................54
Characteristics of Agency Securities and Private Mortgage-Backed Securities...55
Deposit, Substitution and Withdrawal of Assets................................56
Pre-Funding Arrangements......................................................56
CREDIT ENHANCEMENT.....................................................................57
General .....................................................................57
Subordination.................................................................57
Overcollateralization.........................................................58
Cross-Support.................................................................58
Pool Insurance................................................................58
Special Hazard Insurance......................................................59
FHA Insurance on the Multifamily Loans........................................59
Bankruptcy Bond...............................................................60
Reserve Funds.................................................................60
Other Insurance, Guarantees and Similar Instruments or Agreements.............60
SERVICING OF THE MORTGAGE LOANS, MULTIFAMILY LOANS AND CONTRACTS.......................61
Servicing Agreements..........................................................61
Payments on Mortgage Loans....................................................62
Advances .....................................................................63
Servicing Procedures..........................................................63
Primary Mortgage Insurance....................................................65
Standard Hazard Insurance.....................................................66
Mortgage Loans.......................................................66
Secured Contracts....................................................66
Multifamily Loans....................................................67
Title Insurance Policies......................................................67
Claims Under Primary Mortgage Insurance Policies and Standard Hazard
Insurance Policies; Other Realization Upon Defaulted Loans...........67
Administration and Servicing Compensation and Payment of Expenses.............68
THE INDENTURE..........................................................................69
Modification of Indenture.....................................................69
Events of Default.............................................................69
Rights Upon Event of Default..................................................70
</TABLE>
- 6 -
<PAGE> 399
<TABLE>
<S> <C>
List of Holders of Bonds.......................................................70
Issuer's Annual Compliance Statement...........................................70
Trustee's Annual Report........................................................71
Satisfaction and Discharge of Indenture........................................71
Reports by Trustee to Bondholders..............................................71
Limitation on Suits............................................................71
THE POOLING AGREEMENT AND DEPOSIT TRUST AGREEMENT.......................................71
Assignment of Mortgage Assets..................................................72
Assignment of Mortgage Loans..........................................72
Assignment of Contracts...............................................73
Assignment of Multifamily Loans.......................................73
Assignment of Agency Securities, Non-Agency Certificates,
and Private Mortgage-Backed Securities.......................74
Repurchase or Substitution of Mortgage Loans, Contracts and Multifamily Loans..75
Evidence as to Compliance......................................................75
List of Certificateholders.....................................................76
Administration of the Certificate Account......................................76
Reports to Holders of Certificates.............................................77
Events of Default..............................................................78
Rights Upon Event of Default...................................................78
Amendment......................................................................78
Termination....................................................................79
USE OF PROCEEDS.........................................................................79
THE ISSUER..............................................................................79
The Company....................................................................79
Owner Trust Issuer.............................................................80
Management Agreement...........................................................80
THE TRUSTEE.............................................................................81
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS............................................81
The Mortgage Loans and Multifamily Loans.......................................82
General .............................................................82
Foreclosure...........................................................83
Junior Liens; Rights of Senior Mortgagees or Beneficiaries............85
Right of Redemption...................................................85
Anti-Deficiency Legislation and Other Limitations on Lenders..........85
Enforceability of Certain Provisions..................................86
Adjustable Rate Loans.................................................87
Environmental Legislation.............................................88
Applicability of Usury Laws...........................................88
Soldiers' and Sailors' Civil Relief Act...............................88
Consumer Protection Laws with respect to Contracts.............................89
The Title I Program............................................................89
General .............................................................89
Requirements for Title I Loans........................................90
Requirements for Title I Contracts....................................91
FHA Insurance Coverage................................................92
Claims Procedures Under Title I.......................................93
LEGAL INVESTMENT MATTERS................................................................95
</TABLE>
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<PAGE> 400
<TABLE>
<S> <C>
ERISA CONSIDERATIONS....................................................................95
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................97
Federal Income Tax Consequences for REMIC Securities...........................98
General .............................................................98
Status of REMIC Securities............................................98
Qualification as a REMIC..............................................99
Taxation of Regular Securities........................................99
Taxation of Residual Securities......................................106
Limitations on Deduction of Certain Expenses.........................113
Taxation of Certain Foreign Investors................................113
Backup Withholding...................................................114
Reporting Requirements...............................................114
Federal Income Tax Consequences for Securities as to
Which No REMIC Election Is Made......................................115
Non-REMIC Bonds......................................................115
Taxable Mortgage Pools...............................................115
Standard Certificates................................................116
Stripped Certificates................................................119
Reporting Requirements and Backup Withholding........................121
Taxation of Certain Foreign Investors................................122
PLAN OF DISTRIBUTION...................................................................122
LEGAL MATTERS..........................................................................122
FINANCIAL INFORMATION AND ADDITIONAL INFORMATION.......................................122
EXPERTS ..............................................................................123
</TABLE>
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<PAGE> 401
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Accrued Value".................................................................................36
"Adjustable Multifamily Loan Rates".............................................................23
"Adjustable Rate Multifamily Loans".............................................................23
"Administrator".................................................................................15
"Advance Account" ..............................................................................68
"Agency Securities".............................................................................19
"Annual Reduction"..............................................................................92
"Applicable Accounting Standards"...............................................................75
"APR".......................................................................................23, 53
"Assumed Final Distribution Date"...............................................................18
"Bankruptcy Bond" ..............................................................................60
"Beneficial Owners".........................................................................25, 44
"BIF"...........................................................................................76
"Bond Interest Rate"............................................................................15
"Book Entry Securities".....................................................................25, 43
"Certificate Account"...........................................................................41
"Certificate Interest Rate".....................................................................15
"Certificate Trustee"...........................................................................51
"Certificates of Beneficial Ownership"..........................................................80
"Class".........................................................................................13
"Clearing Agency Participants"..............................................................25, 43
"Clearing Agency" ..........................................................................25, 43
"Code"......................................................................................25, 97
"Collateral Value"..............................................................................54
"Collection Account"............................................................................41
"Commission".....................................................................................4
"Committee Report"..............................................................................99
"Companion Securities"..........................................................................40
"Company" ..................................................................................14, 79
"Compound Interest Securities"..............................................................14, 40
"Contract Loan Schedule"........................................................................73
"Contract Pool".............................................................................19, 53
"Contracts".................................................................................19, 53
"Conventional Multifamily Loans"................................................................23
"Cooperative Loans".............................................................................44
"Cooperatives"..............................................................................22, 44
"CPTs" .........................................................................................55
"Credit Enhancement"....................................................................24, 33, 57
"Custodial Account".............................................................................62
"Cut-off Date"..................................................................................39
"Deposit Date"..................................................................................75
"Deposit Trust Agreement"...................................................................13, 38
"Disqualified Organization"....................................................................109
"Distribution Date".............................................................................15
"DOL"...........................................................................................96
"ERISA".....................................................................................26, 95
"Event of Default"..............................................................................69
"Exchange Act"...................................................................................4
"FAMC"..........................................................................................80
"FDIC"..................................................................................62, 76, 95
</TABLE>
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<PAGE> 402
<TABLE>
<S> <C>
"FHA Loans".....................................................................................46
"FHA"...........................................................................................23
"FHA-Insured Multifamily Loans".................................................................23
"FHLMC Certificate Group".......................................................................49
"FHLMC Certificates"............................................................................20
"FHLMC".........................................................................................19
"FLTs"..........................................................................................55
"FmHA Loans"....................................................................................46
"FNMA Certificates".........................................................................20, 52
"FNMA"..........................................................................................19
"Funding Agreement Trustee".....................................................................51
"Funding Agreement".............................................................................51
"Garn-St. Germain Act"..........................................................................86
"GNMA Certificates".............................................................................20
"GNMA Issuer"...................................................................................46
"GNMA"..........................................................................................19
"Guaranty Agreement"............................................................................47
"Indenture".....................................................................................13
"Initial Depositor".............................................................................80
"Insurance Proceeds"............................................................................62
"Interest Accrual Period".......................................................................15
"Interest Only Securities"..................................................................13, 40
"INVs"..........................................................................................55
"IOs"...........................................................................................55
"IRS"..........................................................................................100
"Issuer"........................................................................................38
"Liquidation Proceeds"..........................................................................62
"Loan-to-Value Ratio"...........................................................................46
"Management Agreement"..........................................................................80
"Manager".......................................................................................80
"Manufactured Home Loans".......................................................................89
"Manufactured Home".............................................................................53
"Manufacturer's Invoice Price"..................................................................54
"Market Discount" ...................................................................103, 104, 105
"Maximum Variable Interest Rate"................................................................16
"Minimum Variable Interest Rate"................................................................16
"Monthly Advance"...............................................................................63
"Mortgage Loans" ...........................................................................19, 98
"Mortgage Notes" ...............................................................................44
"Mortgage Pool Insurance Policy"................................................................58
"Mortgage Pool" ................................................................................19
"Mortgage Rates" ...............................................................................45
"Mortgaged Properties"..........................................................................44
"Mortgages".....................................................................................44
"Mortgagors"....................................................................................61
"Multifamily Loan Pool".....................................................................19, 52
"Multifamily Loan Schedule".....................................................................73
"Multifamily Loan Seller".......................................................................73
"Multifamily Loans".............................................................................19
"NCUA"......................................................................................62, 95
"Non-Agency Administrator"......................................................................51
"Non-Agency Certificates".......................................................................19
"Non-Agency Pooling and Administration Agreement"...............................................51
"Non-Agency Servicers"..........................................................................52
</TABLE>
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<PAGE> 403
<TABLE>
<S> <C>
"Non-Priority Securities".......................................................................40
"Non-REMIC Bonds" .............................................................................115
"Notional Principal Balance"....................................................................38
"OID Regulations" .............................................................................100
"Original Issue Discount"........................................................36, 100, 105, 106
"Original Value"................................................................................46
"OTS".......................................................................................87, 95
"Owner Trustee".............................................................................13, 38
"Owner Trust"...................................................................................14
"Owner".........................................................................................88
"PACs"..........................................................................................55
"Parties in Interest"...........................................................................96
"Pass-Through Entity".....................................................................109, 110
"Payment Date"..................................................................................15
"Permitted Instruments".........................................................................57
"Plan Asset Regulations"........................................................................96
"Plans".........................................................................................96
"PMBS Agreement"................................................................................54
"PMBS Issuer"...................................................................................54
"PMBS Servicer".................................................................................54
"PMBS Trustee" .................................................................................54
"Pool Insurer" .................................................................................59
"Pooling Agreement".............................................................................13
"POs"...........................................................................................55
"Prepayment Assumption"........................................................................100
"Pre-Funding Account"...........................................................................56
"Pre-Funding Arrangement"...................................................................24, 56
"Principal Only Securities".................................................................13, 40
"Principal Prepayments".........................................................................42
"Priority Securities"...........................................................................40
"Private Mortgage-Backed Securities"............................................................20
"Prohibited Transactions"...................................................................39, 96
"Property Improvement Loans"....................................................................89
"PTC"...........................................................................................47
"Record Date"...................................................................................41
"Registrar" ....................................................................................38
"Regular Securityholder"........................................................................99
"REIT"..........................................................................................98
"Relief Act"....................................................................................88
"REMIC Pool"....................................................................................98
"REMIC Securities"..............................................................................98
"REMIC".....................................................................................25, 98
"Remittance Date" ..............................................................................62
"Remittance Rate" ..............................................................................62
"Reports"........................................................................................4
"Residual Holders"..............................................................................33
"Residual Securities"...................................................................25, 33, 98
"Residual Securityholders".....................................................................106
"Residuals".....................................................................................55
"Retail Class Security"........................................................................100
"SAIF"..........................................................................................76
"Scheduled Amortization Securities".............................................................40
"Scheduled Principal"...........................................................................50
"Secured Contract"..........................................................................23, 53
</TABLE>
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<PAGE> 404
<TABLE>
<S> <C>
"Seller"........................................................................................44
"Senior Securities".............................................................................57
"Servicers".....................................................................................61
"Servicing Agreement"...........................................................................61
"SMMEA".....................................................................................27, 95
"Special Hazard Insurance Policy"...............................................................59
"Standard Indenture Provisions".................................................................13
"Stated Maturity" ..............................................................................18
"Stripped Certificateholder"...................................................................120
"Stripped Certificates"...................................................................116, 118
"Subordinated Securities".......................................................................57
"Subsequent Loan Assets"........................................................................56
"TACs"..........................................................................................55
"Thrift Institution"............................................................................98
"Title I Contracts".............................................................................89
"Title I Loans" ................................................................................89
"Title I Program" ..............................................................................89
"Title V" ......................................................................................88
"TMP" ..........................................................................................99
"Trust Estate" .................................................................................13
"Trust Property"................................................................................20
"Trustee"...................................................................................13, 61
"Trust" ....................................................................................15, 38
"U.S. Person" .................................................................................111
"UCC" ..........................................................................................84
"Underlying Mortgage Loans".....................................................................28
"Underwriters".................................................................................122
"Unsecured Contract"........................................................................23, 53
"VA Loans"......................................................................................46
"Variable Interest Rate Securities".............................................................14
"VA"............................................................................................23
"Window Period Loans"...........................................................................87
"Zs"............................................................................................55
</TABLE>
- 12 -
<PAGE> 405
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and in the
Prospectus Supplement with respect to the Series offered thereby and to the
related Indenture, Pooling Agreement or Deposit Trust Agreement, as applicable.
Unless otherwise specified, initially capitalized terms used and not defined in
this Summary of Prospectus have the meanings given to them in this Prospectus
and in the related Prospectus Supplement. See "Index of Principal Terms" herein.
Securities Offered............... Bonds and/or Certificates issuable in
Series. Bonds of a Series will be issued
pursuant to an indenture (the "Indenture")
between the respective Issuer (as defined
below) and the Trustee (the "Trustee") for
such Series, and will be secured by the
Assets included in a trust estate (the
"Trust Estate") and pledged to secure such
Series. Such Indenture may be in the form of
a Terms Indenture incorporating by reference
the Standard Indenture Provisions (the
"Standard Indenture Provisions") of the
Issuer. Certificates of a Series will be
issued pursuant to either (i) a pooling
agreement or a pooling and administration
agreement (each, a "Pooling Agreement")
between the Company, the Administrator, if
any, and the Trustee for such Series or (ii)
a Deposit Trust Agreement (the "Deposit
Trust agreement") between the Company,
acting as depositor, and a bank, trust
company or any other fiduciary, acting or
owner trustee (the "Owner Trustee").
Certificates of a Series will evidence
beneficial interests in the related Trust
(as defined below). With respect to each
Series, a bank, trust company or other
fiduciary acting as a trustee and named in
the Prospectus Supplement with respect to
such Series (the "Trustee" with respect to
such Series) will enter into the related
Indenture, Pooling Agreement, and/or Deposit
Trust Agreement, as indicated above. Holders
of Securities are referred to herein as
"Holders" or "Securityholders."
The Securities of any Series may be issued
in one or more classes (each a "Class"), as
specified in the related Prospectus
Supplement. One or more Classes of
Securities of each Series
(i) may be entitled to receive payments or
distributions allocable only to principal
("Principal Only Securities"), only to
interest ("Interest Only Securities") or to
any combination thereof;
(ii) may be entitled to receive payments or
distributions only of prepayments of
principal throughout the lives of the
Securities of such Series or during
specified periods;
(iii) may be subordinated in the right to
receive payments or distributions of
scheduled payments of principal, prepayments
of principal, interest or any combination
thereof to one or more other Classes of such
Series throughout the lives of the
Securities of such Series or during
specified periods;
- 13 -
<PAGE> 406
(iv) may be entitled to receive such
payments or distributions only after the
occurrence of events specified in the
Prospectus Supplement;
(v) may be entitled to receive payments or
distributions in accordance with a schedule
or formula or on the basis of collections
from designated portions of the Assets
securing such Series or included in the
related Trust Property (as defined below);
(vi) as to Securities entitled to payments
or distributions allocable to interest, may
be entitled to receive interest at a rate
that is subject to change from time to time
("Variable Interest Rate Securities") or at
a fixed rate;
(vii) may accrue interest, with such accrued
interest added to the principal amount of
the Securities of such Class and no payments
being made thereon until such time as is
specified in the related Prospectus
Supplement ("Compound Interest Securities").
The timing and amounts of such distributions
may vary among Classes, over time, or
otherwise as specified in the related
Prospectus Supplement.
The Company or its affiliates may retain or
hold for sale from time to time all or a
portion of one or more Classes of a Series.
The Securities of each Class of a Series
will be issued either in fully registered
form or in book entry form in the authorized
denominations specified in the Prospectus
Supplement. The Securities will not be
guaranteed or insured by GNMA, FNMA, FHLMC,
any governmental entity or, unless otherwise
specified in the related Prospectus
Supplement, by any other person and, except
as otherwise specified in the related
Prospectus Supplement, the Mortgage Assets
(other than Agency Securities) relating to a
Series will not be guaranteed or insured by
any governmental agency or instrumentality
or any other insurer.
The Company........................ Fund America Investors Corporation II (the
"Company") is a limited purpose Delaware
corporation formed on December 14, 1992. The
Company's principal executive offices are
located at 6400 S. Fiddler's Green Circle,
Suite 1200B, Englewood, Colorado 80111;
telephone number (303) 290-6025. See "The
Issuer -- The Company."
Issuer............................. The Issuer with respect to a Series of Bonds
will be either the Company or a separate
entity (each, an "Owner Trust") formed by
the Company solely for the purpose of
issuing the Securities of one or more
Series. Each Series of Bonds will be non-
recourse obligations of the related Issuer.
The Issuer with respect to a Series of Bonds
will not have, nor be expected in the future
to have, any significant assets available
for payments on
- 14 -
<PAGE> 407
such Series of Bonds, other than the Assets
included in the related Trust Estate.
The Issuer with respect to a Series of
Certificates will be the trust established
by the Company pursuant to a Pooling
Agreement or the Owner Trust established by
the Company pursuant to a Deposit Trust
Agreement (each a "Trust").
Unless otherwise specified in a related
Prospectus Supplement (i) each Series of
Bonds will be separately secured by the
related Trust Estate, which will constitute
the only significant assets available to
make payments on the Bonds of such Series
and (ii) each Series of Certificates will be
entitled to distributions only from the
Assets included in the related Trust and any
other Assets pledged or otherwise available
for the benefit of Holders of such Series as
specified in the related Prospectus
Supplement.
The Administrator;
Non-Agency Administrator........... With respect to a Series of Certificates for
which the related Trust includes Mortgage
Loans, Multifamily Loans, and Contracts, the
entity or entities named as the
Administrator in the related Prospectus
Supplement (the "Administrator"), will act
as administrator, and may act as a servicer,
with respect to such Mortgage Loans,
Multifamily Loans, and Contracts. The
Administrator may be an affiliate of the
Company. With respect to a Series of
Certificates for which the Trust does not
include Mortgage Loans, Multifamily Loans or
Contracts, there will be no Administrator
unless otherwise specified in the related
Prospectus Supplement.
With respect to a Non-Agency Certificate,
the entity named as the Non-Agency
Administrator will act as administrator, and
may act as servicer, with respect to the
underlying Mortgage Loans, Multifamily
Loans, and Contracts. The Non-Agency
Administrator may be an affiliate of the
Company.
Payments or Distributions of
Interest .......................... Each Class of a Series (other than a Class
of Principal Only Securities) will accrue
interest at the rate set forth in (or, in
the case of Variable Interest Securities, as
determined as provided in) the related
Prospectus Supplement (the "Bond Interest
Rate" with respect to a Class of Bonds and
the "Certificate Interest Rate" with respect
to a Class of Certificates). One or more
Classes may be entitled to receive payments
or distributions of interest only to the
extent of amounts available to make such
payments or distributions. Interest on each
Class will accrue during the respective
periods and be paid or distributed on the
respective dates specified in the related
Prospectus Supplement (each such period an
"Interest Accrual Period" and each such date
a "Payment Date" with respect to a Class of
Bonds and a "Distribution Date" with respect
to a Class of Certificates). Interest on all
Securities which bear or receive interest,
other than Compound Interest Securities,
will be due and payable on the Payment
Dates, or distributed on the Distribution
Dates, as
- 15 -
<PAGE> 408
applicable, specified in the related
Prospectus Supplement. However, failure to
pay or distribute interest on a current
basis may not necessarily be an Event of
Default with respect to a particular Series
or Class of Securities. Interest on any
Class of Compound Interest Securities will
not be paid or distributed currently, but
will accrue and the amount of the interest
so accrued will be added to the principal
thereof on each Payment Date or Distribution
Date, as applicable, until such time as is
specified in the related Prospectus
Supplement. Principal Only Securities will
not accrue, and will not be entitled to
receive, any interest. Upon maturity or
earlier redemption of the Securities of any
Class, interest will be paid to the date
specified in the related Prospectus
Supplement.
Each payment of interest on each Class of
Securities (or addition to principal of a
Class of Compound Interest Securities) on a
Payment Date or Distribution Date, as
applicable, will include all interest
accrued during the related Interest Accrual
Period. If the Interest Accrual Period for a
Series ends on a date other than a Payment
Date or Distribution Date, as applicable,
for such Series, the yield realized by the
Holders of such Securities may be lower than
the yield that would result if the Interest
Accrual Period ended on such Payment Date or
Distribution Date. Additionally, if so
specified in the related Prospectus Supple
ment, interest accrued for an Interest
Accrual Period for one or more Classes may
be calculated on the assumption that
principal payments or distributions (and
additions to principal of the Securities),
and allocations of losses on the Mortgage
Assets (if so specified in the related
Prospectus Supplement), are made on the
first day of the preceding Interest Accrual
Period and not on the Payment Date or
Distribution Date, as applicable, for such
preceding Interest Accrual Period when
actually made or added. Such method would
produce a lower effective yield than if
interest were calculated on the basis of the
actual principal amount outstanding.
With respect to each Class of Variable
Interest Rate F Securities of a Series, the
related Prospectus Supplement will set
forth: (i) the initial Bond Interest Rate or
Certificate Interest Rate, as applica ble,
(or the manner of determining the initial
Bond Interest Rate or Certificate Interest
Rate); (ii) the formula, index or other
method by which the Bond Interest Rate or
Certificate Interest Rate, as applicable,
will be determined from time to time; (iii)
the periodic intervals at which such
determination will be made; (iv) the
interest rate cap (the "Maximum Variable
Interest Rate") if any, and the interest
rate floor (the "Minimum Variable Interest
Rate"), if any, on the Bond Interest Rate or
Certificate Interest Rate for such Variable
Interest Rate Securities; and any other
terms relevant to such Class of Securities.
See "Description of the Securities --
Payments or Distributions of Principal and
Interest -- Payments or Distributions of
Interest."
- 16 -
<PAGE> 409
Payments or Distributions
of Principal ..................... Principal payments and/or distributions on
the Securities of a Series will be made from
amounts available therefor on each Payment
Date or Distribution Date, as applicable, in
an aggregate amount determined as set forth
in the related Prospectus Supplement and
will be allocated among the respective
Classes of a Series of Securities at the
times, in the manner and in the priority set
forth in the related Prospectus Supplement.
Except with respect to Compound Interest
Securities and Interest Only Securities,
unless specified otherwise in the related
Prospectus Supplement, on each Payment Date
or Distribution Date, as applicable,
principal payments and/or distributions will
be made on the Securities of a Series in an
aggregate amount determined in the related
Prospectus Supplement. If a Series has a
Class of Compound Interest Securities,
additional principal payments on the
Securities of such Series will be made on
each Payment Date or Distribution Date, as
applicable, in an amount equal to the
interest accrued, but not then payable or
distributable, on such Class of Compound
Interest Securities for the related Interest
Accrual Period. See "Description of the
Securities -- Payments or Distributions of
Principal and Interest -- Payments or
Distributions of Principal."
Unscheduled Payments or
Distributions...................... If specified in the related Prospectus
Supplement, the Securities of a Series will
be subject to receipt of payments and/or
distributions before the next scheduled
Payment Date or Distribution Date as
described under "Description of Securities--
Payments or Distributions of Principal and
Interest -- Unscheduled Payments or
Distributions."
Allocation of Losses............... If so specified in the related Prospectus
Supplement, on any Payment Date or
Distribution Date, as applicable, on which
the principal balance of the Mortgage Assets
relating to a Series is reduced due to
losses on such Mortgage Assets, (i) the
amount of such losses will be allocated
first, to reduce the aggregate outstanding
principal balance of the Subordinate
Securities of such Series or other
subordination, if any, and, thereafter, to
reduce the aggregate outstanding principal
balance of the remaining Securities of such
Series in the priority and manner specified
in such Prospectus Supplement until the
aggregate outstanding principal balance of
each Class of such Securities so specified
has been reduced to zero or paid in full,
thus reducing the amount of principal
payable or distributable on each such Class
of Securities or (ii) such losses may be
allocated in any other manner set forth in
the related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, such reductions of
principal of a Class or Classes of
Securities will be allocated to the Holders
of the Securities of such Class or Classes
pro rata in the proportion which the
outstanding principal of each Security of
such Class or Classes bears to the aggregate
outstanding principal balance of all
Securities of such
- 17 -
<PAGE> 410
Class. See "Description of the Securities --
Payments or Distributions of Principal and
Interest -- Payments or Distributions of
Principal."
Stated Maturity and Assumed
Final Distribution Date............ The "Stated Maturity" for each Class of
Bonds of a Series will be the date specified
in the related Prospectus Supplement no
later than which all the Bonds of such Class
will be fully paid, as determined on the
basis of the assumptions set forth in the
related Prospectus Supplement. The "Assumed
Final Distribution Date" for each Class of
Certificates of a Series will be the date
specified in the related Prospectus
Supplement after which no Certificates of
such Class will remain outstanding, as
determined on the basis of the assumptions
set forth in the related Prospectus
Supplement. The Assumed Final Distribution
Date of a Class of Certificates may equal
the maturity date of the Mortgage Asset in
the related Trust which has the latest
stated maturity or will be determined as
described herein and in the related
Prospectus Supplement.
The actual maturity date of the Securities
of a Series will depend primarily upon the
level of prepayments with respect to the
Mortgage Assets (including the Underlying
Mortgage Loans if such Mortgage Assets
consist of Mortgage Certificates) securing
or underlying such Series of Securities. The
actual maturity of any Securities is likely
to occur earlier and may occur substantially
earlier than its Stated Maturity or Assumed
Final Distribution Date, as applicable, as a
result of the application of prepayments to
the reduction of the principal balances of
the Securities. The rate of prepayments on
the Mortgage Assets securing or underlying a
Series will depend on a variety of factors,
including certain characteristics of such
Mortgage Loans and the prevailing level of
interest rates from time to time, as well as
on a variety of economic, demographic, tax,
legal, social and other factors. No
assurance can be given as to the actual
prepayment experience with respect to a
Series. See "Special Considerations."
Redemption of Bonds................ To the extent provided in the related
Prospectus Supplement, the Bonds of any
Class of Series may be (i) redeemed at the
request of holders of such Bonds; (ii)
redeemed at the option of the Company or
another party specified in the related
Prospectus Supplement; or (iii) subject to
special redemption under certain
circumstances. The circumstances and terms
under which the Bonds of a Series may be
redeemed will be described in the related
Prospectus Supplement.
Termination or Repurchase with
Respect to Certificates............ To the extent provided in the related
Prospectus Supplement, the Certificates of
any Class of a Series may be (i) repurchased
at the request of holders of such
Certificates; (ii) repurchased at the option
of the Company, the Administrator, if any,
or another party specified in the related
Prospectus Supplement; or (iii)
- 18 -
<PAGE> 411
subject to special repurchase under certain
circumstances. In addition, if so specified
in the Prospectus Supplement for a Series of
Certificates, the Company, the
Administrator, if any, or another party
specified in the related Prospectus
Supplement may, at its option, cause an
early termination of the Trust for such
Series by repurchasing all of the Mortgage
Assets from such Trust, under the
circumstances specified in such Prospectus
Supplement. The circumstances and terms
under which the Certificates of a Series may
be repurchased and the circumstances and
terms under which the related Trust may be
terminated will be described in the related
Prospectus Supplement.
Assets Securing or
Underlying the Securities.......... Each Series of Bonds will be separately
secured by a Trust Estate. The Mortgage
Assets included in the Trust Estate with
respect to a Series of Bonds will include
Mortgage Assets consisting of one or more of
the following, as specified in the related
Prospectus Supplement:
(i) mortgage-backed certificates,
mortgage pass-through certificates
or mortgage participation
certificates, including residual
interests ("Agency Securities")
issued or guaranteed by the
Government National Mortgage
Association ("GNMA"), the Federal
National Mortgage Association
("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC");
(ii) non-publicly offered pass-through
certificates or participation
certificates which are neither
issued nor guaranteed by any agency
or instrumentality of the United
States ("Non-Agency Certificates")
and which evidence undivided
interests in (a) Agency Securities,
(b) a pool (a "Mortgage Pool") of
single family (one- to four-unit)
residential mortgage loans or loans
for which the related proceeds were
used to finance property
improvements, acquisition of
personal property such as home
appliances or furnishings, debt
consolidation or a confirmation of
property improvements, debt
consolidation and other consumer
purposes, or participation
interests therein (collectively,
"Mortgage Loans"), (c) a pool (a
"Contract Pool") of conditional
sales contracts and installment
sales or loan agreements or
participation interests therein
secured by manufactured housing
("Contracts") or (d) a pool (a
"Multifamily Loan Pool") of
multifamily mortgage loans
including cooperative apartment
building loans ("Multifamily
Loans");
(iii) mortgage pass-through certificates
representing beneficial interests
in certain mortgage loans or
certain mortgage-backed securities,
collateralized mortgage obligations
secured by certain mortgage loans
or certain mortgage-backed
securities, and residual interest
securities relating
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<PAGE> 412
to issuances of mortgage pass-
through certificates or
collateralized mortgage obligations
(collectively, "Private
Mortgage-Backed Securities"); and
(iv) participation or other interests in
any of the foregoing.
Each Series of Certificates will represent
beneficial ownership interests in a Trust.
The Mortgage Assets included in the related
Trust with respect to a Series of
Certificates will include Mortgage Assets
consisting of one or more of the following,
as specified in the related Prospectus
Supplement:
(i) Agency Securities,
(ii) Non-Agency Certificates,
(iii) a Mortgage Pool,
(iv) a Contract Pool,
(v) a Multifamily Loan Pool,
(vi) Private Mortgage-Backed Securities,
and
(vii) participation or other interests in
any of the foregoing.
Trust Property may also include, or the
related Securities may also have the
benefits of, certain other Assets, including
but not limited to: reinvestment income,
reserve funds, cash accounts, insurance
policies, guarantees, letters of credit or
other credit enhancement as described in the
related Prospectus Supplement, intended to
decrease the likelihood that holders of
Securities will experience delays in
payments or distributions of scheduled
payments on, or losses in respect of, the
assets included in such Trust Estate or
Trust (together with the Trust Estate or the
assets of the Trust, as applicable, the
"Trust Property"). The Securities of any
Series will be entitled to payment only from
the Trust Property.
A. Agency Securities.............. Agency Securities will consist of:
(i) "fully modified pass-through"
mortgage-backed certificates
guaranteed as to timely payment of
principal and interest by the GNMA
("GNMA Certificates"),
(ii) guaranteed mortgage pass-through
certificates issued and guaranteed
as to timely payment of principal
and interest by the FNMA ("FNMA
Certificates"),
(iii) mortgage participation certificates
issued and guaranteed as to timely
payment of interest and, unless
otherwise specified in the related
Prospectus Supplement, ultimate
payment of principal by the FHLMC
("FHLMC Certificates"),
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<PAGE> 413
(iv) stripped mortgage-backed securities
representing an undivided interest
in all or a part of either the
principal distributions (but not
the interest distributions) or the
interest distributions (but not the
principal distributions) or in some
specified portion of the principal
and interest distributions (but not
all of such distributions) on
certain GNMA, FNMA or FHLMC
Certificates and, unless otherwise
specified in the Prospectus
Supplement, guaranteed to the same
extent as the underlying
securities,
(v) other types of mortgage-backed
certificates, mortgage pass-through
certificates or mortgage
participation certificates issued
or guaranteed by GNMA, FNMA or
FHLMC, such as FNMA Guaranteed
REMIC Pass-Through Certificates
and FHLMC Multiclass Mortgage
Participation Certificates, and
including residual interest
securities, as described in the
related Prospectus Supplement or
(vi) a combination of such Agency
Securities.
All GNMA Certificates will be backed by the
full faith and credit of the United States.
No FHLMC or FNMA Certificates will be
backed, directly or indirectly, by the full
faith and credit of the United States.
The Prospectus Supplement for a Series will
describe any Agency Securities to be
included in the related Trust Property, and
will specify certain characteristics of the
mortgage loans underlying such Agency
Securities. See "Assets Securing or
Underlying the Securities -- Agency
Securities."
B. Non-Agency Certificates........ Non-Agency Certificates will evidence an
undivided interest in Agency Securities, a
Mortgage Loan Pool, a Contract Pool, or a
Multifamily Loan Pool. Non-Agency
Certificates themselves will have been
formed by the Company in connection with the
issuance of the related Series of Securities
for purposes of ease of administration, and
will not be insured or guaranteed by the
United States or any agency or
instrumentality thereof. Unless otherwise
specified in the related Prospectus
Supplement relating to a Series, payments on
the Non-Agency Certificates to be included
in the related Trust Property will be
distributed directly to the related Trustee
as registered owner of such Non-Agency
Certificates. The Prospectus Supplement for
a Series will describe any Non-Agency
Certificates to be included in the related
Trust Property, and will specify certain
characteristics of the Agency Securities,
Mortgage Loans, Contracts or Multifamily
Loans underlying such Non-Agency
Certificates. See "Assets Securing or
Underlying the Securities -- Non-Agency
Certificates."
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<PAGE> 414
C. Private Mortgage-Backed
Securities................... Private Mortgage-Backed Securities may
include (a) mortgage pass-through
certificates representing beneficial
interests in certain mortgage loans or
certain mortgage-backed securities, (b)
collateralized mortgage obligations secured
by certain mortgage loans or certain
mortgage-backed securities or (c) residual
interest securities relating to an issuance
of securities of the type referred to in
clause (a) or (b). Private Mortgage-Backed
Securities may include stripped
mortgage-backed securities representing an
undivided interest in all or a part of
either the principal distributions (but not
the interest distributions) or the interest
distributions (but not the principal
distributions) or in some specified portion
of the principal and interest distributions
(but not all of such distributions) on
certain mortgage loans. Private
Mortgage-Backed Securities may include
securities formed or issued by the Company
(or an Owner Trust beneficially owned by
it), by an affiliate of the Company, or by
third parties. Although individual mortgage
loans underlying a Private Mortgage-Backed
Security may be insured or guaranteed by the
United States or an agency or
instrumentality thereof, they need not be,
and the Private Mortgage-Backed Securities
themselves will not be so insured or
guaranteed. The mortgage loans underlying
Private Mortgage-Backed Securities may be
secured by single-family property,
multifamily property, manufactured homes, or
by an assignment of the proprietary lease or
occupancy agreement relating to a specific
dwelling within a Cooperative and the
related shares issued by such Cooperative.
Unless otherwise specified in the related
Prospectus Supplement relating to a Series,
payments on the Private Mortgage-Backed
Securities relating to a Series will be
distributed directly to the related Trustee
as registered owner of such Private
Mortgage-Backed Securities. The Prospectus
Supplement for a Series will describe any
Private Mortgage-Backed Securities to be
included in the related Trust Property, and
will specify certain characteristics of the
mortgage loans underlying such Private
Mortgage-Backed Securities. See "Assets
Securing or Underlying the Securities --
Private Mortgage-Backed Securities."
D. Mortgage Loans............... Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans
underlying the Non-Agency Certificates
included in the Trust Property for a Series,
or the Mortgage Loans included in the Trust
Property for a Series of Securities will be
conventional mortgage loans originated or
acquired by the Company, either directly or
through an affiliate. The residential
properties securing the Mortgage Loans may
be located in or outside of the United
States. If so specified in the related
Prospectus Supplement, the Mortgage Loans
relating to a Series may include cooperative
apartment loans with respect to individual
units in cooperative apartment complexes,
which loans are secured by security
interests in shares issued by private,
non-profit, cooperative housing corporations
("Cooperatives") and in the related
proprietary leases or occupancy agreements
granting exclusive rights to occupy
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<PAGE> 415
specific dwelling units in such
Cooperatives' buildings. In addition, the
Mortgage Loans may be secured by junior
liens on the related mortgaged properties.
Mortgage Loans may include Title I Loans.
The related Prospectus Supplement for a
Series will describe any Mortgage Loans
underlying the Non-Agency Certificates to be
included in the related Property, or the
Mortgage Loans included in the Trust
Property for a Series of Securities, and
will specify certain information regarding
the payment terms of such Mortgage Loans.
See "Assets Securing or Underlying the
Securities -- Mortgage Loans."
E. Contracts................... The Contracts underlying the Non-Agency
Certificates included in the Trust Property,
for a Series, or the Contracts included in
the Trust Property for a Series of
Certificates will consist of conditional
sales contracts and installment sales or
loan agreements or participation interests
therein secured by new or used Manufactured
Homes (as defined herein). As specified in
the related Prospectus Supplement, Contracts
may either be secured by new or used
Manufactured Homes (as defined herein) (a
"Secured Contract") or unsecured (an
"Unsecured Contract"). Contracts may be
conventional (i.e., not insured or
guaranteed by any government agency),
insured by the Federal Housing
Administration ("FHA"), including Title I
Contracts, or partially guaranteed by the
Veterans Administration ("VA"), as specified
in the related Prospectus Supplement. Unless
otherwise specified in the related
Prospectus Supplement, each Contract will be
fully amortizing and will bear interest at a
fixed annual percentage rate ("APR"). The
related Prospectus Supplement for a Series
will describe any Contracts underlying the
Non-Agency Certificates included in the
related Trust Property for a Series, or the
Contracts included in the Trust Property for
a Series of Securities. The Unsecured
Contracts included in the Trust Property for
a Series will not constitute a material
concentration of the assets of such Trust
Property. See "Assets Securing or Underlying
the Securities -- Contracts."
F. Multifamily Loans.............. Multifamily Loans underlying the Non-Agency
Certificates included in the Trust Property,
for a Series or the Multifamily Loans
included in the Trust Property for a Series
of Certificates may, as specified in the
related Prospectus Supplement, include fixed
rate or adjustable rate Multifamily Loans.
Multifamily Loans may be conventional
multifamily mortgage loans ("Conventional
Multifamily Loans") or mortgage loans
insured by the FHA ("FHA-Insured Multifamily
Loans") in each case secured by rental
apartment buildings or projects containing
five or more residential units or may be
mortgage loans with respect to apartment
buildings owned by Cooperatives. Multifamily
Loans may include Title I Loans. Adjustable
rate Multifamily Loans ("Adjustable Rate
Multifamily Loans") may, as described in the
related Prospectus Supplement, permit or
require periodic changes in the interest
rates borne by the Multifamily Loans
("Adjustable Multifamily Loan Rates") and in
the monthly
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<PAGE> 416
payments made on the Multifamily Loans.
Multifamily Loans relating to a Series may,
as described in the related Prospectus
Supplement, provide for no amortization of
the principal amount of such loans prior to
maturity or for a specified period after
origination, and require the entire unpaid
principal balance to be paid in a lump sum
at maturity or may provide for full
amortization of principal over the term of
the Multifamily Loan. Multifamily Loans may
provide for negative amortization as
specified in the related Prospectus
Supplement.
The related Prospectus Supplement for a
Series will describe any Multifamily Loans
underlying the Non-Agency Certificates to be
included in the related Trust Property, for
a Series, or the Multifamily Loans included
in the Trust Property for a Series of
Certificates. See "Assets Securing or
Underlying the Securities -- Multifamily
Loans."
G. Pre-Funding Arrangements........ If so specified in the related Prospectus
Supplement, the Trust Property may include a
pre-funding account which will be used to
acquire additional Trust Property for a
specified period of time following the date
on which the related Securities are issued.
Any such pre-funding arrangement (a
"Pre-Funding Arrangement") will require that
any Trust Property to be so acquired will
conform to the requirements specified in the
related Indenture or Pooling Agreement. See
"Assets Securing or Underlying the
Securities -- Pre-Funding Arrangements."
Advances........................... Unless otherwise specified in the Prospectus
Supplement for a Series, the Servicers (in
the case of a Series of Certificates) and
the Non-Agency Servicers (in the case of
Non-Agency Certificates) of the related
Mortgage Loans, Contracts and Multifamily
Loans will be obligated to advance
delinquent installments of principal and
interest (less applicable servicing fees) on
such Mortgage Loans, Contracts and
Multifamily Loans. Unless otherwise
specified in the related Prospectus
Supplement, in the event a Servicer or
Non-Agency Servicer fails to make such
advances, the related Administrator (in the
case of a Series of Certificates) and the
related Non-Agency Administrator (in the
case of Non-Agency Certificates) shall be
obligated to make the advance. Any such
obligation to make advances may be limited
to amounts due holders of the related
Certificates or Non-Agency Certificates, as
applicable, to amounts deemed to be
recoverable from late payments or
liquidation proceeds, to specified periods
or any combination thereof, in each case as
specified in the related Prospectus
Supplement. Any such advance will be
recoverable by the applicable Servicer (or
the related Administrator) as specified in
the related Prospectus Supplement.
Credit Enhancement................ If specified in the related Prospectus
Supplement, a Series, or certain Classes
within such Series, may have the benefit of
one or more types of credit enhancement
("Credit Enhancement") including but not
limited to subordination, cross support,
mortgage pool insurance, special hazard
insurance, a bankruptcy
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<PAGE> 417
bond, reserve funds, other insurance,
guarantees and similar instruments and
arrangements. The protection against losses
afforded by any such Credit Enhancement will
be limited. See "Credit Enhancement."
Book Entry Registration.......... If the Prospectus Supplement for a Series
so provides, Securities of one or more
Classes Of such Series may be issued in
book entry form ("Book Entry Securities")
in which case a single Bond or Certificate,
as applicable, will be issued in the name
of a clearing agency (a "Clearing Agency")
registered with the Securities and Exchange
Commission, or its nominee. Transfers and
pledges of Book Entry Securities may be
made only through entries on the books of
the Clearing Agency in the name of brokers,
dealers, banks and other organizations
eligible to maintain accounts with the
Clearing Agency ("Clearing Agency
Participants") or their nominees. Transfers
and pledges by purchasers and other
beneficial owners of Book Entry Securities
("Beneficial Owners") other than Clearing
Agency Participants may be effected only
through Clearing Agency Participants.
Beneficial Owners will receive payments or
distributions of principal and interest,
and, if applicable, may tender Securities
for redemption or repurchase to the related
Trustee, only through the Clearing Agency
and Clearing Agency Participants. Except as
otherwise specified in this Prospectus or a
related Prospectus Supplement, the terms
"Securityholders" and "holders" shall be
deemed to include Beneficial Owners. See
"Special Considerations-- Book Entry
Registration" and "Description of the
Securities-- Book Entry Registration."
Certain Federal Income Tax
Consequences...................... The federal income tax consequences to
Holders of a Series will depend on, among
other factors, whether one or more elections
are made to treat the related Trust Property
or specified portions thereof as a "real
estate mortgage investment conduit"
("REMIC") under the provisions of the
Internal Revenue Code of 1986, as amended
(the "Code"). The Prospectus Supplement for
each Series will specify whether such an
election will be made.
If the applicable Prospectus Supplement so
specifies with respect to a Series of
Securities, one or more REMIC elections will
be made with respect F to such Series of
Securities. Securities of such Series will
be designated as "regular interests" in a
REMIC ("Regular Securities") or as "residual
interests" in a REMIC ("Residual
Securities").
If the applicable Prospectus Supplement so
specifies with respect to a Series of
Securities, the Securities of such Series
will not be treated as regular or residual
interests in a REMIC for federal income tax
purposes but instead will be treated as (i)
indebtedness of the Issuer, (ii) an
undivided beneficial ownership interest in
the Mortgage Assets (and the arrangement
pursuant to which the Mortgage Assets will
be held and the Securities will be issued
will be treated as a grantor trust under
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<PAGE> 418
Subpart E, part I of subchapter J of Chapter
1 of Subtitle A of the Code and not as an
association taxable as a corporation for
federal income tax purposes); (iii) equity
interests in an association that will
satisfy the requirements for qualification
as a real estate investment trust; or (iv)
interests in an entity that will satisfy the
requirements for qualification as a
partnership for federal income tax purposes.
The federal income tax consequences to
Holders of any such Series will be described
in the related Prospectus Supplement to the
extent not described herein.
Compound Interest Securities and Principal
Only Securities will, and certain other
Classes of F Securities may, be issued with
original issue discount that is not de
minimis. In such cases, the Holder will be
required to include the original issue
discount in gross income as it accrues,
which may be prior to the receipt of cash,
or a portion of the cash, attributable to
such income. If a Security is issued at a
premium, the Holder will be entitled to make
an election to amortize such premium on a
constant yield method. Securities
constituting regular or residual interests
in a REMIC will generally represent
"qualifying real property loans" for mutual
savings banks and domestic building and loan
associations, "loans secured by an interest
in real property" for domestic building and
loan associations and "real estate assets"
for real estate investment trusts to the
extent that the underlying mortgage loans
and interest thereon qualify for such
treatment. Non-REMIC Securities will not
qualify for such treatment.
A Holder of a Residual Security will be
required to include in its income its pro
rata share of the taxable income of the
REMIC. In certain circumstances, the Holder
of a Residual Security may have REMIC
taxable income or tax liability attributable
to REMIC taxable income for a particular
period in excess of cash distributions for
such period or have an after-tax return that
is less than the after-tax return on
comparable debt instruments. In addition, a
portion (or, in some cases, all) of the
income from a Residual Security (i) except
in certain circumstances with respect to a
Holder classified as a thrift institution
under the Code, may not be subject to offset
by losses from other activities, (ii) for a
Holder that is subject to tax under the Code
on unrelated business taxable income, may be
treated as unrelated business taxable income
and (iii) for a foreign Holder, may not
qualify for exemption from or reduction of
withholding. Further, individual Holders are
subject to limitations on the deductibility
of expenses of the REMIC. See "Certain
Federal Income Tax Consequences."
ERISA Considerations............... A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or the Code should carefully review with its
own legal advisors whether the purchase or
holding of Securities could give rise to a
transaction prohibited or otherwise
impermissible under ERISA or the Code. See
"ERISA Considerations." To the extent
described in the Prospectus
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<PAGE> 419
Supplement for a Series, certain Classes of
Securities of such Series may not be
transferred unless the Trustee and the
Company are furnished with a letter of
representation or an opinion of counsel to
the effect that such transfer will not
result in a violation of the prohibited
transaction provisions of ERISA and the Code
and will not subject the Trustee, the
Company or the Administrator, if any, to
additional obligations. Additionally, unless
otherwise specified in the related
Prospectus Supplement, Securities
representing an "equity" interest in a
Mortgage Pool consisting of multifamily
mortgage loans may not be transferred to an
employee benefit plan or other retirement
plan or arrangement subject to ERISA. See
"Description of the Securities -- General"
and "ERISA Considerations."
Legal Investment Matters........... Unless otherwise specified in the related
Prospectus Supplement, Securities of each
Series will constitute "mortgage related
securities" under the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA")
and, as such, will be legal investments for
certain types of institutional investors to
the extent provided in SMMEA, subject, in
any case, to any other regulations which may
govern investments by such institutional
investors. See "Legal Investment Matters."
Use of Proceeds.................... Substantially all of the net proceeds from
the sale of a Series will be applied to the
simultaneous purchase of the Mortgage Assets
included in the related Trust Property or to
reimburse the amounts previously used to
effect such purchase, the costs of carrying
the Mortgage Assets until sale of such
Series and to pay other expenses connected
with pooling the Mortgage Assets and issuing
such Series. See "Use of Proceeds."
Rating............................. It is a condition to the issuance of each
Class of a Series specified as being offered
by the related Prospectus Supplement that
the Securities of such Class be rated in one
of the four highest rating categories
established for such Securities by a
nationally recognized statistical rating
agency.
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<PAGE> 420
RISK FACTORS
Prospective investors in the Securities should consider, among other
things, the following factors in connection with the purchase of the
Certificates:
GENERAL
An investment in Securities secured by or evidencing interests in a
Mortgage Pool may be affected by, among other things, a decline in real estate
values or a decline in mortgage interest rates. If the residential real estate
market should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
related Mortgaged Properties, in a particular Mortgage Pool become equal to or
greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the mortgage lending industry. To the extent that such losses are
not covered by applicable insurance policies, if any, or by any Credit
Enhancement as described herein, Holders of Securities secured by or evidencing
interests in such Mortgage Pool will bear all risk of loss resulting from
default by Mortgagors and will have to look primarily to the value of the
related Mortgaged Properties for recovery of the outstanding principal and
unpaid interest of the defaulted Mortgage Loans. See "Assets Securing or
Underlying the Securities -- Mortgage Loans."
An investment in Securities secured by or evidencing interests in a
Multifamily Loan Pool may also be affected, among other things, by a decline in
real estate values or a decline in mortgage interest rates. The actual rates of
delinquencies, foreclosures and losses on Multifamily Loans could be affected by
adverse changes in general economic conditions and by local conditions including
excessive building resulting in an oversupply of rental housing stock or a
decrease in employment reducing the demand for rental units in the area, by
federal, state or local regulations and controls affecting rents, prices of
goods, fuel and energy consumption and prices, water and environmental
restrictions affecting new construction, by increasing labor and materials
costs, and by the relative attractiveness to tenants of the multifamily rental
projects securing such Multifamily Loans and their neighborhoods. Repayment of a
Multifamily Loan secured by an apartment building owned by a cooperative will
depend primarily on the receipt of payments from the tenant-stockholders of the
cooperative and its ability to refinance the loan at maturity. To the extent
that such losses are not covered by applicable insurance policies, if any, or by
any Credit Enhancement, Holders of Securities secured by or evidencing interests
in a Multifamily Loan Pool will bear all risk of loss resulting from default by
mortgagors and will have to look primarily to the value of the multifamily
projects for recovery of the outstanding principal and unpaid interest of the
defaulted Multifamily Loans. See "Assets Securing or Underlying the Securities
- -- Multifamily Loans."
An investment in Securities secured by or evidencing interests in
Contracts may be affected by, among other things, a downturn in regional or
local economic conditions. These regional or local economic conditions are often
volatile, and historically have affected the delinquency, loan loss and
repossession experience of Contracts. To the extent that losses on Contracts are
not covered by applicable insurance policies, if any, or by any Credit
Enhancement, Holders of the Securities secured by or evidencing interests in
such Contracts will bear all risk of loss resulting from default by obligors and
will have to look primarily to the value of the Manufactured Homes for recovery
of the outstanding principal and unpaid interest of the defaulted Contracts. See
"Assets Securing or Underlying the Securities -- Contracts."
PREPAYMENT AND YIELD CONSIDERATIONS
The prepayment experience on the Mortgage Loans, the Multifamily Loans,
and the Contracts included in the Trust Property or underlying the Non-Agency
Certificates included in the Trust Property, and on the mortgage loans
underlying the Agency Securities and the Private Mortgage-Backed Securities (the
"Underlying Mortgage Loans") will affect the average life of each Class of
Securities relating to the Trust Property including such Mortgage Assets.
Prepayments on the Mortgage Loans, the Multifamily Loans, the Contracts and the
Underlying Mortgage Loans may be influenced by a variety of economic,
geographic, social and other factors, including the difference between the
interest rates on the Mortgage Loans, the Multifamily Loans, the Contracts or
the Underlying Mortgage Loans (giving consideration to the cost of refinancing)
and prevailing mortgage rates. In general, if mortgage interest rates fall below
the interest rates on the Mortgage Loans, the Multifamily Loans, the Contracts
or the Underlying Mortgage Loans relating to a Series, the rate of prepayment
would be expected to increase and Securityholders of such Series may be
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<PAGE> 421
unable to reinvest such payments in securities of comparable quality having
interest rates similar to those borne by the Securities of such Series.
Conversely, if mortgage interest rates rise above the interest rates on the
Mortgage Loans, the Multifamily Loans, the Contracts or the Underlying Mortgage
Loans, the rate of prepayment would be expected to decrease. Prepayments on
Multifamily Loans may also be influenced by a variety of economic factors
affecting project sale or refinancing, including, without limitation, the
relative tax benefits of continued ownership of the property as a result of
changes in federal tax law, among other factors. Prepayments may be influenced
by a variety of economic, geographic, social and other factors, including aging,
seasonality and interest rate fluctuations. Other factors affecting prepayment
of mortgage loans include changes in housing needs, job transfers, unemployment
and servicing decisions.
Additional prepayment, yield and weighted average life considerations
with respect to a Series of Securities will be set forth in the related
Prospectus Supplement.
RISKS ASSOCIATED WITH CERTAIN LOAN ASSETS
NO HAZARD INSURANCE FOR TITLE I MORTGAGE LOANS. With respect to any
Title I Loans, the FHA Regulations do not require that a borrower obtain title
or fire and casualty insurance as a condition to obtaining a property
improvement loan. With respect to both manufactured home contracts that are
Title I Contracts and property improvement loans that are Title I Loans, if the
related Mortgage Property is located in a flood hazard area, however, flood
insurance in an amount at least equal to the loan amount is required. In
addition, the FHA Regulations do not require that the borrower obtain insurance
against physical damage arising from earth movement (including earthquakes,
landslides and mudflows) as a condition to obtaining a property improvement loan
insured under the Title I Program. Accordingly, if a Mortgaged Property that
secures a Title I Loan suffers any uninsured hazard or casualty losses, holders
of any Securities secured in whole or in part by Title I Loans may bear the risk
of loss resulting from a default by the borrower to the extent such losses are
not recovered by foreclosure on the defaulted loans or from any FHA claims
payments. Such loss may be otherwise covered by amounts available from the
credit enhancement provided for the Securities, as specified in the related
Prospectus Supplement.
CONTRACTS SECURED BY MANUFACTURED HOMES. The Contracts will be secured
by security interests in Manufactured Homes that are not considered to be real
property because they are not permanently affixed to real estate. Perfection of
security interests in such Manufactured Homes and enforcement of rights to
realize upon the value of such Manufactured Homes as collateral for the Secured
Contracts are subject to a number of Federal and state laws, including the
Uniform Commercial Code as adopted in each state and each state's certificate of
title statutes. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. Because of the expense and
administrative inconvenience involved, the Servicer of a Secured Contract will
not amend any certificate of title to change the lienholder specified therein
from such Servicer to the Issuer or the applicable Trustee and will not deliver
any certificate of title to such Issuer or Trustee or note thereon such Issuer's
or Trustee's interest. Consequently, in some states, in the absence of such an
amendment, the assignment to such Issuer or Trustee of the security interest in
the Manufactured Home may not be effective or such security interest may not be
perfected and, in the absence of such notation or delivery to such Issuer or
Trustee, the assignment of the security interest in the Manufactured Home may
not be effective against creditors of the Servicer or a trustee in bankruptcy of
the Servicer. If any related Credit Enhancement is exhausted and a Secured
Contract is in default, then recovery of amounts due on such Secured Contracts
is dependent on repossession and resale of the Manufactured Home securing such
Secured Contract. Certain other factors may limit the ability of the Servicer to
realize upon the Manufactured Homes or may limit the amount realized to less
than the amount due.
UNSECURED CONTRACTS. The obligations of the borrower under any
Unsecured Contract included as part of the related Trust Property will not be
secured by an interest in the related real estate or otherwise, and the related
Issuer, as the owner of such Unsecured Contract and the related Trustee, as
assignee for the benefit of the Holders of Bonds, of the Issuer's interest in
such Unsecured Contract, will be a general unsecured creditor as to such
obligations. As a consequence, in the event of a default under an Unsecured
Contract, the related Issuer or Trustee, as applicable, will have recourse only
against the borrower's assets generally, along with all other general unsecured
creditors of the borrower. In a bankruptcy or insolvency proceeding relating to
an borrower on an Unsecured Contract, the obligations of the borrower under such
Unsecured Contract may be discharged in their entirety, notwithstanding the fact
that the portion of such borrower's assets made available to the related Trustee
as a general unsecured creditor to pay amounts
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due and owing thereunder are insufficient to pay all such amounts. A borrower on
an Unsecured Contract may not demonstrate the same degree of concern over
performance of its obligations under such Unsecured Contract as if such
obligations were secured by a single family residence owned by such borrower.
CONSUMER PROTECTION LAWS RELATED TO CONTRACTS. Numerous federal and
state consumer protection laws impose requirements on lending under retail
installment sales contracts and installment loan agreements such as the
Contracts, and the failure by the lender or seller of goods to comply with such
requirements could give rise to liabilities of assignees for amounts due under
such agreements and claims by such assignees may be subject to set-off as a
result of such lender's or seller's noncompliance. These laws would apply to a
Trustee as an assignee of Contracts. The Company will warrant that each Contract
complies with all requirements of law and, with respect to any Secured Contract,
will make certain warranties relating to the validity, subsistence, perfection
and priority of the security interest in each Manufactured Home securing such
Secured Contract. A breach of any such warranty that materially adversely
affects the interests of the Securityholders in any Contract would create an
obligation of the Seller to repurchase or replace such Contract unless such
breach is cured.
RELIANCE ON MANAGEMENT OF TIMESHARE UNITS. Unlike most conventional
single-family residential properties, the value of a timeshare unit is
substantially dependent on the management of the resort property in which it is
located. Management of timeshare resort properties includes operation of a
reservation system, maintenance of the physical structure, refurbishing of
individual units, maintenance and management of common areas and recreational
facilities, and facilitating the rental of individual units on behalf of
timeshare owners. In addition, timeshare units, which are purchased for
intervals of one or more specified weeks each year, are marketed as the owner's
purchase of future vacation opportunities rather than as a primary residence, a
second home or an investment. Accordingly, while borrowers are obligated to make
payments under their Mortgage Loans irrespective of any defect in, damage to or
change in conditions (such as poor management, faulty construction or physical,
social or environmental conditions) relating to the timeshare properties, any
such defect, damage or change in conditions could result in delays in payment or
in defaults by borrowers whose timeshare units are affected.
MORTGAGED PROPERTIES NOT LOCATED IN THE UNITED STATES. If so provided
in the related Prospectus Supplement, the Trust Property with respect to a
Series may include Mortgage Loans or Multifamily Loans that are, or Non-Agency
Certificates backed by Mortgage Loans or Multifamily Loans that are, secured by
Mortgaged Properties not located in the United States. The related Prospectus
Supplement will set forth certain material risks associated with such Mortgage
Loans or Multifamily Loans which are different and additional to those
associated with similar properties in the United States, including restrictions
on enforcement of the rights of the holder of the debt secured by such
properties, currency exchange rate fluctuations, currency exchange controls and
general trends or conditions in the related real estate market.
LIMITED LIQUIDITY
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide the related Holders with
liquidity of investment or will continue for the life of such Series. The market
value of the Securities will fluctuate with changes in prevailing rates of
interest. Consequently, the sale of Securities by a Holder in any market that
may develop may be at a discount from par value or their purchase price. Unless
otherwise specified in the Prospectus Supplement for a Series, Holders of the
Securities of such Series will have no right to request redemption or repurchase
of such Securities, and such Securities will be subject to redemption only under
the limited circumstances described in such Prospectus Supplement.
LIMITED ASSETS
The Issuer with respect to a Series will not have, nor will it be
expected in the future to have, any significant assets available for payments on
such Series other than the related Trust Property. The Bonds will be
non-recourse obligations of the related Issuer and each Series of Bonds will be
separately secured. Unless otherwise specified in the related Prospectus
Supplement, no Series of Bonds will have any claim against or any security
interest in the Mortgage Assets or other Assets pledged to secure any other
Series. If the Mortgage Assets and other Assets securing a Series of Bonds is
insufficient to make payments on such Bonds, no other assets of an Issuer will
be available for payment of
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the deficiency. In addition, unless otherwise set forth in the Prospectus
Supplement for a Series of Certificates, the Trust Property for such Series will
be the only available source of funds to make distributions on the Certificates
of such Series.
The only obligations, if any, of the Company with respect to a Series
will be to obtain certain representations and warranties from each Seller of the
related Mortgage Assets and to assign to the related Trustee (or, in the case of
Bonds issued by an Owner Trust, to such Owner Trust) the Company's rights with
respect thereto, and its obligations pursuant to certain representations and
warranties made by it. The Company does not have, and is not expected in the
future to have, any significant assets. If the Company were required to
repurchase a Mortgage Asset included in the Trust Property for a Series, its
only sources of funds to make such repurchase would be from funds obtained from
the enforcement of a corresponding obligation, if any, on the part of the Seller
of such Mortgage Asset or the related Servicer (if any), as the case may be, or
from a Reserve Fund, if any, established to provide funds for such repurchases.
Immediately after each required payment or distribution of principal
of, and interest on, a Series has been paid in full, funds held in one or more
accounts maintained pursuant to the related Indenture or Pooling Agreement, as
applicable, if not required to be deposited in any related Reserve Fund or
otherwise applied pursuant to the related Indenture or Pooling Agreement, may be
withdrawn under certain circumstances and conditions described in the related
Prospectus Supplement, or may be distributed to a party specified in such
Indenture or Pooling Agreement. In addition, certain amounts remaining in
related Reserve Funds with respect to a Series may likewise be withdrawn or
distributable to a party specified in the related Indenture or Pooling Agreement
after such Reserve Funds reach certain prescribed balances, or after the
principal balances of the Securities of such Series have been reduced to a
prescribed level, in which cases such amounts would no longer be available to
make payments on such Securities.
Because payments or distributions of principal on the Securities of a
Series may, if so provided in the related Prospectus Supplement, be applied to
outstanding Classes of such Series in the priority specified in the related
Prospectus Supplement, a deficiency that arises after Securities of a Class of
any such Series having higher priority in payment have been fully or partially
repaid will have a disproportionately greater effect on the Securities of
Classes of such Series having lower priority in payment. The disproportionate
effect of any such deficiency is further increased in the case of Classes of
Compound Interest Securities of any Series because, prior to the retirement of
all Classes of such Series having higher priority in payment than such Compound
Interest Securities, interest is not payable, unless otherwise provided in the
related Prospectus Supplement, but is accrued and added to the principal of such
Compound Interest Securities.
In addition, due to the priority of payments and the allocation of
losses, defaults experienced on the Mortgage Assets included in the Trust
Property for a Series of Special Allocation Securities may have a
disproportionate effect on a specified Class or Classes within such Series. If
so specified in the Prospectus Supplement for a Series of Special Allocation
Securities, on any Payment Date or Distribution Date, as applicable, for such
Series on which the principal balance of the related Mortgage Assets is reduced
due to losses on such Mortgage Assets (i) the amount of such losses shall be
allocated first to reduce the aggregate outstanding principal balance of the
Subordinate Securities and thereafter to reduce the aggregate outstanding
principal balance of the remaining Securities in the priority and manner
specified in such Prospectus Supplement until the aggregate outstanding
principal balance of each Class of Securities so specified has been reduced to
zero or paid in full, thereby reducing the amount of principal payable on each
such Class of Securities or (ii) such losses may be allocated in any other
manner set forth in the related Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, such reductions of principal of
a Class of a Series will be allocated to the Holders of the Securities of such
Class pro rata in their proportion which the outstanding principal balance of
each Security of such Class bears to the aggregate outstanding principal balance
of all Securities of such Class.
LIMITATIONS, REDUCTION AND SUBSTITUTION OF CREDIT ENHANCEMENT
As specified in the related Prospectus Supplement with respect to each
Series, Credit Enhancement will be provided to the extent required by the rating
agencies requested to rate any Securities of such Series of Certificates. Credit
Enhancement with respect to a Series will be provided in one or more of the
forms described in the related Prospectus Supplement, including, but not limited
to, prioritization as to payments of one or more Classes of such Series,
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a Mortgage Pool Insurance Policy, a Special Hazard Insurance Policy, a
bankruptcy bond, one or more Reserve Funds, other insurance, guarantees and
similar instruments and agreements, or any combination thereof. Regardless of
the form of Credit Enhancement provided with respect to a Series, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. Furthermore, such Credit
Enhancement may provide only very limited coverage as to certain types of
losses, and may provide no coverage as to certain other types of losses. The
related Trustee will generally be permitted to reduce, terminate or substitute
all or a portion of the Credit Enhancement for a Series, if the applicable
rating agencies indicate that the then-current rating of the Securities of such
Series will not be adversely affected.
LIMITATIONS ON FHA INSURANCE FOR TITLE I LOANS.
The related Prospectus Supplement will specify the number and
percentage of the Title I Loans and/or Title I Contracts, if any, included in
the related Trust Property that are partially insured by the FHA pursuant to
Title I Program. Since the FHA Insurance Amount for the Title I Loans and Title
I Contracts is limited as described herein and in the related Prospectus
Supplement, and since the adequacy of such FHA Insurance Amount is dependent
upon future events, including reductions for the payment of FHA claims, no
assurance can be given that the FHA insurance amount is or will be adequate to
cover 90% of all potential losses on the Title I Loans and Title I Contracts
included in the related Trust Property. If the FHA insurance amount for the
Title I Loans and Title I Contracts is reduced to zero, such loans and contracts
will be effectively uninsured from and after the date of such reduction. Under
the Title I Program, until a claim for insurance reimbursement is submitted to
the FHA, the FHA does not review or approve for qualification for insurance the
individual Title I Loan or Title I Contract insured thereunder (as is typically
the case with other federal loan insurance programs). Consequently, the FHA has
not acknowledged that any of the Title I Loans and Title I Contracts are
eligible for FHA insurance, nor has the FHA reviewed or approved the
underwriting and qualification by the originating lenders of any individual
Title I Loans and Title I Contracts. See "Certain Legal Aspects of the Loan
Assets -- The Title I Program".
The availability of FHA Insurance reimbursement following a default on
a Title I Loan or Title I Contract is subject to a number of conditions,
including strict compliance by the originating lender of such loan, the Company,
the FHA Claims Administrator, the Servicer and any subservicer with the FHA
Regulations in originating and servicing such Title I Loan or Title I Contract,
and limits on the aggregate insurance coverage available in the Company's FHA
Reserve. For example, the FHA Regulations provide that, prior to originating a
Title I Loan or Title I Contract, a Title I lender must exercise prudence and
diligence in determining whether the borrower and any co-maker or co-signer is
solvent and an acceptable credit risk with a reasonable ability to make payments
on the loan. Although the related Seller will represent and warrant that the
Title I Loans and Title I Contracts have been originated and serviced in
compliance with all FHA Regulations, these regulations are susceptible to
substantial interpretation. Failure to comply with all FHA Regulations may
result in a denial of FHA Claims, and there can be no assurance that the FHA's
enforcement of the FHA Regulations will not become stricter in the future. See
"Certain Legal Aspects of the Loan Assets -- The Title I Program -- General".
The FHA will not recognize any Issuer or any Securityholders as the
owners of the Title I Loans or Title I Contracts, or any portion thereof,
entitled to submit FHA Claims. Accordingly, neither the Issuer nor the
Securityholders will have a direct right to receive insurance payments from the
FHA. The Company will contract with a Servicer specified in the Prospectus
Supplement to serve as the Administrator for FHA Claims (the "FHA Claims
Administrator") pursuant to an FHA claims administration agreement (the "FHA
Claims Administration Agreement"), which will provide for the FHA Claims
Administrator to handle all aspects of administering, processing and submitting
FHA Claims with respect to the Title I Loans or Title I Contracts, in the name
and on behalf of the Company. The Securityholders will be dependent on the FHA
Claims Administrator to (i) make claims on the Title I Loans or Title I
Contracts in accordance with FHA Regulations and (ii) remit all FHA Insurance
proceeds received from the FHA in accordance with the related Pooling Agreement.
The Securityholders' rights relating to the receipt of payment from and the
administration, processing and submission of FHA Claims by the Company or any
FHA Claims Administrator are limited and governed by the related Pooling
Agreement, and the FHA Claims Administration Agreement and these functions are
obligations of the Company and the FHA Claims Administrator, but not the FHA.
See "Certain Legal Aspects of the Loan Assets -- The Title I Program -- Claims
Procedures under Title I".
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LIMITED NATURE OF RATINGS
Any rating assigned by a rating agency to a Class of Securities will
reflect only its assessment of the likelihood that holders of such Securities
will receive payments or distributions to which such Securityholders are
entitled under the related Indenture, Deposit Trust Agreement or Pooling
Agreement. Such rating will not constitute an assessment of the likelihood that
principal prepayments on the Mortgage Assets will be made, the degree to which
the rate of such prepayments might differ from that originally anticipated or
the likelihood of early optional redemption or termination of the Securities.
Furthermore, such rating will not address the possibility that prepayment of the
Mortgage Assets at a higher or lower rate than anticipated by an investor may
cause such investor to experience a lower than anticipated yield or that an
investor that purchases a Security at a significant premium might fail to
recover its initial investment under certain prepayment scenarios. Hence, a
rating assigned by a rating agency does not guarantee or ensure the realization
of any anticipated yield on a Class of Securities.
The amount, type and nature of credit enhancement, if any, provided
with respect to a Series of Securities will be determined on the basis of
criteria established by each rating agency rating a Class of Securities of such
Series. Those criteria are sometimes based upon an actuarial analysis of the
behavior of similar types of loans in a larger group. However, there can be no
assurance that the historical data supporting any such actuarial analysis will
accurately reflect future experience, or that the data derived from a large pool
of similar types of assets will accurately predict the delinquency, default or
loss experience of any particular pool of Mortgage assets. In other cases, such
criteria may be based upon determination of the values of the Mortgaged
Properties or other properties, if any, that provide security for the Mortgage
Assets. However, no assurance can be given that those values will not decline in
the future. As a result, the Credit Enhancement required in respect of the
Securities of any Series may be insufficient to fully protect the holders
thereof from losses on the related Mortgage Assets. See "-- Limitations,
Reductions and Substitutions of Credit Enhancement" and "Credit Enhancement".
ORIGINAL ISSUE DISCOUNT; RESIDUAL CERTIFICATES
All of the Compound Interest Securities and Principal Only Securities
will be, and certain of the other Securities may be, issued with original issue
discount for federal income tax purposes. A Holder of a Security issued with
original issue discount will be required to include original issue discount in
ordinary gross income for federal income tax purposes as it accrues, in advance
of receipt of the cash, or a portion of the cash, attributable to such income.
Accrued but unpaid interest on the Compound Interest Securities generally will
be treated as original issue discount for this purpose. At certain rapid
Mortgage Asset prepayment rates, original issue discount may accrue on certain
Classes of Securities, including certain variable rate Regular Securities, that
may never be received as cash, resulting in a subsequent loss on such
Securities. See "Certain Federal Income Tax Consequences -- Federal Income Tax
Consequences for REMIC Securities -- Taxation of Regular Securities -- Original
Issue Discount" and "Certain Federal Income Tax Consequences -- Federal Income
Tax Consequences for Securities as to Which No REMIC Election Is Made --
Non-REMIC Bonds" and "-- Standard Certificates -- Premium and Discount --
Original Issue Discount" and "-- Stripped Certificates -- Taxation of Stripped
Certificates -- Original Issue Discount."
An election may be made to treat all or the Trust Property with respect
to a Series as a REMIC for federal income tax purposes. Holders ("Residual
Holders") of Securities representing the residual interests in the related REMIC
("Residual Securities") must report on their federal income tax returns their
pro rata share of REMIC taxable income or loss. All or a portion of the REMIC
taxable income reportable by Residual Holders may be treated as such holders'
"excess inclusion" subject to special rules for federal income tax purposes. The
REMIC taxable income, and possibly the tax liabilities of the Residual Holders,
may exceed the cash distributions on the Residual Securities during certain
periods. Residual Holders who are individuals may be subject to limitations on
the deductibility of servicing fees on the related Mortgage Assets and other
REMIC administrative expenses. Hence, Residual Holders may experience an
after-tax return that is significantly lower than would be anticipated based
upon the stated interest rate, if any, of their Residual Securities. See
"Certain Federal Income Tax Consequences -- Federal Income Tax Consequences for
REMIC Securities -- Taxation of Residual Securities."
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FUNDS AVAILABLE FOR REDEMPTIONS OR REPURCHASES AT THE REQUEST OF HOLDERS
With respect to any Series for which the related Prospectus Supplement
provides for redemptions or repurchases of the Securities of such Series at the
request of Holders, there can be no assurance that amounts available for such
redemptions or repurchases, if any, for such Securities will be sufficient to
permit such Securities to be redeemed or repurchased within a reasonable time
after redemption or repurchase is requested, for reasons including the
following:
1. Scheduled principal payments on the related Mortgage Assets
generally will be minimal in the early years and will increase in the later
years of such Mortgage Assets. As a result, funds available to be applied to
redemptions or repurchases at the request of Holders, may be expected to be
limited in the early years and to increase during the later years of each
Series. Accordingly, the availability of funds for redemptions or repurchases of
Securities of any Series at the request of Holders will depend largely upon the
rates of prepayment of the related Mortgage Assets. See "Certain Yield,
Prepayment and Weighted Average Life Considerations" in the related Prospectus
Supplement.
2. Prepayments of principal on Mortgage Assets are less likely to occur
during periods of higher interest rates when it is more likely that requests for
redemption by Holders will be made. During periods in which prevailing interest
rates are higher than the interest rate paid on Securities that may be redeemed
at the request of Holders, greater numbers of such Securities are expected to be
tendered for redemption in order to take advantage of the higher interest rates
payable on other investments then available. During such periods, there will
likely also be a reduction in the rate of prepayments on the related Mortgage
Assets, thus limiting the funds available to satisfy requested redemption by
Holders.
3. As specified in the related Prospectus Supplement, certain Holders,
such as personal representatives of deceased Holders, may have certain
priorities as to redemption at the request of Holders.
BOOK ENTRY REGISTRATION
Because transfers and pledges of Book Entry Securities can be effected
only through book entries at a Clearing Agency through Clearing Agency
Participants, the liquidity of the secondary market for Book Entry Securities
may be reduced to the extent that some investors are unwilling to hold
Securities in book entry form in the name of Clearing Agency Participants and
the ability to pledge Book Entry Securities may be limited due to lack of a
physical certificate. Beneficial Owners of Book Entry Securities may, in certain
cases, experience delay in the receipt of payments of principal and interest
since such payments will be forwarded by the related Trustee to the Clearing
Agency who will then forward payment to the Clearing Agency Participants who
will thereafter forward payment to Beneficial Owners. In the event of the
insolvency of the Clearing Agency or of a Clearing Agency Participant in whose
name Securities are recorded, the ability of Beneficial Owners to obtain timely
payment and (if the limits of applicable insurance coverage by the Securities
Investor Protection Corporation are exceeded, or if such coverage is otherwise
unavailable) ultimate payment of principal and interest on Book Entry Securities
may be impaired.
NATURE OF DIRECT OR INDIRECT BACKING FOR SECURITIES
Only Agency Securities are guaranteed by an agency or instrumentality
of the United States and only the guarantee by GNMA of GNMA Certificates is
entitled to the full faith and credit of the United States. The guaranteed by
FNMA and FHLMC of FNMA Certificates and FHLMC Certificates, respectively, are
backed only by the credit of FNMA, a federally chartered privately owned
corporation, or by the credit of FHLMC, a federally chartered corporation
controlled by the Federal Home Loan Banks. See "Assets Securing or Underlying
the Securities -- Agency Securities." Although payment of principal of, and
interest on, any Agency Security securing or underlying a Series will be
guaranteed by either GNMA, FNMA or FHLMC, such guarantee will run only to such
Agency Security and will not guarantee the payment of principal or interest on
the Securities of such Series. The Prospectus Supplement for a Series with
respect to which the related Trust Property includes Non-Agency Certificates or
Private Mortgage-Backed Securities may describe certain arrangements through
which such Non-Agency Certificates or Private Mortgage-Backed Securities and/or
the related Underlying Mortgage Loans are insured, guaranteed or otherwise
backed, but any such guarantee will inure only to the benefit of such Non-Agency
Certificates or Private Mortgage-Backed Securities or
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Underlying Mortgage loans, as the case may be, and will not guarantee the
payment of principal or interest on the Securities of such Series. Any such
backing may be subject to contingencies described in the applicable Prospectus
Supplement and will be limited to the credit and assets of the particular
specified insurer or guarantor and will not be entitled to the full faith and
credit of the United States or to any agency or instrumentality thereof.
INSURANCE CONSIDERATIONS FOR CERTAIN NON-AGENCY CERTIFICATES AND PRIVATE
MORTGAGE-BACKED SECURITIES
Potential investors should be aware that (a) any decline in the value
of a property securing an Underlying Mortgage Loan with respect to Non-Agency
Certificate or Private Mortgage-Backed Security may result in a loss on such
Non-Agency Certificate or Private Mortgage-Backed Security if the Mortgagor on
such Underlying Mortgage Loan defaults and the loss is not covered by any
insurance policy, guarantee or comparable instrument, and (b) any hazard loss
not covered by a standard hazard insurance policy or any applicable special
hazard insurance policy or comparable instrument covering a defaulted Underlying
Mortgage Loan with respect to a Non-Agency Certificate or Private
Mortgage-Backed Security will result in a loss on such Non-Agency Certificate or
Private Mortgage-Backed Security. Any such loss on a Non-Agency Certificate or
Private Mortgage-Backed Security, if not covered by funds available in the
Reserve Fund, if any, or Collection Account, or by a guarantee, will result in a
loss to Holders.
CERTAIN MATTERS RELATING TO INSOLVENCY
The Sellers of the Mortgage Assets to the Company and the Company will
intend that the transfers of such Mortgage Assets to the Company and, in turn to
the applicable Issuers (if other than the Company), constitute sales rather than
pledges to secure indebtedness of the Seller. However, if a Seller of Mortgage
Assets were to become a debtor under the federal bankruptcy code, it is possible
that a creditor or trustee-in-bankruptcy of such Seller may argue that the sale
thereof by such Seller is a pledge rather than a sale. This position, if argued
or accepted by a court, could result in a delay in or reduction of distributions
to the related Holders.
JUNIOR LIEN MORTGAGE LOANS; LIQUIDATION OF MORTGAGE LOANS
An overall decline in the residential real estate market could
adversely affect the values of the properties securing the Mortgage Loans,
including Title I Loans, with junior liens such that the outstanding principal
balances, together with any senior financing thereon, exceeds the value of the
Mortgaged Properties. Since Mortgage Loans secured by junior (i.e. second,
third, etc.) liens are subordinate to the rights of the beneficiaries under the
related senior deeds of trust or senior mortgages, such a decline would
adversely affect the position of the related junior beneficiary or junior
mortgagee before having such an effect on the position of the related senior
beneficiaries or senior mortgagees. A rise in interest rates over a period of
time, the general condition of a Mortgaged Property and other factors may also
have the effect of reducing the value of the Mortgaged Property from the value
at the time the junior lien Mortgage Loan was originated. As a result, the ratio
of the amount of the Mortgage Loan to the value of the Mortgaged Property may
exceed the ratio in effect at the time the Mortgage Loan was originated. Such an
increase may reduce the likelihood that, in the event of a default by the
borrower, liquidation or other proceeds will be sufficient to satisfy the junior
lien Mortgage Loan after satisfaction of any senior liens and the payment of any
liquidation expenses.
Even assuming that the Mortgaged Property provides adequate security
for the junior lien Mortgage Loan, substantial delay could be encountered in
connection with the liquidation of a defaulted Mortgage Loan and corresponding
delays in the receipt of related proceeds by Holders could occur. Further,
liquidation expenses (such as legal fees, real estate taxes, and maintenance and
preservation expenses) could reduce the proceeds available for payment to
Holders and thereby reduce the security for the junior lien Mortgage Loan. In
the event that any Mortgaged Properties fail to provide adequate security for
the related junior lien Mortgage Loan and any related Credit Enhancement has
been exhausted, Holders would experience a loss.
Liquidation expenses with respect to defaulted Mortgage Loans do not
vary directly with the outstanding principal balance of the Mortgage Loans at
the time of default. Therefore, assuming that a Servicer took the same steps in
realizing upon defaulted Mortgage Loans having small remaining principal
balances as in the case of defaulted Mortgage Loans having larger principal
balances, the amount realized after expenses of liquidation would be smaller as
a percentage of the outstanding principal balance of the smaller Mortgage Loans.
To the extent the average
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outstanding principal balances of the Mortgage Loans in the related Trust
Property are relatively small, realizations net of liquidation expenses may also
be relatively small as a percentage of the principal amount of the Mortgage
Loans.
GEOGRAPHIC CONCENTRATION
Certain geographic regions of the United States from time to time will
experience weaker regional economic conditions and housing markets, and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans generally. Any concentration of Mortgage Assets in such a region may
present risk considerations in addition to those generally present for similar
mortgage-backed or asset-backed securities without such concentration.
REMEDIES FOLLOWING DEFAULT
The market value of the Mortgage Assets securing or underlying a Series
will fluctuate as general interest rates fluctuate. Following an Event of
Default with respect to a Series of Bonds, there is no assurance that the market
value of the Mortgage Assets securing such Series of Bonds will be equal to or
greater than the unpaid principal and accrued interest due on the Bonds of such
Series, together with any other expenses or liabilities payable thereon. If the
Mortgage Assets securing a Series of Bonds are sold by the Trustee following an
Event of Default, the proceeds of such sale may be insufficient to pay in full
the principal of and interest on such Bonds, and any Classes on which principal
payments have previously been made may have, in the aggregate, a greater
proportion of their principal repaid than will Classes on which principal
payments have not previously been made. However, in certain events the Trustee
may be restricted from selling the Mortgage Assets securing a Series of Bonds.
See "The Indenture -- Events of Default."
In the event the principal of the Securities of a Series is declared
due and payable, the Holders of any such Securities issued at a discount from
par ("original issue discount") may be entitled, under applicable provisions of
the federal Bankruptcy Code, to receive no more than an amount equal to the
unpaid principal amount thereof less unamortized original issue discount
("accrued value"). There is no assurance as to how such accrued value would be
determined if such event occurred.
DEPOSITS, SUBSTITUTIONS AND WITHDRAWALS OF ASSETS
To the extent provided in the Prospectus Supplement for a Series, the
related Issuer or the Company may, subsequent to the issuance of such Series,
deposit additional Assets and withdraw Assets previously included in the related
Trust Property or Assets deposited in a Reserve Fund for such Series. The effect
of deposit or substitution of other Assets (i) for a Series of Bonds may be to
overcollateralize such Series, thus limiting the amount of funds available for
application to payments of principal on such Series and (ii) for a Series of
Bonds or Certificates, may be to alter the characteristics of the Assets
securing or underlying such Series, either of which may alter the timing and
amount of principal and/or interest payments or distributions on, and the
maturity of, or the date of the final distribution on, the Securities of such
Series. See "Assets Securing or Underlying the Securities -- Deposit,
Substitution and Withdrawal of Assets."
OTHER LEGAL CONSIDERATIONS
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of the originators
of the Mortgage Loans and Contracts. In addition, other state laws, public
policy and general principles of equity relating to the protection of consumers,
unfair and deceptive practices and debt recollection practices may apply to the
origination, servicing and collection of the Mortgage Loans and Contracts.
Depending on the provisions of the applicable law and the specified facts and
circumstances involved, violations of these laws, policies and principles may
limit collection of all or part of the principal of or interest on the Mortgage
Loans and Contracts, and may entitle the borrower to a refund of amounts
previously paid. See "Certain Legal Aspects of the Mortgage Assets."
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The Mortgage Loans and Contracts are also subject to federal laws,
including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding the
terms thereof.
(ii) the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color, sex,
religion, martial status, national origin, receipt of public assistance or the
exercise of any right under the Consumer Credit Protection Act, in the extension
of credit; and
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience. Violations
of certain provisions of these federal laws may limit the ability of the
Servicer or the Administrator to collect all or part of the principal of or
interest on the Mortgage Loans and Contracts and in addition could subject the
Servicer or the Administrator to damages and administrative enforcement.
Unless otherwise specified in the related Prospectus Supplement, the
related Seller or the Company will be required to repurchase any Mortgage Loan
or Contract which, at the time of origination, did not comply with applicable
federal and state laws or regulations.
DESCRIPTION OF THE SECURITIES
GENERAL
The following summaries describe certain features common to each
Series. Such summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Indenture or Pooling Agreement, as applicable, and the Prospectus Supplement
relating to each Series. When particular provisions or terms used or referred to
in an Indenture or Pooling Agreement are referred to herein, such provisions or
terms shall be as used or referred to in such Indenture or Pooling Agreement.
Neither the Bonds nor the Certificates will be insured or guaranteed by
GNMA, FNMA, FHLMC, any governmental entity or, unless otherwise specified in the
related Prospectus Supplement by any other person. Unless otherwise specified in
the related Prospectus Supplement, the Company's only obligations with respect
to a Series will be to obtain certain representations and warranties from each
Seller and to assign to the related Trustee the Company's rights with respect
thereto, and its obligations pursuant to certain representations and warranties
made by it. Unless otherwise specified in the Prospectus Supplement relating to
a Series, no affiliate of the Company will have any obligations with respect to
such Series.
The Mortgage Assets relating to a Series, other than the Agency
Securities, will not be, insured or guaranteed by any governmental entity or,
unless otherwise specified in the related Prospectus Supplement, by any other
person. With respect to a Series for which the related Trust Property includes
Mortgage Loans, Contracts or Multifamily Loans, to the extent that delinquent
payments on or losses in respect of defaulted Mortgage Loans, Contracts or
Multifamily Loans, are not advanced by the related Servicer, the Administrator,
if any, or any other entity or paid from any applicable Credit Enhancement, such
delinquencies may result in delays in payments or distributions to the Holders
of one or more Classes of such Series, and such losses will be borne by the
Holders of one or more Classes of such Series.
In addition, with respect to a Series for which the related Trust
Property includes Mortgage Assets other than Mortgage Loans, late payments on
such Mortgage Assets may result in delays in payments and/or distributions to
the Holders of one or more Classes of such Series, and losses on such Mortgage
Assets will be borne by the Holders of one or more Classes of such Series, to
the extent such late payments and losses are not advanced or paid from any
applicable Credit Enhancement.
THE BONDS - GENERAL
The Bonds will be issued in Series pursuant to an Indenture between the
applicable Issuer and the related Trustee named in the related Prospectus
Supplement, each such Indenture as supplemented by or is incorporated by
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reference by a Series Supplement with respect to each Series. A form of
Indenture has been filed with the Commission as an Exhibit to the Registration
Statement of which Prospectus forms a part. A copy of the Series Supplement for
a Series, if any, will be filed with the Commission as an Exhibit to a Current
Report on Form 8-K to be filed with the Commission within 15 days of issuance of
such Series of Bonds.
The "Issuer" with respect to a Series of Bonds will be the Company or a
trust beneficially owned by the Company (each, a "Trust"). Each such Trust will
be created by an agreement (the "Deposit Trust Agreement") between the Company,
acting as depositor, and a bank, trust company or other fiduciary, acting as
owner trustee (the "Owner Trustee"), solely for the purpose of issuing one or
more Series of Bonds. The Company may sell or assign its beneficial ownership
interest in any Trust, in whole or in part, to another entity or entities at the
time of, or subsequent to, the issuance of any Bonds by such Trust. Each Series
of Bonds will be non-recourse obligations of the related Issuer. The Issuer with
respect to a Series of Bonds will not have, nor be expected in the future to
have, any significant assets available for payments on such Series of Bonds
other than the Assets included in the related Trust Estate. Unless otherwise
specified in the related Prospectus Supplement, each Series of Bonds will be
separately secured by the related Trust Estate, which will constitute the only
significant assets available to make payments on the Bonds of such Series.
Accordingly, the investment characteristics of a Series of Bonds will be
determined by the Assets included in the related Trust Estate and will not be
affected by the identity of the obligor with respect to such Series of Bonds.
THE CERTIFICATES - GENERAL
The Certificates will be issued in Series pursuant to a Deposit Trust
Agreement or a Pooling Agreement a form of each of which has been filed as an
Exhibit to the Registration Statement of which this Prospectus forms a part. The
Deposit Trust Agreement or Pooling Agreement relating to a Series of
Certificates will be filed as an Exhibit to a Report on Form 8-K to be filed
with the Commission within 15 days following the issuance of such Series of
Certificates.
The "Issuer" with respect to a Series of Certificates will be the
related Trust established by the Company pursuant to the related Deposit Trust
Agreement or Pooling Agreement. Each Series of Certificates will be entitled to
distributions only from the Assets included in the related Trust Property and
any other Assets pledged or otherwise available for the benefit of the Holders
of such Series as specified in the related Prospectus Supplement. Accordingly,
the investment characteristics of a Series of Certificates will be determined by
the Assets included in the related Trust Property. The Certificates of a Series
will not represent obligations of the Company, any Administrator, any Servicer
or any affiliate thereof.
FORM OF SECURITIES; TRANSFER AND EXCHANGE
As specified in the related Prospectus Supplement, the Securities of
each Series will be issued either in book entry form or fully registered
certificated form in the minimum denominations for each Class specified in the
related Prospectus Supplement. Unless otherwise specified in the Prospectus
Supplement, the original Principal Balance of each Security will equal the
aggregate payments or distributions allocable to principal to which such
Security is entitled. Unless otherwise specified in the related Prospectus
Supplement, payments or distributions allocable to interest on each Security of
a Series that is not entitled to payments or distributions allocable to
principal will be calculated based on the Notional Principal Balance of such
Security. The "Notional Principal Balance" of a Security will be a notional
amount assigned to such security and will not evidence an interest in or
entitlement to payments or distributions allocable to principal, but will be
used solely for convenience in expressing the calculation of interest and for
certain other purposes.
Except as described below under "Book Entry Registration" with respect
to Book Entry Securities, the Securities of each Series will be transferable and
exchangeable on a register to be maintained at the corporate trust office of the
related Trustee or such other office or agency maintained for such purposes by
the Trustee in New York City. Unless otherwise specified in the Prospectus
Supplement with respect to a Series, under the related Indenture or Pooling
Agreement, the Trustee will be appointed initially as the "Registrar" for such
Series for purposes of maintaining books and records of the ownership and
transfer of the Securities of such Series. Unless otherwise specified in the
Prospectus Supplement with respect to a Series, no service change will be made
for any registration of transfer or exchange of Securities of such Series, but
payment of a sum sufficient to cover any tax or other governmental charge may be
required.
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Under current law the purchase and holding of a Class of Securities
entitled only to a specified percentage of payments or distributions of either
interest or principal or a notional amount of either interest or principal on
the related Mortgage Assets or a Class of Securities entitled to receive
payments or distributions of interest and principal on the Mortgage Assets only
after payments or distributions to other Classes or after the occurrence of
certain specified events by or on behalf of any employee benefit plan or other
retirement arrangement (including individual retirement accounts and annuities,
Keogh plans and collective investment funds in which such plans, accounts or
arrangements are invested) subject to provisions of ERISA or the Code, may
result in "prohibited transactions" within the meaning of ERISA and the Code.
See "ERISA Considerations." Unless otherwise specified in the related Prospectus
Supplement, transfer of Securities of such a Class will not be registered unless
the transferee (i) executes a representation letter stating that it is not, and
is not purchasing on behalf of, any such plan, account or arrangement or (ii)
provides an opinion of counsel satisfactory to the related Trustee and the
Company that the purchase of Securities of such a Class by or on behalf of such
plan, account or arrangement is permissible under applicable law and will not
subject the related Trustee, the Administrator, if any, or the Company to any
obligation or liability in addition to those undertaken in the Pooling
Agreement.
REMIC ELECTION
As to each Series, one or more elections may be made to treat all or
specified portions of the related Trust Property as a REMIC for federal income
tax purposes. The related Prospectus Supplement will specify whether a REMIC
election is to be made. Alternatively, the Indenture or Pooling Agreement for a
Series may provide that a REMIC election may be made at the discretion of the
Company, the Administrator, if any, or another entity and may only be made if
certain conditions are satisfied. As to any such Series, the terms and
provisions applicable to the making of a REMIC election, as well as any material
federal income tax consequences to Holders of such Series not otherwise
described herein, will be set forth in the related Prospectus Supplement. If
such an election is made with respect to a Series, one or more of the Classes of
such Series will be designated as evidencing the "residual interests" in the
related REMIC or REMICs, as defined in the Code. All other Classes of such
Series will constitute "regular interests" in the related REMIC or REMICs, as
defined in the Code. As to each Series with respect to which a REMIC election is
to be made, the Administrator, if any, the related Trustee, a Residual Holder or
another person as specified in the related Prospectus Supplement will be
obligated to take all actions required in order to comply with applicable laws
and regulations and will be obligated to pay any prohibited transaction taxes.
The person so specified, unless otherwise provided in the related Prospectus
Supplement, will be entitled to reimbursement for any such payment from the
assets of the related Trust Property or, if applicable, from any Residual
Holder.
CLASSES OF SECURITIES
Each Series will be issued in one or more Classes. If specified in the
Prospectus Supplement, one or more Classes of a Series may be secured by (in the
case of Bonds), or evidence beneficial ownership interests in (in the case of
Certificates), separate groups of Assets included in the related Trust Property
or otherwise available for the benefit of such Series.
If specified in the related Prospectus Supplement, the Certificates of
a Series will have an aggregate original principal balance equal to the
aggregate unpaid principal balance of the Mortgage Assets included in the
related Trust Property as of the close of business on the first day of the month
of creation of the related Trust (the "Cut-off Date") after deducting payments
of principal due on or before the Cut-off Date and, unless otherwise specified
in the related Prospectus Supplement, will bear interest in the aggregate equal
to the Pass-Through Rate for such Series. The "Pass-Through Rate" for a Series
will equal the rate of interest borne by the related Mortgage Assets, net of the
aggregate servicing fees and any other amounts (including fees payable to the
Administrator, if any, for such Series) as are specified in the Prospectus
Supplement. The original principal balance of the Certificates of a Series and
the Certificate Interest Rate on the Classes of such Certificates will be
determined in the manner specified in the Prospectus Supplement.
Each Class of Securities that is entitled to payments or distributions
allocable to interest will bear interest at the applicable Bond Interest Rate or
Certificate Interest Rate, which in either case may be a fixed rate (which may
be zero) or, in the case of Variable Interest Securities, may be a rate that is
subject to change from time to time (a) in
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accordance with a schedule, (b) in reference to an index, or (c) otherwise in
each case as specified in the related Prospectus Supplement. Notwithstanding the
foregoing, if so specified in the related Prospectus Supplement, one or more
Classes of a Series may be entitled to receive payments or distributions of
interest only to the extent of amounts available to make such payments or
distributions. One or more Classes of Securities may provide for interest that
accrues, but is not currently payable ("Compound Interest Securities"). With
respect to any Class of Compound Interest Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid on
a given Payment Date or Distribution Date will be added to the aggregate
principal balance of such Class on that Payment Date or Distribution Date.
A Series may include one or more Classes entitled only to payments or
distributions (i) allocable to interest ("Interest Only Securities"), (ii)
allocable to principal ("Principal Only Securities"), and allocable as between
scheduled payments of principal and Principal Prepayments, as defined below
under "Payments or Distributions of Principal and Interest" or (iii) allocable
to both principal (and allocable as between scheduled payments of principal and
Principal Prepayments) and interest. A Series may include one or more classes as
to which payments or distributions will be allocated (i) on the basis of
collections from designated portions of the Assets included in the related Trust
Property, (ii) in accordance with a schedule or formula, (iii) in relation to
the occurrence of events, or (iv) otherwise, in each case as specified in the
related Prospectus Supplement. The timing and amounts of such payments or
distributions may vary among Classes, over time or otherwise, in each case as
specified in the related Prospectus Supplement.
A Series of Securities may include one or more Classes of Scheduled
Amortization Securities and Companion Securities. "Scheduled Amortization
Securities" are Securities with respect to which payments or distributions of
principal are to be made in specified amounts on specified Payment Dates or
Distribution Dates, to the extent of funds available on such Payment Date or
Distribution Date. "Companion Securities" are Securities which receive payments
or distributions of all or a portion of any funds available on a given Payment
Date or Distribution Date which are in excess of amounts required to be applied
to payments or distributions on Scheduled Amortization Securities on such
Payment Date or Distribution Date. Because of the manner of application of
payments or distributions of principal to Companion Securities, the weighted
average lives of Companion Securities of a Series may be expected to be more
sensitive to the actual rate of prepayments on the Mortgage Assets in the
related Trust Property than will the Scheduled Amortization Securities of such
Series.
One or more Series of Securities may constitute Series of "Special
Allocation Securities," which may include Senior Securities, Subordinated
Securities, Priority Securities and Non-Priority Securities. As more fully
described in the related Prospectus Supplement for a Series of Special
Allocation Securities, Special Allocation Securities are Securities for which
the timing and/or priority of payments or distributions of principal and/or
interest may favor one or more Classes of such Securities over one or more other
Classes of such Securities. Such timing and/or priority may be modified or
reordered upon the occurrence of one or more specified events. Unless otherwise
specified in the related Prospectus Supplement for a Series of Special
Allocation Securities, losses on the Assets included in the related Trust
Property may be disproportionately borne by one or more Classes of such Series,
and the proceeds and distributions from such Assets may be applied to the
payment in full of one or more Classes of such Series before the balance, if
any, of such proceeds are applied to one or more other Classes within such
Series. For example, Special Allocation Securities in a Series may be comprised
of one or more Classes of Senior Securities having a priority in right to
payments or distributions of principal and interest over one or more Classes of
Subordinated Securities, to the extent described in the related Prospectus
Supplement, as a form of Credit Enhancement. See "Credit Enhancement --
Subordination". Typically, Subordinated Securities of a Series will carry a
rating by the rating agencies rating the Securities of such Series lower than
that of the Senior Securities of such Series. In addition, one or more Classes
of Securities of a Series ("Priority Securities") may be entitled to a priority
of payments or distributions of principal or interest from Assets included in
the related Trust Property over another Class of Securities of such Series
("Non-Priority Securities"), but only after the exhaustion of other Credit
Enhancement applicable to such Series. Priority Securities and Non-Priority
Securities nonetheless may be within the same rating category.
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PAYMENTS OR DISTRIBUTIONS OF PRINCIPAL AND INTEREST
General
Payments or distributions of principal and interest on the Securities
of a Series will be made by the related Trustee, to the extent of funds
available therefor, on the related Payment Date or Distribution Date. Payments
or distributions will be made to the persons in whose names the Securities of
such Series are registered at the close of business on the dates specified in
the related Prospectus Supplement (each, a "Record Date"). With respect to
Securities other than Book Entry Securities, payments or distributions will be
made by check or money order mailed to Securityholders of such Series at their
addresses appearing in the books and records maintained by or on behalf of the
Issuer of such Series or, if specified in the related Prospectus Supplement, in
the case of Securities that are of a certain minimum denomination as specified
in the related Prospectus Supplement, upon written request by a holder of such
Series, by wire transfer or by such other means as are agreed upon with such
Securityholder; provided, however, that the final payment or distribution in
retirement of a Series (other than Book Entry Securities) will be made only upon
presentation and surrender of such Securities at the office or agency of the
related Trustee specified in the notice to Securityholders of such final
distribution. With respect to Book Entry Securities, such payments or
distributions will be made as described below under "Book Entry Registration"
and in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
payments or distributions allocable to principal and interest on the Securities
of a Series will be made by the related Trustee out of, and only to the extent
of, funds in a separate account established and maintained under the related
Indenture or Pooling Agreement for the benefit of Securityholders of such Series
(the "Collection Account" with respect to a Series of Bonds and the "Certificate
Account" with respect to a Series of Certificates), including any funds
transferred from any related Reserve Fund. As between Securities of different
Classes of a Series and as between payments or distributions of principal (and,
if applicable, between payments or distributions of Principal Prepayments and
scheduled payments of principal) and interest, payments or distributions made on
any Payment Date or Distribution Date will be applied as specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, payments or distributions to any Class of Securities will
be made pro rata to all Securityholders of that Class. If so specified in the
related Prospectus Supplement, the amounts received by the Trustee as described
below under "Assets Securing or Underlying the Securities" will be invested in
the Permitted Instruments specified herein and in the related Prospectus
Supplement and all income or other gain from such investments will be deposited
in the related Collection Account or Certificate Account and will be available
to make payments or distributions on the Securities of the applicable Series on
the next succeeding Payment Date or Distribution Date in the manner specified in
the related Prospectus Supplement.
Payments or Distributions of Interest
Each Class of a Series (other than a Class of Principal Only
Securities) will accrue interest at the applicable Bond Interest Rate or
Certificate Interest Rate. One or more Classes may be entitled to receive
payments or distributions of interest only to the extent of amounts available to
make such payments or distributions. Interest on each Class will accrue during
the related Interest Accrual Period and will be paid or distributed on the
related Payment Date or Distribution Date. Interest on all Securities which bear
or receive interest, other than Compound Interest Securities, will be due and
payable on the Payment Dates, or distributed on the Distribution Dates, as
applicable, specified in the related Prospectus Supplement. However, failure to
pay or distribute interest on a current basis may not necessarily be an Event of
Default with respect to a particular Series or Class of Securities. Interest on
any Class of Compound Interest Securities will not be paid or distributed
currently, but will accrue and the amount of the interest so accrued will be
added to the principal thereof on each Payment Date or Distribution Date, as
applicable, until the date specified in the related Prospectus Supplement.
Principal Only Securities will not accrue, and will not be entitled to receive,
any interest. Upon maturity or earlier redemption of the Securities of any
Class, interest will be paid to the date specified in the related Prospectus
Supplement.
Each payment of interest on each Class of Securities (or addition to
principal of a Class of Compound Interest Securities) on a Payment Date or
Distribution Date, as applicable, will include all interest accrued during the
related Interest Accrual Period. If the Interest Accrual Period for a Series
ends on a date other than a Payment Date or Distribution Date, as applicable,
for such Series, the yield realized by the Holders of such Securities may be
lower than
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the yield that would result if the Interest Accrual Period ended on such Payment
Date or Distribution Date. Additionally, if so specified in the related
Prospectus Supplement, interest accrued for an Interest Accrual Period for one
or more Classes may be calculated on the assumption that principal payments or
distributions (and additions to principal of the Securities), and allocations of
losses on the Mortgage Assets (if so specified in the related Prospectus
Supplement), are made on the first day of the preceding Interest Accrual Period
and not on the Payment Date or Distribution Date, as applicable, for such
preceding Interest Accrual Period when actually made or added. Such method would
produce a lower effective yield than if interest were calculated on the basis of
the actual principal amount outstanding.
A Series may include one or more Classes of Variable Interest Rate
Securities. With respect to each Class of Variable Interest Securities of a
Series, the related Prospectus Supplement will set forth: (i) the initial Bond
Interest Rate or Certificate Interest Rate, as applicable (or the manner of
determining the initial Bond Interest Rate or Certificate Interest Rate); (ii)
the formula, index or other method by which the Bond Interest Rate or
Certificate Interest Rate, as applicable, will be determined from time to time;
(iii) the periodic intervals at which such determination will be made; (iv) the
Maximum Variable Interest Rate, if any, and the Minimum Variable Interest Rate;
and (v) any other terms relevant to such Class of Securities.
Payments or Distributions of Principal
Principal payments or distributions on the Securities of a Series will
be made from amounts available therefor on each Payment Date or Distribution
Date, as applicable, in an aggregate amount determined as set forth in the
related Prospectus Supplement and will be allocated among the respective Classes
of a Series of Securities at the times, in the manner and in the priority set
forth in the related Prospectus Supplement.
Except with respect to Compound Interest Securities and Interest Only
Securities, unless specified otherwise in the related Prospectus Supplement, on
each Payment Date or Distribution Date, as applicable, principal payments or
distributions will be made on the Securities of a Series in an aggregate amount
determined in the related Prospectus Supplement. If a Series of Securities has a
Class of Compound Interest Securities, additional principal payments on the
Securities of such Series will be made on each Payment Date or Distribution
Date, as applicable, in an amount equal to the interest accrued, but not then
payable or distributable, on such Class of Compound Interest Securities for the
related Interest Accrual Period.
If so specified in the related Prospectus Supplement, on any Payment
Date or Distribution Date, as applicable, on which the principal balance of the
Mortgage Assets relating to a Series is reduced due to losses on such Mortgage
Assets, (i) the amount of such losses will be allocated first, to reduce the
aggregate outstanding principal balance of the Subordinate Securities of such
Series or other subordination, if any, and, thereafter, to reduce the aggregate
outstanding principal balance of the remaining Securities of such Series in the
priority and manner specified in such Prospectus Supplement until the aggregate
outstanding principal balance of each Class of such Securities of such Series so
specified has been reduced to zero or paid in full, thus reducing the amount of
principal payable or distributable on each such Class of Securities or (ii) such
losses may be allocated in any other manner set forth in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement,
such reductions of principal of a Class or Classes of Securities will be
allocated to the Holders of the Securities of such Class or Classes pro rata in
the proportion which the outstanding principal of each Security of such Class or
Classes bears to the aggregate outstanding principal balance of all Securities
of such Class.
If so provided in the related Prospectus Supplement, one or more
Classes of Senior Certificates of a Series will be entitled to receive all or a
disproportionate percentage of the payments of principal which are received on
the related Mortgage Assets in advance of their scheduled due dates and are not
accompanied by amounts representing scheduled interest due after the month of
such payments ("Principal Prepayments") in the percentages and under the
circumstances or for the periods specified in the Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, any such allocation of
principal prepayments to such Class or Classes will have the effect of
accelerating the amortization of such Senior Securities while increasing the
interests evidenced by the Subordinated Securities in rights to the benefit of
the Assets in the related Trust Property. Increasing the interests of the
Subordinated Securities relative to that of the Senior Securities is intended to
preserve the availability of the subordination credit enhancement provided to
the Priority Securities by the Subordinated Securities. See "Credit Enhancement
- -- Subordination."
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Unscheduled Payments or Distributions
If specified in the related Prospectus Supplement, the Securities of a
Series will be subject to receipt of payments or distributions before the next
scheduled Payment Date or Distribution Date under the circumstances and in the
manner described below and in the related Prospectus Supplement. If applicable,
the related Trustee will be required to make such unscheduled payments or
distributions on the Securities of a Series on the date and in the amount
specified in the related Prospectus Supplement if, due to substantial payments
of principal (including Principal Prepayments) on the related Mortgage Assets,
low rates then available for reinvestment of such payments or both, the Trustee
determines, based on the assumptions specified in the related Indenture or
Pooling Agreement, that the amount anticipated to be on deposit in the
Collection Account or Certificate Account for such Series on the next related
Payment Date or Distribution Date, together with, if applicable, any amounts
available to be withdrawn from any related Reserve Fund or from any other Credit
Enhancement provided for such Series, may be insufficient to make required
payments or distributions on the Securities of such Series on such Payment Date
or Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the amount of any such unscheduled payment or distribution that is
allocable to principal will not exceed the amount that would otherwise have been
required to be paid or distributed as principal on the Securities of such Series
on the next Payment Date or Distribution Date. Unless otherwise specified in the
related Prospectus Supplement, all unscheduled payments or distributions will
include interest at the applicable Bond Interest Rate or Certificate Interest
Rate (if any) on the amount of the unscheduled payment or distribution allocable
to principal for the period and to the date specified in such Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, all
payments or distributions allocable to principal in any unscheduled payment or
distribution made on the Securities of a Series will be made in the same
priority and manner as payments or distributions of principal on such Securities
would have been made on the next Payment Date or Distribution Date, and with
respect to Securities of the same Class, unscheduled payments or distributions
of principal will be made on a pro rata basis. Notice of any unscheduled payment
or distribution will be given by the Trustee prior to the date of such payment
or distribution.
REDEMPTION OF BONDS; TERMINATION OR REPURCHASE WITH RESPECT TO CERTIFICATES
To the extent provided in the related Prospectus Supplement, the Bonds
of any Class of a Series may be (i) redeemed at the request of holders of such
Bonds; (ii) redeemed at the option of the Company or another party specified in
the related Prospectus Supplement; or (iii) subject to special redemption under
certain circumstances. The circumstances and terms under which the Bonds of a
Series may be redeemed will be described in the related Prospectus Supplement.
To the extent provided in the related Prospectus Supplement, the
Certificates of any Class of a Series may be (i) repurchased at the request of
holders of such Certificates; (ii) repurchased at the option of the Company, the
Administrator, if any, or another party specified in the related Prospectus
Supplement; or (iii) subject to special repurchase under certain circumstances.
In addition, if so specified in the Prospectus Supplement for a Series of
Certificates, the Company, the Administrator, if any, or another party specified
in the related Prospectus Supplement may, at its option, cause an early
termination of the Trust for such Series by repurchasing all of the Mortgage
Assets from such Trust, under the circumstances specified in such Prospectus
Supplement. The circumstances and terms under which the Certificates of a Series
may be repurchased and the circumstances and terms under which the related Trust
may be terminated will be described in the related Prospectus Supplement.
BOOK ENTRY REGISTRATION
If the Prospectus Supplement for a Series so provides, Securities of
any Class of such Series may be issued in book entry form ("Book Entry
Securities") and held in the form of a single bond or certificate issued in the
name of a Clearing Agency ("Clearing Agency") registered with the Securities and
Exchange Commission or its nominee. Transfers and pledges of Book Entry
Securities may be made only through entries on the books of the Clearing Agency
in the name of brokers, dealers, banks and other organizations eligible to
maintain accounts with the Clearing Agency ("Clearing Agency Participants") or
their nominees. Clearing Agency Participants may also be Beneficial Owners (as
defined below) of Book Entry Securities.
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Purchasers and other Beneficial Owners of Book Entry Securities
("Beneficial Owners") may not hold Book Entry Securities directly, but may hold,
transfer or pledge their ownership interest in the Book Entry Securities only
through Clearing Agency Participants. Additionally, Beneficial Owners will
receive all payments or distributions of principal and interest with respect to
Book Entry Securities, and, if applicable, may request redemption or repurchase
of Book Entry Securities, only through the Clearing Agency and the Clearing
Agency Participants. Beneficial Owners will not be registered holders of
Securities or be entitled to receive definitive certificates representing their
ownership interest in the Securities except under the limited circumstances, if
any, described in the related Prospectus Supplement. See "Special Considerations
- -- Book Entry Registration."
If Securities of a Series are issued as Book Entry Securities, the
Clearing Agency will be required to make book entry transfers among Clearing
Agency Participants, to receive and transmit payments or distributions of
principal and interest with respect to the Securities of such Series, and to
receive and transmit requests for redemption or repurchase with respect to such
Securities. Clearing Agency Participants with whom Beneficial Owners have
accounts with respect to such Book Entry Securities will be similarly required
to make book entry transfers and receive and transmit payments or distributions
and redemption or repurchase requests on behalf of their respective Beneficial
Owners. Accordingly, although Beneficial Owners will not be registered holders
of Securities and will not possess physical certificates, a method will be
provided whereby Beneficial Owners may receive payments or distributions,
transfer their interests, and submit redemption or repurchase requests.
ASSETS SECURING OR UNDERLYING THE SECURITIES
Each Series of Bonds will be secured by a pledge by the related Issuer
to the related Trustee of the Assets included in the related Trust Estate, and
each Series of Certificates will represent a beneficial interest in the Assets
included in the related Trust and transferred to the related Trustee by the
Company. Such Assets may include (i) Mortgage Assets and payments or
distributions thereon (subject, if specified in the Prospectus Supplement, to
certain exclusions); (ii) if specified in the Prospectus Supplement,
reinvestment income on such payments or distributions; (iii) with respect to
Property that includes Mortgage Loans, Contracts or Multifamily Loans, all
property acquired by foreclosure or deed in lieu of foreclosure with respect to
any such Mortgage Loan, Contract or Multifamily Loan and certain rights of the
Administrator, if any, and the Servicers under any policies required to be
maintained in respect of the related Mortgage Assets; and (iv) if so specified
in the Prospectus Supplement, one or more forms of Credit Enhancement. The
primary Assets of any Trust Estate or Trust will consist of Mortgage Assets. The
Company expects to acquire Mortgage Assets from various sellers (each, a
"Seller"), which may be affiliates of the Company, in open market or privately
negotiated transactions. Such acquisitions may be made through an affiliate of
the Company.
Mortgage Assets may be acquired by the Company from affiliates of the
Company. The following is a brief description of the Mortgage Assets expected to
be included in the Trust Property of each Series. If specific information
respecting the Mortgage Assets is not known at the time a Series is initially
offered, more general information of the nature described below will be provided
in the related Prospectus Supplement, and specific information will be set forth
in a report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Series. A copy of the
related Indenture or Pooling Agreement with respect to each Series will be
attached to the Form 8-K and will be available for inspection at the corporate
trust office of the related Trustee specified in the related Prospectus
Supplement. A schedule of the Mortgage Assets relating to each Series, will be
attached to the related Indenture or Pooling Agreement delivered to the Trustee
upon delivery of such Series.
MORTGAGE LOANS
The Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by mortgages or deeds of trust (the "Mortgages") creating liens
on residential properties (the "Mortgaged Properties"). Such Mortgage Loans will
be within the broad classification of single family mortgage loans, defined
generally as loans on residences containing one to four dwelling units. If so
specified in the Prospectus Supplement, the Mortgage Loans may include
cooperative apartment loans ("Cooperative Loans") secured by security interests
in shares issued by private, non-profit, cooperative housing corporations
("Cooperatives") and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in such
Cooperatives' buildings, or the Mortgage Loans may be secured by junior liens on
the related mortgaged properties, including Title I Loans. The Mortgaged
Properties
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securing the Mortgage Loans may be located in or outside of the United States,
and may include investment properties and vacation and second homes. Each
Mortgage Loan will be selected by the Company for inclusion in the Trust
Property of a Series from among those acquired by the Company or originated or
acquired by one or more affiliates of the Company, including newly originated
loans.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans included in the Trust Property for a Series or underlying a
Non-Agency Certificate included in the Trust Property for a Series will be
"conventional" mortgage loans, that is, they will not be insured or guaranteed
by any governmental agency, the principal and interest on such Mortgage Loans
will be payable on the first day of each month, and the interest will be
calculated based on a 360-day year of twelve 30-day months. When full payment is
made on a Mortgage Loan during a month, the mortgagor is charged interest only
on the days of the month actually elapsed up to the date of such prepayment, at
a daily interest rate that is applied to the principal amount of the loan so
prepaid.
The payment terms of the Mortgage Loans to be included in the Trust
Property for a Series or underlying a Non-Agency Certificate included in the
Trust Property for a Series will be described in the related Prospectus
Supplement and may include any of the following features or combinations thereof
or other features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index, a rate that is fixed for period of time or
under certain circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an adjustable rate may be subject to
periodic limitations, maximum rates, minimum rates or a combination of such
limitations. Accrued interest may be deferred and added to the principal of a
loan for such periods and under such circumstances as may be specified in the
related Prospectus Supplement. Mortgage Loans may provide for the payment of
interest at a rate lower than the specified mortgage rate for a period of time
or for the life of the Mortgage Loan with the amount of any difference
contributed from funds supplied by the seller of the Mortgaged Property or
another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
amortization schedule that is significantly longer than the original term to
maturity or on an interest rate that is different from the interest rate on the
Mortgage Loan or may not be amortized during all or a portion of the original
term. Payment of all or a substantial portion of the principal may be due on
maturity. Principal may include interest that has been deferred and added to the
principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the loan, may increase over a specified period of time or may change
from period to period. Mortgage Loans may include limits on periodic increases
or decreases in the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee, which
may be fixed for the life of the loan or may decline over time, and may be
prohibited for the life of the loan or for certain periods ("lockout periods").
Certain loans may permit prepayments after expiration of the applicable lockout
period and may require the payment of a prepayment fee in connection with any
such subsequent prepayment. Other loans may permit prepayments without payment
of a fee unless the prepayment occurs during specified time periods. The loans
may include "due-on-sale" clauses which permit the mortgagee to demand payment
of the entire mortgage loan in connection with the sale or certain transfers of
the related mortgaged property. Other Mortgage Loans may be assumable by persons
meeting the then applicable underwriting standards of the Company.
With respect to a Series for which the related Trust Property includes
Mortgage Loans, or for which Mortgage Loans underlie the Non-Agency Certificates
included in the related Trust Property, the related Prospectus Supplement may
specify, among other things, information regarding the interest rates (the
"Mortgage Rates"), the average principal balance and the aggregate principal
balance of such Mortgage Loans, the years of origination and original principal
balances and the original loan-to-value ratios of such Mortgage Loans.
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Unless otherwise specified in the Prospectus Supplement, the
"Loan-to-Value Ratio" of any Mortgage Loan will be determined by dividing the
amount of the loan by the "Original Value" of the related mortgaged property.
The principal amount of the "loan," for purposes of computation of the
Loan-to-Value Ratio of any Mortgage Loan, will include any part of an
origination fee that has been financed. In some instances, it may also include
amounts which the seller or some other party to the transaction has paid to the
mortgagor, such as minor reductions in the purchase price made at the closing.
The "Original Value" of a mortgaged property is (a) in the case of any newly
originated mortgage loan, the lesser of (i) the value of the mortgaged property,
based on an appraisal thereof acceptable to the Company and (ii) the selling
price, and (b) in the case of any mortgage loan used to retire a previous
mortgage loan, the value of the mortgaged property, based on an appraisal
thereof acceptable to the Company.
There can be no assurance that the Original Value will reflect actual
real estate values during the term of a Mortgage Loan. If the residential real
estate market should experience an overall decline in property values such that
the outstanding principal balances of the Mortgage Loans become equal to or
greater than the values of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry. In addition, adverse
economic conditions (which may or may not affect real estate values) may affect
the timely and ultimate payment by mortgagors of scheduled payments of principal
and interest on the Mortgage Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the Mortgage Loans.
AGENCY SECURITIES
Government National Mortgage Association (GNMA)
GNMA is a wholly-owned corporate instrumentality of the United States
within the United States Department of Housing and Urban Development. Section
306(g) of Title III of the National Housing Act of 1934, as amended (the
"Housing Act"), authorizes GNMA to guarantee the timely payment of the principal
of and interest on certificates which represent an interest in a pool of
mortgage loans insured by the Federal Housing Administration ("FHA Loans"), or
guaranteed by the Farmers Home Administration ("FmHA Loans") or partially
guaranteed by the Veterans' Administration ("VA Loans").
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guarantee under this subsection." In order to
meet its obligations under any such guarantee, GNMA may, under Section 306(d) of
the Housing Act, borrow from the United States Treasury in an amount which is at
any time sufficient to enable GNMA, with no limitations as to amount, to perform
its obligations under its guarantee.
GNMA Certificates. Each GNMA Certificate relating to a series (which
may be issued under either the GNMA I program or the GNMA II program, as
referred to by GNMA) will be a "fully modified pass-through" mortgage-backed
certificate issued and serviced by a mortgage banking company or other financial
concern ("GNMA Issuer") approved by GNMA or approved by FNMA as a
seller-servicer of FHA Loans, FmHA Loans and/or VA Loans. Each GNMA Certificate
will represent a fractional undivided interest in a pool of mortgage loans which
may include FHA Loans, FmHA Loans and/or VA Loans. Each such mortgage loan is
secured by a one- to four-family residential property. Each such GNMA
Certificate will provide for the payment by or on behalf of the GNMA Issuer to
the registered holder of such GNMA Certificate of scheduled monthly payments of
principal and interest equal to the registered holder's proportionate interest
in the aggregate amount of the monthly principal and interest payment on each
FHA Loan, FmHA Loan or VA Loan underlying such GNMA Certificate, less the
applicable servicing and guarantee fee which together equal the difference
between the interest on the FHA Loan, FmHA Loan or VA Loan and the pass-through
rate on the GNMA Certificate. In addition, each payment will include
proportionate pass-through payments of any prepayments of principal on the FHA
Loans, FmHA Loans or VA Loans underlying such GNMA Certificate and liquidation
proceeds in the event of a foreclosure or other disposition of any such FHA
Loans, FmHA Loans or VA Loans.
The full and timely payment of principal of and interest on each GNMA
Certificate will be guaranteed by GNMA, which obligation is backed by the full
faith and credit of the United States.
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Each such GNMA Certificate will have an original maturity of not more
than 30 years (but may have an original maturity of substantially less than 30
years). GNMA will approve the issuance of each such GNMA Certificate in
accordance with a guarantee agreement (a "Guaranty Agreement") between GNMA and
the GNMA Issuer. Pursuant to its Guaranty Agreement, a GNMA Issuer will be
required to advance its own funds in order to make timely payments of all
amounts due on the GNMA Certificate, even if the payments received by the GNMA
Issuer on the mortgage loans underlying each such GNMA Certificate are less than
the amounts due on such GNMA Certificate.
If a GNMA Issuer is unable to make payments on a GNMA Certificate as
such payments become due, it is required promptly to notify GNMA and request
GNMA to make such payments. Upon such notification and request, GNMA will make
such payments directly to the registered holder of the GNMA Certificate. In the
event no payment is made by a GNMA Issuer and the GNMA Issuer fails to notify
and request GNMA to make such payment, the holder of the GNMA Certificate will
have recourse only against GNMA to obtain such payment. In the case of GNMA
Certificates issued in definitive form, the Trustee, as registered holder of the
GNMA Certificates pledged to secure a series of Bonds, will have the right to
proceed directly against GNMA under the terms of the Guaranty Agreements
relating to such GNMA Certificates for any amounts that are not paid when due.
In the case of GNMA Certificates issued in book-entry form, The Participants
Trust Corporation ("PTC"), or its nominee, will have the right to proceed
against GNMA in such event.
All mortgage loans underlying a particular GNMA I Certificate must have
the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on each GNMA I
Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying such GNMA I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular GNMA II Certificate may have per
annum interest rates that vary from each other by up to one percentage point.
The interest rate on each GNMA II Certificate will be between one-half
percentage point and one and one-half percentage points lower than the highest
interest rate on the mortgage loans included in the pool of mortgage loans
underlying such GNMA II Certificate (except for pools of mortgage loans secured
by manufactured homes).
Regular monthly installment payments on each GNMA Certificate relating
to a series will be comprised of interest due as specified on such GNMA
Certificate plus the scheduled principal payments on the FHA Loans of VA Loans
underlying such GNMA Certificate due on the first day of the month in which the
scheduled monthly installment on such GNMA Certificate is due. Such regular
monthly installments on each such GNMA Certificate are required to be paid to
the Trustee as registered holder by the 15th day of each month in the case of a
GNMA I Certificate and are required to be mailed to the Trustee by the 20th day
of each month in the case of a GNMA II Certificate. Any principal prepayments on
any FHA Loans, FmHA Loans or VA Loans underlying a GNMA Certificate relating to
a series or any other early recovery of principal on such loan will be passed
through to the Trustee as the registered holder of such GNMA Certificate.
GNMA Certificates may be backed by graduated payment mortgage loans or
by "buydown" mortgage loans for which funds will have been provided (and
deposited into escrow accounts) for application to the payment of a portion of
the borrowers' monthly payments during the early years of such mortgage loan.
Payments due the registered holders of GNMA Certificates backed by pools
containing "buydown" mortgage loans will be computed in the same manner as
payments derived from non-"buydown" GNMA Certificates and will include amounts
to be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid will
be added to the principal of such graduated payment mortgage loans and, together
with interest thereon, will be paid in subsequently years. The obligations of
GNMA and of a GNMA Issuer will be the same irrespective of whether the GNMA
Certificates relating to a series of Certificates are backed by graduated
payment mortgage loans or "buydown" mortgage loans. No statistics comparable to
the FHA's prepayment experience on level payment, non-"buydown" mortgage loans
are available in respect of graduated payment or "buydown" mortgages. GNMA
Certificates included in the Trust Property for a Series or underlying a
Non-Agency Certificate included in the Trust Property for a Series may be held
in book-entry form.
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If specified in the related Prospectus Supplement, GNMA Certificates
included in the Trust Property for a Series or underlying a Non-Agency
Certificate included in the Trust Property for a Series may be held on deposit
at PTC, a limited purpose trust company organized under the banking law of the
State of New York. PTC operates a private sector, industry-owned depository and
settlement facility for the book-entry transfer of interests in GNMA
Certificates. Distributions of principal of and interest on each GNMA
Certificate held through PTC will be credited by PTC to the PTC participant on
whose account the GNMA Certificate is credited.
If specified in the related Prospectus Supplement, GNMA Certificates
included in the Trust Property for a Series or underlying a Non-Agency
Certificate included in the Trust Property for a Series may be backed by
multifamily mortgage loans having the characteristics specified in such
Prospectus Supplement.
Federal National Mortgage Association (FNMA)
FNMA is a federally chartered and privately owned corporation organized
and existing under the Federal National Mortgage Association Charter Act (the
"Charter Act"). FNMA was originally established in 1938 as a United States
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder-owned and privately-managed corporation by
legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending. FNMA acquires funds to purchase mortgage loans from many capital market
investors that may not ordinarily invest in mortgages, thereby expanding the
total amount of funds available for housing. Operating nationwide, FNMA helps to
redistribute mortgage funds from capital surplus to capital-short areas.
FNMA Certificates. FNMA Certificates are Guaranteed Mortgage
Pass-Through Certificates representing fractional undivided interests in a pool
of mortgage loans formed by FNMA. Each mortgage loan must meet the applicable
standards of the FNMA purchase program. Mortgage loans comprising a pool are
either provided by FNMA from its own portfolio or purchased pursuant to the
criteria of the FNMA purchase program.
Mortgage loans underlying FNMA Certificates relating to a series will
consist of conventional mortgage loans, FHA Loans or VA Loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a FNMA Certificate are expected to be between either 8 to 15
years or 20 to 30 years. The original maturities of substantially all of the
fixed rate level payment FHA Loans or VA Loans are expected to be 30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest
rates that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate is equal to the lowest interest rate of
any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Thus,
the annual interest rates on the mortgage loans underlying a FNMA Certificate
will generally be between 50 basis points and 250 points greater than the annual
FNMA Certificate pass-through rate. If specified in the related Prospectus
Supplement, FNMA Certificates included in the Trust Property with respect to a
Series or underlying a Non-Agency Certificate included in the Trust Property for
a Series may be backed by adjustable rate mortgages.
Regular monthly installment payments on each FNMA Certificate will be
comprised of interest due as specified by such FNMA Certificate plus the
scheduled principal payments on the Mortgage Loans underlying such FNMA
Certificate due during the period beginning on the second day of the month prior
to the month in which the scheduled monthly installment on such FNMA Certificate
is due and ending on the first day of such month in which the scheduled monthly
installment on such FNMA Certificate is due. Such regular monthly installments
on each such FNMA Certificate will be distributed to the holder of record on the
25th day of each month. Any principal prepayments on the mortgage loans
underlying any FNMA Certificate included in the Trust Property with respect to a
Series or underlying a Non-Agency Certificate included in the Trust Property for
a Series or any other early recovery of principal on such mortgage loans will be
passed through to the holder of record of such FNMA Certificate on the 25th day
of the month next following such prepayment or recovery and, in turn, a portion
of such amounts will be paid or distributed to Holders of such Series, secured
thereby, as additional principal payments.
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FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing such holder's proportionate share of
scheduled principal and interest payments at the applicable pass-through rate
provided for by such FNMA Certificate on the underlying mortgage loans, whether
or not received, and such holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not such principal amount is actually recovered. The obligations of FNMA under
its guarantees are obligations solely of FNMA and are not backed by, nor
entitled to, the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's operations or to assist
FNMA in any other manner. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
If specified in the related Prospectus Supplement, FNMA Certificates
included in the Trust Property for a Series or underlying a Non-Agency
Certificate included in the Trust Property for a Series may be backed by
multifamily mortgage loans having the characteristics specified in such
Prospectus Supplement.
Federal Home Loan Mortgage Corporation (FHLMC)
FHLMC is a corporate instrumentality of the United States created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended (the
"FHLMC Act"). The common stock of FHLMC is owned by the Federal Home Loan Banks.
FHLMC was established primarily for the purpose of increasing the availability
of mortgage credit for the financing of urgently needed housing. It seeks to
provide an enhanced degree of liquidity for residential mortgage investments
primarily by assisting in the development of secondary markets for conventional
mortgages. The principal activity of FHLMC currently consists of the purchase of
first lien conventional mortgage loans or participation interests in such
mortgage loans and the sale of the mortgage loans or participations so purchased
in the form of mortgage securities, primarily FHLMC Certificates. FHLMC is
confined to purchasing, so far as practicable, mortgage loans that it deems to
be of such quality, type and class as to meet generally the purchase standards
imposed by private institutional mortgage investors.
FHLMC Certificates. Each FHLMC Certificate represents an undivided
interest in a pool of mortgage loans that may consist of first lien conventional
loans, FHA Loans or VA Loans (a "FHLMC Certificate group"). FHLMC Certificates
are sold under the terms of a Mortgage Participation Certificate Agreement. A
FHLMC Certificate may be issued under either FHLMC's Cash Program or Guarantor
Program.
Unless otherwise described in the related Prospectus Supplement,
mortgage loans underlying the FHLMC Certificates relating to a series will
consist of mortgage loans with original terms to maturity of between 10 and 30
years. Each such mortgage loan must meet the applicable standards set forth in
FHLMC Act. A FHLMC Certificate group may include whole loans, participation
interests in whole loans and undivided interests in whole loans and/or
participations comprising another FHLMC Certificate group. Under the Guarantor
Program any such FHLMC Certificate group may include only whole loans or
participation interests in whole loans.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest on the underlying mortgage loans to the extent of the
applicable Certificate rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
collection by such holder of all principal on the underlying mortgage loans,
without any offset or deduction, to the extent of such holder's pro rata share
thereof, but does not, except if and to the extent specified in the Prospectus
Supplement for a Series, guarantee the timely payment of scheduled principal.
Under FHLMC's Gold PC Program, FHLMC guarantees the timely payment of principal
based on the difference between the pool factor published in the month preceding
the month of distribution and the pool factor published in such month of
distribution. Pursuant to its guarantees, FHLMC indemnifies holders of FHLMC
Certificates against any diminution in principal by reason of charges for
property repairs, maintenance and foreclosure. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time after default on
an underlying mortgage loan, but not later than (i) 30
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days following foreclosure sale, (ii) 30 days following payment of the claim by
any mortgage insurer, or (iii) 30 days following the expiration of any right of
redemption, whichever occurs later, but in any event no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal. In taking actions regarding the collection of principal after default
on the mortgage loans underlying FHLMC Certificates, including the timing of
demand for acceleration, FHLMC reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for FHLMC to determine
that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and FHLMC has not adopted standards which
require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such mortgage loans.
In addition to FHLMC's guarantees of timely payment of interest and
ultimate collection of principal, FHLMC guarantees with respect to FHLMC
Certificates representing certain qualifying mortgage loans the timely payment
by each mortgagor of the monthly principal scheduled to be paid under the
amortization schedule applicable to each such mortgage loan ("Scheduled
Principal"). Servicers of the mortgage loans comprising these FHLMC Certificates
are required to pay Scheduled Principal to FHLMC whether or not received from
the mortgagors. FHLMC, in turn, guarantees to pay Scheduled Principal to each
registered holder of such FHLMC Certificates whether or not received from the
servicers. FHLMC monthly payments of Scheduled Principal are computed based upon
the servicer's monthly report to FHLMC of the amount of Scheduled Principal due
to be paid on the related mortgage loans. The Prospectus Supplement for each
Series for which the related Trust Property includes FHLMC Certificates or for
which the related Trust Property includes Non-Agency Certificates backed by
FHLMC Certificates will set forth the nature of FHLMC's guarantee with respect
to scheduled principal payments on the mortgage loans in the pools represented
by such FHLMC Certificates.
Requests for registration of ownership of FHLMC Certificates made on or
before the last business day of a month are made effective as of the first day
of that month. With respect to FHLMC Certificates sold by FHLMC on or after
January 2, 1985, a Federal Reserve Bank which maintains book-entry accounts with
respect thereto will make payments of interest and principal each month to
holders in accordance with the holders' instructions. The first payment to a
holder of a FHLMC Certificate will normally be received by the 15th day of the
second month following the month in which the purchaser became recognized as the
holder of such FHLMC Certificate. Thereafter, payments will normally be received
by the 15th day of each month.
A FHLMC Certificate may be issued under programs created by FHLMC,
including its Cash Program or Guarantor Program. Under FHLMC's Cash Program, the
pooled mortgage loans underlying a FHLMC Certificate are purchased for cash from
a number of sellers. With respect to FHLMC Certificate Pools formed prior to
June 1, 1987, under the Cash Program, there is no limitation on the amount by
which interest rates on the mortgage loans underlying a FHLMC Certificate may
exceed the interest rate on the FHLMC Certificate. Under such program, FHLMC
purchases groups of whole mortgage loans at specified percentages of their
unpaid principal balances, adjusted for accrued or prepaid interest, which, when
applied to the interest rate of the mortgage loans purchased, results in the
yield (expressed as a percentage) required by FHLMC. The required yield, which
includes a minimum servicing fee retained by the servicer, is calculated using
the outstanding principal balance of the mortgage loans, an assumed term and a
prepayment period as determined by FHLMC. No mortgage loan is purchased by FHLMC
at greater than 100% of its outstanding principal balance. Thus, the range of
interest rates on the mortgage loans in a FHLMC Certificate Pool formed prior to
June 1987 under the Cash Program will vary since mortgage loans are purchased
and identified to a FHLMC Certificate Pool based upon their yield to FHLMC
rather than on the interest rates on the mortgage loans. With respect to FHLMC
Certificate Pools formed on or after June 1, 1987, the range of interest rates
on the mortgage loans and participations in a FHLMC Certificate Pool which is
comprised of 15- or 30-year fixed-rate single family mortgage loans bought by
FHLMC under the Cash Program will be restricted to one percentage point. In
addition, the minimum interest
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rate on any mortgage loan in a FHLMC Certificate Pool will be greater than or
equal to the annual pass-through rate on the related FHLMC Certificate, and the
maximum interest rate will not be more than two percentage points above such
pass-through rate.
Under FHLMC's Guarantor Program, the mortgage loans underlying a FHLMC
Certificate are purchased from a single seller in exchange for such FHLMC
Certificate. The interest rate on a FHLMC Certificate under such program is
established based upon the lowest interest rate on the underlying mortgage
loans, minus a minimum servicing fee and the amount of FHLMC's management and
guaranty income as agreed upon between the seller and FHLMC. Under the Guarantor
Program, the range between the lowest and highest annual interest rates on the
mortgage loans in a FHLMC Certificate Pool may not exceed two percentage points.
For some FHLMC Certificates issued pursuant to purchase contracts under the
Guarantor Program on or after September 1, 1987, the range of the interest rates
on the mortgage loans in a FHLMC Certificate Pool will not exceed one percentage
point.
If specified in the related Prospectus Supplement, FHLMC Certificates
included in the Trust Property for a Series or underlying a Non-Agency
Certificate included in the Trust Property for a Series may be backed by
multifamily mortgage loans having the characteristics specified in such
Prospectus Supplement.
Stripped Agency Securities
Agency Securities may consist of one or more stripped mortgage-backed
securities, each as described herein and in the related Prospectus Supplement.
Each such Agency Security will represent an undivided interest in all or part of
either the principal distributions (but not the interest distributions) or the
interest distributions (but not the principal distributions), or in some
specified portion of the principal and interest distributions (but not all of
such distributions) on certain GNMA Certificates, FNMA Certificates, FHLMC
Certificates, or other Agency Securities. The underlying securities will be held
under a trust agreement by GNMA, FNMA or FHLMC each as trustee, or by another
trustee named in the related Prospectus Supplement. FHLMC, FNMA or GNMA will
guarantee each stripped Agency Security to the same extent as such entity
guarantees the underlying securities backing such stripped Agency Security,
unless otherwise specified in the related Prospectus Supplement.
Other Agency Securities
If specified in the related Prospectus Supplement, the Trust Property
of a Series may include, or Non-Agency Certificates included in the Trust
Property of a Series may be backed by, other mortgage pass-through or
participation certificates issued or guaranteed by GNMA, FNMA or FHLMC, such as
FNMA Guaranteed REMIC Pass-Through Certificates and FHLMC Multiclass Mortgage
Participation Certificates. The characteristics of any such mortgage
pass-through or participation certificates will be described in such Prospectus
Supplement. If so specified, a combination of different types of Agency
Securities may be included in the Trust Property of a Series or may back
Non-Agency Certificates.
NON-AGENCY CERTIFICATES
Each Non-Agency Certificate will evidence an undivided interest in
Agency Securities, a Mortgage Pool, a Contract Pool or a Multifamily Loan Pool.
Unless otherwise specified in the Prospectus Supplement, the Non-Agency
Certificates will have the characteristics described herein. Non-Agency
Certificates backed directly by Mortgage Loans, Contracts, or Multifamily Loans
will be issued pursuant to a pooling and administration agreement (the
"Non-Agency Pooling and Administration Agreement") between the Company, as the
entity forming such Non-Agency Certificates, an administrator (the "Non-Agency
Administrator") and a trustee acting under such Non-Agency Pooling and
Administration Agreement (the "Certificate Trustee"). Non-Agency Certificates
backed by Agency Securities may be issued pursuant to a Funding Agreement (the
"Funding Agreement") between the Company, as the entity forming such Non-Agency
Certificates and a trustee acting under such Funding Agreement (the "Funding
Agreement Trustee"). Non-Agency Certificates will be formed by the Company in
connection with the issuance of the related Series of Securities for purposes of
ease of administration of the assets underlying such Non-Agency Certificates.
Non-Agency Certificates themselves will not have been and will not be publicly
offered. It is expected that Non-Agency Certificates will primarily be used by
the Company to back Series of Bonds, as opposed to Certificates.
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The Mortgage Loans, Contracts, and Multifamily Loans directly backing
the Non-Agency Certificates issued under a Non-Agency Pooling and Administration
Agreement will be serviced by one or more loan servicing institutions (the
"Non-Agency Servicers") pursuant to servicing agreements between each Servicer
and the Company (each a "Non-Agency Servicing Agreement"). All of the Company's
right, title and interest in the Servicing Agreements with respect to the
Mortgage Loans, Contracts, and Multifamily Loans will be assigned to the
Certificate Trustee. Pursuant to the Non-Agency Pooling and Administration
Agreement, the Servicers of the Mortgage Loans, Contracts, and Multifamily Loans
covered thereby will be required to deposit with the Certificate Trustee all
collections received by such Servicers on the Mortgage Loans, Contracts, and
Multifamily Loans (net of a servicing fee to be retained by the Non-Agency
Servicers). Monthly distributions of the principal and interest (adjusted to the
pass-through rate borne by such Non-Agency Certificate) components of such
collections will be made to the Trustee for the Bonds of the applicable Series
for deposit into the Collection Account. The Mortgage Loans, Contracts, and
Multifamily Loans underlying any such Non-Agency Certificates may be covered by
(i) individual policies of primary mortgage insurance
insuring against all or a portion of any foreclosure losses on the
particular Mortgage Loans, Contracts, and Multifamily Loans covered
thereby;
(ii) a pool insurance policy insuring against foreclosure
losses on all of the Mortgage Loans, Contracts, and Multifamily Loans
in the underlying pool up to a specified limit of liability;
(iii) a policy of special hazard insurance insuring against
losses from causes not covered by standard fire and extended coverage
policies of insurance, and/or
(iv) such other policies of insurance or other forms of
support (including, without limitation, obligations to advance
delinquent payments and overcollateralization) as shall be specified in
the Prospectus Supplement for a Series which is secured or backed by
Non-Agency Certificates backed directly by Mortgage Loans, Contracts,
or Multifamily Loans, including, if applicable, any insurance for Title
I Loans under the Title I Program.
All of the Company's rights, title and interest in the Agency
Securities directly backing Non-Agency Certificates issued under a Funding
Agreement will be assigned to the Funding Agreement Trustee. Pursuant to the
Funding Agreement, distributions on the Agency Securities will be collected by
the Funding Agreement Trustee, and monthly payments of the principal and
interest (adjusted to the pass-through rate borne by the Non-Agency
Certificates) components of such distributions will be made to the Trustee for
the applicable Series for deposit into the Collection Account. Each of the
Agency Securities sold or assigned to the Funding Agreement Trustee will have
the benefit of the applicable guarantees and other attributes described
hereinabove under "GNMA Certificates," "FNMA Certificates" and "FHLMC
Certificates," as the case may be, and in the related Prospectus Supplement for
the Series which is secured or backed by Non-Agency Certificates backed by
Agency Securities.
Any default by any insurer under a policy of insurance covering a
Mortgage Loan, Contracts, or Multifamily Loans, any loss or losses in excess of
policy limits, any failure by a Non-Agency Servicer or other obligor to make
advances in respect of delinquent payments or any loss occasioned by an
uninsured cause will adversely affect distributions to the Trustee for the
related Series and, as a consequence, may result in there being insufficient
funds in the related Collection Account with which to make required payments or
distributions of principal and interest on the Securities of such Series.
MULTIFAMILY LOANS
Each pool of Multifamily Loans included in the Trust Property with
respect to a Series or underlying a Non-Agency Certificate included in the Trust
Property for a Series (the "Multifamily Loan Pool") will consist of Conventional
Multifamily Loans or FHA-Insured Multifamily Loans secured by mortgages or deeds
of trust or other similar security instruments creating a first lien on rental
apartment buildings or projects containing five or more units, including, but
not limited to, high-rise, mid-rise and garden apartments or Multifamily Loans
secured by apartment buildings owned by cooperative housing corporations. The
Company expects that these loans will have been originated by mortgagees in the
ordinary course of their real estate lending activities. Each Multifamily Loan
Pool will be composed of
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Multifamily Loans bearing interest at the annual fixed or adjustable rates of
interest specified in the Prospectus Supplement.
The related Prospectus Supplement may specify for the Multifamily Loans
contained in the related Multifamily Loan Pool, among other things, the dates of
origination of the Multifamily Loans; the interest rates on the Multifamily
Loans, if fixed rate, and in the case of Adjustable Multifamily Loans, the
initial Adjustable Multifamily Rates, the index or formula, if any, used to
determine the Adjustable Multifamily Rate, the margin or margins, if any, to be
added or subtracted from the Index to calculate the Multifamily Loan Rate, and
the maximum and minimum percentage adjustment, if any, for the life of the
Multifamily Loan and on any annual basis, and the frequency of adjustment; the
number of Multifamily Loans in the Multifamily Loan Pool; the original loan
amounts or range of original loan amounts of Multifamily Loans contained in the
Multifamily Loan Pool; the original Loan-to-Value Ratio on a weighted average
basis of the Multifamily Loans contained in the Multifamily Loan Pool; and the
original and remaining terms of the loans on a weighted average basis. The
related Prospectus Supplement may also specify the number and type of units
contained in each property secured by a Multifamily Loan contained in a
Multifamily Loan Pool, the loan amount per unit for each project, the percentage
of units in each property occupied as a specified date, the appraised value of
each property and whether each property is subject to local rent control
ordinances. The related Prospectus Supplement may set forth the types and
locations of properties securing the Multifamily Loans, the balloon, principal
amortization or interest only terms, if any, and whether the Multifamily Loan
financed the acquisition or rehabilitation of the underlying properties or
refinanced prior indebtedness. Unless otherwise specified in the related
Prospectus Supplement, the properties securing the Multifamily Loans will be
located in one or more states in the United States, the District of Columbia, or
Puerto Rico.
Certain of the Multifamily Loans may be secured by apartment buildings
owned by Cooperatives. The Cooperative apartment building and the land under the
building will be owned by a private, non-profit cooperative. The Cooperative
owns all of the apartment units in the building and all common areas. The
Cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary leases
or occupancy agreements which confer exclusive rights to occupy specific
apartments or units. Generally, a tenant-stockholder of a Cooperative must make
a monthly payment to the cooperative representing such tenant-stockholder's pro
rata share of the cooperative's payments for its mortgage loan, real property
taxes, maintenance expenses and other capital or ordinary expenses. Such
payments to the Cooperative are in addition to any payments of principal and
interest the tenant-stockholder must make on any loans of the tenant-stockholder
secured by its shares in the Cooperative. The Cooperative will be directly
responsible for building management and, in most cases, payment of real estate
taxes and hazard and liability insurance. The Cooperative's ability to meet debt
service obligations on the Multifamily Loans, as well as all other operating
expenses, will be dependent in large part on the receipt of maintenance payments
from the tenant-stockholders, as well as any rental income from units or
commercial assessments on the tenant-stockholders. The Cooperative's ability to
pay the principal amount of the Multifamily Loan at maturity depends primarily
on its ability to pay the principal amount of the Multifamily Loan. The Company,
the Seller and the Administrator or Non-Agency Administrator, if any, will have
no obligation to provide refinancing for the Multifamily Loans.
CONTRACTS
Each pool of Contracts included in the Trust Property with respect to a
Series or underlying a Non-Agency Certificate included in the Trust Property for
a Series (the "Contract Pool") will consist of manufactured housing conditional
sales contracts and installment loan agreements or participation interests
therein (collectively, "Contracts"). As specified in the related Prospectus
Supplement, Contracts may either be secured by a Manufactured Home (a "Secured
Contract") or unsecured (an "Unsecured Contract"). The Contracts may be
conventional manufactured housing contracts or contracts insured by the FHA,
including Title I Contracts, or partially guaranteed by the VA. Each Contract is
secured by a Manufactured Home. Unless otherwise specified in the related
Prospectus Supplement, the Contracts included in the Trust Property with respect
to a Series will be fully amortizing and will bear interest at a fixed annual
percentage rate ("APR").
The Manufactured Homes securing the Secured Contracts consist of
manufactured homes within the meaning of 42 United States Code, Section 5402(6),
which defines a "Manufactured Home" as "a structure, transportable in one
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or more sections, which in the traveling mode, is eight body feet or more in
width or forty body feet or more in length, or, when erected on site, is three
hundred twenty or more square feet, and which is built on a permanent chassis
and designed to be used as a dwelling with or without permanent foundation when
connected to the required utilities, and includes the plumbing, heating,
air-conditioning, and electrical systems contained therein; except that such
term shall include any structure which meets all the requires of [this]
paragraph except the size requirements and with respect to which the
manufacturer voluntarily files a certification required by the Secretary of
Housing and Urban Development and complies with the standards established under
[this] chapter." Moreover, if an election is made to treat a Trust Estate or
Trust including Contracts as a REMIC as described in "Certain Federal Income Tax
Consequences -- Certain Income Tax Consequences for REMIC Securities," the
related Manufactured Homes will have a minimum of 400 square feet of living
space and a minimum width in excess of 102 inches.
Unless otherwise specified in the Prospectus Supplement with respect to
a Series for which the related Trust Property includes Contracts or with respect
to which the related Trust Property includes Non-Agency Certificates backed by
Contracts, for purposes of calculating the loan-to-value ratio of a Secured
Contract relating to a new Manufactured Home, the "Collateral Value" is no
greater than the sum of a fixed percentage of the list price of the unit
actually billed by the manufacturer to the dealer (exclusive of freight to the
dealer site) including "accessories" identified in the invoice (the
"Manufacturer's Invoice Price"), plus the actual cost of any accessories
purchased from the dealer, a delivery and set-up allowance, depending on the
size of the unit and the cost of state and local taxes, filing fees and up to
three years prepaid hazard insurance premiums. Unless otherwise specified in the
related Prospectus Supplement, the Collateral Value of a used Manufactured Home
is the least of the sales price, the appraised value, and the National
Automobile Dealer's Association book value plus prepaid taxes and hazard
insurance premiums. The appraised value of a Manufactured Home is based upon the
age and condition of the manufactured housing unit and the quality and condition
of the mobile home park in which it is situated, if applicable.
The related Prospectus Supplement may specify for the Contracts
contained in the related Contract Pool, among other things, the date of
origination of the Contracts; the APRs on the Contracts; the Contract
Loan-to-Value Ratios; the minimum and maximum outstanding principal balance as
of the Cut-off Date and the average outstanding principal balance; the
outstanding principal balances of the Contracts included in the Contract Pool;
and the original maturities of the Contracts and the last maturity date of any
Contract.
The Unsecured Contracts included in the Trust Property for a Series of
Securities will not constitute a material concentration of the assets of such
Trust Property.
PRIVATE MORTGAGE-BACKED SECURITIES
Private Mortgage-Backed Securities may consist of (a) mortgage
pass-through certificates evidencing an undivided interest in a pool of
Underlying Mortgage Loans or certain mortgage-backed securities, or (b)
collateralized mortgage obligations secured by Underlying Mortgage Loans or
certain mortgage-backed securities. Private Mortgage-Backed Securities may
include stripped mortgage-backed securities representing an undivided interest
in all or a part of either the principal distributions (but not the interest
distributions) or the interest distributions (but not the principal
distributions) or in some specified portion of the principal and interest
distributions (but not all of such distributions) on certain Underlying Mortgage
Loans or on certain underlying mortgage-backed securities. Private
Mortgage-Backed Securities will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement (a "PMBS Agreement").
Generally, the seller/servicer of the Underlying Mortgage Loans will have
entered into the PMBS Agreement with the trustee under such PMBS Agreement (the
"PMBS Trustee"). The PMBS Trustee or its agent, or a custodian, will possess the
Underlying Mortgage Loans relating to such Private Mortgage-Backed Security.
Underlying Mortgage Loans relating to a Private Mortgage-Backed Security will be
serviced by a servicer (the "PMBS Servicer") directly or by one or more
subservicers who may be subject to the supervision of the PMBS Servicer.
The issuer of the Private Mortgage-Backed Securities (the "PMBS
Issuer") will be a financial institution or other entity engaged generally in
the business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts and selling beneficial interests in such trusts. If
so specified in the related Prospectus Supplement, the PMBS Issuer may be the
Company or an affiliate of the Company. The
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obligations of the PMBS Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. Unless otherwise specified in the related Prospectus Supplement,
neither the PMBS Issuer nor any agency or instrumentality of the United States
nor any other person will have guaranteed any of the assets conveyed to the
related trust or any of the Private Mortgage-Backed Securities issued under the
PMBS Agreement.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
The Underlying Mortgage Loans relating to the Private Mortgage-Backed
Securities may consist of fixed rate, level payment, fully amortizing loans or
graduated payment mortgage loans, buydown loans, adjustable rate mortgage loans,
or loans having balloon or other special payment features. Such Underlying
Mortgage Loans may be secured by single family property, multifamily property,
manufactured homes or by an assignment of the proprietary lease or occupancy
agreement relating to a specific dwelling within a Cooperative and the related
shares issued by such Cooperative.
Credit support in the form of reserve funds, subordination of other
private mortgage certificates issued under the PMBS Agreement, letters of
credit, surety bonds, insurance policies or other types of credit support may be
provided with respect to the Underlying Mortgage Loans relating to the Private
Mortgage-Backed Securities or with respect to the Private Mortgage-Backed
Securities themselves.
The Prospectus Supplement for a Series for which the related Trust
Property includes Private Mortgage-Backed Securities will describe such Private
Mortgage-Backed Securities and will specify certain characteristics of the
mortgage loans underlying the Private Mortgage-Backed Securities.
CHARACTERISTICS OF AGENCY SECURITIES AND PRIVATE MORTGAGE-BACKED SECURITIES
The Agency Securities and the Private Mortgage-Backed Securities may
include component securities ("CPTs"), floaters ("FLTs"), inverse floaters
("INVs"), interest only securities ("IOs"), principal only securities ("POs"),
planned amortization classes ("PACs"), targeted amortization classes ("TACs"),
residual interest securities ("Residuals"), accrual securities ("Zs"), and other
types of securities, including securities which combine the characteristics of
two or more of such types of securities. The exact types and characteristics of
such securities will be set forth in the related Prospectus Supplement for a
Series for which the related Trust Property includes such securities.
A CPT is a security that consists of multiple payment components which
have differing principal and/or interest characteristics. The payment
characteristics of a CPT will reflect a combination of the payment
characteristics of such components.
An FLT has an interest rate that varies directly with an objective
index such as LIBOR, i.e., as LIBOR increases, the FLT interest rate will
increase.
An INV has an interest rate that varies inversely with an objective
index such as LIBOR, i.e., as LIBOR increases, the INV interest rate will
decrease. The interest rate on a INV might be expressed as a multiple of the
index, such as 35% - (3 x LIBOR).
An IO pays only interest or primarily interest and pays no
disproportionately small amount of principal. A PO pays principal only and no
interest.
A PAC is a security with respect to which principal payments are made
in predetermined amounts on specified payment dates to the extent funds are
available on such payment dates. Generally, a PAC will adhere to its payment
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schedule if the underlying mortgage loans prepay at a constant prepayment
assumption in the "planned range" between certain specified prepayment rates.
The cash flow of a PAC is thus relatively stable if prepayments are within such
"planned range." Payment stability in a PAC is necessarily offset by instability
in other classes of related mortgage-backed securities, which are said to
"support" the more stable classes. Such "support classes" are likely to be much
more sensitive to prepayments on the underlying mortgage loans than the classes
they support or such mortgage loans.
A TAC, like a PAC, is designed to provide more stable cash flows, but
is more likely than a PAC to have the expected maturity extended or shortened.
A Residual generally represents an interest in the residual cash flows
from the collateral relating to an issuance of mortgage-backed securities after
the other classes of securities supported by such collateral are paid on a
payment date. Residuals include both securities with stated principal and
interest and those without stated principal and interest.
A Z is a security that accretes all of interest, which is added to the
outstanding principal balance of such security. This accretion may continue
until such security begins receiving principal payments, until such other events
has occurred or until the security is retired.
DEPOSIT, SUBSTITUTION AND WITHDRAWAL OF ASSETS
With respect to a Series, to the extent provided in the related
Indenture or Pooling Agreement and the related Prospectus Supplement, the
related Issuer or the Company may deposit or withdraw Assets or substitute new
Mortgage Assets for Mortgage Assets previously included in the related Trust
Property or for Assets deposited in a Reserve Fund for such Series.
PRE-FUNDING ARRANGEMENTS
To the extent provided in the related Prospectus Supplement for a
Series, the related Pooling Agreement will provide for a commitment by the
related Issuer to subsequently purchase additional Loan Assets ("Subsequent Loan
Assets") following the date on which the related Securities are issued (a
"Pre-Funding Arrangement"). With respect to a Series, the Pre-Funding
Arrangement will require that any Subsequent Loan Assets included in the Trust
Property conform to the requirements and conditions provided in the related
Pooling Agreement. If a Pre-Funding Arrangement is utilized in connection with
the issuance of the Series of Securities, on the closing date for the issuance
of such Series the related Trustee will be required to deposit in a segregated
account (a "Pre-Funding Account") all or a portion of the proceeds received by
such Trustee in connection with the sale of one or more Classes of Securities of
such Series; and, subsequently, the Issuer will acquire Subsequent Loan Assets
in exchange for the release of money from the Pre-Funding Account for such
Series. In addition, the Pre-Funding Arrangement will be limited to a specified
period, not to exceed three months, during which time any transfers of
Subsequent Loan Assets must occur and to a maximum deposit to the related
Pre-Funding Account of no more than twenty-five percent (25%) of the aggregate
proceeds received from the sale of all Classes of Securities of such Series.
If all of the funds originally deposited in the such Pre-Funding
Account are not used by the end of such specified period, then any remaining
amount of such funds will be applied as a mandatory prepayment of a Class or
Classes of Securities as specified in the related Prospectus Supplement.
Although it is intended that the principal amount of Subsequent Loan Assets to
be included as Trust Property after the closing date for the issuance of any
particular Series will require application of substantially all of the
Pre-Funding Account, and it is not anticipated that there will be any material
amount of principal distributions from amounts remaining on deposit in the
Pre-Funding Account in reduction of the principal balances of any Securities, no
assurance can be given that such a distribution with respect to the Securities
will not occur on the Distribution Date or Payment Date following the
termination of the Pre-Funding Arrangement. In any event, it is unlikely that
the Issuer will be able to deliver Subsequent Loan Assets with aggregate
principal balances that exactly equal the Pre-Funding Account, and the portion
of the Pre-Funding Account remaining at the end of the Pre-Funding Arrangement,
if any, will be distributed in reduction of the principal balance of the
Securities of the related Series, as set forth in related Prospectus Supplement.
As may be further specified in the related Prospectus Supplement,
amounts on deposit in the Pre-Funding Account will be invested in short-term
debt obligations of, or debt obligations guaranteed by, the United States,
repurchase agreements that satisfy the criteria specified in the applicable
Indenture or Pooling Agreement, certificates
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of deposit, time deposits and bankers acceptances of any United States
depository institution or trust company, FDIC insured deposits, including
deposits with the related Trustee, commercial paper, debt obligations, and money
market funds; provided such investments are acceptable to each rating agency
rating the Series of Securities at the time at which the investments are made
(collectively "Permitted Instruments"); and provided further that an investment
in such Permitted Instruments will not require the Issuer for a Series to be
registered as an "investment company" under the Investment Company Act of 1940,
as amended. Permitted Instruments will consist of short term investments that
convert into cash or mature within a short period of time, have minimal or no
exposure to fluctuations in value as a result of market changes in prevailing
interest rates and are acceptable to each rating agency rating the applicable
Series of Securities.
The utilization of a Pre-Funding Arrangement is intended to improve the
efficiency of the issuance of a Series of Securities and the sale and assignment
of the Loan Assets to the related Issuer through the incremental delivery of the
Loan Assets on the closing date and during the three month period following the
closing date for such Series, which allows for a more even accumulation of the
Assets by the Issuer and the issuance of a larger principal amount of Securities
for such Series than would be the case without a Pre-Funding Arrangement.
CREDIT ENHANCEMENT
GENERAL
Various forms of credit enhancement ("Credit Enhancement") may be
provided with respect to one or more Classes of a Series or with respect to the
Assets in the related Trust Property. Credit Enhancement may be in the form of
the subordination of one or more Classes of such Series, the establishment of
one or more Reserve Funds, the use of a cross-support feature, use of a Mortgage
Pool Insurance Policy, Special Hazard Insurance Policy, bankruptcy bond, or
another form of Credit Enhancement described in the related Prospectus
Supplement, or any combination of the foregoing. Unless otherwise specified in
the related Prospectus Supplement, any Credit Enhancement with respect to a
Series will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the Securities of such
Series and interest thereon. If losses occur which exceed the amount covered by
such Credit Enhancement or which are not covered by the Credit Enhancement,
Holders will bear their allocable share of deficiencies.
SUBORDINATION
If so specified in the related Prospectus Supplement, payments or
distributions in respect of scheduled principal, interest or any combination
thereof that otherwise would have been payable or distributable to one or more
Classes of a Series (the "Subordinated Securities") will instead be payable to
one or more other Classes of such Series (the "Senior Securities") under the
circumstances and to the extent provided in such Prospectus Supplement. If
specified in the Prospectus Supplement, delays in receipt of scheduled payments
on the Mortgage Assets and losses on defaulted Mortgage Assets will be borne
first by the various Classes of Subordinated Securities and thereafter by the
various Classes of Senior Securities, in each case under the circumstances and
subject to the limitations specified in the Prospectus Supplement. The aggregate
payments or distributions in respect of delinquent payments or distributions on
the Mortgage Assets over the lives of the Securities of a Series or at any time,
the aggregate losses in respect of defaulted Mortgage Assets which must be borne
by the Subordinated Securities by virtue of subordination and the amount of the
payments or distributions otherwise payable or distributable to the Subordinated
Securities that will be distributable to Holders of Senior Securities on any
Payment Date or Distribution Date may be limited as specified in the related
Prospectus Supplement. If aggregate payments or distributions in respect of
delinquent payments or distributions on the Mortgage Assets or aggregate losses
in respect of such Mortgage Assets were to exceed the total amounts payable or
distributable and available for payment or distribution to Holders of
Subordinated Securities of, if applicable, were to exceed the specified maximum
amount, Holders of Senior Securities could experience losses on their
Securities.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of payments or distributions
otherwise payable or distributable to Holders of Subordinated Securities on any
Payment Date or Distribution Date may instead be deposited into one or more
Reserve Fund (as defined below) established by the related Trustee. If so
specified in the related Prospectus Supplement, such deposits may be made on
each Payment Date or Distribution Date, on each Distribution Date for specified
periods, or on each Distribution Date until the balance in the Reserve Fund has
reached a specified amount and, following payments from the Reserve Fund to
Holders of
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Senior Securities or otherwise, thereafter to the extent necessary to restore
the balance in the Reserve Fund to required levels, in each case as specified in
such Prospectus Supplement. If so specified in the related Prospectus
Supplement, amounts on deposit in the Reserve Fund may be released to the
Company or the Holders of any Class of Securities at the times and under the
circumstances specified in such Prospectus Supplement.
If specified in the related Prospectus Supplement, various Classes of
Senior Securities and Subordinated Securities may themselves be subordinate in
their right to receive certain distributions to other Classes of Senior and
Subordinated Securities, respectively, through a cross-support mechanism or
otherwise.
As between Classes of Senior Securities and as between Classes of
Subordinated Securities, payments or distributions may be allocated among such
Classes (i) in the order of their Stated Maturities or Assumed Final
Distribution Dates, (ii) in accordance with a schedule or formula, (iii) in
relation to the occurrence of events, or (iv) otherwise, in each case as
specified in the related Prospectus Supplement. As between Classes of
Subordinated Securities, payments or distributions to Holders of Senior
Securities on account of delinquencies or losses and payments to any Reserve
Fund will be allocated as specified in the related Prospectus Supplement.
OVERCOLLATERALIZATION
If provided in the related Prospectus Supplement, the aggregate
principal balance of the Mortgage Assets included in the Trust Property may
exceed the aggregate original principal balance of the Securities of a Series
thereby creating "Excess Collateral" on each Distribution Date or Payment Date.
If provided in the related Prospectus Supplement, such Excess Collateral may be
distributed to holders of Senior Securities to produce and maintain a specified
level of overcollateralization. With respect to a Series of Securities, the
overcollateralization level may be fixed or may increase or decrease over time,
subject to certain floors, caps and triggers, as set forth in the related
Prospectus Supplement and the related Indenture or Pooling Agreement.
CROSS-SUPPORT
If specified in the related Prospectus Supplement, separate Classes of
related Series of Securities may represent the beneficial ownership of or be
separately secured by, separate groups of Assets included in the Trust Property
for a Series or otherwise available for the benefit of such Securities. In such
case, Credit Enhancement may be provided by a cross-support feature which may
require that distributions or payments be made with respect to Securities
evidencing beneficial ownership of or secured by one or more asset groups prior
to distributions to Subordinated Securities evidencing a beneficial ownership
interest in or secured by other asset groups within the same Trust Estate or
Trust. The Prospectus Supplement for a Series which includes a cross-support
feature will describe the manner and conditions for applying such cross-support
feature.
If specified in the Prospectus Supplement, the coverage provided by one
or more forms of Credit Enhancement may apply concurrently to two or more
separate Trust Estates or Trusts for a separate Series of Securities. If
applicable, the Prospectus Supplement will identify the Trusts to which such
credit support relates and the manner of determining the amount of the coverage
provided thereby and of the application of such coverage to the identified
Trusts.
POOL INSURANCE
With respect to a Series for which the related Trust Property includes
Mortgage Loans (and, if specified in the related Prospectus Supplement, a Series
for which the related Trust Property includes Contracts), in order to decrease
the likelihood that Holders of the Securities of such Series will experience
losses in respect of such Mortgage Loans, if specified in the related Prospectus
Supplement, one or more mortgage pool insurance policies (each, a "Mortgage Pool
Insurance Policy") will be obtained. Such Mortgage Pool Insurance Policy will,
subject to the limitations described below and in the Prospectus Supplement,
cover loss by reason of default in payments on such Mortgage Loans up to the
amounts specified in the Prospectus Supplement or report on Form 8-K and for the
periods specified in the Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, the Administrator under the related Indenture
or Pooling Agreement will agree to use its best reasonable efforts to cause to
be maintained in effect any such Mortgage Pool Insurance Policy and to file
claims thereunder to the issuer of such Mortgage Pool Insurance
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Policy (the "Pool Insurer"). A Mortgage Pool Insurance Policy, however, is not a
blanket policy against loss, since claims thereunder may only be made respecting
particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent set forth in such policy as described in the related
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Mortgage Pool Insurance Policies, if any, will not cover losses
due to a failure to pay or denial of a claim under a primary mortgage insurance
policy, irrespective of the reason therefor. The related Prospectus Supplement
will describe the terms of any applicable Mortgage Pool Insurance Policy and
will set forth certain information with respect to the related Pool Insurer.
SPECIAL HAZARD INSURANCE
With respect to a Series for which the related Trust Property includes
Mortgage Loans (and, if specified in the related Prospectus Supplement, each
Series for which the related Trust Property includes Contracts), in order to
decrease the likelihood that Holders of the Securities of such Series will
experience losses in respect of such Mortgage Loans, if specified in the related
Prospectus Supplement, one or more Special Hazard Insurance Policies will be
obtained. Such a "Special Hazard Insurance Policy" with respect to a Series
will, subject to limitations described below and in the related Prospectus
Supplement, protect Holders of the Securities of such Series from (i) loss by
reason of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage) not
covered by the standard form of hazard insurance policy for the respective
states in which the Mortgaged Properties are located or under flood insurance
policies, if any, covering the Mortgaged Properties, and (ii) loss caused by
reason of the application of the coinsurance clause contained in hazard
insurance policies. See "Servicing of the Mortgage Loans, Multifamily Loans and
Contracts -- Standard Hazard Insurance." Any Special Hazard Insurance Policy may
not cover losses occasioned by war, civil insurrection, certain governmental
actions, errors in design, faulty workmanship or materials (except under certain
circumstances), nuclear reaction, flood (if the Mortgaged Property is located in
a federally designated flood area), chemical contamination and certain other
risks. Aggregate claims under each Special Hazard Insurance Policy will be
limited as described in the related Prospectus Supplement. Any Special Hazard
Insurance Policy may also provide that no claim may be paid unless hazard and if
applicable, flood insurance on the Mortgaged Property has been kept in force and
other protection and preservation expenses have been paid.
The related Prospectus Supplement will describe the terms of any
applicable Special Hazard Insurance Policy and will set forth certain
information with respect to the related Special Hazard Insurer.
FHA INSURANCE ON THE MULTIFAMILY LOANS
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow HUD to
insurance mortgage loans that are secured by newly constructed and substantially
rehabilitated multifamily rental projects. Section 244 of the Housing Act
provides for coinsurance of such mortgage loans made under Sections 221(d)(3)
and (d)(4) by HUD/FHA and a HUD-approved coinsurer. Generally the term of such a
mortgage loan can be up to 40 years and the ratio of loan amount to property
replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans
made for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for coinsurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
FHA insurance is generally payable in cash or at the option of the
mortgagee in debentures. Such insurance does not cover 100% of the mortgage loan
but is instead subject to certain deductions and certain losses of interest from
the date of the default.
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BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the property securing the related Mortgage Loan at an
amount less than the then outstanding principal balance of such Mortgage Loan.
The amount of the secured debt could be reduced to such value, and the holder of
such Mortgage Loan thus would become an unsecured creditor to the extent the
outstanding principal balance of such Mortgage Loan exceeds the value so
assigned to the property by the bankruptcy court. In addition, certain other
modifications of the terms of a Mortgage Loan can result from a bankruptcy
proceeding, including the reduction in monthly payments required to be made by
the borrower. See "Certain Legal Aspects of the Mortgage Assets" herein. If so
provided in the related Prospectus Supplement, the Company will obtain a
bankruptcy bond or similar insurance contract (the "bankruptcy bond") for
proceedings with respect to borrowers under the Bankruptcy Code. The bankruptcy
bond will cover certain losses resulting from a reduction by a bankruptcy court
of scheduled payments of principal of and interest on a Mortgage Loan or a
reduction by such court of the principal amount of a Mortgage Loan and will
cover certain unpaid interest on the amount of such a principal reduction from
the date of the filing of a bankruptcy petition.
A bankruptcy bond with respect to a Series will provide coverage in the
aggregate amount specified in the related Prospectus Supplement. Such amount
will be reduced by payments made under such bankruptcy bond in respect of the
related Mortgage Loans, unless otherwise specified in the related Prospectus
Supplement, and will not be restored.
If specified in the related Prospectus Supplement, other forms of
Credit Enhancement may be provided to cover such bankruptcy-related losses. Any
bankruptcy bond or other form of Credit Enhancement provided to cover
bankruptcy-related losses will be described in the related Prospectus
Supplement.
RESERVE FUNDS
If specified in the Prospectus Supplement with respect to a Series,
assets such as cash, U.S. Treasury securities, instruments evidencing ownership
of principal or interest payments thereon, letters of credit, demand notes,
certificates of deposit or a combination thereof in the aggregate amount
specified in such Prospectus Supplement will be deposited by the related Issuer
or the Company in one or more accounts (each, a "Reserve Fund") established and
maintained with the related Trustee. Such cash and the payments on such other
assets will be used to enhance the likelihood of timely payment or distribution
of principal of, and interest on, or, if so specified in the related Prospectus
Supplement, to provide additional protection against losses in respect of, the
Assets in the related Trust Property, to pay the expenses of the related Trust
Estate or Trust or for such other purposes specified in such Prospectus
Supplement. Whether or not the related Issuer or the Company has any obligation
to make such a deposit, certain amounts to which the Holders of the Subordinated
Securities of such Series, if any, the related Issuer or the Company would
otherwise be entitled may instead be deposited into the Reserve Fund from time
to time and in the amounts as specified in the related Prospectus Supplement.
Any cash in any Reserve Fund and the proceeds of any other instrument upon
maturity will be invested in Permitted Instruments. If a letter of credit is
deposited with the Trustee, such letter of credit will be irrevocable. Unless
otherwise specified in the Prospectus Supplement with respect to a Series, any
instrument deposited therein will name the related Trustee, in its capacity as
trustee for the Holders of the Securities of such Series, as beneficiary and
will be issued by an entity acceptable to each rating agency that rates such
Securities. Additional information with respect to such instruments deposited in
the Reserve Funds may be set forth in the Prospectus Supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If specified in the Prospectus Supplement with respect to a Series, the
related Trust Property may also include or the Securities of such Series may
also have the benefits of, assets such as insurance, guarantees, surety bonds,
letters of credit, guaranteed investment contracts, swap agreements, option
agreements or similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses on the Assets
included in such Trust Property, (ii) paying administrative expenses, (iii)
establishing a minimum reinvestment rate on the payments or distributions made
in respect of such Assets, (iv) guaranteeing timely payment or distribution of
principal and interest on the Securities of such Series, or (v) for such other
purpose as is specified in such Prospectus Supplement. Such arrangements may
include agreements under which Holders of the Securities of a Series are
entitled to receive amounts deposited in various accounts held by the related
Trustee upon the terms specified in the related Prospectus Supplement.
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Such arrangements may be in lieu of any obligation of the Servicers or the
Administrator, if any, to advance delinquent installments in respect of the
Mortgage Loans. See "Servicing of Mortgage Loans, Multifamily Loans and
Contracts -- Advances".
SERVICING OF THE MORTGAGE LOANS,
MULTIFAMILY LOANS AND CONTRACTS
Except as otherwise noted, the description set forth below of the
servicing of Mortgage Loans and Multifamily Loans is applicable to Mortgage
Loans and Multifamily Loans (i) included in the Trust Property with respect to a
Series of Securities that includes Certificates and (ii) underlying Non-Agency
Certificates. Accordingly, except as otherwise noted, references under the
heading "Servicing of the Mortgage Loans, Multifamily Loans and Contracts" to
the "Administrator," the "Servicers," a "Servicing Agreement," and the "Trustee"
should be read as applying to the related Non-Agency Servicers, the Non-Agency
Servicing Agreements and the Certificate Trustees with respect to Non-Agency
Certificates.
Unless otherwise provided in the related Prospectus Supplement, with
respect to a Series of Certificates for which the related Trust Property
includes Mortgage Loans, Multifamily Loans and Contracts included in the Trust
Property for a Series of Certificates and Mortgage Loans and Multifamily Loans
underlying Non-Agency Certificates will be serviced either (i) by the related
Administrator as sole servicer, (ii) by the related Administrator as
administrator or master servicer, (iii) by one or more loan servicing
institutions as servicers or (iv) by another institution as master servicer. If
an institution other than the Administrator acts as the sole servicer or as the
master servicer for a Series or with respect to a Non-Agency Certificate, the
Administrator may have no servicing obligations with respect to such Series or
such Non-Agency Certificate. Generally, the discussion in this section of the
Prospectus is applicable under circumstances when the Administrator is an
affiliate of the Company. If the Administrator is not an affiliate of the
Company, the discussion relating to the servicing of the Mortgage Loans,
Multifamily Loans and Contracts as set forth below may be modified or superseded
by any discussion relating to the servicing of the Mortgage Loans, Multifamily
Loans and Contracts set forth in the Prospectus Supplement.
The Prospectus Supplement for each Series of Certificates for which the
related Trust Property includes Mortgage Loans, Multifamily Loans or Contracts,
and for each Series for which the related Trust Property includes Non-Agency
Certificates, will specify whether the Administrator or another institution will
act as sole servicer or master servicer. If the Administrator acts as master
servicer or administrator, all references to the Servicer under the heading
"Servicing of the Mortgage Loans, Multifamily Loans and Contracts" (and in the
case of a Series of Certificates, under the heading "The Pooling Agreement and
Deposit Trust Agreement") should be read to refer to the direct Servicers of
such series, acting under the supervision of the Administrator as master
servicer or administrator. If an institution other than the Administrator acts
as sole Servicer for a series, or acts as master servicer for such series, all
references to the Servicer herein and under the headings "Servicing of the
Mortgage Loans, Multifamily Loans and Contracts" and "The Pooling Agreement and
Deposit Trust Agreement" should be read to refer to such institution as sole or
master servicer, as appropriate.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans, Multifamily Loans and Contracts will be serviced by one or more
loan servicing institutions (the "Servicers"), which may include the
Administrator, pursuant to servicing agreements between each Servicer and the
Administrator (each, a "Servicing Agreement").
SERVICING AGREEMENTS
Unless otherwise specified in the related Prospectus Supplement, each
Servicer must be a FNMA- or FHLMC-approved servicer of conventional mortgage
loans. In addition, the Administrator will require adequate servicing
experience, where appropriate, and financial stability, generally including a
net worth of at least $1,000,000, as well as satisfaction of certain other
criteria.
Each Servicer will be required to perform the customary functions of a
mortgage loan servicer, including collection of payments from borrowers (the
"Mortgagors") and remittance of such collections to the Trustee,
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maintenance of applicable standard hazard insurance and primary mortgage
insurance policies, maintenance of escrow or impoundment accounts of Mortgagors
for payment of taxes, insurance, and other items required to be paid by the
Mortgagor pursuant to the Mortgage Loan, Multifamily Loan and Contract,
attempting to cure delinquencies, supervising foreclosures, management of
Mortgaged Properties under certain circumstances, and maintaining accounting
records relating to the Mortgage Loans, Multifamily Loans and Contracts, as
applicable. Unless otherwise specified in the related Prospectus Supplement,
each Servicer will also be obligated to make advances in respect of delinquent
installments of principal and interest on Mortgage Loans, Multifamily Loans and
Contracts, as applicable, as described more fully under " -- Payments on
Mortgage Loans" and " -- Advances," and in respect of certain taxes and
insurance premiums not paid on a timely basis by Mortgagors.
The Servicers will be entitled to a monthly servicing fee as specified
in the related Prospectus Supplement. The Servicers will also generally be
entitled to collect and retain, as part of their servicing compensation, late
payment charges and assumption underwriting fees. The Servicers will be
reimbursed from proceeds of one or more of the insurance policies described
herein ("Insurance Proceeds") or from proceeds received in connection with the
liquidation of defaulted Mortgage Loans ("Liquidation Proceeds") for certain
expenditures. See " -- Advances" and " -- Administration and Servicing
Compensation and Payment of Expenses" herein.
Each Servicer will be required to service each Mortgage Loan,
Multifamily Loan and Contract, as applicable, pursuant to the terms of its
Servicing Agreement for the entire term of such Mortgage Loan, Multifamily Loan
and Contract, as applicable, unless such Servicing Agreement is earlier
terminated by the Trustee, or in the event of a monetary default, by the
Administrator, on behalf of the Trustee. Upon termination of a Servicing
Agreement, the Administrator will act as Servicer of the related Mortgage Loans
pursuant to a Servicing Agreement on the same terms and conditions applicable to
any other Servicer.
PAYMENTS ON MORTGAGE LOANS
Each Servicer will establish and maintain a separate account (each, a
"Custodial Account"). Subject to the following paragraph, each Custodial Account
must be an account the deposits in which are fully insured by either the Federal
Deposit Insurance Corporation ("FDIC") or the National Credit Union
Administration ("NCUA") or are, to the extent such deposits are in excess of the
coverage provided by such insurance, continuously secured by certain obligations
issued or guaranteed by the United States of America. If at any time the amount
on deposit in such Custodial Account shall exceed the amount so insured or
secured, the applicable Servicer must remit to the Trustee the amount on deposit
in such Custodial Account which exceeds the amount so insured or secured, less
any amount such Servicer may retain for its own account pursuant to its
Servicing Agreement.
Notwithstanding the foregoing, the deposits in a Servicer's Custodial
Account will not be required to be fully insured or secured as described above,
and such Servicer will not be required to remit amounts on deposit therein in
excess of the amount so insured or secured, so long as such Servicer meets
certain requirements established by the rating agencies requested to rate the
Securities of the applicable Series.
Each Servicer is required to deposit into its Custodial Account on a
daily basis all amounts in respect of each Mortgage Loan received by such
Servicer, with interest adjusted to a rate (the "Remittance Rate") equal to the
related Mortgage Rate less the Servicer's servicing fee rate. On the 18th day of
each month, or such other day specified in the related Prospectus Supplement
(the "Remittance Date"), each Servicer of the Mortgage Loans will remit to the
Trustee all funds held in its Custodial Account with respect to each Mortgage
Loan; provided, however, that Principal Prepayments may be remitted on the
Remittance Date in the month following the month of such prepayment. Each
Servicer will be required, pursuant to the terms of the related Servicing
Agreement and as specified in the Related Prospectus Supplement, to remit with
each Principal Prepayment interest thereon at the Remittance Rate through the
last day of the month in which such Principal Prepayment is made. Each Servicer
is also required to advance its own funds as described below.
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ADVANCES
Unless otherwise specified in the related Prospectus Supplement, with
respect to a delinquent Mortgage Loan, Multifamily Loan or Contract, the related
Servicer will be obligated to advance its own funds or funds from its Custodial
Account equal to the aggregate amount of payments of principal and interest
(adjusted to the applicable Remittance Rate) which were due on a due date and
which are delinquent as of the close of business on the business day preceding
the Remittance Date ("Monthly Advance"). Such advances are required to be made
by the Servicer unless the Servicer, with the concurrence of the Administrator,
determines that such advance ultimately would not be reimbursable under any
applicable insurance policy, from the proceeds of liquidation of the related
Mortgaged Properties, or from any other source (any amount not so reimbursable
being referred to herein as a "Nonrecoverable Advance"). Such advance obligation
will continue through the month following the month of final liquidation of such
Mortgage Loan, Multifamily Loan or Contract. Any Servicer funds thus advanced
will be reimbursable to such Servicer out of recoveries on the Mortgage Loans,
Multifamily Loans or Contracts with respect to which such amounts were advanced.
The Servicers will also be obligated to make advances with respect to certain
taxes and insurance premiums not paid by Mortgagors on a timely basis. Funds so
advanced are reimbursable to the Servicers out of recoveries on the related
Mortgage Loans, Multifamily Loans or Contracts. Each Servicer's right of
reimbursement for any advance will be prior to the rights of the Holders of the
Securities of the applicable Series to receive any related Insurance Proceeds or
Liquidation Proceeds.
Unless otherwise specified in the Prospectus Supplement with respect to
a Series, the Administrator will be obligated pursuant to the related Indenture
or Pooling Agreement to advance on or before the applicable Payment Date or
Distribution Date an amount equal to any Monthly Advance which a Servicer fails
to remit, but will not be obligated to make such advance if the Administrator
determines it to be a Nonrecoverable Advance. Failure by a Servicer to make a
required Monthly Advance will be grounds for termination under the related
Servicing Agreement.
SERVICING PROCEDURES
Unless otherwise specified in the related Prospectus Supplement, each
Servicer will service the Mortgage Loans, Multifamily Loans and Contracts
pursuant to written guidelines promulgated by the Company or the Administrator.
The Administrator will exercise its best reasonable efforts to insure that the
Servicers service the Mortgage Loans, Multifamily Loans and Contracts in
compliance with such guidelines and in a manner consistent with industry
standards.
Mortgage Loans. The Servicer will be responsible for making reasonable
efforts to collect all payments called for under the Mortgage Loans. The
Servicer will be obligated to follow such normal practices and procedures as it
deems necessary or advisable to realize upon a defaulted Mortgage Loan. In this
regard, the Servicer may (directly or through a local assignee) sell the
property at a foreclosure or trustee's sale, negotiate with the Mortgagor for a
deed in lieu of foreclosure or, in the event a deficiency judgment is available
against the Mortgagor or other person (see "Certain Legal Aspects of the
Mortgage Assets -- The Mortgage Loans and Multifamily Loans -- Anti-Deficiency
Legislation and Other Limitations on Lenders" for a description of the limited
availability of deficiency judgments), foreclose against such property and
proceed for the deficiency against the appropriate person. The amount of the
ultimate net recovery (including the proceeds of any Mortgage Pool Insurance
Policy or other applicable Credit Enhancement), after reimbursement to the
Servicer of its expenses incurred in connection with the liquidation of any such
defaulted Mortgage Loan and prior unreimbursed advances of principal and
interest with respect thereto will be deposited in the Certificate Account for
the applicable Series (or, in the case of a Mortgage Loan underlying a
Non-Agency Certificate in an account maintained by the related Certificate
Trustee) when realized, and will be paid or distributed to Holders of the
Securities of such Series on the next Payment Date or Distribution Date
following the month of receipt (or, in the case of a Mortgage Loan underlying a
Non-Agency Certificate, will be distributed to the Trustee for the related
Series in accordance with the terms of such Non-Agency Certificate).
With respect to Cooperative Loans, any prospective purchaser will
generally have to obtain the approval of the board of directors of the relevant
Cooperative before purchasing the shares and acquiring rights under the related
proprietary lease or occupancy agreement. See "Certain Legal Aspects of the
Mortgage Assets" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the
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number of potential purchasers for those shares and otherwise limit the ability
to sell and realize the value of those shares.
In general, a "tenant-stockholder" (as defined in Code Section
216(b)(2)) of a corporation that qualifies as a "cooperative housing
corporation" within the meaning of Code Section 216(b)(1) is allowed a deduction
for amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Code Section 216(a) to the
corporation under Code Sections 163 and 164. In order for a corporation to
qualify under Code Section 216(b)(1) for its taxable year in which such items
are allowable as a deduction to the corporation, such Section requires, among
other things, that at least 80% of the gross income of the corporation be
derived from its tenant-stockholders (as defined in Code Section 216(b)(2). By
virtue of this requirement, the status of a corporation for purposes of Code
Section 216(b)(1) must be determined on a year-to-year basis. Consequently,
there can be no assurance that Cooperatives relating to the Cooperative Loans
will qualify under such Section for any particular year. In the event that such
a Cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Code Section 216(a) with respect to those years. In view of the significance of
the tax benefits accorded tenant-stockholders of a corporation that qualifies
under Code Section 216(b)(1), the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
The Servicer will expend its own funds to restore property securing a
Mortgage Loan which has sustained uninsured damage only if it determines that
such restoration will increase the proceeds to Holders of liquidation of the
Mortgage Loan after the reimbursement to the Servicer of its expenses.
If a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer will be obligated (to the extent it has knowledge of
such conveyance) to exercise its right to accelerate the maturity of the
Mortgage Loan, unless it reasonably believes it is unable to enforce that
Mortgage Loan's "due-on-sale" clause under the applicable law. If it reasonably
believes it may be restricted by law, for any reason, from enforcing such a
"due-on-sale" clause, the Servicer may 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 Mortgage Note,
provided such person satisfies the criteria required to maintain the coverage
provided by applicable insurance policies (unless otherwise restricted by
applicable law). Any fee collected by the Servicer for entering into an
assumption agreement will be retained by the Servicer as additional servicing
compensation. For a description of circumstances in which the Servicer may be
unable to enforce "due-on-sale" clauses, see "Certain Legal Aspects of the
Mortgage Assets -- The Mortgage Loans and Multifamily Loans -- Enforceability of
Certain Provisions." In connection with any such assumption, the Mortgage Rate
borne by the related Mortgage Note may not be decreased.
The Servicer will maintain with one or more depository institutions one
or more accounts into which it will deposit all payments of taxes, insurance
premiums, assessments or comparable items received for the account of the
mortgagors. Withdrawals from such account or accounts may be made only to effect
payment of taxes, insurance premiums, assessments or comparable items, to
reimburse the Servicer out of related collections for any cost incurred in
paying taxes, insurance premiums and assessments or otherwise preserving or
protecting the value of the Mortgages, to refund to mortgagors any amounts
determined to be overages and to pay interest to mortgagors on balances in such
account or accounts to the extent required by law.
So long as it acts as servicer of the Mortgage Loans, the Servicer will
be required to maintain certain insurance covering errors and omissions in the
performance of its obligations as servicer and certain fidelity bond coverage
ensuring against losses through wrongdoing of its officers, employees and
agents.
Contracts. With respect to Trust Property that includes Contracts,
pursuant to each Servicing Agreement, the Servicer will service and administer
the Contracts assigned to the Trustee as more fully set forth below. The
Administrator, either directly or through Servicers subject to general
supervision by the Administrator, will perform diligently all services and
duties specified in each Pooling Agreement, in the same manner as prudent
lending institutions of manufactured housing installment sales contracts of the
same type as the Contracts in those jurisdictions where the related Manufactured
Homes are located. The Administrator will monitor the performance of each
Servicer, if any, and, unless the related Prospectus Supplement states
otherwise, will remain liable for the servicing of the
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Contracts in accordance with the terms of the Pooling Agreement. The duties to
be performed by the Servicer will include collection and remittance of principal
and interest payments, collection of insurance claims and, if necessary,
repossession.
Each Servicing Agreement will provide that, when any Manufactured Home
securing a Secured Contract is about to be conveyed by the borrower, the
Servicer (to the extent it has knowledge of such prospective conveyance and
prior to the time of the consummation of such conveyance) may exercise its
rights to accelerate the maturity of such Contract under the applicable
"due-on-sale" clause, if any, unless the Servicer reasonably believes it is
unable to enforce such "due-on-sale" clause under applicable law. In such case,
the Servicer is authorized to take or enter into an assumption agreement from or
with the person to whom such Manufactured Home has been or is about to be
conveyed, pursuant to which such person becomes liable under the related Secured
Contract, provided such person satisfies the criteria required to maintain the
coverage provided by applicable insurance policies (unless otherwise restricted
by applicable law). Where authorized by the Contract the APR may be increased,
upon assumption, to the then-prevailing market rate, but will not be decreased.
Under each Servicing Agreement, the Servicer will repossess or
otherwise comparably convert the ownership of properties securing such of the
related Contracts as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such repossession or other conversion, the Servicer will follow
such practices and procedures as it deems necessary or advisable and as shall be
normal and usual in its general servicing activities. The Servicer, however,
will not be required to expend its own funds in connection with any repossession
or towards the restoration of any property unless it determines (i) that such
restoration or repossession will increase the proceeds of liquidation of the
related Contract to the Holders after reimbursement to itself for such expenses
and (ii) that such expenses will be recoverable to it either through liquidation
proceeds or through insurance proceeds.
PRIMARY MORTGAGE INSURANCE
Generally, Mortgage Loans that the Company acquires do not have
Loan-to-Value Ratios in excess of 80% of their Original Value. Unless otherwise
specified in the Prospectus Supplement, Mortgage Loans that the Company acquires
that have an original principal amount exceeding 80% of Original Value usually
will have primary mortgage insurance. The Company generally requires such
coverage to continue until the Loan-to-Value Ratio drops below 80%.
The primary mortgage insurance policies will not insure against certain
losses which may be sustained in the event of a personal bankruptcy of the
mortgagor under a Mortgage Loan.
The primary mortgage insurance policies generally provide that no claim
may be validly presented thereunder unless (i) certain cash advances have been
made, and (ii) where there has been physical loss or damage to the Mortgaged
Property, it has been restored to its condition as of the date it was insured,
reasonable wear and tear excepted. Assuming the satisfaction of these
conditions, the issuer of a primary mortgage insurance policy will be required,
within the applicable policy limits, to pay either (a) an amount equal to the
principal balance of the defaulted Mortgage Loan covered thereby, plus accrued
and unpaid interest thereon to the date of claim, property preservation
expenses, certain other costs and other advances made by the insured, against
receipt of good and marketable title to the Mortgaged Property or (b) the
product of the amount described in clause (a), subject to certain exceptions,
multiplied by the applicable percentage of insurance coverage.
Any primary mortgage insurance relating to a pool of Contracts will be
described in the related Prospectus Supplement.
Claim payments, if any, under each primary mortgage insurance policy
will be required to be remitted by the Servicers to the Administrator and will
be treated in the same manner as a prepayment of a Mortgage Loan.
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STANDARD HAZARD INSURANCE
Mortgage Loans
Unless otherwise specified in the Prospectus Supplement, the Servicer
will be required pursuant to a Servicing Agreement to cause to be maintained for
each Mortgage Loan a standard hazard insurance policy. The coverage of such
policy is required to be in an amount not less than the maximum insurable value
of the improvements securing such Mortgage Loan from time to time or the
principal balance owing on such Mortgage Loan from time to time, whichever is
less. In all events, such coverage shall be in an amount sufficient to ensure
avoidance of the applicability of the co-insurance provisions under the terms
and conditions of the applicable policy. The ability of each Servicer to assure
that hazard insurance proceeds are appropriately applied may be dependent on its
being named as an additional insured under any standard hazard insurance policy
and under any flood insurance policy referred to below, or upon the extent to
which information in this regard is furnished to such Servicer by Mortgagors.
All amounts collected by a Servicer under a standard hazard insurance policy
will be deposited in such Servicer's Custodial Account. Unless otherwise
specified in the related Prospectus Supplement, each Servicing Agreement will
provide that the related Servicer may satisfy its obligation to cause hazard
insurance policies to be maintained by maintaining a blanket policy insuring
against hazard losses on the Mortgage Loans serviced by such Servicer.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be under
written by different insurers and, therefore, will not contain identical terms
and conditions, the basic terms thereof are dictated by state law. Such policies
typically do not cover any physical damage resulting from the following: war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mud flow), nuclear reactions,
wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in
certain cases, vandalism. The foregoing list is merely indicative of certain
kinds of uninsured risks and is not intended to be all-inclusive. If the
property securing a Mortgage Loan is located in a federally designated flood
area, the Pooling Agreement will require that flood insurance be maintained in
such amounts as would be required by the Federal National Mortgage Association
in connection with its mortgage loan purchase program. The Administrator may
also purchase special hazard insurance against certain of the uninsured risks
described above. See "Credit Enhancement -- Special Hazard Insurance".
Since the amount of hazard insurance the Administrator is required to
cause to be maintained on the improvements securing the Mortgage Loans declines
as the principal balances owing thereon decrease, if the residential properties
securing the Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property.
The Administrator will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
Cooperative Loan. Generally, the Cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the Cooperative and
the tenant-stockholders of that Cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's cooperative dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
Secured Contracts
Unless otherwise specified in the Prospectus Supplement, the terms of
each Servicing Agreement will require the Servicer to cause to be maintained
with respect to each Secured Contract one or more hazard insurance policies
which provide, at a minimum, the same coverage as a standard form fire and
extended coverage insurance policy that is customary for manufactured housing,
issued by a company authorized to issue such policies in the state in which the
Manufactured Home is locate, and in an amount which is not less than the maximum
insurable value of such Manufactured Home or the principal balance due from the
borrower on the related Secured Contract, whichever is less.
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When a Manufactured Home's location was, at the time of origination of the
related Secured Contract, within a federally designated special flood hazard
area, the Administrator also shall cause such flood insurance to be maintained,
which coverage shall be at least equal to the minimum amount specified in the
preceding sentence or such lesser amount as may be available under the federal
flood insurance program.
The Servicer may maintain, in lieu of causing individual hazard
insurance policies to be maintained with respect to each Manufactured Home, and
shall maintain, to the extent that the related Secured Contract does not require
the borrower to maintain a hazard insurance policy with respect to the related
Manufactured Home, one or more blanket insurance policies covering losses on the
borrowers' interests in the Secured Contracts resulting from the absence or
insufficiency of individual hazard insurance policies.
The Servicer, to the extent practicable, will cause the borrowers to
pay all taxes and similar governmental charges when and as due. To the extent
that nonpayment of any taxes or charges would result in the creation of a lien
upon any Manufactured Home having a priority equal or senior to the lien of the
related Secured Contract, the Servicer will pay any such delinquent tax or
charge.
If the Servicer repossesses a Manufactured Home on behalf of the
Trustee, the Servicer will either (i) maintain at its expense hazard insurance
with respect to such Manufactured Home, or (ii) indemnify the Trustee against
any damage to such Manufactured Home prior to resale or other disposition.
Multifamily Loans
Unless otherwise provided in the Prospectus Supplement relating to a
Series of Certificates for which the related Trust Property includes Multifamily
Loans or relating to a Series for which the related Trust Property includes
Non-Agency Certificates backed by Multifamily Loans, the Servicer will be
required to be maintained, for each Multifamily Loan, a standard hazard
insurance policy with extended coverage in an amount which is at least equal to
the lesser of the original principal balance of the Multifamily Loan, or the
replacement cost of the related Multifamily Project. Where any part of any
improvement to the Multifamily Project is located in an area identified by the
Flood Emergency Management Agency as having special flood hazards and flood
insurance has been made available, the Master Servicer is required to cause to
be maintained with a generally acceptable insurance carrier a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration, providing coverage in an amount not less than (i) the
original principal balance of the Multifamily Loan, (ii) the insurable value of
the Multifamily Project, or (iii) the maximum amount of insurance available
under the Flood Disaster Protection Act of 1973, as amended, which ever is less.
Additional insurance coverage for specific properties in a Multifamily
Loan Pool included in the Trust Property for a Series will be described in the
related Prospectus Supplement.
TITLE INSURANCE POLICIES
The Servicing Agreements will require that a title insurance policy be
in effect on each of the Mortgaged Properties and that such title insurance
policy contain no coverage exceptions, except those permitted pursuant to the
guidelines heretofore established by FNMA.
CLAIMS UNDER PRIMARY MORTGAGE INSURANCE POLICIES AND STANDARD HAZARD INSURANCE
POLICIES; OTHER REALIZATION UPON DEFAULTED LOANS
Each Servicer will present claims to any primary insurer under any
related primary mortgage insurance policy and to the hazard insurer under any
related Standard Hazard Insurance Policy. All collections under any related
primary mortgage insurance policy or any related standard hazard insurance
policy (less any proceeds to be applied to the restoration or repair of the
related Mortgaged Property) will be remitted to the Trustee.
If any Mortgage Property securing a defaulted Mortgage Loan is damaged
and proceeds, if any, from the related standard hazard insurance policy are
insufficient to restore the damaged property to a condition sufficient to
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permit recovery under any applicable Mortgage Pool Insurance Policy or any
related primary mortgage insurance policy, each Servicer will be required to
expend its own funds to restore the damaged property. In the event that a
Servicer fails to make a required expenditure, the Administrator will be
required to make such expenditure. In either case, the Servicer and the
Administrator will be required to make such expenditures only to the extent it
determines such expenditures are recoverable from Insurance Proceeds or
Liquidation Proceeds.
If recovery under any applicable Mortgage Pool Insurance Policy or any
related primary mortgage insurance policy is not available, the Servicer or the
Administrator, as the case may be, will nevertheless be obligated to attempt to
realize upon the defaulted Mortgage Loan. Foreclosure proceedings will be
conducted by the Servicer with the concurrence of the Administrator. If the
proceeds of any liquidation of the Mortgaged Property securing the defaulted
Mortgage Loan are less than the principal balance of the defaulted Mortgage Loan
plus interest accrued thereon, a loss will be realized on such Mortgage Loan, to
the extent the applicable Credit Enhancement is not sufficient, in the amount of
such difference plus the aggregate of expenses incurred by the Servicer in
connection with such proceedings and which are reimbursable under the Pooling
Agreement. Consequently, any default by an insurer under any insurance policy or
bankruptcy bond, any losses in excess of any insurance policy or bankruptcy
limits, any uninsured loss and any interest shortfalls not otherwise covered as
described herein or in the Prospectus Supplement will likely result in losses
being borne by one or more Holders of the affected Series.
Because Insurance Proceeds cannot exceed deficiency claims and certain
expenses incurred by the Servicer, no payments under the related Mortgage Pool
Insurance Policy, if any, will result in a recovery on the Mortgage Loans which
exceeds the principal balance of the defaulted Mortgage Loan together with
accrued interest thereon. In addition, where a Mortgaged Property securing a
defaulted Mortgage Loan can be resold for an amount exceeding the principal
balance of the related Mortgage Loan together with accrued interest and
expenses, it may be expected that, where retention of any such amount is legally
permissible, the Pool Insurer will exercise its right under the related Mortgage
Pool Insurance Policy, if any, to purchase such Mortgaged Property and realize
for itself any excess proceeds.
Liquidation Proceeds and Insurance Proceeds may initially be credited
to a separate account (the "Advance Account") in order to facilitate the
reimbursement of advances made by Servicers, the Administrator or an insurer.
Such proceeds will be held in the Advance Account until the earlier of the date
of final reimbursement to the appropriate parties and the second Remittance Date
after the date on which they were deposited in the Advance Account. Interest
shortfalls may be suffered on Securities if and to the extent that Liquidation
Proceeds and Insurance Proceeds are retained in the Advance Account during a
period in which Servicers are not making Monthly Advances.
ADMINISTRATION AND SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Mortgage Loan, Multifamily Loan and Contract, the
Administrator may receive compensation with respect to each interest payment
thereon in an amount specified in the related Prospectus Supplement. As
compensation for its servicing duties, each Servicer will be entitled to a
monthly servicing fee in the amount specified in the related Prospectus
Supplement. In addition to the primary compensation, each Servicer will retain
all assumption underwriting fees and late payment charges, to the extent
collected from Mortgagors.
The Administrator and each Servicer will be entitled to reimbursement
for certain expenses incurred by it in connection with the liquidation of
defaulted Mortgage Loans, Multifamily Loans and Contracts. No loss will be
suffered on the Certificates by reason of such expenses to the extent claims for
such expenses are paid directly under any applicable Mortgage Pool Insurance
Policy, a primary mortgage insurance policy, the special hazard insurance policy
or from other forms of Credit Enhancement. In the event, however, that the
defaulted Mortgage Loans are not covered by a Mortgage Pool Insurance Policy,
Primary Mortgage Insurance Policies, Special Hazard Insurance Policy, Standard
Hazard Insurance Policies or another form of Credit Enhancement, or claims are
either not made or not paid under such policies or Credit Enhancement, or if
coverage thereunder has ceased, a loss will occur on the Securities of the
affected Series to the extent that the proceeds from the liquidation of a
defaulted Mortgage Loan, Multifamily Loan or Contract, after reimbursement of
the Administrator's and the Servicer's expenses, are less than the principal
balance of such defaulted Mortgage Loan, Multifamily Loan or Contract.
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THE INDENTURE
The following summaries describe certain provisions of the Indenture
not described elsewhere in this Prospectus. Where particular provisions or terms
used in the Indenture are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as part of such summaries.
The description set forth below is subject to modification in the Prospectus
Supplement for a Series of Bonds to describe the terms and provisions of the
particular Indenture relating to such Series of Bonds.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than two-thirds of the then
aggregate principal amount of the outstanding Bonds of any Series issued under
an Indenture, the related Trustee and the related Issuer may execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture with respect to such Series or modify
(except as provided below) in any manner the rights of the holders of such
Bonds.
Without the consent of the Holder of each outstanding Bond of such
Series affected thereby, however, no supplemental indenture shall (a) change the
Stated Maturity of the principal of, or any installment of interest on, any Bond
of such Series or reduce the principal amount thereof, the interest rate
specified thereon (except as provided in the related Indenture with respect to
any Class of Bonds which are Variable Interest Rate Securities), the redemption
price with respect thereto or the earliest date on which any Bonds of such
Series may be redeemed at the option of the Issuer, or change any place of
payment where, or the coin or currency in which, any Bond of such Series or any
interest thereon is payable, or impair the right to institute suit for the
enforcement of certain provisions of the Indenture regarding payment, (b) reduce
the percentage of the aggregate principal amount of the outstanding Bonds of
such Series, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required for
any waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture, (c)
modify the provisions of the Indenture specifying the circumstances under which
such a supplemental indenture may not change the provisions of the Indenture
without the consent of the Holders of each outstanding Bond of such Series
affected thereby, or the provisions of the Indenture with respect to certain
remedies available in an Event of Default (as described below), except to
increase any percentage specified therein or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Bond affected thereby, (d) modify or alter the
provisions of the Indenture regarding the voting of Bonds held by the Issuer or
an affiliate of the Issuer, (e) permit the creation of any lien ranking prior to
or on the parity with the lien of the Indenture with respect to any part of the
property subject to a lien under the Indenture or terminate the lien of the
Indenture on any property at any time subject thereto or deprive the Holder of
any Bond of such Series of the security afforded by the lien of the Indenture,
or (f) modify any of the provisions of the Indenture in such manner as to affect
the rights of the Holders of Bonds of such Series to the benefits of any
provisions for the redemption at the request of Holders of Bonds of such Series
contained therein.
Each Issuer and the respective Trustee may also enter into supplemental
indentures, without obtaining the consent of Holders of such Series, to cure
ambiguities or make minor corrections, to provide for the issuance of Bonds in
bearer or registered form or for the conversion of any outstanding Bonds to or
from bearer form and to do such other things as would not adversely affect the
interests of the Holders of such Series.
EVENTS OF DEFAULT
An "Event of Default" with respect to any Series of Bonds is defined in
the respective Indenture under which such Bonds are issued as being: (a) unless
otherwise specified in the Prospectus Supplement for such Series, a default in
the payment of principal of any Bond of such Series or a default for ten days or
more in the payment of any interest on any Bond of such Series; (b) a default in
the observance of certain negative covenants in the Indenture or in the
observance of certain covenants relating to redemptions of Bonds of such Series;
(c) a default in the observance of any other covenant of the Indenture, and the
continuation of any such default for a period of sixty days after notice to the
Issuer by the Trustee or to the Issuer and the Indenture Trustee by the Holders
of at least 25% in principal amount of the Bonds of such Series then
outstanding; (d) the failure of the lien of the Indenture to constitute a valid
first priority security interest in the Trust Estate, (e) any representation or
warranty made by the Issuer in the Indenture or in any
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certificate delivered pursuant thereto having been incorrect in a material
respect as of the time made, and the circumstance in respect of which such
representation or warranty is incorrect not having been cured within thirty days
after notice thereof is given to the Issuer by the Trustee or by the Holders of
at least 25% in principal amount of the Bonds of such Series then outstanding;
or (f) certain events of bankruptcy, insolvency, receivership or reorganization
of the Issuer.
RIGHTS UPON EVENT OF DEFAULT
In case an Event of Default should occur and be continuing with respect
to a Series of Bonds, the Trustee may, and on request of Holders of more than
50% in principal amount of the Bonds of such Series then outstanding shall,
declare the principal of such Series of Bonds to be due and payable. Such
declaration may under certain circumstances be rescinded by the Holders of a
majority in principal amount of the Bonds of such Series then outstanding.
If, following an Event of Default, a Series of Bonds has been declared
to be due and payable, the Trustee may, in its discretion (provided that the
Holders of the Bonds of such Series have not directed the Trustee to sell the
Assets included in the related Trust Estate), refrain from selling such Assets
and continue to apply all amounts received on such Assets to payments due on the
Bonds of such Series in accordance with their terms, notwithstanding the
acceleration of the maturity of such Bonds. The Trustee, however, must sell the
Assets included in the related Trust Estate for such Series if collections in
respect of such Assets are determined to be insufficient to make all scheduled
payments on Bonds of such Series, in which case payments will be made on the
Bonds in the same manner as described in the next sentence with regard to
instances in which such Assets are sold. In addition, upon an Event of Default
the Trustee may, in its discretion (provided that, unless the Event of Default
relates to a default in payment of principal or interest, the Trustee must
receive the consent of the Holders of all outstanding Bonds of such Series, and
certain other conditions must be met), sell the Assets included in the related
Trust Estate for such Series, in which event the Bonds of such Series will be
payable pro rata, without regard to their Stated Maturities, out of the
collections on, or the proceeds from the sale of, such Assets and any overdue
installments of interest on the Bonds will, to the extent permitted by
applicable law, bear interest at the highest stated interest rate borne by any
Bond of such Series.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing, the
Trustee shall be under no obligation to exercise any of the rights and powers
under the Indenture at the request or direction of any of the Holders of Bonds,
unless such Holders have offered to the Trustee reasonable security or indemnity
satisfactory to it against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction. Subject to such
provisions for indemnification and certain limitations contained in the
Indenture, the Holders of a majority in principal amount of the outstanding
Bonds of a Series shall have the right to direct the time, method, and place of
conducting any proceeding or any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Bonds of such
Series; and the Holders of a majority in principal amount of the Bonds of a
Series then outstanding may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of a covenant or provision of the Indenture that cannot be modified
without the waiver or consent of the Holder of each outstanding Bond affected
thereby.
LIST OF HOLDERS OF BONDS
Three or more Holders of the Bonds of any Series (each of whom has
owned a Bond of such Series for at least six months) may, by written request to
the Trustee, obtain access to the list of all Holders of the Bonds of such
Series maintained by the Trustee for the purpose of communicating with other
Holders with respect to their rights under the Indenture. The Trustee may elect
not to afford the requesting Holders access to the list of Holders if it agrees
to mail the desired communication or proxy, on behalf of the requesting Holders,
to all Holders.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Trustee a written
statement as to the fulfillment of its obligations under the Indenture.
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TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Holders a brief
report relating to its eligibility and qualifications to continue as the Trustee
under the Indenture, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Issuer to
it in the Trustee's individual capacity, the property and funds physically held
by the Trustee as such, any release, or release and substitution, of property
subject to the lien of the Indenture which has not been previously reported, any
additional Series of Bonds not previously reported and any action taken by it
which materially affects the Bonds and which has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the Assets securing
the Bonds of a Series upon the delivery to the Trustee for cancellation of all
of the Bonds of such Series or, with certain limitations, upon deposit with the
Trustee of funds sufficient for the payment in full of all of the Bonds of such
Series.
REPORTS BY TRUSTEE TO BONDHOLDERS
On each Principal Payment Date or Special Redemption Date, the Trustee
will send a report to each Holder setting forth, among other things, the amount
of such payment representing interest, the amount thereof, if any, representing
principal and the outstanding principal amount of an individual Bond of each
Class (or the aggregate principal amount of the Bonds of each Class in the case
of Holders of Bonds on which payments of interest only are then being made)
after giving effect to the payments made on such Principal Payment Date or
Special Redemption Date.
LIMITATION ON SUITS
No Holder of a Bond of any Series will have any right to institute any
proceedings with respect to the Indenture unless (1) such Holder has previously
given written notice to the Trustee of a continuing Event of Default with
respect to such Series; (2) the Holders of at least 25% in principal amount of
the Bonds of such Series then outstanding have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee; (3) such Holders have offered to the Trustee reasonable
indemnity satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request; (4) for 60 days after its receipt of
such notice, request and offer of indemnity the Trustee has failed to institute
any such proceedings; and (5) no direction inconsistent with such written
request has been given to the Trustee during such 60-day period by the Holders
of at least 50% in principal amount of the Bonds of such Series then
outstanding.
THE POOLING AGREEMENT AND
DEPOSIT TRUST AGREEMENT
The following summaries describe certain provisions of the Pooling
Agreement and the Deposit Trust Agreement not described elsewhere in this
Prospectus. Where particular provisions or terms used in the Pooling Agreement
or Deposit Trust Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference as a part of such summaries.
The description set forth below is subject to modification in the Prospectus
Supplement for a Series of Certificates to describe the terms and provisions of
the particular Pooling Agreement or Deposit Trust Agreement relating to such
Series of Certificates.
Generally, the discussion in this section of the Prospectus is
applicable under circumstances when the Administrator is an affiliate of the
Company. If the Administrator is not an affiliate of the Company, the discussion
relating to pooling and administration (or master servicing) as set forth below
may be modified or superseded by any discussion relating to the pooling and
administration (or master servicing) set forth in the Prospectus Supplement. In
addition, certain of the following summaries only apply to a Pooling Agreement
relating to series of Certificates for which the related Trust Property includes
Mortgage Loans, Multifamily Loans or Contracts. Provisions of Pooling Agreements
or Deposit Trust Agreements relating to series of Certificates for which the
related Trust Property includes other types of Mortgage Assets will be
summarized and described in the related Prospectus Supplement.
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ASSIGNMENT OF MORTGAGE ASSETS
Assignment of Mortgage Loans
At the time of issuance of the Certificates of a Series, the Issuer
will assign the Mortgage Loans to the related Trustee, together with all
principal and interest (subject to exclusions or adjustments specified in the
related Prospectus Supplement received by the Issuer on or with respect to such
Mortgage Loans on or after the Cut-off Date) other than principal and interest
due and payable on or before the Cut-off Date. The Trustee will, concurrently
with such assignment, execute, countersign and deliver the Certificates to the
Issuer in exchange for the Mortgage Loans. Each Mortgage Loan will be identified
in a schedule appearing as an exhibit to the related pooling or sale agreement.
In addition, as to each Mortgage Loan, the Issuer will deliver to the
Trustee the Mortgage Note and Mortgage, any assumption and modification
agreement, an assignment of the Mortgage in recordable form, evidence of title
insurance and, if applicable, the certificate of private mortgage insurance. In
instances where recorded documents cannot be delivered due to delays in
connection with recording, the Issuer may deliver copies thereof and deliver the
original recorded documents promptly upon receipt.
With respect to any Mortgage Loans which are Cooperative Loans, the
Issuer, as depositor, will cause to be delivered to the Trustee, the related
original Cooperative note endorsed to the order of the Trustee, the original
security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing agreement and the relevant stock
certificate and related blank stock powers. The Issuer will file in the
appropriate office an assignment and a financing statement evidencing the
Trustee's security interest in each Cooperative Loan.
Unless otherwise specified in the related Prospectus Supplement, in the
Pooling Agreement or Deposit Trust Agreement the Issuer generally will represent
and warrant to the Trustee, among other things, that (i) the information set
forth in the schedule of Mortgage Loans attached thereto is correct in all
material respects; (ii) a lender's title insurance policy or binder for each
Mortgage Loan included in the Trust Property was issued on the date of
origination thereof and each such policy or binder assurance is valid and
remains in full force and effect; (iii) at the date of initial issuance of the
Certificates, the Issuer has good title to the Mortgage Loans and the Mortgage
Loans are free of offsets, defenses or counterclaims; (iv) at the date of
initial issuance of the Certificates, each Mortgage is a valid first lien on the
property securing the Mortgage Note (subject only to (a) the lien of current
real property taxes and assessments, (b) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of the recording of such Mortgage, such exceptions appearing of record
being acceptable to mortgage lending institutions generally in the area wherein
the property subject to the Mortgage is located or specifically reflected in the
appraisal obtained by the Company and (c) 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 such Mortgage) and such property is free of
material damage and is in good repair or, with respect to junior Lien Mortgage
Loans, that such Mortgage is a valid junior lien Mortgage, as the case may be,
and specifying the percentage of the Mortgage Loan Pool comprised of junior Lien
Mortgage Loans; (v) at the date of initial issuance of the Certificates, no
Mortgage Loan is 30 or more days delinquent and there are no delinquent tax or
assessment liens against the property covered by the related Mortgage; (vi) at
the date of initial issuance of the Certificates, the portion of each Mortgage
Loan, if any, which in the circumstances set forth above under "Servicing of the
Mortgage Loans, Multifamily Loans and Contracts -- Primary Mortgage Insurance"
should be insured with a private mortgage insurer is so insured; and (vii) each
Mortgage Loan at the time it was made complied in all material respects with
applicable state and federal laws, including, with out limitation, usury, equal
credit opportunity and disclosure laws.
In the event that the Issuer has acquired the Mortgage Loans for a
Series, if so specified in the related Prospectus Supplement, the Issuer may, in
lieu of making the representations set forth in the preceding paragraph, cause
the entity from which such Mortgage Loans were acquired to make such
representations (other than those regarding the Issuer's title to the Mortgage
Loans, which will in all events be made by the Issuer), in the sales agreement
pursuant to which such Mortgage Loans are acquired, or if such entity is acting
as a Servicer, in its servicing agreement. In such event such representations,
and the Issuer's rights against such entity in the event of a breach thereof,
will be assigned to the Trustee for the benefit of the holders of the
Certificates of such Series.
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Assignment of Contracts
The Issuer will cause the Contracts to be assigned to the Trustee,
together with principal and interest due on or with respect to the Contracts
after the Cut-off Date specified in the related Prospectus Supplement. Each
Contract will be identified in a loan schedule ("Contract Loan Schedule")
appearing as an exhibit to the related pooling or sale agreement.
In addition, with respect to each Contract, the Issuer will deliver or
cause to be delivered to the Trustee, the original Contract and copies of
documents and instruments related to each Contract and the security interest in
the Manufactured Home securing each Contract. To give notice of the right, title
and interest of the Certificateholders to the Contracts, the Issuer will cause a
UCC-1 financing statement to be filed identifying the Trustee as the secured
party and identifying all Contracts as collateral. Unless otherwise specified in
the related Prospectus Supplement, the Contracts will not be stamped or
otherwise marked to reflect their assignment from the Issuer to the Trustee.
Therefore, if a subsequent purchaser were able to take physical possession of
the Contracts without notice of such assignment, the interest of the Holders of
the Certificates of the applicable Series in the Contracts could be defeated.
See "Certain Legal Aspects of the Mortgage Assets."
Unless otherwise specified in the Prospectus Supplement, the Issuer
will provide limited representations and warranties to the Trustee concerning
the Contracts. Such representations and warranties will include: (i) that the
information contained in the Contract Loan Schedule provides an accurate listing
of the Contracts and that the information respecting such Contracts set forth in
such Contract Loan Schedule is true and correct in all material respects at the
date or dates respecting which such information is furnished; (ii) that,
immediately prior to the conveyance of the Contracts, the Issuer had good title
to, and was sole owner of, each such Contract; and (iii) that there has been no
other sale by it of such Contract and that the Contract is not subject to any
lien, charge, security interest or other encumbrance.
Assignment of Multifamily Loans
The Issuer will cause the Multifamily Loans constituting the
Multifamily Loan Pool to be assigned to the Trustee, together with principal and
interest due on or with respect to the Multifamily Loans after the Cut-off Date
specified in the related Prospectus Supplement. The Trustee will, concurrently
with such assignment, authenticate and deliver the Certificates. Each
Multifamily Loan will be identified in a schedule appearing as an exhibit to the
pooling or sale agreement (the "Multifamily Loan Schedule").
In addition, the Issuer, will, as to each Multifamily Loan, deliver or
cause to be delivered to the Trustee, the mortgage note endorsed without
recourse, the mortgage or deed of trust with evidence of recording indicated
thereon and an assignment of the instrument in recordable from (but not
recorded).
The Trustee will review and hold such documents in trust for the
benefit of the Holders of the Certificates of the applicable Series. Unless
otherwise provided in the related Prospectus Supplement, if any such document is
found to be defective in any material respect and the Issuer, the entity from
which the Company acquired such Multifamily Loan (the "Multifamily Loan Seller")
or the Administrator, as the case may be, does not cure such a defect with 60
days, or within such other period specified in the related Prospectus
Supplement, the Company, the Multifamily Loan Seller or the Administrator, as
the case may be, will, not later than 90 days or within such other period
specified in the related Prospectus Supplement, after the Trustee's notice to
the Company, the Multifamily Loan Seller or the Administrator of the defect,
repurchase the related Multifamily Loan or any property acquired in respect
thereof from the Trustee. Unless otherwise specified in the related Prospectus
Supplement, such repurchase shall be at a price equal to the remaining unpaid
principal balance of such Multifamily Loan (or, in the case of a foreclosed
Multifamily Loan, the unpaid principal balance of such Multifamily Loan
immediately prior to foreclosure), plus accrued but unpaid interest to the date
of the next scheduled payment on such Multifamily Loan at the related Remittance
Rate, less any unreimbursed Advances made with respect to such Multifamily Loan.
Unless otherwise provided in the related Prospectus Supplement, the repurchase
obligation constitutes the sole remedy available to the Holders of the
applicable Series of Certificates or the Trustee for material defect in a
Multifamily Loan document.
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Unless otherwise specified in the related Prospectus Supplement, the
Issuer will, at the time of delivery of the Certificates of a Series, cause the
assignment to the Trustee of the Multifamily Loans constituting a Multifamily
Loan Pool to be recorded in the appropriate public office for real property
records. If specified in the related Prospectus Supplement, the Issuer will
cause such assignments to be so recorded within the time after delivery of the
Certificates as is specified in the related Prospectus Supplement, in which
event, the Pooling Agreement or Deposit Trust Agreement may, as specified in the
Prospectus Supplement, require the Multifamily Loan Seller or the Administrator
to repurchase from the Trustee any Multifamily Loan required to be recorded but
not recorded within such time, at the price described above with respect to
repurchase by any reason of defective documentation. Unless otherwise provided
in the related Prospectus Supplement, the repurchase obligation would constitute
the sole remedy to the Holders of the applicable Series of Certificates or the
Trustee for the failure of a Multifamily Loan to be recorded.
Unless otherwise specified in the related Prospectus Supplement, each
Multifamily Loan Seller will have represented, among other things, that (i)
immediately prior to the transfer and assignment of the Multifamily Loans, such
Multifamily Loan Seller had good title to, and was the sole owner of, each
Multifamily Loan and there has been no other sale or assignment thereof, (ii) as
of the date of such transfer, the Multifamily Loans are subject to no offsets,
defenses or counterclaims, (iii) each Multifamily Loan at the time it was made
complied in all material respects with applicable state and federal laws,
including usury, and disclosure laws, (iv) a lender's policy of title insurance
was issued on the date of the origination of each Multifamily Loan and each such
policy is valid and remains in full force and effect, (v) as of the date of such
transfer, each mortgage note subject to the agreement is a valid first lien on
the related Multifamily Project (subject only to (a) the lien of current real
property taxes and assessments, (b) covenants, conditions and restrictions,
rights of way, easements and other matters of public record as of the date of
recording of such instrument of indebtedness, such exceptions appearing of
record and either being acceptable to mortgage lending institutions generally or
specifically reflected in the appraisal made in connection with the origination
of the related Multifamily Loan and (c) 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 instrument of indebtedness) and such
property is free of material damage and is in good repair, (vi) as of the date
of such transfer, no Multifamily Loan is more than 30 days delinquent in payment
and there are no delinquent tax or assessment liens against the related
apartment project, and (vii) with respect to each Multifamily Loan, if the
Multifamily Project is located in an area identified by the Secretary of Housing
and Urban Development as having special flood hazards and subject in certain
circumstances to the availability of flood insurance under the National Flood
Insurance Act of 1968, as amended, such Multifamily Project is covered by flood
insurance if applicable regulations at the time such Multifamily Loan was
originated required that such flood insurance coverage be obtained.
All of the representations and warranties of a Multifamily Loan Seller
in respect of a Multifamily Loan will have been made as of the date on which
such Multifamily Loan Seller sold the Multifamily Loan to the Company or its
affiliate; the date as of which such representations and warranties were made
may be a date prior to the date of the initial issuance of the related Series of
Certificates. A substantial period of time may have elapsed between the date as
of which the representations and warranties were made and the later date of
initial issuance of the related Series of Certificates. Since the
representations and warranties referred to in the preceding paragraph, unless
otherwise specified in the related Prospectus Supplement, are the only
representations and warranties that will be made by a Multifamily Loan Seller,
the Multifamily Loan Seller's repurchase obligations described below will not
arise if, during the period commencing on a date of sale of a Multifamily Loan
by the Multifamily Loan Seller to the Company or its affiliate, the relevant
event occurs that would have given rise to such an obligation had the event
occurred prior to the sale of the affected Multifamily Loan. Nothing, however,
has come to the Company's attention that would cause it to believe that the
representations and warranties referred to in the preceding paragraph will not
be accurate and complete in all material respects in respect of Multifamily
Loans as of the date of initial issuance of the related Series of Certificates.
Assignment of Agency Securities, Non-Agency Certificates, and Private
Mortgage-Backed Securities
With respect to each Series, unless otherwise specified in the related
Prospectus Supplement, the Issuer will cause any Agency Securities, Non-Agency
Certificates, and Private Mortgage-Backed Securities included in the related
Trust Property to be registered in the name of the Trustee. The Trustee (or its
custodian) will have possession of any certificated Agency Securities and
Private Mortgage-Backed Securities. Unless otherwise specified in the related
Prospectus Supplement, the Trustee will not be in possession of or be assignee
of record of any underlying assets for
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an Agency Security, Non-Agency Certificate, or Private Mortgage-Backed Security.
Each Agency Security, Non-Agency Certificate, and Private Mortgage-Backed
Security will be identified in a schedule appearing as an exhibit to the related
pooling or sale agreement. The Issuer will represent and warrant to the Trustee,
among other things, the information contained in such schedule is true and
correct and that immediately prior to the transfer of the related securities to
the Trustee, the Issuer had good title to, and was the sole owner of, each such
security.
REPURCHASE OR SUBSTITUTION OF MORTGAGE LOANS, CONTRACTS AND MULTIFAMILY LOANS
The Trustee will review the documents delivered to it with respect to
the Mortgage Loans, Contracts and Multifamily Loans included in the related
Trust Property. Unless otherwise specified in the related Prospectus Supplement,
if any document is not delivered or is found to be defective in any material
respect and the Issuer cannot deliver such document or cure such defect within
90 days after notice thereof (which the Trustee will undertake to give within 45
days of the delivery of such documents), and if any other party obligated to
deliver such document or cure such defect has not done so and has not
substituted or repurchased the affected Mortgage Loan, Multifamily Loan or
Contract, then the Issuer will, not later than the first date designated for the
deposit of payments into the Certificate Account (a "Deposit Date") which is
more than ten days after such 90-day period, (a) if so provided in the
Prospectus Supplement remove the affected Mortgage Loan, Multifamily Loan or
Contract from the Trust Property and substitute one or more other Mortgage
Loans, Multifamily Loans or Contracts therefor or (b) repurchase the Mortgage
Loan, Multifamily Loan or Contract from the Trustee for a price equal to 100% of
its principal balance plus one month's interest thereon at the applicable
Remittance Rate. Such purchase price will be deposited in the Certificate
Account on such Deposit Date. Unless otherwise specified in the Prospectus
Supplement, this repurchase and, if applicable, substitution obligation
constitutes the sole remedy available to Holders of the Certificates of the
applicable Series or the Trustee against the Issuer for a material defect in a
document relating to a Mortgage Loan, Multifamily Loan or Contract.
Unless otherwise specified in the related Prospectus Supplement, the
Issuer will agree to either (a) cure any breach of any representation or
warranty that materially and adversely affects the interests of the Holders of
the Certificates of the applicable Series in a Mortgage Loan, Multifamily Loan
or Contract within 90 days of its discovery by the Company or its receipt of
notice thereof from the Trustee, (b) repurchase such Mortgage Loan, Multifamily
Loan or Contract not later than the first Deposit Date which is more than ten
days after such 90-day period for a price equal to 100% of its principal balance
plus one month's interest thereon at the applicable Remittance Rate, or (c) if
so specified in the Prospectus Supplement, remove such Mortgage Loan,
Multifamily Loan or Contract from the Trust Property and substitute one or more
other mortgage loans or contracts therefor. Such purchase price will be
deposited in the Certificate Account on such Deposit Date. Unless otherwise
specified in the related Prospectus Supplement, this repurchase and, if
applicable, substitution obligation will constitute the sole remedies available
to Holders of the Certificates of the applicable Series or the Trustee for any
such breach.
If the Prospectus Supplement for a Series of Certificates so provides,
then in lieu of agreeing to repurchase or substitute Mortgage Loans, Contracts
or Multifamily Loans as described above, the Issuer may obtain such an agreement
from the entity which sold such Mortgage Loans, Contracts or Multifamily Loans
to the Issuer, which agreement will be assigned to the Trustee for the benefit
of the holders of the Certificates of such series.
If a REMIC election is to be made with respect to all or a portion of
the Trust Property, there may be federal income tax limitations on the right to
substitute Mortgage Loans, Multifamily Mortgage Loans or Contracts as described
above.
EVIDENCE AS TO COMPLIANCE
On or before a specified date in each year, beginning the first such
date that is at least a specified number of months after the Cut-off Date, a
firm of independent public accountants will furnish a statement to the Trustee
to the effect that, based on an examination of certain specified documents and
records relating to the servicing of the Administrator's mortgage loan portfolio
conducted substantially in compliance with the audit program for mortgages
serviced for FNMA or FHLMC, the United States Department of Housing and Urban
Development Mortgage Audit Standards or the Uniform Single Audit Program for
Mortgage Bankers (the "Applicable Accounting Standards"), such
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firm is of the opinion that such servicing has been conducted in compliance with
the Applicable Accounting Standards except for (a) such expenses as such firm
shall believe to be immaterial and (b) such other exceptions as shall be set
forth in such statement.
LIST OF CERTIFICATEHOLDERS
Upon written request of the Trustee, the Registrar for a Series of
Certificates will provide to the Trustee, within fifteen days after receipt of
such request, a list of the names and addresses of all Holders of record of such
Series as of the most recent Record Date for payment of distributions to Holders
of that Series. Upon written request of three or more Holders of record of a
Series of Certificates for purposes of communicating with other Holders with
respect to their rights under the Pooling Agreement or the Deposit Trust
Agreement for such Series, the Trustee will afford such Holders access during
business hours to the most recent list of Holders of that Series held by the
Trustee. With respect to Book Entry Certificates, the only named Holder on the
Certificate Register will be the Clearing Agency.
Neither the Pooling Agreement or the Deposit Trust Agreement will
provide for the holding of any annual or other meetings of Holders of
Certificates.
ADMINISTRATION OF THE CERTIFICATE ACCOUNT
The Pooling Agreement or the Deposit Trust Agreement with respect to a
Series will require that the Certificate Account be any of the following: (i) an
account maintained with a depository institution the debt obligations of which
(or, in the case of a depository institution which is a part of a holding
company structure, the debt obligations of the holding company of which) have a
long-term or short-term rating acceptable to each rating agency that rated the
Certificates, (ii) an account or accounts the deposits in which are fully
insured by either the Bank Insurance Fund (the "BIF") or the Federal Deposit
Insurance Corporation (the "FDIC") or the Savings Association Insurance Fund (as
successor to the Federal Savings and Loan Insurance Corporation) ("SAIF") of the
FDIC, (iii) an account maintained with and in the name of the Trustee, in trust,
and in respect of which the amounts from time to time on deposit therein are
insured by the BIF or the SAIF (to the limits established by the FDIC), provided
that all funds in such account are invested in Permitted Instruments (as defined
below) within one business day of receipt or are remitted to the Holders within
one business day of receipt therein; (iv) a trust account maintained with the
corporate trust department of a federal or state chartered depository
institution or trust company with trust powers and acting in its fiduciary
capacity for the benefit of the Trustee, or (v) an account which will not cause
any rating agency rating the Certificates of such Series to downgrade or
withdraw its then-current rating assigned to the Certificates. The instruments
in which amounts in the Certificate Account may be invested are limited to
Permitted Instruments. Unless otherwise specified in the related Prospectus
Supplement, a Certificate Account may be maintained as an interest bearing
account, or the funds held therein may be invested pending each succeeding
Distribution Date in Permitted Instruments. Unless otherwise specified in the
related Prospectus Supplement, the Administrator or the Trustee will be entitled
to receive any such interest or other income earned on funds in the Certificate
Account as additional compensation. Unless otherwise specified in the related
Prospectus Supplement, the following payments and collections received or made
subsequent to the Cut-off Date (including scheduled payments of principal and
interest due after the Cut-off Date but received on or before the Cut-off Date)
will be deposited in the Certificate Account:
(i) all Mortgagor payments on account of principal, including
Principal Prepayments and, if specified in the related Prospectus Supplement,
prepayment penalties;
(ii) all Mortgagor payments on account of interest, subject to
exclusions or adjustments as described in the related Prospectus Supplement
adjusted to the Remittance Rate;
(iii) all Liquidation Proceeds net of certain amounts reimbursed to
the Servicers or the Administrator, as described above;
(iv) all Insurance Proceeds, other than proceeds to be applied to the
restoration or repair of the related property or released to the Mortgagor and
net of certain amounts reimbursed to the Servicers or the Administrator, as
described above;
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(v) all condemnation awards or settlements which are not released to
the Mortgagor in accordance with normal servicing procedures;
(vi) any Advances made as described under "Servicing of the Mortgage
Loans, Multifamily Loans and Contracts -- Advances" and certain other amounts
required to be deposited in the Certificate Account;
(vii) all proceeds of any Mortgage Loan, Multifamily Loan or Contract
or property acquired in respect thereof repurchased by the Administrator, the
Company, the Seller or the Servicer or otherwise as described above or under
"Termination" below;
(viii) all amounts, if any, required to be transferred to the
Certificate Account from any Credit Enhancement for the related Series; and
(ix) all other amounts required to be deposited in the Certificate
Account pursuant to the related Pooling Agreement or Deposit Trust Agreement.
REPORTS TO HOLDERS OF CERTIFICATES
Concurrently with each distribution on the Certificates of a Series,
unless otherwise specified in the related Prospectus Supplement, the Trustee
will furnish to Holders of such Certificates a statement generally setting
forth, to the extent applicable to such Series, among other things:
(i) the aggregate amount of such distribution allocable to
principal, separately identifying the amount allocable to each Class;
(ii) the amount of such distribution allocable to interest,
separately identifying the amount allocable to each Class;
(iii) the aggregate principal balance of each Class of the
Certificates after giving effect to distributions on such Distribution Date;
(iv) the aggregate principal balance of any Class Certificates which
are Compound Interest Securities after giving effect to any increase in such
principal balance that results from the accrual of interest that is not yet
distributable thereon;
(v) if applicable, the amount otherwise distributable to Holders of
any Class of Certificates that was distributed to Holders of other Classes of
Certificates;
(vi) if any Class of Certificates has priority in the right to
receive Principal Prepayments, the amount of Principal Prepayments in respect of
the related Mortgage Assets;
(vii) the aggregate principal balance and number of Mortgage Loans,
Multifamily Loans and Contracts which were delinquent as to a total of two
installments of principal and interest; and
(viii) as of the most recent date for which information was available,
the aggregate principal balances of Mortgage Loans, Multifamily Loans and
Contracts which (a) were delinquent 30-59 days, 60-89 days, and 90 days or more,
and (b) were in foreclosure; and
(ix) the amount of coverage then remaining under any Credit
Enhancement.
The Administrator or the Trustee will also furnish annually customary
information deemed necessary for Holders of such Certificates to prepare their
tax returns.
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EVENTS OF DEFAULT
"Events of Default" with respect to a Series will consist of (i) any
failure by the Administrator to duly observe or perform in any material respect
any of its covenants or agreements in the Pooling Agreement or Deposit Trust
Agreement materially affecting the rights of Holders of the Certificates of such
Series which continues unremedied for 60 days after the giving of written notice
of such failure to the Company by the Trustee or to the Administrator and the
Trustee by the Holders of such Certificates evidencing interests aggregating not
less than 25% of the affected Class of Certificates; and (ii) certain events of
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings and certain actions by the Administrator indicating its
insolvency, reorganization or inability to pay its obligations.
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default remains unremedied by the Administrator,
the Trustee, or Holders of Certificates of each Class of Certificates affected
thereby evidencing, as to each such Class interests aggregating not less than
51%, may terminate all of the rights and obligations of the Administrator,
whereupon the Trustee, or a new Administrator appointed pursuant to the Pooling
Agreement or Deposit Trust Agreement, will succeed to all the responsibilities,
duties and liabilities of the Administrator under the Pooling Agreement or
Deposit Trust Agreement, as applicable, and will be entitled to similar
compensation arrangements. Notwithstanding its termination as Administrator, the
Administrator will be entitled to receive amounts earned by it under the Pooling
Agreement or Deposit Trust Agreement prior to such termination. Following such
termination, the Company shall appoint any established housing finance
institution having a net worth of not less than $10,000,000 to act as successor
to the Administrator. If no such successor shall have been appointed within 30
days following such termination, then either the Company or the Trustee may
petition a court of competent jurisdiction for the appointment of a successor
Administrator. Pending the appointment of a successor Administrator, the Trustee
shall act as Administrator. The Trustee, the Company and such successor
Administrator may agree upon the compensation to be paid to such successor
Administrator, which in no event may be greater than the compensation previously
paid to the terminated Administrator under such Pooling Agreement or Deposit
Trust Agreement.
No Holder of Certificates will have any right under the Pooling
Agreement or Deposit Trust Agreement to institute any proceeding with respect to
the Pooling Agreement or Deposit Trust Agreement, unless such Holder previously
has given to the Trustee written notice of default and unless the Holders of
Certificates as specified in the Prospectus Supplement have made written request
to the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute any such proceedings. However,
the Trustee is under no obligation to exercise any of the trusts or powers
vested in it by the Pooling Agreement or Deposit Trust Agreement or to make any
investigation of matters arising thereunder or to institute, conduct or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the Holders, unless such Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
AMENDMENT
The Pooling Agreement or Deposit Trust Agreement with respect to a
Series may be amended by the Company, the Administrator and the Trustee without
the consent of the Holder of the Certificates of such Series, to cure any
ambiguity, to correct or supplement any provision therein which may be defective
or inconsistent with any other provision therein or to add any other provisions
with respect to matters or questions arising under the Pooling Agreement or
Deposit Trust Agreement provided that such amendment is not materially
inconsistent with the provisions of the Pooling Agreement or Deposit Trust
Agreement and that in each case, subject as stated in the next sentence, such
action will not adversely affect in any material respect the interests of any
Holders of that Series. An amendment described above shall not be deemed to
adversely affect in any material respect the interests of the Holders of that
Series if either (a) an opinion of counsel satisfactory to the Trustee is
obtained to such effect, or (b) the person requesting the amendment obtains a
letter from the rating agency then rating the Certificates of that Series that
the amendment would not result in a downgrading or withdrawal of the rating then
assigned by it to such Certificates. Notwithstanding the foregoing, the Company,
the Administrator and the Trustee may amend each Pooling Agreement and Deposit
Trust
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Agreement without the consent of the Holders of the Certificates of the relevant
Series in order to modify, eliminate or add to any of its provisions to such
extent as may be appropriate or necessary to maintain REMIC status of all or any
portion of the Trust Property as to which a REMIC election has been made with
respect to the applicable Certificates or to avoid or minimize the risk of the
imposition of any tax on the Trust created by such agreement that would be a
claim against the Trustee at any time prior to final redemption of the
Certificates, provided that the Trustee has obtained the opinion of independent
counsel to the effect that such action is necessary or appropriate to maintain
REMIC status or to avoid or minimize the risk of the imposition of such a tax.
Unless otherwise specified in the Prospectus Supplement, the Pooling Agreement
and Deposit Trust Agreement may also be amended by the Company, the
Administrator, and the Trustee with the consent of the Holders of Certificates
evidencing interests aggregating not less than 66% of the aggregate principal
balance of the Certificates of the applicable Series for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of such agreement or of modifying in any manner the rights of Holders of
Certificates of that Series; provided, however, that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, collections of
payments received on the related Mortgage Assets or distributions which are
required to be made on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in any manner other than as described in
clause (i), without the consent of the Holders of Certificates of such Class
evidencing at least 66% of the interests of such Class or (iii) reduce the
aforesaid percentage of Certificates of any Class required to consent to any
such amendment, without the consent of the Holders of all Certificates of such
Class then outstanding.
TERMINATION
Unless otherwise specified in the related Prospectus Supplement, the
obligations of the Company, as depositor, the Administrator, as servicer, and
the Trustee created by the Pooling Agreement or Deposit Trust Agreement with
respect to a Series will terminate upon the payment to Holders of the
Certificates of such series of all amounts held by the Administrator or in the
Certificate Account and required to be paid to them pursuant to the Pooling
Agreement or Deposit Trust Agreement after the later of (i) the maturity or
other liquidation of the last Mortgage Loan, Multifamily Loan or Contract
subject thereto or the disposition of all property acquired upon foreclosure of
any such Mortgage Loan, Multifamily Loan or Contract or (ii) the repurchase by
the Company from the Trust of all the outstanding Certificates or all remaining
Assets in the Trust Property. The pooling or sales agreement will establish the
repurchase price for the Assets in the Trust and the allocation of such purchase
price among the Classes of Certificates. The exercise of such right will effect
early retirement of the Certificates of that Series, but the Company's right so
to repurchase will be subject to the conditions set forth in the related
Prospectus Supplement. If a REMIC election is to be made with respect to all or
a portion of Trust Property, there may be additional conditions to the
termination of such Trust which will be described in the related Prospectus
Supplement. In no event, however, will the Trust created by the Pooling
Agreement or Deposit Trust Agreement continue beyond the expiration of 21 years
from the death of the survivor of certain persons named in such agreement. The
Trustee will give written notice of termination of the Trust to each Holder of
Certificates of the applicable Certificates, and the final distribution will be
made only upon surrender and cancellation of the Certificates at an office or
agency of the Trustee specified in such notice of termination.
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Securities will be applied to the simultaneous purchase of the
Mortgage Assets related to such Series or to reimburse the amounts previously
used to effect such a purchase, the costs of carrying such Mortgage Assets until
sale of the Certificates and other expenses connected with pooling the Mortgage
Assets and issuing the Securities.
THE ISSUER
THE COMPANY
Fund America Investors Corporation II (the "Company") was incorporated
in the State of Delaware on December 14, 1992 as a limited purpose finance
corporation. All of its outstanding capital stock is owned by Steven B.
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Chotin. The Company maintains its principal office at 6400 S. Fiddler's Green
Circle, Suite 1200B, Englewood, Colorado 80111. Its telephone number is (303)
290-6025.
As specified in the related Prospectus Supplement, the Administrator
with respect to any series of Certificates evidencing interests in Mortgage
Loans, Multifamily Loans or Contracts, and the Non-Agency Administrator with
respect to any Non-Agency Certificate, may be an affiliate of the Company. The
Company anticipates that it will acquire Mortgage Loans, Multifamily Loans,
Agency Securities, Non-Agency Certificates, Private Mortgage-Backed Securities
and Contracts in the open market or in privately negotiated transactions, which
may be through or from an affiliate.
Neither the Company nor any of its affiliates will insure or guarantee
the Securities of any Series. See "Special Considerations -- Limited Assets."
OWNER TRUST ISSUER
Any Owner Trust established to act as an Issuer of one or more Series
of Securities will be created pursuant to a Deposit Trust Agreement between
Steven B. Chotin or the Company (the "Initial Depositor"), acting as depositor,
and the related Owner Trustee. The Initial Depositor (if Steven B. Chotin) will
transfer all of the certificates representing beneficial ownership of each such
Owner Trust ("Certificates of Beneficial Ownership") to the Company prior to any
issuance of Securities by such Owner Trust. The Company may sell or assign such
Certificates of Beneficial Ownership, in whole or in part, to another entity or
entities at the time of, or subsequent to, the issuance of any Securities by
such Owner Trust.
The Owner Trust issuing a Series of Bonds will pledge the Assets
securing such Series of Bonds to the Trustee under the Indenture for such
Series. Each Indenture will prohibit such Owner Trust from incurring debt
obligations other than Bonds and similar Series of Bonds unless (i) the
debtholder's sole recourse with respect to such obligations is to collateral
other than the Assets pledged to secure such Bonds or (ii) such obligations are
subordinate to the Bonds.
Each Deposit Trust Agreement will provide that the Owner Trust created
under such agreement may not engage in any activities other than (i) issuing and
selling one or more series of Securities and other similar series of securities,
(ii) purchasing, owning, holding, pledging, or selling Mortgage Assets;
provided, however, that any indebtedness incurred in connection with such
transactions shall be secured only by collateral other than the Assets pledged
to secure the Securities or shall be subordinate to the Securities, and (iii)
other activities which are necessary or convenient to accomplish the foregoing
and are incidental thereto.
No Deposit Trust Agreement will be subject to amendment without the
prior written consent of the related Owner Trustee and holders representing 50%
of the Certificates of Beneficial Ownership of the Owner Trust. In addition, the
amendment of certain provisions of a Deposit Trust Agreement may require the
consent of the Owner Trustee with respect to each Series of Securities issued by
the related Owner Trust. The holders of Certificates of Beneficial Ownership of
an Owner Trust will not be liable for payment of principal or interest on the
Bonds of any series issued by such Owner Trust and each of the holders of the
Bonds of such series will be deemed to have released such holders of
Certificates of Beneficial Ownership from any such claim, liability or
obligation on or with respect to such Bonds.
Each Deposit Trust Agreement will provide that the holders of
Certificates of Beneficial Ownership of the Owner Trust created under such
agreement shall indemnify the related Owner Trustee against all losses and
liability suffered by it in acting upon the holders' instructions, except in the
case of willful misconduct or gross negligence on the part of such Owner
Trustee. The Owner Trustee will have no liability for action taken by it in good
faith in reliance upon direction to it for the disposition of monies or
collateral pursuant to a Deposit Trust Agreement.
MANAGEMENT AGREEMENT
The Issuer with respect to a Series of Bonds may enter into a
management agreement (the "Management Agreement") with Fund America Management
Corporation ("FAMC") or another entity (FAMC or such other entity which has
entered into a Management Agreement with the Issuer being referred to herein as
the "Manager"), pursuant
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to which the Manager will, among other things, prepare and make such reports as
are required to be delivered by the Issuer to the Trustee and provide advisory,
accounting, administrative, clerical and other services required in the conduct
of the Issuer's business. As compensation for its services, the Issuer will pay
the Manager a management fee. The Manager will not assume any responsibility
under the Management Agreement other than to render services called for
thereunder and may subcontract to a third party all or a portion of its duties
thereunder. The Manager and its affiliates, shareholders, directors, officers
and employees will not be liable to the Issuer, the Holders of Bonds or others,
except by reason of acts constituting bad faith, gross negligence or willful
misconduct. The Manager and its affiliates will be indemnified with respect to
all expenses, losses, damages, liabilities, demands, charges and claims of any
nature in respect of acts or omissions performed or omitted by it in accordance
with the standards set forth in the preceding sentence.
All of the outstanding common stock of FAMC is owned by Steven B.
Chotin, who also owns all of the outstanding common stock of the Company and who
may act as Initial Depositor with respect to the formation of any Trust Issuers.
See "The Issuer -- The Company" and "-- Owner Trust Issuer."
THE TRUSTEE
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Company or the Administrator. In addition, the
Trustee will have the power and the responsibility for appointing co-trustees or
separate trustees of all or any part of the Trust Property relating to a
particular Series of Securities. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
Indenture or Pooling Agreement, as applicable, shall be conferred or imposed
upon the Trustee and such separate trustee or co-trustee jointly, or in any
jurisdiction in which the Trustee shall be incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee who shall exercise
and perform such rights, powers, duties and obligations solely at the direction
of the Trustee.
The Trustee will make no representations as to the validity or
sufficiency of the applicable Indenture or Pooling Agreement, the related
Securities or of any Mortgage Loan, Agency Security, Contract, Multifamily Loan
or related document, and will not be accountable for the use or application by
the Company or an Issuer of any funds paid to the Company or such Issuer in
respect of the Securities or the related Assets, or amounts deposited in the
related Collection Account, Certificate Account or deposited into any other
account for purposes of making payments or distributions to Holders. If no Event
of Default has occurred, the Trustee will be required to perform only those
duties specifically required of it under the applicable Indenture or Pooling
Agreement. However, upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee will be required to
examine them to determine whether they conform to the requirements of the
applicable Indenture or Pooling Agreement.
The Trustee may resign at any time and the Company or the Issuer, as
applicable, may remove the Trustee if the Trustee ceases to be eligible to
continue as such under the applicable Indenture or Pooling Agreement, if the
Trustee becomes insolvent or in such other instances, if any, as are set forth
in the applicable Indenture or Pooling Agreement. Following any resignation or
removal of the Trustee, the Company, the Issuer or Administrator, as applicable,
will be obligated to appoint a successor Trustee. Any resignation or removal of
the Trustee and appointment of a successor Trustee does not become effective
until acceptance of the appointment by the successor Trustee.
Pursuant to the Trust Indenture Act of 1939, as amended, the Trustee
may have a "conflicting interest" if any Event of Default occurs with respect to
one or more Classes of Bonds which are Special Allocation Securities issued
under the Indenture. In such event, the Trustee may be required to resign its
trusteeship with respect to one or more Classes of such Bonds and a successor
Trustee would be appointed for such Classes.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE ASSETS
The following discussion contains summaries of certain legal aspects of
residential and multi-family mortgage loans which are general in nature. Because
such legal aspects are governed primarily by applicable state law (which laws
may differ substantially), the summaries do not purport to be complete nor to
reflect the laws of any particular state, nor to encompass the laws of all
states in which the security for the Mortgage Loans or Multifamily Loans is
situated. The
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summaries are qualified in their entirety be reference to the applicable federal
and state laws governing the Mortgage Loans and Multifamily Loans.
In addition, the following discussion also contains a summary of the
Title I Program, which may be applicable to certain of the Mortgage Loans,
Multifamily Loans and Contracts. With respect to each Series for which the
related Trust Property includes Non-Agency Certificates backed by Contracts or
for which the related Trust includes Contracts, the related Prospectus
Supplement will contain a discussion of certain legal aspects of manufactured
housing contracts.
THE MORTGAGE LOANS AND MULTIFAMILY LOANS
General
Mortgages. The Mortgage Loans and Multifamily Loans will be secured
either by deeds of trust or mortgages. A mortgage creates a lien upon the real
property encumbered by the mortgage. It is not prior to the lien for real estate
taxes and assessments. Priority between mortgages depends on their terms and
generally on the order of filing with a state or county office. There are two
parties to a mortgage: the mortgagor, who is the borrower and homeowner or the
land trustee (as described below), and the mortgagee, who is the lender. Under
the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond
and the mortgage. In the case of a land trust, there are three parties because
title to the property is held by a land trustee under a land trust agreement of
which the borrower/homeowner is the beneficiary; at origination of a mortgage
loan, the borrower executes a separate undertaking to make payments on the
mortgage note. Although a deed of trust is similar to a mortgage, a deed of
trust formally has three parties, the borrower-homeowner called the trustor
(similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust and generally with a power of sale, to the trustee to secure payment of
the obligation. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by law, the express
provisions of the deed of trust or mortgage and, in some cases, the directions
of the beneficiary.
Cooperative Loans. Certain of the Mortgage Loans may be Cooperative
Loans. The private, non-profit, cooperative apartment corporation owns all the
real property that comprises the project, including the land, separate dwelling
units and all common areas. The cooperative is directly responsible for project
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. If there is a blanket mortgage on the cooperative apartment
building and/or underlying land, as is generally the case, the cooperative, as
project mortgagor, is also responsible for meeting these mortgage obligations. A
blanket mortgage is ordinarily incurred by the cooperative in connection with
the construction or purchase of the cooperative's apartment building. The
interest of the occupant under proprietary leases or occupancy agreements to
which that cooperative is a party are generally subordinate to the interest of
the holder of the blanket mortgage in that building. If the cooperative is
unable to meet the payment obligations arising under its blanket mortgage, the
mortgagee holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements. In
addition, the blanket mortgage on a cooperative may provide financing in the
form of a mortgage that does not fully amortize with a significant portion of
principal being due in one lump sum at final maturity. The inability of the
cooperative to refinance this mortgage and its consequent inability to make such
final payment could lead to foreclosure by the mortgagee providing the
financing. A foreclosure in either event by the holder of the blanket mortgage
could eliminate or significantly diminish the value of any collateral held by
the lender who financed the purchase by an individual tenant-stockholder of
cooperative shares or, in the case of a pool of Mortgage Loans including
Cooperative Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a cooperative must
make a monthly payment to the cooperative representing such tenant-stockholder's
pro rata share of the cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a cooperative and accompanying occupancy rights is
financed through a cooperative share loan evidenced by a promissory note and
secured by a security interest in the occupancy agreement or proprietary lease
and in the related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the cooperative shares is filed in the
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appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of cooperative shares.
Foreclosure
Mortgages. Foreclosure of a deed of trust is generally accomplished by
a non-judicial trustee's sale under a specific provision in the deed of trust
that authorizes the trustee to sell the property to a third party upon any
default by the borrower under the terms of the note or deed of trust. In some
states, the trustee must record a notice of default and send a copy to the
borrower-trustor and any person who has recorded a request for a copy of a
notice of default and notice of sale. In addition, the trustee must provide
notice in some states to any other individual having an interest in the real
property, including any junior lien holders. The borrower, or any other person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the costs
and expenses incurred in enforcing the obligation. Generally, state law controls
the amount of foreclosure expenses and costs, including attorney's fees, which
may be recovered by a lender. If the deed of trust is not reinstated, a notice
of sale must be posted in a public place and, in most states, published for a
specific period of time in one or more newspapers. In addition, some state laws
require that a copy of the notice of sale be posted on the property and sent to
all parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the foreclosure
may occasionally result from difficulties in locating necessary parties
defendant. Judicial foreclosure proceedings are often not protested by any of
the parties defendant. However, when the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be time
consuming. After the completion of judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other court officer
to conduct the sale of the property.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
referee for an amount equal to the principal amount of the mortgage or deed of
trust, accrued and unpaid interest and expenses of foreclosure. Thereafter, the
lender will assume the burdens of ownership, including obtaining casualty
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of any mortgage insurance proceeds.
When the beneficiary under a junior deed of trust cures the default and
state law allows the beneficiary to reinstate or redeem by paying the full
amount of the senior deed of trust, then in those states the amount paid by the
beneficiary to so cure or redeem generally becomes a part of the indebtedness
secured by the junior deed of trust. See "Junior Liens; Rights of Senior
Mortgagors or Beneficiaries" below.
A sale conducted in accordance with the terms of the power of sale
contained in a mortgage or deed of trust is generally presumed to be conducted
regularly and fairly, and a conveyance of the real property by the trustee
confers, in most states, legal title to the real property to the purchaser, free
of all junior mortgages or deeds of trust and free of all other liens and claims
subordinate to the mortgage or deed of trust under which the sale is made (with
the exception of certain governmental liens). The purchaser's title is, however,
subject to all senior liens, encumbrances and mortgages and may be subject to
mechanic's and materialman's liens in some states. Thus, if the mortgage or deed
of trust being foreclosed is a junior mortgage or deed of trust, the sheriff or
trustee will convey title to the purchaser of the real property, subject to any
existing first mortgages or deed of trust and any other prior liens and claims.
The foreclosure
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of a junior mortgage or deed of trust, generally, will have an effect on the
first mortgage or deed of trust, if the senior mortgage or deed of trust grants
to the senior mortgagee or beneficiary the right to accelerate its indebtedness
under a "due-on-sale" clause or "due on further encumbrance" clause contained in
the senior mortgage or deed of trust. See "Anti-Deficiency Legislation and Other
Limitations on Lenders" below.
The proceeds received by the sheriff or trustee from the sale are
applied pursuant to the terms of the deed of trust, which may require
application first to the costs, fees and expenses of sale and then in
satisfaction of the indebtedness secured by the mortgage or deed of trust under
which the sale was conducted. In some states, any surplus money remaining may be
available to satisfy claims of the holders of junior mortgages or deeds of trust
and other junior liens and claims in order of their priority, whether or not the
mortgagor or trustee is in default, while in some states, any surplus money
remaining may be payable directly to the mortgagor or trustor. Any balance
remaining is generally payable to the mortgagor or trustor. Following the sale,
in some states the mortgagee or beneficiary following a foreclosure of a
mortgage or deed of trust may not obtain a deficiency judgment against the
mortgagor or trustor. A junior lienholder whose rights in the property are
terminated by the foreclosure by a senior lienholder will not share in the
proceeds from the subsequent disposition of the property.
Cooperative Loans. The cooperative shares owned by the
tenant-stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative's Certificate of
Incorporation and Bylaws, as well as the proprietary lease or occupancy
agreement, and may be canceled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owned by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. The proprietary lease or occupancy
agreement generally permits the cooperative to terminate such lease or agreement
in the event an obligor fails to make payments or defaults in the performance of
covenants required thereunder. Typically, the lender and the cooperative enter
into a recognition agreement which establishes the rights and obligations of
both parties in the event of a default by the tenant-stockholder on its
obligations under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those shares.
Article 9 of the UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a foreclosure sale has been conducted in a
"commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. The recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to the right of the
cooperative corporation to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if a portion of
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the indebtedness remains unpaid, the tenant-stockholder is generally responsible
for the deficiency. See "Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
Junior Liens; Rights of Senior Mortgagees or Beneficiaries
Certain of the Mortgage Loans, including Title I Loans, may be secured
by mortgages or deeds of trust providing for junior (i.e. second, third, etc.)
liens on the related Mortgaged Properties which are junior to the other
mortgages or deeds of trust held by other lenders or institutional investors.
The rights of the beneficiary under a junior deed of trust or as mortgagee under
a junior mortgage are subordinate to those of the mortgagee or beneficiary under
the senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to receive hazard insurance and condemnation proceeds
and to cause the property securing the Mortgage Loans to be sold upon default of
the mortgagor or trustor. As discussed more fully below, a junior mortgagee or
beneficiary in some states may satisfy a defaulted senior loan in full and in
some states may cure such default and bring the senior loan current, in either
event adding the amounts expended to the balance due on the junior loan. In most
states, absent a provision in the mortgage or deed of trust, no notice of
default is required to be given to a junior mortgagee or beneficiary.
The forms of the mortgage or deed of trust used by most institutional
lenders generally confer on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply such proceeds
and awards to any indebtedness secured by the mortgage or deed of trust, in such
order as the mortgagee or beneficiary may determine. Thus, in the event
improvements on the property are damaged or destroyed by fire or other casualty,
or in the event the property is taken by condemnation, the mortgagee or
beneficiary under the underlying first mortgage or deed of trust may have the
prior right to collect any insurance proceeds payable under a hazard insurance
policy and any award of damages in connection with the condemnation and to apply
the same to the indebtedness secured by the first mortgage or deed of trust. In
those situations, proceeds in excess of the amount of first mortgage
indebtedness generally may be applied to the indebtedness of a junior mortgage
or trust deed.
Other provisions typically found in the form of the mortgagee or deed
of trust generally used by most institutional lenders obligates the mortgagor or
trustor to pay before delinquency all taxes and assessments on the property and,
when due, all encumbrances, charges and liens on the property which appear prior
to the mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to perform
any of these obligations, the mortgagee or beneficiary typically is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or beneficiary on behalf
of the trustor. All sums so expended by the mortgagee or beneficiary generally
become part of the indebtedness secured by the mortgage or deed of trust.
Right of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions that limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of trust. A deficiency judgment
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would be a personal judgment against the former borrower equal in most cases to
the difference between the net amount realized upon the public sale of the real
property and the amount due to the lender. Other statutes require the
beneficiary or mortgagee to exhaust the security afforded under a deed of trust
or mortgage by foreclosure in an attempt to satisfy the full debt before
bringing a personal action against the borrower. Finally, other statutory
provisions limit any deficiency judgment against the former borrower following a
judicial sale to the excess of the outstanding debt over the fair market value
of the property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids at
the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in
respect of a mortgage loan on a debtor's residence by paying arrearages within a
reasonable time period and reinstating the original mortgage loan payment
schedule even though the lender accelerated the mortgage loan and final judgment
of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some
courts with federal bankruptcy jurisdiction have approved plans, based on the
particular fact of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan secured by property of the debtor may be modified.
These courts have suggested that such modifications may include reducing the
amount of each monthly payment, changing the rate of interest, altering the
repayment schedule and reducing the lender's security interest to the value of
the residence, thus leaving the lender a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
loan.
The Internal Revenue Code of 1986, as amended, provides priority to
certain tax liens over the lien of the mortgage. In addition, substantive
requirements are imposed upon mortgage lenders in connection with the
origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act and related statutes. These
federal laws impose specific statutory liabilities upon lenders who originate
mortgage loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the mortgage loans.
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the related proprietary lease or occupancy agreement. Some courts
have interpreted section 9-504 of the UCC to prohibit a deficiency award unless
the creditor establishes that the sale of the collateral (which, in the case of
a Cooperative Loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
Enforceability of Certain Provisions
Certain of the Mortgage Loans will contain due-on-sale clauses. These
clauses permit the lender to accelerate the maturity of a loan if the borrower
sells, transfers, or conveys the property. The enforceability of these clauses
was the subject of legislation or litigation in many states, and in some cases
the enforceability of these clauses was limited or denied. However, the Garn-St.
Germain Depository Institutions Act of 1982 (the "Garn-St. Germain Act")
preempts state constitutional, statutory and case law prohibiting the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain limited exceptions. The
Garn-St. Germain Act does "encourage" lenders to permit assumption of loans at
the original rate of interest or at some other rate less than the average of the
original rate and the market rate.
Exempted from the general rule of enforceability of due-on-sale clauses
were mortgage loans (originated other than by federal savings and loan
associations and federal savings banks) that were made or assumed during the
period beginning on the date a state, by statute or final appellate court
decision having statewide effect, prohibited the exercise
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of due-on-sale clauses and ending on October 15, 1982 ("Window Period Loans").
However, this exception applied only to transfers of property underlying Window
Period Loans occurring between October 15, 1982 and October 15, 1985 and does
not restrict enforcement of a due-on-sale clause in connection with current
transfers of property underlying Window Period Loans. Due-on-sale clauses
contained in mortgage loans originated by federal savings and loan associations
or federal savings banks are fully enforceable pursuant to regulations of the
Office of Thrift Supervision (the "OTS"), as successor to the Federal Home Loan
Bank Board which preempt state law restrictions on the enforcement of
due-on-sale clauses.
The Garn-St. Germain Act also sets forth nine instances in which a
mortgage lender covered by the Garn-St. Germain Act (including federal savings
and loan associations and federal savings banks) may not exercise a due-on-sale
clause, notwithstanding the fact that a transfer of the property may have
occurred. These include intra-family transfers, certain transfers by operation
of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St. German Act by the
Federal Home Loan Bank Board as succeeded by the OTS, also prohibit the
imposition of a prepayment penalty upon the acceleration of a loan pursuant to a
due-on-sale clause. If interest rates were to rise above the interest rates on
the Mortgage Loans, then any inability of the Administrator to enforce
due-on-sale clauses may result in the Trust Property including a greater number
of loans bearing below-market interest rates than would otherwise be the case,
since a transferee of the property underlying a Mortgage Loan would have a
greater incentive in such circumstances to assume the transferor's Mortgage
Loan. Any inability to enforce due-on-sale clauses may affect the average life
of the Mortgage Loans and the number of Mortgage Loans that may be outstanding
until maturity.
Upon foreclosure, courts have imposed general equitable principles.
These equitable principles are generally designed to relieve the borrower from
the legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required that lenders reinstate loans or recast payment schedules in
order to accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of the lender to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain the property or the borrower
executing a second mortgage or deed of trust affecting the property. Finally,
some courts have been faced with the issue of whether or not federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under deeds of trust or mortgages receive notices in
addition to the statutorily-prescribed minimum. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust, or under a mortgage having a power of
sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
The standard forms of note, mortgage and deed of trust generally
contain provisions obligating the borrower to pay a late charge if payments are
not timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. Certain states also limit the amounts
that a lender may collect from a borrower as an additional charge if the loan is
prepaid. Late charges (to the extent permitted by law and not waived) will be
retained by the Administrator , the Non-Agency Administrator, the Servicer or
the Non-Agency Servicer as additional servicing compensation.
Adjustable Rate Loans
The laws of certain states may provide that mortgage notes relating to
adjustable rate loans are not negotiable instruments under the Uniform
Commercial Code. In such event, the Trustee will not be deemed to be a "holder
in due course" within the meaning of the Uniform Commercial Code and may take
such a mortgage note subject to certain restrictions on its ability to foreclose
and to certain contractual defenses available to a mortgagor.
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Environmental Legislation
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens
including the lien of a mortgage. In addition, under federal environmental
legislation and under state law in a number of states, a secured party which
takes a deed in lieu of foreclosure or acquires a mortgaged property at a
foreclosure sale or assumes active control over the operation or management of a
property so as to be deemed an "owner" or "operator" of the property may be
liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a secured
lender (such as a Certificate Trustee, a PMBS Trustee, or a Trust) to
homeowners. In the event that title to a property securing a Mortgage Loan or
Multifamily Loan in a pool of Mortgage Loans was acquired by a Certificate
trustee, a PMBS Trustee, or a Trust and cleanup costs were incurred in respect
of the property, the Holders of the related Securities might realize a loss if
such costs were required to be paid. In addition, the presence of certain
environmental contamination, including, but not limited to, lead-based paint,
asbestos and leaking underground storage tanks could result in the holders of
the related Securities realizing a loss if associated costs were required to be
paid. The Company, the Administrator, the Underwriters, the Sellers, the
Servicers, the Non-Agency Administrator, the Non-Agency Servicers and any of
their respective affiliates (i) have not caused any environmental site
assessments or evaluations to be conducted with respect to any properties
securing the Mortgage Loans or Multifamily Loans, (ii) are not required to make
any such assessments or evaluations and (iii) make no representations or
warranties and assume no liability with respect to the absence or effect of
hazardous wastes or hazardous substances on any property or any casualty
resulting from the presence or effect of hazardous wastes or hazardous
substances.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. The OTS, as successor
to the Federal Home Loan Bank Board, is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision which expressly rejects
application of the federal law. Certain states have enacted legislation
rejecting the federal law. In addition, even where Title V is not so rejected,
any state is authorized by the law to adopt a provision limiting discount points
or other charges on mortgage loans covered by Title V.
With respect to Title I Loans, Section 529 of the National Housing Act
(12 U.S.C. ss. 1735f-7) provides that state usury limitations are not applicable
to any loan, mortgage or advance which is insured under Title I. The statute
authorized any state to reimpose interest rate limits by adopting a provision of
law. No state has enacted any reported statute to reimpose interest rate limits
with respect to any loan, mortgage or advance that is insured under Title I.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Mortgage Loan (including a
borrower who is a member of the National Guard or is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon application
of the lender. It is possible that such interest rate limitation or similar
limitations under state law could have an effect, for an indeterminate period of
time, on the ability of the Servicers to collect full amounts of interest on
certain of the Mortgage Loans. In addition, the Relief Act imposes limitations
which would impair the ability of the Servicers to foreclose on an affected
Mortgage Loan during the borrower's period of active duty status. Thus, in the
event that such a Mortgage Loan goes into default there may be delays and losses
occasioned by the inability to realize upon the related Mortgaged Property in a
timely fashion.
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Unless otherwise specified in the Prospectus Supplement for a Series of
Securities, any shortfalls in interest collections resulting from application of
the Relief Act to the related Mortgage Loans would result in losses to the
holders of such Certificates.
CONSUMER PROTECTION LAWS WITH RESPECT TO CONTRACTS
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act, and related statutes. These laws
can impose specific statutory liabilities upon creditors who fail to comply with
their provisions and may affect the enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders and assignees) to transfer such contract free of
notice of claims by the debtor thereunder. The effect of this rule is to subject
the assignee of a Contract to all claims and defenses which the debtor could
assert against the related contractor. Liability under this rule is limited to
amounts paid under a Contract; however, the obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
by the Trust against such obligor.
The obligations of the obligor under each Unsecured Contract are not
secured by an interest in the related real estate or otherwise, and the related
Issuer, as the owner of an Unsecured Contract, will be a general unsecured
creditor as to such obligations. As a consequence, in the event of a default
under an Unsecured Contract, the related Issuer will have recourse only against
the obligor's assets generally, along with all other general unsecured creditors
of the obligor. In a bankruptcy or insolvency proceeding relating to an obligor
on an Unsecured Contract, the obligations of the obligor under such Unsecured
Contract may be discharged in their entirety, notwithstanding the fact that the
portion of such obligor's assets made available to the Issuer as a general
unsecured creditor to pay amounts due and owing thereunder are insufficient to
pay all such amounts.
THE TITLE I PROGRAM
General
Certain of the Mortgage Loans or Contracts contained in Trust Property
with respect to a Series may be loans insured under the FHA Title I credit
insurance program created pursuant to Sections 1 and 2(a) of the National
Housing Act of 1934 (the "Title I Program"). Under the Title I Program, the FHA
is authorized and empowered to insure qualified lending institutions against
losses on eligible loans. The Title I Program operates as a coinsurance program
in which the FHA insures up to 90% of certain losses incurred on an individual
insured loan, including the unpaid principal balance of the loan, but only to
the extent of the insurance coverage available in the lender's FHA insurance
coverage reserve account. The owner of the loan bears the uninsured loss on each
loan.
The types of loans, which are eligible for insurance by the FHA under
the Title I Program, include property improvement loans ("Property Improvement
Loans" or "Title I Loans") and manufactured home loans ("Manufactured Home
Loans" or "Title I Contracts"). A Property Improvement Loan or Title I Loan is a
loan made to finance actions
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or items that substantially protect or improve the basic livability or utility
of a property and includes: (1) single family, multifamily and nonresidential
property improvement loans; (2) manufactured home improvement loans, where the
home is classified as personalty; (3) historic preservation loans; and (4) fire
safety equipment loans in existing health care facilities. A Manufactured Home
Loan or Title I Contract is a loan for the purchase or refinancing of a
manufactured home and/or the lot on which to place such home and includes: (1)
manufactured home purchase loans; (2) manufactured home lot loans; and (3)
combination loans.
In addition to these types of loans, there are two basic methods of
lending or originating loans which include a "direct loan" or a "dealer loan".
With respect to a direct loan, the borrower makes application directly to a
lender without any assistant from a dealer, which application may be filled out
by the borrower or by a person acting at the direction of the borrower who does
not have a financial interest in the loan transaction, and the lender may
disburse the loan proceeds solely to the borrower or jointly to the borrower and
other parties to the transaction. With respect to a dealer loan, the dealer, who
has a direct or indirect financial interest in the loan transaction, assists the
borrower in preparing the loan application or otherwise assists the borrower in
obtaining the loan from the lender and the lender may disburse proceeds solely
to the dealer or the borrower or jointly to the borrower and the dealer or other
parties. With respect to a dealer Title I Loan, a dealer may include a seller, a
contractor or supplier of goods or services, and with respect to a dealer Title
I Contract, a dealer is a person engaged in the business of manufactured home
retail sales.
Loans insured under the Title I Program are required to have fixed
interest rates and, generally, provide for equal installment payments due
weekly, biweekly, semi-monthly, or monthly, except that a loan may be payable
quarterly or semi-annually in order to correspond with the borrower's irregular
flow of income. The first or last payments (or both) may vary in amount but may
not exceed 150% of the regular installment payment, and the first payment may be
due no later than two months from the date of the loan. The note must contain a
provision permitting full or partial prepayment of the loan. The interest rate
may be established by the lender and must be fixed for the term of the loan and
recited in the note. Interest on an insured loan must accrue from the date of
the loan and be calculated according to the actuarial method. The lender must
assure that the note and all other documents evidencing the loan are in
compliance with applicable Federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses, which
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution (as is typically the case with other
federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatement of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
Requirements for Title I Loans
The maximum principal amounts for Title I Loans must not exceed the
actual cost of the project plus any applicable fees and charges allowed under
the Title I Program; provided that such maximum principal amount does not exceed
the following loan amounts: (i) $25,000 for a single family property improvement
loan and nonresidential property improvement loans; (ii) the lesser of $60,000
or an average of $12,000 per dwelling unit for multifamily property improvement
loans; and (iii) $17,500 for a manufactured home improvement loan when the
manufactured home qualifies as real property. Generally, the term of a Title I
Loan may not be less than six months nor greater than 20 years and 32 days,
except that the maximum term of a single family property improvement loan on a
manufactured
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home is limited to 15 years and 32 days and the maximum term of a manufactured
home improvement loan is limited to 12 years and 32 days. A borrower may obtain
multiple Title I Loans with respect to multiple properties, and a borrower may
obtain more than one Title I Loan with respect to a single property, in each
case as long as the total outstanding balance of all Title I Loans on the same
property does not exceed the maximum loan amount for the type of Title I Loan
thereon having the highest permissible loan amount.
Borrower eligibility for a Title I Loan requires that the borrower have
at least a one-half interest in either fee simple title to the real property, a
lease thereof for a term expiring at least six months after the final maturity
of the Title I Loan or a recorded land installment contract for the purchase of
the real property, and that the borrower have equity in the property being
improved at least equal to the amount of the Title I Loan if such loan amount
exceeds $15,000. Any Title I Loan in excess of $5,000 must be secured by a
recorded lien on the improved property which is evidenced by a mortgage or deed
of trust executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I Loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
Loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD-approved form, signed by the
borrower and the dealer. With respect to any direct Title I Loan, the lender is
required to obtain, promptly upon completion of the improvements but not later
than six months after disbursement of the loan proceeds with one six month
extension if necessary, a completion certificate, signed by the borrower. The
lender is required to conduct an on-site inspection on any Title I Loan where
the principal obligation is $7,500 or more, and on any direct Title I Loan where
the borrower fails to submit a completion certificate.
Requirements for Title I Contracts
The maximum principal amount for any Title I Contract must not exceed
the sum of certain itemized amounts, which include a specified percentage of the
purchase price of the manufactured home depending on whether it is a new or
existing home; provided that such maximum amount does not exceed the following
loan amounts: (i) $48,600 for a new or existing manufactured home purchase loan;
(ii) $16,200 for a manufactured home lot purchase; and (iii) $64,800 for a
combination loan (i.e. a loan to purchase a new or existing manufactured home
and the lot for such home). Generally, the term of a Title I Contract may not be
less than six months nor greater than 20 years and 32 days, except that the
maximum term of a manufactured home lot loan is limited to 15 years and 32 days
and the maximum term of a multimodule manufactured home and lot in combination
is limited to 25 years and 32 days.
Borrower eligibility for a Title I Contract requires that the borrower
become the owner of the property to be financed with such loan and occupy the
manufactured home as the borrower's principal residence, except for a
manufactured home lot loan which allows six months from the date of the loan to
occupy the home as the borrower's principal residence. If a manufactured home is
classified as realty, then ownership of the home must be in fee simple, and
also, the ownership of the manufactured home lot must be in fee simple, except
for a lot which consists of a share in a cooperative association that owns and
operates a manufactured home park. The borrower's minimum cash down payment
requirement to obtain financing through a Title I Contract is as follows: (i) at
least 5% of the first $5,000 and 10% of the balance of the purchase price of a
new manufactured home and at least 10% of the purchase price of an existing
manufactured home for a manufactured home purchase loan, or in lieu of a full or
partial cash down payment, the trade-in of the borrower's equity in an existing
manufactured home; (ii) at least 10% of the purchase price and development costs
of a lot for a manufactured home lot loan; and (iii) at least 5% of the first
$5,000 and 10% of the balance of the purchase price of the manufactured home and
lot for a combination loan.
Any manufactured home financed by a Title I Contract must be certified
by the manufacturer to have been constructed in compliance with the National
Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C.
ss.ss. 5401-5426), so as to conform to all applicable Federal construction and
safety standards, and with respect to the purchase of a new manufactured home,
the manufacturer must furnish the borrower with a one year written warranty on a
HUD approved form which obligates the manufacturer to correct any nonconformity
with all applicable Federal construction and safety standards or any defects in
materials or workmanship which become evident within one
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year after the date of delivery. The regulations under the Title I Program set
forth certain additional requirements relating to the construction,
transportation and installation of any manufactured home and standards for the
manufactured homesite financed by any Title I Contract. The proceeds from a
Title I Contract may be used as follows: the purchase or refinancing of a
manufactured home, a suitably developed lot for a manufactured home already
owned by the borrower or a manufactured home and suitably developed lot for the
home in combination; or the refinancing of an existing manufactured home already
owned by the borrower in connection with the purchase of a manufactured home lot
or an existing lot already owned by the borrower in connection with the purchase
of a manufactured home. In addition, the proceeds for a Title I Contract which
is a manufactured home purchase loan may be used for the purchase, construction
or installation of a garage, carport, patio or other comparable appurtenance to
the manufactured home, and the proceeds for a Title I Contract which is a
combination loan may be used for the purchase, construction or installation of a
foundation, garage, carport, patio or other comparable appurtenance to the
manufactured home. The proceeds from a Title I Contract cannot be used for the
purchase of furniture or the financing of any items and activities which are set
forth on the list published by the Secretary of HUD as amended from time to
time.
Any Title I Contract must be secured by a recorded lien on the
manufactured home (or lot or home and lot, as appropriate), its furnishings,
equipment, accessories and appurtenance, which lien must be a first lien,
superior to any other lien on the property which is evidenced by a properly
recorded financing statement, a properly recorded security instrument executed
by the borrower and any other owner of the property or other acceptable
instrument. With respect to any Title I Contract involving a manufactured home
purchase loan or combination loan and the sale of the manufactured home by a
dealer, the lender or its agent (other than a manufactured home dealer) must
conduct a site-of-placement inspection within 60 days after the date of the loan
to verify that the terms and conditions of the purchase contract have been met,
the manufactured home and any options and appurtenances included in the purchase
price or financed with the loan have been delivered and installed and the
placement certificate executed by the borrower and the dealer is in order.
FHA Insurance Coverage
Under the Title I Program the FHA establishes an insurance coverage
reserve account for each lender which has been granted a Title I insurance
contract. The amount of insurance coverage in this account is a maximum of 10%
of the amount disbursed, advanced or expended by the lender in originating or
purchasing eligible loans registered with the FHA for Title I insurance, with
certain adjustments permitted or required by the Title I regulations. The
balance in the insurance coverage reserve account is the maximum amount of
insurance claims the FHA is required to pay to the related lender. Loans to be
insured under the Title I Program will be registered for insurance by the FHA,
and the increase in Title I insurance coverage to which the lender is entitled
by reason of the reporting of such loans under the lender's contract of
insurance will be included in the insurance coverage reserve account for the
originating or purchasing lender following the receipt and acknowledgment by the
FHA of a loan report on the prescribed form pursuant to the Title I regulations.
The FHA charges a fee, which is the equivalent of an insurance premium, of 0.50%
of the related loan amount, multiplied by the number of years of the loan term.
Although the total insurance premium charged by the FHA is 0.50%, the annual
installment varies depending upon the type and maturity of the loan. Thus, the
effective cost of the insurance premium charge may vary between 0.50% and 1.0%
per annum, unless the loan is held to maturity. The FHA bills the related lender
in advance for the applicable insurance premium charge on each loan insured
under the Title I Program, on approximately the anniversary date of the date the
Secretary of HUD acknowledges the loan report. If a loan insured under the Title
I Program is prepaid during the year, the FHA will not refund or abate the
insurance premium.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (i) the amount of the
FHA insurance claims approved for payment relating to such insured loans, (ii)
prior to October 1, 1995, the amount of the Annual Reductions attributable to
the contract of insurance and (iii) the amount of reduction of the lender's FHA
insurance coverage reserve account by reason of the sale, assignment or transfer
of loans registered under the lender's contract of insurance. Such insurance
coverage also may be reduced for any FHA insurance claims previously disbursed
to the lender that are subsequently rejected by the FHA. After a lender has held
its Title I contract of insurance for five years, the lender's FHA insurance
coverage reserve account is subject to an annual reduction (the "Annual
Reduction") on each October 1 in an amount equal to 10% of the insurance
coverage reserves available on such date with respect
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to such contract of insurance; provided that such Annual Reduction shall not
reduce the insurance coverage to an amount less than $50,000. On June 5, 1995
the FHA announced the elimination of such annual reductions, effective as of
October 1, 1995.
Upon the receipt and acknowledgment by the FHA of a loan report,
originations of new loans will increase a lender's insurance coverage reserve
account balance by 10% of the amount disbursed, advanced or expended in
originating such loans registered with the FHA for insurance under the Title I
Program. A lender is permitted to sell or otherwise transfer loans reported for
insurance under the Title I Program only to another lender. Upon any such
transfer, except a transfer with recourse or under a guaranty or repurchase
agreement, the seller is required to file a transfer report with the FHA
reporting the transfer of such loans. Upon notification and approval of such
transfer, the insurance coverage reserve account of the selling lender is
reduced, and the insurance coverage reserve account of the purchasing lender is
increased, by an amount equal to the lesser of 10% of the actual purchase price
of the loans or the net unpaid principal balance of the loans, up to the total
amount of the selling lender's insurance coverage reserve account. Thus, in the
event the selling lender's insurance coverage reserve account was less than 10%
of the unpaid principal balance of its portfolio of loans reported for insurance
under the Title I Program prior to the sale, the seller's insurance coverage
reserve account may be exhausted as the result of a sale of only a portion of
its total portfolio, with the result that its remaining Title I Program
portfolio may be ineligible for Title I Program benefits until the lender
originates or otherwise acquires additional loans reported for insurance under
the Title I Program. Accordingly, the insurance coverage reserves transferred to
the purchasing lender in such case will be less than 10% of the lesser of the
purchase price or the principal balance of the portfolio of loans purchased.
Additionally, pursuant to FHA regulations, not more than $5,000 in insurance
coverage shall be transferred to or from a lender's insurance coverage reserve
account during any October 1 to September 30 fiscal year without the approval of
the Secretary of HUD. Such HUD approval is generally viewed as automatic,
provided the formal requirements for transfer are satisfied, but HUD does have
the right under FHA regulations to withhold approval.
Unlike most other FHA insurance programs, the obligation of the FHA to
reimburse a lender for losses in the portfolio of insured loans held by such
lender is limited to the amount in an insurance coverage reserve account
maintained on a lender-by-lender basis and not on a loan-by-loan basis. Except
when to do so would be in HUD's best interest (for instance, to prevent HUD from
paying out claims in excess of 10% of the aggregate original loan balance for a
pool of poorly underwritten loans), the FHA does not track or "earmark" the
loans within a lender's portfolio to determine whether the lender's insurance
coverage reserve account, reduced as the result of an insurance claim by the
lender, are, in fact, attributable to the insured loan with respect to which the
claim was made. For this reason, if a lender is holding insured loans as a
fiduciary on behalf of multiple non-affiliated beneficiaries, in order for such
a lender to cause its insurance coverage reserve account to be reduced only by
an amount to which a particular beneficiary is entitled by reason of the insured
loans beneficially held by it, the lender must segregate or "earmark" its
insurance coverage reserve account on its own books and records according to
which beneficiary is entitled to what portion of the insurance coverage in the
lender's insurance coverage reserve account as if the insurance coverage were
not commingled by the FHA in such insurance coverage reserve account. In this
way the lender can determine at what point the portion of insurance coverage in
such insurance coverage reserve account "earmarked" for a given beneficiary has
been exhausted and stop submitting additional insurance claims on behalf of such
beneficiary. In the event that, for any reason, such lender continues to submit
claims with respect to loans held on behalf of a beneficiary whose portion of
insurance coverage in its insurance coverage reserve account has been exhausted,
the FHA will continue to honor such claims until all insurance coverage in such
lender's insurance coverage reserve account has been exhausted, even though such
insurance coverage reserve account may, in fact, be held by the lender for the
benefit of a different beneficiary than the beneficiary of the insured loans to
which the claims relate under a separate contractual agreement.
Claims Procedures Under Title I
The term "default" is defined under FHA regulations as the failure of
the borrower to make any payment due under the note for a period of 30 days
after such payment is due. The "date of default" is considered to be the date 30
days after the borrower's first failure to make an installment payment on the
note that is not covered by subsequent payments applied to overdue installments
in the order they became due. When a loan reported for insurance under the Title
I Program goes into default, the lender is required to contact the borrower and
any co-maker and co-signer by telephone or in person to determine the reasons
for the default and to seek a cure. If such lender is not able to effect
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a cure after diligent efforts, it may provide the borrower with a notice of
default stating that the loan will be accelerated in 30 days if the loan is not
brought current or the borrower does not enter into a loan modification
agreement or repayment plan. The notice of default must meet certain
requirements set forth in the FHA regulations and must conform to applicable
state law provisions. Such lender is permitted to rescind the acceleration of
maturity of the loan only if the borrower brings the loan current, executes a
modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity of a secured property improvement
loan, the lender has the option to proceed against the security or make a claim
under its contract of insurance. If the lender chooses to proceed against the
mortgaged property under a security instrument (or if it accepts a voluntary
conveyance or surrender of the mortgaged property), (i) the lender must proceed
against the loan security by foreclosure and acquire good, marketable title to
the property securing the loan and (ii) the lender must take all actions
necessary under applicable law to preserve its rights, if any, to obtain a
deficiency judgment against the borrower, provided however, the lender may still
file an FHA insurance claim, but only with the prior approval of the Secretary
of HUD.
If a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file, certification of
compliance with applicable state and local laws in carrying out any foreclosure
or repossession and, where the borrower is in bankruptcy or deceased, evidence
that the lender has properly filed proofs of claims. Generally, a lender must
file its claim of insurance with the FHA no later than (i) for any Title I Loan,
nine months after the date of default of such loan or (ii) for any Title I
Contract, three months after the date of sale of the property securing the loan,
but not to exceed 18 months after the date of default of such loan. Concurrently
with filing the insurance claim, the lender is required to assign to the United
States of America it's entire interest in the note (or a judgment in lieu of the
note), in any securities held and in any claims filed in any legal proceedings.
If, at the time the note is assigned to the United States, the Secretary of HUD
has reason to believe that the note is not valid or enforceable against the
borrower, the FHA may deny the claim and reassign the note to the lender. If
either such defect is discovered after the FHA has paid a claim, the FHA may
require the lender to repurchase the paid claim and to accept an assignment of
the loan note. If the lender subsequently obtains a valid and enforceable
judgment against the borrower, the lender may resubmit a new insurance claim
with an assignment of the judgment. The FHA may contest any insurance claim
previously paid by it and make a demand for repurchase of the loan with respect
to which the claim was paid at any time up to two years from the date the claim
was certified for payment and may do so thereafter in the event of fraud or
misrepresentation on the part of the lender.
A claim for reimbursement of loss with respect to a loan eligible for
insurance under the Title I Program is required to be made on an FHA-approved
form executed by a duly qualified officer of the lender and must be accompanied
by copies of certain relevant documents and documentation specified in the FHA
regulations to support the claim. The lender is required, among other things, to
document its efforts to effect recourse against any dealer in accordance with
any recourse agreement with such dealer. If the loan is subject to an
unsatisfied dealer recourse agreement claim, the lender is also required to
assign its rights under such recourse agreement. The FHA has the right to deny
any claim for insurance in whole or in part based upon a violation of the FHA
regulations unless a waiver of compliance is granted. The lender is permitted to
appeal any such claim denial and resubmit the claim within six months of the
date of the claim denial, subject to a reprocessing fee.
Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the Claimable Amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. The "Claimable
Amount" is equal to 90% of the sum of: (a) the unpaid loan obligation (net
unpaid principal and the uncollected interest earned to the date of default)
with adjustments thereto if the lender has proceeded against property securing
such loan; (b) the interest on the unpaid amount of the loan obligation from the
date of default to the date of the claim's initial submission for payment plus
15 calendar days (the total period not to exceed nine months from the date of
default), calculated at the rate of 7% per annum; (c) the uncollected court
costs; (d) the attorneys' fees not to exceed $500; (e) the expenses for
recording the assignment of the security to the United States; and (f) if the
loan is a Title I Contract, certain costs incurred in connection with the
foreclosure or repossession of the manufactured home and/or lot.
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LEGAL INVESTMENT MATTERS
Unless otherwise specified in the related Prospectus Supplement, the
Securities of a Series constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so long as they
are rated in one of the two highest rating categories established for such
Securities by at least one nationally recognized statistical rating
organization. As "mortgage related securities," such Securities will constitute
legal investments for persons, trusts, corporations, partnerships, associations,
business trusts and business entities (including but not limited to
state-chartered savings banks, commercial banks, savings and loan associations
and insurance companies, as well as trustees and state government employee
retirement systems) created pursuant to or existing under the laws of the United
States or any State (including the District of Columbia and Puerto Rico) whose
authorized investments are subject to State regulation to the same extent that,
under applicable law, obligations issued by or guaranteed as to principal and
interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities. Pursuant to SMMEA, Alaska,
Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas,
Louisiana, Maryland, Michigan, Missouri, Nebraska, New Hampshire, New York,
North Carolina, Ohio, South Dakota, Utah, Virginia, and West Virginia each
enacted legislation prior to the October 4, 1991 deadline for such enactments,
limiting to varying extends the ability of certain entities (in particular,
insurance companies) to invest in "mortgage related securities," in most cases
by requiring the affected investors to rely upon existing state law, and not
SMMEA. Accordingly, the investors affected by such legislation will be
authorized to invest in the Securities only to the extent provided in such
legislation.
Institutions whose investment activities are subject to legal
investment laws or regulations or review by certain regulatory authorities may
be subject to restrictions on investment in certain Classes of the Securities.
Any financial institution which is subject to the jurisdiction of the
Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift
Supervision ("OTS"), the National Credit Union Administration ("NCUA"), or other
federal or state agencies with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing the Securities.
Notwithstanding SMMEA, there may be other restrictions on the ability
of certain investors, including depository institutions, either to purchase
Securities or to purchase Securities representing more than a specified
percentage of the investors' assets.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", or in securities which are issued in book-entry
form.
If specified in the related Prospectus Supplement, other Classes of
Securities offered pursuant to this Prospectus will not constitute "mortgage
related securities" under SMMEA. The appropriate characterization of those
Securities under various legal investment restrictions, and thus the ability of
investors subject to these restrictions to purchase the Securities, may be
subject to significant interpretive uncertainties. No representation is made as
to the proper characterization of Securities not qualifying as "mortgage related
securities" for legal investment or financial institution regulatory purposes,
or as to the ability of particular investors to purchase such Securities under
applicable legal investment restrictions. The uncertainties described above (and
any unfavorable future determination concerning legal investment or financial
institution regulatory characteristics of such Certificates) may adversely
affect the liquidity of such Securities.
Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code impose requirements on employee benefit
plans (and on certain other retirement plans and arrangements, including
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individual retirement accounts and annuities, Keogh plans and collective
investment funds and separate accounts in which such plans, accounts or
arrangements are invested) (collectively, "Plans") subject to ERISA and Section
4975 of the Code and on persons who are fiduciaries with respect to such Plans.
Among other things, ERISA requires that the assets of Plans be held in trust and
that the trustee, or other duly authorized fiduciary, have exclusive authority
and discretion to manage and control the assets of such Plans. ERISA also
imposes certain duties on persons who are fiduciaries of Plans. Under ERISA, any
person who exercises any authority or control respecting the management or
disposition of the assets of a Plan is considered to be a fiduciary of such Plan
(subject to certain exceptions not here relevant). In addition to the imposition
of general fiduciary standards of investment prudence and diversification, ERISA
prohibits a broad range of transactions ("Prohibited Transactions") involving
Plan assets and persons ("Parties in Interest") having certain specified
relationships to a Plan and imposes additional prohibitions where Parties in
Interest are fiduciaries with respect to such Plan. Section 4975 of the Code
provides many requirements and prohibitions similar to those under ERISA and
applies excise taxes on persons engaged in Prohibited Transactions.
The United States Department of Labor (the "DOL") has issued
regulations concerning the definition of what constitutes the assets of a Plan
(DOL Reg. Section 2510.3-101, the "Plan Asset Regulations") Under the Plan Asset
Regulations, the underlying assets and properties of corporations, partnerships
and certain other entities in which a Plan makes an "equity" investment could be
deemed for purposes of ERISA to be assets of the investing Plan in certain
circumstances. In such case, the fiduciary making such an investment for the
Plan could be deemed to have delegated his or her asset management
responsibility, and the underlying assets and properties could be subject to
ERISA reporting and disclosure. The Certificates of a Series will, and the Bonds
of a Series could, be treated as "equity" for purposes of ERISA. Certain
exceptions to the regulation may apply in the case of a Plan's investment in the
Securities that constitute "equity" investments, but the Company cannot predict
in advance whether such exceptions apply due to the factual nature of the
conditions to be met. Accordingly, because the Mortgage Loans or Agency
Securities may be deemed Plan assets of each Plan that purchases such
Securities, an investment in such Securities by a Plan might give rise to a
prohibited transaction under ERISA Sections 406 and 407 and be subject to an
excise tax under Code Section 4975 unless a statutory or administrative
exemption applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1") exempts
from ERISA's prohibited transaction rules certain transactions relating to the
operation of residential mortgage pool investment trusts and the purchase, sale
and holding of "mortgage pool pass-through certificates" in the initial issuance
of such certificates. PTCE 83-1 permits, subject to certain conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans involving the origination, maintenance and
termination of mortgage pools consisting of mortgage loans secured by first or
second mortgages or deeds of trust on single-family residential property, and
the acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans.
PTCE 83-1 sets forth three general conditions which must be satisfied
for any transaction to be eligible for exemption: (i) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying certificateholders against
reductions in pass-through payments due to property damage or defaults in loan
payments in an amount not less than the greater of one percent of the aggregate
principal balance of all covered pooled mortgage loans or the principal balance
of the largest covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) a limitation on
the amount of the payments retained by the pool sponsor, together with other
funds inuring to its benefit, to not more than adequate consideration for
selling the mortgage loans plus reasonable compensation for services provided by
the pool sponsor to the Mortgage Pool.
Although the Trustee for any series of Certificates will be
unaffiliated with the Company, there can be no assurance that the system of
insurance or subordination will meet the general or specific conditions referred
to above. In addition, the nature of a Trust's assets or the characteristics of
one or more classes of the related series of Certificates may not be included
within the scope of PTCE 83-1 or any other class exemption under ERISA. The
Prospectus Supplement will provide additional information with respect to the
application of ERISA and the Code to the related Certificates.
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<PAGE> 489
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transactions exemptions which are in some respects
broader than PTCE 83-1. Such exemptions can only apply to mortgage-backed
securities which, among other conditions, are sold in an offering with respect
to which such underwriter serves as the sole or a managing underwriter, or as a
selling or placement agent. Several other underwriters have applied for similar
exemptions. If such an exemption might be applicable to a Series of Securities,
the related Prospectus Supplement will refer to such possibility.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Securities must
make its own determination as to whether the general and the specific conditions
of PTCE 83-1 have been satisfied, or as to the availability of any other
prohibited transaction exemptions. Each Plan fiduciary should also determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Securities is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Any Plan proposing to invest in Securities should consult with its
counsel to confirm that such investment will not result in a Prohibited
Transaction and will satisfy the other requirements of ERISA and the Code.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of Securities
of any Series, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of counsel to the Company with
respect to that Series on the material matters associated with such
consequences, subject to any qualifications set forth herein. Counsel to the
Company for each Series will be Andrews & Kurth L.L.P. or Hunton & Williams, as
specified in the Prospectus Supplement ("Counsel to the Company"). The
discussion below does not purport to address all federal income tax consequences
that may be applicable to particular categories of investors, some of which may
be subject to special rules. The authorities on which this discussion is based
are subject to change or differing interpretations, and any such change or
interpretation could apply retroactively. The discussion focuses primarily on
investors who will hold the Securities as "capital assets" (generally, property
held for investment) within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"), although much of the discussion is
applicable to other investors as well. Investors should note that, although the
Treasury has issued final regulations under the REMIC provision of the Code (the
"REMIC Regulations"), no currently effective regulations or other administrative
guidance has been issued with respect to certain provisions of the Code that are
or may be applicable to Securityholders, particularly the provisions dealing
with market discount and stripped debt securities. Although the Treasury has
issued final regulations dealing with original issue discount and premium, those
regulations do not address directly the treatment of REMIC Regular Securities
and certain other types of securities. Furthermore, the REMIC Regulations do not
address many of the issues that arise in connection with the formation and
operation of a REMIC. Hence, definitive guidance cannot be provided with respect
to many aspects of the tax treatment of Securityholders, particularly Residual
Securityholders (as described below).
Moreover, this summary and the opinion referred to below are based on
current law, and there can be no assurance that the Service will not take
positions that would be materially adverse to investors. Finally, the summary
does not purport to address the anticipated state income tax consequences to
investors of owning and disposing of the Securities. Consequently, investors
should consult their own tax advisors in determining the federal, state,
foreign, and any other tax consequences to them of the purchase, ownership, and
disposition of the Securities.
For purposes of this discussion, where the applicable Prospectus
Supplement provides for a fixed retained yield with respect to the Mortgage
Loans, Agency Securities, Private Mortgage-Backed Securities, Multifamily Loans
or Contracts underlying a Series of Securities, references to the Mortgage
Loans, Agency Securities, Private Mortgage-Backed Securities, Multifamily Loans
or Contracts will be deemed to refer to that portion of the Mortgage Loans,
Agency Securities, Private Mortgage-Backed Securities, Multifamily Loans or
Contracts held by the Trust Fund or Trust Estate which does not include the
fixed retained yield.
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FEDERAL INCOME TAX CONSEQUENCES FOR REMIC SECURITIES
GENERAL
With respect to a particular Series of Securities, an election may be
made to treat the Trust Fund, Trust Estate or one or more trusts or segregated
pools of assets therein as one or more REMICs within the meaning of Code Section
860D. A Trust Fund, Trust Estate or a portion or portions thereof as to which a
REMIC election will be made will be referred to as a "REMIC Pool." For purposes
of this discussion, Securities of a Series as to which one or more REMIC
elections are made are referred to as "REMIC Securities" and will consist of one
or more Classes of "Regular Securities" and one Class of "Residual Securities"
in the case of each REMIC Pool. Qualification as a REMIC requires ongoing
compliance with certain conditions. Upon the issuance of each Series of REMIC
Securities, counsel to the Company will give its opinion generally to the effect
that, assuming (I) the making of an appropriate election, (ii) compliance with
the Agreement or Indenture, as applicable, and (iii) continuing compliance with
the applicable provisions of the Code, as it may be amended from time to time,
and any applicable Treasury regulations adopted thereunder, each REMIC Pool will
qualify as a REMIC. The following general discussion of the anticipated federal
income tax consequences of the purchase, ownership and disposition of REMIC
Securities, to the extent it relates to matters of law or legal conclusions with
respect thereto, represents the opinion of counsel to the Company, subject to
any qualifications set forth herein. In addition, counsel to the Company has
prepared or reviewed the statements in this Prospectus under the heading
"Certain Federal Income Tax Consequences - Federal Income Tax Consequences for
REMIC Securities," and is of the opinion that such statements are correct in all
material respects. Such statements are intended as an explanatory discussion of
the possible effects of the classification of any Trust Fund or Trust Estate (or
applicable portion thereof) as a REMIC for federal income tax purposes on
investors generally and of related tax matters affecting investors generally,
but do not purport to furnish information in the level of detail or with the
attention to an investor's specific tax circumstances that would be provided by
an investor's own tax advisor. Accordingly, each investor is advised to consult
its own tax advisors with regard to the tax consequences to it of investing in
REMIC Securities. With respect to each Series of REMIC Securities, the Regular
Securities will be considered to be "regular interests" in the REMIC Pool and
generally will be treated for federal income tax purposes as debt instruments,
and the Residual Securities will be considered to be "residual interests" in the
REMIC Pool. The Prospectus Supplement for each Series of Securities will
indicate whether one or more REMIC elections with respect to the related Trust
Fund or Trust Estate will be made, in which event references to "REMIC" or
"REMIC Pool" herein shall be deemed to refer to each such REMIC Pool. For
purposes of this discussion, unless otherwise specified herein or in the
applicable Prospectus Supplement, the term "Mortgage Loans" will be used to
refer to Mortgage Loans, Agency Securities, Private Mortgage-Backed Securities
(other than residual interests and collateralized mortgage loans), Multifamily
Loans and Contracts.
STATUS OF REMIC SECURITIES
REMIC Securities held by a thrift institution taxed as a mutual savings
bank or a domestic building and loan association (a "Thrift Institution") would
be treated as "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v) or as other assets described in Code
Section 7701(a)(19)(C) in the same proportion that the assets of the related
REMIC Pool would so qualify. REMIC Securities held by a real estate investment
trust (a "REIT") will constitute "real estate assets" within the meaning of Code
Section 856(c)(4)(A), and interest on the REMIC Securities will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) in the same
proportion that, for both purposes, the assets of the REMIC Pool would be so
treated. However, if at all times 95% or more of the assets of the REMIC Pool
constitute qualifying assets for Thrift Institutions and REITs, the REMIC
Securities will be treated entirely as qualifying assets for such entities (and
the income will be treated entirely as qualifying income). Moreover, the REMIC
Regulations provide that, for purposes of Code Section 856(c)(4)(A), payments of
principal and interest on the Mortgage Loans that are reinvested pending
distribution to holders of REMIC Securities constitute qualifying assets for
such entities. Where two REMIC Pools are part of a tiered structure they will be
treated as one REMIC for purposes of the tests described above respecting asset
ownership of more or less than 95%. Notwithstanding the foregoing, however,
REMIC income received by a REIT owning a residual interest in a REMIC Pool could
be treated in part as non-qualifying REIT income if the REMIC Pool holds
Mortgage Loans with respect to which income is contingent on mortgagor profits
or property appreciation. In addition, if the assets of the REMIC include
buy-down Mortgage Loans,
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it is possible that the percentage of such assets constituting "loans . . .
secured by an interest in real property" for purposes of Code Section
7701(a)(19)(C)(v), may be required to be reduced by the amount of the related
buy-down funds. REMIC Securities held by a regulated investment company or a
REIT will not constitute "Government securities." REMIC Securities held by
certain financial institutions will constitute an "evidence of indebtedness"
within the meaning of Code Section 582(c)(1). However, Regular Securities
acquired by another REMIC on its Startup Day (as defined below) in exchange for
regular or residual interests in the REMIC generally will constitute "qualified
mortgages" within the meaning of Code Section 860G(a)(3). Regular Securities
held by a financial asset securitization investment trust (a "FASIT") generally
will qualify for treatment as "permitted assets" within the meaning of Section
8606(c)(1)(a) of the Code.
QUALIFICATION AS A REMIC
In order for the REMIC Pool to qualify as a REMIC, there must be
ongoing compliance on the part of the REMIC Pool with the requirements set forth
in the Code. The REMIC Pool must fulfill an asset test, which requires that no
more than a de minimis amount of the assets of the REMIC Pool, as of the close
of the third calendar month beginning after the "Startup Day" (which for
purposes of this discussion is the date of issuance of the REMIC Securities) and
at all times thereafter, may consist of assets other than "qualified mortgages"
and "permitted investments." The REMIC Regulations provide a "safe harbor"
pursuant to which the de minimis requirement will be met if at all times the
aggregate adjusted basis of any nonqualified assets (i.e., assets other than
qualified mortgages and permitted investments) is less than 1% of the aggregate
adjusted basis of all the REMIC Pool's assets.
If a REMIC Pool fails to comply with one or more of the requirements of
the Code for REMIC status during any taxable year, the REMIC Pool will not be
treated as a REMIC for such year and thereafter. In this event, the
classification of the REMIC for federal income tax purposes is uncertain. The
REMIC Pool might be entitled to treatment as a grantor trust under the rules
described in "Federal Income Tax Consequences for Securities as to Which No
REMIC Election Is Made" herein. In that case, no entity-level tax would be
imposed on the REMIC Pool. Alternatively, the Regular Securities may continue to
be treated as debt instruments for federal income tax purposes, but the REMIC
Pool could be treated as a taxable mortgage pool (a "TMP"). If the REMIC Pool is
treated as a TMP, any residual income of the REMIC Pool (i.e. , income from the
Mortgage Loans less interest and original issue discount expense allocable to
the Regular Securities and any administrative expenses of the REMIC Pool) would
be subject to corporate income tax at the REMIC Pool level. On the other hand,
an entity with multiple classes of ownership interests may be treated as a
separate association taxable as a corporation under Treasury regulations, and
the Regular Securities may be treated as equity interests therein. The Code,
however, authorizes the Treasury Department to issue regulations that address
situations where failure to meet one or more of the requirements for REMIC
status occurs inadvertently and in good faith, and disqualification of the REMIC
Pool would occur absent regulatory relief. Investors should be aware, however,
that the Conference Committee Report to the 1986 Act (the "Committee Report")
indicates that the relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC Pool's income for
the period of time in which the requirements for REMIC status are not satisfied.
TAXATION OF REGULAR SECURITIES
General
Payments received by holders of Regular Securities generally should be
accorded the same tax treatment under the Code as payments received on ordinary
taxable corporate debt instruments. In general, interest, original issue
discount and market discount on a Regular Security will be treated as ordinary
income to a holder of the Regular Security (the "Regular Securityholder") as
they accrue, and principal payments on a Regular Security will be treated as a
return of capital to the extent of the Regular Securityholder's basis in the
Regular Security allocable thereto. Regular Securityholders must use the accrual
method of accounting with regard to Regular Securities, regardless of the method
of accounting otherwise used by such Regular Securityholders.
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Original Issue Discount
Regular Securities may be issued with "original issue discount" within
the meaning of Code Section 1273(a). Holders of any class of Regular Securities
having original issue discount generally must include original issue discount in
ordinary income for federal income tax purposes as it accrues, in accordance
with a constant interest method that takes into account the compounding of
interest, in advance of receipt of the cash or a portion of the cash
attributable to such income. Based in part on Treasury regulations governing
original issue discount (the "OID Regulations") and in part on the provisions of
the 1986 Act, the Company anticipates that the amount of original issue discount
required to be included in a Regular Securityholder's income in any taxable year
will be computed in a manner substantially as described below. Regular
Securityholders should be aware, however, that the OID Regulations either do not
address, or are subject to varying interpretations with regard to, several
issues relevant to securities, such as the Regular Securities, that are subject
to prepayment. The 1986 Act requires that the amount and rate of accrual of
original issue discount be calculated based on a reasonable assumed prepayment
rate for the Mortgage Loans in a manner prescribed by regulations not yet issued
("Prepayment Assumption") and provides for adjusting the amount and rate of
accrual of such discount where the actual prepayment rate differs from the
Prepayment Assumption. The Committee Report indicates that the regulations will
require that the Prepayment Assumption be the prepayment assumption that is used
in determining the initial offering price of such Securities. The Prospectus
Supplement for each Series of such Securities will specify the Prepayment
Assumption determined by the Company for the purposes of determining the amount
and rate of accrual of original issue discount. No representation is made that
the Securities will prepay at the Prepayment Assumption or at any other rate.
Moreover, the OID Regulations include an anti-abuse rule allowing the Internal
Revenue Service ("IRS") to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of the
applicable statutory provisions. A tax result will not be considered
unreasonable under the anti-abuse rule in the absence of a substantial effect on
the present value of a taxpayer's tax liability. Investors are advised to
consult their own tax advisors as to the discussion herein and the appropriate
method for reporting interest and original issue discount with respect to the
Regular Securities.
Under the OID Regulations, each Regular Security (except to the extent
described below with respect to a Regular Security on which distributions of
principal are made in a single installment or upon an earlier distribution by
lot of a specified principal amount upon the request of a Regular Securityholder
or by random lot (a "Retail Class Security")) will be treated as a single
installment obligation for purposes of determining the original issue discount
includible in a Regular Securityholder's income. The total amount of original
issue discount on a Regular Security is the excess of the "stated redemption
price at maturity" of the Regular Security over its "issue price." The issue
price of a Regular Security is the first price at which a substantial amount of
Regular Securities of that class are first sold (other than to bond houses,
brokers, underwriters and wholesalers). Unless specified otherwise in the
Prospectus Supplement, the Company will determine original issue discount by
including the amount paid by an initial Regular Securityholder for accrued
interest that relates to a period prior to the issue date of the Regular
Security in the issue price of a Regular Security and will include in the stated
redemption price at maturity any interest paid on the first Distribution Date
(or Payment Date) to the extent such interest is attributable to a period in
excess of the number of days between the issue date and such first Distribution
Date (or Payment Date). The stated redemption price at maturity of a Regular
Security always includes the original principal amount of the Regular Security,
but generally will not include distributions of stated interest if such interest
distributions constitute "qualified stated interest." Under the OID Regulations,
qualified stated interest generally means stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer), or that will be constructively received, at least annually at a
single fixed rate or at a permissible variable rate. The special rules
applicable to variable rate Regular Securities are described below. Any stated
interest in excess of the qualified stated interest is included in the stated
redemption price at maturity. If the amount of original issue discount is "de
minimis" as described below, the amount of original issue discount is treated as
zero, and all stated interest is treated as qualified stated interest.
Distributions of interest on Regular Securities with respect to which deferred
interest will accrue may not constitute qualified stated interest, in which case
the stated redemption price at maturity of such Regular Securities includes all
distributions of interest as well as principal thereon. Moreover, if the
interval between the issue date and the first Distribution Date (or Payment
Date) on a Regular Security is longer than the interval between subsequent
Distribution Dates (or Payment Dates) (and interest paid on the first
Distribution Date (or Payment Date) is less than would have been earned if the
stated interest rate were applied to outstanding principal during each day in
such interval), the stated interest distributions on such Regular Security
technically do not constitute
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qualified stated interest. The OID Regulations provide that in such case a
special rule, applying solely for the purpose of determining whether original
issue discount is de minimis, provides that the interest shortfall for the long
first period (i.e., the interest that would have been earned if interest had
been paid on the first Distribution Date (or Payment Date) for each day the
Regular Security was outstanding) is treated as original issue discount assuming
the stated interest would otherwise be qualified stated interest. Also in such
case the stated redemption price at maturity is treated as equal to the issue
price plus the greater of the amount of foregone interest or the excess, if any,
of the Security's stated principal amount over its issue price. The OID
Regulations indicate that all interest on a long first period Regular Security
that is issued with non-de minimis original issue discount will be included in
the Regular Security's stated redemption price at maturity. Regular
Securityholders should consult their own tax advisors to determine the issue
price and stated redemption price at maturity of a Regular Security.
Under a de minimis rule, original issue discount on a Regular Security
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the Regular Security multiplied by
the weighted average maturity of the Regular Security. For this purpose, the
weighted average maturity of the Regular Security is computed as the sum of the
amounts determined by multiplying the number of full years (i.e., rounding down
partial years) from the issue date until each distribution in reduction of
stated redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Regular Security and the denominator of
which is the stated redemption price at maturity of the Regular Security.
Although currently unclear, it appears that the schedule of such distributions
should be determined in accordance with the Prepayment Assumption. In addition,
if the original issue discount is de minimis, all stated interest (including
stated interest that would otherwise be treated as original issue discount) is
treated as qualified stated interest. Unless the Holder of a Regular Security
elects to accrue all discount under a constant yield to maturity method, as
described below, the holder of a Regular Security will include any de minimis
original issue discount in income on a pro rata basis as stated principal
payments on the Regular Security are made, or, if earlier, upon anticipation of
the Regular Security. If a subsequent Holder of a Regular Security issued with
de minimis original issue discount purchases the Regular Security at a premium,
the subsequent Holder does not include any original issue discount in income. If
a subsequent Holder purchases such Regular Security at a discount, all discount
is reported as market discount, as described below.
Of the total amount of original issue discount on a Regular Security,
the Regular Securityholder generally must include in gross income for any
taxable year the sum of the "daily portions," as defined below, of the original
issue discount on the Regular Security accrued during an accrual period for each
day on which he holds the Regular Security, including the date of purchase but
excluding the date of disposition. With respect to each Regular Security, a
calculation will be made of the original issue discount that accrues during each
full accrual period (or shorter period from the date of original issue) that
ends on the day before the related Distribution Date or Payment Date for the
Regular Security. In the case of an original holder of a Regular Security, the
daily portions of original issue discount with respect to such Regular Security
generally will be determined by allocating to each day in any accrual period the
Regular Security's ratable portion of the excess, if any, of (i) the sum of (a)
the present value of all of the remaining distributions to be made on the
Regular Security as of the end of that accrual period that are included in the
Regular Security's stated redemption price at maturity and (b) the distributions
made on the Regular Security during the accrual period that are included in the
Regular Security's stated redemption price at maturity, over (ii) the adjusted
issue price of the Regular Security at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence is calculated based on (i) the yield to maturity of the Regular
Security at the issue date giving effect to the Prepayment Assumption, (ii)
events (including actual prepayments) that have occurred prior to the end of the
accrual period and (iii) the Prepayment Assumption. The effect of these rules is
to adjust the rate of original issue discount accrual to correspond to the
actual prepayment experience. For these purposes, the adjusted issue price of a
Regular Security at the beginning of any accrual period equals the issue price
of the Regular Security, increased by the aggregate amount of original issue
discount with respect to the Regular Security that accrued in all prior accrual
periods and reduced by the amount of distributions included in the Regular
Security's stated redemption price at maturity that were made on the Regular
Security in such prior periods.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Securityholder generally
will increase to take into account prepayments on the Regular Securities
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as a result of prepayments on the Mortgage Loans that exceed the Prepayment
Assumption, and generally will decrease (but not below zero for any period) if
the prepayments are slower than the Prepayment Assumption. To the extent
specified in the applicable Prospectus Supplement, an increase in prepayments on
the Mortgage Loans with respect to a Series of Regular Securities can result in
both a change in the priority of principal payments with respect to certain
Classes of Regular Securities and either an increase or decrease in the daily
portions of original issue discount with respect to such Regular Securities.
In the case of a Retail Class Security, the yield to maturity of such
Security will be determined based upon the anticipated payment characteristics
of the Class as a whole under the Prepayment Assumption. In general, the
original issue discount accruing on each Retail Class Security in a full accrual
period would be its allocable share of the original issue discount with respect
to the entire Class, as determined in accordance with the preceding paragraph.
However, in the case of a distribution of the entire principal amount of any
Retail Class Security (or portion thereof), (a) the remaining unaccrued original
issue discount allocable to such Security (or to such portion) will accrue at
the time of such distribution, and (b) the accrual of original issue discount
allocable to each remaining Security of such Class (or the remaining principal
amount of a Retail Class Security after a distribution in reduction of a portion
of its principal amount has been received) will be adjusted by reducing the
present value of the remaining payments on such Class and the adjusted issue
price of such Class to the extent attributable to the portion of the principal
amount thereof that was distributed.
In many cases, Regular Securities will be subject to optional
redemption before their stated maturity dates. Under the OID Regulations, the
Company will be presumed to exercise its option to redeem for purposes of
computing the accrual of original issue discount if, and only if, by using the
optional redemption date as the maturity date and the optional redemption price
as the stated redemption price at maturity, the yield to maturity of the
Security is lower than it would be if the Security were not redeemed early. If
the Company is presumed to exercise its option to redeem the Securities,
original issue discount on such Securities will be calculated as if the
redemption date were the maturity date and the optional redemption price were
the stated redemption price at maturity. In cases in which all of the Securities
of a particular Series are issued at par or at a discount, the Company will not
be presumed to exercise its option to redeem the Securities because a redemption
by the Company would not lower the yield to maturity of the Securities. If,
however, some Securities of a particular Series are issued at a premium, the
Company may be able to lower the yield to maturity of the Securities by
exercising its redemption option. In determining whether the Company will be
presumed to exercise its option to redeem Securities when one or more Classes of
the Securities is issued at a premium, the Trustee will take into account all
Classes of Securities that are subject to the optional redemption to the extent
that they are expected to remain outstanding as of the optional redemption date,
based on the Prepayment Assumption. If, determined on a combined weighted
average basis, the Securities of such Classes were issued at a premium, the
Trustee will presume that the Company will exercise its option. However, the OID
Regulations are unclear as to how the redemption presumption rules should apply
to instruments such as the Securities, and there can be no assurance that the
IRS will agree with the Trustee's position.
A subsequent holder of a Regular Security issued with original issue
discount who purchases the Regular Security at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of original issue discount on the Regular
Security. In computing the daily portions of original issue discount for a
subsequent purchaser (as well as an initial purchaser who purchases a Regular
Security at a price higher than the issue price but less than the stated
redemption price at maturity), however, the daily portion for any day is reduced
by the amount that would be the daily portion for such day (computed in
accordance with the rules set forth above) multiplied by a fraction, the
numerator of which is the amount, if any, by which the price paid by such
purchaser for the Regular Security exceeds the excess of (i) the sum of its
issue price and the aggregate amount of original issue discount that would have
been includible in the gross income of an original holder of the Regular
Security who purchased the Regular Security at its issue price, over (ii) the
amount of any prior distributions included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for such
Regular Security (computed in accordance with the rules set forth above) for all
days beginning on the date after the date of purchase and ending on the date on
which the remaining principal amount of such Regular Security is expected to be
reduced to zero under the Prepayment Assumption. Alternatively, such a
subsequent holder may accrue original
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issue discount by treating the purchase as a purchase at original issuance and
applying the constant yield to maturity method.
The OID Regulations provide that a holder that acquires a Regular
Security may elect to include in gross income all stated interest, original
issue discount, de minimis original issue discount, market discount (as
described below under "Market Discount"), de minimis market discount and
unstated interest (as adjusted for any amortizable bond premium or acquisition
premium) currently as it accrues using the constant yield to maturity method. If
such an election were made with respect to a Regular Security with market
discount, the Regular Securityholder would be deemed to have made an election to
include in income currently market discount with respect to all other debt
instruments having market discount that such Regular Securityholder acquires
during the year of the election or thereafter. Similarly, a Regular
Securityholder that makes this election for a Regular Security that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Regular Securityholder owns or acquires. The election to accrue interest,
discount and premium on a constant yield method with respect to a Regular
Security can not be revoked without the consent of the IRS.
Regular Securities may provide for interest based on a variable rate.
The OID Regulations provide special rules for variable rate instruments that
meet three requirements. First, the issue price must not exceed the
noncontingent principal payments by more than the lesser of (i) 1.5% of the
product of the noncontingent principal payments and the weighted average
maturity or (ii) 15% of the noncontingent principal payments. Second, the
instrument must provide for stated interest (compounded or paid at least
annually) at (i) one or more qualified floating rates, (ii) a single fixed rate
and a single objective rate that is a qualified inverse floating rate, (iii) a
single fixed rate and one or more qualified floating rates; or (iv) a single
objective rate. Third, the instrument must provide that each qualified floating
rate or objective rate in effect during the term of the Regular Security is set
at a current value of that rate (one occurring in the interval beginning three
months before and ending one year after the rate is first in effect on the
Regular Security). If interest on a Regular Security is stated at a fixed rate
for an initial period of less than 1 year followed by a variable rate that is
either a qualified floating rate or an objective rate and the value of the
variable rate on the issue date is intended to approximate the fixed rate, the
fixed rate and the variable rate together constitute a single qualified floating
rate or objective rate. A rate is a qualified floating rate if variations in the
rate can reasonably be expected to measure contemporaneous variations in the
cost of newly borrowed funds in the Regular Security's currency denomination. A
multiple of a qualified floating rate is not a qualified floating rate unless it
is a rate equal to (i) the product of a qualified floating rate as described in
the previous sentence and a fixed multiple that is greater than 0.65 but no
greater than 1.35, or (ii) a product described in clause (i) increased or
decreased by a fixed rate. A variable rate is not a qualified floating rate if
it is subject to a cap, floor or a restriction on the amount of increase or
decrease in stated interest rate (governor) unless: (i) the cap, floor or
governor is fixed throughout the Regular Security's term, (ii) the cap or floor
is not reasonably expected to cause the yield on the Regular Security to be
significantly less or more, respectively, than the expected yield without the
cap or floor, or (iii) the governor is not reasonably expected to cause the
yield to be significantly more or less than the expected yield without the
governor. An objective rate is a rate (other than a qualified floating rate)
that (i) is determined using a single fixed formula, (ii) is based on objective
financial or economic information, and (iii) is not based on information that
either is within the control of the issuer (or a related party) or is unique to
the circumstances of the issuer (or related party), such as dividends, profits,
or the value of the issuer's (or related party's) stock. That definition would
include, in addition to a rate that is based on one or more qualified floating
rates or on the yield of actively traded personal property, a rate that is based
on changes in a general inflation index. In addition, a rate would not fail to
be an objective rate merely because it is based on the credit quality of the
issuer.
If a variable rate Regular Security provides for stated interest at a
single qualified floating rate or objective rate that is unconditionally payable
in cash or property at least annually, (i) all stated interest is qualified
stated interest, (ii) the amount of original issue discount, if any, is
determined as if the Regular Security had a fixed rate equal to (A) in the case
of a qualified floating rate or qualified inverse floating rate, the value on
the issue date of the qualified floating rate or qualified inverse floating rate
or (B) in the case of any other objective rate, a fixed rate that reflects the
yield that is reasonably expected for the Regular Security. If a variable rate
Regular Security is not described in the previous sentence, the Regular Security
is treated as a fixed rate Regular Security with a fixed rate substitute or
substitutes equal to the value of the qualified floating rates or qualified
inverse floating rate at the date of issue or, in the case of a Regular Security
having an objective rate at a fixed rate that reflects the yield reasonably
expected for the Regular Security.
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Qualified stated interest or original issue discount allocable to an accrual
period is adjusted to reflect differences in the interest actually accrued or
paid compared to the interest accrued or paid at the fixed rate substitute. If a
variable rate Regular Security provides for stated interest either at one or
more qualified floating rates or at a qualified inverse floating rate and also
provides for interest at an initial fixed rate that is not intended to
approximate the related floating rate or is fixed for a period of one year or
more, original issue discount is determined as described in the previous two
sentences except that the Regular Security is treated as if it provided for a
qualified floating rate or qualified inverse floating rate, as applicable,
rather than a fixed rate. The substitute rate must be one such that the fair
market value of the Regular Security would be approximately the same as the fair
market value of the hypothetical security.
A variable rate Regular Security not qualifying for treatment under the
variable rate rules described above (a "Contingent Payment Obligation") is
subject to the contingent payment provisions of the OID Regulations (the
"Contingent Payment Regulations"). The Contingent Payment Regulations, by their
terms do not apply to REMIC regular interests and other instruments that are
subject to section 1272(a)(6) of the Code. However, in the absence of further
guidance, the Administrator will account for securities that are Contingent
Payment Obligations in accordance with Code section 1272(a)(6) and the
accounting methodology described in this paragraph. Income will be accrued on
such securities based on a constant yield that is derived from a projected
payment schedule as of the Closing Date. The projected payment schedule will
take into account the Prepayment Assumption and the interest payments that are
expected to be made based on the value of any relevant indices on the issue
date. To the extent that actual payments differ from projected payments for a
particular taxable year, appropriate adjustments to interest income and expense
accruals will be made for that year.
The method described in the foregoing paragraph for accounting for
Contingent Payment Obligations is consistent with Code section 1272(a)(6) and
the legislative history thereto. Because of the uncertainty with respect to the
treatment of such securities under the OID Regulations, however, there can be no
assurance that the Service will not assert successfully that a method less
favorable to Regular Securityholders should apply. In view of the complexities
and the current uncertainties as to income inclusions with respect to Contingent
Payment obligations, each investor should consult his or her own tax advisor to
determine the appropriate amount and method of income inclusion on such
securities for federal income tax purposes.
Market Discount
A purchaser of a Regular Security also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these sections and the
principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which a subsequent purchaser's
initial basis in the Regular Security (i) is exceeded by the stated redemption
price at maturity of the Regular Security or (ii) in the case of a Regular
Security having original issue discount, is exceeded by the sum of the issue
price of such Regular Security plus any original issue discount that would have
previously accrued thereon if held by an original Regular Securityholder (who
purchased the Regular Security at its issue price), in either case less any
prior distributions included in the stated redemption price at maturity of such
Regular Security. Such purchaser generally will be required to recognize accrued
market discount as ordinary income as distributions includible in the stated
redemption price at maturity of such Regular Security are received, in an amount
not exceeding any such distribution. That recognition rule would apply
regardless of whether the purchaser is a cash-basis or accrual-basis taxpayer.
Such market discount would accrue in a manner to be provided in Treasury
regulations and should take into account the Prepayment Assumption. The
Committee Report provides that until such regulations are issued, such market
discount would accrue either (i) on the basis of a constant interest rate or
(ii) in the ratio of stated interest allocable to the relevant period to the sum
of the interest for such period plus the remaining interest as of the end of
such period, or in the case of a Regular Security issued with original issue
discount, in the ratio of original issue discount accrued for the relevant
period to the sum of the original issue discount accrued for such period plus
the remaining original issue discount as of the end of such period. Such
purchaser also generally will be required to treat a portion of any gain on a
sale or exchange of the Regular Security as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary income
as partial distributions in reduction of the stated redemption price at maturity
were received. Such purchaser will be required to defer deduction of a portion
of the excess of the interest paid or accrued on indebtedness incurred to
purchase or carry a Regular Security over the interest distributable
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thereon. The deferred portion of such interest expense in any taxable year
generally will not exceed the accrued market discount on the Regular Security
for such year. Any such deferred interest expense is, in general, allowed as a
deduction not later than the year in which the related market discount income is
recognized or the Regular Security is disposed of. As an alternative to the
inclusion of market discount in income on the foregoing basis, the Regular
Securityholder may elect to include market discount in income currently as it
accrues on all market discount instruments acquired by such Regular
Securityholder in that taxable year or thereafter, in which case the interest
deferral rule will not apply. In Revenue Procedure 92-67, the IRS set forth the
manner in which an election may be made to accrue market discount on the basis
of a constant interest rate.
By analogy to the OID Regulations, market discount with respect to a
Regular Security will be considered to be zero if such market discount is less
than 0.25% of the remaining stated redemption price at maturity of such Regular
Security multiplied by the weighted average maturity of the Regular Security
(determined as described above under "Original Issue Discount") remaining after
the date of purchase. Treasury regulations implementing the market discount
rules have not yet been issued, and therefore investors should consult their own
tax advisors regarding the application of these rules as well as the
advisability of making any of the elections with respect thereto.
Premium
A Regular Security purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Securityholder holds such Regular Security as a "capital
asset" within the meaning of Code Section 1221, the Regular Securityholder may
elect under Code Section 171 to amortize such premium under a constant yield
method that reflects compounding based on the interval between payments on the
Regular Securities. The Committee Report indicates a Congressional intent that
the same rules that apply to the accrual of market discount on installment
obligations will also apply to amortizing bond premium under Code Section 171 on
installment obligations such as the Regular Securities, although it is unclear
whether the alternatives to the constant interest method described above under
"Market Discount" are available. Under Treasury regulations, such amortizable
bond premium generally will be treated as an offset to interest income on a
Regular Security rather than as a separate deduction item. This election, once
made, applies to all taxable obligations held by the taxpayer at the beginning
of the first taxable year to which such election applies and to all taxable debt
obligations thereafter acquired and is binding on such taxpayer in all
subsequent years. Purchasers who pay a premium for their Regular Securities
should consult their tax advisors regarding the election to amortize premium and
the method to be employed.
Amortizable premium on a Regular Security that is subject to redemption
at the option of the Trust generally must be amortized as if the optional
redemption price and date were the Security's principal amount and maturity date
if doing so would result in a smaller amount of premium amortization during the
period ending with the optional redemption date. Thus, a Securityholder would
not be able to amortize any premium on a Regular Security that is subject to
optional redemption at a price equal to or greater than the Securityholder's
acquisition price unless and until the redemption option expires. In cases where
premium must be amortized on the basis of the price and date of an optional
redemption, the Security will be treated as having matured on the redemption
date for the redemption price and then having been reissued on that date for
that price. Any premium remaining on the Security at the time of the deemed
reissuance will be amortized on the basis of (I) the original principal amount
and maturity date or (ii) the price and date of any succeeding optional
redemption, under the principles described above.
Sale or Exchange of Regular Securities
If a Regular Securityholder sells or exchanges a Regular Security, the
Regular Securityholder will recognize gain or loss equal to the difference, if
any, between the amount received and his adjusted basis in the Regular Security.
The adjusted basis of a Regular Security generally will equal the cost of the
Regular Security to the seller, increased by any original issue discount or
market discount previously included in the seller's gross income with respect to
the Regular Security and reduced by amounts included in the stated redemption
price at maturity of the Regular Security that were previously received by the
seller and by any amortized premium.
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Except as described in this paragraph, under "Original Issue Discount"
and under "Market Discount," any gain or loss on the sale or exchange of a
Regular Security realized by an investor who holds the Regular Security as a
capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Security has been held for the applicable
long-term capital gain holding period. Gain from the disposition of a Regular
Security that might otherwise be capital gain will be treated as ordinary income
(I) if a Regular Security is held as part of a "conversion transaction" as
defined in Code Section 1258(c), generally up to the amount of interest that
would have accrued on the Regular Securityholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate under
Code Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction,
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates, or (iii) in the case of a Regular
Security (issued by a REMIC) to the extent that such gain does not exceed the
excess, if any, of (a) the amount that would have been includible in the gross
income of the holder if his yield on such Regular Security were 110% of the
applicable Federal rate under Code Section 1274(d) as of the date of purchase,
over (b) the amount of income actually includible in the gross income of such
holder with respect to the Regular Security. Although the legislative history to
the 1986 Act indicates that the portion of the gain from disposition of a
Regular Security that will be recharacterized as ordinary income under clause
(iii) is limited to the amount of original issue discount (if any) on the
Regular Security that was not previously includible in income, the applicable
Code provision contains no such limitation. In addition, gain or loss recognized
from the sale of a Regular Security by certain banks or thrift institutions will
be treated as ordinary income or loss pursuant to Code Section 582(c).
The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for more
than eighteen months as of the date of disposition (and would further reduce the
maximum rates on such gains in the year 2001 and thereafter for certain
individual taxpayers who meet specified conditions). Prospective investors
should consult their own tax advisors concerning these tax law changes.
TAXATION OF RESIDUAL SECURITIES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss
will be includible as ordinary income or loss in determining the federal taxable
income of holders of Residual Securities ("Residual Securityholders"), and will
not be taxed separately to the REMIC Pool. The daily portions of REMIC taxable
income or net loss of a Residual Securityholder are determined by allocating the
REMIC Pool's taxable income or net loss for each calendar quarter ratably to
each day in such quarter and by allocating such daily portion among the Residual
Securityholders in proportion to their respective holdings of Residual
Securities in the REMIC Pool on such day. REMIC taxable income is generally
determined in the same manner as the taxable income of an individual using a
calendar year and the accrual method of accounting, except that (I) the
limitation on deductibility of investment interest expense and expenses for the
production of income do not apply, (ii) all bad loans will be deductible as
business bad debts and (iii) the limitation on the deductibility of interest and
expenses related to tax-exempt income will apply. REMIC taxable income generally
means the REMIC Pool's gross income, including interest, original issue discount
income and market discount income, if any, on the Mortgage Loans, plus income on
reinvestment of cash flows and reserve assets, minus deductions, including
interest and original issue discount expense on the Regular Securities,
servicing fees on the Mortgage Loans and other administrative expenses of the
REMIC Pool, amortization of premium, if any, with respect to the Mortgage Loans,
and any tax imposed on the REMIC's income from foreclosure property. The
requirement that Residual Securityholders report their pro rata share of taxable
income or net loss of the REMIC Pool will continue until there are no Securities
of any Class of the related Series outstanding.
The taxable income recognized by a Residual Securityholder in any
taxable year will be affected by, among other factors, the relationship between
the timing of recognition of interest and original issue discount or market
discount income or amortization of premium with respect to the Mortgage Loans,
on the one hand, and the timing of deductions for interest (including original
issue discount) on the Regular Securities, on the other hand. Because of the way
REMIC taxable income is calculated, a Residual Securityholder may recognize
"phantom" income (i.e., income recognized for
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tax purposes in excess of income as determined under financial accounting or
economic principles) which will be matched in later years by a corresponding tax
loss or reduction in taxable income, but which could lower the yield to Residual
Securityholders due to the lower present value of such loss or reduction. For
example, if an interest in the Mortgage Loans is acquired by the REMIC Pool at a
discount, and one or more of such Mortgage Loans is prepaid, the Residual
Securityholder may recognize taxable income without being entitled to receive a
corresponding amount of cash because (I) the prepayment may be used in whole or
in part to make distributions in reduction of principal on the Regular
Securities and (ii) the discount income on the Mortgage Loans which is
includible in the REMIC's taxable income may exceed the interest and discount
deduction allowed to the REMIC upon such distributions on the Regular
Securities. When there is more than one class of Regular Securities that
distribute principal sequentially, this mismatching of income and deductions is
particularly likely to occur in the early years following issuance of the
Regular Securities when distributions in reduction of principal are being made
in respect of earlier maturing classes of Regular Securities to the extent that
such classes are not issued with substantial discount. If taxable income
attributable to such a mismatching is realized, in general, losses would be
allowed in later years as distributions on the later classes of Regular
Securities are made. Taxable income may also be greater in earlier years than in
later years as a result of the fact that interest expense deductions, expressed
as a percentage of the outstanding principal amount of such a Series of Regular
Securities, may increase over time as distributions in reduction of principal
are made on the lower yielding classes of Regular Securities, whereas interest
income with respect to any given Mortgage Loan will remain constant over time as
a percentage of the outstanding principal amount of that loan. Consequently,
Residual Securityholders must have sufficient other sources of cash to pay any
federal, state or local income taxes due as a result of such mismatching or
unrelated deductions against which to offset such income. Prospective investors
should be aware, however, that a portion of such income may be ineligible for
offset by such investor's unrelated deductions. See the discussion of "excess
inclusions" below under "Limitations on Offset or Exemption of REMIC Income;
Excess Inclusions." The timing of such mismatching of income and deductions
described in this paragraph, if present with respect to a Series of Securities,
may have a significant adverse effect upon the Residual Securityholder's
after-tax rate of return. In addition, a Residual Securityholder's taxable
income during certain periods may exceed the income reflected by such Residual
Securityholder for such periods in accordance with generally accepted accounting
principles. Investors should consult their own advisors concerning the proper
tax and accounting treatment of their investment in Residual Securities.
Basis and Losses
The amount of any net loss of the REMIC Pool that may be taken into
account by the Residual Securityholder is limited to the adjusted basis of the
Residual Security as of the close of the quarter (or time of disposition of the
Residual Security if earlier), determined without taking into account the net
loss for the quarter. The initial adjusted basis of a purchaser of a Residual
Security is the amount paid for such Residual Security. Such adjusted basis will
be increased by the amount of taxable income of the REMIC Pool reportable by the
Residual Securityholder and decreased by the amount of loss of the REMIC Pool
reportable by the Residual Securityholder. A cash distribution from the REMIC
Pool also will reduce such adjusted basis (but not below zero). Any loss that is
disallowed on account of this limitation may be carried over indefinitely with
respect to the Residual Securityholder as to whom such loss was disallowed and
may be used by such Residual Securityholder only to offset any income generated
by the same REMIC Pool. The ability of a Residual Securityholder to deduct net
losses with respect to a Residual Security may be subject to additional
limitations under the Code, as to which Residual Securityholders should consult
their tax advisors. Although the law is unclear in certain respects, a Residual
Securityholder effectively should be able to recover some or all of the basis in
his Residual Security as the related REMIC recovers the basis of its assets
through either the amortization of premium on such assets or the allocation of
basis to principal payments received on such assets. A REMIC's initial aggregate
basis in its assets generally will equal the sum of the issue prices of its
Regular Securities and Residual Securities. In general, the issue price of a
Regular Security of a particular Class is the initial price at which a
substantial amount of the securities of such Class is sold to the public. In the
case of a Regular Security of a Class not offered to the public in substantial
amounts, the issue price is either the price paid by the first purchaser of such
Securities or the fair market value of the property received in exchange for
such Security, as appropriate. The REMIC's aggregate basis will be allocated
among its assets in proportion to their respective fair market values.
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Treatment of Certain Items of REMIC Income and Expense
Original Issue Discount. Generally, the REMIC Pool's deductions for
original issue discount will be determined in the same manner as original issue
discount income on Regular Securities as described above under "Taxation of
Regular Securities -- Original Issue Discount", without regard to the de minimis
rule described therein.
Market Discount. The REMIC Pool will have market discount income in
respect of Mortgage Loans if, in general, the basis of the REMIC Pool in such
Mortgage Loans is exceeded by their unpaid principal balances.
The REMIC Pool's basis in such Mortgage Loans is generally the fair market value
of the Mortgage Loans immediately after the transfer thereof to the REMIC Pool.
The REMIC Regulations provide that such basis is equal in the aggregate to the
issue prices of all regular and residual interests in the REMIC Pool. In respect
of Mortgage Loans that have market discount to which Code Section 1276 applies,
the accrued portion of such market discount would be recognized currently by the
REMIC as an item of ordinary income. Market discount income generally should
accrue in the manner described above under "Taxation of Regular Securities --
Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage
Loans exceeds the unpaid principal balances thereof, the REMIC Pool will be
considered to have acquired such Mortgage Loans at a premium equal to the amount
of such excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the
fair market value of the Mortgage Loans, based on the aggregate of the issue
prices of the regular and residual interests in the REMIC Pool immediately after
the transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "Taxation of Regular Securities -- Premium," a person that holds a
Mortgage Loan as a capital asset under Code Section 1221 may elect under Code
Section 171 to amortize premium on Mortgage Loans originated after September 27,
1985 under a constant yield method. Amortizable bond premium will be treated as
an offset to interest income on the Mortgage Loans, rather than as a separate
deduction item. Because substantially all of the mortgagors with respect to the
Mortgage Loans are expected to be individuals, Code Section 171 will not be
available for premium on Mortgage Loans originated on or prior to September 27,
1985. Premium with respect to such Mortgage Loans may be deductible in
accordance with a reasonable method regularly employed by the holder thereof.
The allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the IRS may argue that such premium
should be allocated in a different manner, such as allocating such premium
entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income; Excess Inclusions
A portion of the income allocable to a Residual Security (referred to
in the Code as an "excess inclusion") for any calendar quarter will be subject
to federal income tax in all events. Thus, for example, an excess inclusion (I)
cannot be offset by any unrelated losses or loss carryovers of a Residual
Securityholder, (ii) will be treated as "unrelated business taxable income"
within the meaning of Code Section 512 if the Residual Securityholder is a
pension fund or any other organization that is subject to tax only on its
unrelated business taxable income and (iii) is not eligible for any reduction in
the rate of withholding tax in the case of a Residual Securityholder that is a
foreign investor, as further discussed in "Taxation of Certain Foreign Investors
- -- Residual Securities" below.
For any Residual Securityholder, the excess inclusion for any calendar
quarter is the excess, if any, of (I) the income of such Residual Securityholder
for that calendar quarter from its Residual Security, over (ii) the sum of the
"daily accruals" (as defined below) for all days during the calendar quarter on
which the Residual Securityholder holds such Residual Security. For this
purpose, the daily accruals with respect to a Residual Security are determined
by allocating to each day in the calendar quarter its ratable portion of the
product of the "adjusted issue price" (as defined below) of the Residual
Security at the beginning of the calendar quarter and 120 percent of the
"Federal long-term rate" in effect at the time the Residual Security is issued.
For this purpose, the "adjusted issue price" of a Residual Security at the
beginning of any calendar quarter equals the issue price of the Residual
Security (adjusted for contributions), increased by the amount of daily accruals
for all prior quarters, and decreased (but not below zero) by the aggregate
amount of payments made on the Residual Security before the beginning of such
quarter.
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Under Treasury regulations to be promulgated, a portion of the
dividends paid by a REIT which owns a Residual Security are to be designated as
excess inclusions in an amount corresponding to the Residual Security's
allocable share of the excess inclusions. Similar rules apply in the case of
regulated investment companies, common trust funds and cooperatives. Thus,
investors in such entities which own a Residual Security will be subject to the
limitations on excess inclusions described above. The REMIC Regulations do not
provide guidance on this issue.
Mark to Market Rules
Residual Securityholders that are dealers in securities should be aware
that, under Treasury regulations (the "Mark-to-Market Regulations") relating to
the requirement under section 475 of the Code that dealers in securities use
mark-to-market accounting for federal income tax purposes, dealers in securities
are not permitted to mark to market any REMIC residual interests acquired on or
after January 4, 1995. Prospective purchasers of Residual Certificates should
consult with their tax advisors regarding the possible application of the
Mark-to-Market Regulations to such Certificates.
Tax-Related Restrictions on Transfer of Residual Securities
Disqualified Organizations. If legal title or beneficial interest in a
Residual Security is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (I) the
present value of the total anticipated excess inclusions with respect to such
Residual Security for periods after the transfer and (ii) the highest marginal
federal income tax rate applicable to corporations. The REMIC Regulations
provide that the anticipated excess inclusions are based on actual prepayment
experience to the date of the transfer and projected payments based on the
Prepayment Assumption. The present value discount rate equals the applicable
Federal rate under Code Section 1274(d) that would apply to a debt instrument
that was issued on the date the Disqualified Organization acquired the Residual
Security and whose term ended on the close of the last quarter in which excess
inclusions were expected to accrue with respect to the Residual Security. Such a
tax generally would be imposed on the transferor of the Residual Security,
except that where such transfer is through an agent (including a broker,
nominee, or other middleman) for a Disqualified Organization, the tax would
instead be imposed on such agent. However, a transferor of a Residual Security
would in no event be liable for such tax with respect to a transfer if the
transferee furnishes to the transferor an affidavit that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may be
waived by the Treasury Department if the Disqualified Organization promptly
disposes of the Residual Security and the transferor pays income tax at the
highest corporate rate on the excess inclusions for the period the Residual
Security is actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Security during a taxable year and a
Disqualified Organization is the record holder of an equity interest in such
entity, then a tax is imposed on such entity equal to the product of (I) the
amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that (I) states
under penalty of perjury that it is not a Disqualified Organization or (ii)
furnishes a social security number and states under penalties of perjury that
the social security number is that of the transferee, provided that during the
period such person is the record holder of the Residual Security, the
Pass-Through Entity does not have actual knowledge that such affidavit is false.
For these purposes, (I) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service to persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 521) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, and (ii)
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"Pass-Through Entity" means any regulated investment company, real estate
investment trust, common trust fund, partnership, trust or estate and certain
corporations operating on a cooperative basis. Except as may be provided in
Treasury regulations yet to be issued, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to such
interest, be treated as a Pass-Through Entity.
The Agreement or the Indenture, as applicable, with respect to a Series
of Securities will provide that neither legal title nor beneficial interest in a
Residual Security may be transferred or registered unless (I) the proposed
transferee provides to the Company and the Trustee an affidavit to the effect
that such transferee is not a Disqualified Organization, is not purchasing such
Residual Securities on behalf of a Disqualified Organization (i.e., as a broker,
nominee or middleman thereof) and is not an entity that holds REMIC residual
securities as nominee to facilitate the clearance and settlement of such
securities through electronic book-entry changes in accounts of participating
organizations and (ii) the transferor provides a statement in writing to the
Company and the Trustee that it has no actual knowledge that such affidavit is
false. Moreover, the Agreement or Indenture, as applicable, will provide that
any attempted or purported transfer in violation of these transfer restrictions
will be null and void and will vest no rights in any purported transferee. Each
Residual Security with respect to a Series will bear a legend referring to such
restrictions on transfer, and each Residual Securityholder will be deemed to
have agreed, as a condition of ownership thereof, to any amendments to the
related Agreement or Indenture, as applicable, required under the Code or
applicable Treasury regulations to effectuate the foregoing restrictions.
Information necessary to compute an applicable excise tax must be furnished to
the IRS and to the requesting party within 60 days of the request, and the
Company or the Trustee may charge a fee for computing and providing such
information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Securities, in which case the transferor would
continue to be treated as the owner of the Residual Securities and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (defined below) to a Residual Securityholder (other than a Residual
Securityholder who is not a U.S. Person, as defined below under "Foreign
Investors") is disregarded for all federal income tax purposes unless no
significant purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A residual interest in a REMIC (including a
residual interest with a positive value at issuance) is a "noneconomic residual
interest" unless, at the time of the transfer, (i) the present value of the
expected future distributions on the residual interest at least equals the
product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs, and (ii) the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at which taxes accrue
on the anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes. The anticipated excess inclusions and the present value rate are
determined in the same manner as set forth above under "Disqualified
Organizations." A significant purpose to impede the assessment or collection of
tax exists if the transferor, at the time of the transfer, either knew or should
have known (had "improper knowledge") that the transferee would be unwilling or
unable to pay taxes due on its share of the taxable income of the REMIC. Under
the REMIC Regulations, a transferor is presumed not to have improper knowledge
if (i) the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and, as a result of
the investigation, the transferor found that the transferee had historically
paid its debts as they came due and found no significant evidence to indicate
that the transferee will not continue to pay its debts as they come due in the
future; and (ii) the transferee represents to the transferor that it understands
that, as the holder of the noneconomic residual interest, the transferee may
incur tax liabilities in excess of any cash flows generated by the residual
interest and that the transferee intends to pay taxes associated with holding of
residual interest as they become due. The Agreement or Indenture, as applicable,
will require the transferee of a Residual Security to state as part of the
affidavit described above under the heading "Disqualified Organizations" that
such transferee (i) has historically paid its debts as they come due, (ii)
intends to continue to pay its debts as they come due in the future, (iii)
understands that, as the holder of a noneconomic Residual Security, it may incur
tax liabilities in excess of any cash flows generated by the Residual Security,
and (iv) intends to pay any and all taxes associated with holding the Residual
Security as they become due. The transferor must have no reason to believe that
such statement is untrue.
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Security that has "tax avoidance potential" to a "foreign person" will
be disregarded for all federal tax purposes. This rule appears intended
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to apply to a transferee who is not a "U.S. Person" (as defined below), unless
such transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Security is deemed to have tax
avoidance potential unless, at the time of the transfer, the transferor
reasonably expects that, for each excess inclusion, (i) the REMIC Pool will
distribute to the transferee residual interest holder an amount that will equal
at least 30% of the excess inclusions and (ii) that each such amount will be
distributed at or after the time at which the excess inclusion accrues and not
later than the close of the calendar year following the calendar year of
accrual. If the non-U.S. Person transfers the Residual Security back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The Prospectus Supplement relating to a Series of Securities may
provide that a Residual Security may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
Person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, an estate that is subject to
U.S. federal income tax regardless of the source of its income, or a trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more U.S. Persons have the authority to
control all substantial decisions of such trust.
Sale or Exchange of a Residual Security
Upon the sale or exchange of a Residual Security, the Residual
Securityholder will recognize gain or loss equal to the excess, if any, of the
amount realized over the adjusted basis (as described above under "Basis and
Losses") of such Residual Securityholder in such Residual Security at the time
of the sale or exchange. In addition to reporting the taxable income of the
REMIC Pool, a Residual Securityholder will have taxable income to the extent
that any cash distribution to him from the REMIC Pool exceeds such adjusted
basis on that Distribution Date or Payment Date. Such income will be treated as
gain from the sale or exchange of the Residual Security. It is possible that the
termination of the REMIC Pool may be treated as a sale or exchange of a Residual
Securityholder's Residual Security, in which case, if the Residual
Securityholder has an adjusted basis in his Residual Security remaining when his
interest in the REMIC Pool terminates, and if he holds such Residual Security as
a capital asset under Code Section 1221, then he will recognize a capital loss
at that time in the amount of such remaining adjusted basis. In the case of
banks, thrifts, and certain other financial institutions, however, gain or loss
on the disposition of a Residual Security generally will be treated as ordinary
gain or loss.
A special version of the wash sale rules of Code Section 1091 will
apply to dispositions of Residual Securities. Consequently, losses on
dispositions of Residual Securities will be disallowed where the seller of the
Residual Security, during the period beginning six months before the sale or
disposition of the Residual Security and ending six months after such sale or
disposition, acquires (or enters into any other transaction that results in the
application of Code Section 1091) any residual interest in any REMIC or any
interest in a "taxable mortgage pool" (such as a non-REMIC owner trust) that is
economically comparable to a Residual Security. In the event, any loss realized
by a Residual Securityholder on the sale will not be deductible, but, instead,
will increase such Residual Securityholder's adjusted basis in the newly
acquired assets.
Taxes That May Be Imposed on the REMIC Pool
Prohibited Transactions. Net income from certain transactions by the
REMIC Pool, called prohibited transactions, will not be part of the calculation
of income or loss includible in the federal income tax returns of Residual
Securityholders, but rather will be taxed directly to the REMIC Pool at a 100%
rate. Prohibited transactions generally include (i) the disposition of a
qualified mortgage other than for (a) substitution within two years of the
Startup Day for a defective (including a defaulted) obligation (or repurchase in
lieu of substitution of a defective (including a defaulted) obligation at any
time) or for any qualified mortgage within three months of the Startup Day, (b)
foreclosure, default or imminent default of a qualified mortgage, (c) bankruptcy
or insolvency of the REMIC Pool or (d) a qualified (complete) liquidation, (ii)
the receipt of income from assets that are not the type of mortgages or
investments that the REMIC Pool is permitted to hold, (iii) the receipt of
compensation for services or (iv) the receipt of gain from
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disposition of cash flow investments other than pursuant to a qualified
liquidation. Notwithstanding (i) and (iv), it is not a prohibited transaction to
sell REMIC Pool property to prevent a default on Regular Securities as a result
of a default on qualified mortgages or to facilitate a clean-up call (generally,
an optional termination to save administrative costs when no more than a small
percentage of the Securities is outstanding). The REMIC Regulations indicate
that the modification of a Mortgage Loan generally will not be treated as a
disposition if it is occasioned by a default or reasonably foreseeable default,
an assumption of the Mortgage Loan, the waiver of a due-on-sale or encumbrance
clause or the conversion of an interest rate by a mortgagor pursuant to the
terms of a convertible adjustable rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day. In general, the
REMIC Pool will be subject to a tax at a 100% rate on the value of any property
contributed to the REMIC Pool after the Startup Day. Exceptions are provided for
cash contributions to the REMIC Pool (I) during the three months following the
Startup Day, (ii) made to a qualified reserve fund by a Residual Securityholder,
(iii) in the nature of a guarantee, (iv) made to facilitate a qualified
liquidation or clean-up call and (v) as otherwise permitted in Treasury
regulations yet to be issued.
Net Income from Foreclosure Property. The REMIC Pool will be subject to
federal income tax at the highest corporate rate on "net income from foreclosure
property," determined by reference to the rules applicable to real estate
investment trusts. Generally, property acquired by the REMIC Pool through
foreclosure or deed in lieu of foreclosure would be treated as "foreclosure
property" for the period ending with the close of the third taxable year
following the taxable year of acquisition of the property, with possible
extensions. Net income from foreclosure property generally means (I) gain from
the sale of a foreclosure property that is inventory property and (ii) gross
income from foreclosure property other than qualifying rents and other
qualifying income for a real estate investment trust.
Liquidation of the REMIC Pool
If a REMIC Pool and the Trustee adopt a plan of complete liquidation,
within the meaning of Code Section 860F(a)(4)(A)(I) and sell all of the REMIC
Pool's assets (other than cash) within a 90-day period beginning on the date of
the adoption of the plan of liquidation, any gain on the sale of its assets will
not result in a prohibited transaction tax, provided that the REMIC Pool credits
or distributes in liquidation all of the sale proceeds plus its cash (other than
amounts retained to meet claims against the REMIC Pool) to holders of Regular
Securities and Residual Securityholders within the 90-day period.
Administrative Matters
The REMIC Pool will be required to maintain its books on a calendar
year basis and to file federal income tax returns for federal income tax
purposes in a manner similar to a partnership. The form for such income tax
return is Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return. Treasury regulations provide that, except where there is a single
Residual Securityholder for an entire taxable year, the REMIC Pool generally
will be subject to the procedural and administrative rules of the Code
applicable to partnerships, including the determination by the IRS of any
adjustments to, among other things, items of REMIC income, gain, loss, deduction
or credit in a unified administrative proceeding. Generally, the Company or the
Trustee will be obligated to act as "tax matters person," as defined in
applicable Treasury regulations, with respect to the REMIC Pool, in its capacity
as either Residual Securityholder or agent of the Residual Securityholders. If
the Code or applicable Treasury regulations do not permit the Company or the
Trustee to act as tax matters person in its capacity as agent of the Residual
Securityholders, the Residual Securityholder chosen by the Residual
Securityholders or such other person specified pursuant to Treasury regulations
will be required to act as tax matters person.
Treasury regulations provide that a holder of a Residual Security is
not required to treat items on its return consistently with their treatment on
the REMIC Pool's return if a holder owns 100% of the Residual Securities for the
entire calendar year. Otherwise, each holder of a Residual Security is required
to treat items on its return consistently with their treatment on the REMIC
Pool's return, unless the holder of a Residual Security either files a statement
identifying the inconsistency or establishes that the inconsistency resulted
from incorrect information received from the REMIC Pool. The IRS may assess a
deficiency resulting from a failure to comply with the consistency requirement
without instituting an administrative proceeding at the REMIC Pool level.
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LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
An investor who is an individual, estate or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such itemized deductions, in the aggregate, do not exceed
2% of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (I) 3% of the excess, if
any, of adjusted gross income over $121,200 for 1997 and adjusted yearly for
inflation ($60,600 for 1997 and adjusted yearly for inflation, in the case of a
married individual filing a separate return), or (ii) 80% of the amount of
itemized deductions otherwise allowable for such year. In the case of a REMIC
Pool, such deductions may include deductions under Code Section 212 for
servicing fees and all administrative and other expenses relating to the REMIC
Pool or any similar expenses allocated to the REMIC Pool with respect to a
regular interest it holds in another REMIC. Such investors who hold REMIC
Securities either directly or indirectly through certain pass-through entities
may have their pro rata share of such expenses allocated to them as additional
gross income, but may be subject to such limitation on deductions. In addition,
such expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Treasury regulations provide that the
additional gross income and corresponding amount of expenses generally are to be
allocated entirely to the holders of Residual Securities in the case of a REMIC
Pool that would not qualify as a fixed investment trust in the absence of a
REMIC election. However, such additional gross income and limitation on
deductions will apply to the allocable portion of such expenses to holders of
Regular Securities, as well as holders of Residual Securities, where such
Regular Securities are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. In general, such allocable portion
will be determined based on the ratio that a REMIC Securityholder's income,
determined on a daily basis, bears to the income of all holders of Regular
Securities and Residual Securities with respect to a REMIC Pool. As a result,
individuals, estates or trusts holding REMIC Securities (either directly or
indirectly through a grantor trust, partnership, S corporation, REMIC, or
certain other pass-through entities described in the foregoing Treasury
regulations) may have taxable income in excess of the interest income at the
pass-through rate or Bond interest rate on Regular Securities that are issued in
a single class or otherwise consistently with fixed investment trust status or
in excess of cash distributions for the related period on Residual Securities.
TAXATION OF CERTAIN FOREIGN INVESTORS
Regular Securities
Interest, including original issue discount, distributable to Regular
Securityholders who are nonresident aliens, foreign corporations, or other
Non-U.S. Persons (as defined below), will be considered "portfolio interest" and
therefore, generally will not be subject to 30% United States withholding tax,
provided that (I) such interest is not effectively connected with a trade or
business in the United States of the security holder and (ii) such Non-U.S.
Person provides the Trustee, or the person who would otherwise be required to
withhold tax from such distributions under Code Section 1441 or 1442, with an
appropriate statement, signed under penalties of perjury, identifying the
beneficial owner and stating, among other things, that the beneficial owner of
the Regular Security is a Non-U.S. Person. If such statement, or any other
required statement, is not provided, 30% withholding will apply unless reduced
or eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Security is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning a Regular
Security. The term "Non-U.S. Person" means any person who is not a U.S. Person.
Payments on Regular Securities may subject a Non-U.S. Person to U.S. federal
income and withholding tax where such foreign person also owns, actually or
constructively, Residual Securities issued by the same REMIC, notwithstanding
compliance with the certification requirements discussed above. After December
31, 1999, any foreign investor that seeks the protection of an income tax treaty
with respect to the imposition of United States withholding tax generally will
be required to obtain a taxpayer identification number from the IRS in advance
and provide verification that such investor is entitled to the protection of the
relevant income tax treaty. Foreign tax-exempt investors generally will be
required to provide verification of their tax-exempt status. Foreign investors
are urged to consult with their tax advisors with respect to those new
withholding rules.
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Residual Securities
The Committee Report indicates that amounts paid to Residual
Securityholders who are Non-U.S. Persons are treated as interest for purposes of
the 30% (or lower treaty rate) United States withholding tax. Treasury
regulations provide that amounts distributed to Residual Securityholders qualify
as "portfolio interest," subject to the conditions described in "Regular
Securities" above, but only to the extent that (I) the Mortgage Loans were
issued after July 18, 1984 and (ii) the Trust Fund, Trust Estate or segregated
pool of assets therein (as to which a separate REMIC election will be made), to
which the Residual Security relates, consists of obligations issued in
"registered form" within the meaning of Code Section 163(f)(1). Generally,
Mortgage Loans will not be, but certificated regular interests in another REMIC
Pool will be, considered obligations issued in registered form. Furthermore, a
Residual Securityholder will not be entitled to any exemption from the 30%
withholding tax (or lower treaty rate) to the extent of that portion of REMIC
taxable income that constitutes an "excess inclusion." See "Taxation of Residual
Securities -- Limitations on Offset or Exemption of REMIC Income; Excess
Inclusions." If the amounts paid to Residual Securityholders who are Non-U.S.
Persons are effectively connected with the conduct of a trade or business within
the United States by such Non-U.S. Persons, 30% (or lower treaty rate)
withholding will not apply. Instead, the amounts paid to such Non-U.S. Persons
will be subject to United States federal income tax at regular rates. If 30% (or
lower treaty rate) withholding is applicable, such amounts generally will be
taken into account for purposes of withholding only when paid or otherwise
distributed (or when the Residual Security is disposed of) under rules similar
to withholding upon disposition of debt instruments that have original issue
discount. See "Taxation of Residual Securities -- Tax-Related Restrictions on
Transfer of Residual Securities -- Foreign Investors" above concerning the
disregard of certain transfers having "tax avoidance potential." Investors who
are Non-U.S. Persons should consult their own tax advisors regarding the
specific tax consequences to them of owning Residual Securities.
BACKUP WITHHOLDING
Distributions made on the Regular Securities, and proceeds from the
sale of the Regular Securities to or through certain brokers, may be subject to
a "backup" withholding tax under Code Section 3406 of 31% on "reportable
payments" (including interest distributions, original issue discount, and, under
certain circumstances, principal distributions) unless the Regular
Securityholder complies with certain reporting and/or certification procedures,
including the provision of its taxpayer identification number to the Trustee,
its agent or the broker who effected the sale of the Regular Security, or such
Securityholder is otherwise an exempt recipient under applicable provisions of
the Code. Any amounts to be withheld from distribution on the Regular Securities
would be refunded by the IRS or allowed as a credit against the Regular
Securityholder's federal income tax liability.
REPORTING REQUIREMENTS
Reports of accrued interest and original issue discount will be made
annually to the IRS and to individuals, estates, non-exempt and non-charitable
trusts, and partnerships who are either holders of record of Regular Securities
or beneficial owners who own Regular Securities through a broker or middleman as
nominee. All brokers, nominees and all other non-exempt holders of record of
Regular Securities (including corporations, non-calendar year taxpayers,
securities or commodities dealers, real estate investment trusts, investment
companies, common trust funds, thrift institutions and charitable trusts) may
request such information for any calendar quarter by telephone or in writing by
contacting the person designated in IRS Publication 938 with respect to a
particular Series of Regular Securities. Holders through nominees must request
such information from the nominee. Treasury regulations provide that information
necessary to compute the accrual of any market discount on the Regular
Securities must also be furnished.
The IRS's Form 1066 has an accompanying Schedule Q, Quarterly Notice to
Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool to
each Residual Securityholder by the end of the month following the close of each
calendar quarter (41 days after the end of a quarter under proposed Treasury
regulations) in which the REMIC Pool is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual
Securityholders, furnished annually, if applicable, to holders of Regular
Securities, and filed
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annually with the IRS concerning Code Section 67 expenses (see "Limitations on
Deduction of Certain Expenses" above) allocable to such holders. Furthermore,
under such regulations, information must be furnished quarterly to Residual
Securityholders, furnished annually to holders of Regular Securities, and filed
annually with the IRS concerning the percentage of the REMIC Pool's assets
meeting the qualified asset tests described above under "Status of REMIC
Securities."
FEDERAL INCOME TAX CONSEQUENCES FOR SECURITIES AS TO
WHICH NO REMIC ELECTION IS MADE
NON-REMIC BONDS
With respect to each Series of Bonds for which the Issuer does not make
a REMIC election, ("Non-REMIC Bonds"), no regulations, published rulings, or
judicial decisions exist that discuss the characterization for federal income
tax purposes of securities with terms substantially the same as the Non-REMIC
Bonds. Counsel to the Company, however, will deliver their opinion that the
Non-REMIC Bonds will be treated for federal income tax purposes as indebtedness,
and not as an ownership interest in the Mortgage Assets, or as an equity
interest in the Issuer or in a separate association taxable as a corporation.
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of Non-REMIC Bonds, to
the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of counsel to the Company, subject to any
qualifications set forth herein. In addition, counsel to the Company has
prepared or reviewed the statements in this Prospectus under the heading
"Certain Federal Income Tax Consequences - Federal Income Tax Consequences for
Securities as to Which No REMIC Election Is Made - Non-REMIC Bonds," and is of
the opinion that such statements are correct in all material respects. Such
statements do not purport to furnish information in the level of detail or with
the attention to an investor's specific tax circumstances that would be provided
by an investor's own tax advisor. Accordingly, each investor is advised to
consult its own tax advisors with regard to the tax consequences to it of
investing in Non-REMIC Bonds.
For federal income tax purposes, (I) Non-REMIC Bonds held by a thrift
institution taxed as a "mutual savings bank" or "domestic building and loan
association" will not represent interests in "qualifying real property loans"
within the meaning of Code Section 593(d)(1); (ii) Non-REMIC Bonds held by a
thrift institution taxed as a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v); (iii) interest on Non-REMIC Bonds
held by a real estate investment trust will not be treated as "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(3)(B); (iv) Non-REMIC Bonds
held by a real estate investment trust will not constitute "real estate assets"
or "Government securities" within the meaning of Code Section 856(c)(4)(A); and
(v) Non-REMIC Bonds held by a regulated investment company will not constitute
"Government securities" within the meaning of Code Section 851(b)(4)(A)(I).
Non-REMIC Bonds will be subject to the same rules of taxation as
Regular Securities issued by a REMIC, as described above, except that (I) income
reportable on Non-REMIC Bonds is not required to be reported under the accrual
method unless the Holder otherwise uses the accrual method and (ii) the special
rule treating a portion of the gain on sale or exchange of a Regular Security as
ordinary income is not applicable to Non-REMIC Bonds.
TAXABLE MORTGAGE POOLS
Corporate income tax can be imposed on the net income of certain
entities issuing non-REMIC debt obligations secured by real estate mortgages
("Taxable Mortgage Pools"). Any entity other than a REMIC, a FASIT or a REIT
will be considered to be a Taxable Mortgage Pool if (I) substantially all of the
assets of the entity consist of debt obligations and more than 50% of such
obligations consist of real estate mortgages, (ii) such entity is the obligor
under debt obligations with two or more maturities, and (iii) under the terms of
the debt obligations on which the entity is obligor, payments on such
obligations bear a relationship to payment on the obligations held by the
entity. Furthermore, a group of assets held by an entity can be treated as a
separate Taxable Mortgage Pool if the assets are expected to produce
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significant cash flow that will support one or more of the entity's issues of
debt obligations. The Depositor generally will structure offerings of non-REMIC
Bonds to avoid the application of the Taxable Mortgage Pool rules.
STANDARD CERTIFICATES
General
With respect to a Series of Certificates issued under an Agreement for
which no election is made to treat the related Trust Fund (or a segregated pool
of assets therein) as a REMIC, counsel to the Company will deliver its opinion
to the effect that, assuming compliance with all provisions of the related
Agreement, the related Trust Fund will be classified as a grantor trust under
subpart E, Part 1 of subchapter J of Chapter 1 of Subtitle A of the Code and not
as an association taxable as a corporation. The following general discussion of
the anticipated federal income tax consequences of the purchase, ownership and
disposition of Standard Certificates, to the extent it relates to matters of law
or legal conclusions with respect thereto, represents the opinion of counsel to
the Company, subject to any qualifications set forth herein. In addition,
counsel to the Company has prepared or reviewed the statements in this
Prospectus under the heading "Certain Federal Income Tax Consequences - Federal
Income Tax Consequences for Securities as to Which No REMIC Election is Made -
Standard Certificates," and is of the opinion that such statements are correct
in all material respects. Such statements are intended as an explanatory
discussion of the possible effects of the classification of any Trust Fund as a
grantor trust for federal income tax purposes on investors generally and of
related tax matters affecting investors generally, but do not purport to furnish
information in the level of detail or with the attention to an investor's
specific tax circumstances that would be provided by an investor's own tax
advisor. Accordingly, each investor is advised to consult its own tax advisors
with regard to the tax consequences to it of investing in Standard Certificates.
Where there is no fixed retained yield with respect to the Mortgage Loans
underlying the Certificates of such a Series, and where such Certificates are
not designated as "Stripped Securities," the holder of each such Certificates in
such Series will be treated as the owner of a pro rata undivided interest in the
ordinary income and corpus portions of the Trust Fund represented by his
Certificate and will be considered the beneficial owner of a pro rata undivided
interest in each of the Mortgage Loans, subject to the discussion below under
"Premium and Discount -- Recharacterization of Servicing Fees." Accordingly, the
holder of a Certificate of a particular Series will be required to report on its
federal income tax return its pro rata share of the entire income from the
Mortgage Loans represented by its Certificate, including interest at the coupon
rate on such Mortgage Loans, original issue discount (if any), prepayment fees,
assumption fees, and late payment charges received by the Company or another
service provider, in accordance with such Certificateholder's method of
accounting. A Certificateholder generally will be able to deduct its share of
servicing fees and all administrative and other expenses of the Trust Fund in
accordance with his method of accounting, provided that such amounts are
reasonable compensation for services rendered to that Trust Fund. However,
investors who are individuals, estates or trusts who own Certificates, either
directly or indirectly through certain pass-through entities, will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, including deductions under Code Section 212 for servicing fees and all such
administrative and other expenses of the Trust Fund, to the extent that such
deductions, in the aggregate, do not exceed two percent of an investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the lesser of (I) 3% of the excess, if any, of adjusted gross
income over $121,200 for 1997, adjusted yearly for inflation ($60,600 for 1997,
adjusted yearly for inflation, in the case of a married individual filing a
separate return), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result such investors holding Certificates,
directly or indirectly through a pass-through entity, may have aggregate taxable
income in excess of the aggregate amount of cash received on such Certificates
with respect to interest at the pass-through rate on such Certificates or
discount thereon. In addition, such expenses are not deductible at all for
purposes of computing the alternative minimum tax, and may cause such investors
to be subject to significant additional tax liability. Moreover, where there is
fixed retained yield with respect to the Mortgage Loans underlying a Series of
Certificates or where the servicing fees are in excess of reasonable servicing
compensation, the transaction will be subject to the application of the
"stripped bond" and "stripped coupon" rules of the Code, as described below
under "Stripped Certificates" and "Premium and Discount -- Recharacterization of
Servicing Fees," respectively.
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Tax Status
Unless otherwise described in the related Prospectus Supplement,
Certificates described under this subsection "Standard Certificates" generally
will be treated as follows:
1. A Certificate owned by a "domestic building and loan association"
within the meaning of Code Section 7701(a)(19) will be considered to represent
"loans . . . secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Certificate is of the type described in such section
of the Code.
2. A Certificate owned by a real estate investment trust will be
considered to represent "real estate assets" within the meaning of Code Section
856(c)(4)(A) to the extent that the assets of the related Trust Fund consist of
qualified assets, and interest income on such assets will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B).
3. A Certificate owned by a REMIC will be considered to represent an
"obligation (including any participation or certificate of beneficial ownership
therein) which is principally secured by an interest in real property" within
the meaning of Code Section 860G(a)(3)(A) to the extent that the assets of the
related Trust Fund consist of "qualified mortgages" within the meaning of Code
Section 860G(a)(3).
Premium and Discount
Certificateholders are advised to consult with their tax advisors as to
the federal income tax treatment of premium and discount arising either upon
initial acquisition of Certificates or thereafter.
Premium. The treatment of premium incurred upon the purchase of a
Certificate will be determined generally as described above under "Federal
Income Tax Consequences for REMIC Securities -- Taxation of Residual Securities
- -- Treatment of Certain Items of REMIC Income and Expense -- Premium."
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the original issue discount
rules will be applicable to a Certificateholder's interest in those Mortgage
Loans as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969, mortgages
of noncorporate mortgagors (other than individuals) originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Such original
issue discount could arise by the charging of points by the originator of the
mortgages in an amount greater than a statutory de minimis exception, to the
extent that the points are not for services provided by the lender. It is
generally not anticipated that adjustable rate Mortgage Loans will be treated as
issued with original issue discount. However, the application of the OID
Regulations to adjustable rate mortgage loans with incentive interest rates or
annual or lifetime interest rate caps may result in original issue discount.
Original issue discount must generally be reported as ordinary gross
income as it accrues under a constant yield method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
However, Code Section 1272 provides for a reduction in the amount of original
issue discount includible in the income of a holder of an obligation that
acquires the obligation after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued original issue
discount, less prior payments of principal. Accordingly, if such Mortgage Loans
acquired by a Certificateholder are purchased at a price equal to the then
unpaid principal amount of such Mortgage Loans, no original issue discount
attributable to the difference between the issue price and the original
principal amount of such Mortgage Loans (i.e., points) will be includible by
such holder.
Market Discount. Certificateholders also will be subject to the market
discount rules to the extent that the conditions for application of those
sections are met. Market discount on the Mortgage Loans will be determined and
will be reported as ordinary income generally in the manner described above
under "Federal Income Tax Consequences
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<PAGE> 510
for REMIC Securities -- Taxation of Residual Securities -- Treatment of Certain
Items of REMIC Income and Expense --Market Discount."
Recharacterization of Servicing Fees. If the servicing fees paid to
Servicers were deemed to exceed reasonable servicing compensation, the amount of
such excess would be nondeductible under Code Section 162 or 212. In this
regard, there are no authoritative guidelines for federal income tax purposes as
to either the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions or whether, in the
case of the Certificates, the reasonableness of servicing compensation should be
determined on a weighted average or loan-by-loan basis. If a loan-by-loan basis
is appropriate, the likelihood that such amount would exceed reasonable
servicing compensation as to some of the Mortgage Loans would be increased.
Recently issued IRS guidance indicates that a servicing fee in excess of
reasonable compensation ("excess servicing") will cause the Mortgage Loans to be
treated under the "stripped bond" rules. Such guidance provides safe harbors for
servicing deemed to be reasonable and requires taxpayers to demonstrate that the
value of servicing fees in excess of such amounts is not greater than the value
of the services provided.
Accordingly, if the IRS's approach is upheld, a servicer that receives
a servicing fee in excess of such amounts would be viewed as retaining an
ownership interest in a portion of the interest payments on the Mortgage Loans.
Under the rules of Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from the right
to receive some or all of the principal payments on the obligation would result
in treatment of such Mortgage Loans as "stripped coupons" and "stripped bonds."
While Certificateholders would still be treated as owners of beneficial
interests in a grantor trust for federal income tax purposes, the corpus of such
trust could be viewed as excluding the portion of the Mortgage Loans the
ownership of which is attributed to a servicer, or as including such portion as
a second class of equitable interest. Applicable Treasury regulations treat such
an arrangement as a fixed investment trust, since the multiple classes of trust
interests should be treated as merely facilitating direct investments in the
trust assets and the existence of multiple classes of ownership interests is
incidental to that purpose. In general, such a recharacterization should not
have any significant effect upon the timing or amount of income reported by a
Certificateholder, except that the income reported by a cash method holder may
be slightly accelerated. See "Stripped Certificates" below for a further
description of the federal income tax treatment of stripped bonds and stripped
coupons.
In the alternative, the amount, if any, by which the servicing fees
paid to the servicers are deemed to exceed reasonable compensation for servicing
could be treated as deferred payments of purchase price by the
Certificateholders to purchase an undivided interest in the Mortgage Loans. In
such event, the present value of such additional payments might be included in
the Certificateholder's basis in such undivided interests for purposes of
determining whether the Certificate was acquired at a discount, at par, or at a
premium. Under this alternative, Certificateholders may also be entitled to a
deduction for unstated interest with respect to each deferred payment. The
Internal Revenue Service may take the position that the specific statutory
provisions of Code Section 1286 described above override the alternative
described in this paragraph. Certificateholders are advised to consult their tax
advisors as to the proper treatment of the amounts paid to the servicers as set
forth herein as servicing compensation or under either of the alternatives set
forth above.
Sale or Exchange of Certificates
Upon sale or exchange of a Certificate, a Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its aggregate adjusted basis in the Mortgage Loans and other assets
represented by the Certificate. In general, the aggregate adjusted basis will
equal the Certificateholder's cost for the Certificate, increased by the amount
of any income previously reported with respect to the Certificate and decreased
by the amount of any losses previously reported with respect to the Certificate
and the amount of any distributions received thereon. Except as provided above
with respect to original issue discount and market discount on any Mortgage
Loans, and except for certain financial institutions subject to the provisions
of Code Section 582(c), any such gain or loss generally would be capital gain or
loss if the Certificate was held as a capital asset.
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STRIPPED CERTIFICATES
General
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of Stripped
Certificates, to the extent it relates to matters of law or legal conclusions
with respect thereto, represents the opinion of counsel to the Company, subject
to any qualifications set forth herein. In addition, counsel to the Company has
prepared or reviewed the statements in this Prospectus under the heading
"Certain Federal Income Tax Consequences - Federal Income Tax Consequences for
Securities as to Which No REMIC Election is Made - Stripped Certificates," and
is of the opinion that such statements are correct in all material respects.
Such statements are intended as an explanatory discussion of the possible
effects of the classification of any Trust Fund as a grantor trust for federal
income tax purposes on investors generally and of related tax matters affecting
investors generally, but do not purport to furnish information in the level of
detail or with the attention to an investor's specific tax circumstances that
would be provided by an investor's own tax advisor. Accordingly, each investor
is advised to consult its own tax advisors with regard to the tax consequences
to it of investing in Stripped Certificates.
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the principal payments on an obligation from ownership
of the right to receive some or all of the interest payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of this discussion,
Certificates for which no REMIC election is made and that are subject to those
rules will be referred to as "Stripped Certificates." The Certificates will be
subject to those rules if (i) the Company or any of its affiliates retains (for
its own account or for purposes of resale), in the form of fixed retained yield
or otherwise, an ownership interest in a portion of the payments on the Mortgage
Loans, (ii) the Company, any of its affiliates or a servicer is treated as
having an ownership interest in the Mortgage Loans to the extent it is paid (or
retains) servicing compensation in an amount greater than reasonable
consideration for servicing the Mortgage Loans (see "Standard Certificates --
Premium and Discount -- Recharacterization of the Servicing Fees" above) or
(iii) Classes of Certificates are issued in two or more Classes or subclasses
representing the right to non-pro-rata percentages of the interest and principal
payments on the Mortgage Loans.
In general, a holder of a Stripped Certificate will be considered to
own "stripped bonds" with respect to its pro rata share of all or a portion of
the principal payments on each Mortgage Loan and/or "stripped coupons" with
respect to its pro rata share of all or a portion of the interest payments on
each Mortgage Loan, including the Stripped Certificate's allocable share of the
servicing fees paid, to the extent that such fees represent reasonable
compensation for services rendered. See discussion above under "Standard
Certificates -- Premium and Discount -- Recharacterization of Servicing Fees."
For this purpose the servicing fees will be allocated to the Stripped
Certificates in proportion to the respective offering price of each class (or
subclass) of Stripped Certificates. The holder of a Stripped Certificate
generally will be entitled to a deduction each year in respect of the servicing
fees, as described above under "Standard Certificates -- General," subject to
the limitation described therein.
Code Section 1286 treats a stripped bond or a stripped coupon generally
as a new obligation issued (i) on the date that the stripped interest is
purchased and (ii) at a price equal to its purchase price or, if more than one
stripped interest is purchased, the share of the purchase price allocable to
such stripped interest. Each stripped interest generally will have original
issue discount equal to the excess of its stated redemption price at maturity
(or, in the case of a stripped coupon, the amount payable on the due date of
such coupon) over its issue price. Although the treatment of Stripped
Certificates for federal income tax purposes is not clear in certain respects at
this time, particularly where such Stripped Certificates are issued with respect
to a Trust Fund containing variable-rate Mortgage Loans. Each Stripped
Certificate should be treated as a single installment obligation for purposes of
calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286 and the
regulations thereunder, Code Sections 1272 through 1275, and the OID
Regulations. While under Code Section 1286 computations with respect to Stripped
Certificates arguably should be made in one of the ways described below under
"Taxation of Stripped Certificates -- Possible Alternative Characterizations,"
the OID Regulations state, in general, that all debt instruments issued in
connection with the same transaction must be treated as a single debt
instrument. The Trustee will make and report all computations described below
using this aggregate approach, unless substantial legal authority requires
otherwise.
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<PAGE> 512
Furthermore, Treasury regulations support the treatment of a Stripped
Certificate as a single debt instrument issued on the date it is originated for
purposes of calculating any original issue discount. The preamble to such
regulations states that such regulations are premised on the assumption that an
aggregation approach is appropriate in determining whether original issue
discount on a stripped bond or stripped coupon is de minimis. In addition, under
these regulations, a Stripped Certificate that represents a right to payments of
both interest and principal may be viewed either as issued with original issue
discount or market discount (as described below), at a de minimis original issue
discount, or, presumably, at a premium. The preamble to such regulations also
provide that such regulations are premised on the assumption that generally the
interest component of such a Stripped Certificate would be treated as stated
interest under the OID Regulations.
Status of Stripped Certificates
Even if Stripped Certificates evidence an interest in a Trust Fund
consisting of Mortgage Loans that are "real estate assets" within the meaning of
Code Section 856(c)(A), and "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v), and the interest
(including original issue discount) income on which is an "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), it is unclear whether the Stripped Certificates, and the
income therefrom, will be so characterized. However, the policies underlying
such sections (namely, to encourage or require investments in mortgage loans by
thrift institutions and real estate investment trusts) may suggest that such
characterization is appropriate. Counsel to the Company will not deliver any
opinion on these questions. Prospective purchasers to which such
characterization of an investment in Stripped Certificates in material should
consult their tax advisors regarding whether the Stripped Certificates, and the
income therefrom, will be so characterized.
The Stripped Certificates will be "obligations] (including any
participation or Certificate of beneficial ownership therein) which . . . [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation of Stripped Certificates
Original Issue Discount. Except as described above under "General,"
each Stripped Certificate will be considered to have been issued (i) on the date
that the stripped interest is purchased and (ii) at a price equal to its
purchase price or, if more than one stripped interest is purchased, the share of
the purchase price allocable to such stripped interest. Each stripped interest
generally will have original issue discount equal to the excess of its stated
redemption price at maturity (or, in the case of a stripped coupon, the amount
payable on the due date of such coupon) over its issue price. Original issue
discount with respect to a Stripped Certificate must be included in ordinary
income as it accrues, in accordance with a constant yield method that takes into
account the compounding of interest, which may be prior to the receipt of the
cash attributable to such income. Based in part on the OID Regulations and the
amendments to the original issue discount sections of the Code made by the 1986
Act, it appears that the amount of original issue discount required to be
included in the income of a holder of a Stripped Certificate (referred to in
this discussion as a "Stripped Certificateholder") in any taxable year likely
will be computed generally as described above under "Federal Income Tax
Consequences for REMIC Securities -- Taxation of Regular Securities -- Original
Issue Discount." However, with the apparent exception of a Stripped Certificate
issued with de minimis original issue discount, as described above under
"General," the issue price of a Stripped Certificate will be the purchase price
paid by each holder thereof, and the stated redemption price at maturity will
include the aggregate amount of the payments to be made on the Stripped
Certificate to such Stripped Certificateholder, presumable under the Prepayment
Assumption, other than amounts treated as qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than
that under the Prepayment Assumption, a Stripped Certificateholder's recognition
of original issue discount will be either accelerated or decelerated and the
amount of such original issue discount will be either increased or decreased
depending on the relative interests in principal and interest on each Mortgage
Loan represented by such Stripped Certificateholder's Stripped Certificate.
While the matter is not free from doubt, the holder of a Stripped Certificate
should be entitled in the year that it becomes
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certain (assuming no further prepayments) that the holder will not recover a
portion of its adjusted basis in such Stripped Certificate to recognize an
ordinary loss equal to such portion of unrecoverable basis.
Possible Alternative Characterizations. As an alternative to the method
described above, the fact that some or all of the interest payments with respect
to the Stripped Certificates will not be made if the Mortgage Loans are prepaid
could lead to the interpretation that such interest payments are "contingent"
within the meaning of the OID Regulations. Under the rules of the OID
Regulations relating to contingent payments, a projected payment schedule for
the Stripped Certificates would be constructed by the Company. Interest accrual
and adjustments relating to the Stripped Certificates would be determined under
the general rules of the noncontingent bond method described above.
While not free from doubt, counsel for the Company believes that uncertainty as
to the payment of interest arising as a result of the possibility of prepayment
of the Mortgage Loans should not cause the contingent payment rules under the
OID Regulations to apply to interest with respect to the Stripped Certificates.
Sale or Exchange of Stripped Certificates. Sale or exchange of a
Stripped Certificate prior to its maturity will result in gain or loss equal to
the difference, if any, between the amount received and the Stripped
Certificateholder's adjusted basis in such Stripped Certificate, as described
above under "Federal Income Tax Consequences for REMIC Securities -- Taxation of
Regular Securities -- Sale or Exchange of Regular Securities." To the extent
that a subsequent purchaser's purchase price is exceeded by the remaining
payments on the Stripped Certificates, such subsequent purchaser will be
required for federal income tax purposes to accrue and report such excess as if
it were original issue discount in the manner described above. It is not clear
for this purpose whether the assumed prepayment rate that is to be used in the
case of a Stripped Certificateholder other than original Stripped
Certificateholder should be the Prepayment Assumption or a new rate based on the
circumstances at the date of subsequent purchase.
Purchase of Complementary Classes of Stripped Certificates. Stripped
Certificates of certain Classes of the same Series ("Complementary
Certificates"), when held in combination, may provide an aggregate economic
effect equivalent to that of a pass-through security based upon the same assets
in the Trust. When an investor purchases Complementary Certificates, it appears
that, for federal income tax purposes, each Certificate should be treated
separately and should be subject to the rules described above. The IRS could
assert, however, that Complementary Certificates held in combination should be
treated as a single pass-through type instrument, with the result that the rules
governing stripped bonds and stripped coupons under Section 1286 of the Code
would not be applied. Consequently, investors who acquire Complementary
Certificates should consult their own tax advisors as to the proper treatment of
such Certificates.
Because of these possible varying characterizations of Stripped
Certificates and the resultant differing treatment of income recognition,
Stripped Certificateholders are urged to consult their own tax advisors
regarding the proper treatment of Stripped Certificates for federal income tax
purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
The Trustee will furnish, within a reasonable time after the end of
each calendar year, to each Certificateholder or Stripped Certificateholder at
any time during such year, such information (prepared on the basis described
above) as the Trustee deems to be necessary or desirable to enable such
Certificateholders to prepare their federal income tax returns. Such information
will include the amount of original issue discount accrued on Certificates held
by persons other than Certificateholders exempted from the reporting
requirements. The amounts required to be reported by the Trustee may not be
equal to the proper amount of original issue discount required to be reported as
taxable income by a Certificateholder, other than an original Certificateholder.
The Trustee will also file such original issue discount information with the
IRS. If a Certificateholder fails to supply an accurate taxpayer identification
number or if the Secretary of the Treasury determines that a Certificateholder
has not reported all interest and dividend income required to be shown on his
federal income tax return, 31% backup withholding may be required in respect of
any reportable payments, as described above under "Federal Income Tax
Consequences for REMIC Securities -- Backup Withholding."
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TAXATION OF CERTAIN FOREIGN INVESTORS
To the extent that a Certificate evidences ownership in Mortgage Loans
that are issued on or before July 18, 1984, interest or original issue discount
paid by the person required to withhold tax under Code Section 1441 or 1442 to
nonresident aliens, foreign corporations, or other Non-U.S. Persons generally
will be subject to 30% United States withholding tax, or such lower rate as may
be provided for interest by an applicable tax treaty. Accrued original issue
discount recognized by the Certificateholder on the sale or exchange of such a
Certificate also will be subject to federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount
paid by the Trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements described above under "Federal
Income Tax Consequences for REMIC Securities -- Taxation of Certain Foreign
Investors -- Regular Securities."
PLAN OF DISTRIBUTION
Certificates are being offered hereby in series through one or more
underwriters or groups of underwriters (the "Underwriters"). The related
Prospectus Supplement will set forth the terms of offering of a Series of
Securities, including the public offering or purchase price of each Class of
Securities of such Series being offered thereby or the method by which such
price will be determined and the net proceeds to the Issuer (in the case of a
Series of Bonds) or to the Company (in the case of a Series of Certificates)
from the sale of each such Class. Such Securities will be acquired by the
Underwriters for their own account and may be resold from time to time in one or
more transactions including negotiated transactions, at fixed public offering
prices or at varying prices to be determined at the time of sale or at the time
of commitment therefor. The managing Underwriter or Underwriters with respect to
the offer and sale of a particular Series of Securities will be set forth on the
cover of the Prospectus Supplement relating to such Series and the members of
the underwriting syndicate, if any, will be named in such Prospectus Supplement.
In connection with the Sale of the Securities, Underwriters may receive
compensation from the related Issuer or the Company or from purchasers of the
Securities in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Securities may be deemed to
be Underwriters in connection with such Certificates, and any discounts or
commissions received by them from the related Issuer or the Company and any
profit on the resale of Securities by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended. The
Prospectus Supplement will describe any such compensation paid by the related
Issuer or the Company.
It is anticipated that the underwriting agreement pertaining to the
sale of any Series of Securities will provide that the obligations of the
Underwriters will be subject to certain conditions precedent, that the
Underwriters will be obligated to purchase all such Securities if any are
purchased and that the related Issuer or the Company will indemnify the
underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
LEGAL MATTERS
The legality of the Securities and certain federal income tax matters
will be passed upon for the Company by Andrews & Kurth L.L.P., Dallas, Texas.
FINANCIAL INFORMATION AND ADDITIONAL INFORMATION
A new Trust will be formed with respect to each Series of Certificates
and, unless otherwise specified in the Prospectus Supplement, a new Owner Trust
will be formed with respect to each Series of Bonds issued by an Owner Trust.
Unless otherwise specified in the Prospectus Supplement for a Series of
Securities, no Trust will engage in any business activities or have any assets
or obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust will be included
in this Prospectus or in the related Prospectus Supplement.
- 122 -
<PAGE> 515
Copies of the Registration Statement to which this Prospectus forms a
part and the exhibits thereto are on file at the offices of the Securities and
Exchange Commission in Washington, D.C., and may be obtained at rates prescribed
by the Commission upon request to the Commission and inspected, without charge,
at the offices of the Commission.
Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMC's Information Statement and most recent Supplement thereto and any
quarterly report made available by FHLMC can be obtained in writing or calling
FHLMC's Investor Relations Department at 8200 Jones Branch Drive, McLean,
Virginia 22102 (800-336-FMPC). The Company did not participate in the
preparation of FHLMC's Offering Circular, Information Statement or any
Supplement thereto or any such quarterly report.
Copies of FNMA's most recent Prospectus for FNMA Certificates and
FNMA's annual report and quarterly financial statements as well as other
financial information are available from the Vice President for Investor
Relations of FNMA, 3900 Wisconsin Avenue, N.W., Washington, D.C. 20016
(202-752-7585). The Company did not participate in the preparation of FNMA's
Prospectus or any such report, financial statement or other financial
information.
EXPERTS
The financial statements incorporated in this prospectus by reference
from the Company's Annual Report (Form 10-K) for the year ended December 31,
1997, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is incorporated herein by reference and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
- 123 -
<PAGE> 516
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS AND PROSPECTUS
SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS OR
PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR PROSPECTUS SUPPLEMENT, NOR
ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Table of Contents.................................... S- 1
Summary of Terms..................................... S- 2
Risk Factors......................................... S-14
Description of the Certificates...................... S-15
Description of the Pooled Certificates............... S-19
Yield and Prepayment Considerations.................. S-28
Pooling Agreement.................................... S-35
Federal Income Tax Considerations.................... S-38
ERISA Considerations................................. S-40
Legal Investment..................................... S-41
Underwriting......................................... S-41
Legal Matters........................................ S-42
Ratings.............................................. S-42
Index of Terms....................................... S-43
Annex 1
Annex 2
PROSPECTUS
Prospectus Supplement and Current Report on Form
8-K................................................ 3
Available Information................................ 4
Incorporation of Certain Documents by Reference...... 4
Table of Contents.................................... 5
Index of Principal Terms............................. 9
Summary of Prospectus................................ 13
Risk Factors......................................... 28
Description of the Securities........................ 37
Assets Securing or Underlying the Securities......... 44
Credit Enhancement................................... 57
Servicing of the Mortgage Loans, Multifamily Loans
and Contracts...................................... 61
The Indenture........................................ 69
The Pooling Agreement and Deposit Trust Agreement.... 71
Use of Proceeds...................................... 79
The Issuer........................................... 79
The Trustee.......................................... 81
Certain Legal Aspects of the Mortgage Assets......... 81
Legal Investment Matters............................. 95
ERISA Considerations................................. 95
Certain Federal Income Tax Consequences.............. 97
Plan of Distribution................................. 122
Legal Matters........................................ 122
Financial Information and Additional Information..... 122
Experts.............................................. 123
</TABLE>
Until September 24, 1998, all dealers effecting transactions in the
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus Supplement and the Prospectus to which it relates. This
is an addition to the obligation of dealers to deliver a Prospectus Supplement
and Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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$50,703,106
(APPROXIMATE)
FAIC II
PASS-THROUGH CERTIFICATES
SERIES 1998-B
FUND AMERICA
INVESTORS CORPORATION II
ISSUER
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PROSPECTUS SUPPLEMENT
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BEAR, STEARNS & CO. INC.
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JUNE 26, 1998
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