OFFERING CIRCULAR

5,000,000 Shares

Variable Rate Non-Cumulative Preferred Stock, Series G

(stated value $50 per share)

This OÅering Circular relates to the oÅer of 5,000,000 shares of the Variable Rate Non-Cumulative Preferred

Stock, Series G (the ""Preferred Stock'') of the Federal National Mortgage Association (""Fannie Mae''). The Preferred

Stock has a stated value and liquidation preference of $50 per share. Dividends at the initial rate of 6.023% per year will

accrue from and including August 8, 2000 to but excluding September 30, 2002. The dividend rate will reset as of

September 30, 2002 and as of September 30 every two years thereafter until any redemption, based on the two-year

CMT Rate minus 0.18%, subject to a cap of 11% per year. We will be required to pay dividends quarterly on March 31,

June 30, September 30 and December 31 of each year, commencing September 30, 2000. However, we will be required

to pay dividends only when, as and if declared by our Board of Directors, or a duly authorized committee thereof, in its

sole discretion out of funds legally available for such payment. The amount of dividends we will be required to pay, if

our Board declares them, may be increased if legislation is enacted that changes the Internal Revenue Code of 1986, as

amended, to reduce the dividends-received deduction applicable to dividends on the Preferred Stock as set forth under

""Description of the Preferred StockÌDividendsÌChanges in the Dividends-Received Percentage.''

Dividends on the Preferred Stock will not be cumulative. Accordingly, if for any reason our Board of Directors does

not declare a dividend on the Preferred Stock for a dividend period, we will have no obligation to pay a dividend for that

period, whether or not our Board declares dividends on the Preferred Stock for any future dividend period. If, however,

we have not paid or set aside for payment dividends on the Preferred Stock for a dividend period, we may not pay

dividends on our common stock for that period.

On September 30, 2002 and on September 30 every two years thereafter, we may redeem the Preferred Stock, in

whole or in part, at our option at the redemption price of $50 per share plus the dividend (whether or not declared) for

the quarterly dividend period ending on the date of redemption.

The Preferred Stock will not have any voting rights, except as set forth under ""Description of the Preferred

StockÌVoting Rights; Amendments.''

Application has been made to list the Preferred Stock on the New York Stock Exchange under the symbol

""FNMprG.'' Trading of the Preferred Stock on the NYSE is expected to commence within a thirty-day period after the

initial delivery of the Preferred Stock.

Our obligations under the terms of the Preferred Stock are only our obligations and are not those of

the United States or of any instrumentality thereof other than Fannie Mae.

Initial Public Underwriting Proceeds to

OÅering Price(1) Discount Fannie Mae(1)(2)

Per Share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $50.00 $0.50 $49.50

Total(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $250,000,000 $2,500,000 $247,500,000

(1) Plus accrued dividends, if any, from August 8, 2000.

(2) Before deducting estimated expenses of $325,000. The Underwriters have agreed to reimburse Fannie Mae for its expenses.

(3) Fannie Mae has granted the Underwriters an option to purchase up to an additional 750,000 shares of Preferred Stock to cover

overallotments, if any. If all such shares are purchased, the total Initial Public OÅering Price, Underwriting Discount and

Proceeds to Fannie Mae will be $287,500,000, $2,875,000 and $284,625,000, respectively. See ""Underwriting''.

Bear, Stearns & Co. Inc. Morgan Stanley Dean Witter

First Tennessee Bank N.A.

J.P. Morgan & Co.

Salomon Smith Barney

Utendahl Capital Partners, L.P.

The date of this OÅering Circular is August 3, 2000.
We are not required to register the Preferred Stock under the U.S. Securities Act of 1933, as

amended. Accordingly, we have not Ñled a registration statement with the U.S. Securities and

Exchange Commission. The shares of Preferred Stock are ""exempted securities'' within the meaning

of the U.S. Securities Exchange Act of 1934, as amended. Neither the U.S. Securities and Exchange

Commission nor any state securities commission or other regulatory body has approved or disapproved the Preferred Stock or determined if this OÅering Circular is truthful or complete. Any

representation to the contrary is a criminal oÅense.

The distribution of this OÅering Circular and the oÅer, sale, and delivery of the Preferred Stock in

certain jurisdictions may be restricted by law. Persons who come into possession of this OÅering

Circular must inform themselves about and observe any applicable restrictions.

This OÅering Circular is not an oÅer to sell or a solicitation of an oÅer to buy any securities other

than the Preferred Stock or an oÅer to sell or a solicitation of an oÅer to buy the Preferred Stock in

any jurisdiction or in any other circumstance in which an oÅer or solicitation is unlawful or not

authorized.

Because we are not subject to the periodic reporting requirements of the U.S. Securities Exchange

Act of 1934, we do not Ñle reports or other information with the U.S. Securities and Exchange

Commission.

No person has been authorized to give any information or make any representations other than

those contained in this OÅering Circular and, if given or made, such information or representations

must not be relied upon as having been authorized. Neither the delivery of this OÅering Circular nor

any sale made hereunder shall, under any circumstances, create an implication that there has been no

change in the aÅairs of Fannie Mae since the date hereof, or in the case of facts set forth in the

documents incorporated by reference herein, since the respective dates thereof or that the information

contained herein or therein is correct as to any time subsequent thereto.

TABLE OF CONTENTS

Description Page

Summary of the OÅering ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6

Use of Proceeds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6

Capitalization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7

Selected Financial InformationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8

Government Regulation and Charter ActÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11

Description of the Preferred Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14

Legality of Investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22

United States Taxation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23

Underwriting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 25

RatingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26

AccountantsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26

Validity of the Preferred StockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26

Additional Information About Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 26

Appendix AÌCertiÑcate of Designation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1

2
SUMMARY OF THE OFFERING

This summary highlights information contained elsewhere in, or incorporated by reference in, this

OÅering Circular. It does not contain all of the information you should consider before investing in the

Preferred Stock. You also should read the more detailed information contained elsewhere in this

OÅering Circular and in the documents incorporated herein by reference.

Fannie Mae

Fannie Mae is a federally chartered and stockholder-owned corporation organized and existing

under the Federal National Mortgage Association Charter Act. We are the largest investor in home

mortgage loans in the United States. We were established in 1938 as a United States government

agency to provide supplemental liquidity to the mortgage market and were transformed into a

stockholder-owned and privately managed corporation by legislation enacted in 1968.

Description of the Preferred Stock

Issuer ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Fannie Mae

Securities OÅered ÏÏÏÏÏÏÏÏÏÏÏÏ 5,000,000 shares (assuming the Underwriters do not exercise their

overallotment option) of Variable Rate Non-Cumulative Preferred

Stock, Series G, no par value, with a stated value and liquidation

preference of $50 per share

Dividends:

Initial Dividend Rate ÏÏÏÏÏÏÏ 6.023% per annum. Dividends will accrue at the Initial Dividend

Rate from and including August 8, 2000 to but excluding September 30, 2002. The dividend rate will reset as of September 30, 2002

and as of September 30 every two years thereafter (based on the

two-year CMT Rate determined two Business Days prior thereto).

Variable Dividend Rate ÏÏÏÏÏ Two-year CMT Rate minus 0.18%. For information about the

manner in which the two-year CMT Rate will be determined, see

""Description of Preferred StockÌDividends.''

Dividend Rate Cap ÏÏÏÏÏÏÏÏÏ 11%

Calculation Agent ÏÏÏÏÏÏÏÏÏÏ Fannie Mae

Frequency of Payment ÏÏÏÏÏÏ Quarterly, when, as and if declared by the Board of Directors

Payment Dates ÏÏÏÏÏÏÏÏÏÏÏÏ March 31, June 30, September 30 and December 31 of each year,

beginning September 30, 2000

DRD Protection ÏÏÏÏÏÏÏÏÏÏÏ If, prior to February 8, 2002, amendments to the Internal Revenue

Code of 1986, as amended, are enacted that eliminate or reduce the

percentage of the dividends-received deduction below 70%, the

amount of dividends payable in respect of the Preferred Stock will

be adjusted to oÅset the eÅect of such reduction. However, no

adjustment will be made to the extent that the percentage of the

dividends-received deduction is reduced below 50%. Such adjustment may result in a dividend rate in excess of 11% per annum.

Preferences ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Preferred Stock will be entitled to a preference, both as to

dividends and upon liquidation, over the common stock (and any

other junior stock) of Fannie Mae. The Preferred Stock will rank

equally, both as to dividends and upon liquidation, with all other

currently outstanding series of Fannie Mae preferred stock.

3
Optional Redemption ÏÏÏÏÏÏÏÏÏ On September 30, 2002 and on September 30 every two years

thereafter, Fannie Mae will have the option to redeem the Preferred

Stock, in whole or in part, at the redemption price of $50 per share

plus the amount that would otherwise be payable as the dividend

for the quarterly dividend period ending on the redemption date.

Liquidation Rights ÏÏÏÏÏÏÏÏÏÏÏ In the event of any dissolution or liquidation of Fannie Mae,

holders of the Preferred Stock will be entitled to receive, out of any

assets available for distribution to stockholders, $50 per share plus

the dividend for the then-current quarterly dividend period accrued

through the liquidation payment date.

Voting RightsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ None, except with respect to certain changes in the terms of the

Preferred Stock

Preemptive and Conversion

Rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ None

Rating ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Preferred Stock has been rated ""aa3'' by Moody's Investors

Service, Inc.

Use of Proceeds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ To be added to the working capital of Fannie Mae and used for

general corporate purposes, including the repurchase of outstanding

shares of our common stock.

Transfer Agent, Dividend

Disbursing Agent and

Registrar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ First Chicago Trust Company a division of EquiServe

NYSE Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Application has been made to list the Preferred Stock on the New

York Stock Exchange under the symbol ""FNMprG''. We expect

trading on the NYSE to commence within a thirty-day period after

the initial delivery of the Preferred Stock.

CUSIP Number ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 313586802

4
Summary Selected Financial Data

(Unaudited)

(Dollars in millions)

June 30, December 31,

2000 1999 1999 1998 1997 1996 1995

Balance Sheet Data:

Mortgage portfolio, net ÏÏ $549,985 $473,463 $522,780 $415,223 $316,316 $286,259 $252,588

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏ 608,775 526,263 575,167 485,014 391,673 351,041 316,550

Total liabilities ÏÏÏÏÏÏÏÏÏÏ 589,984 509,682 557,538 469,561 377,880 338,268 305,591

Stockholders' equity ÏÏÏÏÏ 18,791 16,581 17,629 15,453 13,793 12,773 10,959

Capital(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,597 17,375 18,430 16,244 14,575 13,520 11,703

Six Months Ended

June 30, Year Ended December 31,

2000 1999 1999 1998 1997 1996 1995

Income Statement Data:

Net interest income ÏÏÏÏÏ $ 2,761 $ 2,347 $ 4,894 $ 4,110 $ 3,949 $ 3,592 $ 3,047

Guaranty fees ÏÏÏÏÏÏÏÏÏÏÏ 671 637 1,282 1,229 1,274 1,196 1,086

Fee and other income

(expense), net ÏÏÏÏÏÏÏÏ (46) 112 191 275 125 86 93

Special contribution ÏÏÏÏÏ ÌÌÌÌÌÌ (350)

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,159 1,883 3,912 3,418 3,056 2,725 2,144

Six Months Ended

June 30, Year Ended December 31,

2000 1999 1999 1998 1997 1996 1995

Other Data:

Net interest marginÏÏÏÏÏÏ 1.02% 1.01% 1.01% 1.03% 1.17% 1.18% 1.16%

Ratio of earnings to

combined Ñxed charges

and preferred stock

dividends(2)ÏÏÏÏÏÏÏÏÏÏÏ 1.16:1 1.18:1 1.17:1 1.18:1 1.19:1 1.19:1 1.17:1

Mortgage purchases ÏÏÏÏÏ $ 61,291 $108,756 $195,210 $188,448 $ 70,465 $ 68,618 $ 56,598

MBS issuedÏÏÏÏÏÏÏÏÏÏÏÏÏ 87,553 185,004 300,689 326,148 149,429 149,869 110,456

MBS outstanding at

period end(3)ÏÏÏÏÏÏÏÏÏ 995,815 911,435 960,883 834,518 709,582 650,780 582,959

(1) Stockholders' equity plus general allowance for losses at period end.

(2) ""Earnings'' consists of (a) income before federal income taxes and extraordinary item, and

(b) Ñxed charges. ""Fixed charges'' represents interest expense. There was no preferred stock

outstanding in 1995.

(3) Includes MBS in portfolio of $299 billion and $250 billion at June 30, 2000 and 1999,

respectively, and $282 billion, $197 billion, $130 billion, $103 billion and $70 billion at

December 31, 1999, 1998, 1997, 1996 and 1995, respectively.

5
FANNIE MAE

Fannie Mae is a federally chartered and stockholder-owned corporation organized and existing

under the Federal National Mortgage Association Charter Act, 12 U.S.C. Û 1716 et seq. (the ""Charter

Act''). See ""Government Regulation and Charter Act'' in this OÅering Circular and in the Information

Statement and ""Additional Information About Fannie Mae'' in this OÅering Circular. We are the

largest investor in home mortgage loans in the United States. We were established in 1938 as a United

States government agency to provide supplemental liquidity to the mortgage market and were

transformed into a stockholder-owned and privately managed corporation by legislation enacted in

1968.

Fannie Mae provides funds to the mortgage market by purchasing mortgage loans from lenders,

thereby replenishing their funds for additional lending. We acquire funds to purchase these loans by

issuing debt securities to capital market investors, many of whom ordinarily would not invest in

mortgages. In this manner, we are able to expand the total amount of funds available for housing.

Fannie Mae also issues mortgage-backed securities (""MBS''), receiving guaranty fees for our

guarantee of timely payment of principal and interest on MBS certiÑcates. We issue MBS primarily in

exchange for pools of mortgage loans from lenders. The issuance of MBS enables us to further our

statutory purpose of increasing the liquidity of residential mortgage loans.

In addition, Fannie Mae oÅers various services to lenders and others for a fee. These services

include issuing certain types of MBS and providing technology services for originating and underwriting mortgage loans. See ""Business'' in the Information Statement and ""Additional Information About

Fannie Mae'' in this OÅering Circular.

Fannie Mae's principal oÇce is located at 3900 Wisconsin Avenue, N.W., Washington, D.C.

20016 (telephone: (202) 752-7000).

USE OF PROCEEDS

We will add the net proceeds from the sale of the Preferred Stock to our working capital and use

them for general corporate purposes, including the repurchase of shares of our common stock. We

anticipate the need for additional Ñnancing from time to time, including Ñnancing through various

types of equity and debt securities. The amount and nature of such Ñnancings will depend upon a

number of factors, including the volume of our maturing debt obligations, the volume of mortgage loan

prepayments, the volume and type of mortgage loans we purchase, and general market conditions.

6
CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2000, and as adjusted to give eÅect

to the issuance of the Preferred Stock (before giving eÅect to the payment of estimated oÅering

expenses and underwriting discount, and assuming that the Underwriters' overallotment option is not

exercised).

Actual

Outstanding at

Average Average June 30,

Maturity Cost(1) 2000 As Adjusted

(Dollars in millions)

Debentures, notes, and bonds, net:

Due within one year:

Short-term notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 mos. 6.45% $146,260 $146,260

Universal Benchmark ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 mos. 6.03 3,998 3,998

Universal Retail ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 mos. 6.58 406 406

Universal Short-term ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 mos. 6.52 36,361 36,361

Universal Standard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 mos. 5.86 51,499 51,499

Other(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6.70 757 757

Total due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 239,281 239,281

Due after one year:

Universal Benchmark ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 yrs. 5 mos. 6.28% 145,311 145,311

Universal Retail ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 yrs. 1 mo. 6.73 6,641 6,641

Universal Standard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 yrs. 1 mo. 6.36 183,199 183,199

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 yrs. 2 mos. 8.24 4,095 4,095

Total due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 339,246 339,246

Total debentures, notes, and bondsÏÏÏÏÏÏÏÏÏÏÏ $578,527 $578,527

Stockholders' equity:

Preferred stock, $50 stated value;

100,000,000 shares authorizedÌ

44,800,000 shares issued

Series A, 7,500,000 shares Issued ÏÏÏÏÏÏÏÏ $ 375 $ 375

Series B, 7,500,000 shares Issued ÏÏÏÏÏÏÏÏ 375 375

Series C, 5,000,000 shares Issued ÏÏÏÏÏÏÏÏ 250 250

Series D, 3,000,000 shares Issued ÏÏÏÏÏÏÏÏ 150 150

Series E, 3,000,000 shares Issued ÏÏÏÏÏÏÏÏ 150 150

Series F, 13,800,000 shares Issued ÏÏÏÏÏÏÏ 690 690

Series G, 5,000,000 shares Issued ÏÏÏÏÏÏÏÏ Ì 250

Common stock, $.525 stated value, no

maximum authorizationÌ

1,129,000,000 shares outstanding ÏÏÏÏÏÏÏÏÏÏ 593 593

Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,590 1,590

Retained earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,958 19,958

Accumulated other comprehensive loss ÏÏÏÏÏÏÏ (253) (253)

23,878 24,128

Less treasury stock, at costÌ

128,000,000 shares(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,087 5,087

Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 18,791 $ 19,041

(1) Represents weighted-average cost, which includes the amortization of discounts, premiums, issuance

costs, hedging results, and the eÅects of currency and debt swaps.

(2) Average maturity is indeterminate because the outstanding amount includes investment agreements

that have varying maturities.

(3) Does not reÖect any repurchases of our common stock that may be made using proceeds from the sale of

the Preferred Stock, Series G. See ""Use of Proceeds.''

We frequently issue debentures, notes, and other debt obligations. The amount of debentures,

notes, and other debt obligations outstanding, and stockholders' equity, on any date subsequent to

June 30, 2000 may diÅer from that shown in the table above.

7
SELECTED FINANCIAL INFORMATION

The following selected Ñnancial data for the years 1995 through 1999 and for the six-month

periods ended June 30, 2000 and 1999 (which data are not covered by the independent auditors'

report) have been summarized or derived from our audited Ñnancial statements for 1995 through 1999

and from our unaudited Ñnancial statements for the six month periods and other Ñnancial information

for such periods. These data are unaudited and include, in the opinion of management, all adjustments

(consisting of normal recurring accruals) necessary for a fair presentation. These data should be read

in conjunction with the audited Ñnancial statements and notes to the Ñnancial statements contained

in the Information Statement incorporated herein by reference.

(Dollars in millions, except per common share amounts)

Six Months Ended

June 30, Year Ended December 31,

2000 1999 1999 1998 1997 1996 1995

Income Statement Data:

Interest income ÏÏÏÏÏÏÏÏÏ $ 20,338 $ 16,847 $ 35,495 $ 29,995 $ 26,378 $ 23,772 $ 21,071

Interest expenseÏÏÏÏÏÏÏÏÏ (17,577) (14,500) (30,601) (25,885) (22,429) (20,180) (18,024)

Net interest income ÏÏÏÏÏ 2,761 2,347 4,894 4,110 3,949 3,592 3,047

Guaranty fees ÏÏÏÏÏÏÏÏÏÏÏ 671 637 1,282 1,229 1,274 1,196 1,086

Fee and other income

(expense), net ÏÏÏÏÏÏÏÏ (46) 112 191 275 125 86 93

Credit-related expenses ÏÏ (51) (87) (127) (261) (375) (409) (335)

Administrative expenses (441) (391) (800) (708) (636) (560) (546)

Special contribution ÏÏÏÏÏ ÌÌÌÌÌÌ (350)

Income before federal

income taxes and

extraordinary item ÏÏÏÏ 2,894 2,618 5,440 4,645 4,337 3,905 2,995

Provision for federal

income taxes ÏÏÏÏÏÏÏÏÏÏ (768) (726) (1,519) (1,201) (1,269) (1,151) (840)

Income before

extraordinary item ÏÏÏÏ 2,126 1,892 3,921 3,444 3,068 2,754 2,155

Extraordinary itemÌgain

(loss) on early

extinguishment of debt,

net of tax eÅect ÏÏÏÏÏÏÏ 33 (9) (9) (26) (12) (29) (11)

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,159 $ 1,883 $ 3,912 $ 3,418 $ 3,056 $ 2,725 $ 2,144

Preferred stock dividends (52) (38) (78) (66) (65) (42) Ì

Net income available to

common shareholders ÏÏ $ 2,107 $ 1,845 $ 3,834 $ 3,352 $ 2,991 $ 2,683 $ 2,144

Basic earnings per

common share(1):

Earnings before

extraordinary item ÏÏ $ 2.06 $ 1.81 $ 3.75 $ 3.28 $ 2.87 $ 2.53 $ 1.98

Extraordinary item ÏÏÏÏ .03 (.01) Ì (.02) (.02) (.03) (.01)

Net earnings ÏÏÏÏÏÏÏÏÏÏ $ 2.09 $ 1.80 $ 3.75 $ 3.26 $ 2.85 $ 2.50 $ 1.97

Diluted earnings per

common share(1):

Earnings before

extraordinary item ÏÏ $ 2.05 $ 1.79 $ 3.73 $ 3.26 $ 2.84 $ 2.51 $ 1.96

Extraordinary item ÏÏÏÏ .03 Ì (.01) (.03) (.01) (.03) (.01)

Net earnings ÏÏÏÏÏÏÏÏÏÏ $ 2.08 $ 1.79 $ 3.72 $ 3.23 $ 2.83 $ 2.48 $ 1.95

Cash dividends per

common share ÏÏÏÏÏÏÏÏ $ .56 $ .54 $ 1.08 $ .96 $ .84 $ .76 $ .68

8
June 30, December 31,

2000 1999 1999 1998 1997 1996 1995

Balance Sheet Data:

Mortgage portfolio, net ÏÏ $549,985 $473,463 $522,780 $415,223 $316,316 $286,259 $252,588

Investments ÏÏÏÏÏÏÏÏÏÏÏÏ 47,395 42,304 39,751 58,515 64,596 56,606 57,273

Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏ 608,775 526,263 575,167 485,014 391,673 351,041 316,550

Borrowings:

Due within one year ÏÏÏ 239,281 192,833 226,582 205,413 175,400 159,900 146,153

Due after one yearÏÏÏÏÏ 339,246 307,064 321,037 254,878 194,374 171,370 153,021

Total liabilitiesÏÏÏÏÏÏÏÏÏÏ 589,984 509,682 557,538 469,561 377,880 338,268 305,591

Stockholders' equity ÏÏÏÏÏ 18,791 16,581 17,629 15,453 13,793 12,773 10,959

Capital(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19,597 17,375 18,430 16,244 14,575 13,520 11,703

Six Months Ended

June 30, Year Ended December 31,

2000 1999 1999 1998 1997 1996 1995

Other Data:

Average net interest

margin ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.02% 1.01% 1.01% 1.03% 1.17% 1.18% 1.16%

Return on average

common equityÏÏÏÏÏÏÏÏ 25.8 24.9 25.2 25.2 24.6 24.1 20.9

Dividend payout ratioÏÏÏÏ 26.9 30.0 28.8 29.5 29.4 30.4 34.6

Average eÅective

guaranty fee rate ÏÏÏÏÏÏ .195 .194 .193 .202 .227 .224 .220

Credit loss ratio ÏÏÏÏÏÏÏÏÏ .008 .016 .011 .027 .041 .053 .050

Ratio of earnings to

combined Ñxed charges

and preferred stock

dividends(3)ÏÏÏÏÏÏÏÏÏÏ 1.16:1 1.18:1 1.17:1 1.18:1 1.19:1 1.19:1 1.17:1

Mortgage purchases ÏÏÏÏÏ $ 61,291 $108,756 $195,210 $188,448 $ 70,465 $ 68,618 $ 56,598

MBS issuedÏÏÏÏÏÏÏÏÏÏÏÏÏ 87,553 185,004 300,689 326,148 149,429 149,869 110,456

MBS outstanding at

period end(4)ÏÏÏÏÏÏÏÏÏ 995,815 911,435 960,883 834,518 709,582 650,780 582,959

Weighted-average diluted

common shares

outstanding, in millions 1,014 1,033 1,031 1,037 1,056 1,080 1,098

(1) Earnings per common share amounts in 1996 and 1995 have been restated to comply with Financial

Accounting Standard No. 128, Earnings per Share.

(2) Stockholders' equity plus general allowance for losses.

(3) ""Earnings'' consists of (a) income before federal income taxes and extraordinary item and (b) Ñxed

charges. ""Fixed charges'' represents interest expense. There was no preferred stock outstanding in 1995.

(4) Includes MBS in portfolio of $299 billion and $250 billion at June 30, 2000 and 1999, respectively, and

$282 billion, $197 billion, $130 billion, $103 billion and $70 billion at December 31, 1999, 1998, 1997,

1996 and 1995, respectively.

In the second quarter of 2000, Fannie Mae reported record earnings of $1.097 billion, compared

with $958 million in the second quarter of 1999. For the Ñrst six months of 2000, earnings increased

$276 million to $2.159 billion. The 15 percent increase in earnings for the three- and six-month

periods ended June 30, 2000 was primarily due to increases in net interest income, lower credit-related

expenses, and an extraordinary gain on the extinguishment of debt.

Fannie Mae's tax-equivalent revenue totaled $1.897 billion in the second quarter of 2000, a

10 percent increase over the comparable period from the prior year. Fannie Mae generated $3.789 billion in tax-equivalent revenue during the Ñrst half of 2000, an 11 percent increase over the Ñrst half of

1999. Tax-equivalent revenue is total revenue net of operating losses adjusted to include the full pretax value of tax-exempt income and investment tax credits based on applicable federal income tax

rates. The growth in tax-equivalent revenue in both periods was primarily attributable to increases in

net interest income.

Net interest income in the second quarter of 2000 increased 18 percent compared with the second

quarter of 1999. The growth in net interest income was primarily a result of 17 percent growth in the

average investment portfolio and a one basis point increase in the net interest margin. Net interest

9
income for the Ñrst six months of 2000 increased 18 percent compared with 1999. The increase was

the result of 17 percent growth in the average investment portfolio and a one basis point increase in

the net interest margin. Management expects that the net interest margin will decline slightly over the

remainder of the year as lower cost debt matures.

Guaranty fee income increased by $19 million, or six percent to $339 million, compared with

$320 million in the second quarter of 1999. This change resulted from a Ñve percent increase in

average net Mortgage-Backed Securities (""MBS'') outstanding and a .2 basis point increase in the

average eÅective guaranty fee rate when compared with the second quarter of 1999. For the Ñrst half

of 2000, guaranty fee income increased by $34 million, or Ñve percent, to $671 million compared with

the Ñrst half of 1999. The increase was the result of a Ñve percent increase in average net MBS

outstanding and a .1 basis point increase in the average eÅective guaranty fee rate. The average

eÅective guaranty fee rate in the second quarter of 2000 increased slightly to 19.6 basis points

compared with 19.4 in the second quarter of 1999, in part because of a reduction in the percentage of

MBS issued with pool insurance, a decline in reÑnance activity and other turnover of pools with higher

eÅective guaranty fee rates, and eÅorts by Fannie Mae to shift the business mix toward products with

higher fee rates.

Fee and other income (expense) decreased to a net expense of $46 million for the second quarter

of 2000 versus income of $54 million in the second quarter of 1999. For the Ñrst half of 2000, fee and

other income (expense) decreased to a net expense of $46 million versus income of $112 million in the

Ñrst half of 1999. The decrease in both periods was largely the result of an increase in tax advantaged

investments which generate operating losses, the recognition of a loss on a Benchmark Note hedge

early in the second quarter and a reduction in volume-related fees. Dislocation in the agency debt

markets caused a hedge of an anticipated issuance of debt to go out of correlation, which resulted in

immediate recognition of a loss.

Administrative expenses for the quarter ended June 30, 2000 increased to $224 million from

$199 million during the same period in 1999, primarily due to higher compensation costs. For the Ñrst

half of 2000, administrative expenses were $441 million, compared to $391 million for the same period

in 1999. The ratio of administrative expenses to the average mortgage portfolio plus average MBS

outstanding was .073 percent and .072 percent for the three- and six-month periods ended June 30,

2000, respectively compared with .071 percent for the three- and six-month periods ended June 30,

1999. The ratio of administrative expenses to revenues (net interest income, guaranty fees, and fee

and other income) was 13.2 percent for the second quarter of 2000, compared with 12.7 percent for

the second quarter of 1999, and was 13.0 percent for the Ñrst half of 2000, compared with 12.6 percent

for the Ñrst half of 1999.

The eÅective federal income tax rate was 27 percent for the three- and six-month periods ended

June 30, 2000, compared with 28 percent for the three- and six-month periods ended June 30, 1999.

In the second quarter of 2000, Fannie Mae reported a $50 million gain ($33 million after tax)

from the repurchase or call of debt compared with no extraordinary gains or losses in the second

quarter of 1999. Extraordinary gains from the repurchase or call of debt were $50 million ($33 million

after tax) for the Ñrst half of 2000 compared with extraordinary losses of $14 million ($9 million after

tax) for the Ñrst half of 1999.

10
GOVERNMENT REGULATION AND CHARTER ACT

Fannie Mae is a federally chartered and stockholder-owned corporation organized and existing

under the Charter Act (12 U.S.C. Û 1716 et seq.) whose purpose is to (1) provide stability in the

secondary market for residential mortgages, (2) respond appropriately to the private capital market,

(3) provide ongoing assistance to the secondary market for residential mortgages (including activities

relating to mortgages on housing for low- and moderate-income families involving a reasonable

economic return that may be less than the return earned on other activities) by increasing the

liquidity of mortgage investments and improving the distribution of investment capital available for

residential mortgage Ñnancing and (4) promote access to mortgage credit throughout the nation

(including central cities, rural areas and underserved areas) by increasing the liquidity of mortgage

investments and improving the distribution of investment capital available for residential mortgage

Ñnancing.

Fannie Mae originally was incorporated in 1938 pursuant to Title III of the National Housing Act

as a wholly owned government corporation and in 1954, under a revised Title III called the Federal

National Mortgage Association Charter Act, became a mixed-ownership corporate instrumentality of

the United States. From 1950 to 1968, it operated in the Housing and Home Finance Agency, which

was succeeded by the Department of Housing and Urban Development (""HUD''). Pursuant to

amendments to the Charter Act enacted in the Housing and Urban Development Act of 1968 (the

""1968 Act''), the then Federal National Mortgage Association was divided into two separate

institutions, the present Fannie Mae and the Government National Mortgage Association, a wholly

owned corporate instrumentality of the United States within HUD, which carried on certain special

Ñnancing assistance and management and liquidation functions. Under the 1968 Act, Fannie Mae was

constituted as a federally chartered corporation and the entire equity interest in Fannie Mae became

stockholder-owned.

Although the 1968 Act eliminated all federal ownership interest in Fannie Mae, it did not

terminate government regulation of Fannie Mae. Under the Charter Act, approval of the Secretary of

the Treasury is required for Fannie Mae's issuance of its debt obligations and MBS. In addition, the

Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the ""1992 Act'') established the OÇce of Federal Housing Enterprise Oversight (""OFHEO''), an independent oÇce within

HUD under the management of a Director (the ""Director'') who is responsible for ensuring that

Fannie Mae and the Federal Home Loan Mortgage Corporation, or ""Freddie Mac,'' are adequately

capitalized and operating safely in accordance with the 1992 Act. In March 2000, Representative

Richard Baker (R-LA) introduced a bill, H.R. 3703, that proposes a plan to consolidate the regulation

of Fannie Mae, Freddie Mac and the Federal Home Loan Banks into a new board composed of the

secretaries of Treasury and HUD and three presidential appointees. The bill proposes other changes to

the regulation of Fannie Mae and Freddie Mac, including approval of new activities by the proposed

Ñve-member regulatory board. Representative Baker has held four hearings on his proposal, and at

various times has stated publicly that he may redraft H.R. 3703. Recently, Representative Baker

announced plans to hold a meeting of all interested parties to discuss the bill. Management believes

that no action will be taken on the proposed legislation this year.

The 1992 Act established minimum capital, risk-based capital, and critical capital requirements

for Fannie Mae and required the Director to establish, by regulation, a risk-based capital test to be

used to determine the amount of total capital Fannie Mae must have to exceed the risk-based capital

level from time to time. OFHEO issued a Ñnal rule (the ""Rule'') in 1996 related to the minimum

capital levels for Fannie Mae and Freddie Mac that sets forth how minimum capital requirements for

both entities are to be calculated, reported, and classiÑed on a quarterly basis. The Rule formalized the

interim capital standards applied by OFHEO, with which Fannie Mae has been in compliance since

their inception. See also ""Management's Discussion and Analysis of Financial Condition and Results

of OperationsÌBalance Sheet AnalysisÌRegulatory Capital Requirements'' in the Information

Statement.

In 1996, OFHEO also released for comment Part I of the proposed regulations to establish the

risk-based capital test. Part I speciÑes that ""benchmark loss experience'' will be combined with other

11
yet to be determined assumptions and applied each quarter to Fannie Mae's book of business to

establish credit losses under the risk-based capital standard for Fannie Mae. Part I also speciÑes the

house price index that OFHEO will use in connection with the risk-based capital standard. Fannie

Mae submitted comments to OFHEO in October 1996 stating that several aspects of the initial

proposal require adjustments or amendment, because it does not accurately capture Fannie Mae's

credit history and derives credit loss rates that are signiÑcantly worse than any reasonable representation of Fannie Mae's and Freddie Mac's loss experience. On April 13, 1999, OFHEO published for

comment Part II of its proposed regulations for the risk-based capital test for Fannie Mae and Freddie

Mac. Part II speciÑes, among other matters, the proposed remaining aspects of the test and how the

test is proposed to be used to determine Fannie Mae's and Freddie Mac's risk-based capital

requirements. The summary accompanying Part II noted that if Part II had been in eÅect as of

June 30, 1997, Fannie Mae's required risk-based capital would have been $17.73 billion, as compared

with $14.05 billion in actual capital at that time. OFHEO also noted that there were a variety of

means, such as hedging, that Fannie Mae could have used to reduce required risk-based capital to the

level of its actual capital.

On March 10, 2000, Fannie Mae submitted comments to OFHEO on Part II of the proposed

regulations. In its comments, Fannie Mae detailed three principal criteria that its management used to

evaluate Part II of the proposed regulations: operational workability, the ability to accommodate

innovation, and the linking of capital to risk. Management acknowledged that OFHEO's work to date

represents significant progress in carrying out its statutory mandate. Management concluded, however,

that OFHEO's proposed regulations failed to meet these three criteria and made suggestions for

addressing these points. Fannie Mae reviewed comments on the proposed regulations submitted by

other parties and submitted comments, as requested by OFHEO, on the comments of other parties on

April 14, 2000. Management believes that the final risk-based standard could be modified substantially

from its current proposed form. The 1992 Act provides that the final regulations will be enforceable one

year after issuance. Management is confident that Fannie Mae will be able to meet any reasonable final

test.

If Fannie Mae fails to meet one or more of the capital standards under the 1992 Act, the Director is

required to take certain remedial measures and may take others, depending on the standards Fannie

Mae fails to meet. The Director's enforcement powers include the power to impose temporary and final

cease-and-desist orders and civil penalties on Fannie Mae and on directors or executive officers of

Fannie Mae. If the Director determines that Fannie Mae is engaging in conduct not approved by the

Director that could result in a rapid depletion of core capital or that the value of the property subject to

mortgages held or securitized by Fannie Mae has decreased significantly, the Director is authorized to

treat Fannie Mae as not meeting one of the capital standards that it otherwise meets. In addition,

Fannie Mae is required to submit a capital restoration plan if it fails to meet any of the capital

standards. If the Director does not approve the plan or determines that Fannie Mae has failed to make

reasonable efforts to comply with the plan, then the Director may treat Fannie Mae as not meeting one

of the capital standards that it otherwise meets. Also, if Fannie Mae fails to meet or is treated by the

Director as not meeting one of the capital standards and the Director has reasonable cause to believe

that Fannie Mae or any executive officer or director of Fannie Mae is engaging in or about to engage in

any conduct that threatens to result in a significant depletion of Fannie Mae's core capital, then the

Director is authorized to commence proceedings pursuant to which, after a hearing, the Director could

issue a cease and desist order prohibiting such conduct. The Director could issue such an order without a

hearing, which would be effective until completion of the cease-and-desist proceedings, if the Director

determined that the conduct in question was likely to cause a significant depletion of core capital. Prior

approval of the Director is required for Fannie Mae to pay a dividend if the dividend would decrease

Fannie Mae's capital below risk-based capital or minimum capital levels established under the 1992 Act.

The Director is authorized to levy, pursuant to annual Congressional appropriations, annual assessments on Fannie Mae and Freddie Mac to cover reasonable expenses of OFHEO.

The 1992 Act also gives the Director the authority to conduct on-site examinations of Fannie Mae

for purposes of ensuring Fannie Mae's Ñnancial safety and soundness. In addition, Fannie Mae is

12
required to submit annual and quarterly reports of the Ñnancial condition and operations of Fannie

Mae to the Director. Moreover, the Charter Act, as amended by the 1992 Act, authorizes the General

Accounting OÇce to audit the programs, activities, receipts, expenditures and Ñnancial transactions of

Fannie Mae. Fannie Mae also is required to submit an annual report to the House and Senate Banking

Committees and the Secretary of HUD regarding Fannie Mae's performance in meeting housing goals

relating to the purchase of mortgages on housing for low- and moderate-income families, mortgages on

rental and owner-occupied housing for low-income families in low-income areas or for very-lowincome families, and mortgages on housing located in rural or other underserved areas.

The 1992 Act requires HUD to establish certain housing goals for Fannie Mae (and Freddie

Mac). The current HUD-established annual housing goals require that 42 percent of Fannie Mae's

conventional mortgage business Ñnance mortgages for low- and moderate-income families, 14 percent

of Fannie Mae's conventional mortgage business Ñnance mortgages for very low-income families and

low-income families in low-income areas (the ""special aÅordable housing goal''), 24 percent of Fannie

Mae's conventional mortgage business Ñnance mortgages in certain underserved areas (the ""geographically targeted goal''), and mortgage purchases of multifamily units within the special aÅordable

housing goal total at least $1.3 billion (.8 percent of Fannie Mae's 1994 total dollar volume of such

mortgage purchases). Fannie Mae exceeded these goals for 1999. On March 9, 2000, HUD published

in the Federal Register for public comment revised housing goals for Fannie Mae (and Freddie Mac)

that would increase these goals to 50 percent, 20 percent, 31 percent, and $3.68 billion, respectively,

for 2001 and each of the succeeding two years. HUD also proposed increasing the corresponding goals

for 2000 to 48 percent, 18 percent, 29 percent, and $3.31 billion, respectively. Management will not be

able to assess the impact of changes in these goals on Fannie Mae until the goals are Ñnalized but

management has stated that Fannie Mae will work hard to meet the revised goals as currently

proposed. The current rule remains in eÅect until superseded by a Ñnal rulemaking establishing

diÅerent goals.

Under the 1992 Act, the Secretary of HUD retains general regulatory authority to promulgate

rules and regulations to carry out the purposes of the Charter Act, excluding authority over matters

granted exclusively to the Director in the 1992 Act. The Secretary of HUD also must approve any new

conventional mortgage program that is signiÑcantly diÅerent from those approved or engaged in prior

to the 1992 Act. The Secretary is required to approve any new program unless it is not authorized by

the Charter Act of Fannie Mae or the Secretary Ñnds that it is not in the public interest. However,

until one year after the Ñnal regulations establishing the risk-based capital test are in eÅect, the

Secretary must disapprove a new program if the Director determines that the program would risk

signiÑcant deterioration of the Ñnancial condition of Fannie Mae. The Secretary has adopted

regulations related to the program approval requirement.

Thirteen members of Fannie Mae's eighteen-member Board of Directors are elected by the

holders of Fannie Mae's common stock, and the remaining Ñve members are appointed by the

President of the United States. The appointed directors must include one person from the home

building industry, one person from the mortgage lending industry, and one person from the real estate

industry. Under the 1992 Act, one appointed director also must be from an organization that has

represented consumer or community interests for not less than two years or a person who has

demonstrated a career commitment to the provision of housing for low-income households. Any

member of the Board of Directors that is appointed by the President of the United States may be

removed by the President for good cause.

In addition to placing Fannie Mae under federal regulation, the Charter Act also grants to Fannie

Mae certain privileges. For instance, securities issued by Fannie Mae are deemed to be ""exempt

securities'' under laws administered by the Securities and Exchange Commission (the ""SEC'') to the

same extent as securities that are obligations of, or guaranteed as to principal and interest by, the

United States. Registration statements with respect to Fannie Mae's securities are not Ñled with the

SEC. Fannie Mae also is not required to Ñle periodic reports with the SEC.

13
The Secretary of the Treasury of the United States has discretionary authority to purchase

obligations of Fannie Mae up to a maximum of $2.25 billion outstanding at any one time. This facility

has not been used since Fannie Mae's transition from government ownership in 1968. Neither the

United States nor any agency thereof is obligated to Ñnance Fannie Mae's operations or to assist

Fannie Mae in any other manner.

We are exempt from all taxation by any state or by any county, municipality, or local taxing

authority except for real property taxes. We are not exempt from payment of federal corporate income

taxes. Also, we may conduct our business without regard to any qualiÑcations or similar statute in any

state of the United States or the District of Columbia.

The Federal Reserve Banks are authorized to act as depositaries, custodians, and Ñscal agents for

Fannie Mae, for its own account, or as Ñduciary.

DESCRIPTION OF THE PREFERRED STOCK

We are authorized by the Charter Act to have preferred stock on such terms and conditions as our

Board of Directors may prescribe. On December 27, 1995, our Board of Directors amended our bylaws

to authorize Fannie Mae to issue up to 100,000,000 shares of preferred stock. To date, we have issued

the following (collectively, the ""Outstanding Preferred Stock''):

‚ on March 1, 1996, 7,500,000 shares of 6.41% Non-Cumulative Preferred Stock, Series A

(stated value $50 per share) (the ""Series A Preferred Stock'');

‚ on April 12, 1996, 7,500,000 shares of 6.50% Non-Cumulative Preferred Stock, Series B (stated

value $50 per share) (the ""Series B Preferred Stock'');

‚ on September 20, 1996, 5,000,000 shares of 6.45% Non-Cumulative Preferred Stock, Series C

(stated value $50 per share) (the ""Series C Preferred Stock'');

‚ on September 30, 1998, 3,000,000 shares of 5.25% Non-Cumulative Preferred Stock, Series D

(stated value $50 per share) (the ""Series D Preferred Stock'');

‚ on April 15, 1999, 3,000,000 shares of 5.10% Non-Cumulative Preferred Stock, Series E (stated

value $50 per share) (the ""Series E Preferred Stock''); and

‚ on March 20, 2000, 13,800,000 shares of Variable Rate Non-Cumulative Preferred Stock,

Series F (stated value $50 per share) (the ""Series F Preferred Stock'').

The terms of the Preferred Stock will be established by a CertiÑcate of Designation of Terms of

Variable Rate Non-Cumulative Preferred Stock, Series G (the ""CertiÑcate of Designation''), adopted

by a duly authorized committee of our Board of Directors, which will be substantially in the form

attached as Appendix A to this OÅering Circular. The following is a brief description of the terms of

the Preferred Stock; you also should read the CertiÑcate of Designation for a full description of the

Preferred Stock.

General

We have the right to create and issue additional shares of Preferred Stock and additional classes

or series of stock that rank, as to dividends, liquidation or otherwise, prior to, on parity with or junior

to the Preferred Stock, without the consent of holders of the Preferred Stock. As of the date hereof,

the shares of Outstanding Preferred Stock are the only shares of preferred stock of Fannie Mae

outstanding. The Preferred Stock will rank equally as to the payment of dividends and the distribution

of assets upon dissolution, liquidation or winding up of Fannie Mae with the Outstanding Preferred

Stock.

The Preferred Stock has no par value, has a stated value and liquidation preference of $50 per

share and, upon issuance against full payment of the purchase price therefor, will be fully paid and

nonassessable.

14
The Preferred Stock will not be subject to any mandatory redemption, sinking fund or other

similar provisions. In addition, holders of Preferred Stock will have no right to require redemption of

any shares of Preferred Stock.

The Preferred Stock will not be convertible into or exchangeable for any other stock or obligations

of Fannie Mae and will have no preemptive rights.

First Chicago Trust Company a division of EquiServe will be the transfer agent, dividend

disbursing agent and registrar for the shares of Preferred Stock.

The obligations of Fannie Mae under the terms of the Preferred Stock are obligations

of Fannie Mae only and are not those of the United States or of any instrumentality thereof

other than Fannie Mae.

Dividends

Dividends on shares of the Preferred Stock will not be mandatory. Holders of record of Preferred

Stock as they appear on the books and records of Fannie Mae (the ""Holders'') will be entitled to

receive non-cumulative, quarterly cash dividends that will accrue from and including August 8, 2000

and will be payable on March 31, June 30, September 30 and December 31 of each year (each a

""Dividend Payment Date''), commencing September 30, 2000, when, as and if declared by the Board

of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion out of funds

legally available for dividend payments. We will pay dividends on the Preferred Stock to the Holders

on the relevant record date Ñxed by the Board of Directors, or a duly authorized committee thereof,

which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment

Date. If a Dividend Payment Date is not a Business Day, we will pay dividends (if declared) on the

Preferred Stock on the succeeding Business Day, without interest from that Dividend Payment Date

to the date of actual payment. A ""Business Day'' is any day other than a Saturday, Sunday or other

day on which banking institutions in New York, New York are authorized or required by law to close.

We will compute dividends payable on the Preferred Stock for any period greater or less than a full

dividend period on the basis of a 360-day year consisting of twelve 30-day months. We will compute

dividends payable on the Preferred Stock for each full dividend period by dividing the per annum

dividend rate by four. The amount of quarterly dividends per share will be calculated by multiplying

the preceding rate by the stated value per share of $50, the product of which will be rounded to the

fourth digit after the decimal point. (If the Ñfth digit to the right of the decimal point is Ñve or greater,

the fourth digit will be rounded up by one.)

If declared, the dividend rate for the period from and including August 8, 2000 to but excluding

September 30, 2002 will be 6.023% per annum. Thereafter, dividends will accrue at a variable per

annum rate (not greater than 11%) equal to the ""CMT Rate'' (as deÑned below) minus 0.18%,

without taking into account any adjustments as described below under ""ÌChanges in the DividendsReceived Percentage''. On September 30, 2002 and on September 30 every two years thereafter until

any redemption, the previous dividend rate will be replaced by the then-current CMT Rate minus

0.18%. The CMT Rate for each two-year period will be determined by Fannie Mae on the second

Business Day immediately preceding the Ñrst day of such period (each, a ""CMT Determination

Date''). If declared, the initial dividend, which will be for the dividend period from and including

August 8, 2000 to but excluding September 30, 2000, will be $0.4350 per share and will be payable on

September 30, 2000. Thereafter, the dividend period relating to a Dividend Payment Date will be the

period from and including the preceding Dividend Payment Date to but excluding the related Dividend

Payment Date.

The ""CMT Rate'' for any CMT Determination Date will be the rate equal to (in the following

order of priority):

(1) the one-week average yield on 2-year United States Treasury securities at ""constant

maturity'' as estimated from the United States Department of the Treasury's weekly yield curve,

15
as published in the latest H.15(519) (as deÑned below) available on the applicable CMT

Determination Date, provided that such H.15(519) was Ñrst available not earlier than ten

calendar days before such CMT Determination Date, under the column ""Week Ending'' for the

week most recently ended opposite the heading ""U.S. government securities-Treasury Constant

Maturities, 2-year.''

(2) if the latest H.15(519) available on the applicable CMT Determination Date was Ñrst

available prior to ten calendar days before such CMT Determination Date, the CMT Rate will be

such 2-year United States Treasury constant maturity rate (or other 2-year United States

Treasury rate) for such CMT Determination Date as may then be published by either the Board

of Governors of the Federal Reserve System or the United States Department of the Treasury

that Fannie Mae determines to be comparable to the rate formerly published in H.15(519).

(3) if the CMT Rate as described in clause (2) is not published by 10:00 a.m. (New York

City time) on the applicable CMT Determination Date, the CMT Rate will be calculated by

Fannie Mae and will be a yield to maturity (expressed as a bond equivalent and as a decimal on

the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) based on the

arithmetic mean of the secondary market bid prices as of approximately 3:30 p.m. (New York

City time) on such CMT Determination Date of three leading primary United States government

securities dealers in The City of New York selected by Fannie Mae (from Ñve such dealers and

eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest

quotation (or, in the event of equality, one of the lowest)) for direct noncallable Ñxed rate

obligations of the United States (""Treasury Notes'') most recently issued with an original

maturity of approximately two years and a remaining term to maturity of not less than one year.

If three or four (and not Ñve) of such dealers are quoting as described in this clause (3), then the

CMT Rate will be based on the arithmetic mean of the bid prices obtained and neither the highest

nor lowest of such quotations will be eliminated.

(4) if fewer than three dealers selected by Fannie Mae are quoting as described in clause (3),

the CMT Rate will be calculated by Fannie Mae and will be a yield to maturity (expressed as a

bond equivalent and as a decimal on the basis of a year of 365 or 366 days, as applicable, and

applied on a daily basis) based on the arithmetic mean of the secondary market bid prices as of

approximately 3:30 p.m. (New York City time) on the applicable CMT Determination Date of

three leading primary United States government securities dealers in The City of New York

selected by Fannie Mae (from Ñve such dealers and eliminating the highest quotation (or, in the

event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of

the lowest)) for Treasury Notes with an original maturity of approximately ten years and a

remaining term to maturity closest to two years. If three or four (and not Ñve) of such dealers are

quoting as described in this clause (4), then the CMT Rate will be based on the arithmetic mean

of the bid prices obtained and neither the highest nor lowest of such quotations will be eliminated.

(5) if fewer than three dealers selected by Fannie Mae are quoting as described in clause (4),

the CMT Rate will be the CMT Rate determined on the immediately preceding CMT Determination Date.

In the case of clause (4), if two Treasury Notes with an original maturity of approximately ten

years have remaining terms to maturity equally close to two years, the quotes for the Treasury Note

with the shorter remaining term to maturity will be used.

""H.15(519)'' means the weekly statistical release designated as the H.15(519), as oÇcially

published by the Board of Governors of the Federal Reserve System (the ""Federal Reserve Board'').

We understand that the Federal Reserve Board's method of oÇcial publication is by hard copy release,

although the Federal Reserve Board does provide unoÇcial rates through its World Wide Web site and

possibly other means.

Fannie Mae's determination of the CMT Rate and the dividend rate will be Ñnal and binding.

16
The Preferred Stock will rank prior to the common stock of Fannie Mae with respect to the

payment of dividends to the extent provided in the CertiÑcate of Designation. As a result, unless

dividends have been declared and paid or set apart (or ordered to be set apart) on the Preferred Stock

for the then current quarterly dividend period, no dividend may be declared or paid or set apart for

payment on Fannie Mae's common stock (or on any other stock of Fannie Mae ranking, as to the

payment of dividends, junior to the Preferred Stock), other than dividends or distributions paid in

shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of

Fannie Mae or any other stock of Fannie Mae ranking junior to the Preferred Stock as to the payment

of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae.

When dividends are not paid in full upon the Preferred Stock and all other classes or series of stock of

Fannie Mae, if any, ranking on a parity as to the payment of dividends with the Preferred Stock, all

dividends declared upon shares of Preferred Stock and all such other stock of Fannie Mae will be

declared pro rata so that the amount of dividends declared per share on the Preferred Stock and all

such other stock will in all cases bear to each other the same ratio that accrued dividends per share on

the shares of Preferred Stock (including any adjustment in the amount of dividends payable due to

changes in the Dividends-Received Percentage (as deÑned below) but without, in the case of any

noncumulative preferred stock, accumulation of unpaid dividends for prior dividend periods) and each

other stock bear to each other.

Dividends on the Preferred Stock will not be cumulative. If we do not pay a dividend on the

Preferred Stock, the Holders of Preferred Stock will have no claim in respect of such non-payment so

long as no dividend (other than those referred to in the preceding paragraph) is paid on Fannie Mae's

common stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to

the Preferred Stock) for the then-current quarterly dividend period.

The Board of Directors, or a duly authorized committee thereof, may, in its discretion, choose to

pay dividends on the Preferred Stock without the payment of any dividends on Fannie Mae's common

stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the

Preferred Stock).

No dividends may be declared or paid or set apart for payment on any shares of the Preferred

Stock if at the same time any arrears exist or default exists in the payment of dividends on any

outstanding class or series of stock of Fannie Mae ranking prior to the Preferred Stock with respect to

the payment of dividends. At the time of issuance of the Preferred Stock, there will be no class or

series of stock of Fannie Mae which ranks prior to the Preferred Stock with respect to the payment of

dividends.

Holders of Preferred Stock will not be entitled to any dividends, whether payable in cash or

property, other than as described above and will not be entitled to interest, or any sum in lieu of

interest, in respect of any dividend payment.

See also ""ÌRegulatory Matters'' for a description of certain regulatory restrictions on Fannie

Mae's payment of dividends.

Changes in the Dividends-Received Percentage. If, prior to February 8, 2002, one or more

amendments to the Internal Revenue Code of 1986, as amended (the ""Code''), are enacted that

eliminate or reduce the percentage of the dividends-received deduction applicable to the Preferred

Stock (currently 70 percent) as speciÑed in section 243(a)(1) of the Code or any successor provision

(the ""Dividends-Received Percentage''), certain adjustments may be made in respect of the dividends

payable by Fannie Mae, and Post Declaration Date Dividends and Retroactive Dividends (as such

terms are deÑned below) may become payable, as described below.

The amount of each dividend payable (if declared) per share of Preferred Stock for dividend

payments made on or after the eÅective date of such change in the Code will be adjusted by

multiplying the amount of the dividend that would otherwise be payable (before adjustment) by a

17
factor, which will be the number determined in accordance with the following formula (the ""DRD

Formula''), and rounding the result to the nearest cent (with one-half cent rounded up):

1Ó.35(1Ó.70)

1Ó.35(1ÓDRP)

For purposes of the DRD Formula, ""DRP'' means the Dividends-Received Percentage (expressed as a

decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received

Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50.

If the amount of any dividend payable on the Preferred Stock is adjusted through such application of

the DRD Formula, the resulting dividend rate may exceed 11% per annum. No amendment to the

Code, other than a change in the percentage of the dividends-received deduction applicable to the

Preferred Stock as set forth in section 243 (a)(1) of the Code or any successor provision, will give rise

to an adjustment. Notwithstanding the foregoing provisions, if, with respect to any such amendment,

Fannie Mae receives either an unqualiÑed opinion of nationally recognized independent tax counsel

selected by Fannie Mae or a private letter ruling or similar form of assurance from the Internal

Revenue Service (the ""IRS'') to the eÅect that such an amendment does not apply to a dividend

payable on the Preferred Stock, then such amendment will not result in the adjustment provided for

pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous

sentence shall be based upon the legislation amending or establishing the DRP or upon a published

pronouncement of the IRS addressing such legislation. Unless the context otherwise requires,

references to dividends in this OÅering Circular will mean dividends as adjusted by the DRD Formula.

Fannie Mae's calculation of the dividends payable as so adjusted shall be Ñnal and not subject to

review.

Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend

payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount

of the dividend payable on such Dividend Payment Date will not be increased; instead, additional

dividends (the ""Post Declaration Date Dividends''), equal to the excess, if any, of (1) the product of

the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the

DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage

applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such

Dividend Payment Date, will be payable (if declared) to Holders of Preferred Stock on the record date

applicable to the next succeeding Dividend Payment Date.

If any such amendment to the Code is enacted and the reduction in the Dividends-Received

Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid

dividends on the Preferred Stock (each, an ""AÅected Dividend Payment Date''), Fannie Mae will pay

(if declared) additional dividends (the ""Retroactive Dividends'') to Holders of Preferred Stock on the

record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is

enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders of

Preferred Stock on the record date applicable to the second succeeding Dividend Payment Date

following the date of enactment) or, if the Preferred Stock is called for redemption prior to such

record date, to Holders of Preferred Stock on the applicable redemption date, as the case may be, in an

amount equal to the excess of (1) the product of the dividend paid by Fannie Mae on each AÅected

Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be

equal to the greater of the Dividends-Received Percentage and .50 applied to each AÅected Dividend

Payment Date) over (2) the sum of the dividend paid by Fannie Mae on each AÅected Dividend

Payment Date. Fannie Mae will only make one payment of Retroactive Dividends for any such

amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment,

Fannie Mae receives either an unqualiÑed opinion of nationally recognized independent tax counsel

selected by Fannie Mae or a private letter ruling or similar form of assurance from the IRS to the

eÅect that such amendment does not apply to a dividend payable on an AÅected Dividend Payment

Date for the Preferred Stock, then such amendment will not result in the payment of Retroactive

18
Dividends with respect to such AÅected Dividend Payment Date. The opinion referenced in the

previous sentence shall be based upon the legislation amending or establishing the DRP or upon a

published pronouncement of the IRS addressing such legislation.

Notwithstanding the foregoing, Fannie Mae will not make any adjustment in the dividends

payable by Fannie Mae, and Fannie Mae will not be required to pay Post Declaration Date Dividends

or Retroactive Dividends, in respect of the enactment after February 8, 2002 of any amendment to the

Code that eliminates or reduces the Dividends-Received Percentage.

In the event that the amount of dividends payable per share of the Preferred Stock is adjusted

pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are

to be paid, Fannie Mae will give notice of each such adjustment and, if applicable, any Post

Declaration Date Dividends and Retroactive Dividends to the Holders of Preferred Stock.

Investors may obtain the dividend rates for the current and preceding dividend periods by writing

or calling the Treasurer's OÇce at Fannie Mae at 3900 Wisconsin Avenue, N.W., Washington, D.C.

20016 (phone number: (800) 701-4791 or (202) 752-5499).

Optional Redemption

The Preferred Stock will not be redeemable prior to September 30, 2002. On that date and on

September 30 every two years thereafter, subject to the notice provisions set forth below and subject to

any further limitations which may be imposed by law, Fannie Mae, at its option, may redeem the

Preferred Stock, in whole or in part, out of funds legally available therefor, at the redemption price of

$50 per share plus an amount equal to the dividend (whether or not declared) for the then-current

quarterly dividend period accrued to but excluding the date of such redemption, including any

adjustments in dividends payable due to changes in the Dividends-Received Percentage but without

accumulation of unpaid dividends on the Preferred Stock for prior dividend periods. If less than all of

the outstanding shares of the Preferred Stock are to be redeemed, Fannie Mae will select shares to be

redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as

nearly as possible) or by any other method that the Board of Directors, or a duly authorized

committee thereof, in its sole discretion deems equitable.

Fannie Mae will give notice of any such redemption by mail to Holders of Preferred Stock not less

than 30 days prior to the date Ñxed by the Board of Directors, or duly authorized committee thereof,

for such redemption. Each notice will state the number of shares of Preferred Stock to be redeemed

and, if fewer than all of the shares of Preferred Stock held by the applicable Holder are to be

redeemed, the number of shares to be redeemed from such Holder, the redemption price, the

redemption date and the place at which such Holder's certiÑcate(s) representing shares of the

Preferred Stock must be presented upon such redemption.

Under certain circumstances, Fannie Mae may need the approval of the Director prior to

exercising its right to redeem shares of Preferred Stock. See ""ÌRegulatory Matters.''

Holders of Preferred Stock will have no right to require redemption of Preferred Stock.

Once proper notice has been given, from and after the redemption date, dividends on the

Preferred Stock called for redemption will cease to accrue and such Preferred Stock called for

redemption will no longer be deemed outstanding, and all rights of the Holders thereof as registered

holders of the Preferred Stock will cease.

Liquidation Rights

Upon any voluntary or involuntary dissolution, liquidation or winding up of Fannie Mae, after

payment or provision for the liabilities of Fannie Mae and the expenses of such dissolution, liquidation

or winding up, the Holders of the outstanding shares of the Preferred Stock will be entitled to receive

the amount of $50 per share plus an amount equal to the dividend (whether or not declared) for the

19
then-current quarterly dividend period accrued to but excluding the date of such liquidation payment,

including any adjustments in dividends payable due to changes in the Dividends-Received Percentage

but without accumulation of unpaid dividends on the Preferred Stock for prior dividend periods, out of

the assets of Fannie Mae or proceeds thereof available for distribution to stockholders, before any

payment or distribution of assets is made to holders of Fannie Mae's common stock (or any other

stock of Fannie Mae ranking, as to the distribution of assets upon dissolution, liquidation or winding

up of Fannie Mae, junior to the Preferred Stock). If the assets of Fannie Mae available for distribution

in such event are insuÇcient to pay in full the aggregate amount payable to Holders of the Preferred

Stock and holders of all other classes or series of stock of Fannie Mae, if any, ranking, as to the

distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, equally with the

Preferred Stock, the assets will be distributed to the Holders of Preferred Stock and holders of such

other stock pro rata, based on the full respective preferential amounts to which they are entitled

(including any adjustments in dividends payable due to changes in the Dividends-Received Percentage

but without, in the case of any noncumulative preferred stock, accumulation of unpaid dividends for

prior dividend periods). After payment of the full amount of the distribution of assets upon

dissolution, liquidation or winding up of Fannie Mae to which they are entitled, the Holders of

Preferred Stock will not be entitled to any further participation in any distribution of assets by Fannie

Mae.

Notwithstanding the foregoing, Holders of Preferred Stock will not be entitled to be paid any

amount in respect of a dissolution, liquidation or winding up of Fannie Mae until holders of any class

or series of stock of Fannie Mae ranking, as to the distribution of assets upon dissolution, liquidation

or winding up of Fannie Mae, prior to the Preferred Stock have been paid all amounts to which such

classes or series are entitled. At the time of issuance of the Preferred Stock, there will be no class or

series of stock of Fannie Mae ranking prior to the Preferred Stock with respect to the distribution of

assets upon dissolution, liquidation or winding up of Fannie Mae.

Neither the sale, lease or exchange (for cash, shares of stock, securities or other consideration) of

all or substantially all of the property and assets of Fannie Mae, nor the merger, consolidation or

combination of Fannie Mae into or with any other corporation, nor the merger, consolidation or

combination of any other corporation or entity into or with Fannie Mae, shall be deemed to be a

dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of these provisions

on liquidation rights.

Regulatory Matters

Holders of Preferred Stock are entitled to receive dividends if, as and when declared by the Board

of Directors, or a duly authorized committee thereof. However, certain provisions of the 1992 Act may

operate to restrict the ability of the Board to declare dividends in certain circumstances. The 1992 Act

established risk-based capital, minimum capital and critical capital levels for Fannie Mae, and

required the Director of OFHEO to establish, by regulation, a risk-based capital test to be used to

determine the amount of total capital Fannie Mae must have to exceed the risk-based capital level

from time to time. See ""Government Regulation and Charter Act'' regarding the status of the

proposed risk-based capital regulations. Until one year after the Ñnal regulations establishing the riskbased capital test are in eÅect, a dividend may be paid without the prior approval of the Director if

Fannie Mae meets the minimum capital level established under the 1992 Act and the dividend

payment would not decrease Fannie Mae's base capital below such level. See ""Government Regulation

and Charter Act'' regarding the Ñnal rule applicable to the minimum capital level.

One year after Ñnal regulations establishing the risk-based capital test take eÅect, a dividend may

be paid without the prior approval of the Director if Fannie Mae meets both the risk-based capital and

minimum capital levels and the dividend payment would not decrease Fannie Mae's total capital below

the risk-based capital level or its core capital below the minimum capital level. If Fannie Mae meets

either the risk-based capital standard or the minimum capital standard, it may make a dividend

payment without obtaining the approval of the Director only if the dividend payment would not cause

20
Fannie Mae to fail to meet another capital standard. At any time when Fannie Mae does not meet the

risk-based capital standard but meets the minimum capital standard, Fannie Mae is prohibited from

making a dividend payment that would cause Fannie Mae to fail to meet the minimum capital

standard. If Fannie Mae meets neither the risk-based capital standard nor the minimum capital

standard but does meet the critical capital standard established under the 1992 Act, it may make a

dividend payment only if Fannie Mae would not fail to meet the critical capital standard as a result of

such payment and the Director approves the payment after Ñnding that it satisÑes certain statutory

conditions. The Director has the authority to require Fannie Mae to submit a report to the Director

regarding any capital distribution (including any dividend) declared by Fannie Mae before Fannie

Mae makes the distribution. See ""Government Regulation and Charter Act'' and ""Management's

Discussion and Analysis of Financial Condition and Results of OperationsÌBalance Sheet AnalysisÌRegulatory Capital Requirements'' in the Information Statement regarding the capital standards

applicable to Fannie Mae.

If the Director determines that Fannie Mae is engaging in conduct not approved by the Director

that could result in a rapid depletion of core capital or that the value of the property subject to

mortgages held or securitized by Fannie Mae has decreased signiÑcantly, the Director is authorized to

treat Fannie Mae as not meeting one of the capital standards that it otherwise meets. In addition,

Fannie Mae is required to submit a capital restoration plan if it fails to meet any of the capital

standards. If the Director does not approve the plan or determines that Fannie Mae has failed to make

reasonable eÅorts to comply with the plan, then the Director may treat Fannie Mae as not meeting

one of the capital standards that it otherwise meets. Also, if Fannie Mae fails to meet or is treated by

the Director as not meeting one of the capital standards and the Director has reasonable cause to

believe that Fannie Mae or any executive oÇcer or director of Fannie Mae is engaging in or about to

engage in any conduct that threatens to result in a signiÑcant depletion of Fannie Mae's core capital,

then the Director is authorized to commence proceedings pursuant to which, after a hearing, the

Director could issue a cease and desist order prohibiting such conduct. The Director could issue such

an order without a hearing, which would be eÅective until completion of the cease-and-desist

proceedings, if the Director determined that the conduct in question was likely to cause a signiÑcant

depletion of core capital. Prior approval of the Director is required for Fannie Mae to pay a dividend if

the dividend would decrease Fannie Mae's capital below risk-based capital or minimum capital levels

established under the 1992 Act.

Voting Rights; Amendments

Except as provided below, the Holders of Preferred Stock will not be entitled to any voting rights.

Without the consent of the Holders of Preferred Stock, we may amend, alter, supplement or

repeal any terms of the Preferred Stock

‚ to cure any ambiguity, or to cure, correct or supplement any provision contained in the

CertiÑcate of Designation that may be defective or inconsistent; or

‚ to make any other provision with respect to matters or questions arising with respect to the

Preferred Stock that is not inconsistent with the provisions of the CertiÑcate of Designation, so

long as such action does not materially and adversely aÅect the interests of the Holders of

Preferred Stock.

The following are deemed not to materially and adversely aÅect the interests of the Holders of

Preferred Stock:

‚ any increase in the amount of authorized or issued Preferred Stock; or

‚ the creation and issuance, or an increase in the authorized or issued amount, of any other class

or series of stock of Fannie Mae, whether ranking prior to, on a parity with or junior to the

Preferred Stock as to dividends or liquidation or otherwise.

21
Otherwise, the terms of the Preferred Stock may be amended, altered, supplemented or repealed

only with the consent of the Holders of at least two-thirds of the outstanding shares of Preferred

Stock. On matters requiring their consent, Holders of Preferred Stock will be entitled to one vote per

share.

New York Stock Exchange Listing

Application has been made to list the Preferred Stock on the NYSE under the symbol

""FNMprG''. Trading of the Preferred Stock on the NYSE is expected to commence within a thirtyday period after the initial delivery of the Preferred Stock.

LEGALITY OF INVESTMENT

National banks may purchase, hold and invest in for their own accounts the shares of Preferred

Stock without regard to limitations generally applicable to investment securities. The Preferred Stock

would be subject to a 100% risk weighting for capital adequacy purposes.

Federal savings associations and federal savings banks may invest in the shares of Preferred Stock

without regard to limitations generally applicable to investments. Preferred Stock held by a federal

savings association or federal savings bank would be subject to a 100% risk weighting for capital

adequacy purposes.

Federally insured state-chartered banks, state-chartered savings banks and state-chartered savings and loan associations may invest in the shares of Preferred Stock to the extent permitted by the

Secondary Mortgage Market Enhancement Act of 1984 (""SMMEA'') and by applicable state law,

after complying with any procedures imposed by the state. Preferred Stock held by such an institution

would be subject to a 100% risk weighting for federal capital adequacy purposes.

Federal credit unions may purchase the shares of Preferred Stock without regard to limitations

generally applicable to investments.

The shares of Preferred Stock are ""stock . . . of a corporation which is an instrumentality of the

United States'' within the meaning of Û 7701(a)(19)(C)(ii) of the Code for purposes of the

60 percent of assets limitation applicable to domestic building and loan associations.

In addition to the speciÑc authorizations discussed above, Û 106(a)(1) of SMMEA provides that

any person, trust, corporation, partnership, association, business trust or business entity created

pursuant to or existing under the laws of the United States or any state (including the District of

Columbia and Puerto Rico) (an ""investor'') is authorized to purchase, hold and invest in securities

issued or guaranteed by Fannie Mae (including the shares of Preferred Stock) to the same extent that

such investor is authorized to purchase, hold or invest in obligations issued or guaranteed as to

principal and interest by the United States or any agency or instrumentality thereof. Prior to

October 4, 1991, states were authorized by SMMEA to enact legislation that either prohibited or

limited an investor's authority to purchase, hold or invest in securities issued or guaranteed by Fannie

Mae. To the best of our knowledge, 18 states currently have legislation limiting to varying extents the

ability of certain entities (in most cases, insurance companies) to invest in securities issued or

guaranteed by Fannie Mae, including the shares of Preferred Stock.

Notwithstanding the above, investors should consult their legal advisors to determine whether

and to what extent the shares of Preferred Stock constitute legal investments for such investors or are

eligible to be used as security for borrowings. The foregoing does not take into consideration the

application of statutes, regulations, orders, guidelines or agreements generally governing investments

made by a particular investor, including but not limited to ""prudent investor'' provisions, safety and

soundness conditions and percentage-of-assets limits. The regulatory authorities that administer the

legal provisions referred to above generally reserve discretion whether securities, such as the Preferred

Stock, that are otherwise acceptable for investment may be purchased or pledged by the institutions

22
subject to their jurisdiction. An institution under the jurisdiction of the Comptroller of the Currency,

the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation,

the OÇce of Thrift Supervision, the National Credit Union Administration, or any other federal or

state agency with similar authority should review any applicable regulations, policy statements and

guidelines before purchasing the Preferred Stock.

UNITED STATES TAXATION

The Preferred Stock and payments thereon are not generally exempt from taxation by the United

States or other U.S. or non-U.S. taxing jurisdictions.

In the opinion of Arnold & Porter, our special tax counsel, the following discussion correctly

describes the principal aspects of the U.S. federal income tax treatment of U.S. Persons (as deÑned

below) that are beneÑcial holders of the Preferred Stock (""Shareholders''). This discussion does not

address the U.S. federal income tax treatment of Shareholders that are not U.S. Persons. This

discussion is based on the Internal Revenue Code of 1986, as amended (""the Code''), its legislative

history, existing and proposed Treasury regulations, revenue rulings and judicial decisions, changes to

any of which subsequent to the date of this OÅering Circular may aÅect, possibly on a retroactive

basis, the tax consequences described herein.

This summary discusses only the Preferred Stock purchased in this oÅering and held as a capital

asset (within the meaning of federal tax law). This discussion does not purport to address all of the

U.S. federal income tax consequences that may be applicable to particular investors in light of their

individual circumstances or to Shareholders subject to special rules, such as dealers in securities, taxexempt organizations, life insurance companies, persons liable for alternative minimum tax, persons

that hold the Preferred Stock as part of a straddle or a hedging or conversion transaction, certain

Ñnancial institutions and certain securities traders. In all cases, investors are advised to consult their

own tax advisors regarding the U.S. federal tax consequences to them of holding, owning and disposing

of Preferred Stock, as well as any tax consequences arising under the laws of any state or other taxing

jurisdiction.

For purposes of this discussion, ""U.S. Person'' generally means (1) a citizen or individual

resident of the United States, (2) a corporation or partnership created or organized in or under the

laws of the United States or any political subdivision thereof, (3) an estate the income of which is

includible in its gross income for U.S. federal income tax purposes without regard to its source, or

(4) a trust if a court within the United States is able to exercise primary supervision over its

administration and at least one United States person has the authority to control all substantial

decisions of the trust.

Dividends

Dividends declared and paid on the Preferred Stock will be dividends for U.S. federal income tax

purposes to the extent paid out of our current or accumulated earnings and proÑts, as determined for

federal income tax purposes, and will be taxable as ordinary income. Although we expect that our

current and accumulated earnings and proÑts will be such that all dividends paid with respect to the

Preferred Stock will qualify as dividends for federal income tax purposes, we cannot guarantee that

result. Our accumulated earnings and proÑts and our current earnings and proÑts in future years will

depend in signiÑcant part on our future proÑts or losses, which we cannot accurately predict. To the

extent that the amount of any dividend paid on a share of Preferred Stock exceeds our current or

accumulated earnings and proÑts for federal income tax purposes attributable to that share, the

dividend will be treated Ñrst as a return of capital (rather than as ordinary income) and will be applied

against and reduce the Shareholder's adjusted tax basis in that share of Preferred Stock. The amount

of any such dividend in excess of the Shareholder's adjusted tax basis will then be taxed as capital

gain. For purposes of the remainder of this discussion, it is assumed that dividends paid with respect

to the Preferred Stock will constitute dividends for U.S. federal income tax purposes.

23
Dividends received by Shareholders that are corporations generally will be eligible for the 70-

percent dividends-received deduction under section 243 of the Code. The 70-percent dividendsreceived deduction will not be available with respect to a dividend received on Preferred Stock that a

Shareholder has held for 45 days or less (including the day of disposition, but excluding the day of

acquisition) during the 90-day period beginning on the day which is 45 days before the date on which

the Preferred Stock becomes ex-dividend. If the dividend is attributable to a period or periods

aggregating more than 366 days, the dividends-received deduction will be available only if the

Shareholder has held the Preferred Stock for more than 90 days (including the day of disposition, but

excluding the day of acquisition) during the 180-day period beginning 90 days before the date on

which the Preferred Stock becomes ex-dividend. The length of time that a corporate shareholder is

deemed to have held stock for these purposes is reduced by periods during which the shareholder's risk

of loss with respect to the stock is diminished by reason of the existence of certain options, contracts

to sell, short sales or other similar transactions. The aggregate dividends-received deduction allowed a

corporate shareholder cannot exceed 70 percent of its taxable income (with certain adjustments).

Moreover, the dividends-received deduction may be reduced if the stock is ""debt Ñnanced.'' Stock is

""debt Ñnanced'' if a corporate shareholder incurs indebtedness ""directly attributable'' to a ""portfolio

stock'' investment in another company, which would include an investment in the Preferred Stock.

Dispositions, Including Redemptions

Any sale, exchange, redemption (except as discussed below) or other disposition of the Preferred

Stock generally will result in taxable gain or loss equal to the diÅerence between the amount of cash

received and the Shareholder's adjusted tax basis in the Preferred Stock. Such gain or loss will be

capital gain or loss and will be long-term capital gain or loss if the holding period for the Preferred

Stock exceeds one year. Tax rates on capital gain for individual Shareholders vary depending on each

Shareholder's income and holding period for the Preferred Stock. Shareholders that are individuals

should contact their own tax advisors for more information or for the capital gains tax rate applicable

to speciÑc shares of Preferred Stock. The deduction of capital losses is subject to certain limitations.

A redemption of Preferred Stock may be treated as a dividend, rather than as payment in

exchange for the Preferred Stock, unless the redemption is ""not essentially equivalent to a dividend''

with respect to the Shareholder within the meaning of section 302(b)(1) of the Code, ""is in complete

redemption of all of the stock'' of Fannie Mae held by the Shareholder as described in section

302(b)(3) of the Code or otherwise meets the requirements of one of the other exceptions from

dividend treatment provided in section 302(b) of the Code. In applying these rules, the Shareholder

must take into account not only the Preferred Stock and other stock of Fannie Mae that it owns

directly, but also the Preferred Stock and other stock in Fannie Mae that it constructively owns within

the meaning of section 318 of the Code. Because of the complex nature of these rules, each

Shareholder should consult its tax advisor to determine whether a redemption of Preferred Stock will

be treated as a dividend or as payment in exchange for the Preferred Stock. If the redemption

payment is treated as a dividend, the rules discussed above under ""Dividends'' apply.

Information Reporting and Backup Withholding

Payments of dividends on shares of Preferred Stock held of record by U.S. Persons other than

corporations and other exempt holders are required to be reported to the IRS.

Backup withholding of U.S. federal income tax at a rate of 31 percent may apply to payments

made with respect to shares of Preferred Stock, as well as payments of proceeds from the sale of shares

of Preferred Stock, to Shareholders that are not ""exempt recipients'' and that fail to provide certain

identifying information (such as the taxpayer identiÑcation number of the Shareholder) in the

manner required. Individuals generally are not exempt recipients, whereas corporations and certain

other entities generally are exempt recipients.

24
The U.S. federal tax discussion set forth above is included for general information only

and may not be applicable depending upon a Shareholder's particular situation. Each

Shareholder should consult its own tax advisor with respect to the tax consequences to it of

the ownership and disposition of the Preferred Stock, including the tax consequences

under the tax laws of the United States, states, localities, countries other than the United

States and any other taxing jurisdiction and the possible eÅects of changes in such tax laws.

UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement (the ""Underwriting

Agreement''), Fannie Mae has agreed to sell to each of the Underwriters named below, and each of the

Underwriters, for whom Bear, Stearns & Co. Inc. and Morgan Stanley & Co. Incorporated (the

""Representatives'') are acting as representatives, has severally agreed to purchase, the number of

shares of Preferred Stock set forth opposite its name below:

Underwriter Number of Shares

Bear, Stearns & Co. Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,000,000

Morgan Stanley & Co. IncorporatedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,000,000

First Tennessee Bank National Association ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 250,000

J.P. Morgan Securities Inc.ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 250,000

Salomon Smith Barney Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 250,000

Utendahl Capital Partners, L.P. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 250,000

TotalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,000,000

In the Underwriting Agreement, the Underwriters have severally agreed, subject to the terms and

conditions set forth therein, to purchase all the Preferred Stock oÅered hereby if any is purchased.

The Representatives have advised Fannie Mae that the Underwriters propose initially to oÅer the

Preferred Stock to the public at the initial public oÅering price set forth on the cover page of this

OÅering Circular, and to certain dealers at such price less a concession not in excess of $0.30 per share.

The Underwriters may allow, and such dealers may reallow, a discount not in excess of $0.25 per share

on sales to certain other dealers. After the initial public oÅering, the public oÅering price, concession

and discount may be changed.

Fannie Mae has granted the Underwriters an option exercisable for 30 days after the date of this

OÅering Circular to purchase up to an aggregate of 750,000 additional shares of Preferred Stock solely

to cover overallotments, if any. If the Underwriters exercise their overallotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same

percentage thereof that the number of shares to be purchased by each of them, as shown in the

foregoing table, bears to the 5,000,000 shares of Preferred Stock oÅered.

Prior to this oÅering, there has been no public market for the Preferred Stock. Application has

been made to list the Preferred Stock on the New York Stock Exchange under the symbol ""FNMprG.''

Trading of the Preferred Stock on the New York Stock Exchange is expected to commence within a

thirty-day period after the initial delivery of the Preferred Stock. The Representatives have advised

Fannie Mae that they intend to make a market in the Preferred Stock prior to the commencement of

trading on the New York Stock Exchange, but are not obligated to do so and may discontinue any such

market making at any time without notice.

In the Underwriting Agreement, Fannie Mae and the Underwriters have agreed to indemnify each

other against and contribute toward certain liabilities.

The Underwriters and certain aÇliates thereof engage in transactions with and perform services

for Fannie Mae in the ordinary course of business.

25
The Underwriters may engage in certain transactions that stabilize the price of the Preferred

Stock. These transactions may include entering stabilizing bids, which means the placing of a bid or

the eÅecting of a purchase for the purpose of pegging, Ñxing or maintaining the price of the Preferred

Stock. Neither we nor the Underwriters make any representation or prediction as to the direction or

magnitude of any eÅect that the transactions described above may have on the price of the Preferred

Stock. The Underwriters are not required to engage in any of these transactions. When so doing, the

Underwriters act on their own behalf and not as our representatives. Any such transactions, if

commenced, may be discontinued at any time.

RATING

Moody's has assigned the Preferred Stock a rating of ""aa3.'' A rating of ""aa'' is the second highest

rating that Moody's assigns to preferred stock. An issue which is rated ""aa'' is considered by Moody's

to be a ""high-grade preferred stock.'' According to Moody's, this rating indicates that ""there is a

reasonable assurance the earnings and asset protection will remain relatively well maintained in the

foreseeable future.'' The numerical modiÑer ""3'' indicates that the issue ranks in the lower end of the

generic rating category of ""aa''. A security rating is not a recommendation to buy, sell or hold

securities and may be subject to revision or may be withdrawn at any time by the assigning rating

organization.

ACCOUNTANTS

The Ñnancial statements of Fannie Mae as of December 31, 1999 and 1998 and for each of the

years in the three-year period ended December 31, 1999, incorporated by reference herein, have been

included in reliance upon the report of KPMG LLP, independent certiÑed public accountants, and

upon the authority of that Ñrm as experts in accounting and auditing.

VALIDITY OF THE PREFERRED STOCK

The validity of the Preferred Stock will be passed upon for Fannie Mae by Brown & Wood LLP,

New York, New York, and for the Underwriters by Sullivan & Cromwell, Washington, D.C. Certain

U.S. federal income tax matters will be passed upon for Fannie Mae by Arnold & Porter, Washington,

D.C.

ADDITIONAL INFORMATION ABOUT FANNIE MAE

This OÅering Circular should be read only in conjunction with our Information Statement dated

March 30, 2000 (the ""Information Statement'') and the Supplement thereto dated May 15, 2000,

both of which are incorporated herein by this reference. This OÅering Circular, together with the

Information Statement and the Supplement thereto and any other documents incorporated herein by

reference, are referred to as the ""OÅering Circular.'' Any Information Statement, supplement to it, or

proxy statement published by us subsequent to the date of this OÅering Circular and prior to the

termination of the oÅering of the Preferred Stock shall be deemed to be incorporated herein by this

reference. You should rely only on the information provided or incorporated by reference in this

OÅering Circular, and you should rely only on the most current information.

You can obtain copies of any or all documents incorporated in this OÅering Circular by reference

without charge from the OÇce of Investor Relations, Fannie Mae, 3900 Wisconsin Avenue, N.W.,

Washington, D.C. 20016 (telephone: (202) 752-7115) or by accessing our World Wide Web site at

www.fanniemae.com. In addition, copies of such documents can be obtained from any of the

Underwriters. You can read the Information Statement, proxy statements and other information

concerning us at the oÇces of the New York Stock Exchange, the Chicago Stock Exchange and the

PaciÑc Exchange.

26
APPENDIX A

CERTIFICATE OF DESIGNATION OF TERMS OF

VARIABLE RATE NON-CUMULATIVE PREFERRED STOCK, SERIES G

1. Designation, Par Value and Number of Shares.

The designation of the series of preferred stock of the Federal National Mortgage Association

(""Fannie Mae'') created by this resolution shall be ""Variable Rate Non-Cumulative Preferred Stock,

Series G'' (the ""Series G Preferred Stock''), and the number of shares initially constituting the

Series G Preferred Stock is Five Million (5,000,000)1. Shares of Series G Preferred Stock will have no

par value and a stated value and liquidation preference of $50.00 per share. The Board of Directors of

Fannie Mae, or a duly authorized committee thereof, in its sole discretion, may reduce the number of

shares of Series G Preferred Stock, provided such reduction is not below the number of shares of

Series G Preferred Stock then outstanding.

2. Dividends.

(a) Holders of record of Series G Preferred Stock (each individually a ""Holder'', or collectively

the ""Holders'') will be entitled to receive, when, as and if declared by the Board of Directors of Fannie

Mae, or a duly authorized committee thereof, in its sole discretion out of funds legally available

therefor, non-cumulative quarterly cash dividends which will accrue from and including August 8,

2000 and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a

""Dividend Payment Date''), commencing September 30, 2000. If a Dividend Payment Date is not a

Business Day, the related dividend (if declared) will be paid on the next succeeding Business Day with

the same force and eÅect as though paid on the Dividend Payment Date, without any increase to

account for the period from such Dividend Payment Date through the date of actual payment. A

""Business Day'' shall mean any day other than a Saturday, Sunday, or a day on which banking

institutions in New York, New York are authorized by law to close. Dividends will be paid to Holders

on the record date Ñxed by the Board of Directors or a duly authorized committee thereof, which may

not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date.

If declared, the dividend rate for the period from and including August 8, 2000 to but excluding

September 30, 2002 will be 6.023% per annum. Thereafter, dividends will accrue at a variable per

annum rate (not greater than 11%) equal to the ""CMT Rate'' (as deÑned below) minus 0.18%,

without taking into account any adjustments pursuant to clause (c) of this Section 2. On September 30, 2002 and on September 30 every two years thereafter until redemption, the previous dividend

rate will be replaced by the then-current CMT Rate minus 0.18%. The CMT Rate for each two-year

period will be determined by Fannie Mae on the second Business Day immediately preceding the Ñrst

day of such period (each, a ""CMT Determination Date''). If declared, the initial dividend, which will

be for the ""Dividend Period'' from and including August 8, 2000 to but excluding September 30, 2000,

will be $0.4350 per share and will be payable on September 30, 2000. Thereafter, the Dividend Period

relating to a Dividend Payment Date will be the period from and including the preceding Dividend

Payment Date to but excluding the related Dividend Payment Date. If Fannie Mae redeems the

Series G Preferred Stock, the dividend that would otherwise be payable for the Dividend Period

ending on the date of redemption will be included in the redemption price of the shares redeemed and

will not be separately payable.

Dividends payable on the Series G Preferred Stock for any period greater or less than a full

Dividend Period will be computed on the basis of a 360-day year consisting of twelve 30-day months.

Dividends payable on the Series G Preferred Stock for each full Dividend Period will be computed by

dividing the per annum dividend rate by four. The amount of quarterly dividends per share will be

calculated by multiplying the preceding rate by the stated value per share of $50, the product of which

1 Plus up to 750,000 additional shares pursuant to the Underwriters' overallotment option.

A-1
will be rounded to the fourth digit after the decimal point. (If the Ñfth digit to the right of the decimal

point is Ñve or greater, the fourth digit will be rounded up by one.)

(b) The ""CMT Rate'' for any CMT Determination Date with respect to any Dividend Period will

be the rate equal to (in the following order of priority):

(1) the one-week average yield on 2-year United States Treasury securities at ""constant

maturity'' as estimated from the United States Department of the Treasury's weekly yield curve,

as published in the latest H.15(519) (as deÑned below) available on the applicable CMT

Determination Date with respect to such Dividend Period, provided that such H.15(519) was

Ñrst available not earlier than ten calendar days before such CMT Determination Date, under the

column ""Week Ending'' for the week most recently ended opposite the heading ""U.S. government

securities-Treasury Constant Maturities, 2-year.''

(2) if the latest H.15(519) available on the applicable CMT Determination Date with

respect to such Dividend Period was Ñrst available prior to ten calendar days before such CMT

Determination Date, the CMT Rate will be such 2-year United States Treasury constant maturity

rate (or other 2-year United States Treasury rate) for such CMT Determination Date as may

then be published by either the Board of Governors of the Federal Reserve System or the United

States Department of the Treasury that Fannie Mae determines to be comparable to the rate

formerly published in H.15(519).

(3) if the CMT Rate as described in clause (2) is not published by 10:00 a.m. (New York

City time) on the applicable CMT Determination Date, the CMT Rate will be calculated by

Fannie Mae and will be a yield to maturity (expressed as a bond equivalent as a decimal on the

basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) based on the

arithmetic mean of the secondary market bid prices as of approximately 3:30 p.m. (New York

City time) on such CMT Determination Date of three leading primary United States government

securities dealers in The City of New York selected by Fannie Mae (from Ñve such dealers and

eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest

quotation (or, in the event of equality, one of the lowest)) for direct noncallable Ñxed rate

obligations of the United States (""Treasury Notes'') most recently issued with an original

maturity of approximately two years and a remaining term to maturity of not less than one year.

If three or four (and not Ñve) of such dealers are quoting as described in this clause (iii), then the

CMT Rate will be based on the arithmetic mean of the bid prices obtained and neither the highest

nor lowest of such quotations will be eliminated.

(4) if fewer than three dealers selected by Fannie Mae are quoting as described in clause (3),

the CMT Rate will be calculated by Fannie Mae and will be a yield to maturity (expressed as a

bond equivalent and as a decimal on the basis of a year of 365 or 366 days, as applicable, and

applied on a daily basis) based on the arithmetic mean of the secondary market bid prices as of

approximately 3:30 p.m. (New York City time) on the applicable CMT Determination Date of

three leading primary United States government securities dealers in The City of New York

selected by Fannie Mae (from Ñve such dealers and eliminating the highest quotation (or, in the

event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of

the lowest)) for Treasury Notes with an original maturity of approximately ten years and a

remaining term to maturity closest to two years. If three or four (and not Ñve) of such dealers are

quoting as described in this clause (4), then the CMT Rate will be based on the arithmetic mean

of the bid prices obtained and neither the highest nor lowest of such quotations will be eliminated.

(5) if fewer than three dealers selected by Fannie Mae are quoting as described in clause (4),

the CMT Rate will be the CMT Rate determined on the immediately preceding CMT Determination Date.

A-2
In the case of clause (4), if two Treasury Notes with an original maturity of approximately ten

years have remaining terms to maturity equally close to two years, the quotes for the Treasury Note

with the shorter remaining term to maturity will be used.

""H.15(519)'' means the weekly statistical release designated as the H.15(519), as oÇcially

published by the Board of Governors of the Federal Reserve System.

Fannie Mae's determination of the CMT Rate and the dividend rate will be Ñnal and binding.

(c) If, prior to February 8, 2002, one or more amendments to the Internal Revenue Code of 1986,

as amended (the ""Code''), are enacted that eliminate or reduce the percentage of the dividendsreceived deduction applicable to the Series G Preferred Stock as speciÑed in section 243(a)(1) of the

Code or any successor provision thereto (the ""Dividends-Received Percentage''), certain adjustments

may be made in respect of the dividends payable by Fannie Mae, and Post Declaration Date Dividends

and Retroactive Dividends (as such terms are deÑned below) may become payable, as described below.

The amount of each dividend payable (if declared) per share of Series G Preferred Stock for

dividend payments made on or after the eÅective date of such change in the Code will be adjusted by

multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before

adjustment) by a factor, which will be the number determined in accordance with the following

formula (the ""DRD Formula''), and rounding the result to the nearest cent (with one-half cent

rounded up):

1Ó.35(1Ó.70)

1Ó.35(1ÓDRP)

For purposes of the DRD Formula, ""DRP'' means the Dividends-Received Percentage (expressed as a

decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received

Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50.

No amendment to the Code, other than a change in the percentage of the dividends-received deduction

applicable to the Series G Preferred Stock as set forth in section 243(a)(1) of the Code or any

successor provision thereto, will give rise to an adjustment. Notwithstanding the foregoing provisions,

if, with respect to any such amendment, Fannie Mae receives either an unqualiÑed opinion of

nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or

similar form of assurance from the Internal Revenue Service (the ""IRS'') to the eÅect that such an

amendment does not apply to a dividend payable on the Series G Preferred Stock, then such

amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect

to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation

amending or establishing the DRP or upon a published pronouncement of the IRS addressing such

legislation. Unless the context otherwise requires, references to dividends herein will mean dividends

as adjusted by the DRD Formula. Fannie Mae's calculation of the dividends payable as so adjusted

shall be Ñnal and not subject to review.

Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend

payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount

of the dividend payable on such Dividend Payment Date will not be increased; instead, additional

dividends (the ""Post Declaration Date Dividends''), equal to the excess, if any, of (1) the product of

the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the

DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage

applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such

Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the

next succeeding Dividend Payment Date.

If any such amendment to the Code is enacted and the reduction in the Dividends-Received

Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid

dividends on the Series G Preferred Stock (each, an ""AÅected Dividend Payment Date''), Fannie Mae

will pay (if declared) additional dividends (the ""Retroactive Dividends'') to Holders on the record

date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after

A-3
the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date

applicable to the second succeeding Dividend Payment Date following the date of enactment) or, if the

Series G Preferred Stock is called for redemption prior to such record date, to Holders on the

applicable redemption date, as the case may be, in an amount equal to the excess of (1) the product of

the dividend paid by Fannie Mae on each AÅected Dividend Payment Date and the DRD Formula

(where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received

Percentage and .50 applied to each AÅected Dividend Payment Date) over (2) the sum of the

dividend paid by Fannie Mae on each AÅected Dividend Payment Date. Fannie Mae will only make

one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing

provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualiÑed opinion

of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or

similar form of assurance from the IRS to the eÅect that such amendment does not apply to a

dividend payable on an AÅected Dividend Payment Date for the Series G Preferred Stock, then such

amendment will not result in the payment of Retroactive Dividends with respect to such AÅected

Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon

legislation amending or establishing the DRP or upon a published pronouncement of the IRS

addressing such legislation.

Notwithstanding the foregoing, no adjustment in the dividends payable by Fannie Mae shall be

made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by Fannie

Mae, in respect of the enactment of any amendment to the Code after February 8, 2002 that

eliminates or reduces the Dividends-Received Percentage.

In the event that the amount of dividends payable per share of Series G Preferred Stock is

adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive

Dividends are to be paid, Fannie Mae will cause notice of each such adjustment and, if applicable, Post

Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the

Holders of Series G Preferred Stock.

(d) No dividend (other than dividends or distributions paid in shares of, or options, warrants or

rights to subscribe for or purchase shares of, the common stock of Fannie Mae or any other stock of

Fannie Mae ranking, as to the payment of dividends and the distribution of assets upon dissolution,

liquidation or winding up of Fannie Mae, junior to the Series G Preferred Stock) may be declared or

paid or set apart for payment on Fannie Mae's common stock (or on any other stock of Fannie Mae

ranking, as to the payment of dividends, junior to the Series G Preferred Stock) unless dividends have

been declared and paid or set apart (or ordered to be set apart) on the Series G Preferred Stock for the

then current quarterly Dividend Period; provided, however, that the foregoing dividend preference

shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of

Series G Preferred Stock in the event that dividends have not been declared or paid or set apart (or

ordered to be set apart) on the Series G Preferred Stock in respect of any prior dividend period. If the

full dividend on the Series G Preferred Stock is not paid for any quarterly dividend period, the Holders

of Series G Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend

(other than those referred to above) is paid on Fannie Mae's common stock (or any other stock of

Fannie Mae ranking, as to the payment of dividends, junior to the Series G Preferred Stock) for such

Dividend Period.

(e) The Board of Directors of Fannie Mae, or a duly authorized committee thereof, may, in its

discretion, choose to pay dividends on the Series G Preferred Stock without the payment of any

dividends on Fannie Mae's common stock (or any other stock of Fannie Mae ranking, as to the

payment of dividends, junior to the Series G Preferred Stock).

(f) No full dividends shall be declared or paid or set apart for payment on any stock of Fannie

Mae ranking, as to the payment of dividends, on a parity with the Series G Preferred Stock for any

period unless full dividends have been declared and paid or set apart for payment on the Series G

Preferred Stock for the then-current quarterly Dividend Period. When dividends are not paid in full

upon the Series G Preferred Stock and all other classes or series of stock of Fannie Mae, if any,

A-4
ranking, as to the payment of dividends, on a parity with the Series G Preferred Stock, all dividends

declared upon shares of Series G Preferred Stock and all such other stock of Fannie Mae will be

declared pro rata so that the amount of dividends declared per share of Series G Preferred Stock and

all such other stock will in all cases bear to each other the same ratio that accrued dividends per share

of Series G Preferred Stock (including any adjustments in dividends payable due to changes in the

Dividends-Received Percentage but without, in the case of any noncumulative preferred stock,

accumulation of unpaid dividends for prior Dividend Periods) and such other stock bear to each other.

(g) No dividends may be declared or paid or set apart for payment on any shares of Series G

Preferred Stock if at the same time any arrears exist or default exists in the payment of dividends on

any outstanding class or series of stock of Fannie Mae ranking, as to the payment of dividends, prior

to the Series G Preferred Stock.

(h) Holders of Series G Preferred Stock will not be entitled to any dividends, whether payable in

cash or property, other than as herein provided and will not be entitled to interest, or any sum in lieu

of interest, in respect of any dividend payment.

3. Optional Redemption.

(a) The Series G Preferred Stock shall not be redeemable prior to September 30, 2002. On that

date and on September 30 every two years thereafter, subject to the notice provisions set forth in

Section 3(b) below and subject to any further limitations which may be imposed by law, Fannie Mae

may redeem the Series G Preferred Stock, in whole or in part, out of funds legally available therefor, at

the redemption price of $50.00 per share plus an amount, determined in accordance with Section 2

above, equal to the amount of the dividend (whether or not declared) for the then-current quarterly

Dividend Period accrued to but excluding the date of such redemption, including any adjustments in

dividends payable due to changes in the Dividends-Received Percentage but without accumulation of

unpaid dividends on the Series G Preferred Stock for prior Dividend Periods. If less than all of the

outstanding shares of Series G Preferred Stock are to be redeemed, Fannie Mae will select the shares

to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as

nearly as possible) or by any other method that the Board of Directors of Fannie Mae, or a duly

authorized committee thereof, in its sole discretion deems equitable.

(b) In the event Fannie Mae shall redeem any or all of the Series G Preferred Stock as aforesaid,

Fannie Mae will give notice of any such redemption to Holders of Series G Preferred Stock not less

than 30 days prior to the date Ñxed by the Board of Directors of Fannie Mae, or duly authorized

committee thereof, for such redemption. Each such notice will state: (1) the number of shares of

Series G Preferred Stock to be redeemed and, if fewer than all of the shares of Series G Preferred

Stock held by a Holder are to be redeemed, the number of shares to be redeemed from such Holder;

(2) the redemption price; (3) the redemption date; and (4) the place at which a Holder's

certiÑcate(s) representing shares of Series G Preferred Stock must be presented upon such redemption. Failure to give notice, or any defect in the notice, to any Holder of Series G Preferred Stock shall

not aÅect the validity of the proceedings for the redemption of shares of any other Holder of Series G

Preferred Stock being redeemed.

(c) Notice having been given as herein provided, from and after the redemption date, dividends

on the Series G Preferred Stock called for redemption shall cease to accrue and such Series G

Preferred Stock called for redemption will no longer be deemed outstanding, and all rights of the

Holders thereof as registered holders of such shares of Series G Preferred Stock will cease. Upon

surrender in accordance with said notice of the certiÑcate(s) representing shares of Series G Preferred

Stock so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of Fannie

Mae, or a duly authorized committee thereof, shall so require and the notice shall so state), such

shares shall be redeemed by Fannie Mae at the redemption price aforesaid. Any shares of Series G

Preferred Stock that shall at any time have been redeemed shall, after such redemption, be cancelled

and not reissued. In case fewer than all the shares represented by any such certiÑcate are redeemed, a

new certiÑcate shall be issued representing the unredeemed shares without cost to the Holder thereof.

A-5
(d) The Series G Preferred Stock will not be subject to any mandatory redemption, sinking fund

or other similar provisions. In addition, Holders of Series G Preferred Stock will have no right to

require redemption of any shares of Series G Preferred Stock.

4. Liquidation Rights.

(a) Upon any voluntary or involuntary dissolution, liquidation or winding up of Fannie Mae,

after payment or provision for the liabilities of Fannie Mae and the expenses of such dissolution,

liquidation or winding up, the Holders of outstanding shares of the Series G Preferred Stock will be

entitled to receive out of the assets of Fannie Mae or proceeds thereof available for distribution to

stockholders, before any payment or distribution of assets is made to holders of Fannie Mae's common

stock (or any other stock of Fannie Mae ranking, as to the distribution of assets upon dissolution,

liquidation or winding up of Fannie Mae, junior to the Series G Preferred Stock), the amount of

$50.00 per share plus an amount, determined in accordance with Section 2 above, equal to the

dividend (whether or not declared) for the then-current quarterly dividend period accrued to but

excluding the date of such liquidation payment, including any adjustments in dividends payable due to

changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the

Series G Preferred Stock for prior Dividend Periods.

(b) If the assets of Fannie Mae available for distribution in such event are insuÇcient to pay in

full the aggregate amount payable to Holders of Series G Preferred Stock and holders of all other

classes or series of stock of Fannie Mae, if any, ranking, as to the distribution of assets upon

dissolution, liquidation or winding up of Fannie Mae, on a parity with the Series G Preferred Stock,

the assets will be distributed to the Holders of Series G Preferred Stock and holders of all such other

stock pro rata, based on the full respective preferential amounts to which they are entitled (including

any adjustments in dividends payable due to changes in the Dividends-Received Percentage but

without, in the case of any noncumulative preferred stock, accumulation of unpaid dividends for prior

Dividend Periods).

(c) Notwithstanding the foregoing, Holders of Series G Preferred Stock will not be entitled to be

paid any amount in respect of a dissolution, liquidation or winding up of Fannie Mae until holders of

any classes or series of stock of Fannie Mae ranking, as to the distribution of assets upon dissolution,

liquidation or winding up of Fannie Mae, prior to the Series G Preferred Stock have been paid all

amounts to which such classes or series are entitled.

(d) Neither the sale, lease or exchange (for cash, shares of stock, securities or other consideration) of all or substantially all of the property and assets of Fannie Mae, nor the merger, consolidation

or combination of Fannie Mae into or with any other corporation or the merger, consolidation or

combination of any other corporation or entity into or with Fannie Mae, shall be deemed to be a

dissolution, liquidation or winding up, voluntary or involuntary, for the purposes of this Section 4.

(e) After payment of the full amount of the distribution of assets upon dissolution, liquidation or

winding up of Fannie Mae to which they are entitled pursuant to paragraphs (a), (b) and (c) of this

Section 4, the Holders of Series G Preferred Stock will not be entitled to any further participation in

any distribution of assets by Fannie Mae.

5. No Conversion Or Exchange Rights.

The Holders of shares of Series G Preferred Stock will not have any rights to convert such shares

into or exchange such shares for shares of any other class or classes, or of any other series of any class

or classes, of stock or obligations of Fannie Mae.

6. No Pre-Emptive Rights.

No Holder of Series G Preferred Stock shall be entitled as a matter of right to subscribe for or

purchase, or have any pre-emptive right with respect to, any part of any new or additional issue of

stock of any class whatsoever, or of securities convertible into any stock of any class whatsoever, or

A-6
any other shares, rights, options or other securities of any class whatsoever, whether now or hereafter

authorized and whether issued for cash or other consideration or by way of dividend.

7. Voting Rights; Amendments.

(a) Except as provided below, the Holders of Series G Preferred Stock will not be entitled to any

voting rights, either general or special.

(b) Without the consent of the Holders of Series G Preferred Stock, Fannie Mae will have the

right to amend, alter, supplement or repeal any terms of this CertiÑcate or the Series G Preferred

Stock (1) to cure any ambiguity, or to cure, correct or supplement any provision contained in this

CertiÑcate of Designation that may be defective or inconsistent with any other provision herein or

(2) to make any other provision with respect to matters or questions arising with respect to the

Series G Preferred Stock that is not inconsistent with the provisions of this CertiÑcate of Designation

so long as such action does not materially and adversely aÅect the interests of the Holders of Series G

Preferred Stock; provided, however, that any increase in the amount of authorized or issued Series G

Preferred Stock or the creation and issuance, or an increase in the authorized or issued amount, of any

other class or series of stock of Fannie Mae, whether ranking prior to, on a parity with or junior to the

Series G Preferred Stock, as to the payment of dividends or the distribution of assets upon dissolution,

liquidation or winding up of Fannie Mae, or otherwise, will not be deemed to materially and adversely

aÅect the interests of the Holders of Series G Preferred Stock.

(c) Except as set forth in paragraph (b) of this Section 7, the terms of this CertiÑcate or the

Series G Preferred Stock may be amended, altered, supplemented or repealed only with the consent of

the Holders of at least two-thirds of the shares of Series G Preferred Stock then outstanding, given in

person or by proxy, either in writing or at a meeting of stockholders at which the Holders of Series G

Preferred Stock shall vote separately as a class. On matters requiring their consent, Holders of

Series G Preferred Stock will be entitled to one vote per share.

(d) The rules and procedures for calling and conducting any meeting of Holders (including,

without limitation, the Ñxing of a record date in connection therewith), the solicitation and use of

proxies at such a meeting, the obtaining of written consents, and any other aspect or matter with

regard to such a meeting or such consents shall be governed by any rules that the Board of Directors of

Fannie Mae, or a duly authorized committee thereof, in its discretion, may adopt from time to time,

which rules and procedures shall conform to the requirements of any national securities exchange on

which the Series G Preferred Stock are listed at the time.

8. Additional Classes or Series of Stock.

The Board of Directors of Fannie Mae, or a duly authorized committee thereof, shall have the

right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more

additional classes or series of stock of Fannie Mae, and to determine and Ñx the distinguishing

characteristics and the relative rights, preferences, privileges and other terms of the shares thereof.

Any such class or series of stock may rank prior to, on a parity with or junior to the Series G Preferred

Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or

winding up of Fannie Mae, or otherwise.

9. Priority.

For purposes of this CertiÑcate of Designation, any stock of any class or series of Fannie Mae

shall be deemed to rank:

(a) Prior to the shares of Series G Preferred Stock, either as to the payment of dividends or the

distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, if the holders of such

class or series shall be entitled to the receipt of dividends or of amounts distributable upon dissolution,

liquidation or winding up of Fannie Mae, as the case may be, in preference or priority to the Holders of

shares of Series G Preferred Stock.

A-7
(b) On a parity with shares of Series G Preferred Stock, either as to the payment of dividends or

the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, whether or not

the dividend rates or amounts, dividend payment dates or redemption or liquidation prices per share,

if any, be diÅerent from those of the Series G Preferred Stock, if the holders of such class or series

shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or

winding up of Fannie Mae, as the case may be, in proportion to their respective dividend rates or

amounts or liquidation prices, without preference or priority, one over the other, as between the

holders of such class or series and the Holders of shares of Series G Preferred Stock.

(c) Junior to shares of Series G Preferred Stock, either as to the payment of dividends or the

distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, if such class shall be

common stock of Fannie Mae or if the Holders of shares of Series G Preferred Stock shall be entitled

to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of

Fannie Mae, as the case may be, in preference or priority over the holders of such class or series.

(d) The shares of Preferred Stock of Fannie Mae designated ""6.41% Non-Cumulative Preferred

Stock, Series A'' (the ""Series A Preferred Stock''), ""6.50% Non-Cumulative Preferred Stock,

Series B'' (the ""Series B Preferred Stock''), ""6.45% Non-Cumulative Preferred Stock, Series C'' (the

""Series C Preferred Stock''), ""5.25% Non-Cumulative Preferred Stock, Series D'' (the ""Series D

Preferred Stock''), ""5.10% Non-Cumulative Preferred Stock, Series E'' (the ""Series E Preferred

Stock'') and ""Variable Rate Non-Cumulative Preferred Stock, Series F'' (the ""Series F Preferred

Stock'') shall be deemed to rank on a parity with shares of Series G Preferred Stock as to the payment

of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae.

Accordingly, the holders of record of Series A Preferred Stock, the holders of record of Series B

Preferred Stock, the holders of record of Series C Preferred Stock, the holders of record of Series D

Preferred Stock, the holders of record of Series E Preferred Stock, the holders of record of Series F

Preferred Stock and the Holders of Series G Preferred Stock shall be entitled to the receipt of

dividends and of amounts distributable upon dissolution, liquidation or winding up of Fannie Mae, as

the case may be, in proportion to their respective dividend rates or amounts or liquidation prices,

without preference or priority, one over the other.

10. Transfer Agent, Dividend Disbursing Agent and Registrar.

Fannie Mae hereby appoints First Chicago Trust Company a division of EquiServe as its initial

transfer agent, dividend disbursing agent and registrar for the Series G Preferred Stock. Fannie Mae

may at any time designate an additional or substitute transfer agent, dividend disbursing agent and

registrar for the Series G Preferred Stock.

11. Notices.

Any notice provided or permitted by this CertiÑcate of Designation to be made upon, or given or

furnished to, the Holders of Series G Preferred Stock by Fannie Mae shall be made by Ñrst-class mail,

postage prepaid, to the addresses of such Holders as they appear on the books and records of Fannie

Mae. Such notice shall be deemed to have been suÇciently made upon deposit thereof in the United

States mail. Notwithstanding anything to the contrary contained herein, in the case of the suspension

of regular mail service or by reason of any other cause it shall be impracticable, in Fannie Mae's

judgment, to give notice by mail, then such notiÑcation may be made, in Fannie Mae's discretion, by

publication in a newspaper of general circulation in The City of New York or by hand delivery to the

addresses of Holders as they appear on the books and records of Fannie Mae.

Receipt and acceptance of a share or shares of the Series G Preferred Stock by or on

behalf of a Holder shall constitute the unconditional acceptance by such Holder (and all

others having beneÑcial ownership of such share or shares) of all of the terms and

provisions of this CertiÑcate of Designation. No signature or other further manifestation of

assent to the terms and provisions of this CertiÑcate of Designation shall be necessary for

its operation or eÅect as between Fannie Mae and the Holder (and all such others).

A-8
5,000,000 Shares

Variable Rate Non-Cumulative Preferred Stock, Series G

(stated value $50 per share)

OFFERING CIRCULAR

Bear, Stearns & Co. Inc.

Morgan Stanley Dean Witter

First Tennessee Bank N.A.

J.P. Morgan & Co.

Salomon Smith Barney

Utendahl Capital Partners, L.P.