SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
     
                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of

                       The Securities Exchange Act of 1934


For the fiscal year ended                                       Commission file
    December 31, 1998                                            number 1-12151


                       CHASE PREFERRED CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

           DELAWARE                                              13-3899576
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

    270 Park Avenue, New York, N.Y.                                 10017
(Address of principal executive offices)                          (Zip Code)

       Registrant's telephone number, including area code: (212) 270-6000

           Securities registered pursuant to Section 12(b) of the Act:


                                                      Name of Each Exchange on
   Title of Each Class                                    which Registered    
-------------------------                             ------------------------

8.10% Cumulative Preferred Stock, Series A 
     (Par Value --$25 Per Share)                   New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g)
      of the Act: None

Number of Shares of Common Stock outstanding on 
     December 31, 1998: 1

      Indicate by check mark whether the
Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter
period that the Registrant was required to
file such reports), and (2) has been subject
to such filing requirements for the past 90
days. Yes |X| No |_|

      Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and
will not be contained, to the best of
Registrant's knowledge, in definitive proxy
or information statements incorporated by
reference in Part III of this Form 10-K or
any amendment to this Form 10-K. |X|

      All outstanding shares of Common Stock were held
by The Chase Manhattan Bank at December 31, 1998;
therefore, no Common Stock is held by nonaffiliates.

Document incorporated by reference                         Part of Form 10-K
     in this Form 10-K                                     which incorporated
----------------------------------                        ---------------------
            None

<PAGE>


FORM 10-K

PART I                                                                PAGE
------                                                                ----

Item 1    Business.................................................     1
Item 2    Properties...............................................     4
Item 3    Legal Proceedings........................................     4
Item 4    Submission of Matters to a Vote of Security Holders......     5


Part II
-------
Item 5    Market for Registrant's Common Equity and Related 
          Stockholder Matters......................................     5

Item 6    Selected Financial Data..................................     6
Item 7    Management's Discussion and Analysis of Financial 
               Condition and Results of Operations.................     7
Item 7A   Quantitative and Qualitative Disclosures Regarding 
               Market Risk.........................................    12

Item 8    Financial Statements and Supplementary Data..............    13
Item 9    Changes in and Disagreements with Accountants on 
               Accounting and Financial Disclosure.................    25

Part III
--------
Item 10   Directors and Executive Officers of the Corporation......    25
Item 11   Executive Compensation...................................    26
Item 12   Security Ownership of Certain Beneficial Owners and 
               Management..........................................    26
Item 13   Certain Relationships and Related Transactions...........    26

Part IV
-------
Item 14   Exhibits, Financial Statement Schedules and Reports 
               on Form 8-K.........................................    26


<PAGE>


ITEM 1: BUSINESS 
-----------------

Chase Preferred Capital Corporation (the "Company") is a Delaware corporation
and a wholly-owned subsidiary of The Chase Manhattan Bank (the "Bank"), a
banking corporation organized under the laws of the State of New York.

The Company began operating in 1996, upon completion of an initial public
offering of 22,000,000 shares of its 8.10% Cumulative Preferred Stock, Series A,
$25 par value per share (the "Series A Preferred Shares"), which are currently
traded on the New York Stock Exchange. The Company used the net proceeds of that
offering (after payment of offering expenses), together with capital invested by
the Bank, to purchase a portfolio of residential and commercial mortgage loans
("Mortgage Loans").

The Company's principal business objective is to acquire, hold and manage
Mortgage Loans that will generate net income for distribution to stockholders.
The Company's initial portfolio of Mortgage Loans was 90% residential and 10%
commercial. Over time, as commercial mortgage loans have matured or prepaid,
they have been replaced with residential mortgage loans. Currently, 92.4% of the
Company's portfolio is comprised of residential mortgage loans, with the balance
consisting of commercial mortgage loans, and, as commercial loans continue to
prepay or mature, the proportion of the Company's portfolio consisting of
residential mortgage loans is expected to increase. The Company's residential
mortgage loans consist of the following: 
o     six-month prime rate adjustable rate mortgages ("ARMs");
o     six-month treasury ARMs;
o     three-year fixed rate loans with an automatic conversion to six-month and
      three-year ARMs;
o     one, three, five, seven and ten-year fixed rate loans with an automatic
      conversion to one-year ARMs; and
o     fixed rate loans. 
The Company's commercial mortgage loans consist of fixed and variable rate
loans, a majority of which have balloon payments.

The Company currently anticipates that it will continue to acquire all its
Mortgage Loans from the Bank, or affiliates of the Bank, as whole loans secured
by first mortgages or deeds of trust on single-family (one to four-unit)
residential real estate properties or on commercial real estate properties on
terms substantially identical to those the Company could obtain from
unaffiliated third parties. The Company may also from time to time acquire
securities that qualify as real estate assets under Section 856(c)(6)(B) of the
Internal Revenue Code of 1986 (the "Code") that are rated by at least one
nationally recognized statistical rating organization and that represent
interests in or obligations backed by pools of mortgage loans ("Mortgage-Backed
Securities"). Mortgage loans underlying the Mortgaged-Backed Securities will be
secured by single-family residential, multifamily or commercial real estate
properties located in the United States.

The Company does not anticipate that it will originate Mortgage Loans or compete
with mortgage conduit programs, investment banking firms, savings and loan
associations, banks, thrift and loan associations, finance companies, mortgage
banks or insurance companies in acquiring its Mortgage Loans.

In order to preserve its status as a real estate investment trust ("REIT") under
the Code, the Company must distribute annually at least 95% of its "REIT taxable
income" (excluding capital gains) to stockholders and meet certain capital
ownership and administrative tests as defined by the Code. The Company must also
annually satisfy three gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (as interest on
obligations secured by mortgages on real property, certain "rents from real
property" or as gain on the sale or exchange of such property and certain fees
with respect to agreements to make or acquire mortgage loans), from certain
types of temporary investments or certain other types of gross income. Second,
at least 95% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must be derived from such real
property investments as aforesaid and from dividends, interest, and gain from
the sale or other disposition of stock or securities and certain other types of
gross income (or from any combination of the foregoing). Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions, and gain on the sale or other disposition of real property held
for less than four years from the date of acquisition (apart from involuntary
conversions and sales of foreclosure property), must represent less than 30% of
the Company's gross income (including gross income from prohibited transactions)
for each taxable year. The Company must also satisfy three tests relating to the
nature of its assets at the close of each quarter of each taxable year. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets (including stock or debt instruments held for not more than
one year that were purchased with the proceeds of a stock offering or long-term
(at least five years) debt offering of the Company), cash, cash items, and
government securities. Second, not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class. Third,
of the investments included in the 25% asset class,


                                       -1-
<PAGE>

the value of any one issuer's securities owned by the Company may not exceed 5%
of the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities.

The Company has entered into an Advisory Agreement (the "Agreement") with the
Bank (the "Advisor"). In administering the Company's Mortgage Loans, the Advisor
has a high degree of autonomy. The Board of Directors, however, has adopted
certain policies to guide the administration of the Company and the Advisor with
respect to the acquisition and disposition of assets, use of capital and
leverage, credit risk management and certain other activities. These policies
may be amended or revised from time to time at the discretion of the Board of
Directors (in certain circumstances subject to the approval of a majority of the
Independent Directors (as defined below)) without a vote of the Company's
stockholders, including holders of the Series A Preferred Shares.

The Mortgage Loans have been sold to the Company by the Bank on a servicing
retained basis. The Bank services the Mortgage Loans pursuant to the terms of
servicing agreements ("Servicing Agreements") between the Company and the Bank.
(The Bank in its role as servicer under the terms of the servicing agreements is
herein referred to as the "Servicer"). The Servicer receives an annual servicing
fee with respect to each Mortgage Loan serviced for the Company equal to: (1) in
the case of residential mortgage loans, their outstanding principal balance
times 0.25%; and (2) in the case of commercial mortgage loans, their outstanding
principal balance times a percentage ranging from 0.08% to 0.30%, depending upon
the outstanding principal amount of the particular commercial mortgage loan.

The Servicer has entered into sub-servicing ("Sub-Agreements") with Chase
Manhattan Mortgage Corporation ("CMMC" or "sub-servicer"), a wholly-owned
subsidiary of Chase Manhattan Bank, USA, National Association, an indirect
wholly-owned subsidiary of The Chase Manhattan Corporation ("CMC").

The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
to (i) invest in the securities of other issuers for the purpose of exercising
control over such issuers, (ii) underwrite securities of other issuers, (iii)
actively trade in loans or other investments, (iv) offer securities in exchange
for property or (v) make loans to third parties, including, without limitation,
officers, directors or other affiliates of the Company. The Company may, under
certain circumstances, purchase the Series A Preferred Shares and other shares
of its capital stock in the open market or otherwise, provided, however, that
the Company will not redeem or repurchase any shares of its Common Stock for so
long as any Series A Preferred Shares are outstanding without the approval of a
majority of the Independent Directors (as defined in the Certificate of
Designation relating to the Series A Preferred Shares). The Company does not
currently intend to repurchase any shares of its capital stock, and any such
action would be taken only in conformity with applicable federal and state laws
and regulations and the requirements for qualifying as a REIT.

Restrictions on Ownership and Transfer:
---------------------------------------
The Company's Certificate of Incorporation contains certain restrictions on the
number of shares of Common Stock and Preferred Stock that individual
stockholders may own. For the Company to qualify as a REIT under the Code, no
more than 50% in number or value of its outstanding shares of capital stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year (the "Five or Fewer Test"). The capital stock of the Company must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year (the "One Hundred
Persons Test"). The ownership by the Bank of 100% of the shares of Common Stock
of the REIT will not adversely affect the Company's REIT qualification because
each stockholder of CMC (the sole stockholder of the Bank) counts as a separate
beneficial owner for purposes of the Five or Fewer Test and the capital stock of
CMC is widely held. Further, the Company's Certificate of Incorporation contains
restrictions on the acquisition of Preferred Stock intended to ensure compliance
with the One Hundred Persons Test, including a provision voiding any transfer of
shares of capital stock of the Company that would cause the Company to be
beneficially owned by fewer than 100 persons.

Subject to certain exceptions specified in the Company's Certificate of
Incorporation, no holder of Preferred Stock is permitted to own (including by
virtue of the attribution provisions of the Code) more than 9.9% (the "Ownership
Limit") of any issued and outstanding class or series of Preferred Stock. The
Board of Directors is permitted but not required to waive the Ownership Limit
with respect to a holder upon receipt of an Internal Revenue Service ("IRS")
ruling or an opinion of counsel satisfactory to the Company, to the effect that
the holder's ownership will not then or in the future jeopardize the Company's
status as a REIT.


                                       -2-

<PAGE>

The Company's Certificate of Incorporation provides that shares of any class or
series of Preferred Stock owned or deemed owned by or transferred to a
stockholder in excess of the Ownership Limit (the "Excess Shares") will
automatically be transferred, by operation of law, to a trust for the exclusive
benefit of a charity to be named by the Company as of the day prior to the date
of the prohibited transfer. Any distributions paid prior to the discovery of the
prohibited transfer must be repaid by the original transferee to the Company and
by the Company to the trustee and any unpaid distributions payable to the
original transferee will be rescinded as void. Any vote of those shares on
behalf of the original transferee prior to the Company's discovery of the
prohibited transfer will be void and the original transferee will be deemed to
have given its proxy to the trustee. In liquidation, the original transferee's
ratable share of the Company's assets would be limited to the price paid by the
original transferee for the Excess Shares or, if no value was given, the price
per share equal to the closing market price on the date of the purported
transfer. The trustee of the trust will promptly sell the shares to any person
whose ownership is not prohibited, and the interest of the trust will then
terminate. Proceeds of the sale will be paid to the original transferee up to
its purchase price (or, if the original transferee did not purchase the shares,
the value on the date of acquisition by that transferee) and any remaining
proceeds shall be paid to a charity to be named by the Company.

The constructive ownership rules of the Code are complex and may cause Preferred
Stock owned, directly or indirectly, by a group of related individuals and/or
entities to be deemed to be constructively owned by one individual or entity. As
a result, the acquisition of less than 9.9% of a class or series of Preferred
Stock, or the acquisition of an interest in an entity that owns shares of a
class or series of Preferred Stock could cause an individual or entity to own
constructively in excess of 9.9% of that class or series, and thus subject
shares of that class or series to the Ownership Limit. Direct or constructive
ownership in excess of the Ownership Limit would cause the Excess Shares to be
transferred to the trustee.

All certificates representing shares of Preferred Stock, including the Series A
Preferred Shares, do or will bear a legend referring to the restrictions
described above. The Ownership Limit provisions will not be automatically
removed even if sections 856 through 860 of the Code and the applicable Treasury
regulations are changed so as to eliminate any ownership concentration
limitation or if the ownership concentration limitation is increased. The
Certificate of Incorporation may not be amended to alter, change, repeal or
amend any of the Ownership Limit provisions without the prior approval of a
majority of the Independent Directors.

The Company's Certificate of Incorporation requires that any person who
beneficially owns 1% (or such lower percentage as may be required by the Code or
the Treasury Regulations) of the outstanding shares of any class or series of
Preferred Stock of the Company must provide certain information to the Company
within 30 days of June 30 and December 31 of each year. In addition, each
stockholder shall upon demand be required to disclose to the Company in writing
such information as the Company may request in order to determine the effect, if
any, of that stockholder's actual and constructive ownership on the Company's
status as a REIT and to ensure compliance with the Ownership Limit.

The Company has no foreign operations.

Important Factors that May Affect Future Results:
-------------------------------------------------

From time to time, the Company has made and will make forward-looking
statements. These statements can be identified by the fact that they do not
relate strictly to historical or current facts. Forward-looking statements often
use words such as "anticipate", "expect", "estimate", "intend", "plan", "goal",
"believe", or other words of similar meaning. Forward-looking statements give
the Company's current expectations or forecasts of future events, circumstances
or results. The Company's disclosure in this report contains forward-looking
statements. Any forward-looking statements made by or on behalf of the Company
speak only as of the date they are made. The Company does not undertake to
update forward-looking statements. The reader should, however, consult any
further disclosures of a forward-looking nature the Company may make in its
reports filed with the Securities and Exchange Commission.

All forward-looking statements, by their nature, are subject to risks and
uncertainties. The Company's actual future results may differ materially from
those set forth in its forward-looking statements. Factors that might cause the
Company's future financial performance to vary from that described in its
forward-looking statements including the interest rate, credit and other risks
discussed in the "Management's Discussion and Analysis" section of this report.
In addition, set forth below are certain risks and uncertainties that the
Company believes could cause its actual future results to differ materially from
expected results. However, other factors besides those discussed in this or the
Company's other reports to the SEC could also adversely affect the Company's
results and you should not consider any such list of factors to be a complete
set of all potential risks and uncertainties. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.


                                      -3-
<PAGE>


Dependence Upon Bank as Advisor and Servicer

The Company is dependent for the selection, structuring and monitoring of its
assets on the diligence and skill of its officers (all of whom are also officers
of the Bank or its affiliates) and the officers and employees of the Bank, who
are acting on behalf of the Bank as Advisor to the Company. In addition, the
Company is dependent upon the expertise of the Bank, as Servicer, for the
servicing of its Mortgage Loans. In the event that the Advisor or Servicer
subcontract any of their respective obligations, the Company will be dependent
upon the parties to whom those obligations are subcontracted.

Potential Conflicts of Interest with the Bank and its Affiliates

The Bank and its affiliates are involved in virtually every aspect of the
Company's existence. The Bank is the sole holder of the Company's Common Stock
and administers its day-to-day activities as Advisor. In addition, the Bank also
services all of the Company's Mortgage Loans. The Bank and its affiliates may
have interests that are not identical to those of the Company, and conflicts of
interest may arise with respect to transactions, including acquisitions and
dispositions of Mortgage Loans and servicing of Mortgage Loans, particularly
those placed on classified or nonaccrual status. For example, in the case of
commercial Mortgage Loans, the Company's interest will be limited to the loan,
while the Bank may have other interests as a result of an overall banking
relationship with the mortgagor. In addition, if the Bank acts as lender with
respect to other credit facilities for a particular mortgagor, the Bank, in its
role as Advisor, may become subject to a conflict of interest if the Mortgage
Loan of that mortgagor becomes classified or placed on nonaccrual status. It is
the intention of the Company and the Bank that any agreement and transactions
between them are fair to all parties and consistent with market terms. In
addition, certain actions of the Company must be approved by a majority of the
Company's independent Directors (as defined in the Certificate of Designation
for the Series A Preferred Shares).

Interest Rate Risk

The Company's income will consist primarily of interest payments on the Mortgage
Loans held by it. The Company anticipates that most of its Mortgage Loans will
bear interest at adjustable rates. If there is a decline in interest rates (as
measured by the indices upon which the interest rates of the Mortgage Loans are
based), then the Company will experience a decrease in income available for
distribution to stockholders. In such an interest rate environment, the Company
may experience an increase in prepayments on its residential Mortgage Loans and
may find it more difficult to purchase additional Mortgage Loans bearing rates
sufficient to support payment of dividends to stockholders. In addition, certain
residential Mortgage Loans convert an adjustable rate mortgage to a fixed rate
mortgage, thus "locking in" a low fixed interest rate. Because the dividend rate
on the Company's outstanding Preferred Stock is fixed, there can be no assurance
that a significant decline in prevailing interest rates would not adversely
affect the Company's ability to pay those dividends.


ITEM 2: PROPERTIES

The Company, a subsidiary of the Bank, utilizes space at the headquarters of the
Bank, located in New York City at 270 Park Avenue.


ITEM 3: LEGAL PROCEEDINGS

The Company is not the subject of any material litigation. None of the Company,
the Advisor, the Bank or any of its affiliates is currently involved in or, to
the Company's knowledge, currently threatened with any material litigation with
respect to the Company's Mortgage Loans which would have a material adverse
effect on the business or operations of the Company.


                                       -4-
<PAGE>


ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

By written consent in lieu of a meeting dated as of December 21, 1998, the Board
of Directors approved and submitted to the Bank, as sole common stockholder of
the Company, a proposed amendment to the Company's Certificate of Incorporation
reducing the Company's authorized common stock from 5,000,000 shares having a
par value of $300 per share to one share having a par value of $171,750,000. The
amendment was approved by the Bank by written consent in lieu of a meeting as of
December 21, 1998 and became effective on December 29, 1998. As a result of the
amendment, the Company's issued and outstanding common stock was changed from
572,500 shares having a par value of $300 per share ($171,750,000 par value in
the aggregate) to a single share having a par value of $171,750,000.

By written consent in lieu of a meeting dated as of September 24, 1998, the
Bank, as sole shareholder of the Company, set the number of directors of the
Company at seven and elected the following seven persons as directors of the
Company, to serve until their successors are duly chosen and qualified: Mr.
Richard J. Boyle, Ms. Dina Dublon, Mr. Thomas Jacob, Mr. William C. Langley, Mr.
Louis M. Morrell, Mr. Joseph L. Sclafani and Mr. Robert S. Strong.


ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

At December 31, 1998, the Company was authorized to issue one share of Common
Stock and 50,000,000 shares of Preferred Stock, $25 par value per share
("Preferred Stock"), of which 22,000,000 Series A Preferred Shares have been
issued. The Bank is the sole owner of the Company's Common Stock. Accordingly,
there is no trading market for the Company's Common Stock. In addition, CMC
intends that, as long as any Series A Preferred Shares are outstanding, it will
maintain direct or indirect ownership of at least 80% of the outstanding Common
Stock of the Company. Subject to the rights, if any, of the holders of Series A
Preferred Stock, all voting rights are vested in the Common Stock. The holders
of Common Stock are entitled to one vote per share.

Holders of Common Stock are entitled to receive dividends when, as and if,
declared by the Board of Directors of the Company out of funds legally available
therefor. However, so long as any shares of Preferred Stock (including the
Series A Preferred Shares) are outstanding, no dividends or other distributions
(including redemptions and purchases) may be made with respect to the Common
Stock unless full dividends on the shares of the Preferred Stock, including
accumulations in the case of cumulative Preferred Stock, have been paid. The
Company must distribute annually at least 95% of its annual "REIT taxable
income" (not including capital gains) to stockholders.


                                       -5-
<PAGE>


ITEM 6: SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                           FINANCIAL DATA
                                             (in thousands, except share and yield data)

                                                                         For the Period from Inception
                                            Year Ended     Year Ended        (September 18, 1996)
                                             12/31/98       12/31/97           through 12/31/96

INCOME STATEMENT:

<S>                                        <C>            <C>                   <C>        
Interest income                            $    79,428    $    82,941           $    22,830  
                                                                                               
Net interest income                             77,179         80,308                22,156  
                                                                                             
Net income                                      76,559         79,779                22,085  
                                                                                             
Net income applicable to common shares          32,009         35,229                 9,339  
                                                                                             
Income per common share                    $    32,009    $    35,229           $     9,339  
                                                                                             
                                                                                             
BALANCE SHEET:                                                                               
                                                                                             
Mortgage loans                             $ 1,021,368    $   985,068           $ 1,059,981  
                                                                                             
Total assets                                 1,121,307      1,123,164             1,113,398  
                                                                                             
Preferred stock outstanding                    550,000        550,000               550,000  
                                                                                             
Total stockholders' equity                 $ 1,120,874    $ 1,119,930           $ 1,112,726  
                                                                                             
                                                                                             
OTHER DATA:                                                                                  
                                                                                             
Dividends paid on preferred shares         $    44,550    $    44,550           $    12,746  
                                                                                             
Dividends paid on common shares            $    31,065    $    28,025           $         0  
                                                                                             
Number of preferred shares outstanding      22,000,000     22,000,000            22,000,000  
                                                                                             
Number of common shares outstanding(a)               1              1                     1  
                                                                                             
Average yield on mortgage loans                    7.6%           7.8%                  7.4% 
</TABLE>                                                                        


-----------------
(a)   All common share amounts have been restated to reflect the change,
      effected on December 29, 1998, of the Company's outstanding Common Stock
      from 572,500 shares, par value $300 per share, to one share, par value
      $171,750,000 per share.


                                       -6-
<PAGE>


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

--------------------------------------------------------------------------------
OVERVIEW
--------------------------------------------------------------------------------

The principal business of the Company is to acquire, hold and manage Mortgage
Loans that will generate net income for distribution to stockholders. The
Company currently intends to continue to acquire all its Mortgage Loans from the
Bank, a banking corporation organized under the laws of the State of New York,
or from affiliates of the Bank as whole loans secured by first mortgages or
deeds of trust on single-family (one- to four-unit) residential real estate
properties or on commercial real estate properties. The Company may also from
time to time acquire Mortgage-Backed Securities. Mortgage loans underlying the
Mortgage-Backed Securities will be secured by single-family residential,
multifamily or commercial real estate properties located in the United States.

The Company began operations in 1996 upon completion of an initial public
offering of 22,000,000 Series A Preferred Shares. The Series A Preferred Shares
are traded on the New York Stock Exchange. The Company's Common Stock is held
solely by the Bank.

The Bank administers the day-to-day activities of the Company in its role as
Advisor under the Agreement. CMMC sub-services the Company's Mortgage Loans on
behalf of the Servicer under each of the Servicing Agreements.

The Bank and its affiliates may have interests that are not identical to those
of the Company. Consequently, conflicts of interest may arise with respect to
transactions, including without limitation, future acquisitions of Mortgage
Loans from the Bank or its affiliates; servicing of Mortgage Loans, particularly
with respect to Mortgage Loans that become classified or placed in nonaccrual
status or which have been, more than once during the preceding twelve months,
more than 30 days past due in the payment of principal and interest; future
dispositions of Mortgage Loans to CMC or any of its nonbank subsidiaries; and
the modification of the Agreement or the Servicing Agreements.

The Company intends that any agreements and transactions between the Company, on
the one hand, and CMC, the Bank or their affiliates, on the other hand, will be
fair to all parties and consistent with market terms. The requirement in the
Certificate of Designation establishing the Series A Preferred Shares that
certain actions of the Company be approved by a majority of the Independent
Directors (as defined in the Certificate of Designation) is also intended to
ensure fair dealing between the Company and CMC, the Bank and their respective
affiliates. However, there can be no assurance that those agreements or
transactions will be on terms as favorable to the Company as those that could
have been obtained from unaffiliated third parties.

RESULTS OF OPERATIONS

The Company reported net interest income of approximately $77,179,000 for 1998
compared with $80,308,000 in 1997. The Company's basic earnings per share were
$32,009,000 and $35,229,000 in 1998 and 1997, respectively. In 1998, interest
income from residential and commercial mortgage loans was $64,430,000 and
$7,909,000, respectively, representing a total average yield of 7.6%. In 1997,
interest income from residential and commercial mortgage loans was $70,790,000
and $9,391,000, respectively, representing a total average yield of 7.8% for
1997. After deductions of approximately $250,000 and $370,000 in advisory fees
and other administrative expenses, respectively, the Company reported net income
of approximately $76,559,000 for 1998 compared with net income of $79,779,000
for 1997. The lower results for 1998 when compared to 1997 reflect the impact of
lower interest rates and higher prepayments of residential mortgage loans during
1998.

In 1998 and 1997, the Company paid $44,550,000 in Preferred Stock dividends. As
of the date of this report, all dividend payments on the Series A Preferred
Shares are current. In addition, the Company paid Common Stock dividends of
approximately $31,065,000 in 1998, compared with $28,025,000 in 1997. Dividends
on the Common Stock are paid to the Bank when, as and if declared by the Board
of Directors of the Company out of funds legally available therefor.

The Company expects to pay Common Stock dividends at least annually in amounts
necessary to continue to preserve its status as a REIT under the Code.

The Company anticipates that the amount of taxes payable by the Company will be
reduced as a result of the recapitalization of the Company's Common Stock,
effective December 29, 1998. See Item 4.


                                       -7-
<PAGE>


MORTGAGE LOANS

At December 31, 1998, the Company had $1,021,368,000 invested in Mortgage Loans,
compared with $985,068,000 at December 31, 1997. For the years ended December
31, 1998 and 1997, the Company purchased Mortgage Loans having an outstanding
principal balance of $643,947,000 and $210,588,000, respectively, from the Bank
or its affiliates. In addition, during 1998, the Company received approximately
$606,061,000 of principal payments on its portfolio from the Servicer (and
sub-servicer).

The following table reflects residential and commercial mortgage loans as a
percentage of total Mortgage Loans:

Mortgage Loans                 At December 31, 1998       At December 31, 1997
    (in thousands)              Amount     Percent       Amount       Percent

Residential mortgage loans    $   944,012     92.4%      $ 889,696     90.3%
Commercial mortgage loans          77,356      7.6%         95,372      9.7%
                              -----------    ------      ---------     -----
Total mortgage loans          $ 1,021,368      100%      $ 985,068      100%
                              ===========    ======      =========     =====


The Company intends that each Mortgage Loan acquired from the Bank or one of its
affiliates in the future will be a whole loan, will represent a first lien
position and will be originated by the Bank or such affiliate in the ordinary
course of its real estate lending activities based on the underwriting standards
generally applied (at the time of origination) for its own account by the Bank
or the affiliate of the Bank that originated the Mortgage Loan. The Company also
intends that all Mortgage Loans held by the Company will be serviced pursuant to
the Servicing Agreements, which require servicing in conformity with (1)
generally accepted secondary market standards, (2) all servicing guidelines
promulgated by the Company and (3) in the case of residential mortgage loans,
FNMA and FHLMC guidelines and procedures.

Currently, the Company's policy prohibits the acquisition of any commercial
mortgage loan that constitutes more than 5% of the total book value of the
mortgage assets of the Company at the time of its acquisition. In addition, the
Company's current policy prohibits the acquisition of any Mortgage Loan or any
interest in a Mortgage Loan (other than an interest resulting from the
acquisition of Mortgage-Backed Securities), that (i) is delinquent in the
payment of principal or interest at the time of proposed acquisition; (ii) is or
was at any time during the preceding 12 months (a) classified, (b) in nonaccrual
status, or (c) renegotiated due to financial deterioration of the borrower; or
(iii) has been, more than once during the preceding 12 months, more than 30 days
past due in the payment of principal or interest.

The Company may choose, at any time subsequent to its acquisition of any
Mortgage Loan, to require the Servicer to dispose of the Mortgage Loan, for any
reason, including as a result of the Mortgage Loan becoming classified or being
placed in nonaccrual status or having been, more than once during the preceding
12 months, more than 30 days past due in the payment of principal or interest.
The Bank has indicated to the Company that it will not purchase any Mortgage
Loan of the Company that the Company chooses to dispose of for the foregoing
reasons. Accordingly, the Company currently anticipates that the Company would
continue to sell any such Mortgage Loan at its then current fair value only to
CMC, a nonbank subsidiary of CMC, or an unrelated third party.

There were no nonaccruing residential mortgage loans at December 31, 1998,
compared with $3,330,000 of nonaccruing residential mortgage loans at December
31, 1997. There were no nonaccruing commercial mortgage loans for either period.
At December 31, 1998 and 1997, nonaccruing loans represented 0% and .34%,
respectively, of the total loan portfolio. The Company sold $2,488,000 of
nonaccruing residential mortgage loans to a wholly-owned subsidiary of CMC
during the twelve months ended December 31, 1998. No gain or loss was recognized
from this sale.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is available to absorb potential credit losses
from the entire Mortgage Loan portfolio. The Company deems its allowance for
loan losses as of December 31, 1998 to be adequate. Although the Company
considers that it has sufficient reserves to absorb losses that currently may
exist in the portfolio, but are not yet identifiable, the precise loss content
is subject to continuing review based on quality indicators, industry and
geographic concentrations, changes in business conditions, and other external
factors such as competition, and legal and regulatory requirements. The Company
will continue to reassess the adequacy of the allowance for loan losses.


                                       -8-
<PAGE>


The accompanying table reflects the activity in the Company's allowance for loan
losses during 1998 and 1997:

Allowance for Loan Losses                          Year Ended         Year Ended
    (in thousands)                                  12/31/98           12/31/97
--------------------------------------------------------------------------------

    Total allowance at beginning of period           $3,468           $  3,150
    Acquired allowance                                1,092                429
    Provision for loan losses                             0                  0
    Charge-offs                                         (78)                 0
    Recoveries                                            0                  0
    Sale of loans                                      (362)               (111)
                                                 -----------          ---------
    Total allowance at end of period             $    4,120           $  3,468
                                                 ===========          =========
                                                                    
================================================================================

At December 31, 1998 and 1997, the Company's allowance for loan losses as a
percentage of total loans was .40% and .35%, respectively.

INTEREST RATE RISK

The Company's income consists primarily of interest payments on Mortgage Loans.
Currently, the Company does not use any derivative products to manage its
interest rate risk. If there is a decline in market interest rates, the Company
may experience a reduction in interest income on its Mortgage Loans and a
corresponding decrease in funds available to be distributed to its shareholders.
The reduction in interest income may result from downward adjustments of the
indices upon which the interest rates on ARM Mortgage Loans are based and from
prepayments of Mortgage Loans with fixed interest rates, resulting in
reinvestment of the proceeds in lower-yielding Mortgage Loans. There can be no
assurance that an interest rate environment in which there is a significant
decline in interest rates over an extended period of time would not adversely
affect the Company's ability to pay dividends on the Series A Preferred Shares.


CREDIT RISK

Concentration of credit risk arises when a number of borrowers engage in similar
business activities, or activities in the same geographical region, or have
similar economic features that would cause their ability to meet contractual
obligations to be similarly affected by changes in economic conditions.
Concentration of credit risk indicates the relative sensitivity of the Company's
performance to both positive and negative developments affecting a particular
industry. The Company's balance sheet exposure to geographic concentrations
directly affects the credit risk of the Mortgage Loans within the portfolio. The
following table shows the Mortgage Loan portfolio by geographical area as of
December 31, 1998 and 1997:

Geographical Breakout

                                     December 31, 1998      December 31, 1997
    (in thousands)                   Amount    Percent      Amount    Percent
--------------------------------------------------------------------------------
Residential Mortgage Loans:
California                            $ 72,200    36.4%     $ 444,078     45.1%
Colorado                                63,278     6.2%             -         -
Florida                                      -       -         50,559      5.1%
New York                                     -       -         66,972      6.8%
Other States                           508,534    49.8%       328,087     33.3%
     (no State has more than 5%)      --------    -----     ---------   -------
   Total Residential Mortgage Loans    944,012    92.4%       889,696     90.3%
                                      --------    -----     ---------   -------
Commercial Mortgage Loans:            
                                      
New York Metropolitan Tri-State Area    73,523     7.2%        91,260      9.3%
Other States                             3,833     0.4%         4,112      0.4%
     (no State has more than 3%)      --------    -----     ---------   -------
                                      
   Total Commercial Mortgage Loans      77,356     7.6%        95,372      9.7%
                                      --------    -----     ---------   -------
                                      
Total                               $1,021,368     100%     $ 985,068      100%
                                    ==========    =====     =========   =======


                                       -9-
<PAGE>


At December 31, 1998, approximately 36.4% of the Company's total Mortgage Loan
portfolio consisted of loans secured by residential real estate properties
located in California. Consequently, these residential mortgage loans may be
subject to a greater risk of default than other comparable residential mortgage
loans in the event of adverse economic, political or business developments or
natural hazards (earthquakes, for example) in California that may affect the
ability of residential property owners in California to make payments of
principal and interest on the underlying Mortgage Loans.

In addition, the majority of the commercial mortgage properties underlying the
Company's commercial mortgage loans are located in the New York metropolitan
tri-state area. Substantially all of these mortgaged properties were, at the
time of their origination, at least 70% occupied by the borrowers or their
affiliates. Consequently, these commercial mortgage loans may be subject to
greater risk of default than other comparable commercial mortgage loans in the
event of adverse economic, political or business developments in the New York
metropolitan tri-state areas that may affect the ability of businesses in that
area to make payments of principal and interest on the underlying Mortgage
Loans.


LIQUIDITY RISK MANAGEMENT

The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments and to
capitalize on opportunities for the Company's business expansion. In managing
liquidity, the Company takes into account various legal limitations placed on a
REIT.

The Company's principal liquidity needs are to maintain the current portfolio
size through the acquisition of additional Mortgage Loans as Mortgage Loans
currently in the portfolio mature, prepay or are sold, and to pay dividends on
the Series A Preferred Shares. The acquisition of additional Mortgage Loans is
intended to be funded with the proceeds obtained from the sale or repayment of
principal balances of Mortgage Loans by individual borrowers. The Company does
not have and does not anticipate having any material capital expenditures.

If the Board of Directors determines that additional funding is required, the
Company may raise such funds through additional equity offerings, debt
financing, retention of cash flow (after consideration of provisions of the Code
requiring the distribution by a REIT of at least 95% of its "REIT taxable
income" and taking into account taxes that would be imposed on undistributed
income), or a combination of these methods. The Company's organizational
documents do not contain any limitation on the amount or percentage of debt,
funded or otherwise, the Company might incur. However, the Company may not,
without the approval of a majority of the Independent Directors, incur debt for
borrowed money in excess of 20% of the aggregate amount of net proceeds received
in connection with the issuance of all outstanding Preferred Stock and Common
Stock of the Company. The above limitation would also apply to any intercompany
advances made by the Bank to the Company.

The Company may also issue additional series of Preferred Stock. However, the
Company may not issue additional shares of Preferred Stock senior to the Series
A Preferred Shares without the consent of holders of at least 66 2/3% of the
shares of Preferred Stock outstanding at that time, including the Series A
Preferred Shares. In addition, the Company may not issue additional shares of
Preferred Stock ranking on a parity with the Series A Preferred Shares without
the approval of a majority of the Company's Independent Directors.


OPERATIONAL RISK

YEAR 2000. As noted above, the Company is a wholly-owned subsidiary of the Bank,
which is itself a wholly-owned subsidiary of CMC. The Company has no employees.
In accordance with agreements between the Company and the Bank, the Bank manages
all of the Company's operations, including servicing all of the Company's
Mortgage Loans. As a result, Year 2000 efforts for the Company are being
coordinated, managed and monitored as part of the Year 2000 efforts of CMC by
CMC's Year 2000 Enterprise Program Office. The Program Office, which reports
directly to CMC's Executive Committee, together with 34 business area project
offices, coordinates, manages and monitors all aspects of CMC's Year 2000 effort
on a global basis, both technical- and business-related. In addition, a Year
2000 Core Team, consisting of senior managers from CMC's internal audit,
technology risk and control, financial management and control, the technology
infrastructure division, legal and the Program Office, provides independent
oversight of the process. The Core Team, which also reports directly to CMC's
Executive Committee, is charged with identifying key risks and ensuring
necessary management attention for timely resolution of project issues.


                                      -10-
<PAGE>


CMC's Year 2000 Program continues to evolve. On January 1, 1999, CMC established
a Year 2000 Business Risk Council, comprised of approximately 20 senior business
leaders -- line managers, risk managers and representatives of key staff
functions -- to identify potential Year 2000 business risks and to coordinate
planning and readiness efforts, contingency plans for Year 2000 and the
establishment of a Year 2000 command center structure and rapid response teams.

CMC's Year 2000 Program is tracked against a well-defined set of milestones. CMC
completed its inventory and assessment phases on schedule on September 30, 1997,
identifying affected hardware and software, prioritizing tasks and establishing
implementation plans. Approximately 3,900 business applications (approximately
1,000 of which are provided by third-party vendors) were identified by CMC as
requiring Year 2000 remediation. Of these software applications, approximately
93% were remediated by December 31, 1998. CMC projects that approximately 98%
will be remediated by March 31, 1999, with the remaining 2% to be remediated by
June 30, 1999.

In 1999, attention will also be focused on ensuring that software application
systems that have been remediated, tested and certified as Year 2000-compliant
remain compliant through re-certification of those systems. Another major focus
of 1999 will be continued customer and "street" (i.e., industry-wide) testing,
which began in the third quarter of 1998. In addition, CMC is increasing its
tracking and risk management of third party providers.

At December 31, 1998, CMC's estimate for Year 2000 costs for 1997-1999 was
approximately $363 million. These costs include the costs of remediation,
testing, third party assessment and contingency planning and will be expensed as
incurred. These costs do not include approximately $33 million of capitalizable
costs for Year 2000 compliant equipment to be expensed beyond December 31, 1999.
None of these costs will be borne by the Company.

In its normal course of business, CMC manages many types of risk. CMC has
recognized that the risks presented by Year 2000 are unique given the pervasive
nature of the problem and the fact that there may be a higher likelihood that
Year 2000 risk may present itself in multiple, simultaneous impacts. Because of
this, CMC has adjusted and will continue to adjust its risk management processes
and contingency plans to take the most probable anticipated effects into
account. In this regard, CMC has begun its "event planning" for the Year 2000
with the goal of preventing or mitigating potential disruptions. CMC's Year 2000
event planning includes the creation of command centers; the establishment of
special rapid response technology teams; the scheduling of availability of key
personnel; additional training and testing activities; and the establishment of
rapid decision processes.

CMC's expectations about completion of its Year 2000 remediation and testing
efforts, the anticipated costs to complete the project and the anticipated
business, operational and financial risks to CMC and its subsidiaries, including
the Company, are subject to a number of uncertainties. CMC's estimates as to the
cost to prepare for the Year 2000 are based on numerous assumptions regarding
future events, including, among others, continued availability of trained
personnel, expectations regarding third party modification plans and the nature
and amount of testing that may be required. The operations or financial results
of CMC and its subsidiaries, including the Company, could be materially
adversely affected if vendors, service providers, customers or securities
exchanges are unable to successfully implement their Year 2000 plans and
continue operations; if CMC is unsuccessful in identifying or fixing all Year
2000 problems in its critical operations; or if CMC is unable to retain the
staff or third party consultants necessary to implement its technology plans at
currently projected costs and timetables.


OTHER MATTERS

As of December 31, 1998, the Company believed that it was in full compliance
with the REIT tax rules and that it will continue to qualify as a REIT under the
provisions of the Code. The Company calculates that:

o     its Qualified REIT Assets, as defined in the Code, are 100% of its total
      assets, as compared to the federal tax requirement that at least 75% of
      its total assets must be Qualified REIT assets.

o     91% of its revenues qualify for the 75% source of income test and 100% of
      its revenues qualify for the 95% source of income test under the REIT
      rules.

o     none of its revenues were subject to the 30% income limitation under the
      REIT rules.

The Company also met all REIT requirements regarding the ownership of its Common
Stock and the Series A Preferred Shares and anticipates meeting the 1998 annual
distribution and administrative requirements.


                                      -11-
<PAGE>


COMPARISON BETWEEN 1997 AND 1996

The Company's net interest income was $77,179,000 in 1997 compared with
$22,156,000 in 1996. Basic earnings per share were $35,229,000 and $9,339,000
for 1997 and 1996, respectively. In 1997, interest income from residential and
commercial mortgage loans was $70,790,000 and $9,391,000, respectively,
representing a total average yield of 7.8% compared with interest income from
residential and commercial mortgage loans of $19,337,000 and $2,782,000,
respectively, and representing a total average yield of 7.4% for 1996.

After deductions of $529,000 for advisory and other administrative expenses, the
Company reported net income of $79,779,000 in 1997 compared with a deduction of
$71,000 for advisory fees and net income of $22,085,000 in 1996.

The increase in operating results in 1997 reflect twelve months of operations
compared with 3 1/2 months in 1996.


ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

For information related to interest rate risk, see the Interest Rate Risk
section on page 8.


                                      -12-
<PAGE>


ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                        Report of Independent Accountants
                        ---------------------------------


To the Board of Directors and Stockholders
of Chase Preferred Capital Corporation

In our opinion, the accompanying balance sheets and the related statements of
income, of changes in stockholders' equity and of cash flows present fairly, in
all material respects, the financial position of Chase Preferred Capital
Corporation (the "Company") at December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1998, and for the period from inception (September 18, 1996)
through December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.



/s/ PricewaterhouseCoopers LLP
New York, New York
March 19, 1999


                                      -13-
<PAGE>


ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                       CHASE PREFERRED CAPITAL CORPORATION
                                  BALANCE SHEET
                        (in thousands, except share data)

                                                    12/31/98          12/31/97
                                                    --------          --------
ASSETS:

Residential mortgage loans                         $   944,012      $   889,696
Commercial mortgage loans                               77,356           95,372
                                                   -----------      -----------
                                                     1,021,368          985,068
   Less: allowance for loan losses                     (4,120)          (3,468)
                                                   -----------      -----------
                                                     1,017,248          981,600

Cash                                                    25,215           93,919
Due from affiliates                                     71,140           40,664
Accrued interest receivable                              7,703            6,981
                                                   -----------     ------------
   TOTAL ASSETS                                    $ 1,121,306     $  1,123,164
                                                   ===========     ============

LIABILITIES:

Accounts payable                                   $       432     $       367
Due to affiliates                                            0           2,867
                                                   -----------     ------------
   TOTAL LIABILITIES                                       432            3,234
                                                   -----------     ------------


STOCKHOLDERS' EQUITY:

Preferred stock, par value $25 per share;
   50,000,000 shares authorized, 
   22,000,000 issued and outstanding                   550,000          550,000
Common stock, one share authorized and
   outstanding, par value $171,750,000
   per share                                           171,750          171,750
Capital surplus                                        381,637          381,637
Retained earnings *                                     17,487           16,543
                                                  ------------     ------------
     TOTAL STOCKHOLDERS' EQUITY                      1,120,874        1,119,930
                                                  ------------     ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $ 1,121,306     $  1,123,164
                                                  ============    =============

* No retained earnings related to property sales


   The Notes to Financial Statements are an integral part of these Statements.


                                      -14-
<PAGE>


                       CHASE PREFERRED CAPITAL CORPORATION
                               STATEMENT OF INCOME
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                           For the Period from Inception
                                            Year Ended     Year Ended        (September 18, 1996)
                                             12/31/98       12/31/97           through 12/31/96

INTEREST INCOME:

<S>                                        <C>           <C>                    <C>        
Residential mortgage loans                 $    64,430   $   70,790             $    19,337
Commercial mortgage loans                        7,909        9,391                   2,782
Interest on overnight investments                7,089        2,760                     711
                                           -----------   -----------            -----------
                                               79,428        82,941                  22,830
             Less: servicing fees              (2,249)        2,633)                   (674)
                                           -----------   ----------             -----------
      Net interest income                       77,179       80,308                  22,156
                                           -----------   ----------             -----------

NONINTEREST EXPENSE:

Advisory fees                                      250          250                      71
Other administrative expenses                      370          279                       0
                                           -----------   ----------             -----------

      Total noninterest expense                    620          529                      71
                                           -----------   ----------             -----------

NET INCOME                                 $    76,559   $   79,779             $    22,085
                                           ===========   ==========             ===========

NET INCOME APPLICABLE TO COMMON SHARE      $    32,009   $   35,229             $     9,339
                                           ===========   ==========             ===========

NET INCOME PER COMMON SHARE                $    32,009   $   35,229             $     9,339
                                           ===========   ==========             ===========
</TABLE>


   The Notes to Financial Statements are an integral part of these Statements.


                                      -15-

<PAGE>


                       CHASE PREFERRED CAPITAL CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                        For the Period from Inception
                                            Year Ended    Year Ended        (September 18, 1996)
                                             12/31/98      12/31/97           through 12/31/96

PREFERRED STOCK:

<S>                                        <C>           <C>                   <C>        
Balance at beginning of period             $   550,000   $  550,000            $    550,000
                                           -----------   ----------            ------------

Balance at end of period                   $   550,000   $  550,000            $    550,000
                                           ===========   ==========            ============


COMMON STOCK:

Shares issued at incorporation             $         0   $        0            $          1
     (June 28, 1996)

Balance at beginning of period                 171,750      171,750                 171,749
                                           -----------   ----------            ------------

Balance at end of period                   $   171,750   $  171,750            $    171,750
                                           ===========   ==========            ============


CAPITAL SURPLUS:

Balance at beginning of period             $   381,637   $  381,637            $    381,637
                                           -----------   ----------            ------------

Balance at end of period                   $   381,637   $  381,637            $    381,637
                                           ===========   ==========            ============


RETAINED EARNINGS:

Balance at beginning of period             $    16,543   $    9,339            $          0

Net Income                                      76,559       79,779                  22,085

Common dividends                               (31,065)     (28,025)                       0

Preferred dividends                            (44,550)     (44,550)                (12,746)
                                           -----------   ----------            ------------

Balance at end of period                   $    17,487   $   16,543            $      9,339
                                           ===========   ==========            ============

TOTAL STOCKHOLDERS' EQUITY                 $ 1,120,874   $1,119,930            $  1,112,726
                                           ===========   ==========            ============
</TABLE>


   The Notes to Financial Statements are an integral part of these Statements.


                                      -16-
<PAGE>


                       CHASE PREFERRED CAPITAL CORPORATION
                             STATEMENT OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                        For the Period from Inception
                                            Year Ended    Year Ended        (September 18, 1996)
                                             12/31/98      12/31/97           through 12/31/96

<S>                                          <C>         <C>                   <C>        
OPERATING ACTIVITIES:
Net income                                   $  76,559   $   79,779            $     22,085

Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
      Net change in:
        Due from affiliates                    (30,476)     (21,921)                (18,743)
        Accrued interest receivable              1,896          585                  (2,741)
Accounts payable                                    65          (63)                 (1,358)
        Due to affiliates                       (2,867)       2,625                     242
                                           -----------   ----------            ------------
Net cash provided (used) by operating 
activities                                      45,177       61,005                    (515)
                                           -----------   ----------            ------------

INVESTING ACTIVITIES:

Purchase of mortgage loans net of reserve     (642,855)    (210,159)             (1,119,254)
Principal payments received                    606,061      285,040                  62,423
Purchase of accrued interest receivable          2,618)        (833)                 (3,992)
Sale of loans net of reserve                     1,146          350                       0
                                           -----------   ----------            ------------
Net cash provided (used) by investing 
activities                                     (38,266)      74,398              (1,060,823)
                                           -----------   ----------            ------------


FINANCING ACTIVITIES:

Proceeds from common stock issued                    0            0                572,499
Proceeds from preferred stock issued                 0            0                550,000
Underwriting discount paid                           0            0               (17,325)
Dividends paid                                 (75,615)     (72,575)               (12,746)
                                           -----------   ----------            -----------
Net cash provided (used) by financing 
activities                                     (75,615)     (72,575)             1,092,428
                                           -----------   ----------            -----------

NET INCREASE (DECREASE) IN CASH                (68,704)      62,828                 31,090

CASH AT BEGINNING OF PERIOD                     93,919       31,091                      1
                                           -----------   ----------            -----------

CASH AT END OF PERIOD                      $    25,215   $   93,919            $    31,091
                                           ===========   ==========            ===========
</TABLE>


   The Notes to Financial Statements are an integral part of these Statements.


                                      -17-
<PAGE>


                          NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
-----------------------------------------------

Chase Preferred Capital Corporation (the "Company") is a Delaware corporation
incorporated on June 28, 1996 and created for the purpose of acquiring, holding
and managing real estate assets. The Company is a wholly-owned subsidiary of The
Chase Manhattan Bank (the "Bank"), a banking corporation organized under the
laws of the State of New York. The Company began operating in 1996, upon
completion of an initial public offering of 22,000,000 shares of its 8.10%
Cumulative Preferred Stock, Series A, $25 par value per share (the "Series A
Preferred Shares"), which are currently traded on the New York Stock Exchange.
The Company used the net proceeds of that offering (after payment of offering
expenses), together with capital invested by the Bank, to purchase a portfolio
of residential and commercial mortgage loans ("Mortgage Loans") at their
estimated fair values. The Mortgage Loans were recorded in the accompanying
financial statements at the Bank's historical cost basis, which approximated
their estimated fair values.

On December 29, 1998, the Bank, as sole common stockholder, approved an
amendment to the Company's Certificate of Incorporation that reduced the
Company's authorized Common Stock from 5,000,000 shares to one share and changed
the outstanding Common Stock from 572,500 shares having a par value of $300 per
share ($171,750,000 in the aggregate) to one share having a par value of
$171,750,000. All references to numbers of shares of common stock, per common
share amounts and common stock par values have been restated to reflect the
effects of the amendment.

The accounting and financial reporting policies of the Company conform to
generally accepted accounting principles and prevailing industry practices. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Mortgage Loans:

Mortgage Loans are carried at the principal amount outstanding, net of any
premium or discount associated with these loans. Loans held for sale are carried
at the lower of aggregate cost or fair value. Interest income, including
amortization of premiums and accretion of discounts, is recognized using the
interest method or on a basis approximating a level rate of return over the term
of the loan. Mortgage Loans acquired from the Bank or its affiliates are
recorded at the Bank's historical cost basis in the accompanying balance sheet.
Any difference between the amount paid and the Bank's historical cost basis
would be treated as an adjustment to capital surplus.

Nonaccrual loans are those loans on which the accrual of interest has ceased.
Loans are placed on nonaccrual status immediately if, in the opinion of
management, full payment of principal or interest is in doubt, or when principal
or interest is past due 90 days or more and collateral, if any, is insufficient
to cover principal and interest. Interest accrued but not collected at the date
a loan is placed on nonaccrual status is reversed against interest income. In
addition, the amortization of net deferred loan fees and costs are suspended
when a loan is placed on nonaccrual status. Interest income on nonaccrual loans
is recognized only to the extent received in cash. However, where there is doubt
regarding the ultimate collectibility of the loan principal, cash receipts,
whether designated as principal or interest, are thereafter applied to reduce
the carrying value of the loan. Loans are restored to accrual status only when
interest and principal payments are brought current and future payments are
reasonably assured.

A loan is considered impaired when, based on current information, it is probable
that the borrower will be unable to pay contractual interest or principal
payments as scheduled in the loan agreement. The Company accounts for and
discloses nonaccrual commercial mortgage loans as impaired. Impaired loans are
carried at the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price, or the fair value of the collateral, if the loan is
collateral dependent. The Company recognizes interest income on impaired loans
in the manner set forth above for nonaccrual loans. The Company excludes from
impaired loans small-balance homogeneous consumer loans, loans carried at fair
value or the lower of cost or fair value, debt securities and leases.

A collateralized loan is considered an in-substance foreclosure and is
reclassified to Assets Acquired as Loan Satisfactions only when the Company has
taken physical possession of the collateral regardless of whether formal
foreclosure proceedings have taken place.


                                      -18-
<PAGE>


Allowance for Loan Losses:

The allowance for loan losses provides for risk of losses inherent in the credit
extension process. The allowance is a general allowance and is based on a
periodic review and analysis of the portfolio, which is comprised of purchased
residential and commercial mortgage loans. The periodic analysis includes
consideration of such factors as the risk rating of individual credits, the size
and diversity of the portfolio, economic and market conditions, prior loss
experience and results of periodic credit reviews of the portfolio. The
allowance for loan losses is increased by allowances related to purchased
mortgage loan portfolios and by provisions for losses charged against income and
is reduced by charge-offs, net of recoveries. Charge-offs are recorded when, in
the judgment of management, an extension of credit is deemed uncollectible, in
whole or in part.

Cash and Cash Equivalents:

The Company considers all short-term, highly liquid investments that are both
readily convertible to cash and have a maturity of generally three months or
less at the time of purchase to be cash equivalents. At December 31, 1998, the
Company's cash and cash equivalent (overnight deposits) were held in custody at
the Bank.

Offering Costs:

Costs incurred in connection with the raising of capital through the sale of the
Series A Preferred Shares were charged against shareholders' equity upon the
issuance of shares to shareholders.

Dividends:

Preferred Stock. Dividends on the Series A Preferred Shares are cumulative and
are payable quarterly on the last day of March, June, September and December at
a rate of 8.10% per annum of the initial liquidation preference ($25.00 per
share).

Common Stock. The common shareholder is entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available after
all preferred dividends have been paid.

Net Income Per Common Share:

Net income per share is computed by dividing net income after preferred
dividends by the weighted average number of shares of Common Stock outstanding.

Income Taxes:

The Company has elected to be treated as a Real Estate Investment Trust ("REIT")
pursuant to provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, the Company will not be subject to federal income tax on
its taxable income to the extent it distributes at least 95% of its taxable
income to its shareholders and it meets certain other requirements set forth in
the Code. The Company intends to maintain its qualification as a REIT for
federal income tax purposes. The Company intends to pay qualifying dividends
(for federal income tax purposes) on all of its taxable income to the holders of
its Common Stock and Series A Preferred Shares, a portion of which may be in the
form of "consent" dividends or "subsequent year" dividends, pursuant to the
Code. As a result, the Company has made no provision for income taxes in the
accompanying financial statements.


NOTE 3 - MORTGAGE LOANS
-----------------------

Mortgage Loans consist of both residential and commercial mortgage loans.
Residential mortgage loans consist of six-month prime rate adjustable rate
mortgages ("ARMs"); six-month treasury ARMs; three-year fixed rate loans with an
automatic conversion to six-month and three-year ARMs; one, three, five, seven
and ten-year fixed rate loans with an automatic conversion to one-year ARMs; and
fixed rate loans. The commercial mortgage loans consist of fixed and variable
rate loans, a majority of which have balloon payments.


                                      -19-
<PAGE>


The following represents the Mortgage Loan portfolio before allowance for loan
losses as of the dates indicated:

                                         12/31/98                 12/31/97
                                      (in thousands)           (in thousands)

     Residential mortgage loans         $   944,012             $    889,696
     Commercial mortgage loans               77,356                   95,372
                                        -----------             ------------

           Total portfolio              $ 1,021,368             $    985,068
                                        ===========             ============

All of the Mortgage Loans are secured by a mortgage, deed of trust or other
security instrument which created a first lien on the residential dwelling or
commercial property.


NOTE 4 - ALLOWANCE FOR LOAN LOSSES
----------------------------------

The table below summarizes the changes in the allowance for loan losses during
1998, 1997 and for the period from inception (September 18, 1996) through
December 31, 1996:

<TABLE>
<CAPTION>

Allowance for Loan Losses
    (in thousands)                                                         For the Period from Inception
                                                                               (September 18,1996)
                                             12/31/98          12/31/97         through 12/31/96
-----------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>                      <C>        
                                                                                 
Total allowance at beginning of period      $   3,468        $    3,150          $         0
Acquired allowance                              1,092               429                3,150
Provision for loan losses                           0                 0                    0
Charge-offs                                      (78)                 0                    0
Recoveries                                         0                  0                    0
Sale of loans                                   (362)             (111)                    0
                                            ---------        ----------          -----------
                                                                                 
Total allowance at end of period            $   4,120        $    3,468          $     3,150
                                            =========        ==========          ===========
===========================================================================================================
</TABLE>

NOTE 5 - DIVIDENDS
------------------

For the years ended December 31, 1998, the Company paid dividends on the Series
A Preferred Shares and Common Stock in the amounts of approximately $44,550,000
and $31,065,000, respectively, compared with $44,550,000 and $28,025,000,
respectively, for the year ended December 31, 1997.


NOTE 6 - RELATED PARTY TRANSACTIONS
-----------------------------------

The Company has entered into an Advisory Agreement (the "Agreement") with the
Bank (the "Advisor") requiring an annual payment of $250,000. The Advisor
provides advice to the Board of Directors and manages the operations of the
Company in accordance with the parameters established in the Agreement. The
Agreement has an initial term of five years commencing on September 18, 1996 and
automatically renews for an additional five years unless the Company delivers a
notice of nonrenewal to the Advisor as defined in the Advisory Agreement.

The Company also entered into two servicing agreements with the Bank for the
servicing of all the commercial and residential mortgage loans. Pursuant to each
servicing agreement ("Servicing Agreement"), the Bank ("Servicer") performs the
actual servicing of the Mortgage Loans held by the Company in accordance with
normal industry practice. The Servicing Agreements can be terminated by the
Company without cause with at least thirty days notice to the Servicer. The
servicing fee is 0.25% of the outstanding principal balance for the residential
mortgage loans and ranges from 0.08% - 0.30% of the outstanding principal
balances for the commercial mortgage loans depending upon the outstanding
principal amount.


                                      -20-
<PAGE>


The Bank has entered into sub-servicing agreements ("Sub-Agreements") with Chase
Manhattan Mortgage Corporation ("CMMC" and "sub-servicer"), a wholly-owned
subsidiary of Chase Manhattan Bank USA, National Association, an indirect
wholly-owned subsidiary of The Chase Manhattan Corporation ("CMC").

For the years ended December 31, 1998 and 1997, the Company purchased Mortgage
Loans having an outstanding principal balance of $643,947,000 and $210,588,000,
respectively, from the Bank or its affiliates. The Company also sold $2,488,000
of nonaccruing residential loans to a wholly-owned subsidiary of CMC during the
twelve months ended December 31, 1998. No gain or loss was recognized from this
sale.

Advisory fees and servicing fees incurred in 1998, 1997 and 1996 totaled
approximately $2,500,000, $2,883,000 and $745,000, respectively.

In its capacity as sub-servicer, CMMC owed the Company approximately
$71,140,000, and $40,664,000 at December 31, 1998 and 1997, respectively,
primarily consisting of mortgage loan payments received on behalf of the
Company. Pursuant to the terms of the servicing and subservicing agreements, the
Company receives mortgage loan payments collected by the Servicer (and
sub-servicer) in the month immediately following its collection.

The Company maintains its cash in an overnight deposit account with the Bank and
earns a market rate of interest. Interest income on these deposits amounted to
approximately $7,089,000 and $2,760,000 for the years ended December 31, 1998
and 1997, respectively.


NOTE 7 - FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------

Statement of Financial Accounting Standards No. 107, entitled "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107"), requires the Company to
disclose fair value information about financial instruments for which it is
practicable to estimate the value, whether or not such financial instruments are
recognized on the balance sheet. Fair value is defined as the amount at which a
financial instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation, and is best evidenced by a
quoted market price, if one exists. The calculation of estimated fair value is
based on market conditions at a specific point in time and may not be reflective
of future fair values.

Certain financial instruments and all nonfinancial instruments are excluded from
the scope of SFAS 107. Accordingly, the fair value disclosures required by SFAS
107 provide only a partial estimate of the fair value of the Company. Fair
values among REITs are not comparable due to the wide range of limited valuation
techniques and numerous estimates which must be made. This lack of objective
valuation standard introduces a great degree of subjectivity to these derived or
estimated fair values. Therefore, readers are cautioned in using this
information for purposes of evaluating the financial condition of the Company
compared with other REITs.

Mortgage Loans:

Mortgage Loans were valued using methodologies suitable for each loan type.
Certain of these methodologies and the key assumptions made are discussed below.

The fair value of the Company's commercial mortgage loans was estimated by
assessing the two main risk components of the portfolio: credit and interest.
The estimated cash flows were adjusted to reflect the inherent credit risk and
then discounted, using rates appropriate for each maturity that incorporate the
effects of interest rate changes.

For residential mortgage loans for which market rates for comparable loans are
readily available, the fair values were estimated by discounting cash flows,
adjusted for prepayments. The discount rates used for residential mortgages were
secondary market yields for comparable mortgage-backed securities, adjusted for
risk. The discount rates used incorporated the effects of interest rate changes
only, since the estimated cash flows were adjusted for credit risk.


                                      -21-
<PAGE>


The book value and fair value of Mortgage Loans at December 31, 1998 and 1997
were as follows (in thousands):
<TABLE>
<CAPTION>

                                             12/31/98                    12/31/97
                                    Book Value      Fair Value   Book Value         Fair Value
                                    ----------      ----------   ----------         ----------
<S>                                <C>          <C>              <C>              <C>          
Residential mortgage loans         $  944,012   $    957,395     $   889,696      $    901,616
Commercial mortgage loans              77,356         82,763          95,372           103,462
Allowance for loan losses              (4,120)        (4,120)         (3,468)           (3,468)
                                   -----------  ------------     -----------      ------------
Mortgage Loans, net of             $ 1,017,248  $  1,036,038     $   981,600      $  1,001,610
     allowance for loan losses
</TABLE>

Assets and liabilities for which fair value approximates carrying value:

The fair values of certain financial assets and liabilities carried at cost,
including cash, due from affiliates, accrued interest receivable, accounts
payable and due to affiliates are considered to approximate their respective
carrying value due to their short-term nature and negligible credit losses.


                                      -22-
<PAGE>


                       CHASE PREFERRED CAPITAL CORPORATION
                              AVERAGE BALANCE SHEET
                        (in thousands, except share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    1998                               1997
                                                      --------------------------------     ------------------------------
                                                          Balance     Interest    Rate       Balance     Interest    Rate
   ASSETS:

<S>                                                   <C>               <C>       <C>     <C>             <C>        <C> 
   Residential mortgage loans                         $    866,792      64,430    7.4%    $   944,808     70,790     7.6%
   Commercial mortgage loans                                86,552       7,909    9.1%         99,751      9,391     9.4%
   Cash                                                    130,466       7,089    5.4%         53,642      2,760     5.2%
                                                      ------------   ---------    ----    -----------  ----------    ----

        TOTAL INTEREST-EARNING ASSETS                    1,083,810      79,428    7.3%      1,098,201     82,941     7.6%
                                                      ------------   ---------    ----    ----------- ----------     ----

   Allowance for credit losses                              (3,631)                            (3,296)
   Due from affiliates                                      47,547                             18,072
   Accrued interest receivable                               6,526                              6,348
                                                      ------------                        -----------

        TOTAL ASSETS                                  $  1,134,252                        $ 1,119,325
                                                      ============                        ===========

    LIABILITIES:

    Accounts payable                                  $       6,931                               367
    Due to affiliates                                         2,666                             2,116
                                                       ------------                       -----------

        TOTAL LIABILITIES                                     9,597                             2,483
                                                      -------------                       -----------

   STOCKHOLDERS' EQUITY:

   Preferred stock, par value $25 per 
     share; 50,000,000 shares authorized, 
     22,000,000 issued and outstanding                      550,000                           550,000
   Common stock, one share authorized and
     outstanding, par value $171,750,000
     per share                                              171,750                           171,750
   Capital surplus                                          381,637                           381,637
   Retained earnings                                         21,268                            13,455
                                                      -------------                       -----------

        TOTAL STOCKHOLDERS' EQUITY                        1,124,655                         1,116,842
                                                      -------------                       -----------

        TOTAL LIABILITIES AND STOCKHOLDERS'           $   1,134,252                       $ 1,119,325
                                                      =============                      =============
           EQUITY
</TABLE>


   The Notes to Financial Statements are an integral part of these Statements.


                                      -23-
<PAGE>


                       CHASE PREFERRED CAPITAL CORPORATION
                         QUARTERLY FINANCIAL INFORMATION
                                 (in thousands)

<TABLE>
<CAPTION>

                                                        1998                                            1997
                                     -------------------------------------------    -------------------------------------------
                                       Fourth     Third     Second      First         Fourth     Third     Second       First
                                      Quarter    Quarter    Quarter    Quarter       Quarter    Quarter    Quarter     Quarter


INTEREST INCOME:

<S>                                  <C>        <C>        <C>        <C>           <C>          <C>        <C>         <C>       
Residential mortgage loans           $   17,221 $   17,011 $   14,446 $   15,752    $   16,511   $ 17,994   $  18,619   $   17,666
Commercial mortgage loans                 1,836      1,746      2,141      2,186         2,334      2,286       2,385        2,386
Interest on overnight investments         1,187      1,371      2,668      1,863         1,064        624         383          689
                                     ---------- ---------- ---------- ----------    ----------   --------   ---------   ----------
                                         20,244     20,128     19,255     19,801        19,909     20,904      21,387       20,741
         Less: servicing fees             (421)      (670)      (559)      (599)         (643)       (654)       (671)        (665)
                                     ---------  ---------- ---------- ----------    ----------   --------   ---------   ----------
     Net interest income                 19,823     19,458     18,696     19,202        19,266     20,250      20,716       20,076
                                     ---------- ---------- ---------- ----------    ----------   ---------  ---------   ----------
                                                                                                 
NON INTEREST EXPENSE:                                                                            
                                                                                                 
Advisory fees                                63         63         62         63            62         63          63           62
Other administrative expenses                61         93         92        123            66         25          98           90
                                     ---------- ---------- ---------- ----------    ----------   --------   ---------   ----------
         Total noninterest expense          124        156        154        186           128         88         161          152
                                     ---------- ---------- ---------- ----------    ----------   --------   ---------   ----------
                                                                                                 
NET INCOME:                          $   19,699 $   19,302  $  18,542 $   19,016    $   19,138   $ 20,162   $  20,555   $   19,924
                                     ========== ==========  ========= ==========    ==========   ========   =========   ==========
                                                                                                
NET INCOME APPLICABLE TO
    COMMON SHARE                     $    8,562 $    8,164 $    7,404 $    7,879    $    8,001   $  9,024   $   9,417   $    8,787
                                     ========== ========== ========== ==========    ==========   ========   =========   ==========

NET INCOME PER COMMON                $    8,562 $    8,164 $    7,404 $    7,879    $    8,001   $  9,024   $   9,417   $    8,787
    SHARE(a)                         ========== ========== ========== ==========    ==========   ========   =========   ==========
    
</TABLE>


-----------------
(a)   All per share amounts have been restated to reflect the change, effected
      on December 29, 1998, of the Company's outstanding Common Stock from
      572,500 shares, par value $300 per share, to one share, par value
      $171,750,000 per share.


                                      -24-
<PAGE>


ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.


ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

The following persons are directors of the Company as of the date hereof:

Richard J. Boyle              55    Director. Retired as Vice Chairman 
                                    of the Board of The Chase          
                                    Manhattan Corporation ("Heritage   
                                    Chase") and The Chase Manhattan    
                                    Bank, N.A. upon consummation of    
                                    the merger of Heritage Chase into  
                                    Chemical Banking Corporation on    
                                    March 31,1996 (the "Merger"). Mr.  
                                    Boyle served in such positions     
                                    since 1987.                        
                              

Dina Dublon                   45    President and Director. An         
                                    Executive Vice President, the      
                                    Chief Financial Officer of CMC and 
                                    the Bank, and a member of CMC's    
                                    policy committee. Ms. Dublon       
                                    joined the Bank in 1981 and has    
                                    served in various positions at the 
                                    Bank, including Corporate          
                                    Treasurer and Executive Vice       
                                    President, Corporate Planning.     
                              

Thomas Jacob                  60    Director. The Chairman and Chief   
                                    Executive Officer of Chase         
                                    Manhattan Mortgage Corporation,    
                                    the mortgage subsidiary of CMC.    
                                    Mr. Jacob is also the Chairman of  
                                    Chase Manhattan Bank USA, N.A.,    
                                    and a director of Chase Insurance  
                                    Agency, Inc. For the six years     
                                    prior to the Merger, Mr. Jacob was 
                                    the executive responsible for the  
                                    residential retail mortgage        
                                    business of Chemical Banking       
                                    Corporation.                       
                              
William C. Langley            60    Director. Retired as an Executive  
                                    Vice President and Chief Credit    
                                    and Risk Policy Officer of         
                                    Chemical Banking Corporation and   
                                    Chemical Bank, effective July 31,  
                                    1996. Prior to becoming an         
                                    Executive Vice President of        
                                    Chemical Banking Corporation and   
                                    Chemical Bank in 1991, Mr. Langley 
                                    had served as an Executive Vice    
                                    President since 1983, and the      
                                    Chief Credit Officer since 1990,   
                                    of Manufacturers Hanover           
                                    Corporation. Mr. Langley is a      
                                    director of Morrison Knudsen Corp. 
                              
Louis M. Morrell              52    Treasurer and Director. A Managing 
                                    Director of the Bank and CMC. Mr.  
                                    Morrell joined the Bank in 1970    
                                    and, since joining, has held       
                                    various corporate finance and      
                                    corporate treasury-related         
                                    positions with the Bank.           
                              
Neila B. Radin                45    Secretary. A Senior Vice President 
                                    and Associate General Counsel of   
                                    the Bank. Ms. Radin joined the     
                                    Bank in 1987 and has been a member 
                                    of its legal department since      
                                    1988.                              
                              
Joseph L. Sclafani            50    Director. An Executive Vice        
                                    President of CMC and the Bank, and 
                                    Controller of CMC since the        
                                    Merger, with responsibility for    
                                    corporate accounting, reporting,   
                                    tax and insurance functions. Prior 
                                    to the Merger, Mr. Sclafani was    
                                    Controller of Chemical Banking     
                                    Corporation since August 1992.     
                              
Robert S. Strong              49    Chairman and Director. An          
                                    Executive Vice President and the   
                                    Chief Credit Officer of CMC and    
                                    the Bank and a member of CMC's     
                                    policy council. Mr. Strong joined  
                                    Heritage Chase in 1971 and served  
                                    in various positions at Heritage   
                                    Chase, including as executive in   
                                    charge of the Global Portfolio     
                                    Management Group, the Real Estate  
                                    Finance Group, the Transportation  
                                    and Defense Group, the Diversified 
                                    Industries Group and the Public    
                                    Utilities Group.                   
                              

                                      -25-
<PAGE>


ITEM 11: EXECUTIVE COMPENSATION

The Company does not pay any compensation to its officers or to directors who
are not Independent Directors. The Independent Directors (Messrs. Boyle and
Langley) each receive annual compensation of $10,000 plus a fee of $750 for
attendance (in person or by telephone) at each meeting of the Board of
Directors.


ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

None.


ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is hereby made to "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of the Company's various relationships with the Bank, the sole holder
of all its outstanding Common Stock.


ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

No Current Reports on Form 8-K were filed during the fourth quarter of 1998.


                                      -26-
<PAGE>


                                INDEX TO EXHIBITS


EXHIBIT NO.                         EXHIBITS

3(a)(i)   Form of Amended and Restated Certificate of Incorporation of the
          Company (Incorporated by reference to Exhibit 3(a) (iii) to the
          Registration Statement on Form S-11 (File No. 333- 08001) of Chase
          Preferred Capital Corporation).

3(a)(ii)  Form of Certificate of Designation establishing the Series A
          Preferred Shares (Incorporated by reference to Exhibit 3(a) (ii) to
          the Registration Statement on Form S-11 (File No. 333- 08001) of
          Chase Preferred Capital Corporation).

3(a)(iii) Certificate of Amendment to Amended and Restated Certificate of
          Incorporation of the Company.

3(b)      Form of Amended and Restated By-laws of the Company (Incorporated by
          reference to Exhibit 3(b) (ii) to the Registration Statement on Form
          S-11 (File No. 333-08001) of Chase Preferred Capital Corporation).

4         Specimen of certificate representing Series A Preferred Shares
          (Incorporated by reference to Exhibit 4 to the Registration
          Statement on Form S-11 (File No. 333-08001 of Chase Preferred
          Capital Corporation).

10(a)     Form of Residential Mortgage Loan Purchase and Warranties Agreement
          between the Company and The Chase Manhattan Bank (Incorporated by
          reference to Exhibit 10(a) to the Registration Statement on Form S-11
          (File No. 333-08001) of Chase Preferred Capital Corporation).

10(b)     Form of Commercial Mortgage Loan Purchase and Warranties Agreement
          between the Company and The Chase Manhattan Bank (Incorporated by
          reference to Exhibit 10(b) to the Registration Statement on Form
          S-11 (File No. 333-08001) of Chase Preferred Capital Corporation).

10(c)     Form of Residential Mortgage Loan Servicing Agreement between the
          Company and The Chase Manhattan Bank (Incorporated by reference to
          Exhibit 10(c) to the Registration Statement on Form S-11 (File No.
          333-08001) of Chase Preferred Capital Corporation).

10(d)     Form of Commercial Mortgage Loan Servicing Agreement between the
          Company and The Chase Manhattan Bank (Incorporated by reference to
          Exhibit 10(d) to the Registration Statement on Form S-11 (File No.
          333-08001) of Chase Preferred Capital Corporation).

10(e)     Form of Advisory Agreement between the Company and The Chase
          Manhattan Bank (Incorporated by reference to Exhibit 10(e) to The
          Registration Statement on Form S-11 (File No. 333-08001) of Chase
          Preferred Capital Corporation).

11        Computation of net income per share

12(a)     Computation of ratio of earnings to fixed charges

12(b)     Computation of ratio of earnings to fixed charges and preferred
          stock dividend requirements

27        Financial Data Schedule

          
                                      -27-
<PAGE>


                                   SIGNATURES


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


                                        CHASE PREFERRED CAPITAL CORPORATION
                                                  (Registrant)



Date: March 26, 1999                     By: /s/  Louis M. Morrell
                                            --------------------------------
                                                 Louis M. Morrell
                                                 Treasurer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.



Signature                           Title                           Date
---------                           -----                           ----


/s/  Robert S. Strong         Chairman and Director             March 26, 1999
-----------------------       (Principal Executive Officer)
     Robert S. Strong         


/s/  Dina Dublon              President and Director            March 26, 1999
-----------------------
     Dina Dublon


/s/  Louis M. Morrell         Treasurer and Director            March 26, 1999
-----------------------       (Principal financial 
     Louis M. Morrell         and accounting officer)


/s/  Richard J. Boyle         Director                          March 26, 1999
-----------------------
     Richard J. Boyle


/s/  Thomas Jacob             Director                          March 26, 1999
-----------------------
     Thomas Jacob


/s/  William C. Langley       Director                          March 26, 1999
------------------------
     William C. Langley


/s/  Joseph L. Sclafani       Director                          March 26, 1999
------------------------
     Joseph L. Sclafani