OFFERING CIRCULAR

8,000,000 Shares

4.75% Non-Cumulative Preferred Stock, Series M

(stated value $50 per share)

This OÅering Circular relates to the oÅer of 8,000,000 shares of the 4.75% Non-Cumulative Preferred Stock,

Series M (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 rate of 4.75% per year will

accrue from and including June 10, 2003. We will be required to pay dividends quarterly on March 31, June 30,

September 30 and December 31 of each year, commencing September 30, 2003. 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.

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 or after June 10, 2008, we may redeem the Preferred Stock, in whole or in part, at any time or from time

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

the then-current quarterly dividend period accrued to but excluding 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.''

We will apply to list the Preferred Stock on the New York Stock Exchange (the ""NYSE'') under the symbol

""FNMprM.'' If approved for listing, we expect trading of the Preferred Stock on the NYSE 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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $50.00 $0.4375 $49.5625

Total(3)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $400,000,000 $3,500,000 $396,500,000

(1) Plus accrued dividends, if any, from June 10, 2003.

(2) Before deducting estimated expenses of $300,000.

(3) Fannie Mae has granted the Underwriters an option to purchase up to an additional 1,200,000 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 $460,000,000, $4,025,000 and $455,975,000, respectively. See ""Underwriting''.

Lehman Brothers Merrill Lynch & Co.

FTN Financial Capital Markets

Pryor, Counts & Co., Inc.

Sandler O'Neill & Partners, L.P.

Vining-Sparks IBG, L.P.

The date of this OÅering Circular is June 5, 2003.
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 for the Preferred Stock with the U.S. Securities and

Exchange Commission (the ""SEC''). The shares of Preferred Stock are ""exempted securities'' within the

meaning of the U.S. Securities Exchange Act of 1934, as amended (the ""Exchange Act''). Neither the SEC

nor any state securities commission 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.

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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3

Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5

Use of ProceedsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5

Capitalization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6

Selected Financial Information ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7

Government Regulation and Charter ActÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10

Description of the Preferred Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 14

Legality of Investment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18

United States Taxation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 19

Underwriting ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22

Rating ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23

Accountants ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23

Validity of the Preferred Stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23

Additional Information About Fannie Mae ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 23

Reconciliation of Core Business Earnings to GAAP Reported Results ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Appendix A

CertiÑcate of Designation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Appendix B

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 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Fannie Mae

Securities OÅered ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,000,000 shares (assuming the Underwriters do not exercise their

overallotment option) of 4.75% Non-Cumulative Preferred Stock,

Series M, no par value, with a stated value and liquidation

preference of $50 per share.

Dividends:

Dividend Rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.75% per annum. Non-cumulative quarterly cash dividends at the

rate of 4.75% per year will accrue from and including June 10,

2003.

Frequency of Payment ÏÏÏÏÏÏÏÏÏÏÏÏ Quarterly, when, as and if declared by the Board of Directors in its

sole discretion, but only out of funds legally available for the

payment of dividends.

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

commencing September 30, 2003.

Preferences ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 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.

Optional Redemption ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ On or after June 10, 2008, we may redeem the Preferred Stock, in

whole or in part, at any time or from time to time, at our option at

the redemption price of $50 per share plus an amount equal to the

dividend for the then-current quarterly dividend period accrued to,

but excluding the date of redemption (whether or not declared, but

without accumulation of any dividends for prior dividend periods).

Holders of Preferred Stock will have no right to require the

redemption of the Preferred Stock.

Liquidation Rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 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.

3
Voting Rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ None, except with respect to certain changes in the terms of the

Preferred Stock

Preemptive and Conversion Rights ÏÏÏÏ None

RatingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The Preferred Stock has been rated ""AA¿'' by Standard & Poor's

Ratings Group, a Division of the McGraw-Hill Companies, ""Aa3''

by Moody's Investors Service, Inc. and AA by Fitch, Inc.

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

general corporate purposes, including the repurchase of outstanding shares of our stock.

Transfer Agent, Dividend Disbursing

Agent and Registrar ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ EquiServe Trust Company, N.A.

NYSE Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ We will apply to list the Preferred Stock on the NYSE under the

symbol ""FNMprM''. If approved for listing, we expect trading on

the NYSE to commence within a thirty-day period after the initial

delivery of the Preferred Stock.

CUSIP Number ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 313586836

4
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 our Annual Report on Form 10-K

for the Ñscal year ended December 31, 2002, Ñled with the SEC on March 31, 2003 (""Form 10-K'') 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 and mortgage-related

securities from lenders, thereby replenishing their funds for additional lending. We acquire funds to purchase

these loans and mortgage-related securities 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 credit enhancements and providing technology services for originating and

underwriting loans. See ""Business'' in the Form 10-K and ""Additional Information About Fannie Mae'' in

this OÅering Circular.

Fannie Mae's principal oÇce is located at 3900 Wisconsin Avenue, NW, 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 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.

5
CAPITALIZATION

The following table sets forth our capitalization as of March 31, 2003, and it is 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), and the

issuance of the 5.125% Non-Cumulative Preferred Stock, Series L, on April 29, 2003 (the ""Series L Preferred

Stock'').

Actual

Average Average Outstanding at

Maturity Cost(1) March 31, 2003 Adjusted

(Dollars in millions)

Debentures, notes, and bonds, net:

Due within one year:

Short-term notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 mos. 1.36% $307,452 $307,452

Universal Benchmark ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 mos. 5.11 43,966 43,966

Universal Retail ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0 mos. 7.65 186 186

Universal Short-term ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 6 mos. 1.18 2,750 2,750

Universal Standard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 mos. 2.22 32,923 32,923

Other(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 0.98 8,254 8,254

Total due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 395,531 395,531

Due after one year:

Universal Benchmark ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5 yrs. 9 mos. 5.32% $292,801 $292,801

Universal Retail ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10 yrs. 8 mos. 5.43 10,730 10,730

Universal Standard ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4 yrs. 4 mos. 3.87 160,463 160,463

Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13 yrs. 4 mos. 7.94 14,395 14,395

Total due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 478,389 478,389

Total debentures, notes, and bonds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $873,920 $873,920

Stockholders' equity:

Preferred stock, $50 stated value;

100,000,000 shares authorizedÌ

61,550,000 shares issued

at March 31, 2003;

76,450,000 shares issued as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ

Series D, 3,000,000 shares issuedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 150 $ 150

Series E, 3,000,000 shares issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 150 150

Series F, 13,800,000 shares issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 690 690

Series G, 5,750,000 shares issuedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 288 288

Series H, 8,000,000 shares issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 400 400

Series I, 6,000,000 shares issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 300 300

Series J, 14,000,000 shares issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 700 700

Series K, 8,000,000 shares issuedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 400 400

Series L, 6,900,000 shares issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 345

Series M, 8,000,000 shares issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 400

Common stock, $.525 stated value, no maximum

authorizationÌ980,969,533 shares outstanding ÏÏÏÏÏÏÏÏÏÏÏÏ 593 593

Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,835 1,835

Retained earningsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30,909 30,909

Accumulated other comprehensive lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (11,612) (11,612)

24,803 25,548

Less treasury stock, at costÌ148,120,887 shares(3) ÏÏÏÏ 6,899 6,899

Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 17,904 $ 18,649

(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 stock that may be made using proceeds from the sale of the Series L Preferred

Stock or the Preferred Stock. See ""Use of Proceeds.''

We frequently issue debentures, notes, and other debt obligations, and from time to time we redeem such

debt obligations. The amount of debentures, notes, other debt obligations outstanding, and stockholders'

equity on any date subsequent to March 31, 2003 may diÅer from that shown in the table above.

6
SELECTED FINANCIAL INFORMATION

The following selected Ñnancial data includes performance measures and ratios based on our reported

results and core business earnings, a supplemental non-GAAP (generally accepted accounting principles)

measure used by management in operating our business. Our core business earnings measures are not deÑned

terms within GAAP and may not be comparable to similarly titled measures presented by other companies.

Refer to Appendix A of this OÅering Circular for a reconciliation of our non-GAAP Ñnancial measures to

GAAP results. See ""Management's Discussion and Analysis of Financial Condition and Results of OperationsÌCore Business Earnings and Business Segment Results'' in the Form 10-K for a discussion of how we

use core business earnings measures and why we believe they are helpful to investors.

The following selected Ñnancial data for the years 1998 through 2002 and for the three-month periods

ended March 31, 2003 and 2002 (which data are not covered by the independent auditors' report) have been

summarized or derived from our audited Ñnancial statements for 1998 through 2002 and from our unaudited

Ñnancial statements for the three-month periods and other Ñnancial information for such periods. The data for

the three-month periods is unaudited and includes, in the opinion of management, all adjustments (consisting

of normal recurring accruals) necessary for a fair presentation. We have reclassiÑed certain prior period

amounts to conform to our current presentation. Results reported for the interim periods are not necessarily

indicative of the results that may be expected for the full year. The data for the year ended periods should be

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

Form 10-K incorporated herein by reference.

Three Months Ended

March 31, Year Ended December 31,

2003 2002 2002 2001 2000 1999 1998

(Dollars and shares in millions, except per common share amounts)

Income Statement Data:

Interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 12,896 $ 12,576 $ 50,853 $ 49,170 $ 42,781 $ 35,495 $ 29,995

Interest expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (9,528) (10,146) (40,287) (41,080) (37,107) (30,601) (25,885)

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,368 2,430 10,566 8,090 5,674 4,894 4,110

Guaranty fee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 547 408 1,816 1,482 1,351 1,282 1,229

Fee and other income (expense), net ÏÏÏÏÏÏÏÏÏÏ 114 4 232 151 (44) 191 275

Provision for losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (23) (28) (128) (94) (122) (151) (245)

Foreclosed property income (expense) ÏÏÏÏÏÏÏÏÏ 3 6 36 16 28 24 (16)

Administrative expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (344) (290) (1,219) (1,017) (905) (800) (708)

Special contribution ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì (300) Ì Ì Ì

Purchased options expense(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (625) (787) (4,545) (37) Ì Ì Ì

Debt extinguishments, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (392) (172) (710) (524) 49 (14) (40)

Income before federal income taxes and

cumulative eÅect of change in accounting

principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,648 1,571 6,048 7,767 6,031 5,426 4,605

Provision for federal income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏ (707) (362) (1,429) (2,041) (1,583) (1,514) (1,187)

Income before cumulative eÅect of change in

accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,941 1,209 4,619 5,726 4,448 3,912 3,418

Cumulative eÅect of change in accounting

principle, net of tax eÅect(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì 168ÌÌÌ

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,941 $ 1,209 $ 4,619 $ 5,894 $ 4,448 $ 3,912 $ 3,418

Preferred stock dividendsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (30) (33) (99) (138) (121) (78) (66)

Net income available to common stockholdersÏÏÏ $ 1,911 $ 1,176 $ 4,520 $ 5,756 $ 4,327 $ 3,834 $ 3,352

Basic earnings per common share:

Earnings before cumulative eÅect of change in

accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.94 $ 1.18 $ 4.56 $ 5.58 $ 4.31 $ 3.75 $ 3.26

Cumulative eÅect of change in accounting

principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì .17ÌÌÌ

Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.94 $ 1.18 $ 4.56 $ 5.75 $ 4.31 $ 3.75 $ 3.26

7
Three Months Ended

March 31, Year Ended December 31,

2003 2002 2002 2001 2000 1999 1998

(Dollars and shares in millions, except per common share amounts)

Diluted earnings per common share:

Earnings before cumulative eÅect of change in

accounting principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.93 $ 1.17 $ 4.53 $ 5.55 $ 4.29 $ 3.72 $ 3.23

Cumulative eÅect of change in accounting

principle ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì .17ÌÌÌ

Net earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.93 $ 1.17 $ 4.53 $ 5.72 $ 4.29 $ 3.72 $ 3.23

Cash dividends per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏ $ .39 $ .33 $ 1.32 $ 1.20 $ 1.12 $ 1.08 $ .96

March 31, December 31,

2003 2002 2002 2001 2000 1999 1998

Balance Sheet Data:

Mortgage portfolio, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 823,329 $731,877 $ 797,693 $705,324 $607,551 $522,921 $415,355

Liquid assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 61,142 57,290 61,554 76,072 55,585 41,850 59,258

Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 913,264 808,122 887,515 799,948 675,224 575,308 485,146

Borrowings:

Due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 395,531 339,793 382,412 343,492 280,322 226,582 205,413

Due after one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 478,389 429,982 468,570 419,975 362,360 321,037 254,878

Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 895,360 787,369 871,227 781,830 654,386 557,679 469,693

Preferred stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,078 1,928 2,678 2,303 2,278 1,300 1,150

Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17,904 20,753 16,288 18,118 20,838 17,629 15,453

Three Months Ended

March 31, Year Ended December 31,

Core Business Earnings Data(3): 2003 2002 2002 2001 2000 1999 1998

Core business earnings(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,851 $ 1,519 $ 6,394 $ 5,367 $ 4,448 $ 3,912 $ 3,418

Core taxable-equivalent revenues(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,604 2,840 11,896 10,187 7,825 6,975 6,272

Net interest margin, taxable-equivalent basis ÏÏÏÏÏÏ 1.25% 1.15% 1.15% 1.11% 1.01% 1.01% 1.03%

Core return on average assets(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .81 .74 .76 .71 .71 .73 .78

Core return on average realized common equity(7) 28.0 25.8 26.1 25.4 25.2 25.0 25.2

Three Months Ended

March 31, December 31,

Other Data: 2003 2002 2002 2001 2000 1999 1998

Average eÅective guaranty fee rate(8) ÏÏÏÏÏÏÏÏÏÏÏ .203% .186% .191% .190% .195% .193% .202%

Credit loss ratio(9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .004 .005 .005 .006 .007 .011 .027

Administrative expense ratio(10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .073 .073 .072 .071 .072 .071 .074

EÇciency ratio(11) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9.5 10.2 10.2 10.0 11.6 11.5 11.3

Dividend payout ratioÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 20.2 28.0 29.0 20.9 26.0 28.8 29.5

Ratio of earnings to combined Ñxed charges and

preferred stock dividends(12) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.27:1 1.15:1 1.15:1 1.19:1 1.16:1 1.17:1 1.17:1

Mortgage purchases ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 132,005 $ 90,946 $ 370,641 $270,584 $154,231 $195,210 $188,448

MBS issues acquired by others(13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 203,934 106,804 478,260 344,739 105,407 174,850 220,723

Outstanding MBS(14)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,107,520 896,310 1,029,456 858,867 706,684 679,169 637,143

Weighted-average diluted common shares

outstanding ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 990 1,002 997 1,006 1,009 1,031 1,037

Return on average assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ .85% .59% .55% .78% .71% .73% .78%

Average equity to average assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.9 2.3 2.1 2.3 3.1 3.1 3.3

Return on common equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 53.6 29.1 30.2 39.8 25.6 25.2 25.2

Core capital(15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 29,517 $ 25,500 $ 28,079 $ 25,182 $ 20,827 $ 17,876 $ 15,465

Total capital(16) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 30,309 26,290 28,871 25,976 21,634 18,677 16,257

(1) Represents the change in the fair value of the time value of purchased options under FAS 133, ""Accounting for Derivative

Instruments and Hedging Activities'' (FAS 133).

(2) Represents the after-tax eÅect on income of the adoption of FAS 133 on January 1, 2001.

8
(3) Core business earnings data are non-GAAP measures management uses to track and analyze our Ñnancial performance.

See ""Management's Discussion and Analysis of Financial Condition and Results of OperationsÌCore Business Earnings

and Business Segment Results'' in the Form 10-K for additional discussion of these measures.

(4) Core business earnings is a non-GAAP measure developed by management, in conjunction with the adoption of FAS 133,

to evaluate and assess the quality of Fannie Mae's earnings from its principal business activities on a consistent basis. Core

business earnings is presented on a net of tax basis and excludes the transition adjustment from the adoption of FAS 133

and unrealized gains and losses on purchased options recorded under FAS 133, and includes purchased options premiums

amortized on a straight-line basis over the original estimated life of the option.

(5) Includes revenues net of operating losses on low-income housing tax credit limited partnerships (accounted for using the

equity method of accounting) and amortization expense of purchased options premiums, plus taxable-equivalent adjustments for tax-exempt income and investment tax credits using the applicable federal income tax rate. This is a non-GAAP

measure.

(6) Core business earnings less preferred stock dividends divided by average assets. This is a non-GAAP measure.

(7) Core business earnings less preferred stock dividends divided by average realized common stockholders' equity (common

stockholders' equity excluding accumulated other comprehensive income). This is a non-GAAP measure.

(8) Calculated based on guaranty fee and related income from outstanding MBS.

(9) Charge-oÅs, net of recoveries, and foreclosed property income (expense) as a percentage of average mortgage portfolio (on

an amortized cost basis) and average outstanding MBS.

(10) Administrative expenses as a percentage of average net mortgage portfolio and average outstanding MBS.

(11) Administrative expenses as a percentage of taxable-equivalent revenues.

(12) ""Earnings'' consists of (a) income before federal income taxes and cumulative eÅect of accounting changes and (b) Ñxed

charges. Fixed charges represent interest expense.

(13) Includes MBS and other mortgage-related securities guaranteed by Fannie Mae.

(14) Includes MBS and other mortgage-related securities guaranteed by Fannie Mae and held by investors other than Fannie

Mae.

(15) The sum of (a) the stated value of common stock, (b) the stated value of outstanding noncumulative perpetual preferred

stock, (c) paid-in capital, and (d) retained earnings, less treasury stock. Core capital represents a regulatory measure of

capital. Refer to Note 11 of the Ñnancial statements, ""Dividend Restrictions and Regulatory Capital Ratios,'' in the

Form 10-K for a discussion of core capital.

(16) The sum of (a) core capital and (b) the total allowance for loan losses and guaranty liability for MBS, less (c) the speciÑc

loss allowance. Total capital represents a regulatory measure of capital. SpeciÑc loss allowance totaled $16 million at

March 31, 2003 and 2002, respectively. SpeciÑc loss allowances totaled $19 million, $13 million, $2 million, $3 million, and

$10 million for the years ended December 31, 2002, 2001, 2000, 1999, and 1998, respectively. Refer to Note 11 of the

Ñnancial statements, ""Dividend Restrictions and Regulatory Capital Ratios,'' in the Form 10-K for a discussion of total

capital.

9
GOVERNMENT REGULATION AND CHARTER ACT

Charter Act

We were established in 1938 under Title III of the National Housing Act as a government-owned entity.

In 1954, under the Federal National Mortgage Association Charter Act, the entity became a mixed-ownership

corporate instrumentality of the United States. Under the Housing and Urban Development Act of 1968, the

entity was divided into two separate institutions, the present Fannie Mae and Ginnie Mae. Fannie Mae

became an entirely stockholder-owned corporation, organized and existing under the Charter Act. The

Charter Act provides that the corporation will continue until dissolved by an act of Congress. The Charter Act

was further amended by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (the

""1992 Act'').

Under the Charter Act, our 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.''

The Charter Act authorizes us to ""deal in'' conventional mortgage loans, and ""purchase,'' ""sell,''

""service,'' and ""lend on the security of'' such mortgages, subject to limitations on the quality of mortgages

purchased and credit enhancement requirements. Fannie Mae can act as a depositary, custodian, or Ñscal

agent ""for its own account or as Ñduciary, and for the account of others.'' The Charter Act expressly enables

Fannie Mae ""to lease, purchase, or acquire any property, real, personal, or mixed, or any interest therein, to

hold, rent, maintain, modernize, renovate, improve, use, and operate such property, and to sell, for cash or

credit, lease, or otherwise dispose of the same, at such time and in such manner as and to the extent that it

may deem necessary or appropriate.'' The Charter Act also permits Fannie Mae to ""purchase,'' ""service,''

""sell,'' ""lend on the security of'' and otherwise deal in loans or advances of credit for the purchase and

installation of home improvements (so long as the loans are secured by a lien against the property to be

improved).

Under the Charter Act, we may not originate mortgage loans or advance funds on an interim basis

pending the sale of a mortgage in the secondary market. We may not purchase loans in excess of the amount

of the current loan limits. (See ""BusinessÌFannie Mae Business StandardsÌPrincipal Balance Limits'' in

the Form 10-K). We may conduct business only in the United States, its territories and possessions, the

District of Columbia and the Commonwealth of Puerto Rico. Our activities must relate to housing, mortgages

and related Ñnancial products.

Thirteen members of our eighteen-member Board of Directors are elected by the holders of our common

stock. The President of the United States appoints the remaining Ñve members. The appointed directors must

include one person from the home building industry, one person from the mortgage lending industry, one

person from the real estate industry, and one person from a consumer or community interest organization or

who has demonstrated a career commitment to providing low-income housing. 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. All members of the Board of Directors are elected or appointed annually.

In general, the U.S. Department of Housing and Urban Development (""HUD'') and the OÇce of

Federal Housing Enterprise Oversight (""OFHEO'') oversee the activities of Fannie Mae. HUD has ""general

regulatory power'' over Fannie Mae. The 1992 Act established OFHEO to ensure that Fannie Mae is

adequately capitalized and is operating safely.

10
The Secretary of the Treasury has the authority to approve Fannie Mae's issuance of debt obligations and

mortgage-related securities. At the discretion of the Secretary of the Treasury of the United States, the U.S.

Treasury may 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 our transition from government ownership in 1968. Neither the

United States nor any agency thereof is obligated to Ñnance our operations or to assist us in any other manner.

The Federal Reserve Banks are authorized to act as depositories, custodians, and Ñscal agents for Fannie Mae,

for the Bank's own account, or as Ñduciary.

Securities we issue are ""exempt securities'' under laws administered by 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 oÅerings of our securities are not required to be Ñled with the SEC. In July 2002,

we announced our voluntary initiative to register our common stock with the SEC under Section 12(g) of the

Exchange Act. The registration of our common stock became eÅective on March 31, 2003. As a result, we will

Ñle periodic reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q,

and current reports on Form 8-K, together with any required exhibits. These Ñlings will be available on the

SEC's Electronic Data Gathering, Analysis, and Retrieval (""EDGAR'') system at www.sec.gov. Registration

of our common stock with the SEC will not impact the status of our securities (including equity, debt and

MBS) as ""exempt securities'' within the meaning of the laws administered by the SEC.

We are exempt from taxation by states, counties, municipalities, or local taxing authorities, except for

taxation by those authorities on our real property. We are not exempt from payment of federal corporate

income taxes. We also may conduct our business without regard to any qualiÑcation or similar statute in any

state of the United States, including the District of Columbia, the Commonwealth of Puerto Rico, and the

territories and possessions of the United States.

Regulatory Approval and Oversight

As a federally chartered corporation, Fannie Mae is subject to Congressional legislation and oversight and

is regulated for various purposes by HUD, OFHEO and the U.S. Department of the Treasury, to the extent

authorized by statute. In addition, the Ñnancial institutions with whom we do business are subject to extensive

federal and state law and regulation. Changes to legislation, regulations or policy that impact us or our

business partners could adversely or favorably aÅect the performance, development, or results of our business.

OFHEO, an independent oÇce within HUD, is responsible for ensuring that we are adequately

capitalized and operating safely in accordance with the 1992 Act. OFHEO conducts on-site examinations of

Fannie Mae for purposes of ensuring our Ñnancial safety and soundness. We are required to submit annual and

quarterly reports of our Ñnancial condition and operations to OFHEO. OFHEO is authorized to levy annual

assessments on Fannie Mae and the Federal Home Loan Mortgage Corporation (""Freddie Mac''), pursuant

to annual Congressional appropriations, to cover OFHEO's reasonable expenses. OFHEO's formal enforcement powers include the power to impose temporary and Ñnal cease-and-desist orders and civil monetary

penalties on us and on our directors and executive oÇcers, provided certain conditions are met. OFHEO may

use other informal supervisory tools of the type that are generally used by agencies with authority to regulate

other Ñnancial institutions. In accordance with OFHEO regulation, Fannie Mae has elected to follow the

applicable corporate governance practices and procedures of the Delaware General Corporation Law, as it

may be amended from time to time. On January 21, 2003, OFHEO proposed regulations that would require

Fannie Mae to Ñle with the SEC all reports, statements and forms relating to our common stock that are

required to be Ñled under Sections 14(a) and (c) of the Exchange Act and the rules and regulations under

those sections and require Fannie Mae's directors and oÇcers to Ñle all reports and forms relating to our

common stock that are required to be Ñled under Section 16 of the Exchange Act and the rules and

regulations under that section.

The Secretary of the Treasury has the authority to approve Fannie Mae's issuance of debt obligations and

mortgage-related securities. The General Accounting OÇce is authorized to audit the programs, activities,

receipts, expenditures, and Ñnancial transactions of Fannie Mae. The Secretary of HUD has general

regulatory authority to promulgate rules and regulations to carry out the purposes of the Charter Act,

11
excluding authority over matters granted exclusively to OFHEO. The Secretary of HUD has authority to

approve any new conventional mortgage program that is signiÑcantly diÅerent from those approved or engaged

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

Charter Act or the Secretary Ñnds that it is not in the public interest. The Secretary has adopted regulations

related to the program approval requirement. We are also required to meet certain goals established by the

Secretary of HUD to promote aÅordable housing and to serve the housing needs of those in underserved areas.

See ""BusinessÌHousing Goals'' in the Form 10-K.

Capital Requirements

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

Fannie Mae. See also ""Item 7ÌManagement's Discussion and Analysis of Financial Condition and Results of

OperationsÌLiquidity and Capital ResourcesÌCapital ResourcesÌRegulatory Environment'' in the

Form 10-K. OFHEO issued a Ñnal rule in 1996 that sets forth the minimum capital requirements for Fannie

Mae and Freddie Mac, which are to be calculated, reported, and classiÑed on a quarterly basis. We were in

compliance with the minimum capital rule as of December 31, 2002, and have been in compliance for every

reporting period since the rule became eÅective. OFHEO issued regulations in September 2001, as

subsequently amended, to establish a risk-based capital test to be used to determine the amount of total capital

Fannie Mae must hold to meet the risk-based capital standard. Fannie Mae and Freddie Mac are required to

hold enough capital to withstand a severe 10-year stress period, characterized by extreme interest-rate

movements and credit losses occurring simultaneously, plus 30 percent of that amount for management and

operations risk. The risk-based capital test evaluates combined interest-rate and credit stress for both rising

and declining interest-rate scenarios. The more stringent of these two scenarios determines the required riskbased capital. The test assumes that (1) interest rates increase or decrease by up to 600 basis points over the

Ñrst year, and remain constant at this new level for the remaining 9 years of the test; (2) severe credit

conditions apply nationwide; and (3) we acquire no new business during this period except to meet

outstanding mortgage commitments. The regulations specify that ""benchmark loss experience'' will be

combined with other assumptions and applied each quarter to our book of business to establish expected credit

losses based on the stress assumptions under the risk-based capital standard. The regulations also specify the

housing price index that OFHEO will use in connection with the standard and how the test will be used to

determine Fannie Mae's risk-based capital requirements. On March 31, 2003, OFHEO announced that

Fannie Mae complied with the risk-based capital rule as of December 31, 2002. See ""Item 7ÌManagement's

Discussion and Analysis of Financial Condition and Results of OperationsÌLiquidity and Capital ResourcesÌCapital ResourcesÌRegulatory Environment'' in the Form 10-K.

If we fail to meet the capital standards, OFHEO is permitted or required to take remedial measures,

depending on the standards we fail to meet. Compliance with the capital standards could limit operations that

require intensive use of capital and restrict our ability to repay debt or pay dividends on our common stock.

We are required to submit a capital restoration plan if we fail to meet any of the capital standards. If OFHEO

determines that we are engaging in conduct not approved by the Director of OFHEO (the ""Director'') that

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

or have securitized has decreased signiÑcantly, or if OFHEO does not approve the capital restoration plan or

determines that we have failed to make reasonable eÅorts to comply with the plan, OFHEO may take

remedial measures as if we were not meeting the capital standards we otherwise meet. The 1992 Act gives

OFHEO authority, after following prescribed procedures, to appoint a conservator if we do not meet the

critical capital level.

Dividend Restrictions

The Charter Act as amended by the 1992 Act restricts the ability of our Board of Directors to make

capital distributions, including any dividends, in the following circumstances:

‚ Fannie Mae may not pay any dividend, without the approval of OFHEO, if the dividend payment

would decrease our total capital below the risk-based capital level or our core capital below the

minimum capital level.

12
‚ If we do not meet the risk-based capital standard but do meet the minimum capital standard, we may

not make any dividend payment that would cause us to fail to meet the minimum capital standard.

‚ If we meet neither the risk-based capital standard nor the minimum capital standard but do meet the

critical capital standard established under the 1992 Act, we may make a dividend payment only if we

would not fail to meet the critical capital standard as a result of the payment and the Director approves

the payment after Ñnding that the payment satisÑes certain statutory conditions.

The Director has the authority to require us to submit a report to the Director regarding any capital

distribution we declare before we make the distribution.

13
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

us to issue up to 100,000,000 shares of preferred stock. To date, we have issued the following:

‚ 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'');

‚ 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'');

‚ on August 8, 2000, 5,750,000 shares of Variable Rate Non-Cumulative Preferred Stock, Series G

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

‚ on April 6, 2001, 8,000,000 shares of 5.81% Non-Cumulative Preferred Stock, Series H (stated value

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

‚ on October 28, 2002, 6,000,000 shares of 5.375% Non-Cumulative Preferred Stock, Series I (stated

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

‚ on November 26, 2002, 14,000,000 shares of Variable Rate Non-Cumulative Preferred Stock, Series J

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

‚ on March 18, 2003, 8,000,000 shares of Variable Rate Non-Cumulative Preferred Stock, Series K

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

‚ on April 29, 2003, 6,900,000 shares of Series L Preferred Stock.

We redeemed all of our outstanding Series A Preferred Stock on March 1, 2001, all of our outstanding

Series B Preferred Stock on February 28, 2002, and all of our outstanding Series C Preferred Stock on July 31,

2002. In this OÅering Circular, we refer to the Series D Preferred Stock through the Series L Preferred Stock

as the ""Outstanding Preferred Stock.''

The terms of the Preferred Stock will be established by a CertiÑcate of Designation of Terms of 4.75%

Non-Cumulative Preferred Stock, Series M (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 B 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 our preferred stock outstanding. The Preferred Stock will rank equally

as to the payment of dividends and the distribution of assets upon our dissolution, liquidation or winding up

with the Outstanding Preferred Stock.

14
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.

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 of our other stock or obligations

and will have no preemptive rights.

EquiServe Trust Company, N.A., 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 our books and records (the ""Holders'') will be entitled to receive, 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 dividend payments, non-cumulative, quarterly cash dividends that will accrue from and including

June 10, 2003 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, 2003, at the annual rate of $2.375 per share. 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 declared, the initial dividend, which will be for the period

from and including June 10, 2003 to but excluding September 30, 2003, will be $0.7257 per share and,

thereafter, if declared, quarterly dividends will be $0.5938 per share. After the initial dividend, 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 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. The

amount of dividends per share payable at redemption 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.)

The Preferred Stock will rank prior to our common stock 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 our common stock (or on any of our other stock

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, our common stock or any

of our other stock ranking junior to the Preferred Stock as to the payment of dividends and the distribution of

assets upon our dissolution, liquidation or winding up. When dividends are not paid in full upon the Preferred

Stock and all of our other classes or series of stock, 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 of our other such stock

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 (but without, in the case of any non-cumulative preferred stock, accumulation of

unpaid dividends for prior dividend periods) and each other stock bear to each other.

15
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 our common stock (or any of our

other stock 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 our common stock (or any of our

other stock 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 our stock 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 our stock 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 ""Regulatory Matters'' for a description of certain regulatory restrictions on our payment of

dividends.

Optional Redemption

The Preferred Stock will not be redeemable prior to June 10, 2008. On or after that date, subject to the

notice provisions set forth below and subject to any further limitations which may be imposed by law, we, at

our option, may redeem the Preferred Stock, in whole or in part, at any time or from time to time, 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

redemption, 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, we 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.

We 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, we may need the approval of the Director prior to exercising our right to

redeem shares of Preferred Stock. See ""Regulatory Matters.''

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 our liabilities 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 then-current quarterly dividend period

16
accrued to but excluding the date of such liquidation payment, but without accumulation of unpaid dividends

on the Preferred Stock for prior dividend periods, out of our assets or proceeds thereof available for

distribution to stockholders, before any payment or distribution of assets is made to holders of our common

stock (or any of our other stock ranking, as to the distribution of assets upon our dissolution, liquidation or

winding up, junior to the Preferred Stock). If our assets 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 our stock, if any, ranking, as to the distribution of assets upon our dissolution, liquidation or

winding up, 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 (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 our dissolution,

liquidation or winding up to which they are entitled, the Holders of Preferred Stock will not be entitled to any

further participation in any of our distributions of assets.

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

respect of our dissolution, liquidation or winding up until holders of any class or series of our stock ranking, as

to the distribution of our assets upon dissolution, liquidation or winding up, 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 our stock ranking prior to the Preferred Stock with respect to the

distribution of assets upon our dissolution, liquidation or winding up.

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

substantially all of our property and assets, nor our merger, consolidation or combination into or with any other

corporation, nor the merger, consolidation or combination of any other corporation or entity into or with us,

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 cash dividends if, as and when declared by the Board of

Directors. However, certain provisions of the 1992 Act may operate to restrict the ability of the Board of

Directors to declare dividends in certain circumstances. The 1992 Act established our risk-based capital,

minimum capital and critical capital requirements. OFHEO released risk-based capital regulations for us and

Freddie Mac on September 13, 2001. Until one year after the Ñnal regulations establishing the risk-based

capital test are in eÅect, a dividend may be paid without the prior approval of the Director if we meet the

minimum capital level and the dividend payment would not decrease our core capital below such level. See

""Government Regulation and Charter Act.''

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 we meet both the risk-based capital and minimum capital levels

and the dividend payment would not decrease our total capital below the risk-based capital level or our core

capital below the minimum capital level. If we meet either the risk-based capital standard or the minimum

capital standard, we may make a dividend payment without obtaining the approval of the Director only if the

dividend payment would not cause us to fail to meet another capital standard. At any time when we do not

meet the risk-based capital standard but meet the minimum capital standard, we are prohibited from making a

dividend payment that would cause us to fail to meet the minimum capital standard. If we meet neither the

risk-based capital standard nor the minimum capital standard but do meet the critical capital standard

established under the 1992 Act, we may make a dividend payment only if we 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 us to submit a report to the

Director regarding any capital distribution (including any dividend) declared by us before we make the

distribution. See ""Government Regulation and Charter Act'' and ""Management's Discussion and Analysis of

Financial Condition and Results of OperationsÌLiquidity and Capital ResourcesÌRegulatory Environment''

in the Form 10-K regarding our applicable capital standards.

17
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 our stock, whether ranking prior to, on a parity with or junior to the Preferred Stock as to dividends

or liquidation or otherwise.

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

We will apply to list the Preferred Stock on the NYSE under the symbol ""FNMprM''. If approved for

listing, we expect trading of the Preferred Stock on the NYSE to commence within a thirty-day 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 Internal Revenue Code of 1986, as amended (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)

18
(an ""investor'') is authorized to purchase, hold and invest in securities issued or guaranteed by us (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 us. 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 us,

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-ofassets 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 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 generally are subject to taxation. Therefore, you should

consider the tax consequences of owning Preferred Stock before acquiring it.

In the opinion of Dewey Ballantine LLP, 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 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, tax-exempt 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 addition, this discussion does not address taxes imposed by any state, local or foreign taxing jurisdiction. 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 U.S. Person has the authority to

control all substantial decisions of the trust.

19
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.

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 dividends-received 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.

Under recently enacted tax legislation, dividends received by individual U.S. Shareholders generally are

subject to a reduced maximum tax rate of 15 percent through December 31, 2008, after which date the rate

applicable to dividends is scheduled to return to the rate generally applicable to ordinary income. The rate

reduction does not apply to dividends received to the extent that the individual U.S. holder elects to treat the

dividends as ""investment income,'' which may be oÅset against investment expense. Furthermore, the rate

reduction does not apply to dividends that are paid to Shareholders with respect to Preferred Stock that is held

by the Shareholder for 60 days or less during the 120-day period beginning on the date which is 60 days before

the date on which the Preferred Stock becomes ex-dividend. Investors are advised to consult their own tax

advisors regarding the implications of these rules in light of their particular circumstances.

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 realized upon the

disposition 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. Under recently enacted tax legislation, long-term capital gain realized

by individual U.S. Shareholders is subject to a reduced maximum tax rate of 15 percent through

December 31, 2008, after which date the maximum rate is scheduled to return to the previously eÅective 20

percent rate. Shareholders that are individuals should contact their own tax advisors for more information or

20
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

our other stock that it owns directly, but also the Preferred Stock and our other stock 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 and payments of proceeds upon the sale or

redemption of Preferred Stock generally are required to be reported to the Internal Revenue Service except in

the case of a beneÑcial holder that is an ""exempt recipient.'' Individuals generally are not exempt recipients,

whereas corporations and certain other entities generally are exempt recipients.

Backup withholding of U.S. federal income tax may apply to payments made with respect to shares of

Preferred Stock, as well as to 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.

The U.S. federal income 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.

21
UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement (the ""Underwriting

Agreement''), we have agreed to sell to each of the underwriters named below (collectively, the ""Underwriters''), and each of the Underwriters, for whom Lehman Brothers Inc. (the ""Representative'') is acting as

representative, has severally agreed to purchase, the number of shares of Preferred Stock set forth opposite its

name below:

Underwriter Number of Shares

Lehman Brothers Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,200,000

Merrill Lynch, Pierce, Fenner & Smith

IncorporatedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,400,000

First Tennessee Bank National AssociationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 600,000

Pryor, Counts & Co., Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 600,000

Sandler O'Neill & Partners, L.P. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 600,000

Vining-Sparks IBG, L.P. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 600,000

Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,000,000

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 Representative has advised us 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 $0.2875 per share. The Underwriters may allow, and

such dealers may reallow, a discount not in excess of $0.20 per share on sales to certain other dealers. After the

initial public oÅering, the public oÅering price, concession and discount may be changed.

We have granted the Underwriters an option exercisable for 30 days after the date of this OÅering

Circular to purchase up to an aggregate of 1,200,000 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 8,000,000 shares of

Preferred Stock oÅered.

Prior to this oÅering, there has been no public market for the Preferred Stock. We will apply to list the

Preferred Stock on the NYSE under the symbol ""FNMprM.'' If accepted for listing, we expect that trading of

the Preferred Stock on the NYSE will commence within a thirty-day period after the initial delivery of the

Preferred Stock. The Representative has advised us that it intends to make a market in the Preferred Stock

prior to the commencement of trading on the NYSE, but are not obligated to do so and may discontinue any

such market making at any time without notice.

In the Underwriting Agreement, we 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 us in

the ordinary course of business.

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.

22
RATING

Standard & Poor's Ratings Group, a Division of the McGraw-Hill Companies, has assigned the Preferred

Stock a rating of ""AA¿'', Moody's Investors Service, Inc. has assigned a rating of ""Aa3,'' and Fitch, Inc. has

assigned a rating 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 audited Ñnancial statements of Fannie Mae as of December 31, 2002 and for each of the years in the

three-year period ended December 31, 2002, included in the Form 10-K, incorporated herein by reference,

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. The audit reports covering the

December 31, 2001 and 2002 Ñnancial statements refer to a change in the accounting for derivative Ñnancial

instruments.

VALIDITY OF THE PREFERRED STOCK

The validity of the Preferred Stock will be passed upon for us by Sidley Austin Brown & Wood LLP,

New York, New York, and for the Underwriters by Sullivan & Cromwell LLP, Washington, D.C. Certain

U.S. federal income tax matters will be passed upon for us by Dewey Ballantine LLP, Washington, D.C.

ADDITIONAL INFORMATION ABOUT FANNIE MAE

We are incorporating by reference in this OÅering Circular the documents listed below that we publish

from time to time. This means that we are disclosing information to you by referring you to those documents.

The documents incorporated by reference are considered part of this OÅering Circular, so you should read this

OÅering Circular, and any applicable supplements or amendments, together with those documents.

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.

The following documents are incorporated by reference in this OÅering Circular:

‚ our most recent Form 10-K;

‚ our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003; and

‚ any Form 10-K's, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (""Form 8-K'')

that we Ñle with the SEC after the date of this OÅering Circular and prior to the termination of the

oÅering of the Preferred Stock. Information we ""furnish'' to the SEC on Form 8-K shall not be

incorporated by reference in this OÅering Circular.

You may read our SEC Ñlings and other information about Fannie Mae at the oÇces of the New York

Stock Exchange, the Chicago Stock Exchange and the PaciÑc Exchange. Our SEC Ñlings also will be

available at the SEC's website at www.sec.gov. You also may read and copy any document we Ñle with the

SEC by visiting the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Please

call the SEC at 1-800-SEC-0330 for further information about the operation of the Public Reference Room.

We are providing the address of the SEC's internet site solely for the information of prospective investors. We

do not intend the internet address to be an active link. This means that information which appears on the

SEC's website is not incorporated into this OÅering Circular, except as speciÑcally stated in this OÅering

Circular.

You can obtain copies of the periodic reports we Ñle with the SEC and a copy of this OÅering Circular

without charge from our OÇce of Investor Relations, Fannie Mae, 3900 Wisconsin Avenue, NW, Washington, D.C. 20016, telephone: (202) 752-7115. The periodic reports that we Ñle with the SEC and this OÅering

Circular will be also available on our website at www.fanniemae.com. 

Other than the documents speciÑcally incorporated by reference herein, the information on our website is

not part of or incorporated by reference in this OÅering Circular.

23
Appendix A

Reconciliation of Core Business Earnings to GAAP Reported Results

Dollars and shares in millions, except per share amounts

Three Months Ended Three Months Ended

March 31, 2003 March 31, 2002

Core Core

Business Reconciling Reported Business Reconciling Reported

Earnings Items Results Earnings Items Results

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $3,368 $ Ì $3,368 $2,430 $ Ì $2,430

Purchased options amortization expense(1) ÏÏÏÏÏÏ (764) 764 Ì (310) 310 Ì

Core net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,604 764 3,368 2,120 310 2,430

Guaranty fee income (expense) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 547 Ì 547 408 Ì 408

Fee and other income (expense), net ÏÏÏÏÏÏÏÏÏÏÏ 114 Ì 114 4 Ì 4

Credit-related expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (20) Ì (20) (22) Ì (22)

Administrative expensesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (344) Ì (344) (290) Ì (290)

Purchased options expense under FAS 133(2)ÏÏÏÏ Ì (625) (625) Ì (787) (787)

Debt extinguishments, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (392) Ì (392) (172) Ì (172)

Income before federal income taxesÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,509 139 2,648 2,048 (477) 1,571

Provision for federal income taxes(3) ÏÏÏÏÏÏÏÏÏÏÏ (658) (49) (707) (529) 167 (362)

Net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $1,851 $ 90 $1,941 $1,519 $ (310) $1,209

Preferred stock dividendsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ (30) $ Ì $ (30) $ (33) $ Ì $ (33)

Core Business

Reported Results Earnings

Three Months Ended Three Months Ended

3/31/03 3/31/02 3/31/03 3/31/02

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,368 $ 2,430 $ 3,368 $ 2,430

Taxable-equivalent adjustment on tax-exempt investments(4)ÏÏÏÏÏ 123 123 123 123

Taxable-equivalent net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,491 $ 2,553 $ 3,491 $ 2,553

Purchased options amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (764) (310)

Taxable-equivalent core net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 2,727 $ 2,243

Average net investment balance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $871,939 $780,769 $871,939 $780,769

Average investment yieldÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5.94% 6.49% 5.94% 6.49%

Average borrowing cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.51% 5.36% 4.51% 5.36%

Purchased options amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0.37% 0.16%

Average core borrowing cost(5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.88% 5.52%

Net interest yield, taxable-equivalent basis(6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.60% 1.31%

Net interest margin, taxable-equivalent basis(7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1.25% 1.15%

Net interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,368 $ 2,430 $ 3,368 $ 2,430

Guaranty fee income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 547 408 547 408

Fee and other income (expense), net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 114 4 114 4

Total revenuesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,029 2,842 4,029 2,842

Investment tax credits(8) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 216 185 216 185

Tax-exempt investments(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 123 123 123 123

Total taxable-equivalent adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 339 308 339 308

Taxable-equivalent revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 4,368 $ 3,150 4,368 3,150

Purchased options amortization expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (764) (310)

Core taxable-equivalent revenues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,604 $ 2,840

A-1
(1) This amount represents the straight-line amortization of purchased options expense allocated to interest expense over

the original expected life of the options. Included in core business earnings instead of the unrealized gains and losses

on purchased options to make it consistent with the accounting for the embedded options in our callable debt and the

vast majority of our mortgages.

(2) This amount represents unrealized gains and losses on purchased options recorded in accordance with FAS 133.

(3) The reconciling item represents the net federal income tax eÅect of core business earnings adjustments based on the

applicable federal income tax rate of 35 percent.

(4) ReÖects non-GAAP adjustments to permit comparison of yields on tax-exempt and taxable assets based on a 35

percent marginal tax rate.

(5) Includes the eÅect of purchased options amortization expense allocated to interest expense over the original expected

life of the options.

(6) Annualized taxable-equivalent net interest income divided by the weighted average net investment balance.

(7) Annualized taxable-equivalent core net interest income divided by the weighted average net investment balance.

(8) Represents non-GAAP adjustments for tax credits related to losses on certain aÅordable housing tax-advantaged

equity investments and other investment tax credits using a 35 percent marginal tax rate.

A-2
APPENDIX B

CERTIFICATE OF DESIGNATION OF TERMS OF

4.75% NON-CUMULATIVE PREFERRED STOCK, SERIES M

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 ""4.75% Non-Cumulative Preferred Stock, Series M'' (the

""Series M Preferred Stock''), and the number of shares initially constituting the Series M Preferred Stock is

8,000,000*. Shares of Series M Preferred Stock will have no par value and a stated value and liquidation

preference of $50 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 M Preferred Stock, provided such reduction is

not below the number of shares of Series M Preferred Stock then outstanding.

2. Dividends.

(a) Holders of record of Series M 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 June 10, 2003 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, 2003 at the annual rate of $2.375 per share or 4.75% of the stated value and liquidation

preference of $50 per share (without taking into account any adjustments referred to in clause (b) below). 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 initial

dividend, which will be for the period from and including June 10, 2003 to but excluding September 30, 2003,

will be $0.7257 per share and will be payable on September 30, 2003 and, thereafter, if declared, quarterly

dividends will be $0.5938 per share. After the initial dividend, 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 M Preferred Stock, the dividend that

would otherwise be payable for the then-current quarterly dividend period accrued to but excluding 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 M 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. The amount of dividends

per share payable at redemption 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) 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 M 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 M Preferred Stock) unless dividends have been declared and paid or set apart (or ordered

to be set apart) on the Series M 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 M Preferred Stock in the event that dividends have not been

* Plus up to 1,200,000 additional shares pursuant to the Underwriters' overallotment option.

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declared or paid or set apart (or ordered to be set apart) on the Series M Preferred Stock in respect of any

prior dividend period. If the full dividend on the Series M Preferred Stock is not paid for any quarterly

dividend period, the Holders of Series M 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 M Preferred Stock) for

such dividend period.

(c) The Board of Directors of Fannie Mae, or a duly authorized committee thereof, may, in its

discretion, choose to pay dividends on the Series M 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 M Preferred Stock).

(d) 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 M Preferred Stock for any period unless

full dividends have been declared and paid or set apart for payment on the Series M Preferred Stock for the

then-current quarterly dividend period. When dividends are not paid in full upon the Series M Preferred Stock

and all other classes or series of stock of Fannie Mae, if any, ranking, as to the payment of dividends, on a

parity with the Series M Preferred Stock, all dividends declared upon shares of Series M 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 M 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 M Preferred Stock (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.

(e) No dividends may be declared or paid or set apart for payment on any shares of Series M 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 M Preferred

Stock.

(f) Holders of Series M 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 M Preferred Stock shall not be redeemable prior to June 10, 2008. On or after that date,

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 M Preferred Stock, in whole or in part, at any

time or from time to time, out of funds legally available therefor, at the redemption price of $50 per share plus

an amount 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, but without accumulation of unpaid

dividends on the Series M Preferred Stock for prior dividend periods. If less than all of the outstanding shares

of Series M 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 M Preferred Stock as aforesaid,

Fannie Mae will give notice of any such redemption to Holders of Series M 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 M Preferred Stock to be

redeemed and, if fewer than all of the shares of Series M 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 M

Preferred Stock must be presented upon such redemption. Failure to give notice, or any defect in the notice, to

B-2
any Holder of Series M Preferred Stock shall not aÅect the validity of the proceedings for the redemption of

shares of any other Holder of Series M Preferred Stock being redeemed.

(c) Notice having been given as herein provided, from and after the redemption date, dividends on the

Series M Preferred Stock called for redemption shall cease to accrue and such Series M 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 M Preferred Stock will cease. Upon surrender in accordance with said notice

of the certiÑcate(s) representing shares of Series M 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 M 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.

(d) The Series M Preferred Stock will not be subject to any mandatory redemption, sinking fund or

other similar provisions. In addition, Holders of Series M Preferred Stock will have no right to require

redemption of any shares of Series M 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 M 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 M Preferred Stock), the amount 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 liquidation

payment, but without accumulation of unpaid dividends on the Series M 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 M 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 M Preferred Stock, the assets will be distributed to the Holders of

Series M Preferred Stock and holders of all such other stock pro rata, based on the full respective preferential

amounts to which they are entitled (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 M 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 M 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 M Preferred Stock will not be entitled to any further participation in any distribution of

assets by Fannie Mae.

B-3
5. No Conversion or Exchange Rights.

The Holders of shares of Series M 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 M 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 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 M Preferred Stock will not be entitled to any voting

rights, either general or special.

(b) Without the consent of the Holders of Series M Preferred Stock, Fannie Mae will have the right to

amend, alter, supplement or repeal any terms of this CertiÑcate or the Series M 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 M 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 M Preferred Stock; provided, however, that any increase in the

amount of authorized or issued Series M 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 M 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 M Preferred Stock.

(c) Except as set forth in paragraph (b) of this Section 7, the terms of this CertiÑcate or the Series M

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 M 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 M Preferred Stock shall vote

separately as a class. On matters requiring their consent, Holders of Series M 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 M 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 M Preferred Stock as to the payment of dividends or

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

B-4
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 M 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 M

Preferred Stock.

(b) On a parity with shares of Series M 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 M 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

M Preferred Stock.

(c) Junior to shares of Series M 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 M 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 ""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''), ""Variable Rate Non-Cumulative Preferred Stock, Series F'' (the ""Series F

Preferred Stock''), ""Variable Rate Non-Cumulative Preferred Stock, Series G'' (the ""Series G Preferred

Stock''), ""5.81% Non-Cumulative Preferred Stock, Series H'' (the ""Series H Preferred Stock'') , ""5.375%

Non-Cumulative Preferred Stock, Series I'' (the ""Series I Preferred Stock''), ""Variable Rate NonCumulative Preferred Stock, Series J (the ""Series J Preferred Stock''), ""Variable Rate Non-Cumulative

Preferred Stock, Series K'' (the ""Series K Preferred Stock'') and ""5.125% Non-Cumulative Preferred Stock,

Series L'' (the ""Series L Preferred Stock'') shall be deemed to rank on a parity with shares of Series M

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 D Preferred Stock, the holders of

record of Series E Preferred Stock, the holders of record of Series F Preferred Stock, the holders of record of

Series G Preferred Stock, the holders of record of Series H Preferred Stock, the holders of record of Series I

Preferred Stock, the holders of record of Series J Preferred Stock, the holders of record of Series K Preferred

Stock, the holders of record of Series L Preferred Stock and the holders of record of Series M 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 EquiServe Trust Company, N.A., as its initial transfer agent, dividend

disbursing agent and registrar for the Series M Preferred Stock. Fannie Mae may at any time designate an

additional or substitute transfer agent, dividend disbursing agent and registrar for the Series M 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 M Preferred Stock by Fannie Mae shall be made by Ñrst-class mail,

B-5
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 M 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).

B-6
8,000,000 Shares

4.75% Non-Cumulative Preferred Stock, Series M

(stated value $50 per share)

OFFERING CIRCULAR

Lehman Brothers

Merrill Lynch & Co.

FTN Financial Capital Markets

Pryor, Counts & Co., Inc.

Sandler O'Neill & Partners, L.P.

Vining-Sparks IBG, L.P.